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ESSENTIAL NOTATIONS IN TAXATION:

A PRE-BAR REVIEW GUIDE
Justice Japar B. Dimaampao
I.

GENERAL PRINCIPLES
Q.

Explain the power of taxation as a principal attribute

of sovereignty.

A principal attribute of sovereignty, the exercise of taxing power

derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common
good. The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people (CIR v. BPI, 521
SCRA 373, 387-388).
Q.

Briefly discuss the dictum that the power to tax

involves the power to destroy.

In Mactan Cebu International Airport Authority v. Marcos, 261 SCRA

667, 679, the Supreme Court stressed that taxation is a destructive power
which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the
government.
The power to tax includes the power to destroy if it is used validly
as an implement of the police power in discouraging and in effect,
ultimately prohibiting certain things or enterprises inimical to the public
welfare xxx (Cruz, Constitutional Law, 2000 Ed., p. 87).
Q. Describe the Scope of the Power to Tax
The power of taxation is the most absolute of all powers of the
government (Sison v. Ancheta, 130 SCRA 654). It has the broadest scope of
all the powers of government because in the absence of limitations, it is
considered as unlimited, plenary, comprehensive and supreme.
However, the power of taxation should be exercised with caution to
minimize injury to the proprietary rights of the taxpayer. It must be

exercised fairly, equally and uniformly, lest the tax collector kill the hen
that lays the golden egg (Roxas v. CTA, 23 SCRA 276).
Q. Discuss the meaning and implication of the LIFEBLOOD
DOCTRINE.
1.
By enforcing the tax lien, the BIR availed itself of the most
expeditious way to collect the tax. Taxes are the lifeblood of the
government and their prompt and certain availability is an imperious need
(CIR v. Pineda, 21 SCRA 105).
2.
The government is not bound by the errors committed by
its agents. In the performance of its government functions, the State
cannot be estopped by the neglect of its agents and officers. Taxes are the
lifeblood of the nation through which the government agencies continue
to operate and with which the state effects its functions for the welfare
of its constituents. The errors of certain administrative officers should
never be allowed to jeopardize the governments financial position (CIR v.
CTA, 234 SCRA 348).
3.
The BIR is authorized to collect estate tax deficiency
through the summary remedy of levying upon the sale of real properties of
a decedent, without the cognition and authority of the court sitting in
probate over the supposed will of the decedent, because the collection of
the estate tax is executive in character. As such, the estate tax is
exempted from the application of the statute of non-claims, and this is
justified by the necessity of government funding, immortalized in the
maxim Taxes are the lifeblood of the government and should be collected
without unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself (MARCOS II v. CA, 273 SCRA 47).
4.
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. Philexs claim that it had no
obligation to pay the excise tax liabilities within the prescribed period
since it still has pending claims for VAT input credit/refund with the BIR is
UNTENABLE (Philex Mining Corporation v. CIR, 294 SCRA 687).
Q. State the DOCTRINE OF SYMBIOTIC RELATIONSHIP.
This doctrine is enunciated in the case of CIR v. ALGUE, INC., 158
SCRA 9, which states that:
Taxes are what we pay for civilized
society. Without taxes, the government would be paralyzed for lack of the

motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of ones hard-earned income to the taxing
authorities, every person who is able to must contribute his share in the
burden of running the government. The government, for its part, is
expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their material and
moral values.
Q.

When is Taxation considered an implement of Police

Power?

1.
In Walter Lutz v. J. Antonio Araneta, 98 Phil. 148, the SC
upheld the validity of the tax law increasing the existing tax on the
manufacture of sugar. The protection and promotion of the sugar industry
is a matter of public concern; the legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its
promotion. If objective and methods alike are constitutionally valid, there
is no reason why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the implement of the
States police power.
2.
In Tio v. Videogram Regulatory Board, 151 SCRA 208, the
levy of a 30% tax under PD 1987, was imposed primarily for answering the
need for regulating the video industry, particularly because of the rampant
film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore VALID. While the
direct beneficiaries of the said decree is the movie industry, the citizens
are held to be its indirect beneficiaries.

For this reason, a just compensation for income that is taken away from
respondent (Central Luzon Drug Corp.) becomes necessary. It is in the tax
credit (now tax deduction) that our legislators find support to realize social
justice, and no administrative body can alter that fact.
Q.

What are the essentials

administrative feasibility?

of

the

principle

of

It requires that (a) each tax should be clear and plain to the
taxpayers; (b) capable of enforcement by an adequate and well-trained
staff of officials; (c) convenient as to time and manner of payment; and (d)
not duly burdensome upon or discouraging to business activity.
A. What does the principle of Fiscal Adequacy as a
characteristic of a sound tax system require?
It requires that the sources of revenues must be adequate to meet
government expenditures and their variations (Abakada Guro, et al. v.
Ermita, 469 SCRA 1; Chavez vs Ongpin, 186 SCRA 331).
Q.

Are taxes subject to set-off?

A. May the power of taxation be used as an implement of the

power of eminent domain?

1.
The income tax liability of Francia cannot be compensated
with the amount owed by the government as compensation for his
expropriated property. A taxpayer may not set-off taxes due from claims he
may have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such debt,
demand, contract or judgment as is allowed to be set-off. The collection of
a tax cannot await the results of a lawsuit against the government (Francia
v. IAC, 162 SCRA 753).

YES. The Supreme Court in the case of CIR v. Central Luzon Drug
Corp., 456 SCRA 414, 445 held: Tax measures are but enforced
contributions exacted on pain of penal sanctions and clearly imposed for
a public purpose. In recent years, the power to tax has indeed become a
most effective tool to realize social justice, public welfare, and the
equitable distribution of wealth.

2.
The claim of Philex for VAT refund is still pending litigation,
and still has to be determined by the CTA. A fortiori, the liquidated debt of
Philex to the government cannot, therefore, be set off against the
unliquidated claim which Philex conceived as existing in its favor. Debts are
due to the government in its corporate capacity, while taxes are due to the
government in its sovereign capacity (Philex v. CIR, 294 SCRA 687).

While it is declared commitment under Section 1 of RA 7432, social

justice cannot be invoked to trample on the rights of property owners who
under our Constitution and laws are also entitled to protection. The social
justice consecrated in our [C]onstitution [is] not intended to take away
rights from a person and give them to another who is not entitled thereto.

Q.

May a taxpayer be entitled to refund and at the same

time be liable for a tax deficiency?

No. The grant of a refund is founded on the assumption that the

tax return is valid, that is, the facts stated therein are true and correct.

The deficiency assessment, although not yet final, creates a doubt as to

and constitutes a challenge against the truth and accuracy of the facts
stated in said return which, by itself and without unquestionable evidence,
cannot be the basis for the grant of the refund.
Moreover, to grant the refund without determination of the proper
assessment and the tax due would inevitably result in multiplicity of
proceedings or suits. If the deficiency assessment should subsequently be
upheld, the Government will be forced to institute anew a proceeding for
the recovery of erroneously refunded taxes which recourse must be filed
within the prescriptive period of ten years after discovery of the falsity,
fraud or omission in the false or fraudulent return involved. This would
necessarily require and entail additional efforts and expenses on the part
of the Government, impose a burden on and a drain of government funds,
and impede or delay the collection of much-needed revenue for
governmental operations (CIR v. CTA, 234 SCRA 349).
Q.

Distinguish direct tax from indirect tax.

Direct tax refers to one assessed upon the property, person,

business income, etc., of those who pay them, whereas indirect tax
includes those levied on commodities before they reach the consumer, and
are paid by those upon whom they ultimately fall, not as taxes, but as part
of the market price of the commodity (Cooley, Tax. 61).
INHERENT LIMITATIONS ON THE POWER TO TAX
Q.

What is meant by public purpose as an inherent

limitation on the power of taxation?

The term public purpose is not defined. It is an elastic concept

that can be hammered to fit modern standards. Jurisprudence states that
public purpose should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially
government functions, such as building roads and delivery of basic services,
but also includes those purposes designed to promote social justice. Thus,
public money may now be used for the relocation of illegal settlers, lowcost housing and urban or agrarian reform (Planters Products, Inc. v.
Fertiphil Corporation, 548 SCRA 485 [2008]).
Public v. Private interest

In the case of Pascual v. Secretary of Public Works, 110 PHIL 331,

the SC held that the appropriation for construction of feeder roads on land
belonging to a private person is not valid, and donation to the government
of the said land 5 months after the approval and effectivity of the Act for
the purpose of giving a semblance of legality to the appropriation does not
cure the basic defect. Incidental advantage to the public or to the State,
which results from the promotion of private enterprises, does not justify
the use of public funds.
Tax Situs of Shares of Stock
The SC held that the actual situs of the shares of stock left by nonresident alien decedent is in the Philippines. The owner residing in
California has extended activities here with respect to her intangibles so as
to avail herself of the protection and benefit of the Philippine laws.
Accordingly, the Philippine government had the jurisdiction to tax the same
(Wells Fargo Bank v. Collector, 70 Phil. 235).
Exemption from Taxation of Government Agencies
The Constitution is silent on whether Congress is prohibited from
taxing the properties of the agencies of the government. In MCIAA v.
Marcos, 261 SCRA 667, the Supreme Court held that nothing can prevent
Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.
Tax exemption of property owned by the Republic of the Philippines
refers to property owned by the government and its agencies which to do
not have separate and distinct personalities. The government does not
part with its title by reserving them, but simply gives notice to the world
that it desires them for a certain purpose. As its title remains with the
Republic, the reserved land is clearly covered by tax exemption.
However, the exemption does not extend to improvements on the
public land. Consequently, the warehouse constructed on the reserved land
by NDC should properly be assessed real estate tax as such improvement
does not appear to belong to the public (NDC v. Cebu City, 215 SCRA 382).
Q.

Is Manila International Airport Authority considered an

instrumentality of the National Government exempt
from local taxation?

YES. In Manila International Airport Authority v. Court of Appeals

(495 SCRA 591, 615), the Supreme Court held that the real properties of

MIAA are owned by the Republic of the Philippines and thus exempt from
real estate tax. A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states xxx, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following: xxx (o) Taxes, fees or charges of
any kind on the National Government, its agencies and instrumentalities
and local government units.
This has been echoed in the recent case of Philippine Fisheries
Development Authority v. The Municipality of Navotas, 534 SCRA 490,
wherein the Supreme Court ruled that PFDA, being an instrumentality of
the national government, is exempt from real property tax but the
exemption does not extend to the portions of the Navotas Fishing Port
Complex (NFPC) that were leased to taxable or private persons and entities
for their beneficial use.
Q.

Explicate the Destination Principle in the imposition of

value added tax.

According to the Destination Principle, goods and services are

taxed only in the country where these are consumed. In connection with
the said principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export
of goods and services from the Philippines to a foreign country must be free
of VAT while those destined for use or consumption within the Philippines
shall be imposed with 10% VAT (Now 12% under R.A. No. 9337). Export
processing zones are to be managed as a separate customs territory from
the rest of the Philippines and, thus, for tax purposes, are effectively
considered as foreign territory. For this reason, sales by persons from the
Philippine customs territory to those inside the export processing zones are
already taxed as exports (Atlas Consolidated Mining and Development
Corporation v. CIR, 524 SCRA 73, 103).
CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER
Q.
When does the power of taxation impinge the due
process clause?
The due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution, as where it can be
shown to amount to a confiscation of property (Reyes v. Almanzor, 196
SCRA 322).

There is a need for proof of persuasive character as would lead to a

violation thereof. Absent such a showing, the presumption of validity must
prevail.
Q.

Is classification allowed in taxation?

The taxing power has the authority to make reasonable and natural
classification for purposes of taxation, but the governments act must not
be prompted by a spirit of hostility, or at the very least discrimination that
finds no support in reason. It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being different
both in the privileges conferred and the liabilities imposed (Sison v.
Ancheta, 130 SCRA 654).
The equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification of the
subject of taxation, and a classification is reasonable where: (1) it is based
on substantial distinctions which make real differences; (2) these are
germane to the purposes of the law; (3) the classification applies not only
to present conditions but also to future conditions; (4) the classification
applies only to those who belong to the same class. In the case of Ormoc
Sugar Company, Inc. v. the Treasurer of Ormoc City, 22 SCRA 603, the SC
held an ordinance unconstitutional for taxing only sugar produced and
exported by the Ormoc Sugar Co., Inc.. The classification, to be
reasonable, should be in terms applicable to future conditions as well. The
taxing ordinance should not be singular and exclusive as to exclude any
substantially established sugar central, of the same class as plaintiff, from
the coverage of the tax.
The equal protection clause does not require universal application
of the laws on all persons or things without distinction. What the clause
requires is equality among equals as determined according to a valid
classification. By classification is meant the group of persons or things
similar to each other in certain particulars and different from all others in
these same particulars (Abakada Guro Party List v. Ermita, supra).
Q.

A law withdrawing the exemption granted to the press

was challenged as discriminatory by giving broadcast
media favored treatment.

SUCH LAW IS NOT DISCRIMINATORY. If the press is now required to

pay VAT, it is not because it is being singled out but only because of the
removal of the exemption previously granted by law. Further, the press is

taxed on its transactions involving printing and publication, which are

different from the transactions of broadcast media. There is a reasonable
basis for the classification (Tolentino v. Secretary of Finance, 235 SCRA
630).
Q.

What is the controlling doctrine on exemption from

taxation of real property of religious, charitable and
educational institutions?

In the case of Lung Center of the Philippines v. Quezon City and

Constantino P. Rosas, City Assessor of Quezon City, 433 SCRA 119, the
prevailing rule on the application of tax exemption to properties
incidentally used for religious, charitable and educational purposes, as
enunciated in the case of Herrera v. QC-BAA, 3 SCRA 187, has now been
abandoned. In resolving the issue of whether or not the portions of the
real property of Lung Center that are leased to private entities are exempt
from real property taxes, the Supreme Court reexamined the intent of the
constitutional provision granting tax exemption of properties ACTUALLY,
DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES.
Thus, the records of the Constitutional Commission reveal that
what is exempted is not the institution itself; those exempted from real
estate taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes.
Citing the case of St. Louis Young Mens Christian Association v.
Gehner, 47 S.W.2d 776 which held that 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, the Supreme Court explained that
What is meant by actual, direct and exclusive use of the property for
charitable institutions is 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.
In sum, the Court ruled that the portions of the land leased to
private entities as well as those parts of the hospital leased to private
individuals are not exempt from taxes.
Q.
taxation?

What is the requisite proof for exemption from realty

To be exempt from realty taxation, there must be proof of actual

and direct and exclusive use of the lands, buildings and improvements for

religious or charitable purposes (Province of Abra v. Hernando, 107 SCRA

104).
DOUBLE TAXATION
Q.
prevented?

What is double taxation? When does it arise? How is it

Double taxation means taxing the same thing or activity twice

during the same tax period (Villanueva v. City of Iloilo, 26 SCRA 578). It
takes place when a person is a resident of a contracting state and derives
income from, or owns capital in, the other contracting state, and both
states impose tax on that income or capital.
Tax conventions such as the RP-US Tax Treaty are drafted with a
view towards the elimination of international juridical double taxation. In
CIR v. S.C. Johnson and Sons, Inc., 309 SCRA 87, however, it was held that
since the RP-US Tax treaty does not give a matching credit of 20% for the
taxes paid to the Philippines on royalties as allowed under the RP-West
Germany Tax Treaty, S.C. Johnson (Phils.) is not entitled to the 10% rate
granted under the latter treaty for the reason that there is no payment of
taxes on royalties under similar circumstances.
Q.

Define international juridical double taxation.

It is the imposition of comparable taxes in two or more states on

the same taxpayer in respect of the same subject matter and for identical
periods. (P. Baker, Double Taxation Conventions and International Law
[1994], p. 11, citing the Committee on Fiscal Affairs of the Organization for
Economic Cooperation and Development [OECD]).
TAX EVASION
Q.
Does an affidavit executed by revenue officers constitute a tax
assessment?
An affidavit executed by revenue officers stating the tax liabilities
of a taxpayer and attached to a criminal complaint for tax evasion, is not
an assessment that can be questioned before the CTA. An assessment
contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period (CIR v. PASCOR Realty and
Development Corp., 309 SCRA 402).

Q.

Is prior assessment necessary before a taxpayer may be

charged with tax evasion?

Q.

What is a taxpayers suit? When is it proper?

A taxpayers suit requires illegal expenditure of taxpayers money.

NO. In case of failure to file a return, the tax may be assessed or a
proceeding in court may be begun without an assessment. An assessment is
not necessary before a taxpayer may be prosecuted if there is a prima facie
showing of a willful and deliberate attempt to file a fraudulent return with
the intent to evade and defeat tax. A criminal complaint is instituted not
to demand payment, but to penalize the taxpayer for violation of the Tax
Code (Ungab v. Cusi, 97 SCRA 877; CIR v. PASCOR Realty and Development
Corp., supra).
TAX EVASION AND TAX AVOIDANCE DISTINGUISHED
Tax evasion connotes fraud through the use of pretenses and
forbidden devices to lessen or defeat taxes. On the other hand, tax
avoidance is a legal means used by the taxpayer to reduce taxes (Benny v.
Commr., 25 T.Cl.78).
The intention to minimize taxes, when used in the context of
fraud, must be proven by clear and convincing evidence amounting to more
than mere preponderance. Mere understatement of tax in itself does not
prove fraud (Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160).
A taxpayer has the legal right to decrease the amount of what
otherwise would be his taxes or altogether avoid them by means which the
law permits. Therefore, a man may perform an act that he honestly
believes to be sufficient to exempt him from taxes. He does not incur
fraud thereby even if the act is thereafter found to be insufficient (Court
Holding Co. v. Commr., 2 T.Cl. 531).
Tax evasion connotes the integration of three factors: (1) the end
to be achieved, i.e., the payment of less than that known by taxpayer to
be legally due, or the non-payment of tax when it is shown that a tax is
due; (2) an accompanying state of mind which is described as being evil,
in bad faith, willful, or deliberate and not accidental; and (3) a
course of action or failure of action which is unlawful (Commissioner of
Internal Revenue v. The Estate of Benigno P. Toda, Jr., G.R. No. 147188,
September 14, 2004, 438 SCRA 290).
TAXPAYERS SUIT

In Maceda v. Macaraig, 197 SCRA 771, the SC sustained the right of

Sen. Maceda as taxpayer to file a petition questioning the legality of the
tax refund to NPC by way of tax credit certificates, and the use of tax
certificates by oil companies to pay for their tax and duty liabilities to the
BIR and Bureau of Customs.
However, in Gonzales v. Marcos, 65 SCRA 624, the SC held that the
taxpayer had no legal personality to assail the validity of E.O. 30 creating
the Cultural Center of the Philippines as the assailed order does not involve
the use of public funds. The funds came by way of donations and
contributions, not by taxation.
Q.

Are government contracts covered by the taxpayers

suit?

YES. In the recent case of Abaya v. Ebdane, Jr. (515 SCRA 720, 757758), the Supreme Court stressed that the prevailing doctrine in the
taxpayers suits is to allow taxpayers to question contracts entered into by
the national government or government-owned and controlled corporations
allegedly in contravention of law. A taxpayer is allowed to sue where there
is a claim that public funds are illegally disbursed, or that public money is
being deflected to any improper purpose, or that there is a wastage of
public funds through the enforcement of an invalid or unconditional law.
Significantly, a taxpayer need not be a party to the contract to challenge
its validity.
DECISIONAL RULINGS ON REFORMED EVAT LAW (RA 9337)
No undue delegation of legislative power

The case before the Court is not a delegation of legislative power. It is

simply a delegation of ascertainment of facts upon which enforcement
and administration of the increase rate under the law is contingent.
The legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon
factual maters outside of the control of the executive. No discretion
would be exercised by the President. Highlighting the absence of
discretion is the fact that the word shall is used in the common

proviso. The use of the word shall connotes a mandatory order. Its
use in a statute denotes an imperative obligation and is inconsistent
with the idea of discretion. Where the law is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice
but to see to it that the mandate is obeyed. Thus, it is the ministerial
duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the
12% VAT rate when the specified conditions are present. The time of
taking into effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon the ascertainment of certain
facts or conditions by a person or body other than the legislature itself.
The Secretary of Finance is an agent of Congress in making his
recommendation to the President on the existence of either of
the conditions

In making his recommendation to the President on the existence of

either of the two conditions, in the present case, the Secretary of
Finance is not acting as the alter ego of the President or even her
subordinate. In such instance, he is not subject to the power of control
and direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon
which its expressed will is to take effect. The Secretary of Finance
becomes the means or tool by which legislative policy is determined
and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical
data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being
the agent of Congress and not of the President, the President cannot
alter or modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of the
latter.
VAT rates are uniform

Uniformity in taxation means that all taxable articles or kinds of

property of the same class shall be taxed at the same rate. Different
articles may be taxed at different amounts provided that the rate is

uniform on the same class everywhere with all people at all times. In
this case, the tax law is uniform as it provides a standard rate of 0% or
10% (or 12%) on all goods and services. Section 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain
sales and transaction. Neither does the law make any distinction as to
the type of industry or trade that will bear the 5-year amortization of
input tax paid on purchase of capital goods or the 5% final withholding
tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.
VAT rates are equitable

R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. Also, basic marine and agricultural food products in
their original state are still not subject to the tax, thus ensuring that
prices at the grassroots level will remain accessible.
Creditable input tax is a mere statutory privilege

The input tax is not a property or a property right within the

constitutional purview of the due process clause. A VAT-registered
persons entitlement to the creditable input tax is a mere statutory
privilege. The distinction between statutory privileges and vested
rights must be borne in mind for persons have no vested rights in
statutory privileges. The state may change or take away rights, which
were created by the law of the state, although it may not take away
property, which was vested by virtue of such rights. Under the previous
system of single-stage taxation, taxes paid at every level of distribution
are not recoverable from the taxes payable, although it becomes part
of the cost, which is deductible from the gross revenue. x x x It is
worth mentioning that Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free loan
to the government. In the same breath, Congress also justified its
move by saying that the provision was designed to raise an annual
revenue of 22.6 billion. The legislature also dispelled the fear that the
provision will fend off foreign investments, saying that foreign investors
have other tax incentives provided by law, and citing the case of China,

where despite a 17.5% non-creditable VAT, foreign investments were

not deterred. Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.

5% creditable withholding tax is a method of collection

With regard to the 5% creditable withholding tax imposed on payments
made by the government for taxable transactions, Section 12 of R.A.
No. 9337, which amended Section 114 of the NIRC, reads: ***Section
114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system.
The
government in this case is constituted as a withholding agent with
respect to their payments for goods and services. x x x The Court
observes, however, that the law used the word final. In tax usage,
final, as opposed to creditable, means full. Thus, it is provided in
Section 114(C): final value-added tax at the rate of five percent
(5%).
VAT is, by its nature, regressive

The VAT is an antithesis of progressive taxation. By its very nature, it is

regressive. The principle of progressive taxation has no relation with
the VAT system inasmuch as the VAT paid by the consumer or business
for every goods bought or services enjoyed is the same regardless of
income. In other words, the VAT paid eats the same portion of an
income, whether big or small. The disparity lies in the income earned
by a person or profit margin marked by a business, such that the higher
the income or profit margin, the smaller the portion of the income or
profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the
day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Imposition of regressive tax like VAT is not constitutionally
prohibited

The Constitution does not really prohibit the imposition of indirect

taxes, like the VAT. What it simply provides is that Congress shall
evolve a progressive system of taxation. The Court stated in the
Tolentino case, thus: The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall evolve a progressive system of
taxation. The constitutional provision has been interpreted to mean

simply that direct taxes are to be preferred [and] as much as

possible, indirect taxes should be minimized. (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 [Second ed. 1977]) Indeed, the
mandate to Congress is not to prescribe, but to evolve, a progressive
tax system. Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the proclamation of
Art. VII, 17 (1) of the 1973 Constitution from which the present Art.
VI, 28 (1) was taken. Sales taxes are also regressive. Resort to
indirect taxes should be minimized but not avoided entirely because it
is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this imposition by providing for
zero rating of certain transactions (R.A. No. 7716, 3, amending 102
(b) of the NIRC), while granting exemptions to other transactions.
II.

INCOME TAXATION
Q.

Distinguish Global Tax Treatment from Schedular

System of Income Taxation?

A global system of taxation is one where the taxpayer is required

to report all income earned during a taxable period in one income tax
return, which income shall be taxed under the same rule of income
taxation. The Schedular system requires a separate return for each type
of income and the tax is computed on a per return or per schedule basis.
Schedular system provides for different tax treatment of different types of
income (Tan v. Del Rosario, 237 SCRA 324).
Q. What is Income?
Income refers to an amount of money coming to a person within a
specified time, whether as payment for services, interest or profit from
investment. It means cash or its equivalent. It is gain derived and
severed from capital, from labor or from both combined.
Stock dividends issued by the corporation are considered unrealized
gains, and cannot be subjected to income tax until those gains have been
realized. Before the realization, stock dividends are nothing but a
representation of an interest in the corporate properties. As capital, it is
not yet subject to income tax. Capital is wealth or fund; whereas income
is profit or gain or the flow of wealth. The determining factor for the
imposition of income tax is whether any gain or profit was derived from a
transaction (CIR v. CA, 301 SCRA 152).

Q. What are the requisites of taxable income?

1. There must be gain or profit;
2. That the gain or profit is realized or received, actually or
constructively;
3. It is not exempted by law or treaty from income tax
Q.

What are the sources of income?

The sources of income are: the property, activity or service that

produces the income. For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from activity
within the Philippines (CIR v. BOAC, 149 SCRA 395).
Q.

State the rule on construction of tax exemptions.

Laws granting exemption from tax are construed strictissimi juris

against the taxpayer and liberally in favor of the taxing power. Taxation is
the rule and exemption is the exception. The burden of proof rests upon
the party claiming exemption to prove that it is in fact covered by the
exemption so claimed (Commissioner v. Mitsubishi Metal Corp., 181 SCRA
215).
Q.

Q.

Is terminal leave pay taxable?

No. In the case of Re: Request of Atty. Bernardo Zialcita (Adm.

Matter No. 90-6-015-SC, October 18, 1990; 190 SCRA 851), the SC held that
terminal leave pay is the cash value of an employees accumulated leave
credits, hence, it cannot be considered compensation for services

What are taxable unregistered partnerships?

The SC in Evangelista v. CIR, 102 Phil. 140, held that Sec. 24 [now
Section 22(B)] covered unregistered partnerships and even associations or
joint accounts which had no legal personalities apart from their individual
members. xxx Accordingly, a pool of machinery insurers was a partnership
taxable as a corporation (Afisco Insurance Corp. v. CA, 302 SCRA 1).
Q.

Is an off-line airline company which sells passage

document to cover off-line flights of its principal or head
office taxable on the sale thereof?

No. It is not taxable as it is not considered engaged in business as

an international air carrier in the Philippines and is, therefore, not subject
to Gross Philippine Billings Tax under Section 28 A(3) (RR15-2002). Gross
Philippine Billings refers to the amount of gross revenue realized from
carriage of persons, excess baggage, cargo and mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the
place of sale or issue and the place of payment of the ticket or passage
document.
Q.

rendered; it cannot be viewed as salary. It falls within the enumerated

exclusions from gross income, and is therefore not subject to tax.

Obillos sold his rights over two parcels of land to his

four children so that they can build their residence, but
the latter after one (1) year sold them and paid the
capital gains. Acting on the theory that the children
had formed an unregistered taxable partnership or
joint venture, the BIR required the brothers to pay
corporate income tax. Resolve.

The children should not be treated as having formed an

unregistered partnership and taxed corporate income tax on their shares of
the profits from the sale. Their original purpose was to divide the lots for
residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they
had no choice but to resell the same to dissolve the co-ownership. The
division of the profit was merely incidental to the dissolution of the coownership which was in the nature of things in a temporary state (Obillos
Jr. v. CIR, 139 SCRA 438, 439).
Q.

HK Co. is a Hongkong company which has a duly licensed

Philippine branch engaged in trading activities in the
Philippines. HK Co. also invested directly in 40% of the
shares of stock of A Co., a Philippine corporation.
These shares are booked in the Head Office of HK Co.
and are not reflected as assets of the Philippine branch.
In 2007, A Co. declared dividends to its stockholders.
Before remitting the dividends to HK Co., A Co. seeks
your advice as to whether it will subject the remittance
to withholding tax.

A Co. should be advised to withhold and remit the withholding tax

on the dividends. While the general rule is that a foreign corporation has
the same juridical entity as its branch office in the Philippines, when,
however, the corporation transacts business in the Philippines directly and

independently of its branch, the taxpayer would be the foreign corporation

itself and subject to dividend tax similarly imposed on non-resident foreign
corporation. The dividends attributable to the Home Office would not
qualify as dividends earned by a resident foreign corporation, which is
exempt from tax (Marubeni Corporation v. Commissioner, 177 SCRA 500).
Q.

May a withholding agent file a written claim for refund?

YES. In CIR v. Procter and Gamble PMC , 204 SCRA 377, the SC held
that a withholding agent is subject to and liable for deficiency
assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should have been
withheld under the law. A person liable for tax has been held to be a
person subject to tax and properly considered a taxpayer x x x By any
reasonable standard, such a person should be regarded as a party in
interest, or as a person having sufficient legal interest, to bring a suit for
refund of taxes.
Q.

The BIR disallowed PRCs claim for deduction for

failure to prove the worthlessness of the debts. Is the
disallowance correct?

YES. There was no iota of documentary evidence (e.g. collection

letters, reports from investigating fieldsman, police report/affidavit, etc.)
to give support to the allegation of worthlessness. For debts to be
considered worthless, and qualify as bad debts making them
deductible, the taxpayer should show that:
a.
b.
c.
d.
e.
f.
Q.

There is valid and subsisting debt;

The debt must be actually ascertained to be
worthless and uncollectible during the taxable
year;
The debt must be charged off during the taxable
year;
The debt must arise from the business or trade of
the taxpayer;
The taxpayer must also show that it is indeed
uncollectible even in the future (PRC v. CA, 256
SCRA 667).
It must not arise from transactions between related
taxpayers (RR 5-99, RR 25-2002).

Is theoretical interest on capital deductible?

10

NO.
It is not deductible as it does not represent a charge arising
under an interest-bearing obligation (Sec. 79, Rev. Reg. No. 2, cited in the
case of PICOP v. CA, 250 SCRA 434).
Q.

How are assets classified for income taxpayers?

The assets of a taxpayer are classified for income tax purposes into
ordinary and capital assets. However, there is no rigid rule or formula by
which it can be determined with finality whether property sold by a
taxpayer was held primarily for sale to costumers in the ordinary course of
his trade or business or whether it was sold as a capital asset. A property
initially classified as a capital asset may thereafter be treated as an
ordinary asset if a combination of factors indubitably tend to show that the
activity was in furtherance of or in the course of the taxpayers trade or
business. Thus, a sale of inherited property usually gives capital gain or
loss even though the property has to be subdivided or improved or both to
make it saleable. However, if the inherited property is substantially
improved or very actively sold or both, it may be treated as held primarily
for sale to customers in the ordinary course of the heirs business (Calasanz
v. CIR, 144 SCRA 664).
Q.

Is an equity investment a capital or ordinary asset?

An equity investment is a capital, not ordinary, asset of the

investor the sale or exchange of which results in either a capital gain or a
capital loss. The gain or loss is ordinary when the property sold or
exchanged is not a capital asset (China Banking Corporation v. CA, 336
SCRA 178).
OPTIONAL STANDARD DEDUCTION (OSD) FOR INDIVIDUAL
AND CORPORATE TAXPAYERS
A. Individual Taxpayers
The OSD allowed to individual taxpayers shall be a maximum of
forty percent (40%) of gross sales or gross receipts during the taxable year.
It should be emphasized that the cost of sales in case of individual seller
of goods, or the cost of services in the case of individual seller of
services, is not allowed to be deducted for purposes of determining the
basis of the OSD pursuant to this Section inasmuch as the law (RA 9504) is
specific as to the basis thereof which states that for individuals, the basis
of the 40% OSD shall be the gross sales or gross receipts and not gross
income (Revenue Regulations No. 16-2008).

11
B. Corporate Taxpayers
In the case of corporate taxpayers subject to tax under Sections
27(A) and 28(A)(1) of the Code, as amended, the OSD allowed shall be in an
amount not exceeding forty percent (40%) of their gross income.

Q.

Explain the nature of personal exemptions.

For purposes of these Regulations, Gross Income shall mean the

gross sales less sales returns, discounts and allowances and cost of goods
sold. Gross sales shall include only sales contributory to income taxable
under Sec. 27(A) of the Code. Cost of goods sold shall include the
purchase price or cost to produce the merchandise and all expenses
directly incurred in bringing them to their present location and use
(Revenue Regulations No. 16-2008).

Personal exemptions are the theoretical personal, living and family

expenses of an individual allowed to be deducted from the gross or net
income of an individual taxpayer. These are arbitrary amounts which have
been calculated by our lawmakers to be roughly equivalent to the minimum
of subsistence, taking into account the personal status and additional
qualified dependents of the taxpayer. They are fixed amounts in the sense
that the amounts have been predetermined by our lawmakers as provided
under Section 35 (A) and (B). Unless and until our lawmakers make new
adjustments on these personal exemptions, the amounts allowed to be
deducted by a taxpayer are fixed as predetermined by Congress (Pansacola
v. Commissioner of Internal Revenue, 507 SCRA 81).

DE MINIMIS BENEFITS

ALLOWANCE OF PERSONAL EXEMPTION FOR INDIVIDUAL TAXPAYERS

Revenue Regulations No. 5-2011 further amended Revenue

Regulation Nos. 5-2008, 5-2010, 10-2000 and 3-98, with respect to De
Minimis Benefits.

There shall be allowed a basic personal exemption amounting to

Fifty Thousand Pesos (P50,000) for each individual taxpayer. In the case of
married individual where only one of the spouses is deriving gross income,
only such spouse shall be allowed the personal exemption (Sec. 4(A), R.A.
No. 9504).

Rice subsidy of P1,500 or one sack of 50 kg. rice per month

amounting to not more than P1,500 and uniform and clothing allowance not
exceeding P4,000 per annum are considered as de minimis benefits,
which are not subject to the fringe benefits tax (per Section 2.33(c) of
Revenue Regulations No. 3-98) and Income Tax as well as withholding tax on
corporation income of both managerial and rank and file employees (per
Section 2.78.1 (A)(3)(c) and (d) of Revenue Regulations No. 298).
Monetary value of fruits, flowers or books given on special
occasions are deleted. Any other benefit not included in the enumeration
shall not be considered de minimis benefits and are therefore subject to
income tax and withholding tax on compensation income.
MINIMUM WAGE EARNERS ARE NOT REQUIRED TO FILE AN INCOME TAX
RETURN
Minimum wage earner shall refer to a worker in the private sector
paid the statutory minimum wage, or to an employee in the public sector
with compensation income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned. He is not required
to file an income tax return (Sec. 5, R.A. No. 9504).

ADDITIONAL EXEMPTION FOR DEPENDENTS

There shall be allowed an additional exemption of Twenty-Five
Thousand Pesos (P25,000) for each dependent not exceeding four (4). The
additional exemption for dependents shall be claimed by only one of the
spouses in the case of married individuals.
In the case of legally separated spouses, additional exemptions may
be claimed only by the spouse who has custody of the child or children:
Provided, That the total amount of additional exemptions that may be
claimed by both shall not exceed the maximum additional exemptions.
A dependent means a legitimate, illegitimate or legally adopted
child chiefly dependent upon and living with the taxpayer if such
dependent is not more than twenty-one (21) years of age, unmarried and
not gainfully employed or if such dependent, regardless of age, is
incapable of self-support because of mental or physical defect (Sec. 4(B),
R.A. No. 9504).

Q.

Are advertising expenses incurred to protect Brand

Franchise deductible?

Advertising is generally of two kinds: (1) advertising to stimulate

the current sale of merchandise or use of services and (2) advertising
designed to stimulate the future sale of merchandise or use of services.
The second type involves expenditures incurred, in whole or in part, to
create or maintain some form of goodwill for the taxpayer's trade or
business or for the industry or profession of which the taxpayer is a
member. If the expenditures are for the advertising of the first kind, then,
except as to the question of the reasonableness of amount, there is no
doubt such expenditures are deductible as business expenses. If, however,
the expenditures are for advertising of the second kind, then normally they
should be spread out over a reasonable period of time.
The protection of branch franchise is analogous to the maintenance
of goodwill or title to one's property. This is a capital expenditure which
should be spread out over a reasonable period of time.
Respondent corporation's venture to protect its brand franchise was
tantamount to efforts to establish a reputation. This was akin to the
acquisition of capital assets and therefore expenses related thereto were
not to be considered as business expenses but as capital expenditures.
[Commissioner of International Revenue v. General Foods (Phils.), Inc., 401
SCRA 545, (2003)]
III.
TAX REMEDIES
Q.

What are the remedies available to an aggrieved

taxpayer under the Tax Code?
1. Administrative (Extra-Judicial)
2. Judicial
Two administrative remedies accorded to the
taxpayer under the Tax Code:
a.)

administrative protest, which is a protest

against the assessment and is filed
before payment; and,

b.)

claim for refund filed with the CIR after

payment.

12

THE SENDING OF A PRELIMINARY ASSESSMENT NOTICE (PAN) TO

TAXPAYER TO INFORM HIM OF THE ASSESSMENT MADE IS BUT PART
OF THE DUE PROCESS REQUIREMENT IN THE ISSUANCE OF A
DEFICIENCY TAX ASSESSMENT, THE ABSENCE OF WHICH RENDERS
NUGATORY ANY ASSESSMENT MADE BY THE TAX AUTHORITIES

The use of the word shall in subsection 3.1.2 of Revenue

Regulations 12-99 describes the mandatory nature of the service of
a PAN. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Star's right to due process. Thus, for its
failure to send the PAN stating the facts and the law on which the
assessment was made as required by Section 228 of R.A. No. 8424,
the assessment made by the CIR is void. [Commissioner of Internal
Revenue v. Metro Star Superama, Inc., 637 SCRA 633, (2010)]
Q.

When may tax refund be claimed?

The taxpayer may file a claim for refund or credit with the BIR
within 2 years after payment of the tax, before any suit in the CTA is
commenced. The 2-year prescriptive period should be computed from the
time of filing of the Adjustment Return (or Annual Income Tax Return) and
final payment of the tax for the year (PBCom v. CIR, 301 SCRA 241; BPI v.
CIR, 363 SCRA 840; CIR v. TMX Sales, 205 SCRA 184).
The date of payment in ACCRAINs case was when its tax liability,
if any, fell due upon its filing of its final adjustment return (ACCRA
Investments Corporation v. CA, 204 SCRA 957).
The prescriptive period of two years should commence to run only
from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished (CIR v.
PHILAMLIFE Insurance Co., 244 SCRA 446).
Therefore, the filing of quarterly income tax returns and payment
of quarterly income tax should only be considered mere installments of the
annual tax due. These quarterly tax payments should be treated as
advances or portions of the annual income tax due, to be adjusted at the
end of the calendar or fiscal year (CIR v. TMX Sales, Inc., supra).
In the case of a corporate dissolution, the two year prescriptive
period should be counted 30 days after the approval by the SEC of its plan
for dissolution (BPI v. CIR, supra)

13

In claims for refund, it is necessary that the tax be paid in full, and
that the claim for refund in the BIR as well as the proceedings in
the CTA be commenced within two years counted from the
payment of the tax.
A taxpayer who has paid the tax, whether under protest or not,
and who is claiming a refund of the same, must:
(1) file a written claim for refund with the CIR within 2
years from the date of his payment of the tax, and
(2) appeal to the CTA within 30 days from receipt of the
CIRs decision or ruling denying his claim for refund
(Sec. 11, RA 1125). The 30-day period to appeal
should be within the 2-year period.
If, however, the CIR takes time in deciding the claim, and the
period of two years is about to end, the suit or proceeding must be
started in the CTA BEFORE the end of the two-year period without
awaiting the decision of the CIR (Gibbs v. CTA, 107 Phil 232).
TAX REFUNDS ARE NOT FOUNDED PRINCIPALLY ON LEGISLATIVE GRACE
Tax refunds are not founded principally on legislative grace but on
the legal principle which underlies all quasi-contracts abhorring a persons
unjust enrichment at the expense of another. The dynamic of erroneous
payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti,
which covers not only mistake in fact but also mistake in law.
Under the Tax Code itself, apparently in recognition of the
pervasive quasi-contract principle, a claim for tax refund may be based on
the following: (a) erroneously or illegally assessed or collected internal
revenue taxes; (b) penalties imposed without authority; and (c) any sum
alleged to have been excessive or in any manner wrongfully collected. (CIR
v. Fortune Tobacco Corporation, 559 SCRA 160 [2008]).

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book
I of the Administrative Code of 1987 deal with the same subject matter
the computation of legal periods. Under the Civil Code, a year is equivalent
to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant. There obviously exists a manifest
incompatibility in the manner of computing legal periods under the Civil
Code and the Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being
the more recent law, governs the computation of legal periods. Lex
posteriori derogat priori (CIR v. Primetown Property Group, Inc., 531
SCRA 436 [2007]).
Commissioner of Internal Revenue
v. PERF Realty Corporation
557 SCRA 165 (2008)
The CTA, citing Section 10 of Revenue Regulations 6-85 and
Citibank, N.A. v. Court of Appeals, determined the requisites for a claim
for refund, thus: 1) That the claim for refund was filed within the two (2)
year period as prescribed under Section 230 of the National Internal
Revenue Code; 2) That the income upon which the taxes were withheld
were included in the return of the recipient; 3) That the fact of
withholding is established by a copy of a statement (BIR Form 1743.1) duly
issued by the payor (withholding agent) to the payee, showing the amount
paid and the amount of tax withheld therefrom.
Section 76 offers two options: (1) filing for tax refund and (2)
availing of tax credit. The two options are alternative and the choice of
one precludes the other. However, in Philam Asset Management, Inc. v.
Commissioner of Internal Revenue, 447 SCRA 772 (2005), the Court ruled
that failure to indicate a choice, however, will not bar a valid request for a
refund, should this option be chosen by the taxpayer later on. The
requirement is only for the purpose of easing tax administration
particularly the self-assessment and collection aspects.
Commencement of 30-day within which to appeal to the CTA

THE TWO-YEAR PRESCRIPTIVE PERIOD FOR THE FILING OF

TAX REFUND IS RECKONED FROM THE FILING OF THE FINAL ADJUSTED
RETURN. HOW SHOULD THE TWO-YEAR PERIOD BE COMPUTED?

A.

Where the Commissioner has not acted on the taxpayers

protest within a period of 180 days from submission of all
relevant documents, then the taxpayer has a period of 30

days from the lapse of said 180 days within which to file a
petition for review with the CTA.
B.

Should the Commissioner deny the taxpayers protest, then

he has a period of 30 days from receipt of said denial
within which to file a petition for review with the CTA.

The subject of a JUDICIAL REVIEW is the decision of the CIR on the

protest against assessment, not the assessment itself (CIR v. Villa,
22 SCRA 3).
Commissioner of Internal Revenue v. Philippine National Bank
474 SCRA 303
Tax payment in advance does not amount to erroneous or
illegal collection
1.

Section 230 of the Tax Code (now Section 229), as couched,

particularly its statute of limitations component, is, in context,
intended to apply to suits for the recovery of internal revenue
taxes or sums erroneously, excessively, illegally or wrongfully
collected. Black defines the term erroneous or illegal tax as one
levied without statutory authority. In the strict legal viewpoint,
therefore, PNBs claim for tax credit did not proceed from, or is a
consequence of overpayment of tax erroneously or illegally
collected. It is beyond cavil that respondent PNB issued to the BIR
the check for P180 Million in the concept of tax payment in
advance, thus eschewing the notion that there was error or
illegality in the payment. What in effect transpired when PNB
wrote its July 28, 1997 letter was that respondent sought the
application of amounts advanced to the BIR to future annual
income tax liabilities, in view of its inability to carry-over the
remaining amount of such advance payment to the four (4)
succeeding taxable years, not having incurred income tax liability
during that period.
Prescriptive period for tax credit is 10 years

2.

In Commissioner v. Phil-Am Life, the Court ruled that an availment

of a tax credit due for reasons other than the erroneous or
wrongful collection of taxes may have a different prescriptive
period. Absent any specific provision in the Tax Code or special
laws, that period would be ten (10) years under Article 1144 of

14

the Civil Code. Significantly, Commissioner v. Phil-Am Life is

partly a reiteration of a previous holding that even if the two (2)year prescriptive period, if applicable, had already lapsed, the
same is not jurisdictional any may be suspended for reasons of
equity and other special circumstances.
Q.

State the remedies available to the government to

enforce collection of taxes, fees and charges.

1.

Distraint of personal property such as goods, chattels, or

effects, including stocks and other securities, debts,
credits, bank accounts and interest in and rights to
personal property [Sec. 207(A)]
Levy or seizure of real properties and interest in or rights
to real property (Sec. 207(B), NIRC)
Tax Lien (Sec. 219, NIRC)
Civil or Criminal action (Sec. 205, NIRC)
Compromise (Sec. 204, NIRC)
Forfeiture (Sec. 224, NIRC)
Civil Penalties (Sec. 248, NIRC)

2.
3.
4.
5.
6.
7.

The Commissioner has the power to approve the filing of tax

collection cases (Republic v. Hizon, 320 SCRA 574).
The BIR is authorized to issue a warrant of garnishment against the
bank account of a taxpayer despite the pendency of a protest (Yabes
v. Flojo, 15 SCRA 278). Nowhere in the Tax Code is the Commissioner
required to rule first on the protest before he can institute collection
proceedings on the tax assessed. The legislative policy is to give the
Commissioner much latitude in the speedy and prompt collection of
taxes because taxes are the lifeblood of the government (Republic v.
Lim Tian Teng Sons., Inc., 16 SCRA 584).
In Marcos II v. CA, 273 SCRA 47, the SC ruled that the approval of the
court sitting in probate is not a mandatory requirement in the
collection of estate taxes.
The 3-year prescriptive period for assessment of the tax liability
commences to run after the last day prescribed by law for the filing
of the return; but if the return was amended substantially, the
period starts from the filing of the amended return (CIR v. Phoenix
Assurance, Co. Ltd., 14 SCRA 52).

15

taxpayer received any income; and record, data, document and

information secured from government offices or agencies, such as
the SEC, the Central Bank of the Philippines, the Bureau of
Customs, and the Tariff and Customs Commission.

Cases Which Cannot Be Compromised

1.

Withholding tax cases, unless the applicant-taxpayer invokes

provisions of law that cast doubt on the taxpayers obligation to
withhold;

2.

Criminal tax fraud cases confirmed as such by the Commissioner

of Internal Revenue or his duly authorized representative;

3.

Criminal violation already filed in court;

4.

Delinquent accounts with duly approved schedule of installment

payments;

5.

Cases where final reports of reinvestigation or reconsiderations

have been issued resulting to reduction in the original assessment
and the taxpayer is agreeable to such decision by signing the
required agreement form for the purpose. On the other hand,
other protested cases shall be handled by the Regional Evaluation
Board (REB) or the National Evaluation Board (NEB) on a case to
case basis;

6.

Cases which become final and executory after final judgment of a

court, where compromise is requested on the ground of doubtful
validity of the assessment; and

7.

Estate tax cases where compromise is requested on the ground

of financial incapacity of the taxpayer (Rev. Regs. No. 30-2002).
Commissioner of Internal Revenue v. Hantex Trading Co., Inc.
454 SCRA 301
Meaning of best evidence obtainable
1. The best evidence envisaged in Section 16 of the 1977 NIRC (now
Sec. 6) includes the corporate and accounting records of the
taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of
business, including their gross profit and net profit sales. Such
evidence also includes data, record, paper, document or any
evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject

BIR is not bound by the technical rules of evidence

2. The best evidence obtainable may consist of hearsay evidence,
such as the testimony of third parties or accounts or other records
of other taxpayers similarly circumstanced as the taxpayer subject
of the investigation, hence, inadmissible in a regular proceeding in
the regular courts. Moreover, the general rule is that administrative
agencies such as the BIR are not bound by the technical rules of
evidence. It can accept documents which cannot be admitted in a
judicial proceeding where the Rules of Court are strictly observed.
It can choose to give weight or disregard such evidence, depending
on its trustworthiness.
Photocopies of records/documents inadmissible in evidence
3. The best evidence obtainable under Section 16 of the 1977
NIRC, as amended, does not include mere photocopies of
records/documents. The BIR, in making a preliminary and final tax
deficiency assessment against a taxpayer, cannot anchor the said
assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative
weight if offered as proof of the contents thereof. The reason for
this is that such copies are mere scraps of paper and are of no
probative value as basis for any deficiency income or business taxes
against a taxpayer.
Estimation may be the basis of tax liability
4.

The rule is that in the absence of the accounting records of a

taxpayer, his tax liability may be determined by estimation. The
petitioner is not required to compute such tax liabilities with
mathematical exactness. Approximation in the calculation of the
taxes due is justified. To hold otherwise would be tantamount to
holding that skillful concealment is an invincible barrier to proof.
However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously.

PRESCRIPTION (Suspension of the Statutory Period for Collection)

Section 229 (now 228) of the Tax Code mandates that a

request for reconsideration must be made within 30 days from the
taxpayers receipt of the tax deficiency assessment, otherwise the
assessment becomes final, unappealable and therefore demandable
(Republic v. Hizon, supra).
A valid waiver of the statute of limitations under paragraphs (b) and
(d) of Section 224 of the Tax Code of 1977 (Sec. 223, NIRC as
amended by RA 8424), as amended, must be: (1) in writing; (2)
agreed to by both the Commissioner and the taxpayer; (3) before the
expiration of the ordinary prescriptive periods for assessment and
collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period
agreed upon can still be extended by subsequent written agreement,
provided that it is executed prior to the expiration of the first period
agreed upon (BPI v. CIR, 473 SCRA 205).
With the issuance of RR No. 12-85 on 27 November 1985 providing the
above-quoted distinctions between a request for reconsideration and
a request for reinvestigation, the two types of protest can no longer
be used interchangeably and their differences so lightly brushed
aside. It bears to emphasize that under Section 224 of the Tax Code
of 1977 (now Sec. 223), the running of the prescriptive period for
collection of taxes can only be suspended by a request for
reinvestigation, not a request for reconsideration. Undoubtedly, a
reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a
tax assessment, which will be limited to the evidence already at
hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the
latter can not.
IV.

of the Regional Trial Court where the amount is less than P1

million;
2.

Exclusive original jurisdiction over tax collection cases where the

principal amount of taxes and penalties involved is P1 million or
more and the appellate jurisdiction over decisions of the Regional
Trial Court where the amount is less than P1 million;

3.

Appellate jurisdiction over decisions of the Regional Trial Courts in

local tax cases; and

4.

Appellate jurisdiction over decisions of the Central Board of

Assessment Appeals over cases involving the assessment of taxation
of real property.

JURISDICTION OVER BOTH CIVIL AND CRIMINAL ASPECTS

The vesting of jurisdiction over both the civil and criminal aspects
of a tax case in one court will likewise effectively enhance and maximize
the development of jurisprudence and judicial precedence on tax matters
which is of vital importance to revenue administration. The concentration
of tax cases in one court will enhance the disposition of these cases since it
will take them out of the jurisdiction of regular courts which, admittedly,
do not have the expertise in the field of taxation.

OUTLINE OF JURISDICTION
[ Section 7, R.A. 9282 ]

THE NEW COURT OF TAX APPEALS

EXPANDED JURISDICTION OF THE CTA

1.

16

Exclusive original jurisdiction over criminal cases arising from

violations of the NIRC or the Tariff and Customs Code and other
laws administered by the BIR and the BOC where the principal
amount of taxes and penalties involved is P1 million or more and
appellate jurisdiction in lieu of the Court of Appeals over decisions

I.

Exclusive Appellate Jurisdiction to review by appeal

(1)

Decisions of the Commissioner of Internal Revenue in

cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the NIRC or other
laws administered by the BIR [via a petition for review

17
under Rule 42].
(2)

Inaction by the Commissioner of Internal Revenue in

cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the NIRC or other
laws administered by the BIR, where the NIRC provides a
specific period for action, in which case the inaction shall
be deemed a denial [via a petition for review under Rule
42].

(3)

Decisions, orders or resolutions of the RTC in local tax

cases originally decided or resolved by them in the exercise
of their original or appellate jurisdiction [via a petition
for review under Rule 43].

(4)

(5)

(6)

Decisions of the Commissioner of Customs in cases

involving liability of customs duties, fees or other money
charges, seizure, detention or release of property affected,
fines, forfeitures or other penalties in relation thereto, or
other matters arising under the Customs Law or other laws
administered by the Bureau of Customs [via a petition for
review under Rule 42].
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
originally decided by the Provincial or City Board of
Assessment Appeals [via a petition for review under Rule
43].
Decisions of the Secretary of Finance in customs cases
elevated to them automatically for review from decisions
of the Commissioner of Customs which are adverse to the
government under Section 2315 of the Tariff and Customs
Code [via a petition for review under Rule 42]

(7)

Decisions of the Secretary of Trade and Industry in cases

of non-agricultural product, commodity or article, and the
Secretary of Agriculture in cases of agricultural product,
commodity or article involving dumping and countervailing
duties under Sections 301 and 302 of the Tariff and Customs
Code, respectively, and safeguard measures under RA.
8808, where either party may appeal the decision to
impose or not to impose said duties [via a petition for
review under Rule 42].

Who may appeal?

Any party adversely affected by a decision, ruling or inaction of the
Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture or the Regional Trial Court, may file an appeal with the CTA:
(a.) within thirty (30) days after receipt of such decision or ruling;
OR
(b.) after the expiration of the period fixed by law for action
referred to in Section 7 (a)(2) of RA. 9282, in which case the
inaction shall be deemed a denial.
What are the modes of appeal?
(1.) Appeal may be made by filing a petition for review before the
CTA under a procedure analogous to that provided for under
Rule 42 of the 1997 Rules of Civil Procedure, within 30 days
from the receipt of the decision or ruling or from the
expiration of the period fixed by law for the official concerned
to act in cases of inaction. A division of the CTA shall hear the
appeal.
All other cases involving rulings, orders or decisions filed with
the CTA as provided for in Section 7 of RA 9282 shall be raffled
to its divisions. A party adversely affected by a ruling, order or

18

decision of a division of the CT A may file a motion for

reconsideration or new trial before the same division.
(2.) Appeals with respect to decisions or rulings of the Central
Board of Assessment Appeals and the Regional Trial Court in
the exercise of its appellate jurisdiction, may be made by
filing a petition for review under a procedure analogous to
that provided for under Rule 43 of the 1997 Rules of Civil
Procedure with the CTA which shall hear the case en banc
A party adversely affected by a resolution 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.
(3.) A Petition for Review on Certiorari may be filed by a party
adversely affected by a decision or ruling of the CTA en banc,
through a verified petition before the Supreme Court pursuant
to Rule 45 of the 1997 Rules of Civil Procedure.
Q.

What may be appealed?

It is the decision of the CIR on the protest of the taxpayer against

assessment, not the assessment itself, which is appealable to the CTA. A
letter of the Commissioner reminding a taxpayer of his obligation to pay
taxes which reiterates a previous demand for the settlement of an
assessment is in effect a decision on the disputed assessment. This letter is
tantamount to a denial of the request for reconsideration or protest of the
taxpayer (CIR v. Ayala Securities Corp., 70 SCRA 204).
Q.

What may constitute Administrative Decision on a

Disputed Assessment?

The decision of the Commissioner or his duly authorized

representative shall: (a) state the facts, the applicable law, rules and
regulations, or jurisprudence on which such decision is based, otherwise,
the decision shall be void, in which case, the same shall not be
considered a decision on a disputed assessment; and (b) that the same is
his final decision (Sec. 3, 3.1.6, Revenue Regulations 12-99).

Oceanic Wireless Network, Inc. v.

Commissioner of Internal Revenue
477 SCRA 205
RULINGS
1. A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment.
The determination on whether or not a demand letter is final is
conditioned upon the language used or the tenor of the letter
being sent to the taxpayer.
2. We laid down the rule that the Commissioner of Internal Revenue
should always indicate to the taxpayer in clear and unequivocal
language what constitutes his final determination of the disputed
assessment, thus: . . . we deem it appropriate to state that the
Commissioner of Internal Revenue should always indicate to the
taxpayer in clear an unequivocal language whenever his action on
an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by
Sections 7 and 11 of Republic Act No. 1125, as amended. On the
basis of his statement indubitably showing that the Commissioners
communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right
to appeal to the tax court accrues.
3. The general rule is that the Commissioner of Internal Revenue may
delegate any power vested upon him by law to Division Chiefs or to
officials of higher rank. He cannot, however, delegate the four
powers granted to him under the National Internal Revenue Code
(NIRC) enumerated in Section 7.
4. The authority to make tax assessments may be delegated to
subordinate officers. Said assessment has the same force and
effect as that issued by the Commissioner himself, if not reviewed
or revised by the latter such as in this case.
In Commissioner of Internal Revenue v. Isabela Cultural
Corporation, 361 SCRA 71, the Supreme Court held that a final demand
letter from the Bureau of Internal Revenue, reiterating to the taxpayer the
immediate payment of a tax deficiency assessment previously made, is
tantamount to a denial of the taxpayers request for reconsideration. Such

letter amounts to a final decision on a disputed assessment and is thus

appealable to the Court of Tax Appeals.
THE CTA HAS JURISDICTION OVER DISPUTE BETWEEN PNB
AND BIR RELATIVE TO DEFICIENCY WITHHOLDING TAX ASSESSMENT
PNB sought the suspension of the proceedings in CTA Case No. 4249,
after it contested the deficiency withholding tax assessment against it and
the demand for payment thereof before the DOJ, pursuant to P.D. No. 242.
The CTA, however, correctly sustained its jurisdiction and continued the
proceedings in CTA Case No. 4249; and, in effect, rejected DOJs claim of
jurisdiction to administratively settle or adjudicate BIRs assessment
against PNB.

19

the lifetime of the donor but are made in consideration or in contemplation

of death. Gifts inter vivos, the transmission of which is not made in
contemplation of the donors death, should not be included within the said
legal provision for it would amount to imposing a direct tax on property
and not on the transmission thereof. The law considers such transmissions
in the form of gifts inter vivos, as advances on inheritance and nothing
therein violates any constitutional provision, inasmuch as said legislation is
within the power of the Legislature (Vidal de Roces v. Posadas, 58 Phil. 111,
113).
Q.

What are deductible funeral expenses?

The term FUNERAL EXPENSES is not confined to its ordinary or

usual meaning. They include:

Sustained herein is the contention of private respondent Savellano

that P.D. No. 242 is a general law that deals with administrative settlement
or adjudication of disputes, claims and controversies between or among
government offices, agencies and instrumentalities, including governmentowned or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as
the Revised Administrative Code of the Philippines. On the other hand, R.A.
No. 1125 is a special law dealing with a specific subject matter the
creation of the CTA, which shall exercise exclusive appellate jurisdiction
over the tax disputes and controversies enumerated therein.

(a)

Following the rule on statutory construction involving a general and

a special law previously discussed, then P.D. No. 242 should not affect R.A.
No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA,
constitutes an exception to P.D. No. 242. Disputes, claims and controversies
falling under Section 7 of R.A. No. 1125, even though solely among
government offices, agencies, and instrumentalities, including governmentowned and controlled corporations, remain in the exclusive appellate
jurisdiction of the CTA. Such a construction resolves the alleged
inconsistency or conflict between the two statutes, and the fact that P.D.
No. 242 is the more recent law is no longer significant (Philippine National
Oil Company v. Court of Appeals, 457 SCRA 32, 76-81).

(f)
(g)

(b)
(c)
(d)
(e)

The mourning apparel of the surviving spouse and

unmarried minor children of the deceased bought and used
on the occasion of the burial;
Expenses for the deceaseds wake, including food and
drinks;
Publication charges for death notices;
Telecommunication expenses incurred in informing
relatives of the deceased;
Cost of burial plot, tombstones, monument or mausoleum
but not their upkeep. In case the deceased owns a family
estate or several burial lots, only the value corresponding
to the plot where he is buried is deductible;
Interment and/or cremation fees and charges; and
All other expenses incurred for the performance of the
rites and ceremonies incident to interment.

Expenses incurred after the interment, such as for prayers, masses,

entertainment, or the like are not deductible. Any portion of the funeral
and burial expenses borne or defrayed by relatives and friends of the
deceased are not deductible.
Q.
What are the requisites for deductibility of claims
against the estate?
Requisites for Deductibility of Claims Against the Estate:

V.

ESTATE AND DONORS TAX

The gifts referred to in Section 1540 of the Revised Administrative

Code are those donations inter vivos that take effect immediately or during

(a)

The liability represents a personal obligation of the

deceased existing at the time of his death except unpaid
obligations incurred incident to his death such as unpaid

(b)
(c)
(d)

Q.

funeral expenses (i.e., expenses incurred up to the time of

interment) and unpaid medical expenses which are
classified under a different category of deductions pursuant
to these Regulations;
The liability was contracted in good faith and for adequate
and full consideration in money or moneys worth;
The claim must be a debt or claim which is valid in law and
enforceable in court;
The indebtedness must not have been condoned by the
creditor or the action to collect from the decedent must
not have prescribed.
What are the conditions for the allowance of family
home as deduction from the gross estate?

Conditions for the allowance of FAMILY HOME as deduction from the

gross estate:
1.

VI.

The family home must be the actual residential home of

the decedent and his family at the time of his death, as
certified by the Barangay Captain of the locality where the
family home is situated;
2.
The total value of the family home must be included as
part of the gross estate of the decedent; and
3.
Allowable deduction must be in an amount equivalent to
the current fair market value of the family home as
declared or included in the gross estate, or the extent of
the decedents interest (whether conjugal/community or
exclusive property), whichever is lower, but not exceeding
P1,000,000.
LOCAL TAXATION

Q.
Explain the doctrine of supremacy of the National
Government over local governments.
Local governments have no power to tax instrumentalities of the
National Government. Settled is the rule that the states have no power by
taxation or otherwise, to retard, impede, burden or any manner control
the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government (McCulloch v.
Maryland, 4 Wheat 316, 4 L Ed. 597).
Taxing Power of LGUs

20

In case of doubt, any tax ordinance or revenue measure shall be

construed strictly against the local government unit enacting it and
liberally in favor of the taxpayer. Any tax exemption, incentive or relief
granted by any local government shall be construed strictly against the
person claiming it (Sec. 5(b), RA 7160).
In interpreting statutory provisions on municipal taxing powers,
doubts should be resolved in favor of municipal corporations (PLDT v.
Province of Laguna, 467 SCRA 93).
Section 193 of the Local Government Code buttresses the
withdrawal of extant tax exemption privileges. The general rule is that tax
exemptions or incentives granted to or presently enjoyed by natural or
juridical persons are withdrawn upon the effectivity of the LGC except with
respect to those entities expressly enumerated. In the same vein, the
express withdrawal upon effectivity of the LGC of all exemptions except
only as provided therein, can no longer be invoked by MERALCO to disclaim
liability for the local tax (Mactan Cebu International Airport Authority v.
Marcos, 261 SCRA 667; City Government of San Pablo, Laguna v. Reyes, 305
SCRA 362).
Q.

Section 12 of RA 7082 embodies the so-called in-lieuof-all taxes clause, whereunder PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its
gross receipts, which franchise tax shall be in lieu of
all taxes. Invoking its authority under Section 137 of
RA 7160, the Province of Laguna, through its Local
Legislative Assembly enacted Provincial Ordinance No.
01-92, imposing a franchise tax upon all businesses
enjoying a franchise, PLDT included. PLDT invoked the
in-lieu-of-all-taxes clause and Section 23 of RA No.
7925 also known as the most-favored treatment
clause providing for an equality of treatment in the
telecommunications industry. RESOLVE.

PLDT is subject to franchise tax. The Supreme Court rejected

PLDTs contention that in-lieu-of-all taxes clause does not refer to tax
exemption but to tax exclusion and hence, the strictissimi juris rule
does not apply. The en banc explains that these two terms actually mean
the same thing, such that the rule that tax exemption should be applied in
strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions:

Indeed, both in their nature and in their effect

there is no difference between tax exemption and tax
exclusion. Exemption is an immunity or privilege; it is
freedom from a charge or burden to which others are
subjected. Exclusion, on the other hand, is the removal
of otherwise taxable items from the reach of taxation,
e.g., exclusions from gross income and allowable
deductions. Exclusion is thus also an immunity or
privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that tax
exemption should be applied in strictissimi juris against
the taxpayer and liberally in favor of the government
applies equally to tax exclusions. To construe otherwise
the in lieu of all taxes provision invoked is to be
inconsistent with the theory that R.A. No. 7925, 23
grants tax exemption because of a similar grant to Globe
and Smart (PLDT v. City of Bacolod, 463 SCRA 528, 540).
Q.
Discuss the meaning of the doctrine of preemption in
local government taxation.
Preemption in the matter of taxation simply refers to an 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 rests upon the intention of Congress. Conversely,
should Congress allow municipal corporations to cover fields of taxation it
already occupies, then the doctrine of preemption will not apply (Victorias
Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25 SCRA
192).
LOCAL GOVERNMENT UNIT (LGU) HAS NO POWER TO IMPOSE BUSINESS
TAXES ON PERSONS OR ENTITIES ENGAGED IN THE SALE OF PETROLEUM
PRODUCTS
Section 133 prescribes the limitations on the capacity of local
government units to exercise their taxing powers otherwise granted to
them under the LGC. Apparently, paragraph (h) of the Section mentions two
kinds of taxes which cannot be imposed by local government units, namely:
excise taxes on articles enumerated under the National Internal Revenue
Code [(NIRC)], as amended; and taxes, fees or charges on petroleum
products.

21

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. The earlier reference in
paragraph (h) to excise taxes comprehends a wider range of subjects of
taxation: all articles already covered by excise taxation under the NIRC,
such as alcohol products, tobacco products, mineral products, automobiles,
and such non-essential goods as jewelry, goods made of precious metals,
perfumes, and yachts and other vessels intended for pleasure or sports. In
contrast, the later reference to taxes, fees and charges pertains only to
one class of articles of the many subjects of excise taxes, specifically,
petroleum products. 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 (Petron
Corporation v. Tiangco, 551 SCRA 484 [2008]).
AN APPEAL SHALL NOT SUSPEND THE COLLECTION OF REALTY TAXES
EXCEPT WHERE THE TAXPAYER HAS SHOWN A CLEAR AND UNMISTAKABLE
RIGHT TO REFUSE OR HOLD IN ABEYANCE THE PAYMENT OF TAXES
We are not unaware of the doctrine that taxes are the lifeblood of
the government, without which it can not properly perform its functions;
and that appeal shall not suspend the collection of realty taxes. However,
there is an exception to the foregoing rule, i.e., where the taxpayer has
shown a clear and unmistakable right to refuse or to hold in abeyance the
payment of taxes. In this case we note that respondent contested the
revised assessment on the following grounds: that the subject assessment
pertained to properties that have been previously declared; that the
assessment covered periods of more than 10 years which is not allowed
under the LGC; that the fair market value or replacement cost used by
petitioner included items which should be properly excluded; that prompt
payments of discounts were not considered in determining the fair market
value; and that the subject assessment should take effect a year after or
on January 1, 2008. To our mind, the resolution of these issues would have
a direct bearing on the assessment made by petitioner. Hence, it is
necessary that the issues must first be passed upon before the properties of
respondent are sold in public auction (Talento v. Escalada, Jr., 556 SCRA
491, 500-501 [2008]).
LOCAL BUSINESS TAX SHALL BE BASED ON GROSS RECEIPTS

The imposition of local business tax based on gross revenue will

inevitably result in the constitutionally proscribed double taxationtaxing
of the same person twice by the same jurisdiction for the same thing
inasmuch as petitioners gross revenue or income for a taxable year will
definitely include its gross receipts already reported during the previous
year and for which local business tax has already been paid.
Gross revenue covers money or its equivalent actually or
constructively received, including the value of services rendered or articles
sold, exchanged or leased, the payment of which is yet to be received. This
is in consonance with the International Financial Reporting Standards,
which defines revenue as the gross inflow of economic benefits (cash,
receivables, and other assets) arising from the ordinary operating activities
of an enterprise (such as sales of goods, sales of services, interest,
royalties, and dividends), which is measured at the fair value of the
consideration or receivable (Ericsson Telecommunications, Inc. v. City of
Pasig, 538 SCRA 99 [2007]).
Q.

Can the National Power Corporation (NPC), a

government-owned and controlled corporation, claim
tax exemption under Section 234 of the Local
Government Code for the taxes due from Mirant
Pagbilao Corporation (Mirant) whose tax liabilities the
NPC has contractually assumed?

22

with the will of the NPC only underscores the fact that NPC does not
actually, directly, and exclusively use them.
The test of exemption is the use, not the ownership of the
machineries devoted to the generation and transmission of electric
power. [National Power Corporation v. Province of Quezon and
Municipality of Pagbilao, 593 SCRA 47 (2009)]
VII.

Seizure and forfeiture proceedings are within the exclusive jurisdiction

of the Collector of Customs to the exclusion of regular courts. Regional
Trial Courts are devoid of competence to pass upon the validity or
regularity of seizure and forfeiture proceedings conducted by the
Bureau of Customs and to enjoin or otherwise interfere with these
proceedings (Jao v. CA, 249 SCRA 36).

The customs authorities do not have to prove to the satisfaction of the

court that the articles on board a vessel were imported from abroad or
are intended to be shipped abroad before they may exercise the power
to effect customs searches, seizures or arrests provided by law and
continue with the administrative hearings. As held in Ponce v. Vinuya:
The governmental agency concerned, the Bureau of Customs, is
vested with exclusive authority. Even if it be assumed that in the
exercise of such exclusive competence a taint of illegality may be
correctly imputed, the most that can be said is that under certain
circumstances the grave abuse of discretion conferred may oust it of
such jurisdiction. It does not mean however that correspondingly a CFI
(now RTC) is vested with competence when clearly in the light of the
above decisions the law has not seen fit to do so. The proceeding
before the Collector of Customs is not final. An appeal lies to the
Commissioner of Customs and thereafter to the Court of Tax Appeals.
It may even reach (the Supreme Court) through the appropriate
petition for review. The proper ventilation of the legal issues raised is
thus indicated. Certainly a CFI (now RTC) is not therein included. It is
devoid of jurisdiction (Rallos v. Gako, 344 SCRA 175).

The stipulation between NPC and Mirant does not bind third
persons who are not privy to the contract between these parties. There is
no privity between the local government units and the NPC, even though
both are public corporations. The tax due will not come from one pocket
and go to another pocket of the same governmental entity.
Only the parties to the agreement can exact and demand the
enforcement of the rights and obligations it establishedonly Mirant can
demand compliance from the NPC for the payment of the real property tax
the NPC assumed to pay. The local government units cannot demand
payment from the NPC.
The government-owned or controlled corporation claiming
exemption must be the entity actually, directly, and exclusively using the
real properties, and the use must be devoted to the generation and
transmission of electric power. Although the plant's machineries are
devoted to the generation of electric power, by the NPC's own admission
and as previously pointed out, Miranta private corporationuses and
operates them. That Mirant operates the machineries solely in compliance

TARIFF AND CUSTOMS CODE

Classification of Customs Duties

1.

Regular Duties those imposed and collected merely as a source

of revenue.
a.
Ad valorem Duty Based on the value of imported article.

b.
c.
specific.
d.
2.

Specific Duty Based on dutiable weight of goods.

Alternating Duties Which alternates ad valorem and
Compound Duty Consisting of ad valorem and specific.

Special Duties those imposed in additional to the ordinary

customs duties usually to protect local industries against foreign
competition.
a.
Anti-Dumping Duty Imposed upon foreign products with
value lower than their fair market value to the detriment of
local products; it is the difference between the export price
and the normal value of such product, commodity or article.
Imposing authority The Secretary of Trade and
Industry (non-agricultural products) OR Secretary of
Agriculture
(agricultural
products)
after
formal
investigation and affirmative finding of the Tariff
Commission.
b.

Countervailing Duty Imposed upon foreign goods enjoying

subsidy thus allowing them to sell at lower prices to the
detriment of local products similarly situated; it is equivalent
to the value of the subsidy.
Imposing authority Secretary of Trade and Industry
(non-agricultural products); Secretary of Agriculture
(agricultural products) after formal investigation and
affirmative finding of the Tariff Commission.

c.

Marking Duty Imposed upon those not properly marked as

to place of origin of the goods.
Imposing authority Commissioner of Customs.

d.

Discriminatory Duty Imposed upon goods coming from

countries that discriminate against Philippine products.
Imposing authority President of the Philippines.

Flexible Tariff Clause

Under Sec. 28, Article VI, 1987 Constitution the Congress may, by
law, authorize the President to fix, within specified limits, and subject
to such limitations and restrictions as it may impose:
a.
Tariff rates, imports and export quotas, tonnage and
wharfage dues;

b.

23

Other duties or imposts within the framework of the national

development program of the Government.

Under the Tariff and Customs Code Sec. 401 in the interest of
national economy, general welfare and/or national security, the
President, upon recommendation by NEDA, is empowered:
a.
To increase, reduce or remove existing protective rates of
import duty, provided that the increase shall not be higher
than 100% ad valorem;
b.
To establish import quota or to ban imports to any
commodity;
c.
To impose additional duty on all imports not exceeding 10%
ad valorem;
d.
To modify the forms of duty, whether ad valorem or specific.

Exemption from payment of all duties and taxes of officer or employee

returning from regular assignment abroad for reassignment to the
home office
Any officer or employee returning from a regular assignment
abroad for reassignment to the home office x x x shall be exempt from
the payment of all duties and taxes on his personal and household effects,
including one (1) used motor car duly registered in his name for at least six
(6) months: Provided, however, That the exemption shall apply only to
the value of the motor car and to the aggregate assessed value of said
personal and household effects, the latter not to exceed fifty percent (50%)
of the total amount received by such officer or employee in salary and
allowances during his latest assignment abroad but not to exceed four (4)
years: Provided, further, That this exception shall not be availed of more
often than once every four (4) years (Republic Act No. 7157, Section 81).
IMPORTERS FAILURE TO FILE REQUIRED ENTRIES WITHIN A NONEXTENDIBLE PERIOD OF 30 DAYS FROM DATE OF DISCHARGE OF THE LAST
PACKAGE CONSTITUTES IMPLIED ABANDONMENT OF ITS IMPORTATIONS
An importers failure to file the required entries within a nonextendible period of 30 days from date of discharge of the last package
from the carrying vessel constitutes implied abandonment of its
importations. After the lapse of this 30-day period, the abandoned
shipments become government property.
Under the Tariff and Customs Code (TCC), imported articles must
be entered within a non-extendible period of 30 days from the date of

discharge of the last package from a vessel. Otherwise, the BOC will deem
the imported goods impliedly abandoned in favor of the government.
Chevron argued that the import entry declarations (IED) it filed within the
30-day period for some of its oil shipments is the entry contemplated by
the TCC, and not the import entry and internal revenue declaration (IEIRD),
which it failed to file within the same period. The SC disagreed, holding
that both the IED and IEIRD should be filed within 30 days from the date of
discharge of the last package from the vessel or aircraft (Chevron Phils.
Inc. v. Commissioner of the Bureau of Customs, 561 SCRA 710, 721-722,
728, 742).
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God Bless

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