CHAPTER 1: TAXATION IN GENERAL TAXES: enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty, for the support of the government and for all public needs. TO TAX: to impose a financial charge or other levy upon a tax payer by a state or the functional equivalent of a state. Amount of tax collected by the taxing authority from the public is always greater than the amount to be expended for public purpose. COMPLIANCE COST: resulting difference; which includes labor cost and other expenses incurred in complying with tax laws and rules. HYPOTHECATION: levy of a tax for a specified end (e.g. imposing a tax on vehicles to be used on road construction rehabilitation and maintenance)
TAXATION DEFINED Governments perspective Power by which the sovereign, through its lawmaking body, raises revenue to defray the necessary expenses of the government. A way of apportioning the costs of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens.
Taxpayer’s perspective Compulsory transfer of money (or goods) from private individuals, institutions or groups to the government. It may be levied upon wealth or income, or in the form of a surcharge on prices.
Economist’s perspective Non-penal, yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received.
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.
Some Taxation related terms Tax base Assessment or determination of tax liability is based or the wealth within a jurisdiction that is liable to taxation.
Tax rate Describes burden ration, usually expressed as a percentage, at which a person, property, privileges or occupation is taxed.
Ex. Taxable income is the tax base for income tax and assessed value is the tax base for property taxes.
Important distinction when considering tax rates is to distinguish between marginal rate and effective average rate. Marginal tax rate Average rate Percent levied on Rate a taxpayer would each additional peso be taxed at, if taxing of taxable income. was done at a constant rate, instead Marginal tax rate of progressively. rises as income increases.
Impact of tax Person from whom government collects money in first instance. Refers to liability for the tax.
Incidence of tax Person who finally bears the burden of a tax.
Ex. Amount of sales tax paid may be shifted or passed on by the seller to the buyer. What is transferred is not the liability for the tax, but the tax burden. A seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment, ultimately bears the burden of the tax. Tax base erosion When traditional taxable components of the tax based are no longer representative of the economy at large, this results to demographic changes, relative changes in production, stagnation or inflationary effects. May also result from use of aggressive tax strategies by taxpayers (eg. Less than appropriate income is shown and more than deduction is claimed).
Tax pyramiding When sales taxes are applied to both inputs and outputs, thus shifting the tax burden to the ultimate consumer. In this situation, some or all stages of production are taxed, with the accumulation borne by the consumer at the point of sale. Ex. When a product is taxed at the pre-retail stage and thus, tax is imposed on successive pairs of buyers and sellers rather than only at the final sale of the product to the ultimate consumer. Violates the uniformity and neutrality principles of taxation.
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Neutral tax Tax that does not cause individuals or firms to shift their economic choices, such as to choose among different goods, inputs, locations etc. Tax structure that does not change the incentives in the market. Ex. Poll tax (e.g. Community Tax Certificate).
Statutory taxpayer Person on whom the tax is imposed by law and who paid the same even if he shifts the burden to another.
Extraterritorial taxation Tax is imposed on property/subject outside the State.
Tax exporting Shifting of a tax burden to nonresidents of a given jurisdiction. Exporting can be achieved indirectly by taxing imports or through intergovernmental transfer mechanisms.
RELEVANT THEORIES/BASES OF TAXATION (NL-BS-NS) 1. Necessity theory and lifeblood doctrine: the existence of the government is a necessity. It has the right to compel all citizens and property within its limits to pay taxes. Taxes constitute the lifeblood of the nation and are greatly needed to support the government and its widely expanding services to the people. a. b.
e.
Primary purpose for legislature in adopting measures is to generate funds for the State to finance the needs of citizenry and to advance common weal. 1 f. Granting exemptions are construed as strictissimi juris against the taxpayer and liberally in favor of taxing authority. GR: Taxation EXCEPTION: exemption from tax EXCEPTION TO EXCEPTION: if grantee is a political subdivision or instrumentality, rigid rule of construction does not apply because practical effect of exemption is to reduce the amount of money that has to be handled by the government in the course of its operation.
Revenue Neutral Taxing procedure that allows the government to still receive the same amount of money despite changes in tax laws. Government may lower taxes for one group and raise for another. This allows revenue to remain unchanged.
Should be collected without unnecessary hindrance. Claims for refund or tax credit should be exercised within the time fixed by law because the functions of an administrative body enforced to collect taxes should not be unduly delayed or hampered by incidental matters. c. Fraudulent means employed to evade payment of taxes should be stopped at the earliest stage. d. Neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm in the same manner as private persons may be made to suffer individually on account of his own negligence. PRESUMPTION: Private persons take good care of their personal affairs. EXCEPTION: government officials with respect to matters of public concern; exception to the principle of estoppel.
2.
Benefits-protection theory/theory of reciprocity/symbiotic relationship—citizen pays from his property the portion demanded in order that he may be secured in the enjoyment of the benefits of organized society. A person cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out arising from the tax.
Despite natural reluctance to surrender part of one’s income to taxing authorities, every person who is able must contribute his share in the burden of running the government. Government is expected to respond in the form of tangible and intangible benefits. BPI-FSB vs. CA HELD: If State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself at the expense of another”. It is a requirement that it be exercised in accordance of the prescribed procedure. If not, the taxpayer has a right to complain.
3.
Taxation as government violation of the non-aggression principle and the social contract theory.
Government violation of non-aggression principle—taxation wrongfully presumes that government has a higher claim on property than the owner. Taxation is theft and tax resistance is therefore legitimate. 1
The most strict right or law.
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Social contract theory—in an organized society, members agree to define and limit the rights and duties of each. Principal attribute of sovereignty is the exercise of taxing power which derives its source from the existence of the state whose social contract with its citizens obliges it to promote public interest and common good.
Purposes and effect of taxation(Six [6] Rs) 1. Raise revenues. 2. Regulatory purpose. 3. Redistribution of wealth/reduction of social inequality. 4. Repricing. 5. Resuscitate economy. 6. Representation. RAISE REVENUES—Primary purpose is REVENUE: to generate funds or property for the State to finance the needs of the citizens and to advance the common weal. Taxation is no longer a measure merely to raise revenue; taxes may be levied with a regulatory purpose as an exercise of police power of the State.
REGULATORY PURPOSE— police power may sometimes use the taxing power as an implement for the attainment of a legitimate police objective. Powell vs. Pennsylvania HELD: If massage parlors are found to be mere fronts for prostitution, they may be subjected to such onerous taxes as to practically force them to stop operating. PAL vs. Edu HELD: Law requiring owners of vehicles to pay for their registration is to raise funds for construction and maintenance of highways. Fees may be regarded as taxes even though they also sere as an instrument of regulation. If the purpose is revenue, or if revenue is one of the real and substantial purposes, exaction is called a TAX. SUMPTUARY PURPOSE OF TAXATION: non-revenue or regulatory purpose of taxation. REDISTRIBUTION OF WEALTH/REDUCITON OF SOCIAL INEQUALITY—there is an effort to apportion the costs of government among the people which in a way thwarts the undue concentration of wealth in the hands of a few individuals. PROGESSIVITY: those who are able to pay more should shoulder the bigger portion of tax burden. Taxation is now being used as an implement for exercise of the power of eminent domain.
Full reimbursement (peso for peso basis) is not necessary when the State uses taxation as an implement of eminent domain. Ex. Tax deduction does not offer full reimbursement of the senior citizen discount because it only shaves money off the taxable income resulting to a partial recovery unlike a tax credit which reduces the tax to be paid by the amount of discount. As such, it does not meet the definition of just compensation. However, amendment to the law granting senior citizen discount providing for tax deduction instead credit is not unconstitutional since the State can impose upon private establishments the burden of partly subsidizing a government program. REPRICING— taxes may be levied to address externalities. EXTERNALITIES: cost or benefit that is not transmitted through prices and is incurred by a party who was not involved as either a buyer or seller of the goods or services causing the cost or benefit. External cost Negative externality/cost of an externality
External benefit Positive/benefit of an externality
Ex: Imposition of Pigovian Tax PIGOVIAN TAX: tax levied on a market activity to correct the market outcome, if there are negative externalities associated with market activity. If there are negative externalities, social cost is not covered by the private cost of the activity which may lead to over-consumption of the product. To correct this, Pigouvian tax may be imposed (effective means to reduce incidence of bad behavior is to tax it). If there are positive externalities (public benefits from a market activity), those who receive the benefit do not pay for it and the market may under-supply the product. To correct this, Pigouvian subsidy may be given. Illustration: A tax may be imposed on cigarettes—vs. negative externality of second-hand smoke. Pollution tax—factories emitting smoke. Taxes may be used to modify consumption or employment by making some classes of transaction attractive or to protect local industries or consumers. Ex: Levying of special duties on importation 1. Dumping duty; 2. Countervailing duty; 3. Marking duty; and 4. Discriminatory or retaliatory duty.
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RESUSCITATE ECONOMY— tax may be imposed as a first aid measure to resuscitate an economy in distress. Ex: PD 1956: AD VALOREM TAX on manufactured oils and other fuel oils—for the purpose of minimizing frequent price changes by exchange rate adjustments and/or increase in world market prices of crude oil and imported petroleum products. Tax exemptions may be granted to entice investments. Reduced tax collection redounds by enticing more business investments and employment opportunities. FISCAL POLICY: taxes used to influence macroeconomic performance.
REPRESENTATION—“no taxation without representation”; no taxes should be imposed on the people but with their consent, personally or by representatives. CONSTI: all bills for raising revenue shall originate in House of Representative on theory that they are more sensitive to local needs and problems. Characteristics and requisites of taxes Characteristics 1. An enforced contribution. 2. Exacted pursuant to legislative authority. 3. Contribution being in form of money. 4. Imposed, levied and collected for the purpose of raising revenue. 5. To be used for public or governmental purposes. 6. Levied by authority which has jurisdiction over the person, property, transaction, rights and privileges. Requisites (JAPUN) 1. Person or property taxed should be within jurisdiction of taxing authority. 2. Assessment and collection of certain kinds of taxes guarantee against injustice to individuals, especially by providing notice and opportunity for hearing. 3. For public purpose. 4. Rule of taxation shall be uniform and equitable. 5. Tax must not impinge on the inherent and constitutional limitation on power of taxation. An enforced contribution—does not depend on the will or acquiescence of the taxpayer. Exacted pursuant to legislative authority—GR: power is exercised only by the legislative department except in case of valid delegations of power or when there is constitutional grant.
Contribution in the form of money—there is no law prohibiting payment in some other form of property. However, State could determine in what manner taxes should be discharged. 1. Notes of legal tender do not apply to involuntary contributions exacted by a State buy only to debts (obligations for payment of money founded on contracts, whether express or implied). 2. Statute requiring payment to be collected in gold and silver coins was sustained on 2 grounds: a. Right of each state to collect its taxes in such material as it might deem expedient. Mode in which it should be exercised, were all equally within the discretion of its legislature, except as restrained by its own constitution; and b. Legal tender act had no reference to taxes imposed by State authority, but only to debts arising out of simple contracts or contracts of specialty, which include judgments or recognizances. Imposed, levied and collected for purpose of raising revenue—taxes may have regulatory or economic purpose other than to generate funds. To be used for public or governmental purpose—it cannot be used for private purposes. Levied by authority which has jurisdiction over the person, property, transaction, rights and privileges—jurisdictional limitation has 2 questions: 1. Is there a sufficient relationship between the State exercising tax power and the object of the exercise of that power? 2. Is the degree of contact sufficient to justify the state’s imposition of a particular obligation? Nature of taxing power 1. It is inherent and legislative. Inherent GR: power to tax is an incident of sovereignty and is 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 this legislature which imposes the tax on the constituency who are to pay it. Rule of taxation shall be uniform and equitable and Congress shall evolve a
Legislative Legislature lies the discretion to determine the nature, object, extent, coverage and situs of taxation. It has the authority to prescribe a certain tax at a specific rate for a particular public purpose. Scopes of legislative power: 1. Purposes provided they are lawful and public 2. Person, property, privileges or
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progressive system of taxation. The following are manifestation of this inherent nature 1. It can be imposed even in the absence of a constitutional grant 2. Injunction is not generally available to enjoin collection of taxes 3. Taxes cannot be set-off or compensated 4. It is an unlimited or plenary power 5. It is inherent in the power to tax that State be free to select the subjects of taxation Taxing power of LGUs is not inherent because they are not sovereign units. LGU is merely an agency of the State for carrying out the objects of the government. Thus, constitutional or legislative grant is necessary before it can exercise taxing power. 2. 3. 4. 5. 6. 7.
3. 4. 5.
6. 7.
occupation to be taxed Amount or rate Kind of tax Apportionment of tax (whether tax shall be of general application or limited to a particular locality, partly general and partly local) Situs Mode or method of collection
Power to tax is primarily vested in Congress; however it may be exercised by local legislative bodies pursuant to direct authority conferred by SEC 5, ART 10 CONSTI. TAX FARMING: principle of assigning the responsibility for tax revenue collecting to private citizens or grounds was once used by other countries.
Power is not granted in the Constitution. It is not a contract between the State and its citizens. It is not political in nature. Taxes are personal. It is unlimited in range. It is imprescriptible.
Power is not granted in the Constitution—it merely constitutes limitations upon a power which would be impractical without it SEC 28(3), ART 6 CONSTI. Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, nonprofit cemeteries and all lands, buildings and improvements, actually, directly and exclusively used for religion, charitable or educational purposes shall be exempt from taxation. It is not a contract between the State and its citizens—it operates in invitum, which means that it is in no way depend on the will or contractual assent, expressed or implied, of the person taxed.
Taxes are obligations arising from law and not from contracts because of lack of consent or choice. It is not political in nature— Co Kim Chan vs. Valdes Tan Keh HELD: Internal revenue laws were continued in force during the period of enemy occupation and in effect were enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of occupied territory and not of the occupying enemy. Tax are personal—liability cannot be shifted. Rights are transmissible but obligations are not. Thus, heirs cannot be held liable beyond what they inherited for delinquent taxes of a decedent. Corporation’s tax delinquency cannot be enforced against its stockholders or related entities. A corporation is vested by law with a separate and distinct personality. However, stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears that corporate assets have been passed into their hands. Same is true if stockholders have unpaid subscriptions pursuant of the trust fund doctrine. In case of indirect taxes, shifting of the burden to tax from the seller to the buyer is not incompatible with the principle that taxes are personal liabilities. When seller passes on the tax to his buyer, he is only shifting the tax burden, but not the liability, to the buyer as part of the cost of the goods sold or services rendered. It is unlimited in range—it is not subject to any restrictions except in the discretion of the authority which exercises it. Security against its abuse is to be founded only in the responsibility of the legislature which imposes the tax on the constituency who pay it. McCulloch vs. Maryland HELD: Power to tax involves the power to destroy. Panhandle vs. Mississippi HELD: Debunked the ruling in McCullock vs. Maryland where it is held that "power to tax is not the power to destroy while this court sits”. The power to tax may include the power to destroy if it is used as an implement of the police power in discouraging and in effect ultimately prohibiting certain things or enterprises inimical to public welfare. But where the power to tax is used solely for the purpose of raising revenues, modern view is that it cannot be allowed to confiscate or destroy. It is imprescriptible—without exception, taxes being the lifeblood of the government. However, statutes may provide for prescriptive periods for the collection of particular kinds
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of taxes when government has not by express statutory provision, provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. HELD: The government is not bound by any statute of limitations, unless Congress has clearly manifested its intention that it should be so bound. Aspects of taxation 1. Aspects (LAP) 2 a. Levy 3 b. Assessment and Collection 4 c. Payment and/or exercise of remedies 2.
Grant of exemption is an exercise of power of taxation—power to tax includes power to exempt
Sound Tax System (ECCEPSD) 1. Canons of taxation. a. Equity. b. Certainty. c. Convenience. d. Economy. e. Productivity. f. Elasticity. g. Simplicity. h. Diversity. Equity—every person should pay to the government depending upon his ability to pay. Certainty—must not be arbitrary; taxpayer should know in advance how much tax he has to pay, at what time and in what form. Convenience—mode and timing must be convenient to tax payers. Economy—cost of tax collection should be lower than amount of tax collected. Productivity—tax when levied should produce sufficient revenue to the government.
Elasticity—tax system should be fairly elastic so that if at any time the government is in need of more funds, it should increase its financial resources without incurring any additional cost of collection. Simplicity—tax system should be fairly simple, plain, and intelligible to the taxpayer. Diversity—system should include a large number of taxes which are economical; government should collect revenue by levying direct and indirect taxes. 2.
Basic principles of Sound Tax System(FAT). a. Fiscal adequacy. b. Administrative feasibility. c. Theoretical justice.
Fiscal adequacy—sources of revenues must be adequate to meet government expenditures and their variations; violation of this principle will make the law unsound but still valid and not unconstitutional. Administrative feasibility--- taxes should be capable of being effectively enforced; tax policy that costs government and taxpayers more to collect that taxes generated is inherently flawed. Violation of this principle will make the law unsound but still valid and not unconstitutional. Theoretical justice—taxed must be based on the taxpayer’s ability to pay and proportional to the relative value of the property; it must be uniform and equitable and that State must evolve a progressive system of taxation. It is progressive when its rate goes up depending on the resources of peron affected. Violation of this principle will make the law unsound, invalid and unconstitutional. Taxes are not subject to compensation—Taxes cannot be offset from government obligations or liabilities due to the taxpayer 1. Taxes cannot be subject of compensation because government and taxpayer are not mutual creditors and debtors of each other. A claim for taxes is not a debt, demand, contract or judgment that is allowed to be set-off. 2. Tax and debt Tax Due to government in its sovereign capacity
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Determination of persons, property or exercises to be taxed, amount to be raised, rate to be imposed and the manner of implementation; this is exercised by the Legislature. 3 Manner of enforcing the obligation of taxes already levied upon the taxpayer; act of administration and implementation by Executive Department. 4 Compliance and/or resistance by the taxpayer; through Executive or Legislature (through suffrage or initiative/referendum) and ultimately through Judiciary.
Imposts levied by the Government for its support or some special purpose, which the government has recognized.
Debt Due to the government in its corporate capacity Sum of money due upon contract, express or implied or one which is evidenced by judgment
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However, tax in a broad sense may be a debt, so that interest on estate and inheritance may be deducted as interest on indebtedness: a. Tax and debt Tax Debt Does not proceed from contract Generally the result of the contract Obligations created by law and Obligation created by a contract governed by special laws and falsification and non-payment of such taxes impose criminal liabilities May be off-set May arise out of acts of private May not be off-set individuals Can only be imposed by public authority Can be assigned May be paid in money, property or Cannot be assigned service Generally payable in money Draw interest if stipulated or there Do not draw interest unless is default delinquent b.
ART 1200. When all requisites mentioned in ART 1279 are present, compensation takes effect by operation of law and extinguished both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Compensation may be applied if these circumstances are present: 1. Both the claim of the Government for inheritance tax and claim for estate for services rendered have already become due, demandable and fully liquidated. 2. An amount for the claim of the estate had already been appropriated by the Government by virtue of law. CIR vs. Esso Standard 6
HELD: On the ground of solution indebiti , SC allowed compensation. Obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time the payee admits the obligation to reimburse. Since the money belonging to ESSO was already in the hands of the government, although the latter ha no right whatever to the amount and indeed was bound to return it, it was neither legally nor logically possible for ESSO to be considered a debtor of the Government; and whatever other obligation ESSO might subsequently incur in favor of the Government should have to be reduced in that sum, in respect of which no interest could be charged.
Rule on non-imprisonment for non-payment of debts is not applicable. Except for community taxes/poll taxes (cedula), fraudulent non-payment of other taxes (like real estate) would be subject to imprisonment. Falsification of community tax is subject to criminal liability.
c.
There can be no off-setting; collection of tax cannot avail the results of a lawsuit against the government.
d.
Compensation had been the practice in the past can set no valid precedent. Such practice has no legal basis.
EXCEPTION: Domingo vs. Garlitos HELD: SC allowed legal compensation of tax and debt when the claim of the estate against the Government has been recognized and amount has already been appropriate for the purpose of a corresponding law. Both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation takes place by operation of law and both debts are extinguished to the concurrent amount, this:
Republic vs. Ericta and Sampaguita Pictures HELD: SC upheld the dismissal of complaint to pay the amount for alleged unpaid taxes and counter claim representing the face value of negotiable certificates of indebtedness.
DOCTRINE OF EQUITABLE RECOUPMENT: grants a right to a creditor to recover debt; debt diminishes to the extent s/he holds the debtor’s property in violation of the debtor’s legal rights. It is the legal principle that a creditor loses right to recover a debt if the creditor 5
ART 1279. In order that compensation may be proper, it is necessary: 1. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; 2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; 3. That the two debts be due; 4. That they be liquidated and demandable; 5. That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. 6 Payment to one of what is not due to him.
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illegally possess some of the debtor’s property. ( Doctrine does not apply in the Philippines.) Applied in taxation— 1. It allows a taxpayer to set off previously overpaid taxes due, even though the taxpayer is time-bared from claiming refund on previous taxes. It applies only if the Statute of Limitation has created an inequitable result. It is a defensive remedy against mitigation of damages. 2.
3.
engaging in a certain business or profession is not poll tax.
It is applicable in cases to a taxpayer who erroneously paid a tax and is later properly assessed a tax arising from the same taxable event. It allows the taxpayer to offset the tax properly assessed by the tax erroneously paid, even if the Statute of Limitations would otherwise prevent the taxpayer from recovering the earlier overpayment through a claim for refund. It can occur only when the untimely refund claim to be set off against the timely assessment occurs within the same transaction or tax year. Doctrine can only be used as a defense to an assessment made during the same transaction or tax period.
amount owned by him during the way. It is assessed at stated period determined in advance, collected at appointed times, enforced by sale of property and by imprisonment of person assessed. It is a tax in rem and judgments in proceedings is one in rem.
2.
Purpose
General, fiscal or revenue Designed to raise revenue for the general or ordinary purposes.
Classification of taxes 1. Subject matter Personal, capitation or poll Taxes of a fixed amount upon all persons or upon all persons of a certain class, resident within a specified territory, without regard to their property or occupations in which they may be engaged.
Property
Excise or privilege
Taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment. Obligation to pay is absolute and involuntary.
Charge imposed upon performance of an act, enjoyment of a privilege or engaging in an occupation.
Taxes of a specified amount upon each person performing a certain act or
It is measured by amount of property owned by the taxpayer on a given day, and not on the total
However, these do not pertain to performance of an activity, at least not to extent of equating excise with business.taxes.
Customs duties Charged upon commodities being imported or exported.
Special or regulatory Achieve social or economic goals irrespective of whether revenue is actually raised or not. Special tax is imposed for special public purpose. Money raised shall be spent only for such purpose and if such purpose has been fulfilled, remaining amount shall be placed in general funds of the government to be spent for any general purpose.
3.
Who bears the burden
Direct Imposed and absorbed by same person. Personal tax Those of a fixed amount upon all persons of a certain class within jurisdiction of the taxing power without regard to the amount of their
Direct tax Both the incidence of or liability for the payment of tax as well as impact or burden of tax falls on same person and cannot be shifted.
Indirect Tax paid by a person other than one whom it is imposed. Taxes wherein liability for payment of tax falls on one person to another. Illustration 1. VAT is payable by any person, in the course of trade and business. It is applied to each stage of production. Burden of paying the amount may be shifted on to the
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property. Ex. Franchise tax: a percentage tax imposed on franchise holders is a direct liability of the franchise grantee. Those that are exacted from the very person ho, it is intended or desired, should pay them; they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. Ex. Income tax—taxes an individual’s ability to pay based on his income or net wealth.
2.
3.
buyer, transferee or lessee of goods, properties or services. Contractor’s tax—payable by contractor but it is the owner of the building that shoulders the burden. Excise tax—liability for payment may fall from a person other than the one who actually bears the burden.
Those that are demanded, from or are paid by, one person in the expectation and intention that he can shift the burden to someone else.
Ex. VAT—substantial portion of consumer expenditures.
value of the subject being taxed.
5.
National Imposed by Congress
6.
Rate or graduation
Proportional Fixed rate regardless of tax base.
Progressive or graduated Tax rate and tax base are directly proportional.
Regressive Tax rate and tax base are inversely proportional.
Implies that tax rate progresses as affluence (income) increases.
Implies that tax rate regresses as affluence increases. PROGRESSIVE TAXES: tax imposed whereby the rate or amount of tax increases. REGRESSIVE TAXES: tax rate decreases as the amount of income increases. PROPORTIONATE TAXES: based on a fixed portion of the
Local/municipal imposed by local legislative bodies
Scope
General Imposed throughout the state or civil division for raising revenue for general purposes on the ground of general public interests.
7. 4.
Taxing authority
Specific Levied for a special purpose for the benefit of a part of a body politic resting upon the supposition that a portion of the public is specially benefited in the increase of the value of property.
Basis of amount
Specific Fixed amount by head or number or by some standard of weight or measurement. Specific Imposes a specific sum by the head or number or by some standard of weight or measurement and which requires no assessment beyond a listing and classification of the subject to be taxed.
8.
Excise Privilege tax laid upon the manufacture, sale or consumption of commodities within the country .
Ad valorem (value) Fixed proportion of value of property with respect to which taxes are assessed and require the intervention of assessors or appraisers to estimate the value of such property.
Others
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Consumption Imposed on consumable commodities and services.
Sumptuary Government levy on goods considered socially undesirable, most commonly alcohol and tobacco.
Most are flat rate taxes. Sales, excise and VAT are different forms.
Flat Charged no matter how much value. It does not change.
limitations oppressive.
SALES TAX: indirect consumption tax applied at the retail level. These are calculated by multiplying the retain price of a good or service by the tax rate. Other source of revenue/funds and impositions 1. License fees: paid for the right granted by some competent authority to do an act which, without such authority, would be illegal. It implies an imposition on the right to use or dispose of a property, purpose a business, occupation or calling or exercise a privilege. a. SEC 147, LGC: municipalities may impose and collect such reasonable fees on business and occupation, and (except professional tax) on practice of any profession or calling commensurate with cost of regulation, inspection and licensing before any person may engage in such business or occupation. b. Amount of fee is considered in determining whether for revenue or as regulation. Exemption from tax does not carry exemption from license fee. However, if license fee is substantially more than cost of regulation, it may be considered as tax and therefore covered by exemption. Authority to exact fee does not carry power to collect tax. Tax Emerges from power of taxation of State.
License fee Emerges from police power of State.
PURPOSE: generate revenue; regulation is incidental. It is not tax even if revenue is incidentally generated.
PURPOSE: regulatory to promote public welfare.
Amount
is
not
subject
to
Amount limited to regulation—cost of permit (issuance of license and
2.
provided
not
regulation) and supervision (surveillance). EXCEPTION: when imposed to nonuseful occupations.
Normally paid when business on operation. Tax cannot be bargained away except for lawful consideration.
Before commencement of business. May be bargained away with or without consideration.
Non-payment does not make business illegal. However, it may be ground for criminal prosecution, distraint and levy of properties.
Non-payment of license fee makes business illegal.
Special assessment—exaction on property levied in accordance with benefits conferred upon that property.
Taxes Levied on land, persons, property, income, business etc.
Special assessments Levied on land. Not and cannot be made a personal liability.
Personal liability of taxpayer. Based solely on benefits derived. Based on necessity and partially on benefits derived.
Of special application only as to particular time and place.
Of general application. Ordinary tax Provide the government with revenues needed for the financing of state affairs.
Refusal of citizen to pay may not be sanctioned because it would government functions.
Special assessment Finance the improvement of particular properties, with benefits of the improvement accruing or inuring to the owners who pay the assessment. Refusal to pay may hold sanctions.
3.
Fines—paid in case of violation of law.
4.
Penalty—punitive sanction for compelling timely action.
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Tax Enforced proportional contributes persons and property.
from
Imposed to raise revenue. Only government may impose.
Penalty Punishment for violation of law or acts deemed injurious. Thus, violation of tax may give rise to imposition of penalty. Imposed to regulate and rectify a conduct.
Taxation distinguished from police power and eminent domain 1. Distinctions Taxation For revenue.
Police power For promotion of general welfare.
Amount has no limit so long as it is not confiscatory.
Government and individuals may impose. General benefit to all inhabitants (e.g. protection).
5.
Toll—payment or fee exacted by the authorities for some right or privilege (e.g. passage along a road or over a bridge).
Taxes Demand of sovereignty for purpose of raising public revenue.
Toll Compensation for the use by one of another’s property.
Amount is determined by State.
Amount based on cost of property or of improvement being used.
Imposed by State.
May be imposed by either government or a private individual or entity.
No special or direct benefit is received by the taxpayer, merely general benefit of protection except in special instances.
Tariff/customs duty—impost upon goods transported from one political jurisdiction to another.
7.
Subsidy—grant of money in aid of a private enterprise deemed to promote the public welfare.
8.
Compromise penalty—amount imposed in case of a compromise involving violations of tax laws.
9.
Revenue—money which comes to a person or entity from an source or sources which includes money which comes to a government from taxes.
Intangible altruistic feeling of having done something good.
Amount depends on the value of property needed. There is just compensation.
Direct benefit results in the form of just compensation to the property owner.
Healthy economic standard of society is attained. Contracts may be impaired.
Contracts may not impaired unless taxpayers gave consideration or in case government franchise.
be the no of a
Money is taken. 6.
Should only cover the cost of regulation (e.g. issuance of license or surveillance).
Eminent domain For public purpose.
Interferes only with property rights although violation of tax laws may result to imprisonment.
Contracts may be impaired. Property other than money and choses in action. Any property, including money, which is the source, implements or proceeds of the danger to health, safety or morals.
Interferes only with property rights although violation of tax laws may result to imprisonment.
Regulates both liberty and property.
2.
Taxation may be enhanced through the exercise of police power Illustration. If under police power, local government can classify lands as residential and commercial, then, since conversion of industrial land is usually assessed on higher assessment level, tax collections are increased.
3.
Taxation may be used as an implement of the police power and eminent domain
11
Power to destroy may be included if tax is used validly as an implement of police power.
b. c.
Judicial review 1. Courts cannot review the wisdom of or advisability or expediency of a tax SC is only allowed to settle actual controversies involving rights which are legally demandable and enforceable and may not annul an act of the political departments simply because the Court feels it is unwise or impractical.
2.
Requirements of questioning constitutionality a. There must be actual controversy falling for exercise of judicial review; b. Question before Court must be ripe for adjudication; 7 c. Locus standi of a private citizen questioning the act; d. Question of constitutionality must be raised at the earlier opportunity; and e. Issue of constitutionality must be the lis mota of the case.
A private person is allowed to raise constitutional questions only if he can show that he has personally suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government, injury is fairly traceable to the challenged action and injury is likely to be redressed by a favorable action. Party must show not only that law or act is invalid butalso that he has imminent danger of sustaining some direct injury as a result of its enforcement and not merely that he suffers in some indefinite way. 3.
Moot and academic case GR: Courts decline jurisdiction on the ground of mootness EXCEPTION: Not moot and academic if: a. There is a grave violation of the Constitution;
7
Party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged; Right of appearance in a court of justice on a given question; in private suits, standing is governed by real parties in interest (SEC 2, RULE 3); REAL PARTY: party who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit. INTEREST: material interest in an issue affected by the decree. MERE INTEREST: mere interest in the question involved or mere incidental interest.
d.
Exceptional character of the situation and the paramount public interest is involved; When constitutional issue raised requires formulation of controlling principles to guide the bench, the bar and the public; and Case is capable of repetition yet evading review.
4.
Judicial proceedings not required Collection of taxes levied should be summary and interfered with as little as possible. However, taxpayers and State are not prohibited from seeking remedies from courts.
5.
Quantum of evidence: preponderance of evidence PREPONDERANCE OF EVIDENCE: weight, credit and value of the aggregate on either side; testimony adduced by one side is more credible and conclusive than that of the other.
6.
No estoppel against the government Government is not estopped by mistakes or errors of its agents. Erroneous application of the law by public officers do not bar the subsequent correct application of statutes. Principle of Estoppel does not apply when State acts to rectify mistakes, errors, irregularities or illegal acts of its officials and agents. Rule holds true even if rectification prejudices parties who had meanwhile received benefits. This is particularly true in collection of legitimate taxes due where collection has to be made whether or not there is error, complicity or plain neglect on part of collecting agents. However, this rule may be relaxed in the interest of justice and fair play, as where injustice will result to the taxpayer.
Taxpayer’s suit Citizen and taxpayer suits Plaintiff in a taxpayer’s suit Plaintiff is affected by the expenditure of public funds. Right a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use of public funds to his injury cannot be denied
Plaintiff in citizen’s suit He is but the mere instrument of public concern. In a matter of mere public right, people are real parties. It is the right, if not the duty, of every citizen to interfere and see that public offense be properly pursued and punished and that public grievance be remedied
12
DIRECT INJURY TEST: for a private individual to invoke judicial power in determining the validity of an executive or legislative action, he must have sustained direct injury and it is not sufficient that he has general interest common to all members in public.
Brushing aside technicalities Requirement of locus standi may be waived in the exercise of court discretion, where transcendental importance prompted the Court to act liberally. Requirements 1. Cases involve constitutional issues; 2. For taxpayers, there must be a claim of illegal disbursement of public funds or that tax measure is unconstitutional; 3. For voters, there must be a showing of obvious interest in the validity of election law in question; 4. For concerned citizens, there must be a showing that issues raised are for transcendental importance which must be settled early; and 5. For legislators, there must be a claim that official action complained of infringes upon their prerogatives as legislators.
Taxpayer need not be a party to the contract to challenge its validity. As long as taxes are involved, people have the right to question contracts entered into by the government.
Transcendental importance Determinants 1. Character of funds or other assets involved in the case; 2. Presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent agency or instrumentality of the government; and 3. Lack of any other party with a more direct and specific interest in raising the questions being raised.
It is not proper to implead the President as respondent GR: The President, during his actual incumbency, may not be sued in any civil or criminal case. EXCEPTION: He remains accountable to the people but he may be removed from office only by impeachment.
Decision to entertain a taxpayer’s suit is discretionary upon court.
Questioning the validity and constitutionality of statutes by a taxpayer GR: Locus standi must be present EXCEPTION: Misapplication of funds GR: Not only persons individually affected, taxpayers must have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and they may, therefore, question the constitutionality of statutes requiring expenditure of public moneys. To justify the suit, it is necessary that public funds should be involved. Requisites of taxpayer’s suit 1. Tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power; 2. Public money is being deflected to any improper purpose; and 3. Petitioner seeks to restrain respondents from wasting public funds through enforcement of an invalid or unconstitutional law. Expenditure of public funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a misapplication of such funds.
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CHAPTER 2 INHERENT LIMITATIONS ON THE POWER OF TAXATION A. THE POWER TO TAX HAS LIMITS The power to tax is an inherent power but such power must still be exercised in accordance with the inherent and constitutional limitations If there exists conflicting interest between the taxing authorities and taxpayers, it must be resolved in favor of the real purpose of taxation, which is, promotion of common good.
Test to determine existence of Public Purpose o Duty test – if it is the duty of the government to provide such thing o Promotion of General Welfare Test – if proceeds will directly promote the public’s welfare
Purposes of levying tax: o regulatory purpose o raise government revenue o support government existence o rehabilitate/stablize a threatened industry, which is affected with public interest
If purpose of the tax is not stated, it is presumed that it is created for a public purpose Examples (presumption of public purpose) o Pensions of war veterans assurance that a person’s patriotism will be acknowledged and rewarded o Unemployment relief o Support for the handicapped o Care for the aged o Scholarships for poor but deserving citizens o Tax on sugar o Oil Price Stabilization Fund oil industry is imbued with public interest, and a dramatic increase in oil prices will result to economic crisis
Violation of any or all of the above is a. equal to taking without due process b. infringement of the general principles of int’l law which form part of the law of the land
C. LEVIED FOR A PUBLIC PURPOSE Amount raised must o Inure to the benefit of the public o Used for Support of the state Some recognized object of the Government Public service
“public purpose” includes “indirect public advantage” o if an individual directly enjoys the tax, it is still valid as long as there is a link to public purpose
2 Kinds of Limitations: o Constitutional Limitation – those provided for in the Constitution o Inherent Limitations – restrictions to the power to tax attached to its nature
B. THE INHERENT LIMITATIONS (Le-N-T-Ex-Ice) 1. (Le) Levied for a public purpose 2. (N) Non-delegability of the taxing power 3. (T) Territoriality or situs of taxation 4. (Ex) Tax exemptions of the Government 5. (Ice) International Comity
You cannot use public funds to promote an individual’s interest, even if it may incidentally result to the benefit of the public Rationale: tax can be levied against one class of individuals in favor of another class; you can ruin one class while favoring the other If it is for a private purpose, it is robbery because government takes property of another and then gives it in favor of another person.
The public purpose must exist at the time the law was enacted. o Government may only use public funds for a public purpose o The existence of public purpose determines its validity, not the incidental benefit to the public
D. NON DELEGABILITY OF TAXING POWER
Source of Power People Delegation Transferred from the people to Congress Basis: delegata potestas non potest delegari.
Theories that justify the delegation:
14
o
o
Power to fill up the details- subjects of less interest in which general provision may be made, thus those who are to act under such general provision, has the power to fill up the details. Power of Contingent Legislation- what is delegated is the task of ascertaining the facts that bring its declared policy into operation.
Delegable Powers: (Ta-Em-Trea-LIA) a. (Ta) Tariff Powers-reason for its delegation is necessity. b. (Em) Emergency Power- President can exercise this power in times of war or other national emergency, as authorized by Congress through law. (Sec23(2) ArtVI, 1987 Constitution) c. (Trea) Treaty and Executive Agreement Powers-Power of President to enter in to executive agreements, and to ratify treaties. (Sec21, ArtVII, 1987 Constitution) d. (L) Local taxing power- Theory of non-delegation of legislative power does not apply in local units. Reason- LGU not sovereign entities. e. (I) Initiative and Referendumo Initiative- power of the people to propose and enact legislation without action by the legislature. o Referendum- power of the people to approve or reject any act of the legislature, and also to approve or reject legislation that the legislature has referred to them. f. (A) Administrative Matters: o Valid as regards: i. Valuation of property pursuant to fixed rules ii. Equalization of assessments by a central body iii. Collection of taxes Test to determine permissible delegation: a. Completeness test- The law must be complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate b. Sufficiency standard test -The law must fix a standard. The limits of which are sufficiently determinate and determinable to which the delegate must conform in the performance of his functions. Non-Delegable Powers: a. Selection of property or transaction to be taxed b. Determination of purposes
c. d.
Rate of taxation Rules of taxation
Prohibition on Executive Legislation and Judicial Legislation o Based on separation of powers of state. o Law-making power-legislative branch o Law-executing power- executive branch o Law-interpreting power- judicial branch
E. TERRITORIALITY OR SITUS OF TAXATION
General rule: A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercised or enjoyed. Taxation is an act of sovereignty which could only be exercised within state’s territorial boundaries. Taxes are paid for the protection and services provided by the taxing authority which could not be provided outside the territorial limits of the taxing power. Situs of taxation: situs is latin term which means “situation,” “location or place.” Determination of situs: (S-NCR-L) o (S) Subject matter of the tax- Situs may depend on what is being taxed: excise/privilege, business, occupation, person, act or activity. o (N) Nature/kind/ classification of the tax- situs may depend on what tax is being levied: income tax, import duty, sales tax or real property tax. o (C) Citizenship of the tax payer- situs may depend on which state the taxpayer is a citizen of, or probably an alien, dual citizen, stateless or refugee. o (R) Residenxe of the taxpayer- situs may depend on the residence of the taxpayer: resident, non- resident. o (L) Location of the property- situs may depend on the palce the thing or property is located: within the Philippines or outside the Philippines. F. GOVERNMENT EXEMPTION
It is a matter of public policy. o Property belonging to the State or any of its political division intended for government use and purposes is generally exempt from taxation. o express provision of law needed to satisfy the rule.
15
Always remember that “Exemption is the rule and taxation is the exception.”
o
Reasons for exemption (A-Nore-So-Re) o (A) Avoid transferring money from one pocket to another. o (Nore) No revenue. o (So) So as not to unduly impede govt functions. o (Re) Reduce amount of money to be handled.
o
Exception to the (General Rule) Exemption o The rule on the exemption of government is not absolute. o The government may tax itself. Clearly, exemption applies only to government entities which immediately and directly exercise its government powers. o GOCCs, agencies, or instrumentalities are subject to taxation under the NIRC and LGC. However, only income from proprietary activities and not from essential governmental functions are taxable.
Definition of Terms o RP (Republic of the Philippines) – corporate government entity through which the functions of government are exercised throughout the Philippines. o NG (National Government) – entire machinery of the central government as distinguished from different forms of local government o GOCC (Government-Owned and Controlled Corporations) – any agency organized as a stock or non-stock corporation o GA (Government Agency) – any of the various units of the government including a department, bureau, office, instrumentality, or GOCC, or LGU or a distinct unit therein.
The Philippines adopts the generally accepted principles on international law as part of the law of the land. The Philippines adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations.
G. INTERNATIONAL COMITY
DSE (Doctrine of Sovereign Equality) o In par parem non habet imperium or “as between equals there is no sovereign” o Foreign sovereign does not subject itself to another.
DSI (Doctrine of Sovereign Immunity) o The State cannot be sued without its consent. o The State can do no wrong. o Based on practicality because of the difficulty of enforcing tax laws.
IC (Incorporation Clause)
16
12. Voting requirement in connection with the legislative grant of tax exemption 13. Non – impairment of the jurisdiction of the Supreme court in tax cases; 14. Exemption from taxes of the revenues and assets of educational institutions, including grants, endowments, donations and contributions
CHAPTER 3 CONSTITUTIONAL LIMITATIONS
DUE PROCESS 8
The power to tax involves the power to destroy. These were the famous words penned by the great Chief Justice Marshall in 1819. As discussed in the preceding chapters, the power to tax is the strongest of all the inherent powers of the State. As being unlimited in its range, the 1987 Constitution has vested this power to the people who pay it, through their 9 representatives, the Legislature. Though the taxing power is characterized as such an 10 awesome power, it is not unconfined.
In the previous chapter, we have already discussed that taxing power, although plenary in nature, is still subject to certain limitations. Some of these limitations are not to be found in any statute, thus the term inherent limitations. In this chapter, we are now to discuss the second type of limitations of the taxing power of the State – The Constitutional Limitations on Taxation. The 1987 Philippine Constitution provides the following limitations:
1. 2. 3. 4. 5. 6. 7.
Due process; Equal protection; Freedom of speech and of the press; Non – infringement of religious freedom and worship; Non – impairment of contracts; Non – imprisonment for dent or non – payment of poll tax; Appropriations, revenue, and tariff b ills shall originate exclusively originate from the house of representatives; 8. Uniformity, equitability, and progressivity of taxation; 9. Power of Congress to delegate to the President the authority to fix tariff rates, import and export quotas, etc.; 10. Veto power of the President; 11. Tax exemption of properties actually, directly, and exclusively used for religious, charitable, and educational purposes;
No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III, 1987 Phil. Constitution)
In order that a tax statute may be validly imposed on the people, it must be lawful. In other words, a tax law passed by the Congress of the Philippines must first be constitutional. Under Section one (1) of the Bill of Rights (Art. III, 1987 Philippine Constitution), the tax law must undergo due process for it amounts to an individual’s property (though minimal) being deprived from him. The due process clause is a constitutional safeguard of the people from the government, which is the taxing authority. If so proved that the tax law is violative of this constitutionally protected right, under the principle of ubi jus ibi remedium, it shall be struck down. As in the words of Justice Bradley, “In judging what is ‘due process of law’, respect must be had to the cause and object of the taking, whether under the taxing power, the power of eminent domain, or the power of the assessment fir local improvements, or some of these; and, if found to be suitable or admissible in the special case, it will be adjudged to be ‘due process of law’, but if found 11 arbitrary, oppressive, and unjust, it may be declared to be not ‘due process of law’.”
ASPECTS OF DUE PROCESS There are two aspects under the due process clause – substantive and procedural. Substantive Due Process is the aspect which prohibits the State from encroaching on the fundamental liberties provided for by the constitution. Simply put, in order that a tax statute be constitutional, it must be reasonable, fair and just, and not be harsh nor oppressive. In the event that taxes collected, or to be collected, are confiscatory in nature, such obligation enforced upon the tax payer is violative of the due process principle, and is therefore 12 unconstitutional.
8
McCulloch v. Maryland, 17 U.S. 4 Wheat. 316 316 (1819). MCIAA v. Marcos, 330 Phil. 392, 404 (1996). 10 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 9
1111 12
Davidson v. New Orleans, 96 US 97 (1878). Reyes, et al. v. Almanzor, et al., G.R. Nos. 49839 – 46, 26 APR 1991.
17
Procedural due process, on the other hand refers to the procedural limitations 13 placed on the manner in which a law is administered, applied or enforced. It is but elementary in democratic forms of government that laws, especially those which impose a tax obligation on its citizenry, be exercised in accordance with the prescribed procedure. This is mandatory. To do otherwise shall give rise to a right which the taxpayer may use to ask the Courts its succor. The tax collector may be stopped if the taxpayer can demonstrate that the 14 law has not been observed. In a case decided by the Supreme Court, it held that due process was not observed when the trial court classified certain properties of the Roman Catholic Church were tax – exempt under the 1973 constitution where no court hearing was 15 conducted thereon.
the proper value of a taxable item or property, such act is considered as judicial in nature. Thus, due process is satisfied by giving the opportunity to the taxpayer to be heard 17 respecting such assessment.
PROCEEDINGS IN TAX CASES Due process in taxation does not mean nor require that a full blown judicial proceeding be done. Generally, such cases are settled summarily and must be interfered with 18 as little as possible. As government projects are mainly fueled by the revenue generated by taxes paid by individual taxpayers, the delay which is normally present in judicial proceedings 19 are not required in the enforcement of taxes and assessments and are frowned upon. No 20 government could exist if all litigants were permitted to delay the collection of its taxes.
RULES OF DUE PROCESS IN TAXATION The exercise of the State of its inherent power to tax its constituency must conform to the following rules:
a.) b.) c.) d.)
It must be for a public purpose; Operates uniformly to all who are under its purview; Exercised only within the jurisdiction of the duly authorized taxing authority In the assessment and collection of taxes, notice and hearing shall be provided the taxpayer to guarantee against injustice e.) Publication is not merely directory, but mandatory; f.) There must be a right to appeal given to the taxpayer in cases where it is 16 proper, being a statutory, and not a natural right.
It is good to take note, that although the taxpayer is granted the right to have due notice and hearing, such is only guaranteed when the tax to be imposed shall substantially affect him. In other words, when the tax to be imposed by the government is not one which could be changed by hearing the taxpayer, its absence does not violate the constitutional safeguard. A person’s right to due process is therefore not invaded. However, if such tax would be in the nature of an ad valorem tax which utilizes the use of assessors to ascertain 13
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 14 Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L – 28896, 17 FEB 1988. 15 Province of Abra v. Hernando, etc., et al., G.R. No. L – 49336, 31 AUG 1981. 16 Bello v. Francisco, 4 SCRA 134; Rodriguez v. Director of Prisons, 47 SCRA 153.
PRESUMPTION OF VALIDITY OF TAX LAWS; RETROACTIVITY The courts of law will not declare a statute, passed in accordance with the manner set out by the Constitution, unconstitutional for being in violation of the due process clause 21 on mere allegations by the taxpayer. Every statute passed by the Congress enjoys the presumption of validity, including tax laws. The burden of proving that the law is unconstitutional shall be borne by the taxpayer in accordance with our rules on evidence. Also, the mere fact that a tax statute is expressed to be retroactive in its application is not proof in itself that the law is unconstitutional.
EQUAL PROTECTION
No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III, 1987 Phil. Constitution)
17
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 18 Churchill and Tait v. Rafferty, 32 Phil. 580, 585, 21 DEC 1915. 19 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 20 Lorenzo v. Posadas, 64 Phil. 353, 368 18 JUN 1937. 21 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store.
18
nd
The second (2 ) constitutional limitation is found under the same provision of the 1987 Constitution as the due process clause. Aptly stated, not person shall be denied of the equal protection of laws. The equal protection clause requires that persons similarly situated 22 should be treated alike, both as to rights conferred and responsibilities imposed. It does not, however, require equal treatment of all persons, regardless of their situation. The Constitutional safeguard merely requires that all persons who are within the ambit of the statute shall be treated alike, under like circumstances and conditions, both with respect to 23 the privileges acquired and liabilities imposed.
DIMENSIONS OF TAX EQUITY AND FAIRNESS Aside from the aforementioned goals, it has been recommended that the following dimensions be considered in determining tax equity and fairness a.) b.) c.)
The power of the State to classify, in relation to taxation, property and persons to be taxed, the rates of such taxes, as well as the methods of assessment, valuation, and 24 collection is unquestioned, but is not absolute. Such classification must be based upon real and substantial differences between the persons, property or privileges, and those not taxed must bear some reasonable relation to the object or purpose of legislation or to some 25 permissible governmental policy or legitimate end of governmental action. Thus, the equality of taxation rule is not violated if classifications or distinctions made are based on 26 substantial and reasonable differences.
GOALS IN DISTRIBUTION Two different goals in distribution arise when “fairness” or “equality” are looked at, vertical and horizontal. The latter refers to the fair treatment of tax payers with the like ability to pay. It prohibits the discrimination on the grounds such as race, gender, occupation, 27 28 etc. Stated differently, those similarly situated shall be similarly taxed. Meanwhile, the former refers to the relative tax burden of tax paying units with different abilities to pay. 29 Vertical equity seeks to tax in a proportional or progressive way.
22
Ichong v. Hernandez, 101 Phil. 1155. Sison, jr. v. Ancheta, G.R. No. 59431, 25 JUL 1984. 24 Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book Store. 25 See Thomas P. Matic, Jr., Taxation in the Philippines (Vol. I, pp. 79 – 80). 26 Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book Store. 27 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 28 See AICPA Guiding Principles for Tax Equity and Fairness (2007), p. 3. 29 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store.
d.) e.)
Exchange Equity and Fairness – Taxpayers must, over the long run, receive the appropriate value for the taxes they pay; Process Equity and Fairness – Taxpayers have a voice within the tax system, are given due process and are treated with respect by the tax administrators; Time – Related Equity and Fairness – Taxes are not unduly distorted when income or wealth levels fluctuate over time; Inter – Group Equity and Fairness – No group of taxpayers is favored to the detriment of another without good cause; and, Compliance Equity and Fairness – All tax payers pay what they owe on a timely 30 basis.
REQUIREMENTS OF VALID CLASSIFICATION OR DISTINCTION As stated earlier, the State may validly classify or discriminate among its subjects so long as such is based on a rational basis. “The equal protection clause does not require the universal application of the laws, that is, that it operates on all people without distinction. 31 Such an effect might in fact sometimes result in unequal protection.” Thus, in order that a classification to be a valid one, it must conform to the following: a.) b.) c.) d.)
That it must be based on substantial distinctions; It must be germane it the purpose of the law; It must not be limited to the preexisting conditions; and, 32 It must apply equally to all members of the class.
FREEDOM OF SPEECH AND OF THE PRESS
23
No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for 30
Ibid. Cruz, I. (2000). Constitutional law (2000 ed., p. 125). Quezon City, Metro Manila, Philippines: Central Lawbook Pub. 32 Ormoc Sugar Co. Inc. v. Treasurer of Ormoc City, et al., L – 23794, 17 FEB 1968. 31
19
redress of grievances (Section 4, Article III, 1987 Constitution)
There are four (4) primary reasons why freedom of expression, which encompasses speech, the press, assembly and petition, is essential to a free society. First, the self – expression of an individual enables him to realize his full potential as a human being. Second, enlightened judgment is possible if one considers all the facts and ideas and test’s one’s own against it. It is vital to the attainment and advancement of knowledge. Third, it is necessary to our system of governance. Democratic Societies’ development and advancement is largely dependent on how well – informed its citizenry is for if it would be otherwise, the result would be tyranny and oppression. Lastly, it serves as a safeguard system of the public, developing a system of “checks and balances” against the possible corrupt practices of the 33 State.
The provision of the constitution necessarily includes the liberty of the press which is principally, although not exclusively, immunity from prior restraint and/or subsequent 34 censorship. To discuss further, it is not the censorship of the press per se which is the evil sought to be prevented. It refers to any action of the government by means of which it might prevent such free and general discussion of public matters as seems absolutely essential to 35 prepare the people for an intelligent exercise of their rights as citizens.
CURTAILMENT OF FREEDOM Briefly put, immunity is granted to the press so as to help promote and develop an informed citizenry. They exist as a vital source of public information. It sheds more light on the public and business affairs of the nation than any other instrumentality of publicity. Public opinion, as the most potent of all restraints against the corrupt actions and practices of the government, is afforded protection by nothing less than the constitution itself. A free press stands as one of the great interpreters between the government and the people. To treat it otherwise, as to subject it to taxes, would amount to suppression and abridgement of publicity results to the curtailment of press freedom and freedom of speech and of 36 expression.
It has been held though that although granted immunity from certain taxes, they can still be subject to general taxes. However, taxes that may still be validly imposed upon them must be fair, reasonable, and just, and in accordance with the person’s right to the equal protection of laws. It must not be used as a tool to abridge the freedom of press under the guise of valid tax, as when it is exercised by the state arbitrarily and capriciously, singling out the press from other businesses or if such taxes are imposed only on a select few press members. In such case, the Supreme Court has acknowledged the potential for abuse is 37 present in differential taxation of the press.
RELIGIOUS FREEDOM
No law shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship without discrimination or preference shall forever be allowed. No religious test shall be required for the free exercise of civil or political rights (Sec 5, Art. III, 1987 Philippine Constitution)
In accordance with the above stated provision, our Constitution and laws provide an exemption from taxation properties which are devoted exclusively for religious purposes. This grant of immunity of the fundamental law of the land and other tax laws were made to further realize the declared principle of the State which is The Separation of the Church and 38 the State.
The Constitutional provision, like Sec. 1 of the Bill of Rights, can be further divided in to 2 clauses: (a) the Non – Establishment clause; and (b) the Free Exercise clause.
NON – ESTABLISHMENT CLAUSE The non – establishment clause, in general, merely prohibits the State, or any of its instrumentalities and political subdivisions, from setting up a church. Necessarily, it includes prohibitions such as: a.)
The State cannot pass a law which aid nor discriminate a religion;
33
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 34 Near v. Minnesota, 283 U.S. 697, 283 U.S. 707. 35 Cooley’s Constitutional Limitations, 8th ed. P. 866 36 Ibid.
37
Robert M. Howie, Leathers v. Medlock: The Supreme Court Changes Course on Taxing the Press, 49 Wash. & Lee L. Rev. 1053 (1992), citing Minneapolis Tribune Co. v. Minnesota Commissioner of Revenue, 460 U.S. 575 (1983) 38 Sec. 6, Art II, 1987 Philippine Constitution
20
b.) c.) d.)
It cannot force a person, nor influence him, to join, remain, or to leave a church or religious sect; It cannot, openly or secretively, participate in the affairs of any religion or church; and, No tax in any amount, large or small, can be levied to support any religious activities or institutions, whatever they may be called, or whatever form they 39 may adopt to teach or practice religion.
REQUISITES FOR CONSTITUTIONALITY The wall of separation that must be maintained between church and state “is a blurred, distinct, and variable barrier depending upon the circumstances of a particular 40 41 relationship.” The case of Lemon v. Kurtzman enunciated in a three – part test to assess whether a law violates the Establishment clause: 1.) 2.) 3.)
Does the law have a secular purpose? Is the Primary effect either to advance religion or to inhibit religion? Does the law foster an excessive governmental entanglement with religion?
If any of these questions are answered in the negative, then the law becomes unconstitutional as it violates the Establishment Clause
exercise of religion. Albeit, like the press, religious groups may still be subject to general taxes depending upon the circumstances.
Properties Actua PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF CONTRACTS No law impairing the obligation of contracts shall be passed. [Section 10, Article III, Constitution] The power of taxation cannot be exercised in a manner that would impair the obligation of contracts. What is prohibited is that a taxing statute be passed that would alter the relative rights of the parties with each other. The mere fact that a tax makes the conduct of a business more expensive or makes an activity more difficult does not result in the impairment of the obligation of contracts. Contract is impaired only if the relative position of the parties to a contract (i.e. equality that is assumed when the contract was entered into) is disturbed by the operation of a taxing statute.
The obligation of a contract is impaired when its terms or conditions are changed
FREE EXERCISE CLAUSE
by law or by a party without the consent of the other, thereby weakening the
The Free Exercise clause, on the other hand, withdraws from the legislative power, state and federal, the extortion of any restraint on the free exercise of religion. It bars “governmental regulation of religious beliefs as such, prohibiting the misuse of secular governmental programs “to impede the observance of one or all religions even though the 42 burden may be characterized as being only indirect.
position or rights of the latter.
An example of impairment by law is when a later taxing statute revokes a tax exemption based on a contract. But this only applies when the tax exemption has been granted for a valid consideration.
A later statute may revoke exemption from taxation provided for in a franchise
RELIGIOUS GROUPS ARE EXEMPT TO PAY TAXES
because the Constitution provides that a franchise is subject to amendment,
Generally, religious groups, sects, and like organizations are exempt from paying taxes like Income tax, license fees, and similar taxes as it imposes a burden on the free
alteration or repeal.
39
see Everson v. Board of Education Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store. 41 403 U.S. 602 (1970) 42 See Dizon, citing Sherbert v. Verner 374 U.S. 398, 402 (1963), Braunfeld v. Brown, 366 U.S. 599, 607 (1961) 40
RULES: a. When the exemption is bilaterally agreed upon between the government and the taxpayer – it cannot be withdrawn without violating the non-impairment clause.
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b.
When it is unilaterally granted by law, and the same is withdrawn by virtue of another law – no violation. When the exemption is granted under a franchise – it may be withdrawn at any time thus, not a violation of the non-impairment of contracts
c.
Note: A latter statute may revoke exemption from taxation provided for in a franchise because the Constitution provides that a franchise is subject to amendment, alteration or repeal. [Sec. 11 Art. XII] Case Reference OPOSA vs. FACTORAN
Police power prevails over the non-impairment clause
Tolentino v. Sec. of Finance, supra: 1 issue that was raised was whether the imposition of the VAT on sales & leases on real estate by virtue of contract s entered into prior to the effectivity of the law would violate the non-impairment of contracts rule in the constitution. HELD:
LA INSULAR vs. MANCHUCA
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, the obligation of the taxpayer becomes one based on contract.
A lawful tax on a new subject or an increased tax on an old one, does not interfere
It is enough to say that parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the state. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace & good order of society.
with a contract or impairs its obligation.
The constitutional guarantee of the non-impairment clause can only invoked in the
Revenue bills shall originate exclusively from the House of Representatives
grant of tax exemption. Section 24, Article VI, Constitution - All appropriation, revenue or tariff bills, bills authorizing RULES:
an increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with
1.
2.
3.
If the exemption was granted for valuable consideration and it is granted on the basis of a contract. cannot be revoked If the exemption is granted by virtue of a contract, wherein the government enters into a contract with a private corporation cannot be revoked unilaterally by the government If the basis of the tax exemption is a franchise granted by Congress and under the franchise or the tax exemption is given to a particular holder or person can be unilaterally revoked by the government (Congress) The non-impairment clause applies only to contracts and not to a franchise. The non-impairment clause applies to taxation but not to police power and eminent domain. Furthermore, it applies only where one party is the government and the other, a private individual.
amendments. Case References Tolentino v. Secretary of Finance
The Constitution simply means that the initiative for the filing of bills must come from the House of Representatives, on the theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the local needs and problems.
It is not the law – but the revenue bill – which is required by the Constitution to originate exclusively in the House of Representatives, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole, and a distinct bill may be produced.
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The Constitution does not also prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of the bill from the House, as long as action by the Senate is withheld until receipt of said bill. [Tolentino v. Secretary of Finance]
whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00). In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them.
Presidential power to grant reprieves, commutations and pardons and remit fines and forfeitures after conviction (ART. VII, SEC. 19, 1987 CONSTITUTION) Due Process Equal Protection Uniformity Taxpayer may not be Taxpayers shall be treated alike Taxable articles, or kinds of deprived of life, liberty under like circumstances and property of the same class, or property without conditions both in the shall be taxed at the same due process of law. privileges conferred and rate. There should Notice must, liabilities imposed. therefore, be no direct therefore, be given in double taxation case of failure to pay taxes PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX Section 20, Article III, Constitution. No person shall be imprisoned for debt or non-payment of poll tax. The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other violations like falsification of community tax certificate and nonpayment of other taxes. Community Tax v. Poll Tax
Poll tax is a tax of fixed amount imposed on residents within a specific territory
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule: (1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and (2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00). The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. Section 159. Exemptions. - The following are exempt from the community tax: (1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
regardless of citizenship, business or profession. Example is community tax.
Community tax – Cities or municipalities may levy a community tax in accordance with the provisions of this article. 156 RA 7160.
Section 157. Individuals Liable to Community Tax. - (18) or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of
Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located. 164 (c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: (1) (50%) shall accrue to the general fund of the city or municipality concerned; and
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(2) (50%) shall accrue to the barangay where the tax is collected.
Tolentino v. Sec. of Finance, supra,
Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same class be taxed at the same rate. The taxing power has the
UNIFORMITY AND EQUITY IN TAXATION same class, same rate classification of taxpayers, subject or items to be taxed
authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement, it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in a similar situation.
The rule of taxation shall be uniform and equitable (Sec.28 (1), Art. III, 1987 Constitution). The tax is uniform when it operates with the same force and effect in every place where the subject of it is found. "Uniformity" means all property belonging to the same class shall be taxed alike. It does not signify an intrinsic, but simply a geographic, uniformity (Churchill & Tait vs. Conception, 34 Phil. 969). Uniformity does not require the same treatment; it simply requires reasonable basis for classification. The concept of equality in taxation requires that the apportionment of the tax burden be more or less just in the light of the taxpayer’s ability to shoulder the tax burden and if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayer’s ability to pay.
taxation & it has been repeatedly held that the inequalities which result from a singling out of 1 particular class for taxation or exception infringe no constitutional limitation. Manila Race Horse v. Dela Fuente – No arbitrary classification
it was said there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate.
The owners of boarding stables for race horses and, for that matter, the race horse owners themselves, who in the scheme of shifting may carry the taxation burden, are a class by themselves and appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed.
Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution. Equity in taxation is generally conceived in terms of liability to pay in relation to the benefits received by the taxpayer and by the public from the business or property taxed.
Uniformity v. equity in taxation
The concept of uniformity in taxation implies that all taxable articles or properties of the same class shall be taxed at the same rate. It requires the uniform application and operation, without discrimination, of the tax in every place where
It is inherent in the power to tax that the state be free to select the subjects of
the subject of the tax is found. It does not, however, require absolute identity or equality under all circumstances, but subject to reasonable classification.
Eastern Theatrical Co. Inc., vs. Alfonso The concept of equity in taxation requires that the apportionment of the tax burden be, more or less, just in the light of the taxpayer’s ability to shoulder the tax burden and, if warranted, on the basis of the benefits received from the government. Its cornerstone is the taxpayer’s ability to pay.
there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. Thus, it was held in that case, that "the fact that some places of amusement are not taxed while others, such cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is not argument at all against the equality and uniformity of tax imposition."
Case References
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The taxing power has the authority to make reasonable and natural classifications for purposes of taxation.
Uniformity – all taxable articles or kinds of property of the same class are taxed at the same rate.
PEPSI-COLA
BOTTLING
CO.
OF
THE
PHILS.,
INC.
vs.
CITY
OF
BUTUAN
FACTS: The ordinance imposes taxes for every case of soft drinks, liquors and other carbonated beverages, regardless of the volume of sales, shipped to the agents and/or consignees by outside dealers or any person or company having its actual business outside the City.
Equitability – the burden falls to those who are more capable to pay. Progressivity – rate increases as the tax base increases.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation? HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: o
(1) it is based upon substantial distinctions which make real differences;
o
(2) these are germane to the purpose of the legislation or ordinance;
o
(3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and
o
(4) the classification applies equally to all those who belong to the same class.
Summary and Q&A Uniformity, Equitability And Progressivity Of Taxation (Art. VI, Sec. 28(1), 1987 Constitution)
Q: Is a tax law adopting a regressive system of taxation valid? A: Yes. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. The Constitutional provision means simply that indirect taxes shall be minimized. The mandate to Congress is not to prescribe, but to evolve, a progressive tax system. (EVAT En Banc Resolution, Tolentino, et al vs Secretary of Finance, October 30, 1995)
lly, Directly and Exclusively Used for Religious, Charitable and Educational Purposes Article VI. Section 28 (3) of the Constitution provides: Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. a.) Actually, Directly and Exclusively The phrase is construed as the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.
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The test of exemption is the ACTUAL and EXCLUSIVE use of the property. Exclusive is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, "in a manner to exclude; as enjoying a privilege exclusively.” Thus, if real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. Quoting the Supreme Court in Abra Valley College case, the lease of a portion of school to a commercial establishment is subject to tax. b.) The “Extension” Rule Prior to the 1973 and 1987 Constitution, the term “exclusively used” considers incidental use also and that the exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefor, but also extends to facilities which are incidental to and reasonably necessary for the accomplishment of such purposes. Case in point: Roman Catholic Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte
NOTE: The income of whatever kind and nature from any of their properties, real or personal or from any of their activities for profit regardless of the disposition made of such income shall be subject to tax. Thus, being a non-stock and non-profit corporation does not by itself completely exempt an institution from tax. An institution cannot use its corporate form to prevent its profitable activities from being taxed. In cases of gifts or donations: Donations in favor of religious and charitable institutions are generally not subject to tax provided, however, that not more than 30% of the said bequest, devise, or legacy or transfer shall be used for administration purposes. d.) Non-Violation of the Establishment Clause Walz vs Tax Commission of City of New York
The exemption in favor of the convent in the payment of the land tax, include not only the land actually occupied by the church, but also the adjacent ground (which is being used for a vegetable garden) destined to the ordinary incidental uses of man, comes under the exemption. Moreover, in regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, also comes within the exemption.
The grant of tax exemption is not sponsorship of the organizations because the government does not transfer part of its revenue to churches but simply abstains from demanding that the churches support the State. Instead, the tax exemption creates a more minimal and remote involvement between church and state, far less than taxation of churches would entail, and it restricts the fiscal relationship between them, thus tending to complement and reinforce the desired separation insulating each from the other.
NOTE: The prevailing rule now is that the term “exclusively” does not cover incidental use. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized.
Revenue and Assets of Educational Institutions
c.) Exemption from other taxes 1997 NIRC states that the organizations below shall not be taxed with respect to income received by them: Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person.
Article XIV. Section 4 of the Constitution provides: All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. a.) Meaning and Coverage of Educational Institutions Such term, when used in laws granting tax exemptions, refers to schools, school seminary, college or educational establishment. CIR vs CA, YMCA Inc.
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The school system is synonymous with formal education, which refers to the hierarchically structured and chronological graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels. NOTE: Incomes which are unrelated to school operations are taxable. b.) Requirements and Coverage of the Exemption The educational institution must prove the ff: It is a non-stock, non-profit educational institution. Income MUST be derived from activities and/or used actually, directly and exclusively for educational purposes. The exemption extends to incidental income from ancillary activities such as those derived from canteen, bookstore, dormitory and other facilities.
CIR vs Ateneo De Manila University A cafeteria/canteen is being leased by the school. Although it is owned and operated by a concessionaire, the canteen is exempted from income tax and VAT so as long as the rentals paid by concessionaire are actually, directly and exclusively used for educational purposes. Importation of books, films, slides and other educational materials and equipment such as computers to be actually, directly and exclusively used for educational purposes are LIKEWISE EXEMPT from customs duties, provided guidelines under DO 137-87 are observed. Interest income from Philippine currency bank deposits and yield from deposit substitute instruments used actually, directly exclusively are likewise exempt from 20% final withholding tax subject to certain requirements. c.) Taxability of Proprietary Educational Institutions A Proprietary educational institution is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.
Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment. The presence of the word “may” indicates only permissiveness, which means the Congress has the discretion to grant exemptions. These institutions, at present, are not exempt from income tax but only subject to a special lower rate. Preferential Tax on Income and Predominance Test Proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the thirty (30%) normal income tax shall be imposed on the entire taxable income. The term 'unrelated trade, business or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. Illustration: X Educational Institution earned a net income of 300 million pesos, 150 million of which came from unrelated activities. On that note, 10% tax shall be imposed on the 300 million. But, if 151 million came from unrelated activities, 30% tax shall be imposed on the 300 million.
Doctrinal Pronouncement on CIR vs St. Lukes Medical Center To be a charitable institution, however, an organization must meet the substantive test of charity in Lung Center. The issue in Lung Center concerns exemption from real property tax and not income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.
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In order to be exempted from income tax, Sec. 30 (B) of the NIRC requires that both the organization and operations of the charitable institution must be devoted "exclusively" for charitable purposes. This is qualified by its last paragraph, which states that if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt status for its not-for-profit activities. St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It cannot be disputed that a hospital which receives approximately P1.73 billion from paying patients is not an institution "operated exclusively" for charitable purposes. Clearly, revenues from paying patients are income received from "activities conducted for profit." St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its operating income in 1998. However, if a part of the remaining 34.80% of the operating income is reinvested in property, equipment or facilities used for services to paying and non-paying patients, then it cannot be said that the income is "devoted or used altogether to the charitable object which it is intended to achieve." The income is plowed back to the corporation not entirely for charitable purposes, but for profit as well. Government Educational Institutions Government educational institutions, like the University of the Philippines, are likewise exempted from taxes with respect to revenues derived pursuant to its educational purpose and revenues actually, directly and exclusively used therefor. Conversely, income from trade, business or other activity which is not related to their educational purposes or functions shall be subject to internal revenue taxes when the same is not actually, directly, exclusively used for the intended purpose/s. Transmissions to Educational Institutions
All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes.
Non-Impairment of the Jurisdiction of the Supreme Court The Supreme Court can review judgments or orders of lower courts in all cases involving:
The legality of any tax, impost, assessment, or toll; The legality of any penalty imposed in relation thereto (Sec. 5[2][b], Art. VIII, 1987 Constitution)
NOTE: These jurisdictions are concurrent with the Regional Trial Courts; thus, the petition should generally be filed with the RTC following the hierarchy of courts. However, questions on tax laws are usually filed direct with the Supreme Court as these are imporessed with paramount public interest. It is also provided under Sec. 30, Art VI of the Constitution that “no law shall be passed increasing the appellate jurisdiction of the Supreme Court without its advice and concurrence.”
Prohibitions against Imprisonment for Non-Payment of Poll Tax A person may be imprisoned for non-payment of internal revenue taxes, such as income tax as well as other taxes that are not poll taxes if expressly provided by law. A person cannot be sent to prison for failure to pay the community tax.
Sec. 87 of the NIRC is explicit: The following shall not be taxed: The merger of usufruct in the owner of the naked title; The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary; The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor; and
Origin of Revenue and Tariff Bills
This is based on the theory that, elected as they are from the districts, the members of the House of Representatives can be expected to be more sensitive to the local needs and problems. NOTE: It is not the law but the revenue bill which must “originate exclusively” in the House of Representatives. The bill may undergo such extensive changes that the result may be a
28
rewriting of the whole. The Senate may not only concur with amendments but also propose amendments.
Chapter 4: Tax Exemptions, Escape from Taxation & Double Taxation Tax Exemption o Definition : it is a grant of immunity, express or implied, to particular persons or corporations from the obligation to pay taxes in whole or in part o
Kinds of Tax Exemption: As to Source: 1. Constitutional 2. Statutory 3. Treaty/Executive Agreements 4. Contractual (for a consideration) As to Manner of Grant: 1. Express o Verbally/oral o In writing/ statutes 2. Implied o Manifested by conduct o Considering the totality of circumstances As to Scope 1. Total/full/All-in/All the way o Relates to the whole/entire tax st 2. Partial/1 -base lang o Affects only a portion
Tax exemptions may be given to achieve long term economic objectives: Exemptions, incentives and the likes are given, by the state, occasionally To attract new sexy business; as well as To resuscitate the old and dying juridical bitches; and more importantly to To sensually stimulate and elevate our economy – towards economic prosperity and progress. o It’s designed, not to trigger off an instant surge of revenues on a one night short term basis, but rather to achieve a longer term symbiotic relationship which is way better than a one night-er.
29
o
What is the task of the Court? CIR vs. Procter and Gamble (204 SCRA 377) The task of the court is to GIVE EFFECT to the legislative design and objectives as they are written into the statute ** EVEN IF SOME REVENUES are lost in that very smart process. Because the congress knows what they’re doing. lol. Basis: Separation of powers and stuff like that
Approaches for Exemption o P – I – Org - I 1. Exemptions of Property 2. Exemption of Individuals 3. Exemption of Organization 4. Exemptions of Income o
Exclusions and Deductions: o Exemption vs. Exclusion Tax Exemption Refers to a statutory exception from the payment of taxes; whereas Exclusion Refers to the Total absence/ or want/ or lack of taxation in a particular circumstance o example: the non-inclusion in the taxpayer’s taxable gross income of gifts, bequest, and devises under Sec 32 (B)(3) of the NIRC o
o
Exemption vs. Deduction Exemption Refers to removal from taxation of a particular class or item; whereas Deduction Refers to the reduction of taxable items by way of subtraction of other items. o example: Under Section 34 NIRC: the ordinary business expenses and depreciation are deductable. Deduction & Exclusion; Nature: They are in the nature of Tax Exemptions Thus, they are STRICTLY CONSTRUED
Exemption of individuals - certain classes of individual may be granted tax exemption within the tax system which depends on multiple criteria.
o
Specific monetary exemptions - Monetary reduction of the tax base o Personal allowance o Which may be claimed to reduce the taxable income - Similar to the 50k basic personal exemption and the 25k additional exemption for every dependent under Section 35 of the NIRC. Tax exempt status - Includes the exemptions to senior citizens and minimum wage earners (RA 9994 & 9504) - A statute which provides a potential tax payer complete relief from tax, or a reduction on the rate, or a tax only on a portion of the items.
Exemptions of Organizations An exemption to organizations which meets certain conditions imposed by the taxing authority It may be based on definitions or restriction or characteristics set forth by law 1.
2.
Charitable, Religious and non-profit organizations: o These entities are considered to serve public purposes Government and its entities o General rule:
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3.
4.
The government and its instrumentalities are exempt from tax and the local government may never ever ever ever tax the national government. Them boys only have delegated powers. The delegated powers cannot be superior to the powers of the one who delegated the power. Entities on pension schemes o Based on social justice. It complements social legislation. o Pensions which do not amount to income are not taxable. Educational institutions
o
Exemptions of Income Includes: Income earned outside the taxing jurisdiction Income consisting of compensation for loss Inherited shit / properties acquired by gifts Income earned in specific areas, such as the Special Economic Zone, enterprises zones, etc.
o
Exemption of Property Certain properties used for religious/educational/charitable purposes Properties owned by the BSP within 5 years from the effectivity of the General Banking Law are exempt from taxes Properties owned and used by Government, like for example the GSIS, provided that they comply with certain conditions.
Reciprocal Exemptions o Some tax jurisdictions allow tax exemptions Subject to Reciprocity o States may enter into a bilateral agreement which provides for certain tax exemptions – this stipulation is common in: tax treaties Cross border agreements DTA’s – Double Taxation Agreements Limitation under the constitution o Under Section 28(4) Article VI of the 1987 Constitution:
o
“no law granting tax exemption shall be passed without the CONCURRENCE of a Majority of all the Members of the Congress”
NOT SUBJECT TO CONSTITUTIONAL LIMITATIONS: Exemption is not the same as a total absence of taxation dumbfuckery, thus: A repeal or withdrawal of a tax law resulting to non taxability of all taxpayers = or a total absence of taxation is not subject to the constitutional limitations.
Strict Construction & Burden of Proof: 1.
It is NOT PRESUMED. Exemption is highly disfavored in law (CIR vs. Manila Jockey Club) The law frowns on exemption, hence an exempting provisions should be construed STRICTISSIMI JURIS. General Rule: Taxation is the Rule Exception: Exemption is the Exception o Thus , Exemptions are CONSTRUED STRICTLY against the grantee; and o LIBERALLY in favor of the Taxing authority. Burden of Proof: Rests upon the person who is claiming for the exemption. (Caltex Phil. Vs. Commission on Audit) o The party claiming the exemption must therefore be clearly/unequivocally/expressly mentioned in the exempting law or at least within the purview of the legislative intent.
2.
it must be Justified by Words TOO Plain to be Mistaken (unequivocal/Clear/Direct to the point) it must be expressly granted in a statute in a language too clear to be mistaken, and too categorical to be misinterpreted
3.
It is a PERSONAL Privilege: Exemptions, like taxes, are personal. It does not extend to yo mama.
4.
Never created by Implication:
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5.
An exemption from a common burden cannot be permitted to exist based on some vague implications (Asiatic Petroleum Co. vs. Llanes) There must be Convincing Proof The term which grants exemption must be crystal clear, and convincing like a wet pussy cat on a cold damp morning.
6.
F. Equity – it does not apply: it lacks statutory basis – fuck justice and equity.
7.
Exemption is Not INHERENT: Exemption cannot be deduced from concepts – an argument that exemptions are inherent in a special economic zone – is a heresy. The exemptions of SE proceeds from the law, and not the other way around. The tail does not wag the dog. (John Hay vs. Lim (2005))
8.
it cannot be granted by Regulation the subordinate legislation made by Quasi Judicial Bodies cannot be superior to the fundamental law. The Constitution provides for the mechanism for granting tax exemptions.
9.
There is No VESTED Right in a Tax Exemption Duh It is a mere statutory privilege which may be modified or withdrawn at the will of the granting authority, depending on the external circumstances of the socio political and economic stuff; depending internally on their whims and caprices; depending more importantly on your budget.
10. A tax exemption CANNOT be GROUNDED upon the continued existence of a statute which precludes its change or repeal No law is irrepealable. Nothing is forever. Even Sasha Grey will be forgotten in time.
Basis of Strictissimi Juris: 1. Doctrine of Strict interpretation I. The lifeblood theory The blood is the life – thus exemptions are highly disfavored in law.
II.
III.
Equal treatment of taxpayers Strict construction in order to minimize differential treatment which results to partiality, unfairness and some bad stuff. Sovereign Act Tax you if you claim to be exempt. Taxation is a high prerogative of sovereignty whose relinquishment is never presumed (Luzon Stevedoring vs. CA)
Exceptions to Strict Constructions: 1. If the law is clear , unambiguous, unequivocal– there is not room for construction 2. When the law does not provide a qualification for tax exemption – then the court cannot fucking supply one Ubi lex non distinguit nec nos non distinguerre debemus. 3. When the exemption refers to public property In this case the rule is exemption, taxation is the exception 4. Exemption in favor of the Government, its instrumentalities and agencies. 5. When the law itself provide for liberal constructions 6. In case of special laws imposing a special tax 7. Exemption to Religious, Charitable, Educational institutions (the usual stuff) Illustrations; Examples ; Application 1. Tax exemption covering items used in Constructions It does not apply to taxes on unrelated items 2. Exemptions to corporations on things directly connected to something, does not cover those which are not directly related to it 3. Tax exempt bonds received– is not exempt in computing income tax 4. Condonation is in a nature of a tax exemption – to be exempt – there must be a clear cut provision in law condoning such taxes. 5. Salaries of Judges are taxable (Nitifan vs. CIR) - what the constitution prohibits is that their salaries may not be decreased during their continuance in office. 6. an exemption on the sale of machinery – does not extend to the products produced by such machinery 7. Maceda vs. Macaraeg Jr. the NPC was exempted from both direct and indirect taxes – they are exempt from absorbing the economic burden of taxes previously paid to the BIR – thus the NPC is entitled to be reimbursed by the BIR.
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Constitutional Grants do not need legislative enactment: 1. They are presumed to be self executing (Manila Prince Hotel vs. GSIS; Oposa vs. Factoran) – unless stated otherwise. Otherwise the very purpose and intention of the fundamental law could be nullified by the legislature; their effectivity would be subject to the mercy of the congress. @.@ Withdrawal of Exemption 1. Exemption may be withdrawn at the pleasure of the taxing authority. So if you don’t want your exemption to be withdrawn, you must pleasure the taxing authority. 2. Exception: When the exemption was granted based on a MATERIAL CONSIDERATION of a mutual nature, it partakes the nature of a Contract Non impairment Clause.
Examples: If the exemption is based on the constitution: o It may be withdrawn only by an amendment to the Constitution. If the exemption is granted by a special law o it cannot be withdrawn by a regulation, o It cannot be withdrawn by a general law: EVEN when the terms of the general law is so broad, as to include the matter in general law, it cannot be withdrawn Except – if there is a manifest intent to alter or repeal the special law; if there is a special/specific provision in the
general law which clearly intends to repeal the special law. If the tax exemption is based on a TREATY o May be revoked only pursuant to the withdrawal provision of the treaty. Only Congress has the power to grant tax incentives 1. Taxation is an inherent power which is legislative in nature. The power to select the subjects of tax, and the power to grant exemptions is inherent in the legislature, since it involves the promulgation of laws. 2. Basis: Article VI Section 28(4) of the Constitution provides: “no law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the CONGRESS… including Manny Pacquiao” Tax-exempt buyer vs. Tax exempt transaction 1. If the BUYER is EXEMPT Seller is still taxable/liable – as the tax is not a tax on the buyer 2. If the TRANSACTION is EXEMPT Seller is not liable for tax. There is no tax due. If the buyer is not so smart – and he pays taxes despite the fact that the transaction is exempt It is the seller’s obligation to hold in trust for the buyer the refunded tax HORNBOOK DOCTRINE in applying tax exemption principles Before determining if the person is tax exempt, we must first determine if he falls within the scope covered by the law imposing taxes It is illogical and impractical to determine who are exempted without first determining who are covered by the tax provisions. 2. It is a HORNBOOK DOCTRINE in the interpretation of tax laws: That a Statute will not be construed as imposing a tax >>>>Unless it does so Clearly, expressly, and unambiguously.<<<<< A tax cannot be imposed without clear and express words for that purpose. 3. The provision of a taxing act cannot be extended by mere implication. 4. In case of doubt, it is construed most strongly against the government and in favor of the tax payers,
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Because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import (CIR vs. CA)
REFUNDS 1. Definition Tax refunds is the return of excess amounts of income tax that a taxpayer has paid to the state or local government throughout the past year In Reality – it represents an interest free loan that a taxpayer makes to the government – because the government merely returns the exact amount regardless of the period that has lapsed. 2.
It partakes an absolute forgiveness or WAIVER by the Government of its right to collect what otherwise would be due to it, And to give tax evaders and other fuckers, who wish to relent and are willing to reform, a chance to do so, to become part of the new society with a clean slate. (CIR vs. Botelho corp) 3 General Characteristics of a Typical Amnesty I. Short lived (2-3 months) II. Voluntary (participation is up to them) III. Waiver of fines and penalties – but not the principal amount of taxes that are due.(unless if the amnesty law provides otherwise) 3.
CONTROVERSIAL ISSUE: Tax Amnesty The proponent of a tax amnesty –claims that the government can raise more tax revenue Not only in the short run from collecting overdue taxes But also by bringing them old bitch fucks into the tax system for the long run. However, some questions as to whether this shit really produces additional revenue given that they simply collect revenue that could have been raised in a normal enforcement procedures. They said that tax amnesties induces or provides incentives to honest tax payer to start evading taxes, in hope of an amnesty in the future, and this shit tends to weaken tax compliance.
4.
Amnesty is not presumed Strictissimi juris Not covered by the President’s Amnesty Powers under the RPC. Based on the Constitution Article 6 Section 28 – a tax exemption can only by granted with the concurrence of all the members of the congress.
5.
Government is never estopped from questioning a tax liability even if amnesty tax payments were already received by it. The erroneous application of a tax law by a public officer – do not prohibit subsequent correction Basis: lifeblood
NATURE:CONSTRUCTION; EVIDENCE Tax Refunds are in the nature of a tax exemption/ a derogation of sovereign authority Construed Strictissimi Juris against the person claiming the refund; as well as the pieces of evidence presented – which must be scrutinized. burden of proof is upon him who claims the exemptions
Persons entitled in case of indirect tax 1. The Statutory Taxpayer The proper party The person on whom the tax is imposed by law, and who paid the same even if he shifts the burden to another. 2. The person who shoulders the burden (indirect tax = part of the purchase price) has no cause of action against the taxing authority. TAX AMNESTY 1. Definition It is an OPPORTUNITY afforded to a taxpayer to RECTIFY errors or omissions in past tax years or returns relieving delinquent tax debts and criminal prosecution. It is a GOVERNMENT PROGRAM (permanent or for a limited period) which allows the taxpayers to address the collecting agency and disclose inaccurate information from the past tax years, without penalty or prosecution 2.
Nature and Characteristics EXCEPTION
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6.
Republic vs IAC(1991) Issue: Won the payment of deficiency income tax under the tax amnesty (PD#213) and its acceptance by the government operated to divest the government of its right to further recover from the taxpayer, even if there was an existing assessment against the latter at the time he paid the amnesty tax. HELD: o Even assuming that the deficiency tax assessment were correct, since the latter have already paid almost the equivalent amount to the government by way to amnesty taxes under PD#213, and were granted not merely an exemption – BUT AN AMNESTY – for the past tax failings, the Gov. is not ESTOPPED from collecting the difference.
Availment of tax amnesty is a purely personal defense and not available to co conspirators - People vs. Castan~eda - The defense relates to the circumstances of a particular accused and not to the character of the acts charged in the criminal information.
7.
Effects of Use of All Encompassing Words - Metropolitan Bank & Trust Co. vs. CIR If the amnesty law uses an ALL-ENCOMPASSING WORDS There is absolutely no basis to limit immunity resulting from the payment of the tax amnesty – only to income tax – and to exclude others.
8.
Amnesty in case of Merger - Tax liabilities of the Merged Corporation are ABSORBED by the surviving corporation.
Escape From Taxation SHI – T – Ca –P- ha- D – S- a-D Forms of Escape from Taxation 1. Tax Shifting 2. Tax Transformation
3. 4. 5. 6. 7. 8. 9.
Tax Capitalization Transfer Pricing Resort to tax Haven Tax Deferral Tax Shelter Tax Avoidance Tax Dodging/Evasion
; Tax Shifting: o It is the transfer of the burden of tax by the original payer (impact) to another (incidence) Impact of taxation – the point on which the tax is originally imposed Incidence – the point where the final burden settles down o Direct tax cannot be shifted. o Tax cannot be shifter if: i. Purely personal (poll tax) ii. It has no relation to any business dealing of the taxpayer (donors/estate tax) iii. If it is levied on economic surplus (income tax) o
Kinds of shifting i. Forward s. – when the burden is transferred from a factor of production thru the factors of distribution until it finally settles on the ultimate purchaser/consumer. (example : seller increase price of beer) ii. Backward s. – when the burden is transferred from the consumer thru the factors of distribution – to the factors of production (example: seller doesn’t increase the price of beer – but reduces the price in materials) iii. Onward s. – when the tax is shifted 2 or more times either forward or backward.
Tax Capitalization/amortization - Circumstance where the purchaser of a taxable object, by cutting down the purchase price, discounts all the taxes which he may be called to pay upon in the future. - By depreciating the capital value – to a sum equal to the capitalized value of the tax (1/5 = 20%) Tax Transformation
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-
In a situation where the producer upon whom the tax is imposed – fearing that the consumers would not opt to buy his shit if he adds the tax to the price - The producer pays the tax; and - endeavors to recoup himself by improving/transforming his process of production to make it more cost effective. - The loss due is TRANSFORMED to a gain. Resort to TAX Haven/ secrecy jurisdiction - Definition It is a place that deliberately provides an escape route for people or entities elsewhere, shielding them from whatever taxes, criminal laws, licking their balls clean It is a State where certain taxes are levied at a low rate or not at all while offering due process, good governance, and low corruption rate. It is a country that imposes little or no tax on profits. - When is a place considered as a tax haven? If it has a composite tax structure established deliberately to take advantage of a worldwide demand for opportunities to engage in tax avoidance - Examples? Liechtenstein Panama Bahamas British Virgin Islands Transfer Pricing - It is the price charged by 1 segment of an organization For a product/service supplied to another segment of the same organization Especially, the charged assigned to an exchange of goods or services between a corporation’s organizational units. - When subsidiaries inside 1 company trade with each other across borders, they can manipulate the internal transfer prices – in order to shift their cost into high tax countries, and shift the profit into low taxing countries/haven. Transfer Mispricing o Happens when transfer pricing is ABUSED. - Unitary Taxation o Related to Transfer Pricing o The income of all related parts of the company are combined and the profits are shared between different countries where
-
-
they were actually created by using an agreed formula based on a ratio of sales, employment costs and capital invested There is a need to regulate it : because it has grave implications on tax liabilities. Section 50 of NIRC: o Authorizes the CIR to distribute/allocate gross income or deductions between 2 or more organizations owned directly or indirectly by the same interests if such distribution apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business. Stateless Income/Homeless Income: o It is the result of transfer pricing/mispricing. o It means profit earned in a country other than where the firm is headquartered and subject to tax only in another country which imposes little or no tax. o Particularly, stateless income comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is neither the source of the factors of production through which the income was derived, nor the domicile of the group’s parent company.
Tax Deferral o Paying taxes in the future for income earned in the current year o Some bitches leave their profits offshore untaxed – they don’t have to pay shit unless they repatriate said income to their home base Tax Shelter o It is a sexy device used by a taxpayer to reduce or defer payment of taxes; or any financial investment made in order to acquire expenses, depreciation allowances, etc, or to defer income so as to reduce one’s income tax. o It includes investment or deposits in accounts that are not heavily taxed and shit (example long term deposits); and investing in real estate to avail deductions such as mortgage loan interest, mortgage insurance and property taxes. Tax Avoidance and Evasion o This 2 sons of bitches are the 2 most common ways used by your average motherfucker in escaping taxation (CIR vs Estate of Benigno Toda)
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o o
TO AVOID IS LEGAL TO EVADE IS ILLEGAL o
Tax Avoidance/Loophole o A tax saving device within the means sanctioned by law o Should be used in good faith and at arms length. o To get around/avoid the spirit of the law and the will of the legislature, WITHOUT ACTUALLY BREAKING THE FUCKING LAW o It is the lessening of tax liabilities thru maximizations of deductions exclusion and exemptions and the minimization of income by legal means.
Tax Evasion- Dodge/Dodging o A scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further civil or criminal liabilities (CIR vs Estate of Benigno Toda) o Illegal method of paying taxes Criminal activity Usually thru deception o Elements of Tax Evasion; 3 factors 1. The END to be Achieved o Pay less- or not pay at all bitch 2. State of mind o It must be fucking intentional o Bad faith / willful 3. A course of action or failure of action which is unlawful Tax Fraud (intentional fraud) o The use of deceit in order to evade taxes o Fraud 1. Actual 2. Constructive 3. Anything calculated to deceive them bitches Including all acts, omissions, and concealment involving a breach of legal/equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another. o Cannot be usually proven by direct proof
o
o
It must be proven by circumstantial evidence and reasonable inference Negligence is not equivalent to fraud(whether slight or gross) The fraudulent intent cannot be presumed Intentional fraud must be established: he must act knowingly and willfully Assessment is not necessary Ungab vs. Cusi, Jr. An assessment of deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax xxx A crime is complete when the motherfucker – with intent to evade - acted knowingly and willfully. The fact that the government failed to discover the error and failed to assess promptly xxx has no connection with the commission of the crime It must first be proved that a tax is due In CIR vs CA: before 1 is prosecuted for tax evasion, the fact that a tax is due must first be proven. No prima facie case – not fraudulent – unless and until the BIR has made a final determination of what is supposed to be the correct tax, the taxpayer should not be placed in the crucible of criminal prosecution In Ungab vs. Cusi Jr: For a criminal prosecution to proceed without st assessment – there must 1 be a PRIMA FACIE showing of willful attempt to evade taxes.
Substance over form The court should examine with particular care the forms used by him for the accomplishment of his purpose and if his ingenuity fails at any point, such court should not lend him its aid by resolving doubts in his favor. Payment is NOT A VALID DEFENSE Payment – after apprehension is fucked up – it is not a valid defense. Because he already transgressed the law.
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o
o o
o
Prima facie evidence of fraud 1. Sec. 248 B – NIRC: A Substantial Underdeclaration of taxable income/sales/receipt Or a Substantial OVERDECLARATION of Deductions o Shall constitute PRIMA FACIE evidence of false or fraudulent return Failure to report sales/income/ receipt in an amount exceeding 30% of that declared per return o And a claim of deductions in an amount exceeding 30% of actual deductions o Shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions 2. Failure to declare for taxation purposes True and Actual income derived from business for 2 consecutive years 3. Substantial under declaration of income in the tax returns for 4 consecutive years coupled with intentional overstatements of deductions. Must be proven by Circumstantial evidence and reasonable inferences It generally involves the following elements: 1. Deception 2. Misrepresentation of material facts 3. False or altered documents 4. Evasion/ diversion / omission Badges of Fraud 5. Improper deductions 6. Accounting irregularities 7. Inconsistent explanation/behavior 8. Attempt to conceal illegal acts 9. Inadequate records 10. Failure to file returns 11. Destruction of records (acts) Honest difference in opinion and inadvertence do not amount to fraud There must be a clear and convincing evidence to prove that some part of the underpayment of a tax was due to fraud. Intent is different from mere inadvertence, honest difference in opinion, reliance on an incorrect technical advice, negligence or carelessness, dumbfuckery.
Tax credit Tax Credit vs Tax Deduction o Tax Credit Generally refers to an amount that is subtracted directly from one’s total tax liability It is an allowance against the tax itself, or a deduction from what is owed by a taxpayer to the government Examples Withheld taxes, payments of estimated tax, and investment tax credits o Tax Deductions A subtraction from income for tax purposes, or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due. Tax Liability is required for tax credit o There ought to be a tax liability before a tax credit can be applied Since the purpose of a tax credit is to reduce the tax liability. Without any tax liability, the tax credit is a piece of shit. It would be PREMATURE and IMPRACTICAL. o The existence of a tax credit – is not the same as the availment (tax credit is mandatory; whereas the availment of such credit is optional) Prior tax payment not necessary o While tax liability is necessary for the availment of a tax credit – prior tax payments are not. Payment is not indispensible. o Nirc is replete with provisions granting tax credits even though no taxes have been previously paid Examples Under Section 86(E) – in computing estate tax due – a tax credit is allowed subject to certain limitations. The tax credit in this instance allude to the prior payment of taxes, even if not made to out government. Sec 110 – a VAT registered person engaging in transactions is allowed a tax credit that includes a ratable portion of any input tax xxx which does not need to be paid etc etc. Tax credit is not the same as a discount o Tax credit – Is a deduction after the income is computed
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o
1.
2.
3.
4.
Discount Is a deduction before the income is computed Cash discount One granted by business to credit customers for their prompt payment Purchase discount – is on the part of the seller Quantity discount Reduction in price allowed for purchase made in large quantities justified by savings in packaging, shipping and handling - A.k.a : Volume or Bulk discount Trade discount Percentage reduction from the list price allowed by manufacturer to wholesalers. Chain Discount – a series of discounts from one list price – is recorded at net Functional discount Similar to trade discount
Double Taxation Double Taxation o Definition Taxing twice – the same subject matter -done by the same taxing authority, within the same taxing district, for the same purpose, in the same taxing period. o No constitutional prohibition It is not forbidden by our fundamental law It is not favored but is still permissible Discretion of the Legislative General Rule: o Double taxation should not be permitted unless the legislature has authority to impose it. However o Since the taxing power is exclusively a legislative function, and since it is absolute and unlimited: it is generally held that there is nothing to prevent the imposition of more than one tax on the same subject matter, in the absence of an express or implied constitutional prohibition xxx such shit is a matter within the discretion of the legislature.
Kinds of double taxation 1. Direct Duplicate taxation (obnoxious double taxation) o In order to constitute double taxation in the objectionable/prohibited sense: The same subject matter must e taxed twice – for the same purpose, by the same taxing authority, within the same taxing jurisdiction, during the same period, and they must be of the same kind or character. 2.
Indirect duplicate taxation o When any or some of the requisites of direct duplicate taxation are not present. This is permissible.
Schemes to AVOID double taxation 1. Tax Credit o A sum deducted from the total amount a taxpayer owes to the taxing authority 2. Tax Deduction o Fixed amount or percentage write-off or permitted reduction in the gross amount on which a tax is calculated. 3. Tax Reduction o Relinquishing or reducing the amount or rate of tax a taxpayer has to pay. o Example The TAX SPARING CREDIT RULE under Section28 of the NIRC. 4. Tax Exemption o Immunity from this shit 5. Tax Treaties o Agreement between 2 jurisdictions that mitigates the problem of double taxation that can occur when tax laws consider a
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taxpayer a resident of more than 1 jurisdiction. x----------------x INTERNATIONAL JURIDICAL DOUBLE TAXATION (IJDT) o The imposition of comparable taxes in 2 or more states on the same taxpayer in respect of the same subject matter and for identical periods. o Rationale for doing away with this shit: To encourage free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate. o 2 General Approaches to AVOID IJDT 1. Territorial based system o The foreign source income is normally exempted from domestic tax o it generally leaves the taxation of foreign income to the government whose territory the activity occurs 2. Worldwide income/global o This approach necessitated the development of specific mechanisms to reduce double taxation when the country within whose borders the income had been derived also imposed a tax on that income o Methods in tax treaties st 1 method Tax Treaty sets out the respective right to tax of the STATE OF SOURCE and the STATE OF RESIDENCE with regard to certain classes of income or capital. In some cases – an EXCLUSIVE right to tax is conferred on one madafaking state nd 2 method o The STATE OF SOURCE is given a full or limited right to tax together with the STATE OF RESIDENCE In this case the treaties make it incumbent upon the state of residence to tallow relief in order to avoid double taxation.
1.
2.
EXEMPTION METHOD a. The income which is taxable in the state of source is exempted in the state of residence b. This may be done by using tax deduction methods – which allows foreign income to be deducted from the gross income :in effect exempting the payment from being further taxed. c. The focus is on the income or capital Credit Method a. Although the income is taxed in both the State of Source and the State of Residence – the tax paid in the state of source is credited against the tax levied in the state of residence. b. The focus is on the tax
Income tax credit under Philippine law o NIRC Credit against Tax for taxes of Foreign countries - If a taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with: o Citizen and Domestic Corporation o Partnership and Estates An alien individual and a foreign corporation shall not be allowed the credits against the tax for the taxes of foreign countries allowed under this paragraph. Read Sec 34 and 86 if NIRC. Limitations on Credit Tax Credit for Estate Tax Paid to a Foreign Country Most favored nation clause o The purpose of this clause is to grant to the contracting party treatment not less favorable than that which has been granted to the most favored among other countries. o Intended to establish a principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation.
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To allow the taxpayer of 1 state to avail the more liberal provisions granted in another tax treaty. For equality of treatment.
Chapter 5 Tax Laws and Regulations
Tax Law – it is a body of rules under which the public authority has a claim on taxpayers requiring them to transfer to the authority party of their income or their property
Tax laws may be: 1.
Material Tax Law – it is the analysis of the legal provisions giving rise to the charging of tax
2.
Formal Tax Law – it concerns the rules laid down in the law as to assessment, enforcement, procedure, coercive measures, administrative and judicial appeal, and other matters.
Tax provisions are: ▪
Mandatory – which means that the security of the citizens or which are designed to ensure equality of taxation or certainty as to the nature and amount of each person’s tax. o
Failure to follow renders invalid the act or proceeding to which it relates.
▪
Directory – it is for the information or direction of officers or to secure methodical and systematic modes of proceedings o
Failure to follow makes the act merely irregular
Nature of Tax Laws a.
A public law - falls within the domain of public law
b.
Special Law - prevails over a general law
c.
Not Political in Nature - deemed to be the laws of the occupied territory and not of the occupying enemy.
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d.
▪
Not Penal – a statute is penal when it imposes punishment for the offense committed against the state which is under the constitution. It is not a penal law
cases
but a law with a penal sanction. o
Its main purpose is to cover the rules, policies and laws that oversee the revenue-raising process.
Implications of Tax not being a Penal law I.
Prohibition on ex post facto law is not applicable ▪
It applies only to criminal matters
▪
Ex post facto law is one which alters the legal rules of evidence and authorizes conviction upon less or different testimony than the law
This is due to the difference in the quantum of proof in civil and criminal
▪
Double jeopardy is also inapplicable
▪
An acquittal of a charge of willful attempt to evade payment of taxes does not bar assessment and collection of surcharge and penalties.
Sources of Tax laws ▪
It covers national and local taxes
National Taxes – it comes from the National Internal Revenue Taxes and Tariff imposed and collected by the national government through the agencies
required at the time of the commission of the offense. Local Taxes – it is imposed and collected by the local government II.
No retroactive effect even if beneficial to the tax payer ▪
Tax laws, even if beneficial to the taxpayer cannot be given retroactive effect in the absence of legislative intent to that effect
▪
The following are the sources of tax laws: 1.
The Constitution – the 1987 Philippine Constitution sets the restrictions on the
However, the nature of the tax and the circumstances in which it is laid
exercise of the power to tax. It is a limitation upon the lawmaking power of
must be considered before it can be said that its retroactive application is
the state’s legislature.
so oppressive as to transgress the Constitutional limitation.
Exception: local government taxation in the Philippines is based on the Constitutional grant of the power to local governments. It gives the
III.
It is applied prospectively ▪
They are prospective in operation
▪
However, while it is not favored, a statute may still operate retroactively
power to create its own source of revenue
2.
Customs Code.
provided that it is expressly declared or is clearly the legislative intent.
IV.
Res judicata is inapplicable
Laws – The National Internal Revenue Law; Local Tax Law; and Tariff and
3.
Case Law – these are the decisions of the Supreme Court which form part of the law of the land.
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4.
Administrative Issuances/Interpretations – administrative agencies may fill in
other matters arising under the NIRC or other laws
what the congress may have no opportunity or competence to provide.
administered by the Bureau of Internal Revenue.
▪
However, no provision of any regulation can supplant or modify the acts of congress. A law cannot be amended by a regulation.
▪
The law must prevail over a regulation
▪
A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed. o
The following requisites must be complied with: 1.
Difference between RR, RMO, RMR, RMC, RB and BIR Ruling: Revenue Regulations (RRs) •
It must be germane to the object and purpose of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
law 2.
are issuances signed by the Secretary of Finance, upon recommendation of the
regulations for the effective enforcement of the provisions of the National Internal
It does not contradict, but conform to the standards
Revenue Code (NIRC) and related statutes
the law prescribes 3.
It must be issued for the sole purpose of carrying into effect the general provisions of our tax laws.
▪
The power of the Commissioner of Internal Revenue and Secretary of
Revenue Memorandum Orders (RMOs) •
are issuances that provide directives or instructions; prescribe guidelines; and outline
Finance under Section 244 of the 1997 National Internal Revenue Code
processes, operations, activities, workflows, methods and procedures necessary in the
are the following:
implementation of stated policies, goals, objectives, plans and programs of the Bureau
o
in all areas of operations, except auditing.
The Secretary of Finance, upon the recommendation of the Commissioner promulgates rules and regulations for the effective enforcement of the provisions of the Tax Code.
o
It has the power of interpretation of the 1997 NIRC and other tax laws which is under the exclusive and original jurisdiction of the Commissioner subject to the review of the Secretary of Finance.
o
The Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals, has the power to
Revenue Memorandum Rulings (RMRs) •
are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio
decide disputed assessments, refund of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or
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Revenue Memorandum Circular (RMCs) •
6.
American jurisprudence has persuasive effect on the interpretation of our own tax laws.
7.
Contemporaneous construction is given weight. The construction given by a particular
are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
government agency that has acquired specialisation on the subject is entitled to great respect and should be accorded great weight by the courts. Revenue Bulletins (RB) •
refer to periodic issuances, notices and official announcements of the Commissioner of
8.
the errors or mistakes of its agents in the interpretation or execution of tax laws.
Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.
Estoppel, generally, does not apply to the government. The state cannot be bound by
9.
Enforcement of tax measures by responsible officers and agencies of government should be interfered with at the lowest minimum. This is because delays in the implementation of such tax measures will only retard the operations of government by
BIR Rulings •
are official positions of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
impairing the collection of taxes. 10. Words and phrases used in tax statutes shall be given their plain, ordinary and usual meaning absent special circumstances indicating an intent to use such words or phrases in a different light.
Principles on Interpretation/Construction of Tax Laws 1.
Interpretation is not necessary when the statute is clear and categorical.
2.
The imposition of tax, in case of doubt, is construed strictly against the government and
11. Administrative regulations, issued for the proper implementation and in accordance with tax laws shall have the same force and effect as the law itself. The sheer impossibility and impracticality of Congress having to fill-in every minute detail in the statute makes it necessary for administrative agencies to acquire the power to issue subordinate legislations. To be valid however, the following requisites are imperative:
liberally in favor of the taxpayer. 3.
Tax laws shall not be interpreted to extend their provisions by implication beyond the
•
authority conferred by law)
clear import of the language used or to enlarge their scope not particularly specified. 4.
In case of conflict, Special Tax laws shall prevail over General Tax statutes.
Must be in harmony with the provisions of the law ( within the
•
Must be published( Official Gazette or Newspaper of General Circulation)
5.
“Ubi Lex non distinguit neck now distinguire debemos “ (When the law does not distinguish neither should we.)
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•
•
Except: When regulation is merely internal or interpretative in nature ( regulating only the personnel
Public hearing and notice required
No need for public hearing and notice
of the administrative agency and not the public)
Rationale: Essentially statutes also, hence, Rationale: Merely provide internal guidelines hearing and notice requirements apply for more effective admin implementation
Must be reasonable
Note: If Congress subsequently re-enacts a tax law using the meaning given to it by the administrative agency, the re-enactment effectively confirms that the administrative interpretation was correct. The Power of Oversight DEFINITION: All activities undertaken by Congress to enhance its understanding of and
Legislative Rules vs. Interpretative Rules
influence over the implementation of legislation it has enacted. In other words, these are Legislative Rules
Interpretative Rules
Rules promulgated to “fill in the details” of Rendition of opinion or statement of policy, in existing law interpreting existing law
necessarily post-enactment activities – which raises issues as to their constitutionality (see below).
CATEGORIES:
Scrutiny Have the force and effect of law Courts must decide in accordance with these rules, even if they do not agree with the underlying policy
Are coupled noncompliance
with
sanctions
Merely advisory Courts can exercise their power to interpret these rules, i.e., these are subject to judicial determination of whether correct or not
Congressional
Legislative Supervision
Investigation
Passive oversight
Active oversight
Active oversight
for No sanctions imposed
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The SC has ruled that oversight is not in itself unconstitutional, and may in fact enhance Reports and information periodically required from agencies. Uses facts that are readily available.
More thorough solicitation of information from the agencies concerned
Continuing and informed awareness. Implies constant legislative guidance, e.g., through a legislative committee especially assigned to an area of admin activity.
separation of powers because it prevents too much authority from lodging in the executive department. I.e., integral to checks and balances.
But it qualified this holding to scrutiny and investigation only; in particular, (a) scrutiny over appropriations, budget, confirmation, and (b) investigation in aid of legislation as provided in Art. VI. “Any action or step beyond that will undermine the separation of powers guaranteed by the Constitution. Legislative vetoes fall in this class.”
Legislative Veto For determining efficiency Exercise of Examination of administrative of administrative Constitutional authority exercise of legislative power, plus implementation to conduct inquiry in aid curtailment if necessary of legislation (Art. VI Sec. 21)
This is a form of legislative supervision exercised through veto provisions included in enacted laws. Through veto provisions, Congress gives itself authority to approve or disapprove the implementing rules and regulations promulgated by the executive before they take effect.
Inquires into past Inquires into past Examination of current activity, administrative activities to administrative activities i.e., exercise of legislative influence future acts to influence future acts authority
Arguments For
Necessary to maintain balance of powers ➔
CONSTITUTIONALITY
Arguments Against
Intrudes into powers vested on the Gives Congress a way to control the executive exercise of delegated legislative powers ➔ Interferes with without having to repeal defective laws implementation or enact reparative ones ➔ Once a law becomes effective, it is deemed to have left the hands of Congress
It has been argued that oversight violates separation of powers because implementation (i.e., post-legislation) is already within the domain of the executive department.
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Promotes admin accountability
Intrudes into powers vested on the judiciary ➔
“Too deeply embedded in our law and practice”
Allows Congress to determine w/n the rules conform to law
Permits evasion of the President’s own veto power
Chapter 6: Local Taxation (Dublin 1-12, Guillermo 12-19, General 20-31) Powers and Limitations Constitutional grant Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress many provide, consistent with the basic policy of local governments. (Sec. 5, Article 10 of 1987 Constitution) Rationale: to safeguard viability and self-sufficiency of local governments by directly granting hem general and broad tax powers. (Fels Energy, Inc. vs. Province of Batangas) -
Ensures that the legislative intent behind an enactment is carried through to implementation ➔
Problem often arises because implementing agency did not participate in the crafting of the law, i.e., usually ignorant of the policy sought to be enforced
Permits incorrect enactments from being enforced at all ➔
Unlike mere scrutiny and investigation, which can only act after the fact
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Taxing power of local governments is NOT absolute. o Limited by constitutional restrictions. Taxation not is not an inherent power of local governments. Local tax laws should be construed strictissimi juris Doubts to be resolved against the local government. Tax power is deemed to exist. o Municipal corporations have a general power to levy taxes and create other sources of revenue. They no longer have to wait for statutory grant. o Power of legislature is to reduce this power by imposing limitations. o Congress cannot enact laws depriving LGUs of the power to tax.
Legislature must still see to it that: o Taxpayer is not over-burdened or saddled with multiple and unreasonable impositions o Each local government unit will have its fair share of available resources o Resources of the national government will not be unduly disturbed o Local taxation will be fair, uniform, and just. Doctrine of Necessary Implication Legislative power to create political corporations for purposes of local selfgovernment carries with it the power to confer on such local government agencies the power to tax. Nature of the Taxing Power of LGUs Not an inherent power; may only be exercised if delegated by law or Constitution Not absolute; subject to limitations provided by law or Constitution Legislative; can be exercised by local legislature Territorial; bound by geographical limits
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[NI-NA-LT] Sources of Revenue (sec. 287, NIRC) 1. Local sources tax revenues from real property tax and business tax non tax revenues from fees and charges receipts from government business operations proceeds from sale of assets
-
2. External sources Internal Revenue Allotment (IRA) Special laws Grants Aids and borrowings
Fundamental Principles of Local Taxation a. Taxation shall be uniform b. Taxes, fees and charges shall be: Equitable Based as far as practicable on taxpayer’s ability to pay For public purposes NOT unjust, excessive, oppressive or confiscatory NOT contrary to law, public policy, national economic policy, or in restraint of trade c. Collection not to be left to private person. d. Revenue to inure solely to the benefit of the LGU levying the tax e. Each LGU to have a progressive system of taxation. Common Limitations (15) LGUs’ power to tax shall not extend to any of the following (15): 1. 2. 3. 4. 5. 6.
Income tax, except when levied on banks and other financial institutions Documentary stamp tax Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa [AGILE] Customs duties, registrations fees of vessels, and wharfage on wharves, tonnage dues, all other kinds of customs fees Goods carried into or out of, or passing through territorial jurisdictions of LGUs Agricultural and aquatic products
7.
8. 9. 10.
11. 12. 13. 14.
15.
Business enterprises certified to by the Board of Investments as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively from the date of registration; Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided in the LGC; Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in the LGC; Taxes on premiums paid by way of reinsurance or retrocession; Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided; Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under Republic Act No. 6810 "Magna Carta for Countryside and Barangay Business Enterprises (Kalakalan 20)" and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) "Cooperatives Code of the Philippines" Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.
[VP-PRECIPITANCES] Income Tax tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business LGU cannot impose tax on income, except in case of banks and other financial institutions gross receipts from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property, profit from exchange or sale of property, insurance premium Interest and Dividend Incomes any tax imposed on interest or dividends received by non-bank and non-financial institutions assume the nature of income tax banks and other financial institutions derive such gross receipts in the ordinary course of their business as financial institutions
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-
for non-bank and non-financial institutions, interest and dividend incomes are merely passive investment income nature of ordinary business income tax imposed thereon the nature of ordinary business tax
Documentary Stamp Tax tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto imposed on the privilege of conducting a particular business or transaction and not on the business or transaction itself the law taxes the document because of the transaction so that the tax becomes due and payable at the time the transaction is had or accomplished cannot be imposed by the LGU pursuant to the LGC, presumably to avoid indirect duplicate taxation Taxes on Gratuitous Acquisitions tax on these subjects is covered by the Tax Code and is collected by the national government estate tax is a tax on the net value of property left by a deceased on the date of his death inheritance tax is a tax calculated on the property received by a person from a deceased through succession Section135 of the LGC, provinces and cities may impose a tax on the sale, donation, barter, or any other mode of transferring ownership or title of real property Customs Duties, Vessel Registration Fees, and Wharfage Custom Duties customs duties is covered by the Tariff and Customs Code and implemented by the Bureau of Customs LGU cannot validly impose a tax based on a cargo manifest or bill of lading tax partakes of the nature of an import duty, which is beyond the LGU's authority to impose by express provisions of law Vessel Registration Section 149 of the LGC, municipalities may impose license fees for the operation of fishing vessels of three (3) tons or less
Wharfage a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or discharged by vessel wharfage fee is prohibited only on wharves constructed and maintained by the national government not on those owned and operated by the LGU Sections 153 and 155 of the LGC, LGUs, through their Sanggunian imposition of toll fees or charges for the use of any public roads, pier, or wharf funded and constructed by them Goods Carried Into, Out of, or Passing Through on goods or merchandise also because it is an impediment or restraint against free flow of trade and commerce within the territory of the LGU, adjacent and adjoining LGUs and the country as a whole No Unjust Enrichment on the Part of the Users those benefits resulted from the infrastructure that the LGU is mandated by law to provide no unjust enrichment where the one receiving the benefit has a legal right or entitlement when there is no causal relation between one's enrichment and the other's impoverishment Agricultural and Aquatic Products whether in their original form or not imposition of the tax will definitely restrict the free flow because the price will have to increase Marginal Farmer as Fisherman individual engaged in subsistence farming or fishing limited to the sale, barter or exchange of agricultural or marine products produced by himself and his immediate family, and whose annual net income does not exceed Fifty Thousand Pesos or the poverty line established by NEDA BOI-Certified Enterprises incentives to Registered Enterprises six (6) years from commercial operation for pioneer firms and four (4) years for non-pioneer firms, new registered firms shall be fully exempt from income taxes levied by the National Government No Retroactivity only upon the effectivity of LGC which was on January 1, 1992
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Excise Taxes and Petroleum Products LGUs are prohibited from imposing taxes on alcohol products, tobacco products, petroleum products, miscellaneous products such as fireworks, cinematographic films, jewelry, perfume, mineral products because they are covered by the Tax Code specific tax based on the unit or number, weight or volume capacity or any other physical unit of measurement of the objects to be taxed ad valorem tax based on the selling price or other specified value of the goods however, LGU may impose business tax on any business not exceeding two percent (2%) of gross sales or receipts of the preceding calendar year Tax on Petroleum Business Section 133(h) 'taxes, fees or charges on petroleum products' does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition absence of such a qualification leads to the conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h) The language of Section 133(h) makes plain that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but all 'taxes, fees and charges' While local government units are authorized to burden all such other class of goods with 'taxes, fees and charges,' excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products Percentage Tax and VAT Under the Tax Code, in the course of trade as business, sells, barters, exchanges, leases goods or properties, or renders services, and any person who imports goods shall be subject to the value-added tax (VAT) any person whose sales or receipts are exempt and who is not a VAT-registered person shall be liable to pay a percentage tax of three percent (3%) of his gross quarterly sales or receipts a percentage tax is a "tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services Authority to Levy Amusement Tax provinces are not barred from levying amusement taxes even if amusement taxes are a form of percentage taxes "except as otherwise provided" Section 140 of the LGC expressly allows the imposition of amusement taxes
Transportation Contractors LGUs may tax transportation contractors and common carriers on a basis other than gross receipts exception is the business tax on contractors and other independent contractors, which is a fixed graduated tax based on gross receipts Common Carrier legislative intent is to prevent a duplication of the so-called "common carrier's tax" common carrier is already paying 3% common carrier's tax on its gross sales/earning under the Tax Tax on Premiums Reinsurance is a contract by which an insurer procures a third person to ensure him against loss or liability by reason of original insurance retrocession is the practice of one reinsurance company essentially insuring another reinsurance company by accepting business that the other company had agreed to underwrite tax on insurance premiums is not included in the prohibition only receipts of insurance premiums may be taxed by the LGU Motor Vehicle Registration except tricycles a motor vehicle is any vehicle propelled by any power other than muscular power using the public roads excluding road rollers, trolley cars, street-sweepers, sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and cranes if not used on public roads, vehicles which run only on rails or tracks, tractors, trailers, and traction engines of all kinds used exclusively for agricultural purposes Power over Tricycles under Section 458[a][3][VI], the power to regulate their operation and to grant franchises for the operation thereof must not have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof Registration and Licenses not Included delegated powers to LGUs pertain to the franchising and regulatory powers exercised by the Land Transportation Franchising and Regulatory Board ("LTFRB") and not registration of motor vehicles and issuance of licenses for the driving thereof motor vehicles "used or operated on or upon any public highway"
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Export Products Philippine products actually exported foreign products are not covered by the limitation prohibition pertains to the exported products, while business tax, to the business exporting itself Countryside and Barangay Business Enterprises and Cooperatives "countryside and barangay business enterprises" means any registered business entity, association or cooperative whose: o Number of employees does not exceed twenty (20) at any time for the purpose of undertaking a productive business enterprise recommended by the Department of Trade and Industry (DTI) provincial office that will help develop the economy in its area. "productive business enterprise" shall not apply to business enterprises engaged principally in: professional services, retailing, wholesaling or trading of commodities, products or merchandise o Assets, do not exceed Five hundred thousand pesos (Php500,000.00) before financing; o Principal office and location located in the countryside exemption does not extend to service charges or rental for the use of property and equipment or public utilities owned by LGU National Government exemption does not include government-owned or controlled corporations Power to prescribe penalties for violation of tax ordinance sanggunian is authorized to prescribe fines subject to the following limitations: o in no case shall fines be less than Php1,000.00 nor more than Php5,000.00; o Nor shall the imprisonment be less than one (1) month nor more than six (6) months sangguaniang barangay prescribe a fine of not less than One hundred pesos (Php100.00) nor more than One thousand pesos (Php1,000.00) Adjustment of Rates of Tax subject to the following limitations: o not oftener than once every five (5) years o in no case shall such adjustment exceed ten percent (10%) of the rates fixed under the Local Government Code
EXCEMPTION FROM LOCAL TAXES Grant of Tax Exemptions grant tax exemptions, incentives or reliefs tax exemptions are conferred through, non-transferable tax exemption certificate does not apply to regulatory fees because they are levied under the police power of the LGU Guidelines grant of tax exemptions or tax reliefs: o may be granted in cases of natural calamities, civil disturbance, general failure of crops, or adverse economic conditions o through an ordinance o exemption or relief granted to a type or kind of business shall apply to all business similarly situated o only during the next calendar year for a period not exceeding 12 months as may be provided in the ordinance o shared revenues, the exemption or relief shall only extend to the LGU granting grant of tax incentives o same shall be granted only to new investments in the locality and the ordinance o grant shall be for a definite period of not exceeding one (1) calendar year o grant shall be by ordinance passed prior to the 1st day of January of any year o any grant to a type or kind of business shall apply to all business similarly situated Withdrawal of Tax Exemption Privileges Section 193 tax exemptions or incentives granted to, or presently enjoyed by all persons are hereby withdrawn upon the effectivity of this Code General Withdrawal the taxpayer has the heavy burden of proving exemption The later general law prevails the rule that a special law must prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of Sections 137 and 193 of the LGC
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The exemption is limited to three entities local water districts cooperatives duly registered under Republic Act No. 6938 non-stock and non-profit hospitals and educational institutions Regional or Area Headquarters (RHQs) and Regional Operating Headquarters (ROHQs) regional or area headquarters and regional operating headquarters of multinational companies exempt from all kinds of local taxes, fees or charges imposed by a local government unit except real property tax Exemption is Limited to Taxes are liable to pay building permit and related fees Congress Prevails over LGU legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations in case Congress enacts a later law granting exemption, same prevails over the provision withdrawing exemption under the LGC ENACTMENT OF LOCAL TAX ORDINANCES Conduct of public hearing is mandatory public hearings conducted for the purpose Procedure within ten (10) days from filing of any proposed tax ordinance published for three (3) consecutive days in a newspaper of local circulation at least four (4) conspicuous public places sanggunian shall cause the sending of written notices of the proposed ordinance, enclosing a copy to the interested or affected parties operating or doing business within the territorial jurisdiction of the LGU concerned specify the date or dates and venue of the public hearing or hearing shall be held not earlier than ten (10) days from the sending out of notice or the last day of publication, or date of posting thereof, whichever is later all affected or interested parties shall be accorded an opportunity to appear and present or express their views, comments and recommendations until all issues have been presented fully deliberated upon or consensus is obtained secretary of the sanggunian prepare the minutes attach to the minutes the position papers, memoranda, other documents submitted by those who participated
Burden of Proof lack of a public hearing is a negative allegation essential to the taxpayer's cause of action taxpayer is the party asserting has the burden of proof general rule regularity of the enactment of an officially promulgated statute or ordinance may not be impeached by parol evidence or oral testimony presumption in favor of the regularity of official conduct absent a clear showing to the contrary Approval of Ordinance ordinance enacted by the sangguniang panlalawigan, sangguaniang panlungsod, sangguniang bayan presented to the provincial governor or city or municipal mayor ordinances enacted by the sangguaniang barangay signed by the punong barangay affix his signature on each and every page veto it and return the same with his objections sangguanian concerned may override the veto of the local chief executive by twothirds (2/3) vote of all its members, making the ordinance or resolution effective for all legal intents and purposes veto shall be communicated by the local chief executive concerned to the sanggunian within fifteen (15) days in the case of a province, ten (10) days in the case of a city or a municipality; otherwise, the ordinance shall be deemed approved as if he had signed it Publication and Dissemination published and disseminated within ten (10) days after their approval, certified true copies of all provincial, city, municipal tax ordinances or published in full for three (3) consecutive days in a newspaper of local circulation at least two (2) conspicuous and publicly accessible places barangay tax ordinances furnished the respective local treasurers for public dissemination if the tax ordinance or revenue measure contains penal provisions, the gist of such tax ordinance or revenue measure published in a newspaper of general circulation within the province where the sanggunian concerned belongs shall be considered as falling at the beginning of the next ensuing quarter the taxes, fees, or charges, due to accrue therefrom Purpose of Publication
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a condition precedent to the effectivity and enforceability of an ordinance to inform the public of its contents before rights are affected by the same
Review of Ordinance. The Secretary of justice reviews the validity of the tax ordinance or revenue measure. On appeal, the constotutionality or legality of tax ordinances or revenue maesures may be raised within 30 days form the effectivity thereof to the Secretary of justice who shal render a decision within 60 days from the date of receipt of the appeal. NOTE: The appeal has no effect of suspending the effectivity of the ordinance and the accrul of the payment of the tax, fee or charge levied therein. If the Secretary of Justice did not act on the appeal or after the lapse of 60 days, the aggrieved party may file an “appropriate proceedings” with a court of competent jurisdiction. Power of Supervision. The review power of the Secretary of Justice of tax measures enacted by the local government unit to determine if the officials performed their function in accordance with law, the same is an act of mere supervision, not control. Power of RTC Judge. An RTC judge has the authority to pass upon the validity of a city tax ordinance even after its validity had been contested by the Secretary of Justice and a decision rendered thereon by said official. Applicable case: San Miguel Corporation v. Avelino, GR No. L-39699, March 14, 1979 Facts: A city demanded from a taxpayer the payment a specific tax, but the latter contested that the ordinance was illegal or void. The taxpayer went to the Secretary of Justice who rendered the opinion that it is of doubtful validity. However, a suit for collection was filed by the city where it squarely put in issue the validity of such ordinance, thus contesting the opinion of the Secretary of Justice. The taxpayer moved to dismiss the case on the ground of lack of jurisdiction. The Supreme Court held the issue on this manner. Mandatory Periods Under the LGC, a dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for the aggrieved party to go to court. But if the Secretary does not act thereon after the lapse of 60 days, a party could already proceed to court to seek relief. A decision is rendered--- 30 days to appeal to the Secretary of Justice. Another 30 days to go to court after the appeal is decided upon by the Secretary. In case of inaction of the Secretary or after the lapse of 60 days, the aggrieved party may go directly to the court to seek relief. NOTE: These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. This is MANDATORY. Purpose: To prevent delay as well as enhance the orderly and speedy discharge of judicial functions. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames.
Suspended or Disapproved Ordinance. A suspended or disapproved tax ordinance or revenue measure cannot be enforced. If enforced despite due notice of disapproval or suspension, the same is sufficient ground for administrative discilinary action against the local officials and emloyees responsible thereof. Reserved/Residual Taxing Power. The LGUs exercise the power to levy taxes, fees,charges on any base or subject not otherwise specifically provided in the LGC or taxed under the provisions of the NIRC, as amended, or other applicable laws PROVIDED THAT: 1. The taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory, or contrary to the declared national policy; 2. A prior public hearing was conducted for that purpose. NOTE: The exercise of such residual/reserved taxing power mustobserve and conform to the inherent and constitutional limitations, common limitations, fundamental principles and the procedures under the LGC. Principle of the Pre-emption/Exclusionary Doctrine and Concurrent Power Pre-emption- refers to the instance where the national government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. This doctrine primarily rests upon the intention of the Congress. The pre-emption will not apply if there is express grant of autority (i.e allow municipal corporations to cover fields of taxation it already occupies). Pre-emption applies to the following taxes (hence, may not be levied by the LGU): Taxes levied under the NIRC; taxes, fees imposed under the TCC; taxes charge under special laws. NOTE: Pre-emption does not apply between or among LGUs. They may tax the same subject as long as it is within their jurisdiction. In this case, there exists concureent taxing power where the power is shared by both the national and local government. The power may also be exercised simultaneously within the same territory and in relation to the same subject. SITUS OF LOCAL TAXATION General Rule: An LGU has tax jurisdiction over tax subjects within its territory. EXCEPTION: Issues which the LGU has authority arise (meaning there is a question whether the LGU has authority to tax or not) when a business enterprise operates in several jurisdictions as when the principal office, branch, factory, etc. are situated in different LGUs. (Meaning, business decisions are made in the principal business while the implementation is carried out through the business units.) To address this issue, the LGC provides for rules on situs to ensure that each of the LGU gets a rightful share in the collection. Definitions: Principal Office- the head or main office of the bisiness appearing in the pertinent documents submitted to the SEC or DTI or other appropriate agencies, as the case may be. MEANING, the city or municipalityspecificially mentioned in the in the AOI of official
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registration papers as being the official address of said principal office sahll be considered the situe thereof. NOTE: In case of relocation of the the principal office to another city or municipality, it shall be the duty of the owner, operator or manager of the business to give due noticeof such transfer to the local chief executive (mayor) of the cities or munics concerned within 15 days after such transfer is effected. Branch or Sales Office- a fixed place in a locality which conducts operations of the business as an extension of the principal office. Example- warehouses which accept orders and/or issue sales invoises independent of a branch with sales office are considered as sales offices. NOTE: Offices used as display areas of the products are not wihtin the purview of branch or sales office. Warehouse- a building utilized for the storage of products for sale and from which goods are withdrawn for delivery to customers or dealers or by persons acting in behalf of the business. SALES ALLOCATION. Recording of sales shall be governed by the following rules: 1. Sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said branch and the tax shall be payable to the city or munic where the same is located. 2.
In cases where there is no such branch, the sale shall ne recorded in the principal office along with the sales made by the principal office and the tax shall accrue to the city or munic where said principal office is located.
3.
In case where there is a factory project office or plantation in the pursuit of the business, 30 per cent of all sales recorded in the principal office shall be taxable by the city or munic where the principal office is located and 70 per cent of all sales recorded in the principal office shall be taxable in the principal office where the factory projecto office or plantation is located.
NOTE: LGUs where only experimental farms are located shall not be entitled to the sales allocation. A.) In case of a plantation located in a locality other than that where the factory is locadted, the 70 per cent sales allocation shall be divided as follows: a.) 60 per cent to the city or munic where the factory is located b.) 40 per cent to the city or munic where the plantation is located B.) In case where there are 2 or more factories, plants located in different localities, the 70 per cent sales allocation shall be prorated among the localities where such factories or plants are located in proportion to their respective volumes of production during the period for which the tax is due. C.) The foregoing sales allocation shall be applied irrespective of whether or not slaes are made in the locality where the factory or plantation is located. D.) In case of manufacturersor producers which engage the services of an independent contractor to manufacture or produce some of their products, these rules on situs
of taxation shall apply except that the factory or plant and warehouse of the contractor utilized for the production and storae of the manufacturer’s products shall be considered as the factory or plant or warehouse of the manufacturer. Port of Loading. The city or munic where the port of loading is located shall not levy and collect the tax impossable on business and occupation UNLESS the exporter maintains in said city or municipality its prinicpal office. Situs of Excise Tax. The situs of an excise tax depends upon the place in which the act is performed or occupation engaged in. it does not depend on the domicile of the person subject to the excise tax nor upon the physical location of the property but depends upon the place in which the act is performed or occupation engaged in. Situs of Sale. The place of the consummation of the sale determines the situs. An LGU can validly tax the sales to customers outside of its territory as long as the orders were booked and paid for in the company’s branch office in the city. SPECIFIC TAXES THAT MAY BE LEVIED BY LGUs Taxing Powers of Provinces The province may levy only the following taxes, fees and charges: 1. Taxes on transfer of Real Property Ownership at rate not more than 50 per cent of 1 per cent of total consideration; 2. Franchise tax- at a rate not exceeding 50 per cent of 1 per cent of the gross receipts for the preceeding calendar year; 3. Tax on Sand, gravel and other Resources- at a rate not more than 10 per cent of fair market value; 4. Tax on business of Printing and Publication- at a rate not exceeding 50 per cent of 1 per cent; 5. Professional Tax- at a rate not more than 300 pesos annually. 6. Amusement Tax- at a rate not more than 10 per cent of gross receipts from admission fees; 7. Annual fixed tax for every Delivery truck or van of manufacturers in certain products- at a rate not exceeding 500 pesos annually. [PD FRAPS] Taxes on transfer of Real Property Ownership. Taxes on the sale, donation, barter or on any other mode of transferring ownership or title of real property at rate not more than 50 per cent of 1 per cent of total consideration involed in the acquisition of property or their fair market value in case the monetary consideration involved in the transfer is not substantial, whicever is higher. Exemption. The sale, transfer or any disporition of real property pursuant to RA No. 6657 (The Comprehensive Agrarian Reform Law of 1998). Also, socialize housing for the benefit of the underprivileged and homeless is exempt from transfer tax. Also, the change in ownership of the corporation will not trigger the tax on transfer of real property. Moreover, the
54
subsequent registration of title to the land in the name of condominium corporation is not subject to transfer tax. NOTE: Transfers without monetary consideration such as donations, braters and succesion are taxbale. What is being taxed is the exercise of privilege to transfer or convey a property. The determining factor is whether or not there is indeed a transfer of ownership or title over the real property. The acquisition for official use of embassies, consulates or diplomats is exempted from transfer tax under the generally accepted principles of international laws. Tax on business of Printing and Publication. Tax on the business of persons engaged in the printing of and publication of books, cards, posters, leaflets, etc. at a rate not exceeding 50 per cent of 1 per cent of the gross annual receipts for the preceeding calendar year. In case of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital investment. Exemption: the recepts from the printing of books or other reading materials prescribed by the DepEd as school texts or references. Franchise Tax. Tax on the business enjoying franchise at a rate not exceeding 50 per cent of 1 per cent of the gross receipts for the preceeding calendar year based ont eh incoming receipt realized within its territorial jurisdiction. In case of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital investment. In the succeeding year, the tax shall be based on the gross receipts for the preceeding claendar year. Franchise- a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government may impose in the interest of public welfare, security and safety. Franchise tax- tax on the privilege of transacting business in the state and exercising ccorporate franchise by the State. It is a concurrent power simultaneously exercised by national and local governments. Aside form national franchise tax, the franchisee is still liable to pay a local franchise tax, unless it is expressly and unequivocally exemtped from the payment thereof. Territorial Limits. Provinces should impose the franchsie tax on businesses whitin its territorial jurisdiciton, thus excluding the territorial limits of any city located therein. Tax on Sand, gravel and other Resources. Levy and collect at a rate not more than 10 per cent of fair market value in the locality per cubic mter of ordinary stones, sand, gravel and other os similar nature as defined in the NIRC extracted from public lands or from the beds of seas, lakesm streams, creeks and other public waterswithin its territorial jurisdiction. The proceeds on the tax shall be distributed as follows: Province- 30 per cent Component city or municipality where the sand, gravel, etc are extracted - 30 per cent Barangay where the sand, gravel, etc. are extracted- 40 per cent NOTE: The permit to extract shall be issued exclusively by the provincial governor.
The Regalian doctrine does not apply because tax a burdens and are construed strictissimi juris against the government. The authority to impose taxes on such nature belongs to the province and not to the municipalitywhere they are found. Professional Tax. Annul professiznal tax on each person engaged in the exercise or practice of a profession requiring government examination at such amount and resaonable classification as the sangguniang panlalawigan may determine but shall in no case exceed 300 pesos. Where to pay? It shall be paid to the province where he practices his profession or where he maintains his principals in case he practices his profession in several places. However, such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subject to any other national or local tax, license, or fee for the practice for such profession. It is the duty of the employer to require the payment of his employee’s profesional tax on his profession beofre employment and annually thereafter. It shall be payable annuall or on or st before the 31 day of January. NOTE: Professionals exclusively employed in the government shall be exempt from the payment of this tax. Those covered professionals are those who only passed the bar examination or any board or other examinations conducted by the PRC. Amusement Tax. Provinces may levy tan amusement taxt to be collected from the proprietors, lesees or operatoers of theathers, cinemas, concert halls, boxing stadiaand other places of amusements at a rate not more than 10 per cent of gross receipts from admission fees. Amusment is a pleasurable diversion and entertainment. It is synonymous to relaxation, pastime or fun. EXEMPTION: The holding of operas, concerts, dramas, paintings, flower shows, musical programs, literay and oratorical presentations except pop rock or similar concerts shall be expemt from the payment of the tax. The proceeds from the amusment taxt shall be shared equally by the province and the municipality where such amusement places are located. Amusement not covered by amusment tax: 1. Professional basketball games 2. Resorts, swimming pools, bath houses, hot springs and tourist spots NOTE: LGUs cannot impose amusement tax pursuant to the principle of pre-emption. Annual fixed tax for every Delivery truck or van of manufacturers in certain products. Annual fixed tax for every truck, van or any vehicle used by manufactures, producer, wholesalers, dealers, etc in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars, etc wihtin the province at a rate not exceeding 500 pesos annually. Taxing Powers of Municipalities
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Municipalities may levy taxes, fees and charges not otherwise levied by the province. Tax on business. See Section 143 of the LGC. NOTE: SERVICE is not an article of commerce. The word article refers to such material or corporeal things as goods or physical property, which is distinguished from service which is intangible product. Taxing Powers of Cities There are three classifications of cities provided in the Local Government Code, namely, (1) highly urbanized city, which is a city of at least 200,000 inhabitants AND an income of at least 50 million pesos at 1991 prices; (2) component city, which is a city which that does not meet the criteria for highly urbanized cities; and (3) independent component city, which is a component city whose charter prohibits its inhabitants from voting in the provincial elections. Among local government units, the city has the widest scope of taxing. Section 151 of the Local Government Code states: [A] city may levy the taxes, fees, and charges which the province or municipality may impose… The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. From that provision, a city covers the scope of taxing of either a municipality or a province. It is also authorized to collect a higher tax rate, i.e. 50% of the maximum rates allowed for the province or municipality. (Insight) The reason why a city is provided a much wider scope and a greater power is that cities are generally the centers of commerce, transportation, religion, education, finance, and culture of a certain province or locality. Being centers of such activities, cities need more revenues to fund its many activities and projects that are involved in the mentioned activities. The provision above is the general scope of taxation for cities. In addition to such general scope, cities may also levy and collect a percentage tax on any business not provided in the list of specific businesses a municipality may taxed on, at rates not exceeding three percent (3%) of the gross sales or receipts of the preceding calendar year. Moreover, cities may collect a professional tax at a rate of 300.00 Pesos per calendar year per professional, and an amusement tax on paid admission at a rate not exceeding 10% of the gross receipts from admission fees. Lastly, highly urbanized cities has a share of 60%, of the proceeds of the tax on sand, gravel, and other quarry resources extracted from within the boundaries of the city. The taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them. The provinces do not have a share as such cities are fiscally and politically independent from the province Taxing Powers of Barangays As stated, cities have the greatest scope of taxing. As a contrast, barangays have the narrowest scope of taxing and has the least revenue-raising powers. Its scope of taxation is
listed in Section 152 of the Local Government Code, and it states that barangays may levy or collect the following: 1.
Taxes on stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts.
2.
Service fees or charges for services the barangay rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers.
3.
Barangay clearance fees for the issuance of such barangay clearance, which is a document required for the issuance of any license or permit for any business.
4.
Other fees and Charges on (1) Cockfights, cockpits, and commercial breeding of fighting cocks, (2) Billboards, signboards, neon signs, and outdoor advertisements, and (3) Recreation places which charge admission fees.
[BROS-CAR]
Common Revenue-Raising Powers of Local Government Units Under Sections 153-155 of the Local Government Code, any local government unit may collect the following: 1.
Service Fees and Charges for services rendered.
2.
Toll Fees or Charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned.
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3.
Public Utility Charges for the operation of public utilities owned, operated and maintained by them within their jurisdiction.
1.
For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and
2.
For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00).
[SToP] Toll fees may not be collected from the following classes of people: (1) Members of the PNP and AFP who are on mission; (2) post office personnel delivering mail; (3) physicallyhandicapped individuals; and (4) disabled individuals who are at least 65 years old. Toll fees may also not be collected when public safety and welfare so require.
Community Tax A community tax, or a residence tax (certificate), is a form of identification, which has its origins from the Spanish period. (Insight) The English term ‘community tax certificate’ is a euphemism of the Spanish word cédula (sedula in Tagalog), which has a strongly negative connotation due to the events that took place during the Philippine Revolution, particularly 43 when the revolutionaries cried “Punitin and sedula!” at Pugadlawin as a sign of protest and revolt against the Spaniards who had been taxing the Filipinos heavily for centuries. Although it has been a traditional form of identification for centuries, for notarial purposes, however, it is no longer valid. Individuals who are liable for community tax are inhabitants of legal age who: 1. Is engaged in business or occupation; or 2. Is required by law to file an income tax return; or 3. Owns real property with an aggregate assessed value of 1,000 pesos or more; or 4. Has been regularly employed on a wage or salary basis for at least 30 consecutive working days. [BROS] They shall pay an annual community tax of five pesos and an addition tax of one peso for every one thousand pesos of income, which in no case shall exceed 5,000 pesos. As for juridical persons, every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule:
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There are only two kinds of persons who are exempt from paying the community tax, and they are: 1. Diplomatic and consular representatives, for reasons of international comity; and 2. Transient visitors when their stay in the Philippines does not exceed three months, which is often the period granted to tourists arriving in the country. (Insight) As the community tax certificate is a residence certificate, it is illogical to impose such to transient visitors for the simple reason that they do not intend to reside here. Since a community tax certificate is a form of identification, it is required to be presented on certain occasions when an individual or juridical person transacts with the State, particularly: 1. When an individual acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government service; receives any license, certificate. or permit from any public authority; pays any tax or free; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation with whom such transaction is made or business done or from whom any salary or wage is received; and 2.
When, through its authorized officers, any corporation receives any license, certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts other official business.
For voter’s registration purposes however, the individual is not required to present such community tax. (Insight) The reason is that the State, and no less other than the Constitution, recognizes the sanctity of the right of an individual to vote. It is an exercise of civil rights that enjoys a higher privilege over the State’s need to have a system of identifying
“Tear all cedulas!” 57
its citizens. The State has means, other than requirement of presentation of the community tax certificate, to identify a registrant. Collection of Local Taxes Generally, the tax period is the calendar year. The taxes may be paid in quarterly installments. (Insight) Such manner of payment is for the benefit of the taxpayer. This is also consistent with the prevailing Filipino culture that favors small payments so as not to feel the impact of spending a big amount in one transaction to pay his or her taxes. As for accrual, it is on the first day of January, or New Year’s Day. Payment should be made within twenty days from the date of accrual of the tax, that is until January 20, or for installments, until April 20, for the second quarter; until July 20, for the third; and until October 20, for the last. The Sanggunian, however, may extend the time for payment without imposing any surcharges or penalties, but only for a period not to exceed six months. If payment is not made within the allotted time, a surcharge not exceeding 25%, and an interest not exceeding 2%, may be imposed. Interest shall, however, stop from accruing at th the end of the 36 month. It is the treasurer of the local government unit (i.e. the barangay, municipal, city, or provincial treasurer) or his duly authorized deputy who shall collect the taxes, fees and other charges. Such treasurer has the power to examine the books of accounts and pertinent records of any natural or juridical person for the purpose of ascertaining, assessing and collecting the correct amount of tax. Remedies for Collection of Revenues There are two major remedies for the collection of revenues, and they are (1) the imposition of a local government’s lien and the (2) availing of civil remedies. A local government’s lien, which is superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or judicial action, is imposed to any property or rights therein, which includes property used in business, occupation, practice of profession or calling, or exercise of privilege, for the payment of local taxes, fees, charges and other revenues. The lien may only be extinguished upon full payment of the delinquent local taxes fees and charges including related surcharges and interest. Civil remedies may either be an administrative action through the distraint of personal, including incorporeal, property, and the levy upon real property and interest in or rights to real property, or a judicial action. For distraint of personal property, the procedure is as follows: 1. Seizure 2. Accounting of distrained goods; 3. Publication; 4. Release upon payment before sale; 5. Sale; 6. Disposition of proceeds
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[Sisa And Pepe Rizal Shall Die] In seizure, upon failure to pay a tax within the required time, the LGU treasurer or his deputy shall send a written notice to the delinquent taxpayer. After sending the notice, the treasurer then shall proceed to “seizure proper” and before doing so, he shall issue a duly authenticated certificate based upon the records of his office showing the fact of delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate shall serve as sufficient warrant for the distraint of personal property, subject to the taxpayer's right to claim exemption under the provisions of existing laws. He may thereafter seize or confiscate any personal property belonging to that person or any personal property subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in question. Distrained personal property shall be sold at public auction in the manner hereon provided for. Right after seizing, the officer executing the distraint shall make an accounting and issue a copy of such to the owner, to the person who had possession of the property seized or to someone of suitable age and discretion who is found at the residence or place of business of the person whose property is seized. A notice of sale shall be posted at three public and conspicuous places and such notice shall be published. If, however, before the consummation of the said sale, the person whose property has been seized, pays up his delinquent taxes, charges or fees, the property so seized may be released. During the sale, the property shall be awarded to the highest bidder for cash. If the property remains unsold for a period of 120 days from the day of distraint, the property shall be considered sold to the LGU for the amount of the assessment made by the Committee on Appraisals. Finally, the proceeds shall be disposed by applying it to satisfy the tax, and to the penalties, interests and surcharges that accrued because of the delinquency. Also it shall be applied to the expenses of the sale. If the proceeds are not sufficient, another distraint may be effected. For levy on real property, it may be done before, simultaneously or after distraint of personal property. The procedure may be best demonstrated by the following: Duly Authenticated Certificate Such certificate shall be issued by the local treasurer for the purpose of identifying the delinquent taxpayer, his unpaid taxes, and the fees, charges or penalties.
Writing Upon Certificate a Description of the Property 44
Based on literary, historical, philosophical and biological truths. 58
Levy shall be effected upon writing the description of the property to be levied and upon notice to interested persons
Notice of levy 1. 2. 3.
Written notice shall be served upon: The assessor Registrar of deeds The delinquent taxpayer
Redemption Within one year from the sale, the delinquent taxpayer has the right to redeem the property upon payment of the taxes, etc. plus an interest of 2% per month on the purchase price.
Final Deed to Purchaser If the taxpayer fails to redeem, a final deed shall be issued to the purchaser.
Advertisement Within 30 days after levy, the LGU treasurer shall advertise for at least 30 days the sale or auction of the property levied.
Staying of Sale At any time before the date of the sale, the taxpayer may stay the proceedings by paying the taxes, fees charges, penalties and interests.
Sale The sale shall proceed if the taxpayer fails to stay the sale through payment
Post-Sale Incidentals 1. Within 30 days after the sale, a report shall be made and delivered to the sanggunian. 2. A certificate of sale shall be issued to the purchaser 3. Any excess of the proceeds shall be turned over to the owner.
Just like distraint, levy may be repeated once or several times as long as the full amount due has not been extinguished. Although either may be exercised several times, the law provides certain exemptions from distraint or levy. (Insight) Such exemptions are provided in order for the delinquent taxpayer’s dignity be recognized and that he be afforded his human rights to a decent living, to health, to exercise his profession, and to survival. Furthermore, it is intended by the law that the delinquent taxpayer be left with sufficient properties so that he could recover from his financial woes. The following are the exempted properties: (a) Provisions, including crops, actually provided for individual or family use sufficient for four (4) months; (b) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P10,000.00); (c) One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00), by the lawful use of which a fisherman earns his livelihood; (d) Any material or article forming part of a house or improvement of any real property. (e) His necessary clothing, and that of all his family; (f) The professional libraries of doctors, engineers, lawyers and judges;
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(g)
(h)
One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and necessarily used by him in his ordinary occupation; Implements and tools necessarily used by the delinquent taxpayer in his trade or employment;
[PUBIC AngHIT] For the other major remedy of judicial action, the procedure is (Insight) the same as any other ordinary civil action akin to a petition for a collection of debt. The real party-in-interest is the local government unit concerned, through its treasurer. The cause of action, however, prescribes within five years. Prescription The following is a table of the periods of prescription of certain tax collection-related activities, and the corresponding suspensions of the periods: Tax Collection Activity Period Suspension of the Period Period of assessment, in general
5 years, from the due date
Period of assessment when fraud is involved Period to collect
10 years, from discovery of fraud 5 years, from the date of assessment
1. The treasurer is legally prevented from making the assessment of collection. 2. The taxpayer requests for a reinvestigation and executes a waiver 3. The taxpayer is out of the country
Remedies of the Taxpayer The taxpayer has two major remedies: (1) administrative and (2) judicial action. For administrative remedies, the taxpayer has the following remedies: 1. Before assessment, an appeal to the Secretary of Justice; 2. After assessment, a protest of assessment, a claim for refund or tax credit, and redemption [JARRed] The appeal to the Secretary of Justice should involve questions of law, or specifically, questions on the constitutionality or legality of tax ordinances or revenue measures. Such appeal shall be made within 30 days from the effectivity of such ordinance or measure. The Secretary has 60 days to act upon the appeal. If he denies, the taxpayer may file a court action within 30 days from receipt of notice of such denial. However, after the lapse of 60 days from the filing of appeal before the Secretary, and the latter has not acted upon it, a party can seek judicial relief even without any prior decision from the Secretary.
A protest of assessment may be filed before the local treasurer within 60 days from the notice of assessment. The local treasurer shall decide within 60 days and may accept or reject wholly or partially the protest. As for claim of refund or tax credit, this is required to be filed before the local treasurer before a a taxpayer may proceed to judicial relief. If a tax credit is granted, this is not refundable to cash but may be applied to future tax obligations. As for redemption, the delinquent taxpayer may redeem real property sold within one year from the date of sale. For judicial remedies, the taxpayer has the following options: 1. Court action; 2. Declaratory relief; and 3. Injunction. For a court action, the following table demonstrates the procedure: Mode Appeal to the Secretary of Justice
Period to file the Administrative Action 30 days from effectivity of tax ordinance or measure
Denial of Assessment
of
60 days from receipt of the notice of assessment
Denial of Claim for Tax Refund
Within two years from the date of payment.
Protest
Period to file the Court Action 30 days if the Secretary decides the appeal; After the lapse of 60 days from filing with the Secretary, if the Secretary does not act upon the appeal. 30 days from the receipt of the denial or from the lapse of the 60-day period to appeal to the court. In refund cases, when the two-year period is about to expire, a taxpayer may proceed to court without waiting for the decision of the treasurer.
For declaratory relief, the same procedure as stated in the 1997 Rules of Court shall apply. Finally, for injunction, this may be availed by a taxpayer when he wishes to enjoin the collection of a local tax.The issuance of a writ of injunction is prohibited if the subject matter is a national internal revenue tax. The requisites of the issuance of a writ of injunction are: (1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage. Although the two requisites
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may be present, the judge has the ultimate discretion to issue such writ. It is not a matter of right especially that writs of injunction against local taxes are frowned upon. Sources: The Local Government Code of the Philippines (Republic Act No. 7160) Efren Vincent Dizon, Taxation Law Compendium, Volume 1 (2013).
Chapter 7 REAL PROPERTY TAX A. Definitions and Taxing Authority PROPERTY TAX are taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment. It is ordinary measured by amount of property on a given day and not on total amount owned by him during the year. REAL PROPERTY TAX (RPT) is the most important and ideal source or of revenue for local governments. It is the largest contributor to the total own-source revenues of LGUs, and remains to be the most reliable income source where local governments can raise an overwhelming share of their own-source tax revenues. Basis of Real Property Tax: A Real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. Taxing real property on the basis of ACTUAL USE, even if user is not the owner; ACTUAL USE refers to purpose for which the property is principally and predominantly utilized by the person in possession. Same policy was adopted in the Local Government Code. NATURE OF REAL PROPERTY TAX 1. Usually single or indivisible, although land and building or improvements erected are assessed separately, except when land and building belong to separate owners 2. Fixed proportion of assessed value and requires intervention of assessors 3. Collected or payable at appointed times; constitutes as a lien on and is enforceable against property subject to tax and not by imprisonment 4. Tax in rem against realty Note: RPT being an ad valorem tax, cannot be treated as local tax REAL ESTATE includes all land within the district by which the tax is levied and all rights and interests in such land, and all buildings and other structures affixed to the land, are the property of the tenant and may be removed by him at the termination of the lease. When there are separate owners of land, separate assessments of property of each shall be made. IMMOVABLE PROPERTY (ART 415) ART 415: The following are immovable property 1. Lands, buildings, roads and constructions of all kinds adhered to soil 2. Trees, plants and growing fruits, while attached to land or form an integral part of an immovable 3. Everything attached to an immovable in a fixed manner, such way it cannot be separated without breaking the material or deterioration of object
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4.
Statues, reliefs, paintings or other objects for use or ornamentation placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements 5. Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the said industry or works 6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included 7. Fertilizer actually used on a piece of land 8. Mines, quarries and slag dumps, while matter forms part of the bed and waters either running or stagnant 9. Docks and structures though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast 10. Contracts for public works and servitudes and other real rights over immovable property MACHINERY should be actually, directly and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial, or agricultural purposes. IMPROVEMENT: valuable addition made to a property or an amelioration in its condition, amounting to more than a mere repair or replacement of parts involving capital expenditures and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or further purposes. It can also be artificial alterations of the physical condition of the ground that are reasonably permanent in character. PERMANENCE: “permanence intended in its construction and use”; expression “permanent” as applied to an improvement does not imply that the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement remain as long as the land to which it is annexed is still used for that purpose. LGUS WITH POWER TO IMPOSE REAL PROPERTY TAX—following may levy an annual ad valorem on real property not specifically exempted 1. Provinces 2. Cities 3. Municipalities within Metro Manila B. Fundamental principles, exempt properties and classification of property
FUNDAMENTAL PRINCIPLES 1. Real property shall be appraised at its current and fair market value. 2. Real property shall be classified for assessment purposes on the basis of its actual use. 3. Real property shall be assessed on the basis of a uniform classification within each LGU. 4. Appraisal and assessment of real property shall be equitable. EXEMPT PROPERTIES 1. All RP owned by Republic or any of its political subdivisions a. EXCEPTION: when the beneficial use has been granted to a taxable person 2. Charitable institutions, churches, parsonages or convents appurtenant to and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes 3. All machinery and equipment that are actually, directly and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power. 4. All real property owned by registered cooperatives in RA 6938 5. Machinery and equipment exclusively used for pollution control and environmental protection
Ownership exemptions On basis of ownership; Owned by 1. Republic 2. Province 3. City 4. Municipality 5. Barangay 6. Registered cooperatives
Character exemptions On basis of their character 1. Charitable institutions 2. Houses and temples of prayer 3. Non-profit or religious cemeteries
Usage exemptions On basis of actual, direct and exclusive use to which they are devoted 1. All lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes 2. All machinery and equipment that are actually, directly and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and
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3.
transmission of electric power Machinery and equipment exclusively used for pollution control and environmental protection
1. All RP owned by Republic or any of its political subdivisions EXCEPTION: when the beneficial use has been granted to a taxable person Note: LGU cannot tax the national government Liberal construction of exemption—General Rule: Tax exemption is strictly construed against the taxpayer claiming the exemption. EXCEPTION: When Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality EXCEPTION TO EXCEPTION: When legislature clearly intended to tax government instrumentalities for delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. SEC 133 LGC “unless otherwise provided” DOCTRINE OF EXEMPTION OF NATIONAL GOVERNMENT FROM LOCAL TAX emanates from SUPREMACY OF NATIONAL GOVERNMENT SEC 234 LGC--- government property being used by a taxable person or entity is subject to tax Real property, although owned by the Republic, is not devoted to public use or public service but to private gain of taxable person. EXCEPTION: when national government are subject to any kind of tax by local governments. Exception to the exemption applies only to real estate tax and not to any other tax. Title of government property 1. In the name of Republic 2. In the name of agencies or instrumentalities
a.
Republic may grant beneficial use of its real property to any agency or instrumentality when real property is transferred to it even as Republic remains the owner.
Tax liability of beneficial use—corresponding liability for payment devolves on taxable beneficial user and not the government. Property over which government has right to use—if the government has right to use the property, the same may be exempted from realty tax RECLAIMED AREAS—foreshore and submerged areas belong to the public domain and are inalienable unless reclaimed, classified as alienable lands upon to disposition and further declared no longer needed for public service. Ownership remains with the State unless it is withdrawn by law or presidential proclamation from public use. Even if alienable lands of public domain were transferred to Philippine Reclamation Authority and issued land patents or certificates of title, it did not automatically made such lands private. Reclaimed lands being leased or sold by PRA are not private lands. Only when qualified private parties acquire these lands will the lands become private lands. EMBASSIES—ART 23 Vienna Convention of Diplomatic Relations: sending state and head of mission shall be exempt from all national, regional or municipal dues and taxes in respect of premises of mission, whether owned or leased. 2. Charitable institutions, churches, parsonages or convents appurtenant to and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes Partial exemption is possible if only a part of the property is used for exempted purpose. Real properties, although owned by taxable persons, which are actually, directly and exclusively being used by an exempt entity for religious, charitable or educational purposes, are exempted from payment of real property tax 3. All machinery and equipment that are actually, directly and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power. To qualify for exemption, use must be devoted to supply and distribution of water or generation and transmission of electric power. Machinery must be actually, directly and exclusively used for such purpose. Contractual exemption—contractual assumption of the obligation to pay real property tax is not sufficient to make one compellable to pay taxes due. It must be supplemented by an interest that the party assuming the liability has on the property tax.
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Thus, where vendee assumed liability for taxes, vendee is liable because he acquired use and possession of the property, even though title remained with the vendor pending full payment of the purchase price in a contract of conditional sale. Liability is prospective and does not cover delinquent taxes. This is because of the principle that user of the property bears the tax. He cannot assume where he has no possession. Assumption of tax by an exempt entity—tax exempt entity may not validly assume the tax in a contract with a taxable beneficial user with the intention of indirectly extending the rd former’s exemption to the latter. Such does not bind the LGU, a 3 party not privy to the agreement and the beneficial user remains to be liable. Realty tax is directly chargeable to the beneficial user. 4.
All real property owned by registered cooperatives in RA 6938
COOPERATIVE: autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic and cultural needs and aspirations by making equitable contributions to the capital required. Purposes of cooperative 1. Encourage thrift and savings mobilization among members 2. Generate funds and extend credit to members for productive and provident purposes 3. Encourage among members systematic production and marketing 4. Provide goods and services and other requirements to members 5. Develop expertise and skills among its members 6. Acquire lands and provide housing benefits for members 7. Insure against losses of members 8. Promote and advance the economic, social and educational status of members 9. Establish, own, lease or operate cooperative banks, cooperative wholesale and retail complexes 10. Coordinate and facilitate activities of cooperatives 11. Advocate cause of cooperative movements 12. Ensure viability of cooperatives through utilization of new technologies 13. Encourage and promote self-help 14. Undertake any and all other activities for effective implementation of Cooperative Code Tax Treatment of cooperative—duly registered cooperatives which do not transact any business with non-members or the general public shall not subject to any taxes and fees imposed under internal revenue laws.
Cooperatives transacting business with both members and nonmembers shall not be subjected to tax on their transaction with members. Transactions of members with the cooperative shall not be subject to any taxes and fees, final taxes on members’ deposits and documentary tax. Tax exemptions of cooperatives dealing with nonmembers 1. Cooperatives with accumulated reserves an undivided net savings of not more than 10M shall be exempt from all national and local taxes. a. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machinery, equipment and spare parts and which are not available locally b. All tax free importations shall not be sold nor the beneficial ownership be transfer to any person until after 5 years, otherwise cooperative and transferee shall be solidarily liable to pay twice the amount of imposed tax 2.
3.
Cooperatives with accumulated reserves an undivided net savings of not more than 10M shall pay the following taxes at full rate a. Income tax—amount allocated for interest on capitals i. Same tax is not consequently imposed on interest received by members ii. Cooperatives are exempt from income tax from date of registration with CDA b.
VAT—on transactions with nonmembers i. Exemption under NIRC shall include sales and operated by members to undertake production and processing of raw materials or of goods produced by its members into finished or process products for sale
c. d.
All other taxes unless otherwise provided Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation may be tax deductible
All cooperatives regardless of amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies a. Sales or services for non-members shall be subject to applicable percentage taxes by producers, marketing or service cooperatives b. Nothing in law shall preclude examination of books of accounts
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5.
Machinery and equipment exclusively used for pollution control and environmental protection RA 7942 (Philippine Mining Act)—POLLUTION CONTROL AND INFRASTRUCTURE DEVICES: infrastructure, machinery, equipment and improvements used for impounding, treating or neutralizing and cleansing mine industrial waste. a. Pollution control devises shall not be considered as improvements on land or building they are attached and not subject to real property tax i. However, payment of mine wastes and tailing fees is not exempted b. Claim of exemption must be supported by evidence that property is actually, directly and exclusively used for pollution control and environmental protection
on actual use irrespective of any previous assessment or taxpayer’s valuation which is based on a taxpayer’s declaration. Incidental and reasonably necessary use- classification of property as special is not limited to property actually indispensable but to facilities that are incidental to and reasonable necessary for the accomplishment of its purpose Approaches in determining fair market value—assessor uses any or all in analyzing data gathered to arrive at the estimate fair market value to be included in the ordinance containing the schedule of fair market values.
1. Sales analysis or market data approach
2. Income approach
WITHDRAWAL OF EXEMPTION—exemption from payment of real property tax previously granted or enjoyed by all persons was withdrawn by LGC
Price paid in actual market transactions is considered by taking into account valid sales data accumulated from among various sources stated in LGC
Value of an income producing property is no more than the return derived from it. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property
Taxability of Squatted Property Express grant of temporary exemption—LGU may, by ordinance, expressly exempt squatted lands on a temporary basis. Exemption is automatically lifted when owner has full control of property. CLASSES OF REAL PROPERTY FOR ASSESSMENT PURPOSES 1. RESIDENTIAL: land principally devoted to habitation 2. AGRICULTURAL: land devoted to planting trees, raising of crops, livestock and poultry, dairying, salt making, inland fishing 3. COMMERCIAL: land devoted for object of profit 4. INDUSTRIAL: land devoted to industrial activity as capital investment 5. MINERAL: land in which minerals exist in sufficient quantity to justify necessary expenditures to extract and utilize such 6. TIMBERLAND: land covered with trees suitable for carpentry 7. SPECIAL: all lands, buildings and other improvements actually, directly and exclusively used for hospitals, cultural or scientific purposes; and those owned and used by local water districts and GOCCs for public services in supply of water and generation and transmission of electric power Real property shall be classified based on its actual use 1. Valued 2. Assessed Zoning—city or municipality within Metropolitan Manila Area, through their sanggunian, shall have the power to classify lands in accordance with their zoning ordinances Tax declarations are not conclusive. It only enables the assessor to identify it for assessment levels. It does not bind the provincial/city assessor, for appraisal and assessment are based
capitalization
3. Replacement or reproduction cost approach Factual approach used exclusively in appraising man-made improvements such as buildings and other structures, based on such data as materials and labor costs to reproduce a new replica of the improvement
No rigid rule C. Rates of Levy, Penalties and Condonation UNIFORM RATE OF BASIC REAL PROPERTY TAX 1. Province: not exceeding 1% of the assessed value of real property 2. City or municipality within Metro Manila Area: not exceeding 2% of the assessed value of real property Local Government Unit authorized to collect real estate tax on properties: 1. Within its territorial jurisdiction; and 2. Unquestionably within its geographical boundaries. In case of BOUNDARY DISPUTE between two local governments, while the case is pending: 1. if the taxpayer already paid real property tax in one unit, no liability to pay in the other unit 2. if he has yet to pay, deposit due real property taxes in an escrow account with a government bank. No public hearing shall be required before the enactment of a local tax ordinance levying the basic real property tax. SPECIAL LEVIES ON REAL PROPERTY
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1. 2. 3.
4.
Additional levy for the Educational Fund Additional Ad Valorem tax in idle lands Special levy by local government units, through a tax ordinance describing with reasonable accuracy the: a. Nature b. Extent c. Location of the public works projects or improvements to be undertaken d. State of the estimated cost thereof e. Specify the metes and bounds by monuments and lines; and f. The number of annual installments for the payment of the special levy which in no case shall be less than 5 nor more than 10 years. *The Sanggunian concerned shall conduct a public hearing before the enactment of an ordinance imposing a special levy. Socialized Housing Tax: additional 0.5% tax in the assessed value of all lands in urban areas in excess of Php 50, 000.00
PENALTIES FOR VIOLATION OF TAX ORDINANCES 1. Sanggunian of local government unit: a. Fine – Php 1, 000.00 to Php 5, 000.00; and/or b. Imprisonment – 1 month to 6 months 2. Sangguniang barangay: a. Fine – Php 100.00 to Php1, 000.00 CONDONATION OR REDUCTION OF REAL PROPERTY TAX By the sanggunian concerned, upon recommendation of the Local Disaster Coordinating Council in cases of: 1. General failure of crops 2. Substantial decrease in the price of agricultural or agri-based products 3. Calamity By the President of the Philippines in cases: 4. When public interest so requires D. Declaration, Assessment, and Appraisal of Real Property COMPUTATION OF REAL PROPERTY TAX Steps: i. Determine the market value; ii. Ascertain the assessment level of property iii. Multiply the market value by the applicable assessment level of the property to determine the assessed value; and iv. Find the tax rate which corresponds to the class of the property and multiply the assessed value by the applicable tax rates. Formula in computing real property tax:
1. 2.
Fair Market Value x Assessment Level = Assessed Value Assessed Value x Tax Rate = Real Property Tax
DECLARATION OF REAL PROPERTY: the sworn declaration of real property shall be filed with the assessor concerned 1. every 3 years during the period from January 1st to June 30th commencing with the calendar year 1992; and 2. within 60 days after the acquisition of such property or upon completion or occupancy of the improvement. *30 days from filing of declaration property, claim for Tax Exemption for such property, if any, shall be filed with the provincial, city or municipal assessor LISTING IN THE ASSESSMENT ROLL: real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having interest in the property APPRAISAL OF REAL PROPERTY: at the current and fair market value prevailing in the locality where the property is situated Schedules of Fair Market Value: 1. Published in a newspaper of general circulation in the province, city or municipality; or in the absence thereof 2. Posted in the provincial capitol, city or municipal hall and in 2 other conspicuous public places therein ASSESSMENT: the assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panglalawigan, sangguniang panglungsod or sangguniang bayan of a munipality at the rates not exceeding those provided in Section 218 of the Local Government Code. *General revision of real property assessments shall be undertaken by the assessor within 2 years after the effectivity of the Local Government Code and every 3 years thereafter. E. Duties of Certain Local Officials, Private Individuals, and Entities Registrar of Deeds To ascertain whether or not any real property entered in the Register of Property has escaped discovery and listing for the purpose of taxation. To submit to the provincial, city, or municipal (PCM) assessor an abstract of his registry which includes brief but sufficient description of real properties entered therein, present owners, and the dates of their most recent transfer or alienation. To require every person who shall present for registration a document of transfer, alienation, or encumbrance (TEA) of real property to accompany the TEA with a certificate that the real property subject of the TEA has been fully paid of all real property taxes due thereon.
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Failure to provide such certificate: ROD will refuse the registration of the document.
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Notice of appeal is the last action which gives the owner of the property the right to appeal to the Local Board of Assessment Appeals (LBAA). Whenever the local assessor sends a notice to the owner or lawful possessor of the real property, the assessor shall no longer have jurisdiction to entertain any request or readjustment. Where should the taxpayer go? The aggrieved party may bring his appeal to the LBAA as provided by law.
Officials Issuing Building Permits or Certificates of Registration of Machinery To transmit a copy of such permit or certificate within 30 days of its issuance to the assessor of the province, city, municipality (PCM) where the property is situated. Geodetic Engineers To furnish free of charge the assessor of the province, city, municipality (PCM) where the land is located with a white or blue print copy of each of all approved original or subdivision plans or maps of surveys within 30 days from receipt of such plans from Lands Management Bureau (LMB), Land Registration Authority (LRA) or the Housing and Land Use Regulatory Board (HLURB). Registrar of Deeds and Notaries Public To furnish the provincial, city, or municipal (PCM) assessors with copies of all contracts selling, transferring, or otherwise conveying, leasing, or mortgaging real property received by or acknowledged before them. Insurance Companies to Furnish Information To furnish the provincial, city, or municipal (PCM) assessor copies of any contract or policy insurance on buildings, structures, and improvements insured by them or other documents necessary for the proper assessment thereof. F. Assessment Appeals Remedy of Dissatisfied Taxpayer Against Assessment The Dissatisfied Taxpayer may appeal to the Board of Assessment Appeals of the city or province, within 60 days from the date of receipt of the written notice of assessment. How? By filing a petition under oath in the form prescribed for the purpose. Together with the copies of the tax declarations and such affidavits or documents submitted in support of the appeal Motion for Reconsideration is not allowed Motion for reconsideration is not allowed by the procedure to be filed by the property owner to the local assessor.
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Who is the Proper Party to File a Protest? A person who is legally burdened with the obligation to pay for the tax imposed on a property has a legal interest in the property and he has the personality to protest a tax assessment on the property. Liability for taxes generally rests on the owner of the real property at the time the tax accrues. However, a personal liability for realty taxes may also expressly rest on the entity with the beneficial use of the real property. In those cases, the unpaid realty tax attaches to the property but is directly chargeable against the taxable person who has actual and beneficial use and possession of the property even though he is not the owner. Examples: -Tax on property owned by the government but leased to private persons or entities. -When the tax assessment is made in the basis of the actual use of the property. -
Legal interest should be an interest that is actual, material, direct and immediate, not simply contingent or expectant.
Lessee may protest When? if granted full power and authority to represent the lessor in any proceeding regarding real property assessment. Composition of the Board Assessment Appeals - The Register of Deeds as Chairman - The Provincial or City Prosecutor as member - The Provincial or City Engineer as member In case there is no Provincial or City Engineer, the district engineer shall serve as member of the Board. What will happen in the absence of Registrar of Deeds, or the provincial or city prosecutor, or the provincial or city engineer or the district engineer? the persons performing their duties, whether in an acting capacity or as a duly designated officer in
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charge, shall automatically become the chairman or member, respectively of said Board, as the case may be. Oath or Affirmation of Office - The Chairman and members of the Board of Assessment appeals shall assume their respective positions without need of further appointment or special designation immediately upon the effectivity of the LGC. Board Meetings - The Board of Assessment Appeals of the province or city shall meet once a month and as often as may be necessary. - No member of the Board shall be entitled to per diems or travelling expenses for his attendance in Board Meetings. Exception: When conducting an ocular inspection regarding a case under appeal. No Suspension of Collection despite Appeal Appeal on assessments of real property made under the provisions of LGC does not suspend the collection of the corresponding realty taxes on the property involved. Powers of the Board in the Exercise of its Appellate Jurisdiction 1. Summon witnesses 2. Administer Oaths 3. Conduct Ocular Inspection 4. Take Depositions 5. Issue Subpoena and Subpoena Duces Tecum Decision and Degree of Evidence Required The Board after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accepts as adequate to support the conclusion. The Board shall decide the appeal within 120 days from the date of receipt of such appeal. Exception to Exhaustion of Administrative Remedies Exhaustion of administrative remedies does not apply in cases where the controversy does not involve questions of fact but only of law. In this case, the jurisdiction is with the trial court. Estoppel in Questioning Jurisdiction A party cannot invoke a court’s jurisdiction to secure affirmative relief and, after failing to obtain the requested relief, question that same jurisdiction.
Appeal of Unfavorable Decision The party who is not satisfied with the decision of the Board may, within 30 days after the receipt of the decision of said Board, may appeal to the Central Board of Assessment Appeals. The decision of the Central Board shall be final and executory. Composition of the Central Board of Assessment Appeals - Chairman - 2 Members to be appointed by the President, who shall serve for a term of 7 years without reappointment
Hearing Officers - shall be appointed by the Central Board of Assessment Appeals pursuant to the civil service laws, rules, and regulations. - shall serve for 6 years, without reappointment until their successors have been appointed and qualified.
Fact-Finding Function CBAA’s authority is not limited to the exercise of its appellate jurisdiction. Why? Because the Supreme Court, in the exercise of its extraordinary jurisdiction, may also designate it as a “court appointed fact-finding commission to assist the court in factual decisions” raised in certain actions such as prohibition.
G. Collection of Real Property Tax Date or Accrual of Tax The real property tax for any year shall accrue on January 1 From that date, it shall constitute a lien on the property. Such lien shall be superior to any other lien, mortgage, or encumbrance of any kind. It will only be extinguished upon the payment of the delinquent tax. Person Responsible for Collection of Tax City or Municipal Treasurer Collection of the real property tax with interest thereon and related expenses, and the enforcement of the remedies. Barangay Treasurer May be deputized by the city of municipal treasurer to collect all taxes on real property located in the barangay provided that the barangay treasurer is properly bonded. Collection by Municipalities Real property tax is a provincial imposition
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But the collection of which is delegated to the component municipalities through their respective Municipal Treasurers who shall issue official receipts for payments received and recorded in the reports of collections and deposits and in the cash books.
There shall be annotated on the tax receipts the words “paid under protest”. Protest Not Required in Refund Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a refund.
Conversion of Municipality to City 1. The remittance of the share of the mother Province from the basic real property taxes is a statutory obligation of the component municipalities which are only deputized to collect real property tax. 2. A component municipality that has been converted into a city remains obligated to remit the share of the mother province from any real property tax due before its conversion, but were paid and collected thereafter. 3. A newly converted city that has not enacted its own real property tax ordinance, but collects real property tax using the real property tax ordinance of the province is obligated to remit the share therefrom of the latter. 4. Once the newly converted city enacts its own property tax due and collected pursuant thereto shall accrue exclusively to the city.
Procedure Should the taxpayer or real property owner question the excessiveness of reasonableness of the assessment, the taxpayer should first pay the tax due before his protest can be entertained. There shall be annotated on the tax receipts the words “paid under protest” The local treasurer would not entertain the protest unless the tax due has been paid. If the local treasurer denies the protest or fails to act upon it within the 60-day period, the taxpayer or real property owner may then appeal or directly file a verified petition with the LBAA within 60 days from denial of the protest or receipt of the notice of assessment.
Payment of Real Property Taxes in Installments The owner of the real property of the person having legal interest therein may pay the basic real property tax and the additional tax for Special Education Fund due thereon without interest in four equal instalments. Pretemission of Holiday What happens if the last day of the quarterly payment falls on a holiday or nonworking day? the next succeeding business day is considered the last day of payment of the tax. Tax Discount for Advanced Prompt Payment If the basic real property tax and the additional tax accruing to the Special Education Fund are paid in advance, the sanggunian shall grant a discound not exceeding 20% of the annual tax due. Repayment of Excessive Collections Assessment of basic real property tax or any other tax is found to be illegal or erroneous Taxpayer may file a written claim or refund or credit for taxes and interests within 2 years from the date that the taxpayer is entitled to such reduction or adjustment. The provincial or city treasurer shall decide the claim for tax refund or credit within 60 days from receipt thereof. Claim for tax is denied – the taxpayer may avail of assessment appeals. Payment under Protest No protest shall be entertained unless the taxpayer first pays the tax.
H. Delinquency in Payment of Real Property Taxes Notice of Delinquency The provincial, city, or municipal treasurer shall immediately cause a notice of delinquency when the real property tax or other tax becomes delinquent. The notice must be posted at the main entrance of the provincial capitol, or city or municipal hall and in a publicly accessible and conspicuous place in each barangay. The notice shall also be published once a week for 2 consecutive weeks in a newspaper of general circulation in the province, city, or municipality. The notice shall specify: i. Date upon which the tax became delinquent ii. That personal property may be distrained to effect payment iii. That at the time before the distraint of personal property, payment of the tax with surcharges, interests and penalties may be made iv. Unless the tax is paid before expiration of the year for which the tax is due, the delinquent real property will be sold at public auction, and the title to the property will be vested in the purchaser, subject to the delinquent owner’s right to redemption within 1 year from date of sale Interests on Unpaid Real Property Tax Taxpayer shall pay interest at the rate of 2% per month on the unpaid amount of basic real property tax or any other tax upon the expiration of the periods for payment, or when due, until the delinquent tax shall have been fully paid.
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In no case shall the total interest on the unpaid tax or portion thereof exceed 36 months.
Remedies for the collection of Real Property Tax LGU concerned may avail of: 1. Administrative action thru: (i) levy on real property, or (ii) judicial action 2. Civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the prescribed period. Basic real property tax and any other tax constitutes a lien on property subject to tax, superior to all liens, charges or encumbrances in favor of any person, and may only be extinguished upon payment of the tax and the related interests and expenses.
I. Levy on Real Property After the expiration of the time required to pay the basic real property tax or any other tax, the subject real property may be levied upon through the issuance of a warrant on or before, or simultaneously with the institution of the civil action for the collection of the delinquent tax. Warrant of Levy - Provincial or city treasurer or a treasurer of a municipality within Metro Manila shall prepare a duly authenticated certificate showing the name of delinquent owner of the property or person having legal interest therein, description of the property, amount of tax due, and interest thereon. - It shall operate with the force of legal execution throughout the province, city, or a municipality within Metro Manila. Service of Warrant - It shall be mailed to or served upon delinquent owner or person having legal interest therein - In case the person is out of the country or cannot be located, to the administrator or occupant of the property. - Notice is mandatory An essential and indispensable requirement; non-fulfillment of which vitiates the sale Holding of a tax sale despite the absence of requisite service is tantamount to violation of delinquent taxpayer’s substantial right to due process. - No presumption of regularity - Registered Owner Rule For purposes of real property taxation, the registered owner of the property is deemed the taxpayer.
Local treasurer cannot rely solely on the tax declaration but must verify with the Register of Deeds Annotation - Written notice of the levy with the attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds (RD) of the province, city, or municipality within Metro Manila - Assessor shall annotate the levy on the tax declaration while RD shall annotate on the title of the property Report - Within 10 days after receipt of warrant by owner, levying officer shall submit a report on the levy to the sanggunian concerned
Advertisement and Sale Within 30 days after service of warrant of levy, local treasurer shall publicly advertise for sale or auction the property or a usable portion thereof Advertisement shall be effected by posting a notice at the main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in the barangay where the real property is located, and by publication once a week for 2 weeks in a newspaper of general circulation in the province, city or municipality Advertisement shall specify the amount of delinquent tax, interest due thereon and expenses of sale, date and place of sale, the name of the owner of the real property or person having legal interest therein, and a description of the property to be sold. Stay of Proceedings - Owner or person having legal interest may stay the proceedings by paying the delinquent tax, interest due and expenses of sale at any time before the date fixed for the sale. - Payment of delinquent tax even at the auction stage is allowed, provided the entire amount with interest and expenses is paid. The public auction will be stopped. The sale shall be held at the main entrance of the provincial, city, or municipal building, or on the property to be sold, or at any other place as specified in the notice of the sale. Local treasurer shall prepare and deliver to the purchaser a certificate of sale. Proceeds of the sale in excess of the delinquent tax shall be remitted to the owner or person having real interest therein. Local treasure may, by ordinance duly approved, advance an amount to defray the costs of collection. Redemption of Property Sold
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Right to redeem exists within 1 year from the date of sale, upon payment to the local treasurer of the amount of the delinquent tax including interests and expenses of sale, plus interest of not more than 2% per month on the purchase price from date of sale to the date of redemption o Exception: If a local ordinance provides that the one-year redemption period should be counted from the date of annotation of the sale of the property at the proper registry o In cases involving redemption, the law protects the original owner. Payment will invalidate the certificate of sale issued to the purchaser; owner or person with legal interest shall be entitled to a certificate of redemption, issued by local treasurer or his deputy From date of sale until expiration of the period of redemption, delinquent owner or person with legal interest shall be entitled to the income and other fruits of the subject property. Local treasurer or his deputy, upon receipt of certificate of sale, shall return to the purchaser the entire amount paid by him plus interest of not more than 2% per month.
Final Deed of Purchase Local treasurer shall execute a deed conveying the property to purchaser in case owner or person with legal interest fails to redeem the property. Purchase by LGU - Local treasurer shall purchase the real property in behalf of LGU concerned if (i) there’s no bidder or (ii) the highest bid is for an amount insufficient to pay the real property tax and the related interest and costs of sale - RD shall transfer the title of the forfeited property to the LGU without necessity of an order from a competent court - Taxpayer or his representative may redeem the property within 1 year from date of such forfeiture, by paying the full amount of the real property tax and the related interest and costs of sale. - If not redeemed, ownership shall be fully vested on the LGU. Property under Litigation - The court may motu proprio or upon representation of the provincial, city, or municipal treasurer award ownership, possession, or succession to any party to the action upon payment to the court of the taxes with interest and other costs. Resale of Real Estate Taken for Taxes, Fees, or Charges The sanggunian may by ordinance duly approved and upon notice of not less than 20 days, sell and dispose of real property acquired by the LGU. The proceeds of the sale shall accrue to the general fund of the LGU.
Action Assailing Validity of Tax Sale Taxpayer shall deposit the amount for which the real property was sold, with interest of 2% per month from the date of sale to the time of the institution of the action before any court will entertain an action assailing the validity of any sale of real property or rights at public auction. The amount deposited shall be paid to the purchaser at the auction sale if the deed is declared invalid. If the action fails, it shall be returned to the depositor. No court shall declare a sale at public auction invalid by reason of irregularities or informalities in the proceedings unless the substantive rights of the delinquent owner or person with legal interest have been impaired. The deposit is a jurisdictional requirement; non-payment of which warrants the dismissal of the action. - However, it is only applicable in voidable tax sale. - Exception: When taxpayer is assailing the invalidity of the tax sale. It cannot be invoked when the sale is void because the property subjected to real property tax is not situated within the jurisdiction of the taxing authority. Further Distraint or Levy Levy may be repeated if necessary until the full amount due, including all expenses, is collected.
J. Prescription Prescriptive Period for Collection of Basic Real Property Tax Real property tax and any other tax levied under LGC shall be collected within 5 years from the date they became due. In case of fraud or intent to evade payment of the tax, within 10 years from discovery of such fraud or intent to invade payment Prescriptive periods were provided to enforce the collection of real property tax within a specific time. Beyond the period, no action for collection shall be instituted. If local treasurer has been sending notices of delinquency and/or reminder letters for payment, the tax may be collected even beyond the 5-year period. Prescription may only be validly invoked by taxpayer if local treasure neglected or deliberately failed to perform his mandated duties. Interruption or Suspension of Prescriptive Period The period to collection shall be interrupted or suspended in the following instances: i. Local treasurer is legally prevented from collecting the tax ii. Owner of the property or the person having legal interest therein requests for reinvestigation and executes waiver in writing before the expiration of the period within which to collect, and
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iii. Owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located Prescriptive Period for Refund or Credit Taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within 2 years from the date of entitlement to such reduction or adjustment.
CHAPTER 8 PHILIPPINE TARIFF AND CUSTOMS A.
POWERS AND LIMITATIONS
“Tariff” – the system of imposing duties or taxes on the importation of foreign merchandise “Customs duties” – taxes on the importation or exportation of commodities; a tax levied on imports by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from competitors abroad GENERAL RULE: All articles imported from foreign country into the Philippines are subject to duty. The same rule applies if the article has been previously exported from the Philippines EXCEPTIONS: (EPIS-G) 1. Those expressly exempted under the Tariff and Customs Code Example: conditionally free importations (Sec. 105) 2. Grant of exemption by the President of the Philippines 3. Those exempted pursuant to special laws Example: RA 9290 4. Exemption granted to government agencies, instrumentalities, and GOCCs with contracts and agreements with foreign countries or international organizations 5. Exemption of international organizations or institutions pursuant to agreements, treaties or special laws Fees Charged by the Bureau of Customs (WHAT-BS)
Wharfage due
Harbor fee Arrastre charge Tonnage due Berthing charge
What Amount assessed against the cargo of the vessel engaged in foreign trade based on the quantity, weight, or measure received or discharged by such vessel Payment for each entrance into or departure from a port of entry in the PH Payment for the handling, receiving, and custody of the imported or exported article or baggage of the passengers Amount paid based on the net tonnage of the vessel or weight of the articles discharged or laden in PH Amount assessed against a vessel for mooring or berthing at a pier or wharf at any port in the PH
Who Pays Owner, consignee, or agent of the owner or consignee of the article Owner, agent, operator or master of a vessel Owner, consignee, or agent of the owner or consignee of the article or baggage Owner, agent, operator, or master of the vessel Owner, agent, operator, or master of the vessel
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Owner, consignee, or agent of the owner or consignee of the article
Fraudulent practice – any article sold, bartered, hired or used for purposes other than that they were intended without prior payment of duties, taxes or charges due and payable at the time of entry
Articles Subject to Duty – goods, ware, merchandise and anything that may be made the subject of importation or exportation 1. Freely-importable articles – articles that may be imported without regulation, prohibition, or prior clearance from the government 2. Regulated articles – articles which may be imported in the PH subject to clearances or permits from appropriate regulatory government agencies or departments 3. Money, checks, and money orders
Temporary admission/temporary imports – those conditionally-free importations that may be imported without payment of duties upon posting of a bond equivalent to 150% of the taxes due thereon conditioned on the re-exportation thereof within a specified period Example: a. Articles brought for repair to be re-exported upon completion of the repair b. Articles used exclusively for public entertainment, public display or exhibition c. Articles brought by foreign film producers directly and exclusively used for making or recording motion picture films on location in the PH (THINK: Jason Bourne movie) d. Personal and household effects and vehicles of foreign consultants and experts hired by the government e. Imported material used in manufacturing, packaging, covering, branding and labeling articles in a bonded manufacturing house
Storage charge
Amount assessed on articles for storage in customs premises, cargo shed and warehouses of the government
Prohibited Articles 1. Absolutely prohibited articles Example: a. Written or printed articles advocating or inciting treason, rebellion, sedition, insurrection or subversion against the government of PH b. Written or printed articles, negatives, or cinematographic film, photograph and similar articles representing obscene or immoral character c. Articles, drugs, instruments for producing unlawful abortion d. Opium pipes and parts thereof 2. Qualifiedly prohibited articles – those that may be imported subject to certain conditions or limitations a. Dynamite, gunpowder, ammunition and other explosives, firearms and weapons of war b. Devices used for gambling (roulette wheels, gambling outfits, loaded dice, marked cards) c. Lottery and sweepstakes tickets except those authorized by the PH government d. Any article manufactured in whole or in part of gold, silver or other precious metals or alloys thereof, the stamps, brands or marks of which do not indicate the actual fineness of quality of said metals or alloys e. Marijuana, opium poppies, coca leaves, heroin and other narcotics or synthetic drugs which are declared habit-forming by the president of PH Conditionally-free Importations – articles that are exempt from payment of import duties upon compliance with prescribed formalities or regulations
“Drawbacks” – a refund of duties especially on imported products subsequently exported or used to produce a product for export Who pays: Bureau of Customs When paid: 60 days after receipt of properly accomplished claims B.
Basis of Dutiable Value and Weight
1. Valuation System/Hierarchical Order of Application -stated sequentially. -application is done in order. -when the dutiable value cannot be determined under the particular method, the next method in the sequence can be used. Method One: Transaction Value – the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding: a. fees to the extent that they are incurred by the buyer but not included in the price actually paid or payable for the imported goods; b. the value of the proceeds of any subsequent resale, disposal or use of the imported goods; c. cost of transport; d. loading/unloading and handling charges; and e. cost of insurance
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Method Two: Transaction Value of Identical Goods – transaction value of identical goods sold for export and exported at or about the same time as the goods being valued. *Identical goods: same in all respects (physical characteristics, quality, reputation)
imported goods by filing sufficient guarantee in an amount equivalent to the imposable duties and taxes on the imported goods. However, goods prohibited by law to be imported shall not be released.
Method Three: Transaction Value of Similar Goods – transaction value of similar goods for export and exported at or about the same time as the goods being valued. *Similar goods: although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable.
*Right of Collector of Customs: When a declaration has been presented and when the customs administration has reason to doubt the truth or accuracy of such documents produced, he may ask the importer to provide further explanation that the declared value was adjusted in accordance with the provisions of Method One. If, after receiving further information, or in the absence of a response, he still has reasonable doubt therein, it may be deemed that the customs value of the imported goods cannot be determined under Method One, without prejudice to an importer’s right to appeal.
Method Four: Deductive Value – based on the unit price sold in the Philippines in the greatest aggregate quantity to persons not related to the persons from whom they buy such goods.
2. Bases of Dutiable Weight. Method Five: Computed Value - computed value which shall be the sum of: a. cost or value employed in producing the imported goods; b. amount for profit and general expenses reflected in the sale of goods; c. freight insurance fees and other transportation expenses; d. Any assist, if its value is not included under par. (a); and e. cost of containers and packing. Method Six: Fallback Value – using other reasonable means and on the basis of data available in the Philippines.
a. dutiable by the gross weight – weight of the same, together with the weight of all containers, packages, holders, and packing of any kind at the time of importation. b. dutiable by the legal weight - weight of the same, together with the weight of immediate containers, packages, holders, and packing in which such articles are usually contained at the time of importation and/or, when imported in retail packages, at the time of their sale to the public in usual retail quantities. c. dutiable by the net weight – only the actual weight of the articles at the time of importation. d. articles affixed to cardboard, wood, paper or similar common material – dutiable together with the weight of such holders. e. single package contains imported articles dutiable according to different weights –common exterior receptacles shall be prorated.
*Limitations: No dutiable value shall be determined under this method on the basis of: 1. selling price in the Philippines of goods produced in the Philippines; 2. system that provides for the acceptance for customs purposes of the higher of 2 alternative values; 3. price of goods in the domestic market of the country of exportation; 4. cost of production, other than computed values, that have been determined for identical or similar goods 5. price of goods for export to a country other than the Philippines; 6. minimum customs values; or 7. arbitrary or fictitious values.
3. Rate of Exchange – value and prices quoted in foreign currency shall be converted into the currency of the Philippines at the current rate of exchange by the BSP. 4. Effective Date of Rates of Import Duty *Imported articles – existing at the time of entry or withdrawal from a warehouse in the Philippines for consumption. *Articles Abandoned/Forfeited/Seized – on the date of the public auction *Dutiable Weight/Quantity/Volume of Articles – at the time of their entry into the warehouse or date of abandonment, forfeiture and/or seizure. 5. Entry or Withdrawal from Warehouse, for Consumption:
*Release of Goods in Case of Delay – if it becomes necessary to delay the final determination of such dutiable value, the importer shall secure the release of the
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*deemed “entered” in the Phil. for consumption – when specified entry form is properly filed and accepted, together with any related documents required, at the port or station, by any the customs official designated to receive such and the required fees have been paid provided that the article has previously arrived within the limits of the port of entry. *deemed “withdrawn” from a warehouse in the Phil. For consumption – when the specified form is properly filed and accepted at the time of withdrawal by the customs official designated to receive the withdrawal entry and any fees required to be paid at the time of withdrawal have been deposited. C.
REGULAR AND SPECIAL DUTIES
1. Regular Duties/Tariff Barriers – Taxes that are imposed or assessed upon merchandise from, or exported to a foreign country for the purpose of raising revenue. It may also limit the amount of goods, which can be imported into a country. Purpose of Tariff Barriers: Designed to protect the domestic manufacturers or producers from foreign competition. Kinds of Regular Duties/Tariff Barriers
when destined for domestic consumption in the exporting country. (Formula: Anti-Dumping Duty =Normal Value – Export Price) Elements of Dumping: a. Like Product b. Price Difference c. Injury d. Causal Link Effects of Dumped Products: a. Price Depression b. Price Suppression c. Price Undercutting Procedure: a. Filing of Anti –Dumping Protest b. Filing a Bond c. Prima Facie Determination d. Preliminary Determination e. Final Determination f. Issuance of Department Order g. Judicial Review
Four ways to assessed Custom Duties: 1.1 1.2 1.3 1.4
Ad valorem Duty – Assessed as percentage of the import value of goods(e.g., 30% of Free on Board price). Specific Duty - Assessed on the basis of some units of measurement such as quantity (e.g., Php500.00 per dozen) or weight, either net, legal or gross weight. Alternating Duty – Alternates ad valorem and specific duties. Compound Duty – Assessed as a combination of the specific duty and ad valorem duty (e.g., Php 200.00 per kilogram net, plus 30% of FOB price).
2. Special Duties/Non-tariff Barriers – Imposed and collected in addition to the ordinary custom duties on specific kinds of imported articles under certain conditions usually for the protection of consumers and manufacturers as well as Philippine products from undue competition posed y foreign-made products. Kinds of Special Duties/Non-Tariff Barriers 2.1. Anti – Dumping Duty - It refers to a special duty imposed on the importation of a product, commodity or article of commerce into the Philippines at less than its normal value
Dumped Import Product - Refers to any product commodity or article of commerce introduced into the Philippines at an export price less than its normal value in the ordinary course of trade which is causing material injury to the domestic industry. Note: Dumping occurs when foreign producers sell their products to an importer in the domestic market at prices lower than in their own national market. It is a form of price discrimination between two national markets. 2.2. Countervailing Duty – It is levied, in addition to the regular duty and other charges by an importing country on its imports which have been found to be subsidized in the country of origin or exportation. It is equal to the ascertained amount of subsidy calculated in terms of subsidy per unit of the subsidized export product. Elements: a. Product Compatibility b. Subsidy c. Injury d. Causal Link e.
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Procedure: h. Filing a Petition i. Prima Facie Determination j. Preliminary Determination k. Final Determination l. Issuance of Department Order m. Judicial Review Subsidy – Any specific Assistance directly or indirectly provided by the government of the country of export or origin in respect of the product imported into the Philippines. a. b. c.
Yellow Subsidies or Actionable subsidies – Neither non-actionable nor prohibited subsidies Green Subsidies or Non- Actionable Subsidies – Permitted as they are of a general nature Red Subsidies or Prohibited Subsidies – Include export subsidies that are contingent on export performance and on the use of domestic over imported goods.
(ii.)
Discriminates in fact against the commerce of the Philippines, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction, or prohibition in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.
Note: If such foreign country increased its said discrimination against the commerce of the Philippines, the president if he deems it consistent with the interest of the Philippines, issue further proclamation that the said product and articles of the foreign country imported in its vessel, shall be excluded from importation into the Philippines. 2.5. Safeguard Measure Duties - It is imposed to protect domestic industries and producers from increased imports which cause or threaten to cause serious injury to those domestic industries and producers.
Note: Industries are deemed to have received subsidy as a result of : ( i) Direct or potential transfer of government fund (ii) The government foregoing the revenue that should have otherwise been collected ( iii) The government providing goods or services or purchasing goods
Note: The Secretary shall apply a general safeguard measure upon a positive final determination of the Commission that a product is being imported into the country in increased quantities as to be a substantial cause of injury or threat to the domestic industry.
Subsidy in order to be countervailable must be ( i) Specific (ii) An industry sector or group of industries (iii) A designated geographic region within the jurisdiction of the granting authority
General Safeguard Measure administered by:
2.3. Marking Duty – It is imposed on every article of foreign origin imported into the Philippines which is not marked in any official language of the Philippines in a conspicuous place as legibly, indelibly and permanently as the nature of the article or its container will permit (in such a manner as to indicate to an ultimate purchaser in the Philippines) the name of the country of origin of the article. Note: The failure or refusal of the owner or importer to mark the articles within a period of thirty days after due notice shall constitute as an act of abandonment of said articles. 2.4 Discriminatory Duty – It is imposed on articles wholly or in part the growth or product of or imported in a vessel of any foreign country whenever such country: (i.)
Imposes directly or indirectly upon the disposition or transportation in transit through or re-exportation from such country of any article wholly or in part the growth.
a. b. c. d.
Department of Trade and Industry/ Bureau of Import Services Department of Agriculture Tariff Commission DTI or DA Secretary
Note: The DA Secretary shall issue a DO requesting the DF Secretary to impose additional special safeguard duty on agricultural product if: (i) Its cumulative import volume in a given year exceeds its trigger volume and (ii) Its actual import price is less than its trigger price, both subject to conditions of RA 8800. D.
FLEXIBLE TARIFF CLAUSE
Basis: The Congress, may, by law authorize the President to fix within the specified 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
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framework of the national development program of the government. (Section 28(2) of Article VI of the 1987 Constitution) *May be exercised even for revenue purposes only Tariff Powers of the President: 1) Increase, reduce, or remove existing protective rates of import duties including the necessary changes in the classification Condition: increase in the rate cannot exceed 100% ad valorem 2) Establish import quota or ban import of any commodity whenever necessary 3) Impose additional duty on ALL imports, not exceeding 10% ad valorem whenever necessary 4) Cause a gradual reduction of protection levels upon periodic investigations by the Tariff Commission and recommendation of NEDA Requisites for the Exercise of Power 1) In the interest of national economy, general welfare and/or national security 2) Recommendation of NEDA to the President a) Tariff Commission must conduct an investigation b) Public hearing shall be held c) Report shall be submitted to NEDA within 30 days after termination of the public hearing Except: in the imposition of additional duty not exceeding 10% ad valorem Power to modify the form of duty: the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal competing foreign country for the most recent representative period shall be used as bases
2) E.
Modify import duties and other import restrictions
DUTY FREE SHOPPING, BALIKBAYAN BOXES AND IMPORTED VEHICLES
Duty Free Shopping Duty Free Stores: retail establishments licensed by the government to sell duty and tax-free merchandise for the convenience of travelers Duty and tax-free flow of goods allowed in Economic Zones provided such are consumed therein subject to applicable duties and taxes when brought out of the ecozones Special Economic Zones: selected areas of the country with highly developed infrastructure or which have potential to be developed into agri-industrial tourist/recreational, commercial, banking, investment, financial centers All passengers arriving from abroad are entitled and can avail of the privilege upon presentation of: 1) Valid passport 2) Flight ticket and 3) Boarding pass Subject to the following limitations: 1) As to amount 18 years old and above Minors Balikbayans
Powers of the President Regarding Foreign Trade For the purpose of: 1) Expanding foreign markets for Philippine products as a means of assistance in the economic development of the country 2) Overcoming domestic unemployment 3) Increasing the purchasing power of the Philippine peso 4) Establishing and maintaining better relations between Philippines and other countries The President is authorized to: 1) Enter into trade agreements with foreign governments or instrumentalities thereof
Tax Exempt Purchase: US$ 1,500
US$ 250
Kabuhayan Shopping Privilege (livelihood tools): US$ 2,000 All other passengers (Tourists and Filipinos traveling to or returning from abroad) 2)
US$ 1,000
US$ 250
As to Quantity
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Cigarettes – 2 reams Tobacco – 2 tins Liquor and/or wine – 2 bottles Non-consumable items (value exceeds US$ 200) – 1 only 3) 4)
5) 6) 7) 8)
Purchase shall only be made in US$ or other acceptable foreign currencies Purchases shall be made within 48 hrs from date of arrival for regular passengers 15 days from date of arrival of balikbayan; extended to 30 days during Christmas season (Nov 15 to Jan 15) 1 year from date of arrival of senior citizen/handicapped balikbayan Non-transferrable Balikbayan privilege can only be availed once a year; if balikbayan arrives again within the year – considered a regular passenger for shopping purposes Minors: consumable items only; cannot purchase liquors, wines, cigarettes, electronics, home appliances Tourist can purchase electronic and home appliance but subject to payment of duties and taxes Balikbayan boxes packages of personal effects; “pasalubongs” sent by Filipinos working or residing abroad to their families or relatives in the Philippines only non-commercial goods/not in commercial quantity strictly for personal use only value must not exceed US$ 500 consignor/sender is allowed to send 1 box during a 6-month period opened by Philippine Customs 100% examination is required by law to: Protect the legitimate interests of consignors/senders and their consignees and the transacting public Protect the interest of the government Prevent and suppress smuggling and other fraud upon customs
Importation of a brand new motor vehicle no longer require prior authority Criteria to be satisfied:
a) b) c) d)
of current or advance year model never been registered or used covered by certificate of first ownership of the year of the immediate preceding year in the country of origin and/or manufacturer provided: i) mileage not more than 50 km ii) acquired by the importer from the dealer as first owner
Importation of used vehicles continue to be regulated, require prior authority from BIS, DTI Individuals may be allowed to bring in used vehicles: a) returning Filipino/former Filipino citizen (stayed abroad for more than a year) b) immigrant to the Philippines (at least a holder of a 13G Visa duly issued by BID) Provided: i) only 1 unit per family; ii) registered in his name for at least 6 months prior to shipment; and iii) proof can be presented that it was acquired out of the earnings abroad Requirements and applicable duties 1. personal presence of the car-owner 2. vehicle must be left-hand drive 3. subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from 15% to 100% (depending on its piston displacement) 4. its book value serves as the tax base (not the purchase price nor the acquisition cost) 5. spare parts are taxed separately 6. older model: depreciation schedule is 10% per year counted downwards from current year (which has 0% depreciation rate) 7. with piston displacement of 2000 cc: max depreciation of 50%; below 2000 cc: max of 70% F.
EXPORT DUTIES
E.O. No. 26, July 1, 1986 abolished the export duties on all export products except: logs as imposed under Section 154 of the TCC
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i. ii. iii.
export duty imposed on logs: 20% of the gross FOB value at the time of shipment based on the prevailing rate of exchange only planted trees are subject to the export duty, since all naturally grown trees are banned from being exported
CHAPTER 9 A.
B.
TARIFF COMMISSION a. Chief Officials i. Chairman ii. 2 Member Commissioners to be appointed by the President b. Investigative Functions i. Administration and effects of tariff and custom laws ii. Relation between duty rates between raw materials and finished products iii. Effects of Ad Valorem and Specific Duties iv. Questions related to schedules and classification v. Tariff relations vi. Importations vs. domestic production vii. Effects of competition with foreign industries viii. Investigative Operations ix. Nature and composition of articles c. Duties of the Commission i. Ascertain conversion and production costs in principal centers and in foreign countries ii. Select representative articles iii. Ascertain import costs and selling prices iv. Ascertain other facts which affect competition v. Ascertain effects of tariff modifications and import restrictions vi. Annual reports d. Commission has access and compulsory process to any document, summons, testimony, oaths, subpoenas BUREAU OF CUSTOMS a. Chief Officials i. Chief ii. Assistant Chief b. Powers:
c.
d. e. f.
g. C.
Assessment and collection of lawful revenues from import Prevention and suppression of smuggling Supervision and control over entrance and clearance of vessels and aircraft iv. General supervision of vessels carrying passengers or freight v. Prohibition of unnecessary noise vi. Exclusion of 150 ton vessels from Pasig River vii. Registration and inspection of vessels viii. Enforcement of quarantine regulations and of tariff and custom laws ix. Licensing of marine/pilots x. Supervision and control over handling of foreign mail Territorial Jurisdiction i. Over all seas within Philippine jurisdiction ii. Exclusive control in respective ports of entry Hot Pursuit i. May continue beyond maritime zone Collection Districts i. Collector of Customs at each port of entry Visitorial Power i. In any place where foreign articles are openly offered for sale ii. Kept in storage Search Warrant is needed in case of dwelling house
IMPORTATION IN GENERAL a. Kinds i. Freely Importable ii. Regulated iii. Prohibited iv. Conditionally free b. Importation begins upon entry into jurisdiction and terminated upon payment of duty c. Owner of Imported Articles i. Person to whom the same are consigned ii. Holder of bill of lading iii. Consignee d. Importer is personally liable e. Government imports also subject to tax f. Liability limited to the value g. Transit cargo is an exemption to importation
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D.
E.
JURISDICTION OVER IMPORTATION a. Collector shall cause all articles to be entered into a customhouse, appraised, classified, assess, collect, hold until payment of duties b. Collector shall exercise this jurisdiction c. Commissioner liable for lost shipment ENTRY AT CUSTOMHOUSE a. Persons authorized i. Importer or holder of bill of lading ii. Duly licensed customs broker iii. Agent or attorney-in-fact b. Import entry is a declaration to the BOC showing the particulars of the imported article c. Informal entry if article is commercial in nature or personal/household effects d. Formal entry if for immediate consumption or if there is a domestic letter of credit e. Declaration of import entry i. Full account of the value ii. Invoice and bill of lading are genuine and true
F.
EXAMINATION a. Conditions for examination i. If surveyor seal is tampered ii. Container is damaged iii. If shipment is covered by alert orders iv. If the manifest differs from the actual number, weight, measure b. Appraisers shall ascertain, estimate, determine the value and describe all the articles c. Readjustment of Appraisal, Classification, Return upon request in the form of a timely protest
G.
DELIVERY OF ARTICLES a. Collector not liable for any defect in the bill of lading b. No delivery if no bill of lading c. Cash deposit required for immediate delivery of packages d. An importer of record may authorize delivery to another e. Collector shall withhold delivery until the satisfaction of the lien f. Customs expenses constitute a lien on the articles g. No delivery until fines, surcharges are paid
H.
a. b. c.
Shall be made on the face of the entry Tentative liquidation if an action is required to determine the exact amount Finality is 3 year from the date of payment of final duties
I.
ABATEMENTS AND REFUNDS a. No abatement for damage incurred during voyage b. Abatement for missing articles allowed upon proof and certification by the importer c. Abatement for deficiency in package contents also allowed d. Abatement of duty on dead or injured animals allowed e. Investigation is required f. Claim for refund must be made in writing and forwarded to the collector
J.
ABANDONMENT a. Kinds i. Express ii. Implied b. Ipso facto deemed property of the government
K.
RECORDS a. All importers required to keep records for a period of 3 years from the date of importation b. Compliance audit i. Full and free access ii. BOC has contempt powers c. Scope i. Firms selected by computer-aided risk management system ii. Errors in import declaration detected iii. Voluntary request to be audited d. Record to be kept by Customs i. Articles of Incorporation ii. Company Structure iii. Key importations iv. Privileges v. Penalties
L.
SEARCH, SEIZURE, ARREST a. No obstruction of customs premises b. Customs service shall exercise surveillance for protection of revenue and prevention of smuggling
LIQUIDATION OF DUTIES
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c. d. e. f. g.
To be exercised within the limits of the collection district, particular vessel Customs official or any authorized officer may exercise the power of seizure and arrest General warrant allowed if specific description is unavailable Warrantless search not allowed in dwelling house Right to search vessels, aircraft, persons, articles, vehicles, beasts, persons
M. ADMINISTRATIVE PROCEEDINGS a. Collector shall issue a warrant for the detention of the property b. Seizure to be reported to the commissioner and auditor and the corresponding notice to owner/importer c. Legality of seizure can only be contested by those whose rights have been impaired d. Settlement involves the payment of fine or the appraised value e. Redemption prohibited for prohibited articles f. Scope shall be limited to subject matter g. Reliquidation if protest is proper h. 15 days review by the commissioner i. Automatic review if adverse to the government j. Confirmation of decision k. Notice of decision l. Reliquidation m. Government has the right to compulsory acquisition to protect revenues against undervaluation
2.
3.
4. 5. 6. 7. 8. 9.
N. JUDICIAL PROCEEDINGS 1.
2. 3. 4.
Actions instituted under the authority of the Tariff and Customs Code shall be brought in the name of the Philippine government and conducted by customs. Approval of the Commissioner is required in an action for recovery of duties. Aggrieved party may appeal to the CTA. If no appeal, ruling of the Commissioner is final and conclusive. BOC has exclusive jurisdiction over imported goods for enforcement of custom laws. Seizure and forfeiture is for the Collector and then the Commissioner. Exclusive original jurisdiction of the Collector pertains only to goods seized pursuant to the authority under the Tariff and Customs Code.
P. DISPOSITION OF PROPERTY IN CUSTOMS CUSTODY 1.
2. O. SURCHARGES, FINES AND FORFEITURES 3. 1.
Violations subject to surcharges, fines and forfeitures
Properties subject to forfeiture a. Unmanifested cargo which is unloaded is subject to forfeiture b. Possession of smuggled articles is sufficient to authorize conviction c. Illegally withdrawn articles may be validly seized Prima facie presumption shall exist: a. If the conveyance has been used for smuggling at least twice before b. If the owner is not in the business for which the conveyance is generally used c. If the owner is not financially in a position to own such conveyance d. Common carriers if the owner has knowledge of its use in smuggling Forfeiture shall be effected only when and while the article is in the custody or within the jurisdiction of the customs authorities Administrative fines and forfeitures shall be enforced by the seizure of the vehicle, vessel, aircraft Vessel or aircraft may be seized for delinquency of owner Burden of proof shall lie upon the claimant Commissioner may authorize seizure of other articles if no evidence of payment of duties is shown False or fraudulent practice to make an entry of article shall be punished a. Undervaluation – reduce duty, escape filing of formal entry, circumvent quota restrictions i. False invoice description ii. False country of origin b. Overvaluation i. Avoid imposition of anti-dumping duties ii. Reduce internal revenue tax base c. Forfeiture in case of fraud requisites: i. Wrongful making of any declaration or invoice ii. Such declaration or invoice is false
Property under customs custody shall be subject to sale: a. Abandoned articles b. Articles entered under warehousing entry not withdrawn nor duties or taxes paid c. Seized property after liability to sale shall have been established d. Any article subject to a valid lien for customs duties Property shall be sold or disposed of upon the order of the Collector of the port where the property in question is found. Property shall be sold at public auction after 10 days notice. No customs official or employee shall be allowed to bid.
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4.
The following charges shall be paid from the proceeds of the sale in the order named: a. Expenses of appraisal, advertisement and sale b. Duties except in the case of abandoned and forfeited articles c. Taxes and other charges d. Government storage charges e. Arrastre and private storage charges f. Freight, lighterage or general average, on the voyage of importation 5. Any surplus remaining after the satisfaction of all unlawful charges shall be retained by the Collector for 10 days subject to the call of the owner. 6. Perishable articles may be sold at auction, after public notice, not exceeding 3 days. 7. Disposition of articles unfit for use or sale or injurious to public health shall be ordered by the Collector in such a manner as the case may require. 8. Disposition of contraband: a. Ammunition and weapons to the AFP b. Highly dangerous shall be destroyed c. Contraband coin and bullion to BSP d. Other contraband of commercial value and capable of legitimate use may be sold under such restrictions 9. Disposition of articles for want of bidders shall be used by BOC to promote collection of taxes or channeled to official use of other offices. 10. Dangerous explosives shall be subject to disposition in the discretion of the Commissioner. 11. Disposition of Smuggled Articles: a. Written or printed articles inciting treason or rebellion b. Written or printed articles or other representation of an obscene or immoral character c. Articles, instruments, drugs for unlawful abortion d. Apparatus or devices used in gambling e. Opium pipes Q. OFFENSES 1. 2.
Failure to report fraud is punishable. Statutory offenses of officials and employees: a. Extortion or willful oppression b. Those who knowingly demand other or greater sums than are authorized by law c. Those who willfully neglect to give receipts d. Those who willfully make opportunity for any person to defraud the customs revenue
3.
4.
e. Those who permit the violation of the law f. Those who make or sign any false entry in any book g. Those who fail to report any fraud h. Those who without authority attempt to collect payment i. Those who disclose confidential information without authority Offenses punishable under the Tariff and Customs Code: a. Concealment or destruction of evidence of fraud b. Breaking of seal on car c. Alteration of marks on any package of warehoused articles d. Fraudulent opening or entering of warehouse e. Fraudulent removal or concealment of warehoused articles f. Violation of custom laws and regulations in general Liability for unlawful importation a. Duty to declare b. Administrative penalty is separate and distinct of criminal liability for smuggling c. A Penal provision: i. Fraudulently imports ii. Assists in so doing iii. Transportation, concealment, sale d. Kinds of smuggling 1. Outright – secretly contrary to law without paying duties imposed 2. Technical – fraudulent or erroneous declaration to avoid duties ii. Contraband – refers to articles of prohibited importations and exportations. iii. Elements 1. Fraudulently or knowingly imported contrary to law 2. The respondent if not the importer himself must have in any manner facilitated the transportation, concealment or sale of the merchandise 3. Knowledge or possession 4. Knowledge that the goods have been imported contrary to law iv. Mere possession is enough to convict and payment of tax due after apprehension is not a defense
R. SUMMARY OF CARGO CLEARANCE AND REMEDIES 1.
Cargo clearance/Classification procedure
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a.
2.
3.
Importer shall accomplish IED and pay advance duty to AAB b. IEIRD to be submitted to BOC along with other forms c. Computation of duties and taxes d. BOC conducts review of submitted documents e. Importer given 10 days to justify accuracy of declared value f. VCRC will calendar the classification issue for deliberation g. Elevation to CVCRC h. Resolution i. Endorsement and implementation j. Subject to only one MR Remedies of the BOC a. Tax lien b. Administrative fines and forfeitures c. Reduction of customs duties/compromise d. Search, Seizure, and Arrest i. Collector of customs has exclusive jurisdiction over seizure and forfeiture ii. In case of grave abuse of discretion, an appeal lies to the Commissioner then the CTA iii. Not criminal in nature 1. Proof beyond reasonable doubt not required iv. Warrant is sine qua non condition before any forfeiture proceeding e. Judicial remedies Remedies of the taxpayer a. Protest i. Writing ii. Point out the particular decision or ruling iii. State the grounds iv. Limited to the subject matter v. Filed within 15 days after payment
b.
c.
d. e. f.
vi. Furnish samples of goods Refund i. Missing packages ii. Deficiencies in contents iii. Lost articles iv. Dead or injured animals v. Manifest clerical errors vi. Drawback Settlement of any seizure by payment of fine or redemption i. Instance of fraud 1. Use of spurious documents 2. Prima facie evidence of fraud 3. False machinations, concealment of facts 4. Similar cases Appeal to the Commissioner within 15 days Abandonment Appeal to the CTA within 30 days i. BOC liable to pay the value if shipment can no longer be delivered without interest
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CHAPTER 10 ★ The Court Of Tax Appeals ★
★ 1.
★ HIGHLY SPECIALIZED BODY The CTA is a highly specialized body speicifically created for the purpose of reviewing tax cases. The SC will not set aside the conclusion of the CTA which is dedicated exclusively to the study and consideration of tax problems and has developed an expertise on the subject unless there has been abuse or improvident exercise of authority. 1.1.
ACCORDED RESPECT
Its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if substantial evidence or a showing of gross error or abuse on the part of the Tax Court does not support them. 2.
LAW CREATING THE CTA AND ITS AMENDMENTS
3.
Originally created by R.A. 1125 (June 16, 1954) Amended by R.A. 9282 (March 30, 2004) Pursuant to the amendment: o The CTA was elevated to the same level as the CA o Consequently, appeals from its decision (en banc) shall be made before the SC o Jurisdiction of the CTA was expanded to include: EXCLUSIVE ORIGINAL JURISDICTION: Over tax collection where the amount is less than PhP 1,000,000.00 all criminal offense under the NIRC, and Tariff Customs Code, BIR, and BOC where the amount of taxes and fines is PhP 1,000,000.00 EXCLUSIVE APPELLATE JURISDICTION: In criminal offense over appeals from the RTC Over tax collection where the amount is less than PhP 1,000,000.00 APPELLATE JURISDICTION over the RTC decisions on local taxes
COMPOSITPOIN AND APPOINTMENT OF MEMBERS
Presiding Justice Eight (8) Associate Justices appointed by the President
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It may sit en banc or in three (3) Divisions, each Division of three (3) Justices each, including the Presiding Justice, who shall be the Chairperson of the First Division and the two (2) most Senior Associate Justices shall be served as Chairpersons of the Second and Third Divisions.
3.1. QUORUM The presence of five (5) members is necessary to constitute a quorum and the same number of affirmative vote to render a valid decision. In a division session, presence of two (2) members is necessary to constitute a quorum and the same number of votes to render a valid decision. 4.
POWERS OF, AND PROCEEDINGS IN, THE CTA
To administer oaths To receive evidence To summon witnesses by subpoena To require production of papers or documents by subpoena duces tecum To punish contempt To promulgate rules and regulations for the conduct of its business To assess damages against appellant if appeal to it is found to be frivolous or dilatory To suspend the collection of the tax pending appeal To render decisions on cases brought before it To issue order authorizing distraint of personal property and/or levy of real property
4.1. NATURE OF PROCEEDINGS They are judicial in nature but it is not bound by the technical rules of evidence. They are governed by the Revised Rules of the CTA. The Rules of Court apply “by analogy or in a suppletory character and whenever practicable and convenient” and “shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding.”
★
EXCLUSIVE ORIGINAL JURISDICTION OVER CRIMINAL OFFENSES
★ CRIMINAL CASES: Criminal offenses from violation of the: a. NIRC b. Tariff and Customs Code c. Other laws administered by the BIR or the BOC Offenses or felonies where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than PhP 1,000,000.00 shall be tried by the regular courts and that the jurisdiction of the CTA shall be appellate TAX COLLECTION CASES:
EXCLUSIVE APPELLATE JURISDICTION
Decisions by the Commissioner of the BIR involving: o Disputed assessments o Refunds of Internal Revenue Taxes, fees or other charges o Penalties in relation to the abovementioned o Other matters arising under the National Internal Revenue or other laws administered by the BIR Inaction by the Commissioner of Internal Revenue in cases invlolving: o Disputed assessments o Refunds of Internal Revenue Taxes, fees or other charges o Penalties in relation to the abovementioned o Other matters arising under the NIRC or other laws administered by the BIR where the NIRC provides a specific period of action in which case the inaction shall be deemed a denial Decisions or resolutions of the RTC in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction Decisions of the Commissioner of Customs in cases involving: o Liability for custom duties, fees or other money charges o Detention or release of property attached o Fines, forfeitures, other penalties in relation to the abovementioned o Other matters arising under the customs law or other laws administered by the BOC Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving: o Assessment and Taxation of real property originally decided by the provincial or city board of assessment appeals Decisions of the Secretary of Finance on cases elevated to him for automatic review from decisions of the Commissioner of Customs which are adverse to the Government under the tariff and customs code Decisions of the DTI Secretary in the case of non-agricultural product, commodity, or aritcles Decisions of the Secretary of Agriculture in the case of agricultural product, commodity, or aritcles involving dumping and counter ailing duties under the Tariff and Customs Code. TAX COLLECTION CASES: Appeals from the judgments, resolutions or orders of the 85RTC in tax collection cases Petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax collection cases originally decided by the RTCs.
o C. JURISDICTION OF CTA En Banc The CTA En Banc has exclusive appellate jurisdiction over the following cases: 1.
Decisions, resolutions or orders of the RTC in the exercise of its appellate jurisdiction over local tax cases and tax collection cases
2.
Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property
3.
Decisions of CTA Divisions
★ 1.
★ HOW APPEAL IS MADE
2.
The 30-day period runs from the date the taxpayer receives the appealable decision and that failure to lodge his appeal: i. Bars his appeal and renders the questioned decision final and executor ii. The assessment is considered correct and all that is necessary is for the Commissioner to enforce the collection of the tax by summary remedies or judicial action iii. The taxpayer may only raise defenses of absence of jurisdiction, collusion between the parties, or fraud The 30-day period, it is not extendible. A motion for reconsideration does not toll the 30-day period to appeal to the CTA. The Tax Code does not require that the Collector of Internal Revenue to rule first on a taxpayer’s request for reconsideration before he can go to the court for the purpose of collecting the tax assessed. The Commissioner of Internal Revenue must state that his decision is final for the 30-day period to appeal to run.
3. By filing a petition for review provided under Rule 42 of the Rules of CivPro with the CTA within 30 days from receipt of the decision or ruling or in the case of inaction, from the expiration of the period fixed by law to act thereon. With respect to decisions or rulings od the Central Board of Assessment Appeals and the RTC in the exercise of its appellate jurisdiction, it shall be made by filing a petition for review provided under rule 42 of the Rules of CivPro with the CTA which shall hear the case en banc. All other cases involving rulings, orders or decisions filed with the CTA shall be raffled to its Divisions. One adversely affected by such decision of a Division of the CTA may file a motion for reconsideration before the same Division within 15 days from notice thereof. One adversely affected by such decision of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc. In criminal cases, the general applicable in regular Courts on matters of prosecution and appeal shall likewise apply. One adversely affected by a decision or ruling of a CTA en banc may file with the SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of CivPro.
PERIOD TO APPEAL In case of assessment by the BIR, the taxpayer shall appeal within 30 days from receipt of decision or ruling or upon the lapse of 180 days.
NEW ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL
4.
It is a well-settled underlying principle of prior exhaustion of administrative remedies, on the judicial level, that issues not raised in the lower court cannot be raised for the first time on appeal. However, the exception is that the issue of prescription may be raised for the first time since this is a statutory right. An exception to the exception would be that errors committed by administrative officials may be raised even for the first time on appeal because the State can never be in estoppel, however, the Government must follow the same rules of procedure which bind the private parties.
WHO MAY APPEAL
Any taxpayer adversely affected by a decision or ruling or inaction of: a. The Commission of Internal Revenue b. The Commissioner of Custom c. The Secretary of Finance d. The Secretary of Trade and Industry e. The Secretary of Agriculture f. The Central Board of Assessment Appeal g. The RTC may appeal to the CTA Stockholders may file an appeal in cases of dissolved corporations because they could be held liable for the unpaid deficiency assessments of the dissolved corporation in proportion to their distributive shares.
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It is incumbent of the taxpayer to prove there what is the correct and just liability by a full and fair disclosure of all pertinent data in his possession in appealing the Collector’s assessment that he claims to be erroneous. Tax assessments by tax examiners are presumed correct and made in good faith and it is up to the taxpayer to prove otherwise or else, it will not be disturbed.
5.
THE CTA HAS NO JURISDICTION ON A FINAL AND EXECUTORY ASSESSMENT Self explanatory
6.
THE NON-SUSPENSION RULE An appeal does not automatically suspend the collection of taxes. A motion to suspend collection of taxes may be filed together with a petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings
7.
THE NO INJUNCTION RULE The NIRC provides that no court has the authority to grant a writ of injunction to restrain the collection of any internal revenue tax, fee, or charge imposed by the code. If in its opinion the collection of taxes may jeopardize the interest of the government and/or the taxpayer, the CTA may enjoin the same provided that a deposit is made in the amount of the disputed assessment or a surety bond is placed for not more than double the amount at issue.
8.
The CTA shall decide the cases filed before it within 30 days after the same has been submitted for decision. Non-compliance with the period does not affect the validity of the decision. The decision must be in writing stating the facts and the law on which they are based and signed by the judges who concurred. Decisions shall be published in the Official Gazette.
IF IT IS A DECISION OR A RULING OF THE CTA En Banc: He may file with the SC a verified petition for review on certiorari pursuant to Rule 45 on the Rule on CivPro.
10. GROUNDS FOR NEW TRIAL i. FAME = Fraud, Accident, Mistake, Excusable negligence ii. Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial and which, if presented, would probably alter the result. If the motion for new trial is anchored on this, it must be established that: a. The evidence was discovered after the trial b. Such evidence could not have been discovered and produced at the trial with reasonable diligence c. It is material, not merely cumulative, corroborative or impeaching d. It is of such weight that it will probably change the judgment 11. SECOND MOTION FOR RECONSIDERATION OF A DECISION, FINAL RESOLUTION OR ORDER FOR NEW TRIAL IS PROHIBITED Self explanatory (kahit book nagsabi) 12. WHEN APPEAL IS WITHDRAWN, THE ASSAILED DECISION BECOMES FINAL AND EXECUTORY
DISPOSITION OF CASES
9.
Whenever one withdraws an appeal, he is deemed to accept the decision of the CTA. So, for example, the CTA had already denied a request for the issuance of, lets say, a tax credit certificate for insuffiency of evidence, it may no longer be included in the taxpayer’s future claims. Kumbaga, barred na siya by gawing dahilan yon to raise his contention in sa susunod na kabanata ng kaniyang life. A taxpayer cannot be allowed to circumvent the denial of its request for a tax credit by abandoning its appeal and filing a new claim. An appellant who withdraws his appeal must face the consequences of his withdrawal, such as the decision of the court a quo becoming final and executory.
RECOURSE OF THE PARTY ADVERSELY AFFECTED BY THE DECISION
IF IT IS AN ORDER OR DECISION OF A DIVISION OF THE CTA: He may file a motion for reconsideration or new trial before the same Division within 15 days from notice. IF IT IS A RESOLUTION OF A DIVISION OF THE CTA ON A MOTION FOR RECONSIDERATION OR NEW TRIAL: He may file a petition for review with the CTa en banc.
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NIRC SECTIONS 1 TO 21
6.
Shall employ, assign, or reassign internal revenue officers involved in excise tax
AND
functions, as often as the exigencies of the revenue service may require, to
NIRC REMEDIES
establishments or places where articles subject to excise tax are produced or kept:
TITLE I
Provided, That an internal revenue officer assigned to any such establishment shall
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE
in no case stay in his assignment for more than two (2) years, subject to rules and
POWERS AND DUTIES OF THE BIR:
regulations to be prescribed by the Secretary of Finance, upon recommendation of
1.
Assessment and collection of all national internal revenue taxes, fees, and charges.
2.
Enforcement of all forfeitures, penalties, and fines connected therewith, including
3.
the Commissioner. 7.
the execution of judgments in all cases decided in its favour by the Court of Tax
Internal Revenue, without change in their official rank and salary, to other or
Appeals and the ordinary courts.
special duties connected with the enforcement or administration of the revenue
Shall give effect to and administer the supervisory and police powers conferred to
laws as the exigencies of the service may require: Provided, That internal revenue
it by this Code or other laws.
officers assigned to perform assessment or collection function shall not remain in the same assignment for more than three (3) years; Provided, further, That
COMPOSITION OF THE BIR:
assignment of internal revenue officers and employees of the Bureau to special
Chief Commissioner and four assistant chiefs to be known as Deputy
duties shall not exceed one (1) year.
Commissioners. POWERS OF THE CHIEF COMMISSIONER: 1.
The exclusive original jurisdiction to interpret the provisions of the NIRC and other
POWERS OF THE COMMISIONER THAT CANNOT BE DELEGATED: 1.
tax laws subject to review by the Secretary of Finance. 2.
To decide disputed assessments, refunds of internal revenue taxes, fees or other
NIRC or other laws or portions thereof administered by the Bureau of Internal
2.
To obtain information and to summon, examine and take testimony of persons.
4.
To make assessments and prescribe additional requirements for Tax administration and Enforcement. To delegate powers vested in him to any subordinate officials with a rank equivalent to a division chief or higher subject to the provisions of the code and the rules promulgated by the Secretary of Finance.
The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
3.
Revenue subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. 3.
The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
charges, penalties imposed in relation thereto, or other matters arising under the
5.
Assign or reassign internal revenue officers and employees of the Bureau of
The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability; and
4.
The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.
DUTIES OF THE COMMISIONER: 1.
To prescribe, provide, and distribute to the proper officials the requisite licenses internal revenue stamps, labels all other forms, certificates, bonds, records,
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invoices, books, receipts, instruments, appliances and apparatus used in
2.
4.
revenue are faithfully executed and complied with, and to aid in the prevention,
To acknowledge the payment of tax if payment was made, expressing the amount
detection and punishment of frauds of delinquencies in connection therewith. 2.
Revenue under his supervision, and to report in writing to the Commissioner,
Furnish its appropriate Committee pertinent information including but not limited
through the Regional Director, any neglect of duty, incompetency, delinquency, or
to: industry audits, collection performance data, status reports in criminal actions
malfeasance in office of any internal revenue officer of which he may obtain
initiated against persons and taxpayer's returns.
knowledge, with a statement of all the facts and any evidence sustaining each case.
Submit to the Oversight Committee referred to in Section 290 hereof, through the
Representatives, a report on the exercise of his powers pursuant to the said section, every six (6) months of each calendar year.
Agents of the Commissioner: 1.
Implement laws, policies, plans, programs, rules and regulations of the department
2.
the assessment and collection of all internal revenue taxes, charges and fees. 3.
Issue Letters of authority for the examination of taxpayers within the region;
4.
Provide economical, efficient and effective service to the people in the area;
5.
Coordinate with regional offices or other departments, bureaus and agencies in the
3.
Coordinate with local government units in the area;
7.
Exercise control and supervision over the officers and employees within the region; and
8.
Perform such other functions as may be provided by law and as may be delegated by the Commissioner.
Duties of Revenue District Officers and Other Internal Revenue Officers:
Banks duly accredited by the Commissioner with respect to receipt of payments internal revenue taxes authorized to be made thru bank.
AUTHORITY OF REVENUE OFFICERS: 1.
Examine taxpayers within the jurisdiction of the district pursuant to a letter of authority issued by the Revenue Regional Director in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue
area; 6.
The head of the appropriate government office and his subordinates with respect to the collection of energy tax; and
or agencies in the regional area; Administer and enforce internal revenue laws, and rules and regulations, including
The Commissioner of Customs and his subordinates with respect to the collection of national internal revenue taxes on imported goods;
JURISDICTION OF THE REVENUE REGIONAL DIRECTOR:
2.
To examine the efficiency of all officers and employees of the Bureau of Internal
manner prescribed therefor by the Commissioner.
Chairmen of the Committee on Ways and Means of the Senate and House of
1.
To ensure that all laws, and rules and regulations affecting national internal
administering the laws falling within the jurisdiction of the Bureau.
paid and the particular account for which such payment was made in a form and
3.
1.
Regional Director himself. 2.
To administer oaths and to take testimony in any official matter or investigation conducted by them regarding matters within the jurisdiction of the Bureau.
3.
To make arrests and seizures for the violation of any penal law, rule or regulation administered by the Bureau of Internal Revenue.
SOURCES OF REVENUE:
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1.
Income tax;
d.
2.
Estate and donor's taxes;
3.
Value-added tax;
4.
Other percentage taxes;
5.
Excise taxes;
6.
Documentary stamp taxes; and
7.
Such other taxes as are or hereafter may be imposed and collected by the Bureau
Compromise and abatement (Discussed under Remedies of the Taxpayer)
e.
Penalties and fines (Discussed under Tax Administration and Enforcement)
f. 3.
Non-availability of injunction to restrain collection of taxes
Other remedies a.
Forfeiture
of Internal Revenue. b. Suspension of business operations (Discussed under Tax Administration and Enforcement) B.
Judicial Remedies
NIRC REMEDIES
1.
Civil
OUTLINE OF REMEDIES
2.
Criminal
REMEDIES OF THE GOVERNMENT REMEDIES OF THE TAXPAYER
Basic Remedies: 1.
Assessment
2.
Collection
I.
Before payment A.
OTHER CLASSIFICATIONS I.
As to procedure A.
Assessment and Collection
B.
Collection without assessment
II. A.
II.
Administrative Remedies 1.
Protest
2.
Compromise
3.
Abatement
After payment A.
Administrative Remedy
As to the nature of proceeding
1.
Tax refund
Administrative Remedies
2.
Tax credit
1.
Exercise of power to make assessments
2.
Remedies in collection stage
B.
Judicial Remedies
a.
Tax lien
REMEDIES OF THE GOVERNMENT
b.
Distraint of personal property or garnishment of bank deposits
Assessment
c.
Levy of real property
It is an official action of an administrative officer in: 1.
Determining the computation of the sum due.
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2.
Giving notice to that effect to the taxpayer.
foundation and hence, arbitrary and capricious) (CIR v. Hantex Trading, G.R. No. L-
3.
Making, simultaneously with or sometimes after the giving of notice, of demand
13975, March 31, 2005).
upon him for the payment of the tax deficiency stated within a specified period (CIR v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999).
2.
Assessments should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the
* A notice of assessment without a due date cannot be considered as a demand but mere
assessment must be based on actual facts (Collector v. Benippayo, G.R. No. L-
requests for payment (First Gas Power Corp. v. CIR, CTA Case No. 7281, September 24, 2012). Reason for Assessment: There is a tax due to the government which has not been paid by
13656, January 31, 1962). 3.
the taxpayer either as a delinquency or a deficiency tax. If the tax was properly paid,
General Rule: Assessment is discretionary on the part of the CIR. Mandamus will not lie for it will constitute judicial encroachment on executive functions.
assessment is not necessary. General Rule: Taxes are self-assessing and thus do not require the issuance of an assessment
Exception: If in the exercise of his discretion, there is evidence of arbitrariness and
notice in order to establish the tax liability of the taxpayer.
grave abuse of discretion as to go beyond statutory authority (Maceda v. Macaraig,
Exceptions
Jr., G.R. No. 88291, June 8, 1993).
Instances where taxes require assessment to establish additional tax liability: 1.
Tax period of a taxpayer is terminated ( TAX CODE, Sec. 6[D])
2.
Deficiency tax liability arising from a tax audit by the BIR (TAX CODE, Sec. 56 [B])
3.
Tax lien (TAX CODE, Sec. 219)
4.
Dissolving corporation (TAX CODE, Sec. 52[C])
4.
assessments have the same force and effect as that issued by the CIR (Oceanic Wireless Network v. CIR, G.R. No. 148380, December 9, 2005). 5.
General Rule: All presumptions are in the favour of tax assessments. When an assessment is made, the same is presumed correct and made in good faith. The taxpayer has the duty to prove otherwise, and in the absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed ( CIR v. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 2005).
Exception: The prima facie correctness of a tax assessment does not apply when
Assessments must be directed to the right party (Republic v. De la Rama, G.R. No. L-21108, November 29, 1966).
Principle Governing Tax Assessments 1.
The authority to assess taxes may be delegated to subordinate officers. Said
Kinds of Assessment: 1.
Self-assessment – the tax is assessed by the taxpayer himself (TAX CODE, Sec. 56[A]) Examples: a.
Income tax
b.
Estate tax
c.
Donor’s tax
d.
VAT
the CIR comes out with a naked assessment (an assessment that is without
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2.
Deficiency assessment – made by the tax assessor himself where the correct amount of tax is determined after an examination or investigation is conducted
* This does not alter the confidentiality rule of bank deposits.
(TAX CODE, Sec. 56[B]). 3.
Disputed assessment – takes place when a taxpayer questions an assessment and
Cash Expenditure Method – assumes that the excess of a taxpayer’s expenditures
asks the collector to reconsider or cancel the same because he believes he is not
during a tax period over his reported income for that period is taxable to the extent
liable therefore (St. Stephen’s Association v. CIR, G.R. No. L-11238, August 21,
not approved otherwise.
1958). 4.
4.
5.
Unit and Value Method – the determination or verification of gross receipts may
Jeopardy assessment – a tax assessment made by an authorized Revenue Officer,
be computed by applying price and profit figures to the known ascertainable
without the benefit of a complete or partial audit, in light of the officer’s belief that
quantity of business done by the taxpayer.
the assessment and collection of a deficiency tax will be jeopardized by delay
6.
caused by the taxpayers failure to: a.
Comply with audit and investigation requirements to present his books of
Third Party Information or Access to Records Method – third party contacts are the sources of information.
7.
Surveillance and Assessment Method (RAMO No. 01-2000, XIII)
accounts and/or pertinent records. b.
Substantiate all or any kind of the deductions, exemptions, or credits claimed in his return (RR No. 30-2002, Sec 3[1][a]).
Assessment Process Summary: 1.
Issuance of Letter of Authority
Means Employed by the Commissioner in the Assessment of Taxes
2.
Audit or Tax investigation
The following are the general (constructive) methods developed by the BIR for reconstructing
3.
Issuance of Preliminary Notice of Assessment (PAN)
a taxpayer’s income where the taxpayer keeps no or inadequate records or where there is a
4.
Reply to PAN
strong suspicion that it has received income from undisclosed sources:
5.
Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
1.
Percentage Method - equivalent of a ratio analysis of percentages considered typical of the business under investigation to indicate potential areas of revenue adjustment in examination where revenue records do not exist.
2.
Net Worth Method – method of reconstructing income based on the theory that if the taxpayer’s net worth has increased in a given year in an amount larger than his reported income, he had understated his income for that year.
3.
Bank Deposit Method – the bank records of the taxpayer are analyzed and the Revenue Officer estimates income on the basis of the total bank deposits after eliminating non-income items.
1. Issuance of Letter of Authority (LA) An LA is a request to the taxpayer to permit the bearer thereof, a particular enforcement officer, to conduct the necessary tax examination and verification of books and records (DE LEON, NIRC, p. 584). 2. Audit and Tax Investigation The Revenue Officer shall, within 120 days from the date of issuance and service of the LA, conduct his audit and submit his report of investigation (ABAN, p. 196; RMO No. 38-88). Effect of Failure to Complete the 120-day Period
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Audit will continue without the need to revalidate the LA, but the officer concerned shall be
* The issuance of a Notice of Informal Conference under RR No. 12-99 before issuing a PAN
subjected to administrative sanctions (RMO No, 23, 2009; RMO No. 44-2010).
is already dispensed with pursuant to RR No, 18-2013 issued on November 28, 2013.
3.
Issuance of Preliminary Assessment Notice (PAN) 4. Reply to PAN
PAN is issued to the taxpayer informing him of the findings of the Revenue Officer if after review and evaluation of the taxpayer’s records, there is sufficient basis to assess the taxpayer for any deficiency taxes (RR No. 18-2013, Sec 3.1.1).
* Prior to the issuance of PAN, the taxpayer may be allowed to make voluntary payments
The taxpayer has fifteen (15) days from the date of receipt of PAN to reply (RR No. 18-2013, Sec. 3.1.1). Requisites of a Valid Reply 1.
Must be made within the 15-day period (RR No. 18-2013, Sec. 3.1.1).
2.
Must be filed by the taxpayer or his duly authorized representative, in person or
of probable deficiency taxes and penalties (RMC No. 11-2014).
through registered mail with return card, with the office of the duly authorized representatives of the CIR who signed the PAN (RMC No, 11-2014; RMC No. 39-
Requisites of a Valid PAN 1.
service or by mail (RR No. 18-2013, Sec. 3.1.6). 2.
2013).
Must be served to the taxpayer personally, and if not practicable, by substituted
The assessment was conducted within the scope of authority given by a valid LA
Effects of Failure to Submit a Valid Reply to PAN 1.
(CIR v. Sony Phils., Inc., G.R. No. 178697, November17, 2015). 3.
Must be in writing and contain the facts and the law on which the proposed
The taxpayer shall be considered in default and a FLD/FAN will be issued (TAX CODE, Sec. 228. par. 3).
2.
Taxpayer can still file a protest to the FLD/FAN (TAX CODE, Sec. 228, par. 4).
assessment is based (TAX CODE, Sec. 228, par. 2; RR. No. 18-2013, Sec. 3.1.1). 4.
Must be issued by the CIR or his duly authorized representative. They are: a.
Revenue Regional Directors
b.
ACIR-LTS
c.
ACIR-Enforcement and Advocacy Service (RR. No, 18-2013, Sec. 3.1.1; RMC No. 11-2014)
5. Issuance of Formal Letter of Demand and Final Assessment Notice FLD/FAN A notice of assessment constituting a computation of deficiency taxes and a demand issued to the taxpayer. This is the notice of assessment and not the PAN: 1.
That must be issued within the prescriptive period to make the assessment.
2.
That must be protested by the taxpayer otherwise the assessment shall become
Reason: To give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the assessment (Sony Philippines v. CIR,
final, executory, and demandable. 3.
From which the prescriptive period to collect commences to run.
CTA Case No. 6185, October 26, 2004). Requisites of a Valid FAN: 1.
Must be issued after issuance of a valid Pan, except for those instances where a Pan is not required (TAX CODE, Sec. 228, par. 1 & 2; RR No. 18-2013, Sec. 3.1.2).
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2.
3.
Must be issued by the CIR or his duly Authorized representative (RR No. 18-2013,
Reason: A PAN preparatory to the issuance of the FAN is not legally speaking an assessment
Sec. 3.1.3; RMC No. 11-2014).
even if it contains the computation of the taxpayer’s liabilities (Oakwood Management
Must be served to the taxpayer personally, and if not practicable, by substituted
Services v. CIR, CTA Case No. 7989, August 8, 2013).
service or by mail (RR No. 18-2013, Sec. 3.1.6). 4.
Must be served to the taxpayer before the lapse of the prescriptive period for making assessment (TAX CODE, Sec. 203).
5.
3.
Within the 15 days after the filing of the response to the PAN (RR No. 18-2013, Sec. 3.1.1).
4.
Must be in writing and contain the facts and the law on which the assessment is
After/Beyond the 15-day period after the filing of the response to PAN (RMC No. 11-2014).
based (RR No. 18-2013, Sec. 3.1.1). 6.
The assessment was conducted within the scope of authority given by a valid LA (CIR v. Sony Phils., Inc., G.R. No. 178697, November 17, 2010).
* Issuance of the FLD/FAN beyond 15 days from the filing of the response to the PAN shall not render it invalid. The non-observance of the 15-day period, however, shall constitute
Period to issue FLD/FAN
an administrative infraction and the revenue officers who caused the delay shall be
General Rule: Fan can be issued only after a PAN was issued. This is part of the requirements
subjected to administrative sanctions (RMC No. 11-2014).
of due process and failure to comply therewith would render the assessment void (CIR v. Metro Superama, Inc., G.R. No. 185371, December 8, 2010; SVI Information v. CIR, CTA Case
Exceptions: In the following instances where PAN is not required, A FLD/FAN shall be issued
no. 8496, February 10, 2014).
outright:
After the issuance of the PAN, the FAN may be issued in any of the following circumstances: 1.
2.
1.
After the lapse of the 15-day period to respond to the PAN without the taxpayer
When the finding for any deficiency tax is the result of mathematical error in the computation of tax as appearing on the face of the return.
submitting a reply (RR No. 18-2013, Sec. 3.1.1).
2.
When the excise tax due on excisable items has not been paid.
Before the lapse of the 15-day period to respond to the PAN and the taxpayer has
3.
When a discrepancy has been determined between the tax withheld and the
not yet submitted a reply to PAN (Oakwood Management Services v. CIR, CTA Case No. 7989, August 8, 2013).
amount actually remitted by the withholding agent. 4.
When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to a non-exempt person.
* The issuance of the FAN before the lapse of the 15-day period for the taxpayer to file a reply to the PAN inflicts no prejudice on the taxpayer as long as the taxpayer is properly served the FAN and is able to intelligently contest the FAN by filing a protest within the period allowed by law.
5.
When the taxpayer has opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year (RR No. 18-2013, Sec. 3.1.2).
94
Service of FLD/FAN A.
shall bring a barangay official and 2 disinterested witnesses so that
Modes of Service (RR. No. 18-2013, Sec. 3.1.6; RMC No. 11-2014) 1.
they may personally observe and attest to such fact of refusal. The
Personal Service - the notice shall be served by delivering personally a
notice shall be left to the barangay official. Such facts shall be
copy thereof to the party at his registered or known address or wherever
contained in the bottom portion of the notice, as well as the names,
he may be found.
official position and signature of the witnesses.
“Known address” – a place other than the registered address where business activities of the party are conducted or his place of residence. In case personal service is not practicable, the notice shall be served by
“Disinterested witness” – persons of legal age other than employees of the BIR. 3.
or known address of the party by:
substituted service or by mail. 2.
Service by Mail – done by sending a copy of the notice to the registered
a.
Substituted Service – resorted to when the party is not present at the
to the sender after ten days if undelivered, or by reputable
registered address or known address under the following circumstances: a.
professional courier service.
Notice may be left at the party’s registered address with his clerk or b.
with a person having charge thereof. b.
c.
Registered mail with instruction to the postmaster to return the mail
Ordinary mail if no registry or reputable professional courier service is available in the locality of the addressee.
If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person
The server shall accomplish the bottom portion of the notice and make a written report
having charge thereof.
under oath setting forth the manner, place, and date of service, the name of the
If the known address is the place of residence, substituted service
person/barangay official/professional courier service who received the same and other
can be made by leaving a copy with a person of legal age residing
relevant information.
therein d.
If no person is found at the registered/known address, the revenue
* Service to the tax agent/practitioner, who is appointed by the taxpayer under the
officer shall bring a barangay official and two disinterested
circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall
witnesses to the address so that they may personally observe and
be deemed service to the taxpayer.
attest to such absence. The notice shall be given to the barangay
e.
official. Such facts shall be contained in the bottom portion of the
The aforementioned modes of service are also applicable to the service of the PAN and
notice, as well as the names, official position and signature of the
the FDDA.
witnesses.
The notice shall first be served to the taxpayer’s registered address before the same
Should the party be found at his registered or known address or any
may be served to the taxpayer’s known address or in the alternative, may be served to
other place but refuses to receive the notice, the revenue officer
the taxpayer’s registered and know address simultaneously (RMC No. 11-2014).
95
B.
When FAN deemed made
The defence may be raised even for the first time on appeal when it is apparent on the record that the assessment has already prescribed (CIR v. First Sumiden Realty,
The assessment is deemed to have been made on the date when the demand letter or notice of assessment is released, mailed, or sent, even though the same is actually received by the taxpayer after the expiration of the prescriptive period. (Basilan Estates v. CIR, G.R. No. L-22492, September 5, 1967). General Rule: When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail (Republic v. CA, G.R. No. L-38540, April 30, 1987). For the presumption to apply, the following facts must be proven: 1.
Letter was properly addressed with postage prepaid.
2.
Letter was mailed (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064, August 7, 2006).
Proof of Mailing
Inc., CTA EB No. 975 re: CTA Case No. 8151, January 7, 2014). 2.
Establishing Legal and Factual Bases of Tax Assessment The details in the assessment notices issue to the taxpayer must be sufficient to allow the taxpayer to intelligently answer the assessment as well as prepare the documentary evidence for protest. If the BIR merely stated that per computerized matching, the taxpayer has undeclared importations, the assessment is invalid (CIR v. BASF Philippines, Inc., CTA EB Case No, 872 re CTA Case No. 7415, September 12, 2013). An assessment based on a Summary List of Purchases (SLP) cannot be used as the sole basis. The SLP is doubtful, inconclusive and unreliable. The CIR must prove the source of the information, otherwise the assessment is invalid (CIR v. Fax N Parcel, Inc., CTA EB Case No. 883 re CTA Case No, 7415, February 14, 2013).
The registry receipt issued by the post office or the official receipt issued by the professional courier service containing sufficiently identifiable details of the transaction
Authority of the CIR to make subsequent assessment or modify or revise assessment
shall constitute sufficient proof of mailing and shall be attached to the case docket (RMC
The CIR has the authority to make subsequent assessments or modify or revise the original
No. 18-2013, Sec. 3.1.6).
assessment to collect additional sums covered by the original assessment as long as the
BIR record book is not sufficient (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
modification or revision is done within the prescriptive period for making assessments, and
August 7, 2006).
even while the appeal of the taxpayer from the original assessment is still pending in the CTA,
Exception: When there is a direct denial of the receipt. The burden is shifted to the BIR
so as to avoid multiplicity of suits (CIR v. Batangas Transportation Co., G.R. No. L-9692,
to prove the letter mailed was received by the addressee. (Republic v. CA, G.R. No. L-
January 6, 1958).
38540, April 30, 1987; Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064, August 7,
Collection
2006).
It is the actual effort exerted by the government to effect the exaction of what is due from
C.
Questioning the Validity of FLD/FAN
the taxpayer. It is the final stage and goal of tax administration.
1.
Prescription as a Defence
Is assessment necessary before collection?
An FLD/FAN must be served to the taxpayer within the prescriptive period to make
General Rule: Yes, No proceeding in court without assessment for the collection of such
a valid assessment (TAX CODE, Sec. 203).
taxes shall be commenced (TAX CODE, Sec. 203).
96
A warrant of distraint and/or levy without issuance of a FAN is void (Gold Harvest Global
1.
Corp. v. CIR, CTA Case No. 7503, September 18, 2009).
payable.
Exception: A proceeding in court for the collection of tax may be filed without prior
2.
assessment in the following cases: 1.
False or fraudulent return with intent to evade tax.
2.
Failure to file a return (TAX CODE, Sec. 222[1]).
With respect to personal property – from the time the tax became due and
With respect to real property – from the time of registration with the Registry of Deeds.
* It is settled that the claim of the government predicated on a tax lien is superior to the When does tax become collectible:
claim of a private litigant predicated on a judgement. The tax lien attaches not only from
The government can collect when the assessment becomes final and executor for:
the service of the warrant of distraint but from the time the tax became due and payable
1.
Failure to protest an FLD/FAN within the prescribed period.
2.
Failure to appeal an FDDA within the prescribed period.
3.
Failure to appeal an adverse decision of the court within the prescribed period.
(CIR v. NLRC, G.R. No. 74965, November 9, 1994).
Validity of Tax Lien The lien shall be valid against any mortgagee purchaser or judgement creditor only when
ADMINISTRATIVE REMEDIES
notice of such lien shall be filed by the CIR in the office of the Register of Deeds of the
Enforcement of Tax Lien
province or city where the property of the taxpayer is situated (TAX CODE, Sec. 219).
Tax Lien
Distraint of Personal Property
A legal claim or charge on property, real or personal, established by law as security
Kinds of Distraint:
in default of the payment of taxes (HSBC v. Rafferty, G.R. No. L-13188, November 15, 1918).
1.
Actual Distraint Resorted to when at the time required for payment, a person fails to pay his delinquent tax obligation (NIRC, Sec. 207[A]). It is the actual seizure and taking possession of personal property of the taxpayer. Delinquent Taxpayer
Nature of Tax Lien
A taxpayer is considered delinquent in the payment of his tax when the:
When a taxpayer neglects or refuses to pay his internal revenue tax liability after
a.
demand, the amount so demanded shall be a lien in favour of the government from the time the assessment was made by the Commissioner until paid with interest,
Self-assessed tax per return filed on the prescribed date was not paid at all or partially paid.
b.
Deficiency tax assessed by the BIR became final and executor.
penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer (TAX CODE, Sec. 219). When does the lien in favour of the Government arise:
Procedure for Actual Distraint a.
Commencement of distraint proceedings by:
97
1.
CIR or his duly authorized representative – where amount involved is
4.
greater than 1M. 2.
b.
c.
Revenue District Officer – where amount involved is 1M or less (TAX
5.
In the case of stocks and other securities, the officer making the sale shall execute a bill of sale, which shall be delivered to the buyer and to the
Service of warrant of distraint
corporation, company or association (CCA) which issued the stocks or
The personal property of the taxpayer is physically taken by the distraining
other securities. Upon receipt of the copy of the bill of sale, an entry of
officer (TAX CODE, Sec. 208).
transfer should be made in the CCA’s book and a corresponding
Report on the distraint
certificate of stock shall be issued if required (TAX CODE, Sec. 209).
2.
It shall be submitted by the distraining officer to the Revenue District
6.
Any residue over and above what is required to pay the entire claim
Officer and to the Revenue Regional Director within 10 days from receipt
including expenses shall be returned to the owner of the property sold.
of warrant.
Expenses chargeable upon seizure shall include only those actual
The CIR or his duly authorized representative has the power to lift the
expenses of seizure and preservation of the property pending the sale
order of distraint (TAX CODE, Sec. 207[A]).
and does not include services of the Revenue Officer (TAX CODE, Sec.
Notice of sale of distrained properties
210)
1.
Notice shall specify the time and place of sale and the articles distrained.
Right of Pre-emption: If at any time prior to the consummation of the sale all
2.
The time of sale shall not be less than 20 days after the notice to the
proper charges are paid to the officer conducting the sale, all the distrained
owner or possessor of the property and posting of such notice.
properties shall be restored to the owner (TAX CODE, Sec. 211).
The posting shall be made in not less than two public places in the city or
There is no right of Redemption
municipality where the distraint is made. One place for the posting of
Purchase by the Government at Sale upon Distraint (TAX CODE, Sec. 212)
such notice is at the Office of the Mayor of such city or municipality in
When the amount bid for the distrained property is:
which the property is distrained (TAX CODE, Sec. 209).
a.
Not equal to the amount of tax.
b.
Very much less than the actual market value of the property offered for sale.
3.
e.
with the approval of the CIR.
CODE, Sec. 207[A]).
1.
d.
If the sale is through a licensed commodity or stock exchange, it must be
Sale at public auction 1.
Sale must be held at the time and place stated at the notice.
2.
It may be conducted by the Revenue Officer or through a licensed commodity or stock exchange.
3.
If the sale is conducted by the officer, rather than the officer serving the warrant, it must be held at a public auction and the property shall be sold to the highest bidder for cash.
The CIR or his deputies may purchase on behalf of the National Government for the amount of the taxes, penalties, and cost due thereon. Property so purchased may be resold by the CIR or his deputy; the net proceeds shall be remitted to the National Treasury and accounted as internal revenue. Distraint of Intangible Properties Intangible properties which can be the subject of distraint are:
98
a.
Stocks and other securities – by serving a copy of the warrant of distraint
b.
Intending to leave the Philippines.
upon the taxpayer and upon the president, manager, treasurer, or other
c.
Intending to remove his properties therefrom or to hide or conceal his property.
responsible officer of the corporation, company, or association, which issued
d.
Intending to perform any act tending to obstruct the proceedings for collecting the
the same. b.
Debts and credits – by leaving with the person owning the debts or having in his possession or under his control such credits, or his agent, a copy of the warrant of distraint.
c.
tax due or which may be due from him (TAX CODE, Sec. 206) Constructive distraint is effected: a.
property to sign a receipt covering the property distrained and obligate himself to
Bank accounts – by serving a warrant of garnishment upon the taxpayer and
preserve the same intact and unaltered and not to dispose of the same in any
upon the president, manager, treasurer, or other responsible officer of the
manner whatever without the express authority of the CIR.
bank ((TAX CODE, Sec. 208) Garnishment The taking of personal properties, usually cash or sums of money, owned by the delinquent taxpayer which is in the possession of a third party. Bank accounts may be distrained notwithstanding the Bank Secrecy Act (R.A. 1405) which prohibits inquiry into bank accounts, since in the case of distraints, no inquiry is made. The BIR merely seizes so much of the deposits as is sufficient to discharge the obligation without having to know how much the deposits are, or where the money or part of it came from (Opinion of the Secretary of Justice, No.
By requiring the taxpayer or any person having possession or control of such
Punishment in case of violation: Upon the conviction, a fine of not less than twice the value of the property so sold, encumbered, or disposed of but not less than P 5,000, or suffer imprisonment of not less than two years and one day but not more than four years, or both (TAX CODE, Sec. 276) b.
In case the person refuse or fails to sign the receipt, the Revenue Officer effecting the constructive distraint shall prepare a list of the property and in the presence of two witnesses, leave a copy thereof in the premises of the property where the property distrained is located (TAX CODE, Sec. 206).
54 s. 1956)
2. Constructive Distraint Issued where no actual tax delinquency of the taxpayer is necessary before the same is resorted to by the government (ABAN, p. 238) It is a preventive remedy to forestall possible dissipation of the taxpayer’s assets when delinquency takes place. It is issued in the following cases when the taxpayer is: a.
Levy of Real Property Levy Refers to the seizure of real properties and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer (DIMAAMPAO, p. 158). When may levy be effected
Retiring from any business subject to tax.
99
Real property may be levied upon before, simultaneously, or after the distraint of
The Advertisement shall contain:
personal property belonging to the delinquent taxpayer (TAX CODE, Sec. 207[B]);
a. Amount of tax and penalties due.
and the remedy of distraint and levy may be repeated if necessary if the full
b. Name of the taxpayer against whom the taxes are levied.
amount, including expenses, is collected (TAX CODE, Sec. 217).
c. Time and place of sale.
In case the warrant of levy is not issued before, or simultaneously with the warrant
d. Short description of the property to be sold.
of distraint and the personal property of the taxpayer is not sufficient to satisfy his The advertisement shall be made within 20 days after the levy, and the same
delinquency, the CIR or his authorized representative shall, within 30 days after the
shall be for a period of at least 30 days (TAX CODE, Sec. 213).
execution of the distraint, proceed with the levy on the taxpayer’s real property
Advertisement shall be effectuated by:
(TAX CODE, Sec. 207[B]).
a. Posting a notice at the main entrance of the municipal building or city hall
Procedure for levy 1.
and in a public and conspicuous place in the barrio or district in which
Issuance of Warrant of Levy
the real property lies.
Preparation of a duly authenticated certificate containing: a.
Description of property levied
b.
Name of the taxpayer
c.
Amount of tax and penalty due from him
b. Publication once a week for three weeks in a newspaper of general circulation in the municipality or city where the property is located. 4.
Public Sale of Property under Levy Taxpayer is given the right of pre-emption before the sale.
This certificate shall operate with the force and effect of a legal execution
If he does not exercise it, the sale shall proceed and shall be held either at the
throughout the Philippines (TAX CODE, Sec. 207[B]).
main entrance of the municipal building or city hall, or on the premises to be
2.
Service of the Warrant
sold, as the officer conducting the proceedings shall determine and as the
How is levy effected
notice of the sale shall specify (TAX CODE, Sec. 213).
Written notice of the levy shall be mailed or served upon:
Right of Pre-emption: The taxpayer may discontinue all proceedings by paying
a.
The Register of Deeds of the city or province where the property is
the taxes, penalties, and interest at any time before the day fixed for the sale.
located.
A Certificate of Sale shall be delivered to the purchaser.
Upon the delinquent taxpayer, or if he is absent from the Philippines, to
If the proceeds of the sale exceed the claim and cost of sale, the excess shall
his agent or the manager of the business in respect to which the liability
be turned over to the owner of the property.
b.
arose, or if there be none, the occupant of the property in question (TAX CODE, Sec. 207[B]) 3.
Advertisement of Sale
5.
Redemption of Property (TAX CODE, Sec. 214) Period: Within one year from the date of the sale.
100
The one year period for redemption begins from the registration of the deed
Within one year from forfeiture, the taxpayer may redeem his property.
of sale (Santos v. RFC, G.R. No. L-9796, July 31, 1967).
Resale of Real Estate Taken for Taxes
Who may redeem: The delinquent taxpayer or anyone for him.
The CIR shall have charge of any real estate obtained by the Government in
To whom made: To the Revenue District Officer.
payment of taxes, penalties or costs arising under the Tax Code or in
How made: Upon payment of the taxes, penalties, and interest thereon from
compromise or adjustment of any claim.
the date of the delinquency to the date of sale, together with interest on
The CIR may:
purchase price at 15% per annum from the date of sale to the date of
a.
redemption.
Sell and dispose of the same at a public auction upon giving of not less than 20 days notice.
The owner shall not be deprived of the possession of the property and shall be
b.
entitled to the rents and other income thereof until the expiration of the time
Dispose of the same at a private sale with the approval of the Secretary of Finance (TAX CODE, Sec. 216)
allowed for redemption.
c.
Effects of Redemption of Property Sold: a.
Such payment shall entitle the taxpayer to the delivery of the certificate issued to the purchaser and a certificate from the RDO that he has redeemed the property.
b.
* The remedies of distraint and levy as well as collection by civil and criminal action may, in the discretion of the CIR, be pursued singly or independently of each other, or all of them simultaneously.
The RDO shall pay the purchaser the amount by which such property has Both distraint and levy are summary remedies and cannot be availed of
been redeemed and said property shall be free from lien of such taxes
where the amount of tax involved is than P 100.
and penalties. 6.
Real property placed under levy may be sold at public auction for less than its
Further Distraint and Levy
market value (NIRC, Sec. 215) since the taxpayer is given the right to redeem
The remedy of distraint and levy may be repeated if necessary until the full
(NIRC, Sec. 214). With respect to distrained personal property the rule is
amount of the tax delinquency including all expenses is collected from the
different (NIRC, Sec. 212).
taxpayer (TAX CODE, Sec. 217) Grounds for Forfeiture to the Government: a.
No bidder for the real property.
b.
The highest bid is for an amount insufficient to pay the taxes, penalties,
Penalties and Fines Increments to the basic tax incident to the taxpayer’s non-compliance with certain legal requirements.
and costs (TAX CODE, Sec. 215) The Register of Deeds shall transfer title to the Government upon registration with his office of the declaration of forfeiture.
No Injunction to Restrain Collection of Tax
101
No court shall have the authority to grant an injunction to restrain the collection of any
Forfeited Goods or Articles (TAX CODE, Sec. 225)
national internal revenue tax, fee or charge imposed (TAX CODE, Sec. 218), except when in
1.
the opinion of the CTA: 1.
Collection of the tax would jeopardize the government and/or taxpayer.
2.
Shall thereafter require the taxpayer to deposit the amount claimed or to file a
Sold – in case of forfeited chattels and removable fixtures, so far as practicable, under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for non-payment of taxes.
2.
surety bond for not more than double the amount with the court (R.A. 922, Sec. 9).
Destroyed – in case of distilled spirits, liquors, cigarettes, other manufactured products of tobacco and all apparatuses used in or about the illicit production of such articles, by the CIR when the sale of the same for consumption or use would
Forfeiture (of Confiscated Articles) Forfeiture
be injurious to public health or prejudicial to the enforcement of law. 3.
The divestiture of property without compensation, in consequence of a default or offense
Sold or destroyed – in cases of all other articles subject to excise tax, which have been manufactured or removed in violation of NIRC, dies for printing or making of
(Balllantine’s Law Dictionary, p. 519).
internal revenue stamps and labels which are in imitation of or purport to be lawful
Seizure v. Forfeiture
stamps, or labels, in the discretion of the Commissioner.
In seizure for the enforcement of tax lien, the residue, after deducting the tax liability and expenses, are returned to the taxpayer. (BPI v. Trinidad, G.R. No. 16014, October 4, 1941) In forfeiture, all the proceeds of the sale will go to the coffers of the government (U.S. v.
* Forfeited property shall not be destroyed until at least 20 days after seizure.
Surla, G.R. No. 6536, September 2, 1911). A taxpayer in forfeiture or seizure cases to enforce tax lien may still be subject to criminal action even if his property has been forfeited (Garcia v. Collector, G.R. No. 44372, November
Instances when Forfeiture is Appropriate 1.
3, 1938).
of articles (TAX CODE, Sec. 268 [B])
Enforcement of the Remedy of Forfeiture 1.
2.
All chattels and removable fixtures of any sort, used in the unlicensed production
2.
Dies used for printing or making of any imitation revenue stamp, label or tag which
In case of personal property – by seizure and sale or destruction of specific
is an imitation of or purports to be a lawful stamp, label or tag (TAX CODE, Sec.
forfeited property.
268[B])
In case of real property – by judgement of condemnation and sale in a legal action
3.
Liquor or tobacco shipped under a false name or brand (TAX CODE, Sec. 262)
or proceeding, civil or criminal, as the case may require (TAX CODE, Sec. 224) JUDICIAL REMEDIES This remedy is different from the provision directing forfeiture of real property in
Civil Action
certain cases in the remedy of levy under Sec. 215. Judicial intervention, which is
For tax remedy purposes, these are actions instituted by the government to collect internal
required for forfeiture of real property under Sec. 224, is not required under Sec. 215
revenue taxes including the filing by the government of claims against the deceased taxpayer
since the taxpayer has the right of redemption (DE LEON, NIRC 2, pp. 515-516).
102
with the probate court. The government can collect when the assessment has become final
1.
Attempt to evade or defeat tax (TAX CODE, SEC. 254).
and executor.
2.
Failure to file a return, supply correct and accurate information, pay tax, withhold
Two Ways to Enforce Civil Liability through Civil Action 1.
and remit tax and refund excess taxes withheld on compensation (TAX CODE, Sec.
By filing a civil case for collection of a sum of money with the proper regular court
255).
(TAX CODE, Sec. 203 and 222). 2.
By filing an answer to the petition for review filed by the taxpayer with the CTA ( Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969).
Criminal action in violation of the NIRC also constitutes a collection method because the judgement in the criminal case not only imposes the penalty but shall also order the payment of the taxes subject of the criminal case as finally decide by the CIR (TAX CODE, Sec. 205).
Can the BIR file a civil action for the collection pending the decision of the administrative
Any person convicted of a crime penalized by the NIRC shall, in addition to being liable for
protest?
the payment of the tax, be subject to the penalties imposed herein (TAX CODE, Sec. 253[a]).
Yes. The request for reinvestigation and reconsideration was in effect considered denied by
Form and Mode of Proceeding
the CIR when the latter filed a civil suit for collection of deficiency income (CIR v. Union
Same with civil actions (TAX CODE, Sec. 220).
Shipping, G.R. No. L-66160, May 21, 1990).
Letters of referral/complaints filed by the CIR that states, “I hereby recommend the
Forms and Mode of Proceeding:
prosecution of the following for violation of the National Internal Revenue Code, as
1.
Civil actions shall be brought in the name of the Government of the Philippines.
amended” constitute approval of filing of cases in court (People v. Tan, G.R. No. 144707, July
2.
It shall be conducted by legal officers of the BIR.
13, 2004).
3.
No civil or criminal action for the recovery of taxes shall be filed in court without
Importance Principles on Criminal Actions
the approval of the CIR (TAX CODE, Sec. 220).
1.
Assessment is not necessary before filing a criminal action and criminal action may be filed during the pendency of an administrative protest in the BIR. It is not a requirement for the filing thereof that there be a precise computation and
* The CIR may delegate such power (NIRC, Sec. 7)
assessment of the tax, since what is involved in the criminal action is not the collection of the tax but a criminal prosecution for the violation of the NIRC,
Participation of the Solicitor General In view of the amendment of Sec. 220 of the NIRC, the written conformity of the CIR and no longer of the Solicitor General or the Government Corporate Counsel, should be secured (DE LEON, NIRC 2, p. 497). Criminal Action A criminal complaint is instituted to penalize the taxpayer for the violation of the TAX Code. Two Common Crimes Punishable:
provided however, that there is prima facie showing of a wilful attempt to evade taxes or failure to file the required return (Ungab v. Cusi. G.R. Nos. L-41919, May 30, 1980 in relation to CIR v. CA, G.R. No. 119322, June 4, 1996; CIR v. Pascor Realty Development Corp., G.R. No. 128315, June 29, 1999). Exception: Before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat taxes sought to be collected from Fortune. In plain words, before
103
2.
one is prosecuted for wilful attempt to evade or defeat any tax under Sec's. 253
The recommendation by the CIR to the DOJ for the filing of a criminal complaint
and 255 of the NIRC, the fact that a tax is due must first be proved (CIR v. CA and
against the taxpayer cannot be considered a formal assessment. Even a cursory
Fortune Tobacco, G.R. No. 119322, June 4, 1996).
perusal of the letter would reveal three key points:
Effect of acquittal of the taxpayer in the criminal action
a.
It was not addressed to the taxpayer.
It does not necessarily result in the exoneration of said taxpayer from his civil
b.
There was no demand made to the taxpayer to pay the tax liability, nor a
liability to pay taxes.
period for payment set therein.
Reason: The duty to pay is imposed by statute prior to and independent of any
c.
The letter was never mailed or sent to the taxpayer by the CIR.
attempt on the part of the taxpayer to evade payment. It is neither a mere In fine, the said recommendation letter served merely as the prima facie basis for
consequence of the felonious acts charged nor is it a mere civil liability derived
the filing of the criminal information that the taxpayer had violated the penal
from a crime (Republic v. Patanao, G.R. No. L-14142, May 30, 1961). 3.
It does not extinguish the taxpayer’s criminal liability (People v. Tierra, G.R. Nos. L17177-80, December 28, 1964). 4.
provisions of the tax code (Adamson v. CA, G.R. No. 1290935, May 21, 2009).
Effect of subsequent satisfaction of civil liability
No subsidiary imprisonment In case of insolvency on the part of the taxpayer, subsidiary imprisonment cannot
7.
No reservation to file civil action Under R.A. 9282, the filing of the criminal case implies also the filing of the civil case. In fact, no reservation for the filing of the civil case may be made under this law, unlike that of a felony under the RPC (MAMALATEO, pp. 445-446).
be imposed as regards the tax which he is sentenced to pay. However, it may be imposed in cases of failure to pay the fines imposed (TAX CODE, Sec. 280). 5.
Criminal action may be filed despite the lapse of the period to file a civil action for collection of taxes When the civil action arising from tax delinquency has prescribed, the BIR has only
STATUTE OF LIMITATIONS Assessment General Rule: Within three years after the last day prescribed by the law for the filing of the return or from the date of actual filing the return, whichever comes later (ordinary or normal assessment) (TAX CODE, Sec. 203).
five years from assessment within which to collect the tax through criminal action in which case it would prescribe after the lapse of five years from discovery of crime and institution of proceedings (TAX CODE, Sec. 281). 6.
Exceptions: 1.
return – within 10 years after the discovery of falsity, fraud or omission
Filing of a criminal action is not an implied assessment by the CIR
(extraordinary or abnormal assessment) (TAX CODE, Sec.222[a]).
An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed as assessment (CIR v. Pascor Realty. G.R. No. 1218315, June 29, 1999).
In case of false or fraudulent return with intent to evade tax or failure to file a
2.
In case there is valid waiver of the statute of limitations – up to the extended period agreed upon (TAX CODE, Sec. 222[b]).
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* The prescriptive period for making assessment shall also apply when the Government
Requisites in order that a return may be considered filed for purposes of starting the
makes an erroneous refund of internal revenue taxes. The prescriptive period is not the six-
running of the prescriptive period:
year period of limitation under Art. 1145 of the Civil Code on quasi-contracts (ABAN, p. 296)
1.
because the demand of the Government on the taxpayer to pay the erroneously refunded tax is in effect an assessment of deficiency tax (Guaga Electric v. CIR, G.R. No. L-23611, April
The return must be valid – it must comply substantially with the requirements of the law.
2.
The return must be appropriate – it is a return for the particular tax required by
24, 1967).
law. Thus, an income tax return cannot be considered as the equivalent of the Vat
Construction of Statutory Provision on Prescription
or percentage return (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, February 28,
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation
1966).
or assessment, our tax law provides a statute of limitations in 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 (CIR v. B.F. Goodrich Phils., Inc. G.R. No. 104171, February 24,
Amendment of Tax Return General Rule: The following shall govern in case there is an amendment of the return: 1.
reckoned on the date the substantial amendment was made.
1999). The law of prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the
If the amendment is substantial, the counting of the prescriptive period shall be
2.
If the amendment was superficial, the counting of the prescriptive period is still the original period (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Commission which recommended the approval of the law (Republic v. Ablaza, G.R. No. L-
Example of Substantial amendment: An amendment of an original income tax return
14519, July 26, 1990).
showing a net loss to show more losses (CIR v. Phoenix Assurance, G.R. No. L-19727,
Computing for the Prescriptive Period
May 20, 1965).
Both Art. 13 of the Civil Code and the Administrative Code deal the computation of legal
Reason: To prevent taxpayers from evading the payment of taxes by simply reporting in
periods. The Administrative Code being the more recent law, it shall govern the computation
their original return heavy losses and amending the same more years later when the CIR
of legal periods under the principle Lex posterior derogate priori (CIR v. Primetown Property
has lost his authority to assess the proper tax thereunder. The object of the NIRC is to
Group, Inc, G.R. No. 162155, August 28, 2007).
impose taxes for the needs of the Government and not to enhance tax avoidance to its
Burden of proof that a return was filed to apply the three year prescriptive period
prejudice (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
It is incumbent on the taxpayer to prove that a return had been filed by him in order that the
Exception: If the return is sufficiently complete to enable the CIR to intelligently
three-year prescriptive period may apply (Republic v. Marsman Dev't., G.R. No. L-18956, April
determine the proper amount of tax to be assessed, then the prescriptive period for the
27, 1972) because the prescription of the Government’s right to assess taxes is an affirmative
assessment starts from the filing of the original return (A.L. Ammen Transportation v.
defence (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
Collector, CTA Case No. 540, November 10, 1965). False Return
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That which contains wrong information due to mistake, carelessness or ignorance
6.
(Aznar v. CIR, G.R. No. L-20569, August 23, 1974). A substantial under-remittance of withholding tax on compensation constitutes falsity
The CIR merely relied upon an alleged substantial under declaration of income tax resulting from his own computation.
7.
to warrant the 10-year prescriptive period (Samar-I Electric Cooperative, Inc. v CIR, CTA
Mere understatement of gross earnings does not by itself prove fraud (Yutivo Sons v. CTA, G.R. No. L-13203, January 28, 1961).
EB Case No. 462, March 11 2010). Fraudulent Return For the 10-year prescriptive period to apply based on fraud, such fact must first be proved as a fact by the BIR.
Failure to File a Return The following constitutes failure to file to warrant the 10-year prescriptive period: 1.
return is the same as if no return was filed (CIR v. Gonzales, G.R. No, L-19495,
Such fact in a fraud assessment which has already become final and executor shall be
November 24, 1964).
judicially taken cognizance of in a civil or criminal action for the collection thereof (TAX CODE, Sec. 222[a]).
A deficient return prevented the CIR from computing taxes due. Such defective
2.
Failure to report income in returns which were clearly not exempted from tax. The court did not treat this as a simple omission as the same involved substantial sums (Standard Chartered Bank v. CIR, CTA EB Case No. 731, September 13, 2012).
The following instances negate the existence of fraud and preclude the application of the 10-year prescriptive period: 1.
The CIR failed to impute fraud in the assessment notice or demand for payment.
Waiver of Statute of Limitations
2.
The CIR failed to allege fraud in his answer to the taxpayer’s petition for review
Requisites:
3.
when the case is appealed to CTA (ABAN, pp. 274-275).
1.
In must be in the proper form prescribe under RDAO No. 05-01.
The fact that the CTA raised the question of fraud only for the first time in his
2.
It must specify a definite agreed date between the BIR and the taxpayer within
memorandum which was filed with the CTA after he had rested his case (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962). 4.
which the former may assess and collect taxes. 3.
The fact that the CIR did not include fraud penalty in his deficiency assessment
It must be signed by the taxpayer himself or his duly authorized representative. a.
which was issued after the filing of the return as an indication that he himself did
officials.
not believe that there was fraud (Gomez v. Domingo, CTA Case no, 1168, February
b.
15, 1964). 5.
In an assessment, where the BIR appeared “not so sure” as to the real amount of
In case of a corporation, the waiver must be signed by any of its responsible
In case the authority is delegated by the taxpayer to a representative, such authority must be in writing and notarized.
4.
The CIR or the revenue official authorized by him must sign the waiver indicating
the taxpayer’s net income, as where the BIR arrived at three highly different
that the BIR has accepted and agreed to the waiver.
computations (Republic v. Lim de Yu, G.R. No. L-17438, April 30, 1964).
a.
The date of such acceptance by the BIR must be indicated.
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b.
5.
Before signing the waiver, the CIR or the revenue official authorized must
have paid the reduced amount of taxes in the revised assessments (RCBC v. CIR, G.R. No.
make sure that the waiver is in the prescribed form, duly notarized, and
1702567, September 7, 2011).
executed by the taxpayer or his duly authorized representative.
Collection
Both the date of execution by the taxpayer and the date of acceptance by the BIR should be made before the expiration of the period of prescription or before the
6.
7.
The following rules shall govern the prescriptive period of collection of taxes: 1.
For both normal or ordinary assessment (one with the three-year period to
lapse of the period agreed upon in case a subsequent agreement is executed.
assess) and Abnormal or extraordinary assessment (one with the 10-year period
The waiver must be executed in three copies.
to assess) – Five years from the time the assessment was made.
a.
Original copy - attached to the docket of the case.
2.
b.
Second Copy – taxpayer’s copy.
discovery of the falsity, fraud or omission to file a return.
c.
Third Copy – copy of the Office accepting the waiver.
The Government may collect without prior assessment in the same instances under
The fact of receipt by the taxpayer of his/her copy must be indicated in the original
Collection without assessment through judicial action – 10 years after the
abnormal or extraordinary assessment.
copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. 8.
It must be duly notarized.
Grounds for Suspension of the Running of the Statute of Limitations to Assess and Collect:
9.
It must not reduce but extend the period allowed for the government to assess and
(TAX CODE, Sec. 223)
collect taxes (RMO No, 20-90; RDAO No. 05-01; RMC No. 06-05; Republic v. Lopez,
1.
G.R. No. :-18007, March 30, 1963).
When the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court, and for sixty days thereafter.
2.
When the taxpayer requests for reinvestigation and is granted by the CIR. Requisites:
* The waiver of the statute of limitations does not mean that the taxpayer relinquishes its
a.
right to invoked prescription (Philippine Journalists, Inc. v. CIR, G.R. No. 162852, December
reconsideration (CIR v. Philippine Global Communications, G.R. No. 167146,
16, 2004). Failure to comply with all the requirements stated above renders the waiver invalid. As such, the prescriptive period shall not be extended.
There must be a request for reinvestigation and not a request for
October 31, 2006). b.
The request for reinvestigation must be granted or acted upon by the CIR (BPI v. CIR, G.R. No. 174942, March 7, 2008).
The taxpayer may, however, be stopped to question the validity of the waiver as when he made partial payment of the revised assessments issued within the extended period as provided in the questioned waivers. The Court held that had he believed the waivers were
* The burden of proof that the request for reinvestigation had been actually granted shall
invalid and the assessments were issued beyond the prescriptive period, then it should not
be on the CIR. Such grant may be expressed in its communication with the taxpayer or
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implied from the action of the CIR or his authorized representative in response to the
Interruption of the Prescriptive Period
request for reinvestigation (BPI v. CIR, G.R. No. 174942, March 7, 2008).
The period shall be interrupted:
3.
When the taxpayer cannot be located in the address given by him in the return,
1.
When the proceedings are instituted against the guilty persons.
2.
When the offender is absent from the Philippines (TAX CODE, Sec. 281).
unless he informs the CIR of any change in his address. 4.
When the warrant of distraint or levy is duly served, and no property is located.
5.
When the taxpayer is out of the Philippines.
* In No. 1, the period shall run again if the proceedings are dismissed for reasons not constituting jeopardy (TAX CODE, Sec. 281).
Criminal Cases All violations of any provision of this Code shall prescribe after five years (NIRC, Sec. 281).
When does the prescriptive period of prescription begin to run: 1.
From the day of the commission of the violation of the law (TAX CODE, Sec. 281). The five-year prescriptive period for the violation of any provision of the Tax Code should be reckoned from the date of the final notice and demand for payment of the deficiency taxes that the cause of action on the part of the BIR accrued. This is because prior to the receipt of the letter-assessment, no violation has yet been committed (DIZON, citing Lim, Sr. V. CA, G.R. Nos. 48134-37. October 18, 1990).
2.
REMEDIES OF THE TAXPAYER UNDER NIRC
QUESTION: Can the taxpayer institute a direct action before a court of justice to protest the assessment? ANSWER: No. The assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from receipt of assessment (Sec. 228 (4) NIRC). QUESTION: What about the claim for refund? ANSWER: No. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax UNTIL a claim for refund or credit has been filed with the Commissioner(Sec. 229 NIRC). I.
Before Payment
If the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment (TAX CODE, Sec. 281).
Necessity of Judicial Proceeding The Supreme Court held that in case of falsity or fraud with intent to evade the tax, the right of the government to collect through criminal action is imprescriptible because the remedy of collection through criminal action is only deemed instituted from its discovery and the institution of the judicial proceedings for its investigation and punishment (Lim, Sr. V. CA, G.R. Nos. 48134-37, October 18, 1990).
A.
Administrative Remedies 1.
Protest against Assessment Protest, as used in internal revenue taxation, it is an act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand. The protest may be a Request for reconsideration which involves reevaluation of assessment based on existing records and does not toll the Statute of Limitations or Request for reinvestigation which involves presentation of newly-discovered or additional evidence and tolls the Statute of Limitations.
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A valid protest must have the following requisites: (a) in writing; (b) addressed to the CIR; (c) it must be accompanied by a waiver of the Statute of Limitations in favour of the government. Such waiver is a bilateral agreement between taxpayer and BIR. It is not a unilateral act by the taxpayer or the BIR. The waiver of Statute of Limitations does not mean that taxpayer relinquishes its right to invoke prescription; (d) it must state the facts, applicable law, rules and regulations or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted; and (e) it must contain: (1) name of the taxpayer and address; (2) nature of the request; (3) taxable periods covered by the assessment; (4) amount and kind of tax involved; (5) date of receipt of assessment notice or letter of demand; (6) itemized statement of the finding to which the taxpayer agrees as basis for the computation of the tax due; (7) itemized schedule of the adjustments to which the taxpayer does not agree; (8) supporting facts or law; (9) documentary evidence. As a general rule, no prior payment of assessed internal revenue tax is required when protested or disputed. Exception: if there are several issues involved in the Final Assessment Notice (FAN) but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues. If the taxpayer does not pay, the disputed issues shall be considered as undisputed. (Payment in Protest) Procedure in Protesting an Assessment: (1) the taxpayer shall file his Protest within 30 days from receipt of the Final Assessment (FAN). After receipt of FAN, the taxpayer cannot immediately appeal to the CTA. The taxpayer must pay the deficiency tax if the taxpayer protests only to some of the issues raised. (2) The taxpayer shall submit all relevant supporting documents within 60 days from the filing of the protest. Non-submission renders the assessment final, executory and demandable. (3) If the protest is denied by the Commissioner’s authorized representative, the taxpayer may elevate the protest to the Commissioner within 30 days from receipt of the decision for a request for reconsideration and to be referred to the Bureau’s Appellate Division. (4) If the protest is denied in whole or in part by the Commissioner, the taxpayer may appeal to
the CTA within 30 days from receipt of decision, otherwise, the assessment shall become final, executory and demandable except when it is appealed to the CIR. Instead of appealing to the CTA at once, the taxpayer may first opt to file a Motion for Reconsideration of the denial of the administrative protest with the Commissioner. The MR does not toll the 30-day period to appeal to the CTA. If the MR is denied, the taxpayer may then appeal to the CTA, but only within the remaining period of the original 30-day period to appeal, if any. The forms of denial may be direct or indirect denial of protest.(5) lastly, the taxpayer may appeal to the Supreme Court from the adverse decision of the CTA within 15 days. 2.
Entering into a Compromise SECTION 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may Compromise the payment of any internal revenue tax, when: (a) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (b) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: (a) For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and (b) For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. Where the basic tax involved exceeds One million pesos (P1,000,000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. Instances of Compromise: Revenue Regulations No. 30-2002, as amended, provided for specific instances where tax liability in the Philippines could be compromised based on certain conditions and requirements, to wit: (1) Delinquent accounts; (2) Cases under administrative protest after issuance of the FAN to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
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(LTS), Collection Service, Enforcement Service and other offices in the National Office; (3) Civil tax cases being disputed before the courts; (4) Collection cases filed in courts; (5) Criminal violations, other than those already filed in court or those involving criminal tax fraud. B.
Judicial Remedies (1) Appeal to the Court of Tax Appeals (Division), within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner otherwise it will be final and executory; (2) Appeal the CTA en banc, the party adversely affected by the CTA Division’s decision may file one (1) motion for reconsideration/new trial within 15 days from receipt of the decision with the CTA division. If the MR is denied, file a petition for review with the CTA en banc; (3) Appeal to the Supreme Court, within 16 days from the receipt of the decision of the CTA; (4) By way of special civil action, petition for certiorari, prohibition and mandamus to the Supreme Court in case of grave abuse of discretion, lack of jurisdiction or excess of jurisdiction; (5) Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale (Sec. 231 NIRC); (6) Action for damages against a revenue officer by reason of any act done in the performance of official duty (Sec. 227 NIRC); (7) Injunction, to be issued by the CTA if collection may jeopardize the interest of the government and/or the taxpayer (R.A. 1125 as amended by R.A. 9282).
II.
After Payment A.
Tax Credit is a remedy in which the government issues a tax credit certificate or tax credit memo covering the amount determined to be reimbursable can be applied after proper verification against any sum that may be due and collectible from the taxpayer. The taxpayer asks that the money so paid be applied to his existing tax liability. The prescriptive period is 2 years from the date such credit was allowed (in case credit is wrongfully made).
Claim for Tax Refund or Tax Credit A Tax Refund is a written claim for the payment of cash for taxes erroneously or illegally paid by the taxpayer to the government. The taxpayer asks for restitution of the money paid as tax. The prescriptive period is 2 years after the payment of the tax or penalty. A
Grounds for filing a claim for tax refund or tax credit are the following: (1) tax is collected ERRONEOUSLY or ILLEGALLY; (2) penalty is collected WITHOUT AUTHORITY; (3) sum collected is EXCESSIVE or in any manner WRONGFULLY COLLECTED. Requisites of tax refund or tax credit are the following: (1) the claim must be in WRITING (mandatory); (2) it must be filed with the Commissioner within 2 years after the payment of tax or penalty; (3) the taxpayer must show PROOF OF PAYMENT. Recovery of tax erroneously or illegally collected (Sec. 229 NIRC): No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax UNTIL a claim for refund or credit has been filed with the Commissioner; but the suit or proceeding may be maintained whether or not such tax, penalty or sum has been paid under protest or duress. Even without a written claim, the CIR may refund or credit tax where on the face of the return upon which payment was made, such payment appears to have been erroneously paid. Rule on Commencement of Two (2) Year Period: (1) Commissioner vs. Victorias Milling, G.R. No. L-24108, January 31, 1968;tax sought to be refunded is illegally or erroneously collected – from the date the tax was paid. Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes — those taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the conditions under which payment has been made." And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Sec.
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142 of NIRC, is beyond the scope of Sec. 306 and309 as to thwart the aforesaid intention and spirit underlying said provisions. x x xx x xx x x . . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec.306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the 2-year prescriptive period provided for in Sec. 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the CIR, and the subsequent appeal to the CTA must be instituted, within the said 2-year period. x x xx x xx x x In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. The ruling in Muller & Phipps is accordingly modified. It is not disputed that the oils and fuels involved in this case were used during the period from June 1952 to December1955; that the claim for refund was filed on December 1957; and that the appeal to the Court CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957 is within 2 years from December1955 — the last month of the period during which the fuels and oils were used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding must be started in the CTA before the end of the 2-year period without awaiting the decision of the Collector." In the light of
the above quoted ruling, the SC finds that the right of Victorias Milling to claim refund of P2,817.08 has prescribed.CIR v. VICTORIAS MILLING CO., & CTA JAN. 03, 1968 – GR. L-24108
(2) Collector vs. Prieto, G.R. No. L-11976, August 29, 1961;tax is paid only in installments or only in part – from the date the last or final installment or payment. (3) Union Garment vs. Collector, CTA Case No. 416, November 17, 1958; taxpayer merely made a deposit – counted from the conversion of the deposit to payment. (4) Gibbs vs. Commissioner, G.R. No. L-17406, November 29, 1965; tax has been withheld from source – counted from the date it falls due at the end of the taxable year. (5) ACCRA Investments vs. CA, G.R. No. 96322, December 20, 1991; end of taxably year vs. date of the filing of the final adjusted return – from the date when the final adjusted return was filed. (6) Commissioner vs. TMX Sales, G.R. No. 83736, January 15, 1992; date when quarterly income tax was paid vs. date when final adjusted return was filed – from the date when final adjusted return was filed. (7) Commissioner vs. CA, G.R. No. 117254, January 21, 1999; date when the final adjustment return was actually filed vs. last day when the adjustment return could still be filed – from the date the final adjustment return was actually filed. (8) Commissioner vs. Don Pedro Central Azucarera, G.R. No. L-28467, February 28, 1973;tax was not erroneously or illegally paid but the taxpayer became entitled to refund because of supervening circumstances – from the date the taxpayer becomes entitled to refund and not from the date of payment. QUESTION: Does the filing of the claim for refund or credit suspend the running of the 2-year prescriptive period?
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ANSWER: No, hence, the taxpayer should not wait for the decision of the CIR. Both the claim for refund and subsequent appeal must be filed within the 2-year period. QUESTION: When is there waiver of the prescription in an action for refund? ANSWER: If the government failed to plead prescription in a motion to dismiss or as a defence in its answer to the petition for review. Exception: taxpayer amends his petition for review alleging therein a new cause of action and the government pleads prescription in his answer to the amended petition for review.
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