Tax Laws and

Revenue Regulations
Compendium

2016 Edition

Photo courtesy of: KT Accounting & Taxation Services PTY LTD

 NATIONAL INTERNAL
REVENUE CODE OF 1997
 Republic of the Philippines
Congress of the Philippines
Metro Manila

Tenth Congress

Republic Act No. 8424 December 11, 1997

AN ACT AMENDING THE NATIONAL INTERNAL REVENUE

CODE, AS AMENDED, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled::

Section 1. Short Title. - This Act shall be cited as the "Tax Reform Act of
1997".

Section 2. State Policy. - It is hereby declared the policy of the State to

promote sustainable economic growth through the rationalization of
the Philippine internal revenue tax system, including tax
administration; to provide, as much as possible, an equitable relief to
a greater number of taxpayers in order to improve levels of disposable
income and increase economic activity; and to create a robust
environment for business to enable firms to compete better in the
regional as well as the global market, at the same time that the State
ensures that Government is able to provide for the needs of those
under its jurisdiction and care.

Section 3. Presidential Decree No. 1158, as amended by, among

others, Presidential Decree No. 1994 and Executive Order No. 273,
otherwise known as the National Internal Revenue Code, is hereby
further amended.
Section 4. The Secretary of Finance shall, upon recommendation of
the Commissioner of Internal Revenue, promulgate and publish the
necessary rules and regulations for the effective implementation of
this Act.

Section 5. Transitory Provisions - Deferment of the Effectivity of the

Imposition of VAT on Certain Services. - The effectivity of the
imposition of the value-added tax on services as prescribed in Section
17(a) and (b) of Republic Act No. 7616, as amended by Republic Act.
8241, is hereby further deferred until December 31, 1999, unless
Congress deems otherwise: Provided, That the said services shall
continue to pay the applicable tax prescribed under the present
provisions of the National Internal Revenue Code, as amended.

Section 6. Separability Clause. - If any provision of this Act is

subsequently declared unconstitutional, the validity of the remaining
provisions hereof shall remain in full force and effect.

Section 7. Repealing Clauses. -(A) The provision of Section 17 of

Republic Act No. 7906, otherwise known as the "Thrift Banks Acts of
1995" shall continue to be in force and effect only until December
31, 1999.

Effective January 1, 2000, all thrift banks, whether in operation as of

that date or thereafter, shall no longer enjoy tax exemption as
provided under Section 17 of R.A. No. 7906, thereby subjecting all
thrift banks to taxes, fees and charges in the same manner and at the
same rate as banks and other financial intermediaries.

(B) The provisions of the National Internal Revenue Code, as

amended, and all other laws, including charters of government-owned
or controlled corporations, decrees, orders, or regulations or parts
thereof, that are inconsistent with this Act are hereby repealed or
amended accordingly.
Section 8. Effectivity - This Act shall take effect on January 1, 1998.

TITLE I: ORGANIZATION AND FUNCTION OF

THE BUREAU OF INTERNAL REVENUE

Section 1. Title of the Code. - This Code shall be known as the

National Internal Revenue Code of 1997.

Section 2. Powers and duties of the Bureau of Internal Revenue. - The

Bureau of Internal Revenue shall be under the supervision and
control of the Department of Finance and its powers and duties shall
comprehend the assessment and collection of all national internal
revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the
execution of judgments in all cases decided in its favor by the Court
of Tax Appeals and the ordinary courts. The Bureau shall give effect
to and administer the supervisory and police powers conferred to it by
this Code or other laws.

Section 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau

of Internal Revenue shall have a chief to be known as Commissioner
of Internal Revenue, hereinafter referred to as the Commissioner and
four (4) assistant chiefs to be known as Deputy Commissioners.

Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide

Tax Cases. - The power to interpret the provisions of this Code and
other tax laws shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal

revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.

Section 5. Power of the Commissioner to Obtain Information, and to

Summon, Examine, and Take Testimony of Persons. - In ascertaining the
correctness of any return, or in making a return when none has been
made, or in determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in evaluating tax
compliance, the Commissioner is authorized:

(A) To examine any book, paper, record, or other data which may
be relevant or material to such inquiry;

(B) To Obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and
local governments, government agencies and instrumentalities,
including the Bangko Sentral ng Pilipinas and government-owned
or -controlled corporations, any information such as, but not
limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and
financial statements of corporations, mutual fund companies,
insurance companies, regional operating headquarters of
multinational companies, joint accounts, associations, joint
ventures of consortia and registered partnerships, and their
members;

(C) To summon the person liable for tax or required to file a

return, or any officer or employee of such person, or any person
having possession, custody, or care of the books of accounts and
other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and
 to produce such books, papers, records, or other data, and to give
testimony;

(D) To take such testimony of the person concerned, under oath,

as may be relevant or material to such inquiry; and

(E) To cause revenue officers and employees to make a canvass

from time to time of any revenue district or region and inquire
after and concerning all persons therein who may be liable to pay
any internal revenue tax, and all persons owning or having the
care, management or possession of any object with respect to
which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding, nothing

in this Section shall be construed as granting the Commissioner the
authority to inquire into bank deposits other than as provided for in
Section 6(F) of this Code.

Section 6. Power of the Commissioner to Make assessments and Prescribe

additional Requirements for Tax Administration and Enforcement. -

(A) Examination of Returns and Determination of Tax Due. - After a

return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative
may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however; That
failure to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice
and demand from the Commissioner or from his duly authorized
representative.
Any return, statement of declaration filed in any office authorized
to receive the same shall not be withdrawn: Provided, That within
three (3) years from the date of such filing , the same may be
modified, changed, or amended: Provided, further, That no
notice for audit or investigation of such return, statement or
declaration has in the meantime been actually served upon the
taxpayer.

(B) Failure to Submit Required Returns, Statements, Reports and other

Documents. - When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations
or when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the
proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document

at the time prescribed by law, or willfully or otherwise files a false
or fraudulent return or other document, the Commissioner shall
make or amend the return from his own knowledge and from
such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all
legal purposes.

(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe

Presumptive Gross Sales and Receipts. - The Commissioner may, at
any time during the taxable year, order inventory-taking of goods
of any taxpayer as a basis for determining his internal revenue tax
liabilities, or may place the business operations of any person,
natural or juridical, under observation or surveillance if there is
reason to believe that such person is not declaring his correct
income, sales or receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing the taxes for the
other months or quarters of the same or different taxable years
and such assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and

invoices in violation of the requirements of Sections 113 and 237
of this Code, or when there is reason to believe that the books of
accounts or other records do not correctly reflect the declarations
made or to be made in a return required to be filed under the
provisions of this Code, the Commissioner, after taking into
account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or
circumstances or after considering other relevant information may
prescribe a minimum amount of such gross receipts, sales and
taxable base, and such amount so prescribed shall be prima facie
correct for purposes of determining the internal revenue tax
liabilities of such person.

(D) Authority to Terminate Taxable Period. _ When it shall come to

the knowledge of the Commissioner that a taxpayer is retiring
from business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or
conceal his property, or is performing any act tending to obstruct
the proceedings for the collection of the tax for the past or
current quarter or year or to render the same totally or partly
ineffective unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer
terminated at any time and shall send the taxpayer a notice of
such decision, together with a request for the immediate payment
of the tax for the period so declared terminated and the tax for
the preceding year or quarter, or such portion thereof as may be
unpaid, and said taxes shall be due and payable immediately and
shall be subject to all the penalties hereafter prescribed, unless
paid within the time fixed in the demand made by the
Commissioner.
(E) Authority of the Commissioner to Prescribe Real Property Values. -
The Commissioner is hereby authorized to divide the Philippines
into different zones or areas and shall, upon consultation with
competent appraisers both from the private and public sectors,
determine the fair market value of real properties located in each
zone or area. For purposes of computing any internal revenue tax,
the value of the property shall be, whichever is the higher of;

(1) the fair market value as determined by the Commissioner,

or

(2) the fair market value as shown in the schedule of values of

the Provincial and City Assessors.

(F) Authority of the Commissioner to inquire into Bank Deposit

Accounts. - Notwithstanding any contrary provision of Republic
Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank
deposits of:

(1) a decedent to determine his gross estate; and

(2) any taxpayer who has filed an application for compromise

of his tax liability under Sec. 204 (A) (2) of this Code by
reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment

of his tax liabilities on his claim that his financial position
demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in
writing his privilege under Republic act NO. 1405 or under other
general or special laws, and such waiver shall constitute the
authority of the Commissioner to inquire into the bank deposits
of the taxpayer.
 (G) Authority to Accredit and Register Tax Agents. - The
Commissioner shall accredit and register, based on their
professional competence, integrity and moral fitness, individuals
and general professional partnerships and their representatives
who prepare and file tax returns, statements, reports, protests,
and other papers with or who appear before, the Bureau for
taxpayers. Within one hundred twenty (120) days from January 1,
1998, the Commissioner shall create national and regional
accreditation boards, the members of which shall serve for three
(3) years, and shall designate from among the senior officials of
the Bureau, one (1) chairman and two (2) members for each
board, subject to such rules and regulations as the Secretary of
Finance shall promulgate upon the recommendation of the
Commissioner.

Individuals and general professional partnerships and their

representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation
boards may appeal such denial to the Secretary of Finance, who
shall rule on the appeal within sixty (60) days from receipt of such
appeal. Failure of the Secretary of Finance to rule on the Appeal
within the prescribed period shall be deemed as approval of the
application for accreditation of the appellant.

(H) Authority of the Commissioner to Prescribe Additional

Procedural or Documentary Requirements. - The Commissioner
may prescribe the manner of compliance with any documentary
or procedural requirement in connection with the submission or
preparation of financial statements accompanying the tax returns.

Section 7. Authority of the Commissioner to Delegate Power. - The

Commissioner may delegate the powers vested in him under the
pertinent provisions of this Code to any or such subordinate officials
with the rank equivalent to a division chief or higher, subject to such
limitations and restrictions as may be imposed under rules and
regulations to be promulgated by the Secretary of finance, upon
recommendation of the Commissioner: Provided, However, That the
following powers of the Commissioner shall not be delegated:

(a) The power to recommend the promulgation of rules

and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to

reverse, revoke or modify any existing ruling of the Bureau;

(c) The power to compromise or abate, under Sec. 204

(A) and (B) of this Code, any tax liability: Provided, however,
That assessments issued by the regional offices involving basic
deficiency taxes of Five hundred thousand pesos (P500,000) or
less, and minor criminal violations, as may be determined by rules
and regulations to be promulgated by the Secretary of finance,
upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, the heads
of the Legal, Assessment and Collection Divisions and the
Revenue District Officer having jurisdiction over the taxpayer, as
members; and

(d) The power to assign or reassign internal revenue

officers to establishments where articles subject to excise tax are
produced or kept.

Section 8. Duty of the Commissioner to Ensure the Provision and

Distribution of forms, Receipts, Certificates, and Appliances, and the
Acknowledgment of Payment of Taxes.-

(A) Provision and Distribution to Proper Officials. - It shall be the

duty of the Commissioner, among other things, to prescribe,
 provide, and distribute to the proper officials the requisite
licenses internal revenue stamps, labels all other forms,
certificates, bonds, records, invoices, books, receipts, instruments,
appliances and apparatus used in administering the laws falling
within the jurisdiction of the Bureau. For this purpose, internal
revenue stamps, strip stamps and labels shall be caused by the
Commissioner to be printed with adequate security features.

Internal revenue stamps, whether of a bar code or fuson design,

shall be firmly and conspicuously affixed on each pack of cigars
and cigarettes subject to excise tax in the manner and form as
prescribed by the Commissioner, upon approval of the Secretary
of Finance.

(B) Receipts for Payment Made. - It shall be the duty of the

Commissioner or his duly authorized representative or an
authorized agent bank to whom any payment of any tax is made
under the provision of this Code to acknowledge the payment of
such tax, expressing the amount paid and the particular account
for which such payment was made in a form and manner
prescribed therefor by the Commissioner.

Section 9. Internal Revenue Districts. - With the approval of the

Secretary of Finance, the Commissioner shall divide the Philippines
into such number of revenue districts as may form time to time be
required for administrative purposes. Each of these districts shall be
under the supervision of a Revenue District Officer.

Section 10. Revenue Regional Director. - Under rules and regulations,

policies and standards formulated by the Commissioner, with the
approval of the Secretary of Finance, the Revenue Regional director
shall, within the region and district offices under his jurisdiction,
among others:
 (a) Implement laws, policies, plans, programs, rules and
regulations of the department or agencies in the regional area;

(b) Administer and enforce internal revenue laws, and rules and
regulations, including the assessment and collection of all
internal revenue taxes, charges and fees.

(c) Issue Letters of authority for the examination of taxpayers

within the region;

(d) Provide economical, efficient and effective service to the

people in the area;

(e) Coordinate with regional offices or other departments,

bureaus and agencies in the area;

(f) Coordinate with local government units in the area;

(g) Exercise control and supervision over the officers and

employees within the region; and

(h) Perform such other functions as may be provided by law and

as may be delegated by the Commissioner.

Section 11. Duties of Revenue District Officers and Other Internal Revenue
Officers. - It shall be the duty of every Revenue District Officer or
other internal revenue officers and employees to ensure that all laws,
and rules and regulations affecting national internal revenue are
faithfully executed and complied with, and to aid in the prevention,
detection and punishment of frauds of delinquencies in connection
therewith.

It shall be the duty of every Revenue District Officer to examine the

efficiency of all officers and employees of the Bureau of Internal
Revenue under his supervision, and to report in writing to the
Commissioner, through the Regional Director, any neglect of duty,
incompetency, delinquency, or malfeasance in office of any internal
revenue officer of which he may obtain knowledge, with a statement
of all the facts and any evidence sustaining each case.

Section 12. Agents and Deputies for Collection of National Internal

Revenue Taxes. - The following are hereby constituted agents of the
Commissioner:

(a) The Commissioner of Customs and his subordinates with

respect to the collection of national internal revenue taxes on
imported goods;

(b) The head of the appropriate government office and his

subordinates with respect to the collection of energy tax; and

(c) Banks duly accredited by the Commissioner with respect to

receipt of payments internal revenue taxes authorized to be
made thru bank.

Any officer or employee of an authorized agent bank assigned to

receive internal revenue tax payments and transmit tax returns or
documents to the Bureau of Internal Revenue shall be subject to the
same sanctions and penalties prescribed in Sections 269 and 270 of
this Code.

Section 13. Authority of a Revenue Offices. - subject to the rules and

regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned
to perform assessment functions in any district may, pursuant to a
Letter of Authority issued by the Revenue Regional Director, examine
taxpayers within the jurisdiction of the district in order to collect the
correct amount of tax, or to recommend the assessment of any
deficiency tax due in the same manner that the said acts could have
been performed by the Revenue Regional Director himself.

Section 14. Authority of Officers to Administer Oaths and Take Testimony.

- The Commissioner, Deputy Commissioners, Service Chiefs,
Assistant Service Chiefs, Revenue Regional Directors, Assistant
Revenue Regional Directors, Chiefs and Assistant Chiefs of
Divisions, Revenue District Officers, special deputies of the
Commissioner, internal revenue officers and any other employee of
the Bureau thereunto especially deputized by the Commissioner shall
have the power to administer oaths and to take testimony in any
official matter or investigation conducted by them regarding matters
within the jurisdiction of the Bureau.

Section 15. Authority of Internal Revenue Officers to Make Arrests and

Seizures. - The Commissioner, the Deputy Commissioners, the
Revenue Regional Directors, the Revenue District Officers and other
internal revenue officers shall have authority to make arrests and
seizures for the violation of any penal law, rule or regulation
administered by the Bureau of Internal Revenue. Any person so
arrested shall be forthwith brought before a court, there to be dealt
with according to law.

Section 16. Assignment of Internal Revenue Officers Involved in Excise Tax

Functions to Establishments Where Articles subject to Excise Tax are
Produced or Kept. - The Commissioner shall employ, assign, or reassign
internal revenue officers involved in excise tax functions, as often as
the exigencies of the revenue service may require, to establishments or
places where articles subject to excise tax are produced or kept:
Provided, That an internal revenue officer assigned to any such
establishment shall in no case stay in his assignment for more than
two (2) years, subject to rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner.
Section 17. Assignment of Internal Revenue Officers and Other Employees
to Other Duties. - The Commissioner may, subject to the provisions of
Section 16 and the laws on civil service, as well as the rules and
regulations to be prescribed by the Secretary of Finance upon the
recommendation of the Commissioner, assign or reassign internal
revenue officers and employees of the Bureau of Internal Revenue,
without change in their official rank and salary, to other or special
duties connected with the enforcement or administration of the
revenue laws as the exigencies of the service may require: Provided,
That internal revenue officers assigned to perform assessment or
collection function shall not remain in the same assignment for more
than three (3) years; Provided, further, That assignment of internal
revenue officers and employees of the Bureau to special duties shall
not exceed one (1) year.

Section 18. Reports of violation of Laws. - When an internal revenue

officer discovers evidence of a violation of this Code or of any law,
rule or regulations administered by the Bureau of Internal Revenue of
such character as to warrant the institution of criminal proceedings,
he shall immediately report the facts to the Commissioner through
his immediate superior, giving the name and address of the offender
and the names of the witnesses if possible: Provided, That in urgent
cases, the Revenue Regional director or Revenue District Officer, as
the case may be, may send the report to the corresponding
prosecuting officer in the latter case, a copy of his report shall be sent
to the Commissioner.

Section 19. Contents of Commissioner's Annual Report. - The annual

Report of the Commissioner shall contain detailed statements of the
collections of the Bureau with specifications of the sources of revenue
by type of tax, by manner of payment, by revenue region and by
industry group and its disbursements by classes of expenditures.
In case the actual collection exceeds or falls short of target as set in
the annual national budget by fifteen percent (15%) or more, the
Commissioner shall explain the reason for such excess or shortfall.

Section 20. Submission of Report and Pertinent Information by the

Commissioner.

(A) Submission of Pertinent Information to Congress. - The

provision of Section 270 of this Code to the contrary
notwithstanding, the Commissioner shall, upon request of
Congress and in aid of legislation, furnish its appropriate
Committee pertinent information including but not limited
to: industry audits, collection performance data, status reports
in criminal actions initiated against persons and taxpayer's
returns: Provided, however, That any return or return
information which can be associated with, or otherwise
identify, directly or indirectly, a particular taxpayer shall be
furnished the appropriate Committee of Congress only when
sitting in Executive Session Unless such taxpayer otherwise
consents in writing to such disclosure.

(B) Report to Oversight Committee. - The Commissioner shall,

with reference to Section 204 of this Code, submit to the
Oversight Committee referred to in Section 290 hereof,
through the Chairmen of the Committee on Ways and Means
of the Senate and House of Representatives, a report on the
exercise of his powers pursuant to the said section, every six
(6) months of each calendar year.

Section 21. Sources of Revenue. - The following taxes, fees and charges
are deemed to be national internal revenue taxes:

(a) Income tax;

 (b) Estate and donor's taxes;

(c) Value-added tax;

(d) Other percentage taxes;

(e) Excise taxes;

(f) Documentary stamp taxes; and

(g) Such other taxes as are or hereafter may be imposed and

collected by the Bureau of Internal Revenue.

TITLE II: TAX ON INCOME

CHAPTER I - DEFINITIONS

Section 22. Definitions - When used in this Title:

(A) The term 'person' means an individual, a trust, estate or

corporation.

(B) The term 'corporation' shall include partnerships, no matter

how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), association, or insurance
companies, but does not include general professional
partnerships and a joint venture or consortium formed for the
purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations
pursuant to an operating consortium agreement under a
service contract with the Government. 'General professional
partnerships' are partnerships formed by persons for the sole
purpose of exercising their common profession, no part of the
income of which is derived from engaging in any trade or
business.
(C) The term 'domestic,' when applied to a corporation, means
created or organized in the Philippines or under its laws.

(D) The term 'foreign,' when applied to a corporation, means a

corporation which is not domestic.

(E) The term 'nonresident citizen' means:

(1) A citizen of the Philippines who establishes to the

satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside
therein.

(2) A citizen of the Philippines who leaves the Philippines

during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.

(3) A citizen of the Philippines who works and derives

income from abroad and whose employment thereat
requires him to be physically present abroad most of the
time during the taxable year.

(4) A citizen who has been previously considered as

nonresident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in
the Philippines shall likewise be treated as a nonresident
citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from
sources abroad until the date of his arrival in the
Philippines.

(5) The taxpayer shall submit proof to the Commissioner to

show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the
 Philippines as the case may be for purpose of this
Section.

(F) The term 'resident alien' means an individual whose residence

is within the Philippines and who is not a citizen thereof.

(G) The term 'nonresident alien' means an individual whose

residence is not within the Philippines and who is not a
citizen thereof.

(H) The term 'resident foreign corporation' applies to a foreign

corporation engaged in trade or business within the
Philippines.

(I) The term 'nonresident foreign corporation' applies to a foreign

corporation not engaged in trade or business within the
Philippines.

(J) The term 'fiduciary' means a guardian, trustee, executor,

administrator, receiver, conservator or any person acting in
any fiduciary capacity for any person.

(K) The term 'withholding agent' means any person required to

deduct and withhold any tax under the provisions of Section
57.

(L) The term 'shares of stock' shall include shares of stock of a

corporation, warrants and/or options to purchase shares of
stock, as well as units of participation in a partnership (except
general professional partnerships), joint stock companies,
joint accounts, joint ventures taxable as corporations,
associations and recreation or amusement clubs (such as golf,
polo or similar clubs), and mutual fund certificates.
(M) The term 'shareholder' shall include holders of a share/s of
stock, warrant/s and/or option/s to purchase shares of stock
of a corporation, as well as a holder of a unit of participation
in a partnership (except general professional partnerships) in a
joint stock company, a joint account, a taxable joint venture, a
member of an association, recreation or amusement club
(such as golf, polo or similar clubs) and a holder of a mutual
fund certificate, a member in an association, joint-stock
company, or insurance company.

(N) The term 'taxpayer' means any person subject to tax imposed
by this Title.

(O) The terms 'including' and 'includes', when used in a

definition contained in this Title, shall not be deemed to
exclude other things otherwise within the meaning of the
term defined.

(P) The term 'taxable year' means the calendar year, or the fiscal
year ending during such calendar year, upon the basis of
which the net income is computed under this Title. 'Taxable
year' includes, in the case of a return made for a fractional
part of a year under the provisions of this Title or under rules
and regulations prescribed by the Secretary of Finance, upon
recommendation of the commissioner, the period for which
such return is made.

(Q) The term 'fiscal year' means an accounting period of twelve

(12) months ending on the last day of any month other than
December.

(R) The terms 'paid or incurred' and 'paid or accrued' shall be

construed according to the method of accounting upon the
basis of which the net income is computed under this Title.
(S) The term 'trade or business' includes the performance of the
functions of a public office.

(T) The term 'securities' means shares of stock in a corporation

and rights to subscribe for or to receive such shares. The term
includes bonds, debentures, notes or certificates, or other
evidence or indebtedness, issued by any corporation,
including those issued by a government or political
subdivision thereof, with interest coupons or in registered
form.

(U) The term 'dealer in securities' means a merchant of stocks or

securities, whether an individual, partnership or corporation,
with an established place of business, regularly engaged in the
purchase of securities and the resale thereof to customers; that
is, one who, as a merchant, buys securities and re-sells them to
customers with a view to the gains and profits that may be
derived therefrom.

(V) The term 'bank' means every banking institution, as defined

in Section 2 of Republic Act No. 337, as amended, otherwise
known as the General banking Act. A bank may either be a
commercial bank, a thrift bank, a development bank, a rural
bank or specialized government bank.

(W) The term 'non-bank financial intermediary' means a financial

intermediary, as defined in Section 2(D)(C) of Republic Act
No. 337, as amended, otherwise known as the General
Banking Act, authorized by the Bangko Sentral ng Pilipinas
(BSP) to perform quasi-banking activities.

(X) The term 'quasi-banking activities' means borrowing funds

from twenty (20) or more personal or corporate lenders at any
one time, through the issuance, endorsement, or acceptance
of debt instruments of any kind other than deposits for the
 borrower's own account, or through the issuance of
certificates of assignment or similar instruments, with
recourse, or of repurchase agreements for purposes of
relending or purchasing receivables and other similar
obligations: Provided, however, That commercial, industrial
and other non-financial companies, which borrow funds
through any of these means for the limited purpose of
financing their own needs or the needs of their agents or
dealers, shall not be considered as performing quasi-banking
functions.

(Y) The term 'deposit substitutes' shall mean an alternative from

of obtaining funds from the public (the term 'public' means
borrowing from twenty (20) or more individual or corporate
lenders at any one time) other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for
the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing
their own needs or the needs of their agent or dealer. These
instruments may include, but need not be limited to bankers'
acceptances, promissory notes, repurchase agreements,
including reverse repurchase agreements entered into by and
between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or
participation and similar instruments with recourse: Provided,
however, That debt instruments issued for interbank call
loans with maturity of not more than five (5) days to cover
deficiency in reserves against deposit liabilities, including
those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments.

(Z) The term 'ordinary income' includes any gain from the sale or
exchange of property which is not a capital asset or property
described in Section 39(A)(1). Any gain from the sale or
exchange of property which is treated or considered, under
 other provisions of this Title, as 'ordinary income' shall be
treated as gain from the sale or exchange of property which is
not a capital asset as defined in Section 39(A)(1). The term
'ordinary loss' includes any loss from the sale or exchange of
property which is not a capital asset. Any loss from the sale or
exchange of property which is treated or considered, under
other provisions of this Title, as 'ordinary loss' shall be treated
as loss from the sale or exchange of property which is not a
capital asset.

(AA) The term 'rank and file employees' shall mean all employees
who are holding neither managerial nor supervisory position
as defined under existing provisions of the Labor Code of the
Philippines, as amended.

(BB) The term 'mutual fund company' shall mean an open-end

and close-end investment company as defined under the
Investment Company Act.

(CC) The term 'trade, business or profession' shall not include

performance of services by the taxpayer as an employee.

(DD) The term 'regional or area headquarters' shall mean a

branch established in the Philippines by multinational
companies and which headquarters do not earn or derive
income from the Philippines and which act as supervisory,
communications and coordinating center for their affiliates,
subsidiaries, or branches in the Asia-Pacific Region and other
foreign markets.

(EE) The term 'regional operating headquarters' shall mean a

branch established in the Philippines by multinational
companies which are engaged in any of the following services:
general administration and planning; business planning and
coordination; sourcing and procurement of raw materials and
 components; corporate finance advisory services; marketing
control and sales promotion; training and personnel
management; logistic services; research and development
services and product development; technical support and
maintenance; data processing and communications; and
business development.

(FF) The term 'long-term deposit or investment certificates' shall

refer to certificate of time deposit or investment in the form
of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other
investments with a maturity period of not less than five (5)
years, the form of which shall be prescribed by the Bangko
Sentral ng Pilipinas (BSP) and issued by banks only (not by
nonbank financial intermediaries and finance companies) to
individuals in denominations of Ten thousand pesos
(P10,000) and other denominations as may be prescribed by
the BSP.

CHAPTER II - GENERAL PRINCIPLES

Section 23. General Principles of Income Taxation in the Philippines. -

Except when otherwise provided in this Code:

(A) A citizen of the Philippines residing therein is taxable on all

income derived from sources within and without the
Philippines;

(B) A nonresident citizen is taxable only on income derived from

sources within the Philippines;

(C) An individual citizen of the Philippines who is working and

deriving income from abroad as an overseas contract worker is
taxable only on income derived from sources within the
 Philippines: Provided, That a seaman who is a citizen of the
Philippines and who receives compensation for services
rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as
an overseas contract worker;

(D) An alien individual, whether a resident or not of the

Philippines, is taxable only on income derived from sources
within the Philippines;

(E) A domestic corporation is taxable on all income derived from

sources within and without the Philippines; and

(F) A foreign corporation, whether engaged or not in trade or

business in the Philippines, is taxable only on income derived
from sources within the Philippines.

CHAPTER III - TAX ON INDIVIDUALS

Section 24. Income Tax Rates.

(A) Rates of Income Tax on Individual Citizen and Individual

Resident Alien of the Philippines.

(1) An income tax is hereby imposed:

(a) On the taxable income defined in Section 31 of

this Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived
for each taxable year from all sources within and
without the Philippines be every individual citizen of
the Philippines residing therein;
(b) On the taxable income defined in Section 31 of
this Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived
for each taxable year from all sources within the
Philippines by an individual citizen of the Philippines
who is residing outside of the Philippines including
overseas contract workers referred to in Subsection(C)
of Section 23 hereof; and

(c) On the taxable income defined in Section 31 of

this Code, other than income subject to tax under
Subsections (b), (C) and (D) of this Section, derived
for each taxable year from all sources within the
Philippines by an individual alien who is a resident of
the Philippines.

The tax shall be computed in accordance with and at

the rates established in the following schedule:

Not over P10,000 5%

Over P10,000 but not over P500+10% of the
P30,000 excess over P10,000
Over P30,000 but not over P2,500+15% of the
P70,000 excess over P30,000
Over P70,000 but not over P8,500+20% of the
P140,000 excess over P70,000
Over P140,000 but not over P22,500+25% of the
P250,000 excess over P140,000
Over P250,000 but not over P50,000+30% of the
P500,000 excess over P250,000
Over P500,000 P125,000+34% of the
excess over P500,000
 in 1998.

Provided, That effective January 1, 1999, the top

marginal rate shall be thirty-three percent (33%) and
effective January 1, 2000, the said rate shall be thirty-
two percent (32%).

For married individuals, the husband and wife, subject

to the provision of Section 51 (D) hereof, shall
compute separately their individual income tax based
on their respective total taxable income: Provided,
That if any income cannot be definitely attributed to
or identified as income exclusively earned or realized
by either of the spouses, the same shall be divided
equally between the spouses for the purpose of
determining their respective taxable income.

(B) Rate of Tax on Certain Passive Income.

(1) Interests, Royalties, Prizes, and Other Winnings. - A final

tax at the rate of twenty percent (20%) is hereby imposed
upon the amount of interest from any currency bank
deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar
arrangements; royalties, except on books, as well as other
literary works and musical compositions, which shall be
imposed a final tax of ten percent (10%); prizes (except
prizes amounting to Ten thousand pesos (P10,000) or less
which shall be subject to tax under Subsection (A) of
Section 24; and other winnings (except Philippine Charity
Sweepstakes and Lotto winnings), derived from sources
within the Philippines: Provided, however, That interest
income received by an individual taxpayer (except a
nonresident individual) from a depository bank under the
 expanded foreign currency deposit system shall be subject
to a final income tax at the rate of seven and one-half
percent (7 1/2%) of such interest income: Provided,
further, That interest income from long-term deposit or
investment in the form of savings, common or individual
trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates
in such form prescribed by the Bangko Sentral ng
Pilipinas (BSP) shall be exempt from the tax imposed
under this Subsection: Provided, finally, That should the
holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the
long-term deposit or investment certificate based on the
remaining maturity thereof:

Four (4) years to less than five (5) years - 5%;

Three (3) years to less than (4) years - 12%; and

Less than three (3) years - 20%

(2) Cash and/or Property Dividends - A final tax at the

following rates shall be imposed upon the cash and/or
property dividends actually or constructively received by
an individual from a domestic corporation or from a joint
stock company, insurance or mutual fund companies and
regional operating headquarters of multinational
companies, or on the share of an individual in the
distributable net income after tax of a partnership (except
a general professional partnership) of which he is a
partner, or on the share of an individual in the net
income after tax of an association, a joint account, or a
 joint venture or consortium taxable as a corporation of
which he is a member or co-venturer:

Six percent (6%) beginning January 1, 1998;

Eight percent (8%) beginning January 1, 1999;

Ten percent (10% beginning January 1, 2000.

Provided, however, That the tax on dividends shall apply

only on income earned on or after January 1, 1998.
Income forming part of retained earnings as of December
31, 1997 shall not, even if declared or distributed on or
after January 1, 1998, be subject to this tax.

(C) Capital Gains from Sale of Shares of Stock not Traded in the
Stock Exchange. - The provisions of Section 39(B)
notwithstanding, a final tax at the rates prescribed below is
hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other
disposition of shares of stock in a domestic corporation,
except shares sold, or disposed of through the stock exchange.

Not over P100,000…………………………… 5%

On any amount in excess of P100,000…… 10%

(D) Capital Gains from Sale of Real Property. -

(1) In General. - The provisions of Section 39(B)

notwithstanding, a final tax of six percent (6%) based on
the gross selling price or current fair market value as
determined in accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon capital gains
presumed to have been realized from the sale, exchange,
 or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de
retro sales and other forms of conditional sales, by
individuals, including estates and trusts: Provided, That
the tax liability, if any, on gains from sales or other
dispositions of real property to the government or any of
its political subdivisions or agencies or to government-
owned or controlled corporations shall be determined
either under Section 24 (A) or under this Subsection, at
the option of the taxpayer.

(2) Exception. - The provisions of paragraph (1) of this

Subsection to the contrary notwithstanding, capital gains
presumed to have been realized from the sale or
disposition of their principal residence by natural persons,
the proceeds of which is fully utilized in acquiring or
constructing a new principal residence within eighteen
(18) calendar months from the date of sale or disposition,
shall be exempt from the capital gains tax imposed under
this Subsection: Provided, That the historical cost or
adjusted basis of the real property sold or disposed shall
be carried over to the new principal residence built or
acquired: Provided, further, That the Commissioner shall
have been duly notified by the taxpayer within thirty (30)
days from the date of sale or disposition through a
prescribed return of his intention to avail of the tax
exemption herein mentioned: Provided, still further, That
the said tax exemption can only be availed of once every
ten (10) years: Provided, finally, that if there is no full
utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from
the sale or disposition shall be subject to capital gains tax.
For this purpose, the gross selling price or fair market
value at the time of sale, whichever is higher, shall be
 multiplied by a fraction which the unutilized amount
bears to the gross selling price in order to determine the
taxable portion and the tax prescribed under paragraph (1)
of this Subsection shall be imposed thereon.

Section 25. Tax on Nonresident Alien Individual. -

(A) Nonresident Alien Engaged in trade or Business Within the

Philippines. -

(1) In General. - A nonresident alien individual engaged in trade

or business in the Philippines shall be subject to an income tax
in the same manner as an individual citizen and a resident
alien individual, on taxable income received from all sources
within the Philippines. A nonresident alien individual who
shall come to the Philippines and stay therein for an aggregate
period of more than one hundred eighty (180) days during any
calendar year shall be deemed a 'nonresident alien doing
business in the Philippines'. Section 22 (G) of this Code
notwithstanding.

(2) Cash and/or Property Dividends from a Domestic Corporation or

Joint Stock Company, or Insurance or Mutual Fund Company or
Regional Operating Headquarter or Multinational Company, or
Share in the Distributable Net Income of a Partnership (Except a
General Professional Partnership), Joint Account, Joint Venture
Taxable as a Corporation or Association., Interests, Royalties, Prizes,
and Other Winnings. - Cash and/or property dividends from a
domestic corporation, or from a joint stock company, or from
an insurance or mutual fund company or from a regional
operating headquarter of multinational company, or the share
of a nonresident alien individual in the distributable net
income after tax of a partnership (except a general professional
partnership) of which he is a partner, or the share of a
nonresident alien individual in the net income after tax of an
association, a joint account, or a joint venture taxable as a
corporation of which he is a member or a co-venturer;
interests; royalties (in any form); and prizes (except prizes
amounting to Ten thousand pesos (P10,000) or less which
shall be subject to tax under Subsection (B)(1) of Section 24)
and other winnings (except Philippine Charity Sweepstakes
and Lotto winnings); shall be subject to an income tax of
twenty percent (20%) on the total amount thereof: Provided,
however, that royalties on books as well as other literary works,
and royalties on musical compositions shall be subject to a
final tax of ten percent (10%) on the total amount thereof:
Provided, further, That cinematographic films and similar
works shall be subject to the tax provided under Section 28 of
this Code: Provided, furthermore, That interest income from
long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes,
investment management accounts and other investments
evidenced by certificates in such form prescribed by the
Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax
imposed under this Subsection: Provided, finally, that should
the holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the long-
term deposit or investment certificate based on the remaining
maturity thereof:

Four (4) years to less than five (5) 5%;

years -
Three (3) years to less than four (4) 12%;
years - and
Less than three (3) years - 20%.
 (3) Capital Gains. - Capital gains realized from sale, barter or
exchange of shares of stock in domestic corporations not
traded through the local stock exchange, and real properties
shall be subject to the tax prescribed under Subsections (C)
and (D) of Section 24.

(B) Nonresident Alien Individual Not Engaged in Trade or

Business Within the Philippines. - There shall be levied, collected
and paid for each taxable year upon the entire income received
from all sources within the Philippines by every nonresident alien
individual not engaged in trade or business within the Philippines
as interest, cash and/or property dividends, rents, salaries, wages,
premiums, annuities, compensation, remuneration, emoluments,
or other fixed or determinable annual or periodic or casual gains,
profits, and income, and capital gains, a tax equal to twenty-five
percent (25%) of such income. Capital gains realized by a
nonresident alien individual not engaged in trade or business in
the Philippines from the sale of shares of stock in any domestic
corporation and real property shall be subject to the income tax
prescribed under Subsections (C) and (D) of Section 24.

(C) Alien Individual Employed by Regional or Area Headquarters

and Regional Operating Headquarters of Multinational
Companies. - There shall be levied, collected and paid for each
taxable year upon the gross income received by every alien
individual employed by regional or area headquarters and
regional operating headquarters established in the Philippines by
multinational companies as salaries, wages, annuities,
compensation, remuneration and other emoluments, such as
honoraria and allowances, from such regional or area
headquarters and regional operating headquarters, a tax equal to
fifteen percent (15%) of such gross income: Provided, however,
That the same tax treatment shall apply to Filipinos employed and
occupying the same position as those of aliens employed by these
multinational companies. For purposes of this Chapter, the term
 'multinational company' means a foreign firm or entity engaged in
international trade with affiliates or subsidiaries or branch offices
in the Asia-Pacific Region and other foreign markets.

(D) Alien Individual Employed by Offshore Banking Units. -

There shall be levied, collected and paid for each taxable year
upon the gross income received by every alien individual
employed by offshore banking units established in the Philippines
as salaries, wages, annuities, compensation, remuneration and
other emoluments, such as honoraria and allowances, from such
off-shore banking units, a tax equal to fifteen percent (15%) of
such gross income: Provided, however, That the same tax
treatment shall apply to Filipinos employed and occupying the
same positions as those of aliens employed by these offshore
banking units.

(E) Alien Individual Employed by Petroleum Service Contractor

and Subcontractor. - An Alien individual who is a permanent
resident of a foreign country but who is employed and assigned in
the Philippines by a foreign service contractor or by a foreign
service subcontractor engaged in petroleum operations in the
Philippines shall be liable to a tax of fifteen percent (15%) of the
salaries, wages, annuities, compensation, remuneration and other
emoluments, such as honoraria and allowances, received from
such contractor or subcontractor: Provided, however, That the
same tax treatment shall apply to a Filipino employed and
occupying the same position as an alien employed by petroleum
service contractor and subcontractor.

Any income earned from all other sources within the Philippines by
the alien employees referred to under Subsections (C), (D) and (E)
hereof shall be subject to the pertinent income tax, as the case may
be, imposed under this Code.
Section 26. Tax Liability of Members of General Professional Partnerships. -
A general professional partnership as such shall not be subject to the
income tax imposed under this Chapter. Persons engaging in business
as partners in a general professional partnership shall be liable for
income tax only in their separate and individual capacities.

For purposes of computing the distributive share of the partners, the

net income of the partnership shall be computed in the same manner
as a corporation.

Each partner shall report as gross income his distributive share,

actually or constructively received, in the net income of the
partnership.

CHAPTER IV - TAX ON CORPORATIONS

Section 27. Rates of Income tax on Domestic Corporations. -

(A) In General. - Except as otherwise provided in this Code, an

income tax of thirty-five percent (35%) is hereby imposed upon
the taxable income derived during each taxable year from all
sources within and without the Philippines by every corporation,
as defined in Section 22(B) of this Code and taxable under this
Title as a corporation, organized in, or existing under the laws of
the Philippines: Provided, That effective January 1, 1998, the rate
of income tax shall be thirty-four percent (34%); effective January
1, 1999, the rate shall be thirty-three percent (33%); and effective
January 1, 2000 and thereafter, the rate shall be thirty-two percent
(32%).

In the case of corporations adopting the fiscal-year accounting

period, the taxable income shall be computed without regard to
the specific date when specific sales, purchases and other
transactions occur. Their income and expenses for the fiscal year
shall be deemed to have been earned and spent equally for each
month of the period.

The reduced corporate income tax rates shall be applied on

the amount computed by multiplying the number of months
covered by the new rates within the fiscal year by the taxable
income of the corporation for the period, divided by twelve.

Provided, further, That the President, upon the

recommendation of the Secretary of Finance, may effective
January 1, 2000, allow corporations the option to be taxed at
fifteen percent (15%) of gross income as defined herein, after the
following conditions have been satisfied:

(1) A tax effort ratio of twenty percent (20%) of Gross

National Product (GNP);

(2) A ratio of forty percent (40%) of income tax collection to

total tax revenues;

(3) A VAT tax effort of four percent (4%) of GNP; and

(4) A 0.9 percent (0.9%) ratio of the Consolidated Public

Sector Financial Position (CPSFP) to GNP.

The option to be taxed based on gross income shall be

available only to firms whose ratio of cost of sales to gross sales or
receipts from all sources does not exceed fifty-five percent (55%).

The election of the gross income tax option by the

corporation shall be irrevocable for three (3) consecutive taxable
years during which the corporation is qualified under the scheme.

For purposes of this Section, the term 'gross income' derived

from business shall be equivalent to gross sales less sales returns,
discounts and allowances and cost of goods sold. "Cost of goods
sold' shall include all business expenses directly incurred to
produce the merchandise to bring them to their present location
and use.

For a trading or merchandising concern, 'cost of goods' sold

shall include the invoice cost of the goods sold, plus import
duties, freight in transporting the goods to the place where the
goods are actually sold, including insurance while the goods are in
transit.

For a manufacturing concern, 'cost of goods manufactured

and sold' shall include all costs of production of finished goods,
such as raw materials used, direct labor and manufacturing
overhead, freight cost, insurance premiums and other costs
incurred to bring the raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service, 'gross

income' means gross receipts less sales returns, allowances and
discounts.

(B) Proprietary Educational Institutions and Hospitals. -

Proprietary educational institutions and hospitals which are
nonprofit shall pay a tax of ten percent (10%) on their taxable
income except those covered by Subsection (D) hereof: Provided,
that if the gross income from unrelated trade, business or other
activity exceeds fifty percent (50%) of the total gross income
derived by such educational institutions or hospitals from all
sources, the tax prescribed in Subsection (A) hereof shall be
imposed on the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other activity'
means any trade, business or other activity, the conduct of which
is not substantially related to the exercise or performance by such
educational institution or hospital of its primary purpose or
function. A 'Proprietary educational institution' is any private
school maintained and administered by private individuals or
groups with an issued permit to operate from the Department of
Education, Culture and Sports (DECS), or the Commission on
Higher Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations.

(C) Government-owned or Controlled-Corporations, Agencies

or Instrumentalities. - The provisions of existing special or general
laws to the contrary notwithstanding, all corporations, agencies,
or instrumentalities owned or controlled by the Government,
except the Government Service Insurance System (GSIS), the
Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Amusement and Gaming
Corporation (PAGCOR), shall pay such rate of tax upon their
taxable income as are imposed by this Section upon corporations
or associations engaged in s similar business, industry, or activity.

(D) Rates of Tax on Certain Passive Incomes. -

(1) Interest from Deposits and Yield or any other

Monetary Benefit from Deposit Substitutes and from Trust
Funds and Similar Arrangements, and Royalties. - A final tax
at the rate of twenty percent (20%) is hereby imposed upon
the amount of interest on currency bank deposit and yield or
any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements received by domestic
corporations, and royalties, derived from sources within the
Philippines: Provided, however, That interest income derived
by a domestic corporation from a depository bank under the
expanded foreign currency deposit system shall be subject to a
final income tax at the rate of seven and one-half percent (7
1/2%) of such interest income.
 (2) Capital Gains from the Sale of Shares of Stock Not
Traded in the Stock Exchange. - A final tax at the rates
prescribed below shall be imposed on net capital gains realized
during the taxable year from the sale, exchange or other
disposition of shares of stock in a domestic corporation except
shares sold or disposed of through the stock exchange:

Not over P100,000………………… 5%

Amount in excess of P100,000…… 10%

(3) Tax on Income Derived under the Expanded Foreign

Currency Deposit System. - Income derived by a depository
bank under the expanded foreign currency deposit system
from foreign currency transactions with local commercial
banks, including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to
transact business with foreign currency depository system
units and other depository banks under the expanded foreign
currency deposit system, including interest income from
foreign currency loans granted by such depository banks
under said expanded foreign currency deposit system to
residents, shall be subject to a final income tax at the rate of
ten percent (10%) of such income.

Any income of nonresidents, whether individuals or

corporations, from transactions with depository banks under
the expanded system shall be exempt from income tax.

(4) Intercorporate Dividends. - Dividends received by a

domestic corporation from another domestic corporation
shall not be subject to tax.

(5) Capital Gains Realized from the Sale, Exchange or

Disposition of Lands and/or Buildings. - A final tax of six
 percent (6%) is hereby imposed on the gain presumed to have
been realized on the sale, exchange or disposition of lands
and/or buildings which are not actually used in the business
of a corporation and are treated as capital assets, based on the
gross selling price of fair market value as determined in
accordance with Section 6(E) of this Code, whichever is
higher, of such lands and/or buildings.

(E) Minimum Corporate Income Tax on Domestic Corporations.

-

(1) Imposition of Tax. - A minimum corporate income tax

of two percent (2%0 of the gross income as of the end of the
taxable year, as defined herein, is hereby imposed on a
corporation taxable under this Title, beginning on the fourth
taxable year immediately following the year in which such
corporation commenced its business operations, when the
minimum income tax is greater than the tax computed under
Subsection (A) of this Section for the taxable year.

(2) Carry Froward of Excess Minimum Tax. - Any excess of

the minimum corporate income tax over the normal income
tax as computed under Subsection (A) of this Section shall be
carried forward and credited against the normal income tax
for the three (3) immediately succeeding taxable years.

(3) Relief from the Minimum Corporate Income Tax

Under Certain Conditions. - The Secretary of Finance is
hereby authorized to suspend the imposition of the minimum
corporate income tax on any corporation which suffers losses
on account of prolonged labor dispute, or because of force
majeure, or because of legitimate business reverses.

The Secretary of Finance is hereby authorized to

promulgate, upon recommendation of the Commissioner, the
 necessary rules and regulation that shall define the terms and
conditions under which he may suspend the imposition of the
minimum corporate income tax in a meritorious case.

(4) Gross Income Defined. - For purposes of applying the

minimum corporate income tax provided under Subsection
(E) hereof, the term 'gross income' shall mean gross sales less
sales returns, discounts and allowances and cost of goods sold.
"Cost of goods sold' shall include all business expenses directly
incurred to produce the merchandise to bring them to their
present location and use.

For a trading or merchandising concern, 'cost of goods sold' shall

include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are
actually sold including insurance while the goods are in transit.

For a manufacturing concern, cost of 'goods manufactured and

sold' shall include all costs of production of finished goods, such
as raw materials used, direct labor and manufacturing overhead,
freight cost, insurance premiums and other costs incurred to
bring the raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service, 'gross

income' means gross receipts less sales returns, allowances,
discounts and cost of services. 'Cost of services' shall mean all
direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (A)
salaries and employee benefits of personnel, consultants and
specialists directly rendering the service and (B) cost of facilities
directly utilized in providing the service such as depreciation or
rental of equipment used and cost of supplies: Provided, however,
That in the case of banks, 'cost of services' shall include interest
expense.
Section 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise

provided in this Code, a corporation
organized, authorized, or existing under the
laws of any foreign country, engaged in trade
or business within the Philippines, shall be
subject to an income tax equivalent to thirty-
five percent (35%) of the taxable income
derived in the preceding taxable year from all
sources within the Philippines: provided, That
effective January 1, 1998, the rate of income
tax shall be thirty-four percent (34%); effective
January 1, 1999, the rate shall be thirty-three
percent (33%), and effective January 1, 2000
and thereafter, the rate shall be thirty-two
percent (32%).

In the case of corporations adopting the

fiscal-year accounting period, the taxable
income shall be computed without regard to
the specific date when sales, purchases and
other transactions occur. Their income and
expenses for the fiscal year shall be deemed to
have been earned and spent equally for each
month of the period.

The reduced corporate income tax rates

shall be applied on the amount computed by
multiplying the number of months covered by
the new rates within the fiscal year by the
taxable income of the corporation for the
period, divided by twelve.
 Provided, however, That a resident foreign
corporation shall be granted the option to be
taxed at fifteen percent (15%) on gross income
under the same conditions, as provided in
Section 27 (A).

(2) Minimum Corporate Income Tax on

Resident Foreign Corporations. - A minimum
corporate income tax of two percent (2%) of
gross income, as prescribed under Section 27
(E) of this Code, shall be imposed, under the
same conditions, on a resident foreign
corporation taxable under paragraph (1) of this
Subsection.

(3) International Carrier. - An

international carrier doing business in the
Philippines shall pay a tax of two and one-half
percent (2 1/2%) on its 'Gross Philippine
Billings' as defined hereunder:

(a) International Air Carrier. -

'Gross Philippine Billings' refers to the
amount of gross revenue derived 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: Provided, That tickets
revalidated, exchanged and/or
indorsed to another international
airline form part of the Gross
Philippine Billings if the passenger
 boards a plane in a port or point in the
Philippines: Provided, further, That for
a flight which originates from the
Philippines, but transshipment of
passenger takes place at any port
outside the Philippines on another
airline, only the aliquot portion of the
cost of the ticket corresponding to the
leg flown from the Philippines to the
point of transshipment shall form part
of Gross Philippine Billings.

(b) International Shipping. - 'Gross

Philippine Billings' means gross
revenue whether for passenger, cargo
or mail originating from the
Philippines up to final destination,
regardless of the place of sale or
payments of the passage or freight
documents.

(4) Offshore Banking Units. - The

provisions of any law to the contrary
notwithstanding, income derived by offshore
banking units authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business
with offshore banking units, including any
interest income derived from foreign currency
loans granted to residents, shall be subject to a
final income tax at the rate of ten percent
(10%) of such income.

Any income of nonresidents, whether

individuals or corporations, from transactions
with said offshore banking units shall be
exempt from income tax.

(5) Tax on Branch Profits Remittances. -

Any profit remitted by a branch to its head
office shall be subject to a tax of fifteen (15%)
which shall be based on the total profits
applied or earmarked for remittance without
any deduction for the tax component thereof
(except those activities which are registered
with the Philippine Economic Zone
Authority). The tax shall be collected and paid
in the same manner as provided in Sections 57
and 58 of this Code: provided, that interests,
dividends, rents, royalties, including
remuneration for technical services, salaries,
wages premiums, annuities, emoluments or
other fixed or determinable annual, periodic
or casual gains, profits, income and capital
gains received by a foreign corporation during
each taxable year from all sources within the
Philippines shall not be treated as branch
profits unless the same are effectively
connected with the conduct of its trade or
business in the Philippines.

(6) Regional or Area Headquarters and

Regional Operating Headquarters of
Multinational Companies. -

(a) Regional or area headquarters

as defined in Section 22(DD) shall not
be subject to income tax.
 (b) Regional operating
headquarters as defined in Section
22(EE) shall pay a tax of ten percent
(10%) of their taxable income.

(7) Tax on Certain Incomes Received by a

Resident Foreign Corporation. -

(a) Interest from Deposits and

Yield or any other Monetary Benefit
from Deposit Substitutes, Trust Funds
and Similar Arrangements and
Royalties. - Interest from any currency
bank deposit and yield or any other
monetary benefit from deposit
substitutes and from trust funds and
similar arrangements and royalties
derived from sources within the
Philippines shall be subject to a final
income tax at the rate of twenty
percent (20%) of such interest:
Provided, however, That interest
income derived by a resident foreign
corporation from a depository bank
under the expanded foreign currency
deposit system shall be subject to a
final income tax at the rate of seven
and one-half percent (7 1/2%) of such
interest income.

(b) Income Derived under the

Expanded Foreign Currency Deposit
System. - Income derived by a
depository bank under the expanded
foreign currency deposit system from
foreign currency transactions with local
commercial banks including branches
of foreign banks that may be
authorized by the Bangko Sentral ng
Pilipinas (BSP) to transact business
with foreign currency deposit system
units, including interest income from
foreign currency loans granted by such
depository banks under said expanded
foreign currency deposit system to
residents, shall be subject to a final
income tax at the rate of ten percent
(10%) of such income.

Any income of nonresidents,

whether individuals or corporations,
from transactions with depository
banks under the expanded system shall
be exempt from income tax.

(c) Capital Gains from Sale of

Shares of Stock Not Traded in the
Stock Exchange. - A final tax at the
rates prescribed below is hereby
imposed upon the net capital gains
realized during the taxable year from
the sale, barter, exchange or other
disposition of shares of stock in a
domestic corporation except shares
sold or disposed of through the stock
exchange:

Not over 5%
P100,000…………………
 On any amount in excess of 10%
P100,000……

(d) Intercorporate Dividends. -

Dividends received by a resident
foreign corporation from a domestic
corporation liable to tax under this
Code shall not be subject to tax under
this Title.

(B) Tax on Nonresident Foreign Corporation. -

(1) In General. - Except as otherwise

provided in this Code, a foreign corporation
not engaged in trade or business in the
Philippines shall pay a tax equal to thirty-five
percent (35%) of the gross income received
during each taxable year from all sources
within the Philippines, such as interests,
dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities,
emoluments or other fixed or determinable
annual, periodic or casual gains, profits and
income, and capital gains, except capital gains
subject to tax under subparagraphs (C) and (d):
Provided, That effective 1, 1998, the rate of
income tax shall be thirty-four percent (34%);
effective January 1, 1999, the rate shall be
thirty-three percent (33%); and, effective
January 1, 2000 and thereafter, the rate shall
be thirty-two percent (32%).

(2) Nonresident Cinematographic Film Owner,

Lessor or Distributor. - A cinematographic film
owner, lessor, or distributor shall pay a tax of
twenty-five percent (25%) of its gross income
from all sources within the Philippines.

(3) Nonresident Owner or Lessor of Vessels

Chartered by Philippine Nationals. - A
nonresident owner or lessor of vessels shall be
subject to a tax of four and one-half percent (4
1/2%) of gross rentals, lease or charter fees
from leases or charters to Filipino citizens or
corporations, as approved by the Maritime
Industry Authority.

(4) Nonresident Owner or Lessor of Aircraft,

Machineries and Other Equipment. - Rentals,
charters and other fees derived by a
nonresident lessor of aircraft, machineries and
other equipment shall be subject to a tax of
seven and one-half percent (7 1/2%) of gross
rentals or fees.

(5) Tax on Certain Incomes Received by a

Nonresident Foreign Corporation. -

(a) Interest on Foreign Loans. - A

final withholding tax at the rate of
twenty percent (20%) is hereby
imposed on the amount of interest on
foreign loans contracted on or after
August 1, 1986;

(b) Intercorporate Dividends. - A final

withholding tax at the rate of fifteen
percent (15%) is hereby imposed on
the amount of cash and/or property
dividends received from a domestic
corporation, which shall be collected
and paid as provided in Section 57 (A)
of this Code, subject to the condition
that the country in which the
nonresident foreign corporation is
domiciled, shall allow a credit against
the tax due from the nonresident
foreign corporation taxes deemed to
have been paid in the Philippines
equivalent to twenty percent (20%) for
1997, nineteen percent (19%) for
1998, eighteen percent (18%) for 1999,
and seventeen percent (17%)
thereafter, which represents the
difference between the regular income
tax of thirty-five percent (35%) in 1997,
thirty-four percent (34%) in 1998, and
thirty-three percent (33%) in 1999, and
thirty-two percent (32%) thereafter on
corporations and the fifteen percent
(15%) tax on dividends as provided in
this subparagraph;

(c) Capital Gains from Sale of Shares

of Stock not Traded in the Stock Exchange.
- A final tax at the rates prescribed
below is hereby imposed upon the net
capital gains realized during the taxable
year from the sale, barter, exchange or
other disposition of shares of stock in a
domestic corporation, except shares
 sold, or disposed of through the stock
exchange:

Not over P100,000…………………

On any amount in excess
P100,000……

Section 29. Imposition of Improperly Accumulated Earnings Tax. -

(A) In General. - In addition to other taxes

imposed by this Title, there is hereby imposed for each
taxable year on the improperly accumulated taxable
income of each corporation described in Subsection B
hereof, an improperly accumulated earnings tax equal
to ten percent (10%) of the improperly accumulated
taxable income.

(B) Tax on Corporations Subject to Improperly

Accumulated Earnings Tax. -

(1) In General. - The improperly

accumulated earnings tax imposed in the
preceding Section shall apply to every
corporation formed or availed for the purpose
of avoiding the income tax with respect to its
shareholders or the shareholders of any other
corporation, by permitting earnings and profits
to accumulate instead of being divided or
distributed.

(2) Exceptions. - The improperly

accumulated earnings tax as provided for
under this Section shall not apply to:
 (a) Publicly-held corporations;

(b) Banks and other nonbank

financial intermediaries; and

(c) Insurance companies.

(C) Evidence of Purpose to Avoid Income Tax. -

(1) Prima Facie Evidence. - the fact that any

corporation is a mere holding company or
investment company shall be prima facie
evidence of a purpose to avoid the tax upon its
shareholders or members.

(2) Evidence Determinative of Purpose. - The

fact that the earnings or profits of a
corporation are permitted to accumulate
beyond the reasonable needs of the business
shall be determinative of the purpose to avoid
the tax upon its shareholders or members
unless the corporation, by the clear
preponderance of evidence, shall prove to the
contrary.

(D) Improperly Accumulated Taxable Income. - For

purposes of this Section, the term 'improperly
accumulated taxable income' means taxable income'
adjusted by:

(1) Income exempt from tax;

(2) Income excluded from gross income;

(3) Income subject to final tax; and

 (4) The amount of net operating loss
carry-over deducted;

And reduced by the sum of:

(1) Dividends actually or constructively

paid; and

(2) Income tax paid for the taxable year.

Provided, however, That for corporations

using the calendar year basis, the accumulated
earnings under tax shall not apply on
improperly accumulated income as of
December 31, 1997. In the case of
corporations adopting the fiscal year
accounting period, the improperly
accumulated income not subject to this tax,
shall be reckoned, as of the end of the month
comprising the twelve (12)-month period of
fiscal year 1997-1998.

(E) Reasonable Needs of the Business. - For

purposes of this Section, the term 'reasonable needs of
the business' includes the reasonably anticipated needs
of the business.

Section 30. Exemptions from Tax on Corporations. - The following

organizations shall not be taxed under this Title in respect to income
received by them as such:

(A) Labor, agricultural or horticultural

organization not organized principally for profit;
 (B) Mutual savings bank not having a capital stock
represented by shares, and cooperative bank without
capital stock organized and operated for mutual
purposes and without profit;

(C) A beneficiary society, order or association,

operating fort he exclusive benefit of the members
such as a fraternal organization operating under the
lodge system, or mutual aid association or a nonstock
corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits
exclusively to the members of such society, order, or
association, or nonstock corporation or their
dependents;

(D) Cemetery company owned and operated

exclusively for the benefit of its members;

(E) Nonstock corporation or association

organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or
for the rehabilitation of veterans, no part of its net
income or asset shall belong to or inures to the benefit
of any member, organizer, officer or any specific
person;

(F) Business league chamber of commerce, or

board of trade, not organized for profit and no part of
the net income of which inures to the benefit of any
private stock-holder, or individual;

(G) Civic league or organization not organized for

profit but operated exclusively for the promotion of
social welfare;
 (H) A nonstock and nonprofit educational
institution;

(I) Government educational institution;

(J) Farmers' or other mutual typhoon or fire

insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company,
or like organization of a purely local character, the
income of which consists solely of assessments, dues,
and fees collected from members for the sole purpose
of meeting its expenses; and

(K) Farmers', fruit growers', or like association

organized and operated as a sales agent for the
purpose of marketing the products of its members and
turning back to them the proceeds of sales, less the
necessary selling expenses on the basis of the quantity
of produce finished by them;

Notwithstanding the provisions in the preceding paragraphs, the

income of whatever kind and character of the foregoing organizations
from any of their properties, real or personal, or from any of their
activities conducted for profit regardless of the disposition made of
such income, shall be subject to tax imposed under this Code.

CHAPTER V - COMPUTATION OF TAXABLE INCOME

Section 31. Taxable Income Defined. - The term taxable income

means the pertinent items of gross income specified in this Code, less
the deductions and/or personal and additional exemptions, if any,
authorized for such types of income by this Code or other special
laws.
 CHAPTER VI - COMPUTATION OF GROSS INCOME

Section 32. Gross Income. -

(A) General Definition. - Except when otherwise

provided in this Title, gross income means all income
derived from whatever source, including (but not
limited to) the following items:

(1) Compensation for services in whatever

form paid, including, but not limited to fees,
salaries, wages, commissions, and similar
items;

(2) Gross income derived from the

conduct of trade or business or the exercise of
a profession;

(3) Gains derived from dealings in

property;

(4) Interests;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Prizes and winnings;

(10) Pensions; and

 (11) Partner's distributive share from the
net income of the general professional
partnership.

(B) Exclusions from Gross Income. - The following

items shall not be included in gross income and shall
be exempt from taxation under this title:

(1) Life Insurance. - The proceeds of life

insurance policies paid to the heirs or
beneficiaries upon the death of the insured,
whether in a single sum or otherwise, but if
such amounts are held by the insurer under an
agreement to pay interest thereon, the interest
payments shall be included in gross income.

(2) Amount Received by Insured as

Return of Premium. - The amount received by
the insured, as a return of premiums paid by
him under life insurance, endowment, or
annuity contracts, either during the term or at
the maturity of the term mentioned in the
contract or upon surrender of the contract.

(3) Gifts, Bequests, and Devises. _ The

value of property acquired by gift, bequest,
devise, or descent: Provided, however, That
income from such property, as well as gift,
bequest, devise or descent of income from any
property, in cases of transfers of divided
interest, shall be included in gross income.

(4) Compensation for Injuries or Sickness.

- amounts received, through Accident or
Health Insurance or under Workmen's
Compensation Acts, as compensation for
personal injuries or sickness, plus the amounts
of any damages received, whether by suit or
agreement, on account of such injuries or
sickness.

(5) Income Exempt under Treaty. -

Income of any kind, to the extent required by
any treaty obligation binding upon the
Government of the Philippines.

(6) Retirement Benefits, Pensions,

Gratuities, etc.-

(a) Retirement benefits received

under Republic Act No. 7641 and
those received by officials and
employees of private firms, whether
individual or corporate, in accordance
with a reasonable private benefit plan
maintained by the employer: Provided,
That the retiring official or employee
has been in the service of the same
employer for at least ten (10) years and
is not less than fifty (50) years of age at
the time of his retirement: Provided,
further, That the benefits granted
under this subparagraph shall be
availed of by an official or employee
only once. For purposes of this
Subsection, the term 'reasonable
private benefit plan' means a pension,
gratuity, stock bonus or profit-sharing
plan maintained by an employer for
the benefit of some or all of his
officials or employees, wherein
contributions are made by such
employer for the officials or employees,
or both, for the purpose of distributing
to such officials and employees the
earnings and principal of the fund thus
accumulated, and wherein its is
provided in said plan that at no time
shall any part of the corpus or income
of the fund be used for, or be diverted
to, any purpose other than for the
exclusive benefit of the said officials
and employees.

(b) Any amount received by an

official or employee or by his heirs
from the employer as a consequence of
separation of such official or employee
from the service of the employer
because of death sickness or other
physical disability or for any cause
beyond the control of the said official
or employee.

(c) The provisions of any existing

law to the contrary notwithstanding,
social security benefits, retirement
gratuities, pensions and other similar
benefits received by resident or
nonresident citizens of the Philippines
or aliens who come to reside
permanently in the Philippines from
foreign government agencies and other
institutions, private or public.
 (d) Payments of benefits due or to
become due to any person residing in
the Philippines under the laws of the
United States administered by the
United States Veterans
Administration.

(e) Benefits received from or

enjoyed under the Social Security
System in accordance with the
provisions of Republic Act No. 8282.

(f) Benefits received from the GSIS

under Republic Act No. 8291,
including retirement gratuity received
by government officials and employees.

(7) Miscellaneous Items. -

(a) Income Derived by Foreign

Government. - Income derived from
investments in the Philippines in loans,
stocks, bonds or other domestic
securities, or from interest on deposits
in banks in the Philippines by (i)
foreign governments, (ii) financing
institutions owned, controlled, or
enjoying refinancing from foreign
governments, and (iii) international or
regional financial institutions
established by foreign governments.

(b) Income Derived by the

Government or its Political
Subdivisions. - Income derived from
any public utility or from the exercise
of any essential governmental function
accruing to the Government of the
Philippines or to any political
subdivision thereof.

(c) Prizes and Awards. - Prizes and

awards made primarily in recognition
of religious, charitable, scientific,
educational, artistic, literary, or civic
achievement but only if:

(i) The recipient was

selected without any action on
his part to enter the contest or
proceeding; and

(ii) The recipient is not

required to render substantial
future services as a condition to
receiving the prize or award.

(d) Prizes and Awards in sports

Competition. - All prizes and awards
granted to athletes in local and
international sports competitions and
tournaments whether held in the
Philippines or abroad and sanctioned
by their national sports associations.

(e) 13th Month Pay and Other

Benefits. - Gross benefits received by
officials and employees of public and
private entities: Provided, however,
That the total exclusion under this
subparagraph shall not exceed Thirty
thousand pesos (P30,000) which shall
cover:

(i) Benefits received by

officials and employees of the
national and local government
pursuant to Republic Act No.
6686;

(ii) Benefits received by

employees pursuant to
Presidential Decree No. 851, as
amended by Memorandum
Order No. 28, dated August
13, 1986;

(iii) Benefits received by

officials and employees not
covered by Presidential decree
No. 851, as amended by
Memorandum Order No. 28,
dated August 13, 1986; and

(iv) Other benefits such as

productivity incentives and
Christmas bonus: Provided,
further, That the ceiling of
Thirty thousand pesos
(P30,000) may be increased
through rules and regulations
issued by the Secretary of
Finance, upon
recommendation of the
Commissioner, after
 considering among others, the
effect on the same of the
inflation rate at the end of the
taxable year.

(f) GSIS, SSS, Medicare and Other

Contributions. - GSIS, SSS, Medicare
and Pag-ibig contributions, and union
dues of individuals.

(g) Gains from the Sale of Bonds,

Debentures or other Certificate of
Indebtedness. - Gains realized from the
same or exchange or retirement of
bonds, debentures or other certificate
of indebtedness with a maturity of
more than five (5) years.

(h) Gains from Redemption of

Shares in Mutual Fund. - Gains
realized by the investor upon
redemption of shares of stock in a
mutual fund company as defined in
Section 22 (BB) of this Code.

Section 33. Special Treatment of Fringe Benefit.-

(A) Imposition of Tax. - A final tax of thirty-four

percent (34%) effective January 1, 1998; thirty-three
percent (33%) effective January 1, 1999; and thirty-two
percent (32%) effective January 1, 2000 and thereafter,
is hereby imposed on the grossed-up monetary value of
fringe benefit furnished or granted to the employee
(except rank and file employees as defined herein) by
the employer, whether an individual or a corporation
(unless the fringe benefit is required by the nature of,
or necessary to the trade, business or profession of the
employer, or when the fringe benefit is for the
convenience or advantage of the employer). The tax
herein imposed is payable by the employer which tax
shall be paid in the same manner as provided for
under Section 57 (A) of this Code. The grossed-up
monetary value of the fringe benefit shall be
determined by dividing the actual monetary value of
the fringe benefit by sixty-six percent (66%) effective
January 1, 1998; sixty-seven percent (67%) effective
January 1, 1999; and sixty-eight percent (68%)
effective January 1, 2000 and thereafter: Provided,
however, That fringe benefit furnished to employees
and taxable under Subsections (B), (C), (D) and (E) of
Section 25 shall be taxed at the applicable rates
imposed thereat: Provided, further, That the grossed -
Up value of the fringe benefit shall be determined by
dividing the actual monetary value of the fringe
benefit by the difference between one hundred
percent (100%) and the applicable rates of income tax
under Subsections (B), (C), (D), and (E) of Section 25.

(B) Fringe Benefit defined. - For purposes of this

Section, the term 'fringe benefit' means any good,
service or other benefit furnished or granted in cash or
in kind by an employer to an individual employee
(except rank and file employees as defined herein)
such as, but not limited to, the following:

(1) Housing;

(2) Expense account;

(3) Vehicle of any kind;

 (4) Household personnel, such as maid,
driver and others;

(5) Interest on loan at less than market

rate to the extent of the difference between the
market rate and actual rate granted;

(6) Membership fees, dues and other

expenses borne by the employer for the
employee in social and athletic clubs or other
similar organizations;

(7) Expenses for foreign travel;

(8) Holiday and vacation expenses;

(9) Educational assistance to the employee

or his dependents; and

(10) Life or health insurance and other

non-life insurance premiums or similar
amounts in excess of what the law allows.

(C) Fringe Benefits Not Taxable. - The following

fringe benefits are not taxable under this Section:

(1) fringe benefits which are authorized

and exempted from tax under special laws;

(2) Contributions of the employer for the

benefit of the employee to retirement,
insurance and hospitalization benefit plans;
 (3) Benefits given to the rank and file
employees, whether granted under a collective
bargaining agreement or not; and

(4) De minimis benefits as defined in the

rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation
of the Commissioner.

The Secretary of Finance is hereby authorized to

promulgate, upon recommendation of the
Commissioner, such rules and regulations as are
necessary to carry out efficiently and fairly the
provisions of this Section, taking into account the
peculiar nature and special need of the trade, business
or profession of the employer.

CHAPTER VII - ALLOWABLE DEDUCTIONS

Section 34. Deductions from Gross Income. - Except for taxpayers

earning compensation income arising from personal services rendered
under an employer-employee relationship where no deductions shall
be allowed under this Section other than under subsection (M)
hereof, in computing taxable income subject to income tax under
Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A) (1), there
shall be allowed the following deductions from gross income;

(A) Expenses. -

(1) Ordinary and Necessary Trade,

Business or Professional Expenses.-

(a) In General. - There shall be

allowed as deduction from gross
income all the ordinary and necessary
expenses paid or incurred during the
taxable year in carrying on or which are
directly attributable to, the
development, management, operation
and/or conduct of the trade, business
or exercise of a profession, including:

(i) A reasonable allowance

for salaries, wages, and other
forms of compensation for
personal services actually
rendered, including the
grossed-up monetary value of
fringe benefit furnished or
granted by the employer to the
employee: Provided, That the
final tax imposed under Section
33 hereof has been paid;

(ii) A reasonable allowance

for travel expenses, here and
abroad, while away from home
in the pursuit of trade, business
or profession;

(iii) A reasonable
allowance for rentals and/or
other payments which are
required as a condition for the
continued use or possession,
for purposes of the trade,
business or profession, of
property to which the taxpayer
has not taken or is not taking
title or in which he has no
 equity other than that of a
lessee, user or possessor;

(iv) A reasonable allowance

for entertainment, amusement
and recreation expenses during
the taxable year, that are
directly connected to the
development, management and
operation of the trade, business
or profession of the taxpayer, or
that are directly related to or in
furtherance of the conduct of
his or its trade, business or
exercise of a profession not to
exceed such ceilings as the
Secretary of Finance may, by
rules and regulations prescribe,
upon recommendation of the
Commissioner, taking into
account the needs as well as the
special circumstances, nature
and character of the industry,
trade, business, or profession of
the taxpayer: Provided, That
any expense incurred for
entertainment, amusement or
recreation that is contrary to
law, morals public policy or
public order shall in no case be
allowed as a deduction.

(b) Substantiation Requirements. -

No deduction from gross income shall
be allowed under Subsection (A)
 hereof unless the taxpayer shall
substantiate with sufficient evidence,
such as official receipts or other
adequate records: (i) the amount of the
expense being deducted, and (ii) the
direct connection or relation of the
expense being deducted to the
development, management, operation
and/or conduct of the trade, business
or profession of the taxpayer.

(c) Bribes, Kickbacks and Other

Similar Payments. - No deduction from
gross income shall be allowed under
Subsection (A) hereof for any payment
made, directly or indirectly, to an
official or employee of the national
government, or to an official or
employee of any local government unit,
or to an official or employee of a
government-owned or -controlled
corporation, or to an official or
employee or representative of a foreign
government, or to a private
corporation, general professional
partnership, or a similar entity, if the
payment constitutes a bribe or
kickback.

(2) Expenses Allowable to Private

Educational Institutions. - In addition to the
expenses allowable as deductions under this
Chapter, a private educational institution,
referred to under Section 27 (B) of this Code,
may at its option elect either: (a) to deduct
 expenditures otherwise considered as capital
outlays of depreciable assets incurred during
the taxable year for the expansion of school
facilities or (b) to deduct allowance for
depreciation thereof under Subsection (F)
hereof.

(B) Interest.-

(1) In General. - The amount of interest

paid or incurred within a taxable year on
indebtedness in connection with the taxpayer's
profession, trade or business shall be allowed
as deduction from gross income: Provided,
however, That the taxpayer's otherwise
allowable deduction for interest expense shall
be reduced by an amount equal to the
following percentages of the interest income
subjected to final tax:

Forty-one percent (41%) beginning

January 1, 1998;

Thirty-nine percent (39%)

beginning January 1, 1999; and

Thirty-eight percent (38%)

beginning January 1, 2000;

(2) Exceptions. - No deduction shall be

allowed in respect of interest under the
succeeding subparagraphs:

(a) If within the taxable year an

individual taxpayer reporting income
 on the cash basis incurs an
indebtedness on which an interest is
paid in advance through discount or
otherwise: Provided, That such interest
shall be allowed a a deduction in the
year the indebtedness is paid: Provided,
further, That if the indebtedness is
payable in periodic amortizations, the
amount of interest which corresponds
to the amount of the principal
amortized or paid during the year shall
be allowed as deduction in such taxable
year;

(b)If both the taxpayer and the

person to whom the payment has been
made or is to be made are persons
specified under Section 36 (B); or

(c)If the indebtedness is incurred

to finance petroleum exploration.

(3) Optional Treatment of Interest

Expense. - At the option of the taxpayer,
interest incurred to acquire property used in
trade business or exercise of a profession may
be allowed as a deduction or treated as a
capital expenditure.

(C) Taxes.-

(1) In General. - Taxes paid or incurred

within the taxable year in connection with the
taxpayer's profession, trade or business, shall
be allowed as deduction, except
 (a) The income tax provided for
under this Title;

(b) Income taxes imposed by

authority of any foreign country; but
this deduction shall be allowed in the
case of a taxpayer who does not signify
in his return his desire to have to any
extent the benefits of paragraph (3) of
this subsection (relating to credits for
taxes of foreign countries);

(c) Estate and donor's taxes; and

(d) Taxes assessed against local

benefits of a kind tending to increase
the value of the property assessed.

Provided, That taxes allowed

under this Subsection, when refunded
or credited, shall be included as part of
gross income in the year of receipt to
the extent of the income tax benefit of
said deduction.

(2) Limitations on Deductions. - In the case

of a nonresident alien individual engaged in
trade or business in the Philippines and a
resident foreign corporation, the deductions
for taxes provided in paragraph (1) of this
Subsection (C) shall be allowed only if and to
the extent that they are connected with income
from sources within the Philippines.
 (3) Credit Against Tax for Taxes of Foreign
Countries. - If the taxpayer signifies in his
return his desire to have the benefits of this
paragraph, the tax imposed by this Title shall
be credited with:

(a) Citizen and Domestic

Corporation. - In the case of a citizen
of the Philippines and of a domestic
corporation, the amount of income
taxes paid or incurred during the
taxable year to any foreign country; and

(b) Partnerships and Estates. - In

the case of any such individual who is a
member of a general professional
partnership or a beneficiary of an estate
or trust, his proportionate share of
such taxes of the general professional
partnership or the estate or trust paid
or incurred during the taxable year to a
foreign country, if his distributive share
of the income of such partnership or
trust is reported for taxation under this
Title.

An alien individual and a foreign

corporation shall not be allowed the credits
against the tax for the taxes of foreign
countries allowed under this paragraph.

(4) Limitations on Credit. - The amount of

the credit taken under this Section shall be
subject to each of the following limitations:
 (a) The amount of the credit in
respect to the tax paid or incurred to
any country shall not exceed the same
proportion of the tax against which
such credit is taken, which the
taxpayer's taxable income from sources
within such country under this Title
bears to his entire taxable income for
the same taxable year; and

(b) The total amount of the credit

shall not exceed the same proportion
of the tax against which such credit is
taken, which the taxpayer's taxable
income from sources without the
Philippines taxable under this Title
bears to his entire taxable income for
the same taxable year.

(5) Adjustments on Payment of Incurred

Taxes. - If accrued taxes when paid differ from
the amounts claimed as credits by the taxpayer,
or if any tax paid is refunded in whole or in
part, the taxpayer shall notify the
Commissioner; who shall redetermine the
amount of the tax for the year or years
affected, and the amount of tax due upon such
redetermination, if any, shall be paid by the
taxpayer upon notice and demand by the
Commissioner, or the amount of tax overpaid,
if any, shall be credited or refunded to the
taxpayer. In the case of such a tax incurred but
not paid, the Commissioner as a condition
precedent to the allowance of this credit may
require the taxpayer to give a bond with
sureties satisfactory to and to be approved by
the Commissioner in such sum as he may
require, conditioned upon the payment by the
taxpayer of any amount of tax found due upon
any such redetermination. The bond herein
prescribed shall contain such further
conditions as the Commissioner may require.

(6) Year in Which Credit Taken. - The

credits provided for in Subsection (C)(3) of
this Section may, at the option of the taxpayer
and irrespective of the method of accounting
employed in keeping his books, be taken in the
year which the taxes of the foreign country
were incurred, subject, however, to the
conditions prescribed in Subsection (C)(5) of
this Section. If the taxpayer elects to take such
credits in the year in which the taxes of the
foreign country accrued, the credits for all
subsequent years shall be taken upon the same
basis and no portion of any such taxes shall be
allowed as a deduction in the same or any
succeeding year.

(7) Proof of Credits. - The credits provided

in Subsection (C)(3) hereof shall be allowed
only if the taxpayer establishes to the
satisfaction of the Commissioner the
following:

(a) The total amount of income

derived from sources without the
Philippines;
 (b) The amount of income derived
from each country, the tax paid or
incurred to which is claimed as a credit
under said paragraph, such amount to
be determined under rules and
regulations prescribed by the Secretary
of Finance; and

(c) All other information necessary

for the verification and computation of
such credits.

(D) Losses. -

(1) In General. - Losses actually sustained

during the taxable year and not compensated
for by insurance or other forms of indemnity
shall be allowed as deductions:

(a) If incurred in trade, profession

or business;

(b) Of property connected with the

trade, business or profession, if the loss
arises from fires, storms, shipwreck, or
other casualties, or from robbery, theft
or embezzlement.

The Secretary of Finance, upon

recommendation of the
Commissioner, is hereby authorized to
promulgate rules and regulations
prescribing, among other things, the
time and manner by which the
taxpayer shall submit a declaration of
 loss sustained from casualty or from
robbery, theft or embezzlement during
the taxable year: Provided, however,
That the time limit to be so prescribed
in the rules and regulations shall not
be less than thirty (30) days nor more
than ninety (90) days from the date of
discovery of the casualty or robbery,
theft or embezzlement giving rise to the
loss.

(c) No loss shall be allowed as a

deduction under this Subsection if at
the time of the filing of the return,
such loss has been claimed as a
deduction for estate tax purposes in the
estate tax return.

(2) Proof of Loss. - In the case of a

nonresident alien individual or foreign
corporation, the losses deductible shall be
those actually sustained during the year
incurred in business, trade or exercise of a
profession conducted within the Philippines,
when such losses are not compensated for by
insurance or other forms of indemnity. The
secretary of Finance, upon recommendation of
the Commissioner, is hereby authorized to
promulgate rules and regulations prescribing,
among other things, the time and manner by
which the taxpayer shall submit a declaration
of loss sustained from casualty or from
robbery, theft or embezzlement during the
taxable year: Provided, That the time to be so
prescribed in the rules and regulations shall
not be less than thirty (30) days nor more than
ninety (90) days from the date of discovery of
the casualty or robbery, theft or embezzlement
giving rise to the loss; and

(3) Net Operating Loss Carry-Over. - The net

operating loss of the business or enterprise for
any taxable year immediately preceding the
current taxable year, which had not been
previously offset as deduction from gross
income shall be carried over as a deduction
from gross income for the next three (3)
consecutive taxable years immediately
following the year of such loss: Provided,
however, That any net loss incurred in a
taxable year during which the taxpayer was
exempt from income tax shall not be allowed
as a deduction under this Subsection:
Provided, further, That a net operating loss
carry-over shall be allowed only if there has
been no substantial change in the ownership
of the business or enterprise in that -

(i) Not less than seventy-five

percent (75%) in nominal value of
outstanding issued shares., if the
business is in the name of a
corporation, is held by or on behalf of
the same persons; or

(ii) Not less than seventy-five

percent (75%) of the paid up capital of
the corporation, if the business is in
the name of a corporation, is held by
or on behalf of the same persons.
 "For purposes of this subsection, the term
'not operating loss' shall mean the excess of
allowable deduction over gross income of the
business in a taxable year.

Provided, That for mines other than oil

and gas wells, a net operating loss without the
benefit of incentives provided for under
Executive Order No. 226, as amended,
otherwise known as the Omnibus Investments
Code of 1987, incurred in any of the first ten
(10) years of operation may be carried over as a
deduction from taxable income for the next
five (5) years immediately following the year of
such loss. The entire amount of the loss shall
be carried over to the first of the five (5)
taxable years following the loss, and any
portion of such loss which exceeds, the taxable
income of such first year shall be deducted in
like manner form the taxable income of the
next remaining four (4) years.

(4) Capital Losses. -

(a) Limitation. - Loss from sales or

Exchanges of capital assets shall be
allowed only to the extent provided in
Section 39.

(b) Securities Becoming worthless. - If

securities as defined in Section 22 (T)
become worthless during the taxable
year and are capital assets, the loss
resulting therefrom shall, for purposes
 of this Title, be considered as a loss
from the sale or exchange, on the last
day of such taxable year, of capital
assets.

(5) Losses From Wash Sales of Stock or

Securities. - Losses from 'wash sales' of stock or
securities as provided in Section 38.

(6) Wagering Losses. - Losses from

wagering transactions shall b allowed only to
the extent of the gains from such transactions.

(7) Abandonment Losses. -

(a) In the event a contract area

where petroleum operations are
undertaken is partially or wholly
abandoned, all accumulated
exploration and development
expenditures pertaining thereto shall
be allowed as a deduction: Provided,
That accumulated expenditures
incurred in that area prior to January
1, 1979 shall be allowed as a deduction
only from any income derived from the
same contract area. In all cases, notices
of abandonment shall be filed with the
Commissioner.

(b) In case a producing well is

subsequently abandoned, the
unamortized costs thereof, as well as
the undepreciated costs of equipment
directly used therein , shall be allowed
 as a deduction in the year such well,
equipment or facility is abandoned by
the contractor: Provided, That if such
abandoned well is reentered and
production is resumed, or if such
equipment or facility is restored into
service, the said costs shall be included
as part of gross income in the year of
resumption or restoration and shall be
amortized or depreciated, as the case
may be.

(E) Bad Debts. -

(1) In General. - Debts due to the taxpayer

actually ascertained to be worthless and
charged off within the taxable year except
those not connected with profession, trade or
business and those sustained in a transaction
entered into between parties mentioned under
Section 36 (B) of this Code: Provided, That
recovery of bad debts previously allowed as
deduction in the preceding years shall be
included as part of the gross income in the
year of recovery to the extent of the income tax
benefit of said deduction.

(2) Securities Becoming Worthless. - If

securities, as defined in Section 22 (T), are
ascertained to be worthless and charged off
within the taxable year and are capital assets,
the loss resulting therefrom shall, in the case of
a taxpayer other than a bank or trust company
incorporated under the laws of the Philippines
a substantial part of whose business is the
 receipt of deposits, for the purpose of this
Title, be considered as a loss from the sale or
exchange, on the last day of such taxable year,
of capital assets.

(F) Depreciation. -

(1) General Rule. - There shall be allowed

as a depreciation deduction a reasonable
allowance for the exhaustion, wear and tear
(including reasonable allowance for
obsolescence) of property used in the trade or
business. In the case of property held by one
person for life with remainder to another
person, the deduction shall be computed as if
the life tenant were the absolute owner of the
property and shall be allowed to the life
tenant. In the case of property held in trust,
the allowable deduction shall be apportioned
between the income beneficiaries and the
trustees in accordance with the pertinent
provisions of the instrument creating the trust,
or in the absence of such provisions, on the
basis of the trust income allowable to each.

(2) Use of Certain Methods and Rates. -

The term 'reasonable allowance' as used in the
preceding paragraph shall include, but not
limited to, an allowance computed in
accordance with rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, under
any of the following methods:

(a) The straight-line method;

 (b) Declining-balance method,
using a rate not exceeding twice the
rate which would have been used had
the annual allowance been computed
under the method described in
Subsection (F) (1);

(c) The sum-of-the-years-digit

method; and

(d) any other method which may

be prescribed by the Secretary of
Finance upon recommendation of the
Commissioner.

(3) Agreement as to Useful Life on Which

Depreciation Rate is Based. - Where under
rules and regulations prescribed by the
Secretary of Finance upon recommendation of
the Commissioner, the taxpayer and the
Commissioner have entered into an agreement
in writing specifically dealing with the useful
life and rate of depreciation of any property,
the rate so agreed upon shall be binding on
both the taxpayer and the national
Government in the absence of facts and
circumstances not taken into consideration
during the adoption of such agreement. The
responsibility of establishing the existence of
such facts and circumstances shall rest with the
party initiating the modification. Any change
in the agreed rate and useful life of the
depreciable property as specified in the
agreement shall not be effective for taxable
years prior to the taxable year in which notice
in writing by certified mail or registered mail is
served by the party initiating such change to
the other party to the agreement:

Provided, however, that where the

taxpayer has adopted such useful life and
depreciation rate for any depreciable and
claimed the depreciation expenses as
deduction from his gross income, without any
written objection on the part of the
Commissioner or his duly authorized
representatives, the aforesaid useful life and
depreciation rate so adopted by the taxpayer
for the aforesaid depreciable asset shall be
considered binding for purposes of this
Subsection.

(4) Depreciation of Properties Used in

Petroleum Operations. - An allowance for
depreciation in respect of all properties directly
related to production of petroleum initially
placed in service in a taxable year shall be
allowed under the straight-line or declining-
balance method of depreciation at the option
of the service contractor.

However, if the service contractor initially

elects the declining-balance method, it may at
any subsequent date, shift to the straight-line
method.

The useful life of properties used in or

related to production of petroleum shall be ten
(10) years of such shorter life as may be
permitted by the Commissioner.
 Properties not used directly in the
production of petroleum shall be depreciated
under the straight-line method on the basis of
an estimated useful life of five (5) years.

(5) Depreciation of Properties Used in

Mining Operations. - an allowance for
depreciation in respect of all properties used in
mining operations other than petroleum
operations, shall be computed as follows:

(a) At the normal rate of

depreciation if the expected life is ten
(10) years or less; or

(b) Depreciated over any number

of years between five (5) years and the
expected life if the latter is more than
ten (10) years, and the depreciation
thereon allowed as deduction from
taxable income: Provided, That the
contractor notifies the Commissioner
at the beginning of the depreciation
period which depreciation rate allowed
by this Section will be used.

(6) Depreciation Deductible by

Nonresident Aliens Engaged in Trade or
Business or Resident Foreign Corporations. -
In the case of a nonresident alien individual
engaged in trade or business or resident
foreign corporation, a reasonable allowance for
the deterioration of Property arising out of its
use or employment or its non-use in the
business trade or profession shall be permitted
 only when such property is located in the
Philippines.

(G) Depletion of Oil and Gas Wells and Mines. -

(1) In General. - In the case of oil and gas

wells or mines, a reasonable allowance for
depletion or amortization computed in
accordance with the cost-depletion method
shall be granted under rules and regulations to
be prescribed by the Secretary of finance, upon
recommendation of the Commissioner.
Provided, That when the allowance for
depletion shall equal the capital invested no
further allowance shall be granted: Provided,
further, That after production in commercial
quantities has commenced, certain intangible
exploration and development drilling costs: (a)
shall be deductible in the year incurred if such
expenditures are incurred for non-producing
wells and/or mines, or (b) shall be deductible
in full in the year paid or incurred or at the
election of the taxpayer, may be capitalized and
amortized if such expenditures incurred are for
producing wells and/or mines in the same
contract area.

'Intangible costs in petroleum operations'

refers to any cost incurred in petroleum
operations which in itself has no salvage value
and which is incidental to and necessary for
the drilling of wells and preparation of wells
for the production of petroleum: Provided,
That said costs shall not pertain to the
acquisition or improvement of property of a
character subject to the allowance for
depreciation except that the allowances for
depreciation on such property shall be
deductible under this Subsection.

Any intangible exploration, drilling and

development expenses allowed as a deduction
in computing taxable income during the year
shall not be taken into consideration in
computing the adjusted cost basis for the
purpose of computing allowable cost
depletion.

(2) Election to Deduct Exploration and

Development Expenditures. - In computing
taxable income from mining operations, the
taxpayer may at his option, deduct exploration
and development expenditures accumulated as
cost or adjusted basis for cost depletion as of
date of prospecting, as well as exploration and
development expenditures paid or incurred
during the taxable year: Provided, That the
amount deductible for exploration and
development expenditures shall not exceed
twenty-five percent (25%) of the net income
from mining operations computed without the
benefit of any tax incentives under existing
laws. The actual exploration and development
expenditures minus twenty-five percent (25%)
of the net income from mining shall be carried
forward to the succeeding years until fully
deducted.

The election by the taxpayer to deduct the

exploration and development expenditures is
irrevocable and shall be binding in succeeding
taxable years.

'Net income from mining operations', as

used in this Subsection, shall mean gross
income from operations less 'allowable
deductions' which are necessary or related to
mining operations. 'Allowable deductions'
shall include mining, milling and marketing
expenses, and depreciation of properties
directly used in the mining operations. This
paragraph shall not apply to expenditures for
the acquisition or improvement of property of
a character which is subject to the allowance
for depreciation.

In no case shall this paragraph apply with

respect to amounts paid or incurred for the
exploration and development of oil and gas.

The term 'exploration expenditures'

means expenditures paid or incurred for the
purpose of ascertaining the existence, location,
extent or quality of any deposit of ore or other
mineral, and paid or incurred before the
beginning of the development stage of the
mine or deposit.

The term 'development expenditures'

means expenditures paid or incurred during
the development stage of the mine or other
natural deposits. The development stage of a
mine or other natural deposit shall begin at
the time when deposits of ore or other
minerals are shown to exist in sufficient
 commercial quantity and quality and shall end
upon commencement of actual commercial
extraction.

(3) Depletion of Oil and Gas Wells and

Mines Deductible by a Nonresident Alien
individual or Foreign Corporation. - In the
case of a nonresident alien individual engaged
in trade or business in the Philippines or a
resident foreign corporation, allowance for
depletion of oil and gas wells or mines under
paragraph (1) of this Subsection shall be
authorized only in respect to oil and gas wells
or mines located within the Philippines.

(H) Charitable and Other Contributions. -

(1) In General. - Contributions or gifts

actually paid or made within the taxable year
to, or for the use of the Government of the
Philippines or any of its agencies or any
political subdivision thereof exclusively for
public purposes, or to accredited domestic
corporation or associations organized and
operated exclusively for religious, charitable,
scientific, youth and sports development,
cultural or educational purposes or for the
rehabilitation of veterans, or to social welfare
institutions, or to non-government
organizations, in accordance with rules and
regulations promulgated by the Secretary of
finance, upon recommendation of the
Commissioner, no part of the net income of
which inures to the benefit of any private
stockholder or individual in an amount not in
excess of ten percent (10%) in the case of an
individual, and five percent (5%) in the case of
a corporation, of the taxpayer's taxable income
derived from trade, business or profession as
computed without the benefit of this and the
following subparagraphs.

(2) Contributions Deductible in Full. -

Notwithstanding the provisions of the
preceding subparagraph, donations to the
following institutions or entities shall be
deductible in full;

(a) Donations to the Government.

- Donations to the Government of the
Philippines or to any of its agencies or
political subdivisions, including fully-
owned government corporations,
exclusively to finance, to provide for, or
to be used in undertaking priority
activities in education, health, youth
and sports development, human
settlements, science and culture, and in
economic development according to a
National Priority Plan determined by
the National Economic and
Development Authority (NEDA), In
consultation with appropriate
government agencies, including its
regional development councils and
private philantrophic persons and
institutions: Provided, That any
donation which is made to the
Government or to any of its agencies
or political subdivisions not in
accordance with the said annual
priority plan shall be subject to the
limitations prescribed in paragraph (1)
of this Subsection;

(b) Donations to Certain Foreign

Institutions or International
Organizations. - donations to foreign
institutions or international
organizations which are fully
deductible in pursuance of or in
compliance with agreements, treaties,
or commitments entered into by the
Government of the Philippines and the
foreign institutions or international
organizations or in pursuance of special
laws;

(c) Donations to Accredited

Nongovernment Organizations. - the
term 'nongovernment organization'
means a non profit domestic
corporation:

(1) Organized and

operated exclusively for
scientific, research, educational,
character-building and youth
and sports development,
health, social welfare, cultural
or charitable purposes, or a
combination thereof, no part of
the net income of which inures
to the benefit of any private
individual;
 (2) Which, not later than
the 15th day of the third
month after the close of the
accredited nongovernment
organizations taxable year in
which contributions are
received, makes utilization
directly for the active conduct
of the activities constituting the
purpose or function for which
it is organized and operated,
unless an extended period is
granted by the Secretary of
Finance in accordance with the
rules and regulations to be
promulgated, upon
recommendation of the
Commissioner;

(3) The level of

administrative expense of
which shall, on an annual basis,
conform with the rules and
regulations to be prescribed by
the Secretary of Finance, upon
recommendation of the
Commissioner, but in no case
to exceed thirty percent (30%)
of the total expenses; and

(4) The assets of which, in

the even of dissolution, would
be distributed to another
nonprofit domestic corporation
organized for similar purpose
 or purposes, or to the state for
public purpose, or would be
distributed by a court to
another organization to be used
in such manner as in the
judgment of said court shall
best accomplish the general
purpose for which the dissolved
organization was organized.

Subject to such terms and

conditions as may be prescribed by the
Secretary of Finance, the term
'utilization' means:

(i) Any amount in cash or

in kind (including
administrative expenses) paid
or utilized to accomplish one or
more purposes for which the
accredited nongovernment
organization was created or
organized.

(ii) Any amount paid to

acquire an asset used (or held
for use) directly in carrying out
one or more purposes for
which the accredited
nongovernment organization
was created or organized.

An amount set aside for a specific

project which comes within one or
more purposes of the accredited
 nongovernment organization may be
treated as a utilization, but only if at
the time such amount is set aside, the
accredited nongovernment
organization has established to the
satisfaction of the Commissioner that
the amount will be paid for the specific
project within a period to be prescribed
in rules and regulations to be
promulgated by the Secretary of
Finance, upon recommendation of the
Commissioner, but not to exceed five
(5) years, and the project is one which
can be better accomplished by setting
aside such amount than by immediate
payment of funds.

(3) Valuation. - The amount of any

charitable contribution of property other than
money shall be based on the acquisition cost of
said property.

(4) Proof of Deductions. - Contributions or

gifts shall be allowable as deductions only if
verified under the rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.

(I) Research and Development.-

(1) In General. - a taxpayer may treat

research or development expenditures which
are paid or incurred by him during the taxable
year in connection with his trade, business or
profession as ordinary and necessary expenses
which are not chargeable to capital account.
The expenditures so treated shall be allowed as
deduction during the taxable year when paid
or incurred.

(2) Amortization of Certain Research and

Development Expenditures. - At the election of
the taxpayer and in accordance with the rules
and regulations to be prescribed by the
Secretary of Finance, upon recommendation
of the Commissioner, the following research
and development expenditures may be treated
as deferred expenses:

(a) Paid or incurred by the

taxpayer in connection with his trade,
business or profession;

(b) Not treated as expenses under

paragraph 91) hereof; and

(c) Chargeable to capital account

but not chargeable to property of a
character which is subject to
depreciation or depletion.

In computing taxable income,

such deferred expenses shall be allowed
as deduction ratably distributed over a
period of not less than sixty (60)
months as may be elected by the
taxpayer (beginning with the month in
which the taxpayer first realizes benefits
from such expenditures).
 The election provided by
paragraph (2) hereof may be made for
any taxable year beginning after the
effectivity of this Code, but only if
made not later than the time
prescribed by law for filing the return
for such taxable year. The method so
elected, and the period selected by the
taxpayer, shall be adhered to in
computing taxable income for the
taxable year for which the election is
made and for all subsequent taxable
years unless with the approval of the
Commissioner, a change to a different
method is authorized with respect to a
part or all of such expenditures. The
election shall not apply to any
expenditure paid or incurred during
any taxable year for which the taxpayer
makes the election.

(3) Limitations on deduction. - This

Subsection shall not apply to:

(a) Any expenditure for the

acquisition or improvement of land, or
for the improvement of property to be
used in connection with research and
development of a character which is
subject to depreciation and depletion;
and

(b) Any expenditure paid or

incurred for the purpose of
ascertaining the existence, location,
 extent, or quality of any deposit of ore
or other mineral, including oil or gas.

(J) Pension Trusts. - An employer establishing or

maintaining a pension trust to provide for the
payment of reasonable pensions to his employees shall
be allowed as a deduction (in addition to the
contributions to such trust during the taxable year to
cover the pension liability accruing during the year,
allowed as a deduction under Subsection (A) (1) of
this Section ) a reasonable amount transferred or paid
into such trust during the taxable year in excess of
such contributions, but only if such amount (1)has
not theretofore been allowed as a deduction, and (2) is
apportioned in equal parts over a period of ten (10)
consecutive years beginning with the year in which the
transfer or payment is made.

(K) Additional Requirements for Deductibility of

Certain Payments. - Any amount paid or payable which
is otherwise deductible from, or taken into account in
computing gross income or for which depreciation or
amortization may be allowed under this Section, shall
be allowed as a deduction only if it is shown that the
tax required to be deducted and withheld therefrom
has been paid to the Bureau of Internal Revenue in
accordance with this Section 58 and 81 of this Code.

(L) Optional Standard Deduction. - In lieu of the

deductions allowed under the preceding Subsections,
an individual subject to tax under Section 24, other
than a nonresident alien, may elect a standard
deduction in an amount not exceeding ten percent
(10%) of his gross income. Unless the taxpayer
 signifies in his return his intention to elect the
optional standard deduction, he shall be considered as
having availed himself of the deductions allowed in
the preceding Subsections. Such election when made
in the return shall be irrevocable for the taxable year
for which the return is made: Provided, That an
individual who is entitled to and claimed for the
optional standard deduction shall not be required to
submit with his tax return such financial statements
otherwise required under this Code: Provided,
further, That except when the Commissioner
otherwise permits, the said individual shall keep such
records pertaining to his gross income during the
taxable year, as may be required by the rules and
regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.

(M) Premium Payments on Health and/or

Hospitalization Insurance of an Individual Taxpayer. - the
amount of premiums not to exceed Two thousand
four hundred pesos (P2,400) per family or Two
hundred pesos (P200) a month paid during the
taxable year for health and/or hospitalization
insurance taken by the taxpayer for himself, including
his family, shall be allowed as a deduction from his
gross income: Provided, That said family has a gross
income of not more than Two hundred fifty thousand
pesos (P250,000) for the taxable year: Provided,
finally, That in the case of married taxpayers, only the
spouse claiming the additional exemption for
dependents shall be entitled to this deduction.

Notwithstanding the provision of the preceding Subsections, The

Secretary of Finance, upon recommendation of the Commissioner,
after a public hearing shall have been held for this purpose, may
prescribe by rules and regulations, limitations or ceilings for any of
the itemized deductions under Subsections (A) to (J) of this Section:
Provided, That for purposes of determining such ceilings or
limitations, the Secretary of Finance shall consider the following
factors: (1) adequacy of the prescribed limits on the actual
expenditure requirements of each particular industry; and (2)effects
of inflation on expenditure levels: Provided, further, That no ceilings
shall further be imposed on items of expense already subject to
ceilings under present law.

Section 35. Allowance of Personal Exemption for Individual Taxpayer.

-

(A) In General. - For purposes of determining the

tax provided in Section 24 (A) of this Title, there shall
be allowed a basic personal exemption as follows:

For single individual or married

individual judicially decreed as legally
P20,000
separated with no qualified
dependents
For Head of Family P25,000
For each married individual P32,000

In the case of married individuals where only one

of the spouses is deriving gross income, only such
spouse shall be allowed the personal exemption.

For purposes of this paragraph, the term 'head of

family' means an unmarried or legally separated man
or woman with one or both parents, or with one or
more brothers or sisters, or with one or more
legitimate, recognized natural or legally adopted
children living with and dependent upon him for
their chief support, where such brothers or sisters or
children are not more than twenty-one (21) years of
age, unmarried and not gainfully employed or where
such children, brothers or sisters, regardless of age are
incapable of self-support because of mental or physical
defect.

(B) Additional Exemption for Dependents. -

There shall be allowed an additional exemption of
Eight thousand pesos (P8,000) for each dependent not
exceeding four (4).

The additional exemption for dependent 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 herein allowed.

For purposes of this Subsection, 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.

(C) Change of Status. - If the taxpayer marries or

should have additional dependent(s) as defined above
 during the taxable year, the taxpayer may claim the
corresponding additional exemption, as the case may
be, in full for such year.

If the taxpayer dies during the taxable year, his

estate may still claim the personal and additional
exemptions for himself and his dependent(s) as if he
died at the close of such year.

If the spouse or any of the dependents dies or if

any of such dependents marries, becomes twenty-one
(21) years old or becomes gainfully employed during
the taxable year, the taxpayer may still claim the same
exemptions as if the spouse or any of the dependents
died, or as if such dependents married, became twenty-
one (21) years old or became gainfully employed at the
close of such year.

(D) Personal Exemption Allowable to

Nonresident Alien Individual. - A nonresident alien
individual engaged in trade, business or in the exercise
of a profession in the Philippines shall be entitled to a
personal exemption in the amount equal to the
exemptions allowed in the income tax law in the
country of which he is a subject - or citizen, to citizens
of the Philippines not residing in such country, not to
exceed the amount fixed in this Section as exemption
for citizens or resident of the Philippines: Provided,
That said nonresident alien should file a true and
accurate return of the total income received by him
from all sources in the Philippines, as required by this
Title.

Section 36. Items not Deductible.-

 (A) General Rule. - In computing net income, no
deduction shall in any case be allowed in respect to -

(1) Personal, living or family expenses;

(2) Any amount paid out for new

buildings or for permanent improvements, or
betterments made to increase the value of any
property or estate;

This Subsection shall not apply to

intangible drilling and development costs
incurred in petroleum operations which are
deductible under Subsection (G) (1) of Section
34 of this Code.

(3) Any amount expended in restoring

property or in making good the exhaustion
thereof for which an allowance is or has been
made; or

(4) Premiums paid on any life insurance

policy covering the life of any officer or
employee, or of any person financially
interested in any trade or business carried on
by the taxpayer, individual or corporate, when
the taxpayer is directly or indirectly a
beneficiary under such policy.

(B) Losses from Sales or Exchanges of Property. - In

computing net income, no deductions shall in any
case be allowed in respect of losses from sales or
exchanges of property directly or indirectly -
 (1) Between members of a family. For
purposes of this paragraph, the family of an
individual shall include only his brothers and
sisters (whether by the whole or half-blood),
spouse, ancestors, and lineal descendants; or

(2) Except in the case of distributions in

liquidation, between an individual and
corporation more than fifty percent (50%) in
value of the outstanding stock of which is
owned, directly or indirectly, by or for such
individual; or

(3) Except in the case of distributions in

liquidation, between two corporations more
than fifty percent (50%) in value of the
outstanding stock of which is owned, directly
or indirectly, by or for the same individual if
either one of such corporations, with respect
to the taxable year of the corporation
preceding the date of the sale of exchange was
under the law applicable to such taxable year, a
personal holding company or a foreign
personal holding company;

(4) Between the grantor and a fiduciary of

any trust; or

(5) Between the fiduciary of and the

fiduciary of a trust and the fiduciary of another
trust if the same person is a grantor with
respect to each trust; or

(6) Between a fiduciary of a trust and

beneficiary of such trust.
 Section 37. Special Provisions Regarding Income and Deductions of
Insurance Companies, Whether Domestic or Foreign. -

(A) Special Deduction Allowed to Insurance

Companies. - In the case of insurance companies,
whether domestic or foreign doing business in the
Philippines, the net additions, if any, required by law
to be made within the year to reserve funds and the
sums other than dividends paid within the year on
policy and annuity contracts may be deducted from
their gross income: Provided, however, That the
released reserve be treated as income for the year of
release.

(B) Mutual Insurance Companies. - In the case of

mutual fire and mutual employers' liability and mutual
workmen's compensation and mutual casualty
insurance companies requiring their members to make
premium deposits to provide for losses and expenses,
said companies shall not return as income any portion
of the premium deposits returned to their
policyholders, but shall return as taxable income all
income received by them from all other sources plus
such portion of the premium deposits as are retained
by the companies for purposes other than the payment
of losses and expenses and reinsurance reserves.

(C) Mutual Marine Insurance Companies. - Mutual

marine insurance companies shall include in their
return of gross income, gross premiums collected and
received by them less amounts paid to policyholders
on account of premiums previously paid by them and
interest paid upon those amounts between the
ascertainment and payment thereof.
 (D) Assessment Insurance Companies. - Assessment
insurance companies, whether domestic or foreign,
may deduct from their gross income the actual deposit
of sums with the officers of the Government of the
Philippines pursuant to law, as additions to guarantee
or reserve funds.

Section 38. Losses from Wash Sales of Stock or Securities. -

(A) In the case of any loss claimed to have been

sustained from any sale or other disposition of shares
of stock or securities where it appears that within a
period beginning thirty (30) days before the date of
such sale or disposition and ending thirty (30) days
after such date, the taxpayer has acquired (by purchase
or by exchange upon which the entire amount of gain
or loss was recognized by law), or has entered into a
contact or option so to acquire, substantially identical
stock or securities, then no deduction for the loss shall
be allowed under Section 34 unless the claim is made
by a dealer in stock or securities and with respect to a
transaction made in the ordinary course of the
business of such dealer.

(B) If the amount of stock or securities acquired

(or covered by the contract or option to acquire) is less
than the amount of stock or securities sold or
otherwise disposed of, then the particular shares of
stock or securities, the loss form the sale or other
disposition of which is not deductible, shall be
determined under rules and regulations prescribed by
the Secretary of Finance, upon recommendation of
the Commissioner.
 (C) If the amount of stock or securities acquired
(or covered by the contract or option to acquire
which) resulted in the non-deductibility of the loss,
shall be determined under rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.

Section 39. Capital Gains and Losses. -

(A) Definitions. - As used in this Title -

(1) Capital Assets. - the term 'capital assets'

means property held by the taxpayer (whether
or not connected with his trade or business),
but does not include stock in trade of the
taxpayer or other property of a kind which
would properly be included in the inventory of
the taxpayer if on hand at the close of the
taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary
course of his trade or business, or property
used in the trade or business, of a character
which is subject to the allowance for
depreciation provided in Subsection (F) of
Section 34; or real property used in trade or
business of the taxpayer.

(2) Net Capital Gain. - The term 'net

capital gain' means the excess of the gains from
sales or exchanges of capital assets over the
losses from such sales or exchanges.

(3) Net Capital Loss. - The term 'net capital

loss' means the excess of the losses from sales
 or exchanges of capital assets over the gains
from such sales or exchanges.

(B) Percentage Taken into Account. - In the case of a

taxpayer, other than a corporation, only the following
percentages of the gain or loss recognized upon the
sale or exchange of a capital asset shall be taken into
account in computing net capital gain, net capital loss,
and net income:

(1)One hundred percent (100%) if the

capital asset has been held for not more than
twelve (12) months; and

(2)Fifty percent (50%) if the capital asset

has been held for more than twelve (12)
months;

(C) Limitation on Capital Losses. - Losses from sales

or exchanges of capital assets shall be allowed only to
the extent of the gains from such sales or exchanges. If
a bank or trust company incorporated under the laws
of the Philippines, a substantial part of whose business
is the receipt of deposits, sells any bond, debenture,
note, or certificate or other evidence of indebtedness
issued by any corporation (including one issued by a
government or political subdivision thereof), with
interest coupons or in registered form, any loss
resulting from such sale shall not be subject to the
foregoing limitation and shall not be included in
determining the applicability of such limitation to
other losses.

(D) Net Capital Loss Carry-over. - If any taxpayer,

other than a corporation, sustains in any taxable year a
 net capital loss, such loss (in an amount not in excess
of the net income for such year) shall be treated in the
succeeding taxable year as a loss from the sale or
exchange of a capital asset held for not more than
twelve (12) months.

(E) Retirement of Bonds, Etc. - For purposes of this

Title, amounts received by the holder upon the
retirement of bonds, debentures, notes or certificates
or other evidences of indebtedness issued by any
corporation (including those issued by a government
or political subdivision thereof) with interest coupons
or in registered form, shall be considered as amounts
received in exchange therefor.

(F) Gains or losses from Short Sales, Etc. - For

purposes of this Title -

(1) Gains or losses from short sales of

property shall be considered as gains or losses
from sales or exchanges of capital assets; and

(2) Gains or losses attributable to the

failure to exercise privileges or options to buy
or sell property shall be considered as capital
gains or losses.

Section 40. Determination of Amount and Recognition of Gain or

Loss. -

(A) Computation of Gain or Loss. - The gain from

the sale or other disposition of property shall be the
excess of the amount realized therefrom over the basis
or adjusted basis for determining gain, and the loss
shall be the excess of the basis or adjusted basis for
determining loss over the amount realized. The
amount realized from the sale or other disposition of
property shall be the sum of money received plus the
fair market value of the property (other than money)
received;

(B) Basis for Determining Gain or Loss from Sale or

Disposition of Property. - The basis of property shall be -

(1) The cost thereof in the case of property

acquired on or after March 1, 1913, if such
property was acquired by purchase; or

(2) The fair market price or value as of the

date of acquisition, if the same was acquired by
inheritance; or

(3) If the property was acquired by gift, the

basis shall be the same as if it would be in the
hands of the donor or the last preceding owner
by whom it was not acquired by gift, except
that if such basis is greater than the fair market
value of the property at the time of the gift
then, for the purpose of determining loss, the
basis shall be such fair market value; or

(4) If the property was acquired for less

than an adequate consideration in money or
money's worth, the basis of such property is
the amount paid by the transferee for the
property; or

(5) The basis as defined in paragraph

(C)(5) of this Section, if the property was
 acquired in a transaction where gain or loss is
not recognized under paragraph (C)(2) of this
Section.

(C) Exchange of Property. -

(1) General Rule. - Except as herein

provided, upon the sale or exchange or
property, the entire amount of the gain or loss,
as the case may be, shall be recognized.

(2) Exception. - No gain or loss shall be

recognized if in pursuance of a plan of merger
or consolidation -

(a) A corporation, which is a party

to a merger or consolidation,
exchanges property solely for stock in a
corporation, which is a party to the
merger or consolidation; or

(b) A shareholder exchanges stock

in a corporation, which is a party to the
merger or consolidation, solely for the
stock of another corporation also a
party to the merger or consolidation;
or

(c) A security holder of a

corporation, which is a party to the
merger or consolidation, exchanges his
securities in such corporation, solely
for stock or securities in such
corporation, a party to the merger or
consolidation.
 No gain or loss shall also be recognized if
property is transferred to a corporation by a
person in exchange for stock or unit of
participation in such a corporation of which as
a result of such exchange said person, alone or
together with others, not exceeding four (4)
persons, gains control of said corporation:
Provided, That stocks issued for services shall
not be considered as issued in return for
property.

(3) Exchange Not Solely in Kind. -

(a) If, in connection with an

exchange described in the above
exceptions, an individual, a
shareholder, a security holder or a
corporation receives not only stock or
securities permitted to be received
without the recognition of gain or loss,
but also money and/or property, the
gain, if any, but not the loss, shall be
recognized but in an amount not in
excess of the sum of the money and fair
market value of such other property
received: Provided, That as to the
shareholder, if the money and/or other
property received has the effect of a
distribution of a taxable dividend,
there shall be taxed as dividend to the
shareholder an amount of the gain
recognized not in excess of his
proportionate share of the
undistributed earnings and profits of
the corporation; the remainder, if any,
 of the gain recognized shall be treated
as a capital gain.

(b) If, in connection with the

exchange described in the above
exceptions, the transferor corporation
receives not only stock permitted to be
received without the recognition of
gain or loss but also money and/or
other property, then (i) if the
corporation receiving such money
and/or other property distributes it in
pursuance of the plan of merger or
consolidation, no gain to the
corporation shall be recognized from
the exchange, but (ii) if the corporation
receiving such other property and/or
money does not distribute it in
pursuance of the plan of merger or
consolidation, the gain, if any, but not
the loss to the corporation shall be
recognized but in an amount not in
excess of the sum of such money and
the fair market value of such other
property so received, which is not
distributed.

(4) Assumption of Liability. -

(a) If the taxpayer, in connection

with the exchanges described in the
foregoing exceptions, receives stock or
securities which would be permitted to
be received without the recognition of
the gain if it were the sole
 consideration, and as part of the
consideration, another party to the
exchange assumes a liability of the
taxpayer, or acquires from the taxpayer
property, subject to a liability, then
such assumption or acquisition shall
not be treated as money and/or other
property, and shall not prevent the
exchange from being within the
exceptions.

(b) If the amount of the liabilities

assumed plus the amount of the
liabilities to which the property is
subject exceed the total of the adjusted
basis of the property transferred
pursuant to such exchange, then such
excess shall be considered as a gain
from the sale or exchange of a capital
asset or of property which is not a
capital asset, as the case may
be.1avvphil.ñet

(5) Basis -

(a) The basis of the stock or

securities received by the transferor
upon the exchange specified in the
above exception shall be the same as
the basis of the property, stock or
securities exchanged, decreased by (1)
the money received, and (2) the fair
market value of the other property
received, and increased by (a) the
amount treated as dividend of the
 shareholder and (b) the amount of any
gain that was recognized on the
exchange: Provided, That the property
received as 'boot' shall have as basis its
fair market value: Provided, further,
That if as part of the consideration to
the transferor, the transferee of
property assumes a liability of the
transferor or acquires form the latter
property subject to a liability, such
assumption or acquisition (in the
amount of the liability) shall, for
purposes of this paragraph, be treated
as money received by the transferor on
the exchange: Provided, finally, That if
the transferor receives several kinds of
stock or securities, the Commissioner
is hereby authorized to allocate the
basis among the several classes of stocks
or securities.

(b) The basis of the property

transferred in the hands of the
transferee shall be the same as it would
be in the hands of the transferor
increased by the amount of the gain
recognized to the transferor on the
transfer.

(6) Definitions. -

(a) The term 'securities' means

bonds and debentures but not 'notes"
of whatever class or duration.
 (b) The term 'merger' or
'consolidation', when used in this
Section, shall be understood to mean:
(i) the ordinary merger or
consolidation, or (ii) the acquisition by
one corporation of all or substantially
all the properties of another
corporation solely for stock: Provided,
That for a transaction to be regarded as
a merger or consolidation within the
purview of this Section, it must be
undertaken for a bona fide business
purpose and not solely for the purpose
of escaping the burden of taxation:
Provided, further, That in determining
whether a bona fide business purpose
exists, each and every step of the
transaction shall be considered and the
whole transaction or series of
transaction shall be treated as a single
unit: Provided, finally , That in
determining whether the property
transferred constitutes a substantial
portion of the property of the
transferor, the term 'property' shall be
taken to include the cash assets of the
transferor.

(c) The3term 'control', when used

in this Section, shall mean ownership
of stocks in a corporation possessing at
least fifty-one percent (51%) of the
total voting power of all classes of
stocks entitled to vote.
 (d) The Secretary of Finance, upon
recommendation of the
Commissioner, is hereby authorized to
issue rules and regulations for the
purpose 'substantially all' and for the
proper implementation of this Section.

Section 41. Inventories. - whenever in the judgment of the

Commissioner, the use of inventories is necessary in order to
determine clearly the income of any taxpayer, inventories shall be
taken by such taxpayer upon such basis as the Secretary of Finance,
upon recommendation of the Commissioner, may, by rules and
regulations, prescribe as conforming as nearly as may be to the best
accounting practice in the trade or business and as most clearly
reflecting the income.

If a taxpayer, after having complied with the terms and a

conditions prescribed by the Commissioner, uses a particular method
of valuing its inventory for any taxable year, then such method shall
be used in all subsequent taxable years unless:

(i) with the approval of the Commissioner, a

change to a different method is authorized; or

(ii) the Commissioner finds that the nature o the

stock on hand (e.g., its scarcity, liquidity, marketability
and price movements) is such that inventory gains
should be considered realized for tax purposes and,
therefore, it is necessary to modify the valuation
method for purposes of ascertaining the income,
profits, or loss in a move realistic manner: Provided,
however, That the Commissioner shall not exercise his
authority to require a change in inventory method
more often than once every three (3 years: Provided,
further, That any change in an inventory valuation
 method must be subject to approval by the Secretary
of Finance.

Section 42. Income from Sources Within the Philippines.-

(A) Gross Income From Sources Within the Philippines.

- The following items of gross income shall be treated
as gross income from sources within the Philippines:

(1) Interests. - Interests derived from

sources within the Philippines, and interests
on bonds, notes or other interest-bearing
obligation of residents, corporate or otherwise;

(2) Dividends. - The amount received as

dividends:

(a) from a domestic corporation;

and

(b) from a foreign corporation,

unless less than fifty percent (50%) of
the gross income of such foreign
corporation for the three-year period
ending with the close of its taxable year
preceding the declaration of such
dividends or for such part of such
period as the corporation has been in
existence) was derived from sources
within the Philippines as determined
under the provisions of this Section;
but only in an amount which bears the
same ration to such dividends as the
gross income of the corporation for
such period derived from sources
 within the Philippines bears to its gross
income from all sources.

(3) Services. - Compensation for labor or

personal services performed in the Philippines;

(4) Rentals and royalties. - Rentals and

royalties from property located in the
Philippines or from any interest in such
property, including rentals or royalties for -

(a) The use of or the right or

privilege to use in the Philippines any
copyright, patent, design or model,
plan, secret formula or process,
goodwill, trademark, trade brand or
other like property or right;

(b) The use of, or the right to use

in the Philippines any industrial,
commercial or scientific equipment;

(c) The supply of scientific,

technical, industrial or commercial
knowledge or information;

(d) The supply of any assistance

that is ancillary and subsidiary to, and
is furnished as a means of enabling the
application or enjoyment of, any such
property or right as is mentioned in
paragraph (a), any such equipment as is
mentioned in paragraph (b) or any
such knowledge or information as is
mentioned in paragraph (c);
 (e) The supply of services by a
nonresident person or his employee in
connection with the use of property or
rights belonging to, or the installation
or operation of any brand, machinery
or other apparatus purchased from
such nonresident person;

(f) Technical advice, assistance or

services rendered in connection with
technical management or
administration of any scientific,
industrial or commercial undertaking,
venture, project or scheme; and

(g) The use of or the right to use:

(i) Motion picture films;

(ii) Films or video tapes for

use in connection with
television; and

(iii) Tapes for use in

connection with radio
broadcasting.

(5) Sale of Real Property. - gains, profits and

income from the sale of real property located
in the Philippines; and

(6) Sale of Personal Property. - gains; profits

and income from the sale of personal property,
as determined in Subsection (E) of this
Section.
 (B) Taxable Income From Sources Within the
Philippines. -

(1) General Rule. - From the items of gross

income specified in Subsection (A) of this
Section, there shall be deducted the expenses,
losses and other deductions properly allocated
thereto and a ratable part of expenses,
interests, losses and other deductions
effectively connected with the business or trade
conducted exclusively within the Philippines
which cannot definitely be allocated to some
items or class of gross income: Provided, That
such items of deductions shall be allowed only
if fully substantiated by all the information
necessary for its calculation. The remainder, if
any, shall be treated in full as taxable income
from sources within the Philippines.

(2) Exception. - No deductions for interest

paid or incurred abroad shall be allowed from
the item of gross income specified in
subsection (A) unless indebtedness was actually
incurred to provide funds for use in
connection with the conduct or operation of
trade or business in the Philippines.

(C) Gross Income From Sources Without the

Philippines. - The following items of gross income shall
be treated as income from sources without the
Philippines:
 (1) Interests other than those derived from
sources within the Philippines as provided in
paragraph (1) of Subsection (A) of this Section;

(2) Dividends other than those derived

from sources within the Philippines as
provided in paragraph (2) of Subsection (A) of
this Section;

(3) Compensation for labor or personal

services performed without the Philippines;

(4) Rentals or royalties from property

located without the Philippines or from any
interest in such property including rentals or
royalties for the use of or for the privilege of
using without the Philippines, patents,
copyrights, secret processes and formulas,
goodwill, trademarks, trade brands, franchises
and other like properties; and

(5) Gains, profits and income from the

sale of real property located without the
Philippines.

(D) Taxable Income From Sources Without the

Philippines. - From the items of gross income specified
in Subsection (C) of this Section there shall be
deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto and a
ratable part of any expense, loss or other deduction
which cannot definitely be allocated to some items or
classes of gross income. The remainder, if any, shall be
treated in full as taxable income from sources without
the Philippines.
 (E) Income From Sources Partly Within and Partly
Without the Philippines.- Items of gross income,
expenses, losses and deductions, other than those
specified in Subsections (A) and (C) of this Section,
shall be allocated or apportioned to sources within or
without the Philippines, under the rules and
regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner. Where
items of gross income are separately allocated to
sources within the Philippines, there shall be deducted
(for the purpose of computing the taxable income
therefrom) the expenses, losses and other deductions
properly apportioned or allocated thereto and a
ratable part of other expenses, losses or other
deductions which cannot definitely be allocated to
some items or classes of gross income. The remainder,
if any, shall be included in full as taxable income from
sources within the Philippines. In the case of gross
income derived from sources partly within and partly
without the Philippines, the taxable income may first
be computed by deducting the expenses, losses or
other deductions apportioned or allocated thereto and
a ratable part of any expense, loss or other deduction
which cannot definitely be allocated to some items or
classes of gross income; and the portion of such
taxable income attributable to sources within the
Philippines may be determined by processes or
formulas of general apportionment prescribed by the
Secretary of Finance. Gains, profits and income from
the sale of personal property produced (in whole or in
part) by the taxpayer within and sold without the
Philippines, or produced (in whole or in part) by the
taxpayer without and sold within the Philippines, shall
be treated as derived partly from sources within and
partly from sources without the Philippines.

Gains, profits and income derived from the

purchase of personal property within and its sale
without the Philippines, or from the purchase of
personal property without and its sale within the
Philippines shall be treated as derived entirely form
sources within the country in which sold: Provided,
however, That gain from the sale of shares of stock in
a domestic corporation shall be treated as derived
entirely form sources within the Philippines regardless
of where the said shares are sold. The transfer by a
nonresident alien or a foreign corporation to anyone
of any share of stock issued by a domestic corporation
shall not be effected or made in its book unless: (1)
the transferor has filed with the Commissioner a bond
conditioned upon the future payment by him of any
income tax that may be due on the gains derived from
such transfer, or (2) the Commissioner has certified
that the taxes, if any, imposed in this Title and due on
the gain realized from such sale or transfer have been
paid. It shall be the duty of the transferor and the
corporation the shares of which are sold or
transferred, to advise the transferee of this
requirement.

(F) Definitions. - As used in this Section the words

'sale' or 'sold' include 'exchange' or 'exchanged'; and
the word 'produced' includes 'created', 'fabricated,'
'manufactured', 'extracted,' 'processed', 'cured' or 'aged.'
CHAPTER VIII - ACCOUNTING PERIODS AND METHODS OF
ACCOUNTING

Section 43. General Rule. - The taxable income shall be computed

upon the basis of the taxpayer's annual accounting period (fiscal year
or calendar year, as the case may be) in accordance with the method
of accounting regularly employed in keeping the books of such
taxpayer, but if no such method of accounting has been so employed,
or if the method employed does not clearly reflect the income, the
computation shall be made in accordance with such method as in the
opinion of the Commissioner clearly reflects the income. If the
taxpayer's annual accounting period is other than a fiscal year, as
defined in Section 22(Q), or if the taxpayer has no annual accounting
period, or does not keep books, or if the taxpayer is an individual, the
taxable income shall be computed on the basis of the calendar year.

Section 44. Period in which Items of Gross Income Included. - The

amount of all items of gross income shall be included in the gross
income for the taxable year in which received by the taxpayer, unless,
under methods of accounting permitted under Section 43, any such
amounts are to be properly accounted for as of a different period. In
the case of the death of a taxpayer, there shall be included in
computing taxable income for the taxable period in which falls the
date of his death, amounts accrued up to the date of his death if not
otherwise properly includible in respect of such period or a prior
period.

Section 45. Period for which Deductions and Credits Taken. - The
deductions provided for in this Title shall be taken for the taxable
year in which 'paid or accrued' or 'paid or incurred', dependent upon
the method of accounting the basis of which the net income is
computed, unless in order to clearly reflect the income, the
deductions should be taken as of a different period. In the case of the
death of a taxpayer, there shall be allowed as deductions for the
taxable period in which falls the date of his death, amounts accrued
up to the date of his death if not otherwise properly allowable in
respect of such period or a prior period.

Section 46. Change of Accounting Period. If a taxpayer, other than

an individual, changes his accounting period from fiscal year to
calendar year, from calendar year to fiscal year, or from one fiscal year
to another, the net income shall, with the approval of the
Commissioner, be computed on the basis of such new accounting
period, subject to the provisions of Section 47.

Section 47. Final or Adjustment Returns for a Period of Less than

Twelve (12) Months.

(A) Returns for Short Period Resulting from Change of

Accounting Period. - If a taxpayer, other than an
individual, with the approval of the Commissioner,
changes the basis of computing net income from fiscal
year to calendar year, a separate final or adjustment
return shall be made for the period between the close
of the last fiscal year for which return was made and
the following December 31. If the change is from
calendar year to fiscal year, a separate final or
adjustment return shall be made for the period
between the close of the last calendar year for which
return was made and the date designated as the close
of the fiscal year. If the change is from one fiscal year
to another fiscal year, a separate final or adjustment
return shall be made for the period between the close
of the former fiscal year and the date designated as the
close of the new fiscal year.

(B) Income Computed on Basis of Short Period. -

Where a separate final or adjustment return is made
 under Subsection (A) on account of a change in the
accounting period, and in all other cases where a
separate final or adjustment return is required or
permitted by rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner, to be made for a fractional part of a
year, then the income shall be computed on the basis
of the period for which separate final or adjustment
return is made.

Section 48. Accounting for Long-term Contracts. - Income from long-

term contracts shall be reported for tax purposes in the manner as
provided in this Section. As used herein, the term 'long-term
contracts' means building, installation or construction contracts
covering a period in excess of one (1) year. Persons whose gross
income is derived in whole or in part from such contracts shall report
such income upon the basis of percentage of completion. The return
should be accompanied by a return certificate of architects or
engineers showing the percentage of completion during the taxable
year of the entire work performed under contract. There should be
deducted from such gross income all expenditures made during the
taxable year on account of the contract, account being taken of the
material and supplies on hand at the beginning and end of the
taxable period for use in connection with the work under the contract
but not yet so applied. If upon completion of a contract, it is found
that the taxable net income arising thereunder has not been clearly
reflected for any year or years, the Commissioner may permit or
require an amended return.

Section 49. Installment Basis. -

(A) Sales of Dealers in Personal Property. - Under

rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner,
a person who regularly sells or otherwise disposes of
personal property on the installment plan may return
as income therefrom in any taxable year that
proportion of the installment payments actually
received in that year, which the gross profit realized or
to be realized when payment is completed, bears to the
total contract price.

(B) Sales of Realty and Casual Sales of Personality. -

In the case (1) of a casual sale or other casual
disposition of personal property (other than property
of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the
taxable year), for a price exceeding One thousand
pesos (P1,000), or (2) of a sale or other disposition of
real property, if in either case the initial payments do
not exceed twenty-five percent (25%) of the selling
price, the income may, under the rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be returned
on the basis and in the manner above prescribed in
this Section. As used in this Section, the term 'initial
payments' means the payments received in cash or
property other than evidences of indebtedness of the
purchaser during the taxable period in which the sale
or other disposition is made.

(C) Sales of Real Property Considered as Capital Asset

by Individuals. - An individual who sells or disposes of
real property, considered as capital asset, and is
otherwise qualified to report the gain therefrom under
Subsection (B) may pay the capital gains tax in
installments under rules and regulations to be
 promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.

(D) Change from Accrual to Installment Basis. - If a

taxpayer entitled to the benefits of Subsection (A)
elects for any taxable year to report his taxable income
on the installment basis, then in computing his
income for the year of change or any subsequent year,
amounts actually received during any such year on
account of sales or other dispositions of property
made in any prior year shall not be excluded.

Section 50. Allocation of Income and Deductions. - In the case of

two or more organizations, trades or businesses (whether or not
incorporated and whether or not organized in the Philippines) owned
or controlled directly or indirectly by the same interests, the
Commissioner is authorized to distribute, apportion or allocate gross
income or deductions between or among such organization, trade or
business, if he determined that such distribution, apportionment or
allocation is necessary in order to prevent evasion of taxes or clearly
to reflect the income of any such organization, trade or business.

CHAPTER IX - RETURNS AND PAYMENT OF TAX

Section 51. Individual Return. -

(A) Requirements. -

(1) Except as provided in paragraph (2) of

this Subsection, the following individuals are
required to file an income tax return:

(a) Every Filipino citizen residing

in the Philippines;
 (b) Every Filipino citizen residing
outside the Philippines, on his income
from sources within the Philippines;

(c) Every alien residing in the

Philippines, on income derived from
sources within the Philippines; and

(d) Every nonresident alien

engaged in trade or business or in the
exercise of profession in the
Philippines.

(2) The following individuals shall not be

required to file an income tax return;

(a) An individual whose gross

income does not exceed his total
personal and additional exemptions for
dependents under Section 35:
Provided, That a citizen of the
Philippines and any alien individual
engaged in business or practice of
profession within the Philippine shall
file an income tax return, regardless of
the amount of gross income;

(b) An individual with respect to

pure compensation income, as defined
in Section 32 (A)(1), derived from
sources within the Philippines, the
income tax on which has been correctly
withheld under the provisions of
Section 79 of this Code: Provided,
That an individual deriving
 compensation concurrently from two
or more employers at any time during
the taxable year shall file an income tax
return: Provided, further, That an
individual whose compensation
income derived from sources within
the Philippines exceeds Sixty thousand
pesos (P60,000) shall also file an
income tax return;

(c) An individual whose sole

income has been subjected to final
withholding tax pursuant to Section
57(A) of this Code; and

(d) An individual who is exempt

from income tax pursuant to the
provisions of this Code and other laws,
general or special.

(3) The forgoing notwithstanding, any

individual not required to file an income tax
return may nevertheless be required to file an
information return pursuant to rules and
regulations prescribed by the Secretary of
Finance, upon recommendation of the
Commissioner.

(4) The income tax return shall be filed in

duplicate by the following persons:

(a) A resident citizen - on his

income from all sources;
 (b) A nonresident citizen - on his
income derived from sources within
the Philippines;

(c) A resident alien - on his income

derived from sources within the
Philippines; and

(d) A nonresident alien engaged in

trade or business in the Philippines -
on his income derived from sources
within the Philippines.

(B) Where to File. - Except in cases where the

Commissioner otherwise permits, the return shall be
filed with an authorized agent bank, Revenue District
Officer, Collection Agent or duly authorized Treasurer
of the city or municipality in which such person has
his legal residence or principal place of business in the
Philippines, or if there be no legal residence or place
of business in the Philippines, with the Office of the
Commissioner.

(C) When to File. -

(1) The return of any individual specified

above shall be filed on or before the fifteenth
(15th) day of April of each year covering
income for the preceding taxable year.

(2) Individuals subject to tax on capital

gains;

(a) From the sale or exchange of

shares of stock not traded thru a local
 stock exchange as prescribed under
Section 24(c) shall file a return within
thirty (30) days after each transaction
and a final consolidated return on or
before April 15 of each year covering
all stock transactions of the preceding
taxable year; and

(b) From the sale or disposition of

real property under Section 24(D) shall
file a return within thirty (30) days
following each sale or other
disposition.

(D) Husband and Wife. - Married individuals,

whether citizens, resident or nonresident aliens, who
do not derive income purely from compensation, shall
file a return for the taxable year to include the income
of both spouses, but where it is impracticable for the
spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall
be consolidated by the Bureau for purposes of
verification for the taxable year.

(E) Return of Parent to Include Income of Children. -

The income of unmarried minors derived from
properly received from a living parent shall be
included in the return of the parent, except (1) when
the donor's tax has been paid on such property, or (2)
when the transfer of such property is exempt from
donor's tax.

(F) Persons Under Disability. - If the taxpayer is

unable to make his own return, the return may be
 made by his duly authorized agent or representative or
by the guardian or other person charged with the care
of his person or property, the principal and his
representative or guardian assuming the responsibility
of making the return and incurring penalties provided
for erroneous, false or fraudulent returns.

(G) Signature Presumed Correct. - The fact that an

individual's name is signed to a filed return shall be
prima facie evidence for all purposes that the return
was actually signed by him.

Section 52. Corporation Returns. -

(A) Requirements. - Every corporation subject to

the tax herein imposed, except foreign corporations
not engaged in trade or business in the Philippines,
shall render, in duplicate, a true and accurate
quarterly income tax return and final or adjustment
return in accordance with the provisions of Chapter
XII of this Title. The return shall be filed by the
president, vice-president or other principal officer, and
shall be sworn to by such officer and by the treasurer
or assistant treasurer.

(B) Taxable Year of Corporation. - A corporation

may employ either calendar year or fiscal year as a
basis for filing its annual income tax return: Provided,
That the corporation shall not change the accounting
period employed without prior approval from the
Commissioner in accordance with the provisions of
Section 47 of this Code.
 (C) Return of Corporation Contemplating Dissolution
or Reorganization. - Every corporation shall, within
thirty (30) days after the adoption by the corporation
of a resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital
stock, including a corporation which has been notified
of possible involuntary dissolution by the Securities
and Exchange Commission, or for its reorganization,
render a correct return to the Commissioner, verified
under oath, setting forth the terms of such resolution
or plan and such other information as the Secretary of
Finance, upon recommendation of the commissioner,
shall, by rules and regulations, prescribe.

The dissolving or reorganizing corporation shall,

prior to the issuance by the Securities and Exchange
Commission of the Certificate of Dissolution or
Reorganization, as may be defined by rules and
regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, secure a
certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the
Securities and Exchange Commission.

(D) Return on Capital Gains Realized from Sale of

Shares of Stock not Traded in the Local Stock Exchange. -
Every corporation deriving capital gains from the sale
or exchange of shares of stock not traded thru a local
stock exchange as prescribed under Sections 24 (c), 25
(A)(3), 27 (E)(2), 28(A)(8)(c) and 28 (B)(5)(c), shall file
a return within thirty (30) days after each transactions
and a final consolidated return of all transactions
during the taxable year on or before the fifteenth
 (15th) day of the fourth (4th) month following the
close of the taxable year.

Section 53. Extension of Time to File Returns. - The Commissioner

may, in meritorious cases, grant a reasonable extension of time for
filing returns of income (or final and adjustment returns in case of
corporations), subject to the provisions of Section 56 of this Code.

Section 54. Returns of Receivers, Trustees in Bankruptcy or Assignees. -

In cases wherein receivers, trustees in bankruptcy or assignees are
operating the property or business of a corporation, subject to the tax
imposed by this Title, such receivers, trustees or assignees shall make
returns of net income as and for such corporation, in the same
manner and form as such organization is hereinbefore required to
make returns, and any tax due on the income as returned by
receivers, trustees or assignees shall be assessed and collected in the
same manner as if assessed directly against the organizations of whose
businesses or properties they have custody or control.

Section 55. Returns of General Professional Partnerships. - Every

general professional partnership shall file, in duplicate, a return of its
income, except income exempt under Section 32 (B) of this Title,
setting forth the items of gross income and of deductions allowed by
this Title, and the names, Taxpayer Identification Numbers (TIN),
addresses and shares of each of the partners.

Section 56. Payment and Assessment of Income Tax for Individuals

and Corporation. -

(A) Payment of Tax. -

(1) In General. - The total amount of tax

imposed by this Title shall be paid by the
person subject thereto at the time the return is
filed. In the case of tramp vessels, the shipping
agents and/or the husbanding agents, and in
their absence, the captains thereof are required
to file the return herein provided and pay the
tax due thereon before their departure. Upon
failure of the said agents or captains to file the
return and pay the tax, the Bureau of Customs
is hereby authorized to hold the vessel and
prevent its departure until proof of payment of
the tax is presented or a sufficient bond is filed
to answer for the tax due.

(2) Installment of Payment. - When the tax

due is in excess of Two thousand pesos
(P2,000), the taxpayer other than a corporation
may elect to pay the tax in two (2) equal
installments in which case, the first installment
shall be paid at the time the return is filed and
the second installment, on or before July 15
following the close of the calendar year. If any
installment is not paid on or before the date
fixed for its payment, the whole amount of the
tax unpaid becomes due and payable, together
with the delinquency penalties.

(3) Payment of Capital Gains Tax. - The

total amount of tax imposed and prescribed
under Section 24 (c), 24(D), 27(E)(2),
28(A)(8)(c) and 28(B)(5)(c) shall be paid on the
date the return prescribed therefor is filed by
the person liable thereto: Provided, That if the
seller submits proof of his intention to avail
himself of the benefit of exemption of capital
gains under existing special laws, no such
 payments shall be required : Provided, further,
That in case of failure to qualify for exemption
under such special laws and implementing
rules and regulations, the tax due on the gains
realized from the original transaction shall
immediately become due and payable, subject
to the penalties prescribed under applicable
provisions of this Code: Provided, finally, That
if the seller, having paid the tax, submits such
proof of intent within six (6) months from the
registration of the document transferring the
real property, he shall be entitled to a refund
of such tax upon verification of his compliance
with the requirements for such exemption.

"In case the taxpayer elects and is qualified to

report the gain by installments under Section 49 of
this Code, the tax due from each installment payment
shall be paid within (30) days from the receipt of such
payments.

No registration of any document transferring real

property shall be effected by the Register of Deeds
unless the Commissioner or his duly authorized
representative has certified that such transfer has been
reported, and the tax herein imposed, if any, has been
paid.

(B) Assessment and Payment of Deficiency Tax. -

After the return is filed, the Commissioner shall
examine it and assess the correct amount of the tax.
The tax or deficiency income tax so discovered shall be
paid upon notice and demand from the
Commissioner.
 As used in this Chapter, in respect of a tax
imposed by this Title, the term 'deficiency' means:

(1) The amount by which the tax imposed

by this Title exceeds the amount shown as the
tax by the taxpayer upon his return; but the
amount so shown on the return shall be
increased by the amounts previously assessed
(or collected without assessment) as a
deficiency, and decreased by the amount
previously abated, credited, returned or
otherwise repaid in respect of such tax; or

(2) If no amount is shown as the tax by

the taxpayer upon this return, or if no return is
made by the taxpayer, then the amount by
which the tax exceeds the amounts previously
assessed (or collected without assessment) as a
deficiency; but such amounts previously
assessed or collected without assessment shall
first be decreased by the amounts previously
abated, credited returned or otherwise repaid
in respect of such tax.

Section 57. Withholding of Tax at Source. -

(A) Withholding of Final Tax on Certain Incomes. -

Subject to rules and regulations the Secretary of
Finance may promulgate, upon the recommendation
of the Commissioner, requiring the filing of income
tax return by certain income payees, the tax imposed
or prescribed by Sections 24(B)(1), 24(B)(2), 24(C),
24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D),
25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4),
28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1),
28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b),
28(B)(5)(c); 33; and 282 of this Code on specified
items of income shall be withheld by payor-
corporation and/or person and paid in the same
manner and subject to the same conditions as
provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. - The

Secretary of Finance may, upon the recommendation
of the Commissioner, require the withholding of a tax
on the items of income payable to natural or juridical
persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate
of not less than one percent (1%) but not more than
thirty-two percent (32%) thereof, which shall be
credited against the income tax liability of the taxpayer
for the taxable year.

(C) Tax-free Covenant Bonds. In any case where

bonds, mortgages, deeds of trust or other similar
obligations of domestic or resident foreign
corporations, contain a contract or provisions by
which the obligor agrees to pay any portion of the tax
imposed in this Title upon the obligee or to reimburse
the obligee for any portion of the tax or to pay the
interest without deduction for any tax which the
obligor may be required or permitted to pay thereon
or to retain therefrom under any law of the
Philippines, or any state or country, the obligor shall
deduct bonds, mortgages, deeds of trust or other
obligations, whether the interest or other payments
are payable annually or at shorter or longer periods,
and whether the bonds, securities or obligations had
been or will be issued or marketed, and the interest or
 other payment thereon paid, within or without the
Philippines, if the interest or other payment is payable
to a nonresident alien or to a citizen or resident of the
Philippines.

Section 58. Returns and Payment of Taxes Withheld at Source. -

(A) Quarterly Returns and Payments of Taxes

Withheld. - Taxes deducted and withheld under
Section 57 by withholding agents shall be covered by a
return and paid to, except in cases where the
Commissioner otherwise permits, an authorized
Treasurer of the city or municipality where the
withholding agent has his legal residence or principal
place of business, or where the withholding agent is a
corporation, where the principal office is located.

The taxes deducted and withheld by the

withholding agent shall be held as a special fund in
trust for the government until paid to the collecting
officers.

The return for final withholding tax shall be filed

and the payment made within twenty-five (25) days
from the close of each calendar quarter, while the
return for creditable withholding taxes shall be filed
and the payment made not later than the last day of
the month following the close of the quarter during
which withholding was made: Provided, That the
Commissioner, with the approval of the Secretary of
Finance, may require these withholding agents to pay
or deposit the taxes deducted or withheld at more
frequent intervals when necessary to protect the
interest of the government.
 (B) Statement of Income Payments Made and Taxes
Withheld. - Every withholding agent required to deduct
and withhold taxes under Section 57 shall furnish
each recipient, in respect to his or its receipts during
the calendar quarter or year, a written statement
showing the income or other payments made by the
withholding agent during such quarter or year, and
the amount of the tax deducted and withheld
therefrom, simultaneously upon payment at the
request of the payee, but not late than the twentieth
(20th) day following the close of the quarter in the
case of corporate payee, or not later than March 1 of
the following year in the case of individual payee for
creditable withholding taxes. For final withholding
taxes, the statement should be given to the payee on or
before January 31 of the succeeding year.

(C) Annual Information Return. - Every withholding

agent required to deduct and withhold taxes under
Section 57 shall submit to the Commissioner an
annual information return containing the list of
payees and income payments, amount of taxes
withheld from each payee and such other pertinent
information as may be required by the Commissioner.
In the case of final withholding taxes, the return shall
be filed on or before January 31 of the succeeding
year, and for creditable withholding taxes, not later
than March 1 of the year following the year for which
the annual report is being submitted. This return, if
made and filed in accordance with the rules and
regulations approved by the Secretary of Finance,
upon recommendation of the Commissioner, shall be
sufficient compliance with the requirements of
Section 68 of this Title in respect to the income
payments.

The Commissioner may, by rules and regulations,

grant to any withholding agent a reasonable extension
of time to furnish and submit the return required in
this Subsection.

(D) Income of Recipient. - Income upon which any

creditable tax is required to be withheld at source
under Section 57 shall be included in the return of its
recipient but the excess of the amount of tax so
withheld over the tax due on his return shall be
refunded to him subject to the provisions of Section
204; if the income tax collected at source is less than
the tax due on his return, the difference shall be paid
in accordance with the provisions of Section 56.

All taxes withheld pursuant to the provisions of

this Code and its implementing rules and regulations
are hereby considered trust funds and shall be
maintained in a separate account and not commingled
with any other funds of the withholding agent.

(E) Registration with Register of Deeds. - No

registration of any document transferring real property
shall be effected by the Register of Deeds unless the
Commissioner or his duly authorized representative
has certified that such transfer has been reported, and
the capital gains or creditable withholding tax, if any,
has been paid: Provided, however, That the
information as may be required by rules and
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner,
shall be annotated by the Register of Deeds in the
 Transfer Certificate of Title or Condominium
Certificate of Title: Provided, further, That in cases of
transfer of property to a corporation, pursuant to a
merger, consolidation or reorganization, and where
the law allows deferred recognition of income in
accordance with Section 40, the information as may
be required by rules and regulations to be prescribed
by the Secretary of Finance, upon recommendation of
the Commissioner, shall be annotated by the Register
of Deeds at the back of the Transfer Certificate of
Title or Condominium Certificate of Title of the real
property involved: Provided, finally, That any violation
of this provision by the Register of Deeds shall be
subject to the penalties imposed under Section 269 of
this Code.

Section 59. Tax on Profits Collectible from Owner or Other Persons. -

The tax imposed under this Title upon gains, profits, and income not
falling under the foregoing and not returned and paid by virtue of the
foregoing or as otherwise provided by law shall be assessed by
personal return under rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner.
The intent and purpose of the Title is that all gains, profits and
income of a taxable class, as defined in this Title, shall be charged and
assessed with the corresponding tax prescribed by this Title, and said
tax shall be paid by the owners of such gains, profits and income, or
the proper person having the receipt, custody, control or disposal of
the same. For purposes of this Title, ownership of such gains, profits
and income or liability to pay the tax shall be determined as of the
year for which a return is required to be rendered.

CHAPTER X - ESTATES AND TRUSTS

Section 60. Imposition of Tax. -

 (A) Application of Tax. - The tax imposed by this
Title upon individuals shall apply to the income of
estates or of any kind of property held in trust,
including:

(1) Income accumulated in trust for the

benefit of unborn or unascertained person or
persons with contingent interests, and income
accumulated or held for future distribution
under the terms of the will or trust;

(2) Income which is to be distributed

currently by the fiduciary to the beneficiaries,
and income collected by a guardian of an
infant which is to be held or distributed as the
court may direct;

(3) Income received by estates of deceased

persons during the period of administration or
settlement of the estate; and

(4) Income which, in the discretion of the

fiduciary, may be either distributed to the
beneficiaries or accumulated.

(B) Exception. - The tax imposed by this Title shall

not apply to employee's trust which forms part of a
pension, stock bonus or profit-sharing plan of an
employer for the benefit of some or all of his
employees (1) if contributions are made to the trust by
such employer, or employees, or both for the purpose
of distributing to such employees the earnings and
principal of the fund accumulated by the trust in
accordance with such plan, and (2) if under the trust
instrument it is impossible, at any time prior to the
satisfaction of all liabilities with respect to employees
under the trust, for any part of the corpus or income
to be (within the taxable year or thereafter) used for,
or diverted to, purposes other than for the exclusive
benefit of his employees: Provided, That any amount
actually distributed to any employee or distributee
shall be taxable to him in the year in which so
distributed to the extent that it exceeds the amount
contributed by such employee or distributee.

(C) Computation and Payment. -

(1) In General. - The tax shall be computed

upon the taxable income of the estate or trust
and shall be paid by the fiduciary, except as
provided in Section 63 (relating to revocable
trusts) and Section 64 (relating to income for
the benefit of the grantor).

(2) Consolidation of Income of Two or More

Trusts. - Where, in the case of two or more
trusts, the creator of the trust in each instance
is the same person, and the beneficiary in each
instance is the same, the taxable income of all
the trusts shall be consolidated and the tax
provided in this Section computed on such
consolidated income, and such proportion of
said tax shall be assessed and collected from
each trustee which the taxable income of the
trust administered by him bears to the
consolidated income of the several trusts.
 Section 61. Taxable Income. - The taxable income of the estate or
trust shall be computed in the same manner and on the same basis as
in the case of an individual, except that:

(A) There shall be allowed as a deduction in

computing the taxable income of the estate or trust
the amount of the income of the estate or trust for the
taxable year which is to be distributed currently by the
fiduciary to the beneficiaries, and the amount of the
income collected by a guardian of an infant which is
to be held or distributed as the court may direct, but
the amount so allowed as a deduction shall be
included in computing the taxable income of the
beneficiaries, whether distributed to them or not. Any
amount allowed as a deduction under this Subsection
shall not be allowed as a deduction under Subsection
(B) of this Section in the same or any succeeding
taxable year.

(B) In the case of income received by estates of

deceased persons during the period of administration
or settlement of the estate, and in the case of income
which, in the discretion of the fiduciary, may be either
distributed to the beneficiary or accumulated, there
shall be allowed as an additional deduction in
computing the taxable income of the estate or trust
the amount of the income of the estate or trust for its
taxable year, which is properly paid or credited during
such year to any legatee, heir or beneficiary but the
amount so allowed as a deduction shall be included in
computing the taxable income of the legatee, heir or
beneficiary.

(C) In the case of a trust administered in a foreign

country, the deductions mentioned in Subsections (A)
 and (B) of this Section shall not be allowed: Provided,
That the amount of any income included in the return
of said trust shall not be included in computing the
income of the beneficiaries.

Section 62. Exemption Allowed to Estates and Trusts. - For the

purpose of the tax provided for in this Title, there shall be allowed an
exemption of Twenty thousand pesos (P20,000) from the income of
the estate or trust.

Section 63. Revocable trusts. - Where at any time the power to

revest in the grantor title to any part of the corpus of the trust is
vested (1) in the grantor either alone or in conjunction with any
person not having a substantial adverse interest in the disposition of
such part of the corpus or the income therefrom, or (2) in any person
not having a substantial adverse interest in the disposition of such
part of the corpus or the income therefrom, the income of such part
of the trust shall be included in computing the taxable income of the
grantor.

Section 64. Income for Benefit of Grantor.-

(A) Where any part of the income of a trust (1) is,

or in the discretion of the grantor or of any person not
having a substantial adverse interest in the disposition
of such part of the income may be held or
accumulated for future distribution to the grantor, or
(2) may, or in the discretion of the grantor or of any
person not having a substantial adverse interest in the
disposition of such part of the income, be distributed
to the grantor, or (3) is, or in the discretion of the
grantor or of any person not having a substantial
adverse interest in the disposition of such part of the
income may be applied to the payment of premiums
 upon policies of insurance on the life of the grantor,
such part of the income of the trust shall be included
in computing the taxable income of the grantor.

(B) As used in this Section, the term 'in the

discretion of the grantor' means in the discretion of
the grantor, either alone or in conjunction with any
person not having a substantial adverse interest in the
disposition of the part of the income in question.

Section 65. Fiduciary Returns. - Guardians, trustees, executors,

administrators, receivers, conservators and all persons or
corporations, acting in any fiduciary capacity, shall render, in
duplicate, a return of the income of the person, trust or estate for
whom or which they act, and be subject to all the provisions of this
Title, which apply to individuals in case such person, estate or trust
has a gross income of Twenty thousand pesos (P20,000) or over
during the taxable year. Such fiduciary or person filing the return for
him or it, shall take oath that he has sufficient knowledge of the
affairs of such person, trust or estate to enable him to make such
return and that the same is, to the best of his knowledge and belief,
true and correct, and be subject to all the provisions of this Title
which apply to individuals: Provided, That a return made by or for
one or two or more joint fiduciaries filed in the province where such
fiduciaries reside; under such rules and regulations as the Secretary of
Finance, upon recommendation of the Commissioner, shall
prescribe, shall be a sufficient compliance with the requirements of
this Section.

Section 66. Fiduciaries Indemnified Against Claims for Taxes Paid. -

Trustees, executors, administrators and other fiduciaries are
indemnified against the claims or demands of every beneficiary for all
payments of taxes which they shall be required to make under the
provisions of this Title, and they shall have credit for the amount of
such payments against the beneficiary or principal in any accounting
which they make as such trustees or other fiduciaries.

CHAPTER XI - OTHER INCOME TAX REQUIREMENTS

Section 67. Collection of Foreign Payments. - All persons,

corporations, duly registered general co-partnerships (companias
colectivas) undertaking for profit or otherwise the collection of
foreign payments of interests or dividends by means of coupons,
checks or bills of exchange shall obtain a license from the
Commissioner, and shall be subject to such rules and regulations
enabling the government to obtain the information required under
this Title, as the Secretary of Finance, upon recommendation of the
Commissioner, shall prescribe.

Section 68. Information at Source as to Income Payments. - all

persons, corporations or duly registered co- partnerships (companias
colectivas), in whatever capacity acting, including lessees or
mortgagors of real or personal property, trustees, acting in any trust
capacity, executors, administrators, receivers, conservators and
employees making payment to another person, corporation or duly
registered general co-partnership (compania colectiva), of interests,
rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments or other fixed or determinable gains,
profits and income, other than payment described in Section 69, in
any taxable year, or in the case of such payments made by the
Government of the Philippines, the officers or employees of the
Government having information as to such payments and required to
make returns in regard thereto, are authorized and required to render
a true and accurate return to the Commissioner, under such rules
and regulations, and in such form and manner as may be prescribed
by the Secretary of Finance, upon recommendation of the
Commissioner, setting forth the amount of such gains, profits and
income and the name and address of the recipient of such payments:
Provided, That such returns shall be required, in the case of payments
of interest upon bonds and mortgages or deeds of trust or other
similar obligations of corporations, and in the case of collections of
items, not payable in the Philippines, of interest upon the bonds of
foreign countries and interest from the bonds and dividends from the
stock of foreign corporations by persons, corporations or duly
registered general co-partnerships (companias colectivas), undertaking
as a matter of business or for profit or otherwise the collection of
foreign payments of such interests or dividends by means of coupons
or bills of exchange.

Section 69. Return of Information of Brokers. - Every person,

corporation or duly registered general co-partnership (compania
colectiva), doing business as a broker in any exchange or board or
other similar place of business, shall, when required by the
Commissioner, render a correct return duly verified under oath
under such rules and regulations as the Secretary of Finance, upon
recommendation of the Commissioner, may prescribe, showing the
names of customers for whom such person, corporation or duly
registered general co-partnership (compania colectiva) has transacted
any business, with such details as to the profits, losses or other
information which the Commissioner, may require as to each of such
customers as will enable the Commissioner to determine whether all
income tax due on profits or gains of such customers has been paid.

Section 70. Returns of Foreign Corporations. -

(A) Requirements. - Under rules and regulations

prescribed by the Secretary of finance, upon the
recommendation of the Commissioner, any attorney,
accountant, fiduciary, bank, trust company, financial
institution or other person, who aids, assists, counsels
or advises in, o with respect to; the formation,
organization or reorganization of any foreign
 corporation, shall, within thirty (30) days thereafter,
file with the Commissioner a return.

(B) Form and Contents of Return. - Such return shall

be in such form and shall set forth; under oath, in
respect of each such corporation, to the full extent of
the information within the possession or knowledge
or under the control of the person required to file the
return, such information as the Secretary of Finance,
upon recommendation of the Commissioner, shall
prescribe by rules and regulations as necessary for
carrying out the provisions of this Title. Nothing in
this Section shall be construed to require the divulging
of privileged communications between attorney and
client.

Section 71. Disposition of Income Tax Returns, Publication of Lists of

Taxpayers and Filers. - After the assessment shall have been made, as
provided in this Title, the returns, together with any corrections
thereof which may have been made by the Commissioner, shall be
filed in the Office of the Commissioner and shall constitute public
records and be open to inspection as such upon the order of the
President of the Philippines, under rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.

The Commissioner may, in each year, cause to be prepared and

published in any newspaper the lists containing the names and
addresses of persons who have filed income tax returns.

Section 72. Suit to Recover Tax Based on False or Fraudulent Returns.

- When an assessment is made in case of any list, statement or return,
which in the opinion of the Commissioner was false or fraudulent or
contained any understatement or undervaluation, no tax collected
under such assessment shall be recovered by any suit, unless it is
proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or
undervaluation; but this provision shall not apply to statements or
returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines.

Section 73. Distribution of dividends or Assets by Corporations. -

(A) Definition of Dividends. - The term 'dividends'

when used in this Title means any distribution made
by a corporation to its shareholders out of its earnings
or profits and payable to its shareholders, whether in
money or in other property.

Where a corporation distributes all of its assets in

complete liquidation or dissolution, the gain realized
or loss sustained by the stockholder, whether
individual or corporate, is a taxable income or a
deductible loss, as the case may be.

(B) Stock Dividend. - A stock dividend representing

the transfer of surplus to capital account shall not be
subject to tax. However, if a corporation cancels or
redeems stock issued as a dividend at such time and in
such manner as to make the distribution and
cancellation or redemption, in whole or in part,
essentially equivalent to the distribution of a taxable
dividend, the amount so distributed in redemption or
cancellation of the stock shall be considered as taxable
income to the extent that it represents a distribution
of earnings or profits.
 (C) Dividends Distributed are Deemed Made from
Most Recently Accumulated Profits. - Any distribution
made to the shareholders or members of a corporation
shall be deemed to have been made form the most
recently accumulated profits or surplus, and shall
constitute a part of the annual income of the
distributee for the year in which received.

(D) Net Income of a Partnership Deemed

Constructively Received by Partners. - The taxable income
declared by a partnership for a taxable year which is
subject to tax under Section 27 (A) of this Code, after
deducting the corporate income tax imposed therein,
shall be deemed to have been actually or constructively
received by the partners in the same taxable year and
shall be taxed to them in their individual capacity,
whether actually distributed or not.

CHAPTER XII - QUARTERLY CORPORATE INCOME TAX

ANNUAL DECLARATION AND QUARTERLY PAYMENTS OF
INCOME TAXES

Section 74. Declaration of Income Tax for Individuals. -

(A) In General. - Except as otherwise provided in

this Section, every individual subject to income tax
under Sections 24 and 25(A) of this Title, who is
receiving self-employment income, whether it
constitutes the sole source of his income or in
combination with salaries, wages and other fixed or
determinable income, shall make and file a
declaration of his estimated income for the current
taxable year on or before April 15 of the same taxable
year. In general, self-employment income consists of
the earnings derived by the individual from the
practice of profession or conduct of trade or business
carried on by him as a sole proprietor or by a
partnership of which he is a member. Nonresident
Filipino citizens, with respect to income from without
the Philippines, and nonresident aliens not engaged in
trade or business in the Philippines, are not required
to render a declaration of estimated income tax. The
declaration shall contain such pertinent information
as the Secretary of Finance, upon recommendation of
the Commissioner, may, by rules and regulations
prescribe. An individual may make amendments of a
declaration filed during the taxable year under the
rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.

(B) Return and Payment of Estimated Income Tax by

Individuals. - The amount of estimated income as
defined in Subsection (C) with respect to which a
declaration is required under Subsection (A) shall be
paid in four (4) installments. The first installment
shall be paid at the time of the declaration and the
second and third shall be paid on August 15 and
November 15 of the current year, respectively. The
fourth installment shall be paid on or before April 15
of the following calendar year when the final adjusted
income tax return is due to be filed.

(C) Definition of Estimated Tax. - In the case of an

individual, the term 'estimated tax' means the amount
which the individual declared as income tax in his
final adjusted and annual income tax return for the
preceding taxable year minus the sum of the credits
allowed under this Title against the said tax. If, during
 the current taxable year, the taxpayer reasonable
expects to pay a bigger income tax, he shall file an
amended declaration during any interval of
installment payment dates.

Section 75. Declaration of Quarterly Corporate Income Tax. - Every

corporation shall file in duplicate a quarterly summary declaration of
its gross income and deductions on a cumulative basis for the
preceding quarter or quarters upon which the income tax, as
provided in Title II of this Code, shall be levied, collected and paid.
The tax so computed shall be decreased by the amount of tax
previously paid or assessed during the preceding quarters and shall be
paid not later than sixty (60) days from the close of each of the first
three (3) quarters of the taxable year, whether calendar or fiscal year.

Section 76. Final Adjustment Return. - Every corporation liable to

tax under Section 27 shall file a final adjustment return covering the
total taxable income for the preceding calendar or fiscal year. If the
sum of the quarterly tax payments made during the said taxable year
is not equal to the total tax due on the entire taxable income of that
year, the corporation shall either:

(A)Pay the balance of tax still due; or

(B)Carry-over the excess credit; or

(C)Be credited or refunded with the excess

amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the

excess estimated quarterly income taxes paid, the excess amount
shown on its final adjustment return may be carried over and credited
against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable years has been
made, such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor.

Section 77. Place and Time of Filing and Payment of Quarterly

Corporate Income Tax. -

(A) Place of Filing. -Except as the Commissioner

other wise permits, the quarterly income tax
declaration required in Section 75 and the final
adjustment return required I Section 76 shall be filed
with the authorized agent banks or Revenue District
Officer or Collection Agent or duly authorized
Treasurer of the city or municipality having
jurisdiction over the location of the principal office of
the corporation filing the return or place where its
main books of accounts and other data from which
the return is prepared are kept.

(B) Time of Filing the Income Tax Return. - The

corporate quarterly declaration shall be filed within
sixty (60) days following the close of each of the first
three (3) quarters of the taxable year. The final
adjustment return shall be filed on or before the
fifteenth (15th) day of April, or on or before the
fifteenth (15th) day of the fourth (4th) month
following the close of the fiscal year, as the case may
be.

(C) Time of Payment of the Income Tax. - The

income tax due on the corporate quarterly returns and
the final adjustment income tax returns computed in
accordance with Sections 75 and 76 shall be paid at
 the time the declaration or return is filed in a manner
prescribed by the Commissioner.

CHAPTER XIII - WITHHOLDING ON WAGES

Section 78. Definitions. - As used in this Chapter:

(A) Wages. - The term 'wages' means all

remuneration (other than fees paid to a public official)
for services performed by an employee for his
employer, including the cash value of all remuneration
paid in any medium other than cash, except that such
term shall not include remuneration paid:

(1) For agricultural labor paid entirely in

products of the farm where the labor is
performed, or

(2) For domestic service in a private home,

or

(3) For casual labor not in the course of

the employer's trade or business, or

(4) For services by a citizen or resident of

the Philippines for a foreign government or an
international organization.

If the remuneration paid by an employer to an

employee for services performed during one-half (1/2)
or more of any payroll period of not more than thirty-
one (31) consecutive days constitutes wages, all the
remuneration paid by such employer to such employee
for such period shall be deemed to be wages; but if the
remuneration paid by an employer to an employee for
services performed during more than one -half (1/2)
of any such payroll period does not constitute wages,
then none of the remuneration paid by such employer
to such employee for such period shall be deemed to
be wages.

(B) Payroll Period. - The term 'payroll period' means

a period for which payment of wages is ordinarily
made to the employee by his employer, and the term
'miscellaneous payroll period' means a payroll period
other than, a daily, weekly, biweekly, semi-monthly,
monthly, quarterly, semi-annual, or annual period.

(C) Employee. - The term 'employee' refers to any

individual who is the recipient of wages and includes
an officer, employee or elected official of the
Government of the Philippines or any political
subdivision, agency or instrumentality thereof. The
term 'employee' also includes an officer of a
corporation.

(D) Employer. - The term 'employer' means the

person for whom an individual performs or performed
any service, of whatever nature, as the employee of
such person, except that:

(1) If the person for whom the individual

performs or performed any service does not
have control of the payment of the wages for
such services, the term 'employer' (except for
the purpose of Subsection(A) means the
person having control of the payment of such
wages; and
 (2) In the case of a person paying wages on
behalf of a nonresident alien individual,
foreign partnership or foreign corporation not
engaged in trade or business within the
Philippines, the term 'employer' (except for the
purpose of Subsection(A) means such person.

Section 79. Income Tax Collected at Source.-

(A) Requirement of Withholding. - Every employer

making payment of wages shall deduct and withhold
upon such wages a tax determined in accordance with
the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner: Provided, however, That no
withholding of a tax shall be required where the total
compensation income of an individual does not
exceed the statutory minimum wage, or five thousand
pesos (P5,000.00) per month, whichever is higher.

(B) Tax Paid by Recipient. - If the employer, in

violation of the provisions of this Chapter, fails to
deduct and withhold the tax as required under this
Chapter, and thereafter the tax against which such tax
may be credited is paid, the tax so required to be
deducted and withheld shall not be collected from the
employer; but this Subsection shall in no case relieve
the employer from liability for any penalty or addition
to the tax otherwise applicable in respect of such
failure to deduct and withhold.

(C) Refunds or Credits. -

 (1) Employer. - When there has been an
overpayment of tax under this Section, refund
or credit shall be made to the employer only to
the extent that the amount of such
overpayment was not deducted and withheld
hereunder by the employer.

(2) Employees. -The amount deducted and

withheld under this Chapter during any
calendar year shall be allowed as a credit to the
recipient of such income against the tax
imposed under Section 24(A) of this Title.
Refunds and credits in cases of excessive
withholding shall be granted under rules and
regulations promulgated by the Secretary of
Finance, upon recommendation of the
Commissioner.

Any excess of the taxes withheld over the

tax due from the taxpayer shall be returned or
credited within three (3) months from the
fifteenth (15th) day of April. Refunds or
credits made after such time shall earn interest
at the rate of six percent (6%) per annum,
starting after the lapse of the three-month
period to the date the refund of credit is made.

Refunds shall be made upon warrants

drawn by the Commissioner or by his duly
authorized representative without the necessity
of counter-signature by the Chairman,
Commission on Audit or the latter's duly
authorized representative as an exception to
the requirement prescribed by Section 49,
Chapter 8, Subtitle B, Title 1 of Book V of
 Executive Order No. 292, otherwise known as
the Administrative Code of 1987.

(D) Personal Exemptions. -

(1) In General. - Unless otherwise provided

by this Chapter, the personal and additional
exemptions applicable under this Chapter
shall be determined in accordance with the
main provisions of this Title.

(2) Exemption Certificate. -

(a) When to File. - On or before the

date of commencement of employment
with an employer, the employee shall
furnish the employer with a signed
withholding exemption certificate
relating to the personal and additional
exemptions to which he is entitled.

(b) Change of Status. - In case of

change of status of an employee as a
result of which he would be entitled to
a lesser or greater amount of
exemption, the employee shall, within
ten (10) days from such change, file
with the employer a new withholding
exemption certificate reflecting the
change.

(c) Use of Certificates. - The

certificates filed hereunder shall be
used by the employer in the
 determination of the amount of taxes
to be withheld.

(d) Failure to Furnish Certificate. -

Where an employee, in violation of
this Chapter, either fails or refuses to
file a withholding exemption
certificate, the employer shall withhold
the taxes prescribed under the schedule
for zero exemption of the withholding
tax table determined pursuant to
Subsection (A) hereof.

(E) Withholding on Basis of Average Wages. -

The Commissioner may, under rules and
regulations promulgated by the Secretary of
Finance, authorize employers to:

(1) estimate the wages which will

be paid to an employee in any quarter
of the calendar year;

(2) determine the amount to be

deducted and withheld upon each
payment of wages to such employee
during such quarter as if the
appropriate average of the wages so
estimated constituted the actual wages
paid; and

(3) deduct and withhold upon any

payment of wages to such employee
during ;such quarter such amount as
may be required to be deducted and
 withheld during such quarter without
regard to this Subsection.

(F) Husband and Wife. - When a husband

and wife each are recipients of wages, whether
from the same or from different employers,
taxes to be withheld shall be determined on
the following bases:

(1) The husband shall be deemed

the head of the family and proper
claimant of the additional exemption
in respect to any dependent children,
unless he explicitly waives his right in
favor of his wife in the withholding
exemption certificate.

(2) Taxes shall be withheld from

the wages of the wife in accordance
with the schedule for zero exemption
of the withholding tax table prescribed
in Subsection (D)(2)(d) hereof.

(G) Nonresident Aliens. - Wages paid to

nonresident alien individuals engaged in trade
or business in the Philippines shall be subject
to the provisions of this Chapter.

(H) Year-end Adjustment. - On or before the

end of the calendar year but prior to the
payment of the compensation for the last
payroll period, the employer shall determine
the tax due from each employee on taxable
compensation income for the entire taxable
year in accordance with Section 24(A). The
 difference between the tax due from the
employee for the entire year and the sum of
taxes withheld from January to November shall
either be withheld from his salary in December
of the current calendar year or refunded to the
employee not later than January 25 of the
succeeding year.

Section 80. Liability for Tax. -

(A) Employer. - The employer shall be liable for the

withholding and remittance of the correct amount of
tax required to be deducted and withheld under this
Chapter. If the employer fails to withhold and remit
the correct amount of tax as required to be withheld
under the provision of this Chapter, such tax shall be
collected from the employer together with the
penalties or additions to the tax otherwise applicable
in respect to such failure to withhold and remit.

(B) Employee. - Where an employee fails or refuses

to file the withholding exemption certificate or
willfully supplies false or inaccurate information
thereunder, the tax otherwise required to be withheld
by the employer shall be collected from him including
penalties or additions to the tax from the due date of
remittance until the date of payment. On the other
hand, excess taxes withheld made by the employer due
to:

(1) failure or refusal to file the

withholding exemption certificate; or
 (2) false and inaccurate information shall
not be refunded to the employee but shall be
forfeited in favor of the Government.

Section 81. Filing of Return and Payment of Taxes Withheld. - Except

as the Commissioner otherwise permits, taxes deducted and withheld
by the employer on wages of employees shall be covered by a return
and paid to an authorized agent bank; Collection Agent, or the duly
authorized Treasurer of the city or municipality where the employer
has his legal residence or principal place of business, or in case the
employer is a corporation, where the principal office is located.

The return shall be filed and the payment made within twenty-
five (25) days from the close of each calendar quarter: Provided,
however, That the Commissioner may, with the approval of the
Secretary of Finance, require the employers to pay or deposit the taxes
deducted and withheld at more frequent intervals, in cases where
such requirement is deemed necessary to protect the interest of the
Government.

The taxes deducted and withheld by employers shall be held in a

special fund in trust for the Government until the same are paid to
the said collecting officers.

Section 82. Return and Payment in Case of Government Employees. -

If the employer is the Government of the Philippines or any political
subdivision, agency or instrumentality thereof, the return of the
amount deducted and withheld upon any wage shall be made by the
officer or employee having control of the payment of such wage, or by
any officer or employee duly designated for the purpose.

Section 83. Statements and Returns. -

(A) Requirements. - Every employer required to

deduct and withhold a tax shall furnish to each such
employee in respect of his employment during the
calendar year, on or before January thirty-first (31st) of
the succeeding year, or if his employment is
terminated before the close of such calendar year, on
the same day of which the last payment of wages is
made, a written statement confirming the wages paid
by the employer to such employee during the calendar
year, and the amount of tax deducted and withheld
under this Chapter in respect of such wages. The
statement required to be furnished by this Section in
respect of any wage shall contain such other
information, and shall be furnished at such other time
and in such form as the Secretary of Finance, upon
the recommendation of the Commissioner, may, by
rules and regulation, prescribe.

(B) Annual Information Returns. - Every employer

required to deduct and withhold the taxes in respect
of the wages of his employees shall, on or before
January thirty-first (31st) of the succeeding year,
submit to the Commissioner an annual information
return containing a list of employees, the total amount
of compensation income of each employee, the total
amount of taxes withheld therefrom during the year,
accompanied by copies of the statement referred to in
the preceding paragraph, and such other information
as may be deemed necessary. This return, if made and
filed in accordance with rules and regulations
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, shall be
sufficient compliance with the requirements of
Section 68 of this Title in respect of such wages.
 (C) Extension of time. - The Commissioner, under
such rules and regulations as may be promulgated by
the Secretary of Finance, may grant to any employer a
reasonable extension of time to furnish and submit
the statements and returns required under this
Section.

TITLE III - ESTATE AND DONOR'S TAXES

CHAPTER I - ESTATE TAX

Section 84. Rates of Estate Tax. There shall be levied, assessed,

collected and paid upon the transfer of the net estate as determined
in accordance with Sections 85 and 86 of every decedent, whether
resident or nonresident of the Philippines, a tax based on the value of
such net estate, as computed in accordance with the following
schedule:

If the net estate is:

Of the
But Not The Tax
Over Plus Excess
Over shall be
Over
P 200,000 Exempt
P 200,000 550,000 0 5% P 200,000
500,000 2,000,000 P 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
 Section 85. Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the time of his
death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a
nonresident decedent who at the time of his death was not a citizen
of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

(A) Decedent's Interest. - To the extent of the

interest therein of the decedent at the time of his
death;

(B) Transfer in Contemplation of Death. - To the

extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise,
in contemplation of or intended to take effect in
possession or enjoyment at or after death, or of which
he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or
for any period which does not in fact end before his
death (1) the possession or enjoyment of, or the right
to the income from the property, or (2) the right,
either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the
property or the income therefrom; except in case of a
bonafide sale for an adequate and full consideration
in money or money's worth.

(C) Revocable Transfer. -

(1) To the extent of any interest therein,

of which the decedent has at any time made a
transfer (except in case of a bona fide sale for
an adequate and full consideration in money
or money's worth) by trust or otherwise, where
the enjoyment thereof was subject at the date
of his death to any change through the exercise
of a power (in whatever capacity exerciseable)
by the decedent alone or by the decedent in
conjunction with any other person (without
regard to when or from what source the
decedent acquired such power), t o alter,
amend, revoke, or terminate, or where any
such power is relinquished in contemplation
of the decedent's death.

(2) For the purpose of this Subsection, the

power to alter, amend or revoke shall be
considered to exist on the date of the
decedent's death even though the exercise of
the power is subject to a precedent giving of
notice or even though the alteration,
amendment or revocation takes effect only on
the expiration of a stated period after the
exercise of the power, whether or not on or
before the date of the decedent's death notice
has been given or the power has been
exercised. In such cases, proper adjustment
shall be made representing the interests which
would have been excluded from the power if
the decedent had lived, and for such purpose if
the notice has not been given or the power has
not been exercised on or before the date of his

death, such notice shall be considered to

have been given, or the power exercised, on
the date of his death.
 (D) Property Passing Under General Power of
Appointment. - To the extent of any property passing
under a general power of appointment exercised by
the decedent: (1) by will, or (2) by deed executed in
contemplation of, or intended to take effect in
possession or enjoyment at, or after his death, or (3)
by deed under which he has retained for his life or any
period not ascertainable without reference to his death
or for any period which does not in fact end before his
death (a) the possession or enjoyment of, or the right
to the income from, the property, or (b) the right,
either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a
bona fide sale for an adequate and full consideration
in money or money's worth.

(E) Proceeds of Life Insurance. - To the extent of the

amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies
taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount
receivable by any beneficiary designated in the policy
of insurance, except when it is expressly stipulated that
the designation of the beneficiary is irrevocable.

(F) Prior Interests. - Except as otherwise specifically

provided therein, Subsections (B), (C) and (E) of this
Section shall apply to the transfers, trusts, estates,
interests, rights, powers and relinquishment of powers,
as severally enumerated and described therein,
whether made, created, arising, existing, exercised or
 relinquished before or after the effectivity of this
Code.

(G) Transfers of Insufficient Consideration. - If any

one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and
(D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's
worth, but is not a bona fide sale for an adequate and
full consideration in money or money's worth, there
shall be included in the gross estate only the excess of
the fair market value, at the time of death, of the
property otherwise to be included on account of such
transaction, over the value of the consideration
received therefor by the decedent.

(H) Capital of the Surviving Spouse. - The capital of

the surviving spouse of a decedent shall not, for the
purpose of this Chapter, be deemed a part of his or
her gross estate.

Section 86. Computation of Net Estate. - For the purpose of the tax
imposed in this Chapter, the value of the net estate shall be
determined:

(A) Deductions Allowed to the Estate of Citizen or a

Resident. - In the case of a citizen or resident of the
Philippines, by deducting from the value of the gross
estate -

(1) Expenses, Losses, Indebtedness, and

taxes. - Such amounts -
 (a) For actual funeral expenses or
in an amount equal to five percent
(5%) of the gross estate, whichever is
lower, but in no case to exceed Two
hundred thousand pesos (P200,000);

(b) For judicial expenses of the

testamentary or intestate proceedings;

(c) For claims against the estate:

Provided, That at the time the
indebtedness was incurred the debt
instrument was duly notarized and, if
the loan was contracted within three
(3) years before the death of the
decedent, the administrator or
executor shall submit a statement
showing the disposition of the
proceeds of the loan;

(d) For claims of the deceased

against insolvent persons where the
value of decedent's interest therein is
included in the value of the gross
estate; and

(e) For unpaid mortgages upon, or

any indebtedness in respect to,
property where the value of decedent's
interest therein, undiminished by such
mortgage or indebtedness, is included
in the value of the gross estate, but not
including any income tax upon income
received after the death of the
decedent, or property taxes not accrued
 before his death, or any estate tax. The
deduction herein allowed in the case of
claims against the estate, unpaid
mortgages or any indebtedness shall,
when founded upon a promise or
agreement, be limited to the extent
that they were contracted bona fide
and for an adequate and full
consideration in money or money's
worth. There shall also be deducted
losses incurred during the settlement of
the estate arising from fires, storms,
shipwreck, or other casualties, or from
robbery, theft or embezzlement, when
such losses are not compensated for by
insurance or otherwise, and if at the
time of the filing of the return such
losses have not been claimed as a
deduction for the income tax purposes
in an income tax return, and provided
that such losses were incurred not later
than the last day for the payment of the
estate tax as prescribed in Subsection
(A) of Section 91.

(2) Property Previously Taxed. - An

amount equal to the value specified below of
any property forming a part of the gross estate
situated in the Philippines of any person who
died within five (5) years prior to the death of
the decedent, or transferred to the decedent by
gift within five (5) years prior to his death,
where such property can be identified as
having been received by the decedent from the
donor by gift, or from such prior decedent by
gift, bequest, devise or inheritance, or which
can be identified as having been acquired in
exchange for property so received:

One hundred percent (100%) of

the value, if the prior decedent died
within one (1) year prior to the death
of the decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

Eighty percent (80%) of the value,

if the prior decedent died more than
one (1) year but not more than two (2)
years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

Sixty percent (60%) of the value, if

the prior decedent died more than two
(2) years but not more than three (3)
years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

Forty percent (40%) of the value,

if the prior decedent died more than
three (3) years but not more than four
(4) years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;
 Twenty percent (20%) of the
value, if the prior decedent died more
than four (4) years but not more than
five (5) years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

These deductions shall be allowed

only where a donor's tax or estate tax
imposed under this Title was finally
determined and paid by or on behalf of
such donor, or the estate of such prior
decedent, as the case may be, and only
in the amount finally determined as
the value of such property in
determining the value of the gift, or the
gross estate of such prior decedent, and
only to the extent that the value of
such property is included in the
decedent's gross estate, and only if in
determining the value of the estate of
the prior decedent, no deduction was
allowable under paragraph (2) in
respect of the property or properties
given in exchange therefor. Where a
deduction was allowed of any mortgage
or other lien in determining the
donor's tax, or the estate tax of the
prior decedent, which was paid in
whole or in part prior to the decedent's
death, then the deduction allowable
under said Subsection shall be reduced
by the amount so paid. Such deduction
allowable shall be reduced by an
 amount which bears the same ratio to
the amounts allowed as deductions
under paragraphs (1) and (3) of this
Subsection as the amount otherwise
deductible under said paragraph (2)
bears to the value of the decedent's
estate. Where the property referred to
consists of two or more items, the
aggregate value of such items shall be
used for the purpose of computing the
deduction.

(3) Transfers for Public Use. - The amount

of all the bequests, legacies, devises or transfers
to or for the use of the Government of the
Republic of the Philippines, or any political
subdivision thereof, for exclusively public
purposes.

(4) The Family Home. - An amount

equivalent to the current fair market value of
the decedent's family home: Provided,
however, That if the said current fair market
value exceeds One million pesos (P1,000,000),
the excess shall be subject to estate tax. As a
sine qua non condition for the exemption or
deduction, said family home must have been
the decedent's family home as certified by the
barangay captain of the locality.

(5) Standard Deduction. - An amount

equivalent to One million pesos (P1,000,000).

(6) Medical Expenses. - Medical Expenses

incurred by the decedent within one (1) year
 prior to his death which shall be duly
substantiated with receipts: Provided, That in
no case shall the deductible medical expenses
exceed Five Hundred Thousand Pesos
(P500,000).

(7) Amount Received by Heirs Under

Republic Act No. 4917. - Any amount received
by the heirs from the decedent - employee as a
consequence of the death of the decedent-
employee in accordance with Republic Act No.
4917: Provided, That such amount is included
in the gross estate of the decedent.

(B) Deductions Allowed to Nonresident Estates. -

In the case of a nonresident not a citizen of the
Philippines, by deducting from the value of that part
of his gross estate which at the time of his death is
situated in the Philippines:

(1) Expenses, Losses, Indebtedness and

Taxes. - That proportion of the deductions
specified in paragraph (1) of Subsection (A) of
this Section which the value of such part bears
to the value of his entire gross estate wherever
situated;

(2) Property Previously Taxed. - An

amount equal to the value specified below of
any property forming part of the gross estate
situated in the Philippines of any person who
died within five (5) years prior to the death of
the decedent, or transferred to the decedent by
gift within five (5) years prior to his death,
where such property can be identified as
having been received by the decedent from the
donor by gift, or from such prior decedent by
gift, bequest, devise or inheritance, or which
can be identified as having been acquired in
exchange for property so received:

One hundred percent (100%) of

the value if the prior decedent died
within one (1) year prior to the death
of the decedent, or if the property was
transferred to him by gift, within the
same period prior to his death;

Eighty percent (80%) of the value,

if the prior decedent died more than
one (1) year but not more than two (2)
years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

Sixty percent (60%) of the value, if

the prior decedent died more than two
(2) years but not more than three (3)
years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death;

Forty percent (40%) of the value,

if the prior decedent died more than
three (3) years but not more than four
(4) years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death; and

Twenty percent (20%) of the

value, if the prior decedent died more
than four (4) years but not more than
five (5) years prior to the death of the
decedent, or if the property was
transferred to him by gift within the
same period prior to his death.

These deductions shall be allowed

only where a donor's tax, or estate tax
imposed under this Title is finally
determined and paid by or on behalf of
such donor, or the estate of such prior
decedent, as the case may be, and only
in the amount finally determined as
the value of such property in
determining the value of the gift, or the
gross estate of such prior decedent, and
only to the extent that the value of
such property is included in that part
of the decedent's gross estate which at
the time of his death is situated in the
Philippines; and only if, in determining
the value of the net estate of the prior
decedent, no deduction is allowable
under paragraph (2) of Subsection (B)
of this Section, in respect of the
property or properties given in
exchange therefore. Where a deduction
was allowed of any mortgage or other
lien in determining the donor's tax, or
the estate tax of the prior decedent,
 which was paid in whole or in part
prior to the decedent's death, then the
deduction allowable under said
paragraph shall be reduced by the
amount so paid. Such deduction
allowable shall be reduced by an
amount which bears the same ratio to
the amounts allowed as deductions
under paragraphs (1) and (3) of this
Subsection as the amount otherwise
deductible under paragraph (2) bears to
the value of that part of the decedent's
gross estate which at the time of his
death is situated in the Philippines.
Where the property referred to consists
of two (2) or more items, the aggregate
value of such items shall be used for
the purpose of computing the
deduction.

(3) Transfers for Public Use. - The amount

of all bequests, legacies, devises or transfers to
or for the use of the Government of the
Republic of the Philippines or any political
subdivision thereof, for exclusively public
purposes.

(C) Share in the Conjugal Property. - the net share of

the surviving spouse in the conjugal partnership
property as diminished by the obligations properly
chargeable to such property shall, for the purpose of
this Section, be deducted from the net estate of the
decedent.
 (D) Miscellaneous Provisions. - No deduction shall
be allowed in the case of a nonresident not a citizen of
the Philippines, unless the executor, administrator, or
anyone of the heirs, as the case may be, includes in the
return required to be filed under Section 90 the value
at the time of his death of that part of the gross estate
of the nonresident not situated in the Philippines.

(E) Tax Credit for Estate Taxes paid to a Foreign

Country. -

(1) In General. - The tax imposed by this

Title shall be credited with the amounts of any
estate tax imposed by the authority of a foreign
country.

(2) Limitations on Credit. - The amount of

the credit taken under this Section shall be
subject to each of the following limitations:

(a) The amount of the credit in

respect to the tax paid to any country
shall not exceed the same proportion
of the tax against which such credit is
taken, which the decedent's net estate
situated within such country taxable
under this Title bears to his entir net
estate; and

(b) The total amount of the credit

shall not exceed the same proportion
of the tax against which such credit is
taken, which the decedent's net estate
situated outside the Philippines taxable
 under this Title bears to his entire net
estate.

Section 87. Exemption of Certain Acquisitions and Transmissions. -

The following shall not be taxed:

(A) The merger of usufruct in the owner of the

naked title;

(B) The transmission or delivery of the

inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;

(C) The transmission from the first heir, legatee

or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and

(D) All bequests, devises, legacies or transfers to

social welfare, cultural and charitable institutions, no
part of the net income of which insures to the benefit
of any individual: Provided, however, That not more
than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions
for administration purposes.

Section 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right

of usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the
probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved
by the Secretary of Finance, upon recommendation of
the Insurance Commissioner.
 (B) Properties. - The estate shall be appraised at its
fair market value as of the time of death. However, the
appraised value of real property as of the time of death
shall be, whichever is higher of -

(1) The fair market value as determined by

the Commissioner, or

(2) The fair market value as shown in the

schedule of values fixed by the Provincial and
City Assessors.

Section 89. Notice of Death to be Filed. - In all cases of transfers

subject to tax, or where, though exempt from tax, the gross value of
the estate exceeds Twenty thousand pesos (P20,000), the executor,
administrator or any of the legal heirs, as the case may be, within two
(2) months after the decedent's death, or within a like period after
qualifying as such executor or administrator, shall give a written
notice thereof to the Commissioner.

Section 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject

to the tax imposed herein, or where, though exempt
from tax, the gross value of the estate exceeds Two
hundred thousand pesos (P200,000), or regardless of
the gross value of the estate, where the said estate
consists of registered or registrable property such as
real property, motor vehicle, shares of stock or other
similar property for which a clearance from the
Bureau of Internal Revenue is required as a condition
precedent for the transfer of ownership thereof in the
name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may
be, shall file a return under oath in duplicate, setting
forth:

(1) The value of the gross estate of the

decedent at the time of his death, or in case of
a nonresident, not a citizen of the Philippines,
of that part of his gross estate situated in the
Philippines;

(2) The deductions allowed from gross

estate in determining the estate as defined in
Section 86; and

(3) Such part of such information as may

at the time be ascertainable and such
supplemental data as may be necessary to
establish the correct taxes.

Provided, however, That estate tax returns

showing a gross value exceeding Two million
pesos (P2,000,000) shall be supported with a
statement duly certified to by a Certified
Public Accountant containing the following:

(a) Itemized assets of the decedent

with their corresponding gross value at
the time of his death, or in the case of
a nonresident, not a citizen of the
Philippines, of that part of his gross
estate situated in the Philippines;

(b) Itemized deductions from gross

estate allowed in Section 86; and
 (c) The amount of tax due whether
paid or still due and outstanding.

(B) Time for filing. - For the purpose of

determining the estate tax provided for in Section 84
of this Code, the estate tax return required under the
preceding Subsection (A) shall be filed within six (6)
months from the decedent's death.

A certified copy of the schedule of partition and

the order of the court approving the same shall be
furnished the Commissioner within thirty (30) after
the promulgation of such order.

(C) Extension of Time. - The Commissioner shall

have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for
filing the return.

(D) Place of Filing. - Except in cases where the

Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized
agent bank, or Revenue District Officer, Collection
Officer, or duly authorized Treasurer of the city or
municipality in which the decedent was domiciled at
the time of his death or if there be no legal residence
in the Philippines, with the Office of the
Commissioner.

Section 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by

Section 84 shall be paid at the time the return is filed
by the executor, administrator or the heirs.
 (B) Extension of Time. - When the Commissioner
finds that the payment on the due date of the estate
tax or of any part thereof would impose undue
hardship upon the estate or any of the heirs, he may
extend the time for payment of such tax or any part
thereof not to exceed five (5) years, in case the estate is
settled through the courts, or two (2) years in case the
estate is settled extrajudicially. In such case, the
amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of
the period of the extension, and the running of the
Statute of Limitations for assessment as provided in
Section 203 of this Code shall be suspended for the
period of any such extension.

Where the taxes are assessed by reason of

negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no
extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may

require the executor, or administrator, or beneficiary,
as the case may be, to furnish a bond in such amount,
not exceeding double the amount of the tax and with
such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in
accordance with the terms of the extension.

(C) Liability for Payment - The estate tax imposed

by Section 84 shall be paid by the executor or
administrator before delivery to any beneficiary of his
distributive share of the estate. Such beneficiary shall
to the extent of his distributive share of the estate, be
subsidiarily liable for the payment of such portion of
 the estate tax as his distributive share bears to the
value of the total net estate.

For the purpose of this Chapter, the term

'executor' or 'administrator' means the executor or
administrator of the decedent, or if there is no
executor or administrator appointed, qualified, and
acting within the Philippines, then any person in
actual or constructive possession of any property of
the decedent.

Section 92. Discharge of Executor or Administrator from Personal

Liability. - If the executor or administrator makes a written application
to the Commissioner for determination of the amount of the estate
tax and discharge from personal liability therefore, the Commissioner
(as soon as possible, and in any event within one (1) year after the
making of such application, or if the application is made before the
return is filed, then within one (1) year after the return is filed, but
not after the expiration of the period prescribed for the assessment of
the tax in Section 203 shall not notify the executor or administrator
of the amount of the tax. The executor or administrator, upon
payment of the amount of which he is notified, shall be discharged
from personal liability for any deficiency in the tax thereafter found
to be due and shall be entitled to a receipt or writing showing such
discharge.

Section 93. Definition of Deficiency. - As used in this Chapter, the

term 'deficiency' means:

(a) The amount by which the tax imposed by this

Chapter exceeds the amount shown as the tax by the
executor, administrator or any of the heirs upon his
return; but the amounts so shown on the return shall
first be increased by the amounts previously assessed
 (or collected without assessment) as a deficiency and
decreased by the amount previously abated, refunded
or otherwise repaid in respect of such tax; or

(b) If no amount is shown as the tax by the

executor, administrator or any of the heirs upon his
return, or if no return is made by the executor,
administrator, or any heir, then the amount by which
the tax exceeds the amounts previously assessed (or
collected without assessment) as a deficiency; but such
amounts previously assessed or collected without
assessment shall first be decreased by the amounts
previously abated, refunded or otherwise repaid in
respect of such tax.

Section 94. Payment before Delivery by Executor or Administrator. -

No judge shall authorize the executor or judicial administrator to
deliver a distributive share to any party interested in the estate unless
a certification from the Commissioner that the estate tax has been
paid is shown.

Section 95. Duties of Certain Officers and Debtors. - Registers of

Deeds shall not register in the Registry of Property any document
transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the tax
fixed in this Title and actually due thereon had been paid is show,
and they shall immediately notify the Commissioner, Regional
Director, Revenue District Officer, or Revenue Collection Officer or
Treasurer of the city or municipality where their offices are located, of
the non payment of the tax discovered by them. Any lawyer, notary
public, or any government officer who, by reason of his official duties,
intervenes in the preparation or acknowledgment of documents
regarding partition or disposal of donation intervivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the
Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his
principal office, with copies of such documents and any information
whatsoever which may facilitate the collection of the aforementioned
tax. Neither shall a debtor of the deceased pay his debts to the heirs,
legatee, executor or administrator of his creditor, unless the
certification of the Commissioner that the tax fixed in this Chapter
had been paid is shown; but he may pay the executor or judicial
administrator without said certification if the credit is included in the
inventory of the estate of the deceased.

Section 96. Restitution of Tax Upon Satisfaction of Outstanding

Obligations. - If after the payment of the estate tax, new obligations of
the decedent shall appear, and the persons interested shall have
satisfied them by order of the court, they shall have a right to the
restitution of the proportional part of the tax paid.

Section 97. Payment of Tax Antecedent to the Transfer of Shares,

Bonds or Rights. - There shall not be transferred to any new owner in
the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shown.

If a bank has knowledge of the death of a person, who

maintained a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit account, unless
the Commissioner has certified that the taxes imposed thereon by
this Title have been paid: Provided, however, That the administrator
of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at
the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors.

CHAPTER II - DONOR'S TAX

Section 98. Imposition of Tax. -

(A) There shall be levied, assessed, collected and

paid upon the transfer by any person, resident or
nonresident, of the property by gift, a tax, computed
as provided in Section 99.

(B) The tax shall apply whether the transfer is in

trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal,
tangible or intangible.

Section 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year

shall be computed on the basis of the total net gifts
made during the calendar year in accordance with the
following schedule:

If the net gift is:

Of the
But Not The Tax
Over Plus Excess
Over shall be
Over
P 100,000 Exempt
P 100,000 200,000 0 2% P100,000
 200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
10
3,000,000 5,000,000 204,000 3,000,000
%
10,000,00 12
5,000,000 404,000 5,000,000
0 %
10,000,00 1,004,00 15 10,000,00
0 0 % 0

(B) Tax Payable by Donor if Donee is a Stranger. -

When the donee or beneficiary is stranger, the tax
payable by the donor shall be thirty percent (30%) of
the net gifts. For the purpose of this tax, a 'stranger,' is
a person who is not a:

(1) Brother, sister (whether by whole or

half-blood), spouse, ancestor and lineal
descendant; or

(2) Relative by consanguinity in the

collateral line within the fourth degree of
relationship.

(C) Any contribution in cash or in kind to any

candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election
Code, as amended.

Section 100. Transfer for Less Than Adequate and full Consideration.
- Where property, other than real property referred to in Section
24(D), is transferred for less than an adequate and full consideration
in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the consideration
shall, for the purpose of the tax imposed by this Chapter, be deemed
a gift, and shall be included in computing the amount of gifts made
during the calendar year.

Section 101. Exemption of Certain Gifts. - The following gifts or

donations shall be exempt from the tax provided for in this Chapter:

(A) In the Case of Gifts Made by a Resident. -

(1) Dowries or gifts made on account of

marriage and before its celebration or within
one year thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first Ten
thousand pesos (P10,000):

(2) Gifts made to or for the use of the

National Government or any entity created by
any of its agencies which is not conducted for
profit, or to any political subdivision of the
said Government; and

(3) Gifts in favor of an educational and/or

charitable, religious, cultural or social welfare
corporation, institution, accredited
nongovernment organization, trust or
philanthrophic organization or research
institution or organization: Provided, however,
That not more than thirty percent (30%) of
said gifts shall be used by such donee for
administration purposes. For the purpose of
the exemption, a 'non-profit educational
 and/or charitable corporation, institution,
accredited nongovernment organization, trust
or philanthrophic organization and/or
research institution or organization' is a
school, college or university and/or charitable
corporation, accredited nongovernment
organization, trust or philanthrophic
organization and/or research institution or
organization, incorporated as a nonstock
entity, paying no dividends, governed by
trustees who receive no compensation, and
devoting all its income, whether students' fees
or gifts, donation, subsidies or other forms of
philanthrophy, to the accomplishment and
promotion of the purposes enumerated in its
Articles of Incorporation.

(B) In the Case of Gifts Made by a Nonresident

not a Citizen of the Philippines. -

(1) Gifts made to or for the use of the

National Government or any entity created by
any of its agencies which is not conducted for
profit, or to any political subdivision of the
said Government.

(2) Gifts in favor of an educational and/or

charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or
philanthrophic organization or research
institution or organization: Provided, however,
That not more than thirty percent (30% of
said gifts shall be used by such donee for
administration purposes.
 (C) Tax Credit for Donor's Taxes Paid to a
Foreign Country. -

(1) In General. - The tax imposed by this

Title upon a donor who was a citizen or a
resident at the time of donation shall be
credited with the amount of any donor's tax of
any character and description imposed by the
authority of a foreign country.

(2) Limitations on Credit. - The amount of

the credit taken under this Section shall be
subject to each of the following limitations:

(a) The amount of the credit in

respect to the tax paid to any country
shall not exceed the same proportion
of the tax against which such credit is
taken, which the net gifts situated
within such country taxable under this
Title bears to his entire net gifts; and

(b) The total amount of the credit

shall not exceed the same proportion
of the tax against which such credit is
taken, which the donor's net gifts
situated outside the Philippines taxable
under this title bears to his entire net
gifts.

Section 102. Valuation of Gifts Made in Property. - If the gift is

made in property, the fair market value thereof at the time of the gift
shall be considered the amount of the gift. In case of real property,
the provisions of Section 88(B) shall apply to the valuation thereof.
Section 103. Filing of Return and Payment of Tax. -

(A) Requirements. - any individual who makes any

transfer by gift (except those which, under Section
101, are exempt from the tax provided for in this
Chapter) shall, for the purpose of the said tax, make a
return under oath in duplicate. The return shall se
forth:

(1) Each gift made during the calendar

year which is to be included in computing net
gifts;

(2) The deductions claimed and allowable;

(3) Any previous net gifts made during the

same calendar year;

(4) The name of the donee; and

(5) Such further information as may be

required by rules and regulations made
pursuant to law.

(B) Time and Place of Filing and Payment. - The

return of the donor required in this Section shall be
filed within thirty (30) days after the date the gift is
made and the tax due thereon shall be paid at the time
of filing. Except in cases where the Commissioner
otherwise permits, the return shall be filed and the tax
paid to an authorized agent bank, the Revenue
District Officer, Revenue Collection Officer or duly
authorized Treasurer of the city or municipality where
the donor was domiciled at the time of the transfer, or
if there be no legal residence in the Philippines, with
 the Office of the Commissioner. In the case of gifts
made by a nonresident, the return may be filed with
the Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.

Section 104. Definitions. - For purposes of this Title, the terms

'gross estate' and 'gifts' include real and personal property, whether
tangible or intangible, or mixed, wherever situated: Provided,
however, That where the decedent or donor was a nonresident alien
at the time of his death or donation, as the case may be, his real and
personal property so transferred but which are situated outside the
Philippines shall not be included as part of his 'gross estate' or 'gross
gift': Provided, further, That franchise which must be exercised in the
Philippines; shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the business of which is
located in the Philippines; shares, obligations or bonds issued by any
foreign corporation if such shares, obligations or bonds have acquired
a business situs in the Philippines; shares or rights in any partnership,
business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that
no tax shall be collected under this Title in respect of intangible
personal property: (a) if the decedent at the time of his death or the
donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not
impose a transfer tax of any character, in respect of intangible
personal property of citizens of the Philippines not residing in that
foreign country, or (b) if the laws of the foreign country of which the
decedent or donor was a citizen and resident at the time of his death
or donation allows a similar exemption from transfer or death taxes
of every character or description in respect of intangible personal
property owned by citizens of the Philippines not residing in that
foreign country.

The term 'deficiency' means: (a) the amount by which tax

imposed by this Chapter exceeds the amount shown as the tax by the
donor upon his return; but the amount so shown on the return shall
first be increased by the amount previously assessed (or Collected
without assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax,
or (b) if no amount is shown as the tax by the donor, then the
amount by which the tax exceeds the amounts previously assessed, (or
collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be
decreased by the amount previously abated, refunded or otherwise
repaid in respect of such tax.

TITLE IV - VALUE- ADDED TAX

CHAPTER I - IMPOSITION OF TAX

Section 105. Persons Liable. - Any person who, in the course of

trade or business, sells barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject
to the value-added tax (VAT) imposed in Sections 106 to 108 of this
Code.

The value-added tax is an indirect tax and the amount of tax may
be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716.

The phrase 'in the course of trade or business' means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether
or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.

The rule of regularity, to the contrary notwithstanding, services

as defined in this Code rendered in the Philippines by nonresident
foreign persons shall be considered as being course of trade or
business.

Section 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied,

assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor.

(1) The term 'goods' or 'properties' shall

mean all tangible and intangible objects which
are capable of pecuniary estimation and shall
include:

(a) Real properties held primarily

for sale to customers or held for lease
in the ordinary course of trade or
business;

(b) The right or the privilege to use

patent, copyright, design or model,
plan, secret formula or process,
goodwill, trademark, trade brand or
other like property or right;
 (c) The right or the privilege to use
in the Philippines of any industrial,
commercial or scientific equipment;

(d) The right or the privilege to use

motion picture films, tapes and discs;
and

(e) Radio, television, satellite

transmission and cable television time.

The term 'gross selling price'

means the total amount of money or
its equivalent which the purchaser pays
or is obligated to pay to the seller in
consideration of the sale, barter or
exchange of the goods or properties,
excluding the value-added tax. The
excise tax, if any, on such goods or
properties shall form part of the gross
selling price.

(2) The following sales by VAT-registered

persons shall be subject to zero percent (0%)
rate:

(a) Export Sales. - The term 'export

sales' means:

(1) The sale and actual

shipment of goods from the
Philippines to a foreign
country, irrespective of any
shipping arrangement that may
be agreed upon which may
influence or determine the
transfer of ownership of the
goods so exported and paid for
in acceptable foreign currency
or its equivalent in goods or
services, and accounted for in
accordance with the rules and
regulations of the Bangko
Sentral ng Pilipinas (BSP);

(2) Sale of raw materials or

packaging materials to a
nonresident buyer for delivery
to a resident local export-
oriented enterprise to be used
in manufacturing, processing,
packing or repacking in the
Philippines of the said buyer's
goods and paid for in
acceptable foreign currency and
accounted for in accordance
with the rules and regulations
of the Bangko Sentral ng
Pilipinas (BSP);

(3) Sale of raw materials or

packaging materials to export-
oriented enterprise whose
export sales exceed seventy
percent (70%) of total annual
production;

(4) Sale of gold to the

Bangko Sentral ng Pilipinas
(BSP); and
 (5) Those considered
export sales under Executive
Order NO. 226, otherwise
known as the Omnibus
Investment Code of 1987, and
other special laws.

(b) Foreign Currency

Denominated Sale. - The phrase
'foreign currency denominated sale'
means sale to a nonresident of goods,
except those mentioned in Sections
149 and 150, assembled or
manufactured in the Philippines for
delivery to a resident in the
Philippines, paid for in acceptable
foreign currency and accounted for in
accordance with the rules and
regulations of the Bangko Sentral ng
Pilipinas (BSP).

(c) Sales to persons or entities

whose exemption under special laws or
international agreements to which the
Philippines is a signatory effectively
subjects such sales to zero rate.

(B) Transactions Deemed Sale. - The following

transactions shall be deemed sale:

(1) Transfer, use or consumption not in

the course of business of goods or properties
originally intended for sale or for use in the
course of business;
 (2) Distribution or transfer to:

(a) Shareholders or investors as

share in the profits of the VAT-
registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is

not made within sixty (60) days following the
date such goods were consigned; and

(4) Retirement from or cessation of

business, with respect to inventories of taxable
goods existing as of such retirement or
cessation.

(C) Changes in or Cessation of Status of a VAT-

registered Person. - The tax imposed in Subsection (A)
of this Section shall also apply to goods disposed of or
existing as of a certain date if under circumstances to
be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a
person as a VAT-registered person changes or is
terminated.

(D) Determination of the Tax. -

(1) The tax shall be computed by

multiplying the total amount indicated in the
invoice by one-eleventh (1/11).

(2) Sales Returns, Allowances and Sales

Discounts. - The value of goods or properties
 sold and subsequently returned or for which
allowances were granted by a VAT-registered
person may be deducted from the gross sales or
receipts for the quarter in which a refund is
made or a credit memorandum or refund is
issued. Sales discount granted and indicated in
the invoice at the time of sale and the grant of
which does not depend upon the happening of
a future event may be excluded from the gross
sales within the same quarter it was given.

(3) Authority of the Commissioner to

Determine the Appropriate Tax Base. - The
Commissioner shall, by rules and regulations
prescribed by the Secretary of Finance,
determine the appropriate tax base in cases
where a transaction is deemed a sale, barter or
exchange of goods or properties under
Subsection (B) hereof, or where the gross
selling price is unreasonably lower than the
actual market value.

Section 107. Value-Added Tax on Importation of Goods. -

(A) In General. - There shall be levied, assessed and

collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining
tariff and customs duties plus customs duties, excise
taxes, if any, and other charges, such tax to be paid by
the importer prior to the release of such goods from
customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be
based on the landed cost plus excise taxes, If any.
 (B) Transfer of Goods by Tax-exempt Persons. - In the
case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt
from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers, transferees
or recipients shall be considered the importers thereof,
who shall be liable for any internal revenue tax on
such importation. The tax due on such importation
shall constitute a lien on the goods superior to all
charges or liens on the goods, irrespective of the
possessor thereof.

Section 108. Value-added Tax on Sale of Services and Use or Lease of

Properties. -

(A) Rate and Base of Tax. - There shall be levied,

assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the
sale or exchange of services, including the use or lease
of properties.

The phrase 'sale or exchange of services' means

the performance of all kinds or services in the
Philippines for others for a fee, remuneration or
consideration, including those performed or rendered
by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers;
lessors of property, whether personal or real;
warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment
parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods
or cargoes, including persons who transport goods or
cargoes for hire another domestic common carriers by
land, air and water relative to their transport of goods
or cargoes; services of franchise grantees of telephone
and telegraph, radio and television broadcasting and
all other franchise grantees except those under Section
119 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether
or not the performance thereof calls for the exercise or
use of the physical or mental faculties. The phrase 'sale
or exchange of services' shall likewise include:

(1) The lease or the use of or the right or

privilege to use any copyright, patent, design or
model, plan secret formula or process,
goodwill, trademark, trade brand or other like
property or right;

(2) The lease of the use of, or the right to

use of any industrial, commercial or scientific
equipment;

(3) The supply of scientific, technical,

industrial or commercial knowledge or
information;

(4) The supply of any assistance that is

ancillary and subsidiary to and is furnished as
a means of enabling the application or
enjoyment of any such property, or right as is
mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in
subparagraph (3);

(5) The supply of services by a nonresident

person or his employee in connection with the
use of property or rights belonging to, or the
installation or operation of any brand,
machinery or other apparatus purchased from
such nonresident person.

(6) The supply of technical advice,

assistance or services rendered in connection
with technical management or administration
of any scientific, industrial or commercial
undertaking, venture, project or scheme;

(7) The lease of motion picture films,

films, tapes and discs; and

(8) The lease or the use of or the right to

use radio, television, satellite transmission and
cable television time.

Lease of properties shall be subject to the

tax herein imposed irrespective of the place
where the contract of lease or licensing
agreement was executed if the property is
leased or used in the Philippines.

The term 'gross receipts' means the total

amount of money or its equivalent
representing the contract price, compensation,
 service fee, rental or royalty, including the
amount charged for materials supplied with
the services and deposits and advanced
payments actually or constructively received
during the taxable quarter for the services
performed or to be performed for another
person, excluding value-added tax.

(B) Transactions Subject to Zero Percent (0%) Rate -

The following services performed in the Philippines by
VAT- registered persons shall be subject to zero
percent (0%) rate.

(1) Processing, manufacturing or

repacking goods for other persons doing
business outside the Philippines which goods
are subsequently exported, where the services
are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas
(BSP);

(2) Services other than those mentioned

in the preceding paragraph, the consideration
for which is paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);

(3) Services rendered to persons or entities

whose exemption under special laws or
international agreements to which the
Philippines is a signatory effectively subjects
the supply of such services to zero percent (0%)
rate;
 (4) Services rendered to vessels engaged
exclusively in international shipping; and

(5) Services performed by subcontractors

and/or contractors in processing, converting,
of manufacturing goods for an enterprise
whose export sales exceed seventy percent
(70%) of total annual production.

(C) Determination of the Tax. - The tax shall be

computed by multiplying the total amount indicated
in the official receipt by one-eleventh (1/11).

Section 109. Exempt Transactions. - The following shall be exempt

from the value-added tax:

(a) Sale of nonfood agricultural products; marine

and forest products in their original state by the
primary producer or the owner of the land where the
same are produced;

(b) Sale of cotton seeds in their original state; and

copra;

(c) Sale or importation of agricultural and marine

food products in their original state, livestock and
poultry of or king generally used as, or yielding or
producing foods for human consumption; and
breeding stock and genetic materials therefor.

Products classified under this paragraph and

paragraph (a) shall be considered in their original state
even if they have undergone the simple processes of
preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or
stripping.

Polished and/or husked rice, corn grits, raw cane

sugar and molasses, and ordinary salt shall be
considered in their original state;

(d) Sale or importation of fertilizers; seeds,

seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses,
fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);

(e) Sale or importation of coal and natural gas, in

whatever form or state, and petroleum products
(except lubricating oil, processed gas, grease, wax and
petrolatum) subject to excise tax imposed under Title
VI;

(f) Sale or importation of raw materials to be used

by the buyer or importer himself in the manufacture
of petroleum products subject to excise tax, except
lubricating oil, processed gas, grease, wax and
petrolatum;

(g) Importation of passenger and/or cargo vessels

of more than five thousand tons (5,000) whether
coastwise or ocean-going, including engine and spare
parts of said vessel to be used by the importer himself
as operator thereof;

(h) Importation of personal and household effects

belonging to the residents of the Philippines returning
from abroad and nonresident citizens coming to
resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and
Customs Code of the Philippines;

(i) Importation of professional instruments and

implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to
the Commissioner, that such persons are actually
coming to settle in the Philippines and that the
change of residence is bona fide;

(j) Services subject to percentage tax under Title

V;

(k) Services by agricultural contract growers and

milling for others of palay into rice, corn into grits and
sugar cane into raw sugar;

(l) Medical, dental, hospital and veterinary

services subject to the provisions of Section 17 of
Republic Act No. 7716, as amended:

(m) Educational services rendered by private

educational institutions, duly accredited by the
Department of Education, Culture and Sports (DECS)
and the Commission on Higher Education (CHED),
and those rendered by government educational
institutions;

(n) Sale by the artist himself of his works of art,

literary works, musical compositions and similar
creations, or his services performed for the production
of such works;

(o) Services rendered by individuals pursuant to

an employer-employee relationship;

(p) Services rendered by regional or area

headquarters established in the Philippines by
multinational corporations which act as supervisory,
communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the
Philippines;

(q) Transactions which are exempt under

international agreements to which the Philippines is a
signatory or under special laws, except those under
Presidential Decree Nos. 66, 529 and 1590;

(r) Sales by agricultural cooperatives duly

registered with the Cooperative Development
Authority to their members as well as sale of their
produce, whether in its original state or processed
form, to non-members; their importation of direct
farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively
in the production and/or processing of their produce;

(s) Sales by electric cooperatives duly registered

with the Cooperative Development authority or
National Electrification Administration, relative to the
generation and distribution of electricity as well as
their importation of machineries and equipment,
including spare parts, which shall be directly used in
the generation and distribution of electricity;

(t) Gross receipts from lending activities by credit

or multi-purpose cooperatives duly registered with the
Cooperative Development Authority whose lending
operation is limited to their members;

(u) Sales by non-agricultural, non- electric and

non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That
the share capital contribution of each member does
not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus
ratably distributed among the members;

(v) Export sales by persons who are not VAT-

registered;

(w) Sale of real properties not primarily held for

sale to customers or held for lease in the ordinary
course of trade or business or real property utilized for
low-cost and socialized housing as defined by Republic
Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other
related laws, house and lot and other residential
dwellings valued at One million pesos (P1,000,000)
and below: Provided, That not later than January 31st
of the calendar year subsequent to the effectivity of
this Act and each calendar year thereafter, the amount
of One million pesos (P1,000,000) shall be adjusted to
 its present value using the Consumer Price Index, as
published by the national Statistics Office (NSO);

(x) Lease of a residential unit with a monthly

rental not exceeding Eight thousand pesos(P8,000);
Provided, That not later than January 31st of the
calendar year subsequent to the effectivity of Republic
Act No. 8241 and each calendar year thereafter, the
amount of Eight thousand pesos (P8,000) shall be
adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office
(NS0);

(y) Sale, importation, printing or publication of

books and any newspaper, magazine review or bulletin
which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements;
and

(z) Sale or lease of goods or properties or the

performance of services other than the transactions
mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the
amount of Five hundred fifty thousand pesos
(P550,000): Provided, That not later than January 31st
of the calendar year subsequent to the effectivity of
Republic Act No. 8241 and each calendar year
thereafter, the amount of Five hundred fifty thousand
pesos (550,000) shall be adjusted to its present value
using the Consumer Price Index, as published by the
National Statistics Office (NSO).

The foregoing exemptions to the contrary notwithstanding, any

person whose sale of goods or properties or services which are
otherwise not subject to VAT, but who issues a VAT invoice or
receipt therefor shall, in addition to his liability to other applicable
percentage tax, if any, be liable to the tax imposed in Section 106 or
108 without the benefit of input tax credit, and such tax shall also be
recognized as input tax credit to the purchaser under Section 110, all
of this Code.

Section 110. Tax Credits. -

A. Creditable Input Tax. -

(1) Any input tax evidenced by a VAT

invoice or official receipt issued in accordance
with Section 113 hereof on the following
transactions shall be creditable against the
output tax:

(a) Purchase or importation of

goods:

(i) For sale; or

(ii) For conversion into or

intended to form part of a
finished product for sale
including packaging materials;
or

(iii) For use as supplies in

the course of business; or

(iv) For use as materials

supplied in the sale of service;
or
 (v) For use in trade or
business for which deduction
for depreciation or
amortization is allowed under
this Code, except automobiles,
aircraft and yachts.

(b) Purchase of services on which a

value-added tax has been actually paid.

(2) The input tax on domestic purchase of

goods or properties shall be creditable:

(a) To the purchaser upon

consummation of sale and on
importation of goods or properties;
and

(b) To the importer upon payment

of the value-added tax prior to the
release of the goods from the custody
of the Bureau of Customs.

However, in the case of purchase

of services, lease or use of properties,
the input tax shall be creditable to the
purchaser, lessee or licensee upon
payment of the compensation, rental,
royalty or fee.

(3) A VAT-registered person who is also

engaged in transactions not subject to the
value-added tax shall be allowed tax credit as
follows:
 (a) Total input tax which can be
directly attributed to transactions
subject to value-added tax; and

(b) A ratable portion of any input

tax which cannot be directly attributed
to either activity.

The term 'input tax' means the value-

added tax due from or paid by a VAT-
registered person in the course of his trade or
business on importation of goods or local
purchase of goods or services, including lease
or use of property, from a VAT-registered
person. It shall also include the transitional
input tax determined in accordance with
Section 111 of this Code.

The term 'output tax' means the value-

added tax due on the sale or lease of taxable
goods or properties or services by any person
registered or required to register under Section
236 of this Code.

(B) Excess Output or Input Tax. - If at the end of

any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the Vat-registered
person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter
or quarters. any input tax attributable to the purchase
of capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or
credited against other internal revenue taxes, subject
to the provisions of Section 112.
 (C) Determination of Creditable Input Tax. - The
sum of the excess input tax carried over from the
preceding month or quarter and the input tax
creditable to a VAT-registered person during the
taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value-
added tax and other adjustments, such as purchase
returns or allowances and input tax attributable to
exempt sale.

The claim for tax credit referred to in the foregoing paragraph

shall include not only those filed with the Bureau of Internal
Revenue but also those filed with other government agencies, such as
the Board of Investments the Bureau of Customs.

Section 111. Transitional/Presumptive Input Tax Credits. -

(A) Transitional Input Tax Credits. - A person who

becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to
the filing of an inventory according to rules and
regulations prescribed by the Secretary of finance,
upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods,
materials and supplies equivalent for eight percent
(8%) of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against
the output tax.

(B) Presumptive Input Tax Credits. -

(1) Persons or firms engaged in the

processing of sardines, mackerel and milk, and
 in manufacturing refined sugar and cooking
oil, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to
one and one-half percent (1 1/2%) of the gross
value in money of their purchases of primary
agricultural products which are used as inputs
to their production.

As used in this Subsection, the term

'processing' shall mean pasteurization, canning
and activities which through physical or
chemical process alter the exterior texture or
form or inner substance of a product in such
manner as to prepare it for special use to
which it could not have been put in its original
form or condition.

(2) Public works contractors shall be

allowed a presumptive input tax equivalent to
one and one-half percent (1 1/2%) of the
contract price with respect to government
contracts only in lieu of actual input taxes
therefrom.

Section 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - any

VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable
to such sales, except transitional input tax, to the
extent that such input tax has not been applied against
output tax: Provided, however, That in the case of
zero-rated sales under Section 106(A)(2)(a)(1), (2) and
(B) and Section 108 (B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged
in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or
services, and the amount of creditable input tax due or
paid cannot be directly and entirely attributed to any
one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

(B) Capital Goods. - A VAT-registered person may

apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported
or locally purchased, to the extent that such input
taxes have not been applied against output taxes. The
application may be made only within two (2) years
after the close of the taxable quarter when the
importation or purchase was made.

(C) Cancellation of VAT Registration. - A person

whose registration has been cancelled due to
retirement from or cessation of business, or due to
changes in or cessation of status under Section 106(C)
of this Code may, within two (2) years from the date
of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used
in payment of his other internal revenue taxes.

(D) Period within which Refund or Tax Credit of Input

Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax
 credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of compete documents in support of the
application filed in accordance with Subsections (A)
and (B) hereof.

In case of full or partial denial of the claim for tax

refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.-

(E) Manner of Giving Refund. - Refunds shall be

made upon warrants drawn by the Commissioner or
by his duly authorized representative without the
necessity of being countersigned by the Chairman,
Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the
Commission on Audit.

CHAPTER II - COMPLIANCE REQUIREMENTS

Section 113. Invoicing and Accounting Requirements for VAT-

Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered

person shall, for every sale, issue an invoice or receipt.
In addition to the information required under Section
 237, the following information shall be indicated in
the invoice or receipt:

(1) A statement that the seller is a VAT-

registered person, followed by his taxpayer's
identification number (TIN); and

(2) The total amount which the purchaser

pays or is obligated to pay to the seller with the
indication that such amount includes the
value-added tax.

(B) Accounting Requirements. - Notwithstanding the

provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in
addition to the regular accounting records required,
maintain a subsidiary sales journal and subsidiary
purchase journal on which the daily sales and
purchases are recorded. The subsidiary journals shall
contain such information as may be required by the
Secretary of Finance.

Section 114. Return and Payment of Value-Added Tax. -

(A) In General. - Every person liable to pay the

value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close
of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall
pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled

in accordance with Section 236, shall file a return and
pay the tax due thereon within twenty-five (25) days
from the date of cancellation of registration: Provided,
That only one consolidated return shall be filed by the
taxpayer for his principal place of business or head
office and all branches.

(B) Where to File the Return and Pay the Tax. -

Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to an
authorized agent bank, Revenue Collection Officer or
duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where
the taxpayer is registered or required to register.

(C) Withholding of Creditable Value-added Tax. - The

Government or any of its political subdivisions,
instrumentalities or agencies, including government-
owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase
of goods from sellers and services rendered by
contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct
and withhold the value-added tax due at the rate of
three percent (3%) of the gross payment for the
purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every
sale or installment payment which shall be creditable
against the value-added tax liability of the seller or
contractor: Provided, however, That in the case of
government public works contractors, the withholding
rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax
at the time of payment. For this purpose, the payor or
 person in control of the payment shall be considered
as the withholding agent.

The value-added tax withheld under this Section shall be

remitted within ten (10) days following the end of the month the
withholding was made.

Section 115. Power of the Commissioner to Suspend the Business

Operations of a Taxpayer. - The Commissioner or his authorized
representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any
person for any of the following violations:

(a) In the case of a VAT-registered Person. -

(1) Failure to issue receipts or invoices;

(2) Failure to file a value-added tax return

as required under Section 114; or

(3) Understatement of taxable sales or

receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable
quarter.

(b) Failure of any Person to Register as Required

under Section 236. -

The temporary closure of the establishment shall

be for the duration of not less than five (5) days and
shall be lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the
closure order.
 TITLE V - OTHER PERCENTAGE TAXES

Section 116. Tax on Persons Exempt from Value-Added Tax (VAT). -

Any person whose sales or receipts are exempt under Section 109(z)
of this Code from the payment of value-added tax and who is not a
VAT-registered person shall pay a tax equivalent to three percent
(3%) of his gross quarterly sales or receipts: Provided, That
cooperatives shall be exempt from the three percent (3%)gross
receipts tax herein imposed.

Section 117. Percentage Tax on Domestic Carriers and Keepers of

Garages. - Cars for rent or hire driven by the lessee, transportation
contractors, including persons who transport passengers for hire, and
other domestic carriers by land, air or water, for the transport of
passengers, except owners of bancas and owner of animal-drawn two
wheeled vehicle, and keepers of garages shall pay a tax equivalent to
three percent (3%) of their quarterly gross receipts.

The gross receipts of common carriers derived from their

incoming and outgoing freight shall not be subjected to the local
taxes imposed under Republic Act No. 7160, otherwise known as the
Local Government Code of 1991.

In computing the percentage tax provided in this Section, the

following shall be considered the minimum quarterly gross receipts in
each particular case:

Jeepney for hire -

1. Manila and other cities P 2,400
2. Provincial 1,200
Public utility bus -
Not exceeding 30 passengers 3,600
 Exceeding 30 but not exceeding 50 6,000
passengers
Exceeding 50 passengers 7,200
Taxis -
1. Manila and other cities P 3,600
2. Provincial 2,400
Car for hire (with chauffer) 3,000
Car for hire (without chauffer) 1,800

Section 118. Percentage Tax on International Carriers. -

(A) International air carriers doing business in the

Philippines shall pay a tax of three percent (3%) of
their quarterly gross receipts.

(B) International shipping carriers doing business

in the Philippines shall pay a tax equivalent to three
percent (3%) of their quarterly gross receipts.

Section 119. Tax on Franchises. - Any provision of general or

special law to the contrary notwithstanding, there shall be levied,
assessed and collected in respect to all franchises on radio and/or
television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos (P10,000.00),
subject to Section 236 of this Code, a tax of three percent (3%) and
on electric, gas and water utilities, a tax of two percent (2%) on the
gross receipts derived from the business covered by the law granting
the franchise: Provided, however, That radio and television
broadcasting companies referred to in this Section shall have an
option to be registered as a value-added taxpayer and pay the tax due
thereon: Provided, further, That once the option is exercised, it shall
not be revoked.
 The grantee shall file the return with, and pay the tax due
thereon to the Commissioner or his duly authorized representative,
in accordance with the provisions of Section 128 of this Code, and
the return shall be subject to audit by the Bureau of Internal
Revenue, any provision of any existing law to the contrary
notwithstanding.

Section 120. Tax on Overseas Dispatch, Message or Conversation

Originating from the Philippines. -

(A) Persons Liable. - There shall be collected upon

every overseas dispatch, message or conversation
transmitted from the Philippines by telephone,
telegraph, telewriter exchange, wireless and other
communication equipment service, a tax of ten
percent (10%) on the amount paid for such services.
The tax imposed in this Section shall be payable by the
person paying for the services rendered and shall be
paid to the person rendering the services who is
required to collect and pay the tax within twenty (20)
days after the end of each quarter.

(B) Exemptions. - The tax imposed by this Section

shall not apply to:

(1) Government. - Amounts paid for

messages transmitted by the Government of
the Republic of the Philippines or any of its
political subdivisions or instrumentalities;

(2) Diplomatic Services. - Amounts paid for

messages transmitted by any embassy and
consular offices of a foreign government;
 (3) International Organizations. - Amounts
paid for messages transmitted by a public
international organization or any of its
agencies based in the Philippines enjoying
privileges, exemptions and immunities which
the Government of the Philippines is
committed to recognize pursuant to an
international agreement; and

(4) News Services. - Amounts paid for

messages from any newspaper, press
association, radio or television newspaper,
broadcasting agency, or newstickers services, to
any other newspaper, press association, radio
or television newspaper broadcasting agency,
or newsticker service or to a bona fide
correspondent, which messages deal exclusively
with the collection of news items for, or the
dissemination of news item through, public
press, radio or television broadcasting or a
newsticker service furnishing a general news
service similar to that of the public press.

Section 121. Tax on Banks and Non-bank Financial Intermediaries. -

There shall be a collected tax on gross receipts derived from sources
within the Philippines by all banks and non-bank financial
intermediaries in accordance with the following schedule:

(a) On interest, commissions and discounts from

lending activities as well as income from financial
leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:
 Short-term maturity (non in excess of two
(2) years) - 5%

Medium-term maturity (over two (2) years

but not exceeding four (4) years) - 3%

Long-term maturity -

(1) Over four (4) years but not

exceeding seven (7) years - 1%

(2) Over seven (7) years - 0%

(b) On dividends - 0%

(c) On royalties, rentals of property, real or

personal, profits, from exchange and all other items
treated as gross income under Section 32 of this Code
............................................................ 5%

Provided, however, That in case the maturity period referred to

in paragraph (a) is shortened thru pretermination, then the maturity
period shall be reckoned to end as of the date of pretermination for
purposes of classifying the transaction as short, medium or long-term
and the correct rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from

imposing the same tax herein provided on persons performing similar
banking activities.

Section 122. Tax on Finance Companies. - There shall be collected

a tax of five percent (5%) on the gross receipts derived by all finance
companies, as well as by other financial intermediaries not
performing quasi-banking functions dong business in the Philippines,
from interest, discounts and all other items treated as gross income
under this Code: Provided, That interests, commissions and
discounts from lending activities, as well as income from financial
leasing, shall be taxed on the basis of the remaining maturities of the
instruments from which such receipts are derived, in accordance with
the following schedule:

Short-term maturity (non in excess of two (2)

years) - 5%

Medium-term maturity (over two (2) years

but not exceeding four (4) years) - 3%

Long-term maturity -

(1) Over four (4) years but not exceeding

seven (7) years - 1%

(2) Over seven (7) years - 0%

Provided, however, That in case the maturity

period is shortened thru pretermination, then the
maturity period shall be reckoned to end as of the date
of pretermination for purposes of classifying the
transaction as short, medium or long-term and the
correct rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the

Commissioner from imposing the same tax herein
provided on persons performing similar financing
activities.

Section 123. Tax on Life Insurance Premiums. - There shall be

collected from every person, company or corporation (except purely
cooperative companies or associations) doing life insurance business
of any sort in the Philippines a tax of five percent (5%) of the total
premium collected, whether such premiums are paid in money, notes,
credits or any substitute for money; but premiums refunded within
six (6) months after payment on account of rejection of risk or
returned for other reason to a person insured shall not be included in
the taxable receipts; nor shall any tax be paid upon reinsurance by a
company that has already paid the tax; nor upon doing business
outside the Philippines on account of any life insurance of the
insured who is a nonresident, if any tax on such premium is imposed
by the foreign country where the branch is established nor upon
premiums collected or received on account of any reinsurance , if the
insured, in case of personal insurance, resides outside the Philippines,
if any tax on such premiums is imposed by the foreign country where
the original insurance has been issued or perfected; nor upon that
portion of the premiums collected or received by the insurance
companies on variable contracts (as defined in section 232(2) of
Presidential Decree No. 612), in excess of the amounts necessary to
insure the lives of the variable contract workers.

Cooperative companies or associations are such as are conducted

by the members thereof with the money collected from among
themselves and solely for their own protection and not for profit.

Section 124. Tax on Agents of Foreign Insurance Companies. - Every

fire, marine or miscellaneous insurance agent authorized under the
Insurance Code to procure policies of insurance as he may have
previously been legally authorized to transact on risks located in the
Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section
123: Provided, That the provision of this Section shall not apply to
reinsurance: Provided, however, That the provisions of this Section
shall not affect the right of an owner of property to apply for and
obtain for himself policies in foreign companies in cases where said
owner does not make use of the services of any agent, company or
corporation residing or doing business in the Philippines. In all cases
where owners of property obtain insurance directly with foreign
companies, it shall be the duty of said owners to report to the
Insurance Commissioner and to the Commissioner each case where
insurance has been so effected, and shall pay the tax of five percent
(5%) on premiums paid, in the manner required by Section 123.

Section 125. Amusement Taxes. - There shall be collected from the

proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball games, Jai-Alai and
racetracks, a tax equivalent to:

(a) Eighteen percent (18%) in the case of cockpits;

(b) Eighteen percent (18%) in the case of cabarets,

night or day clubs;

(c) Ten percent (10%) in the case of boxing

exhibitions: Provided, however, That boxing
exhibitions wherein World or Oriental
Championships in any division is at stake shall be
exempt from amusement tax: Provided, further, That
at least one of the contenders for World or Oriental
Championship is a citizen of the Philippines and said
exhibitions are promoted by a citizen/s of the
Philippines or by a corporation or association at least
sixty percent (60%) of the capital of which is owned by
such citizens;

(d) Fifteen percent (15%) in the case of

professional basketball games as envisioned in
Presidential Decree No. 871: Provided, however, That
the tax herein shall be in lieu of all other percentage
taxes of whatever nature and description; and
 (e) Thirty percent (30%) in the case of Jai-Alai and
racetracks of their gross receipts, irrespective, of
whether or not any amount is charged for admission.

For the purpose of the amusement tax, the term "gross receipts"
embraces all the receipts of the proprietor, lessee or operator of the
amusement place. Said gross receipts also include income from
television, radio and motion picture rights, if any. A person or entity
or association conducting any activity subject to the tax herein
imposed shall be similarly liable for said tax with respect to such
portion of the receipts derived by him or it.

The taxes imposed herein shall be payable at the end of each

quarter and it shall be the duty of the proprietor, lessee or operator
concerned, as well as any party liable, within twenty (20) days after the
end of each quarter, to make a true and complete return of the
amount of the gross receipts derived during the preceding quarter
and pay the tax due thereon.

Section 126. Tax on Winnings. - Every person who wins in horse

races shall pay a tax equivalent to ten percent (10%) of his winnings
or 'dividends', the tax to be based on the actual amount paid to him
for every winning ticket after deducting the cost of the ticket:
Provided, That in the case of winnings from double, forecast/quinella
and trifecta bets, the tax shall be four percent (4%). In the case of
owners of winning race horses, the tax shall be ten percent (10%) of
the prizes.

The tax herein prescribed shall be deducted from the 'dividends'

corresponding to each winning ticket or the 'prize' of each winning
race horse owner and withheld by the operator, manager or person in
charge of the horse races before paying the dividends or prizes to the
persons entitled thereto.
 The operator, manager or person in charge of horse races shall,
within twenty (20) days from the date the tax was deducted and
withheld in accordance with the second paragraph hereof, file a true
and correct return with the Commissioner in the manner or form to
be prescribed by the Secretary of Finance, and pay within the same
period the total amount of tax so deducted and withheld.

Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed

and Traded through the Local Stock Exchange or through Initial Public
Offering. -

(A) Tax on Sale, Barter or Exchange of Shares of

Stock Listed and Traded through the Local Stock
Exchange. - There shall be levied, assessed and
collected on every sale, barter, exchange, or other
disposition of shares of stock listed and traded
through the local stock exchange other than the sale
by a dealer in securities, a tax at the rate of one-half of
one percent (1/2 of 1%) of the gross selling price or
gross value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed which shall
be paid by the seller or transferor.

(B) Tax on Shares of Stock Sold or Exchanged

Through Initial Public Offering. - There shall be
levied, assessed and collected on every sale, barter,
exchange or other disposition through initial public
offering of shares of stock in closely held corporations,
as defined herein, a tax at the rates provided
hereunder based on the gross selling price or gross
value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed in accordance with
the proportion of shares of stock sold, bartered,
exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the local
stock exchange:

Up to twenty-five percent (25%) - 4%

Over twenty-five percent (25%) but not

over thirty-three
and one third percent (33 1/3%) - 2%

Over thirty-three and one third percent

(33 1/3%) - 1%

The tax herein imposed shall be paid by the

issuing corporation in primary offering or by the seller
in secondary offering.

For purposes of this Section, the term 'closely

held corporation' means any corporation at least fifty
percent (50%) in value of outstanding capital stock or
at least fifty percent (505) of the total combined voting
power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than twenty
(20) individuals.

For purposes of determining whether the

corporation is a closely held corporation, insofar as
such determination is based on stock ownership, the
following rules shall be applied:

(1) Stock Not Owned by Individuals. - Stock

owned directly or indirectly by or for a
corporation, partnership, estate or trust shall
be considered as being owned proportionately
by its shareholders, partners or beneficiaries.
 (2) Family and Partnership Ownerships. - An
individual shall be considered as owning the
stock owned, directly or indirectly, by or for
his family, or by or for his partner. For
purposes of the paragraph, the 'family of an
individual' includes only his brothers and
sisters (whether by whole or half-blood),
spouse, ancestors and lineal descendants.

(3) Option. - If any person has an option

acquire stock, such stock shall be considered as
owned by such person. For purposes of this
paragraph, an option to acquire such an
option and each one of a series of options shall
be considered as an option to acquire such
stock.

(4) Constructive Ownership as Actual

Ownership. - Stock constructively owned by
reason of the application of paragraph (1) or
(3) hereof shall, for purposes of applying
paragraph (1) or (2), be treated as actually
owned by such person; but stock constructively
owned by the individual by reason of the
application of paragraph (2) hereof shall not be
treated as owned by him for purposes of again
applying such paragraph in order to make
another the constructive owner of such stock.

(C) Return on Capital Gains Realized from Sale

of Shares of Stocks. -

(1) Return on Capital Gains Realized

from Sale of Shares of Stock Listed and
 Traded in the Local Stock Exchange. - It shall
be the duty of every stock broker who effected
the sale subject to the tax imposed herein to
collect the tax and remit the same to the
Bureau of Internal Revenue within five (5)
banking days from the date of collection
thereof and to submit on Mondays of each
week to the secretary of the stock exchange, of
which he is a member, a true and complete
return which shall contain a declaration of all
the transactions effected through him during
the preceding week and of taxes collected by
him and turned over to the Bureau Of
Internal Revenue.

(2) Return on Public Offerings of Share

Stock. - In case of primary offering, the
corporate issuer shall file the return and pay
the corresponding tax within thirty (30) days
from the date of listing of the shares of stock
in the local stock exchange. In the case of
secondary offering, the provision of Subsection
(C)(1) of this Section shall apply as to the time
and manner of the payment of the tax.

(D) Common Provisions. - any gain derived from

the sale, barter, exchange or other disposition of
shares of stock under this Section shall be exempt
from the tax imposed in Sections 24(C), 27(D)(2),
28(A)(8)(c), and 28(B)(5)(c) of this Code and from the
regular individual or corporate income tax. Tax paid
under this Section shall not be deductible for income
tax purposes.

Section 128. Returns and Payment of Percentage Taxes. -

 (A) Returns of Gross Sales, Receipts or Earnings
and Payment of Tax. -

(1) Persons Liable to Pay Percentage

Taxes. - Every person subject to the percentage
taxes imposed under this Title shall file a
quarterly return of the amount of his gross
sales, receipts or earnings and pay the tax due
thereon within twenty-five (25) days after the
end of each taxable quarter: Provided, That in
the case of a person whose VAT registration is
cancelled and who becomes liable to the tax
imposed in Section 116 of this Code, the tax
shall accrue from the date of cancellation and
shall be paid in accordance with the provisions
of this Section.

(2) Person Retiring from Business. - Any

person retiring from a business subject to
percentage tax shall notify the nearest internal
revenue officer, file his return and pay the tax
due thereon within twenty (20) days after
closing his business.

(3) Exceptions. - The Commissioner may,

by rules and regulations, prescribe:

(a) The time for filing the return at

intervals other than the time prescribed
in the preceding paragraphs for a
particular class or classes of taxpayers
after considering such factors as
volume of sales, financial condition,
adequate measures of security, and
such other relevant information
 required to be submitted under the
pertinent provisions of this Code; and

(b) The manner and time of

payment of percentage taxes other than
as hereinabove prescribed, including a
scheme of tax prepayment.

(4) Determination of Correct Sales or

Receipts. - When it is found that a person has
failed to issue receipts or invoices, or when no
return is filed, or when there is reason to
believe that the books of accounts or other
records do not correctly reflect the declarations
made or to be made in a return required to be
filed under the provisions of this Code, the
Commissioner, after taking into account the
sales, receipts or other taxable base of other
persons engaged in similar businesses under
similar situations or circumstances, or after
considering other relevant information may
prescribe a minimum amount of such gross
receipts, sales and taxable base and such
amount so prescribed shall be prima facie
correct for purposes of determining the
internal revenue tax liabilities of such person.

(B) Where to File. - Except as the Commissioner

otherwise permits, every person liable to the
percentage tax under this Title may, at his option, file
a separate return for each branch or place of business,
or a consolidated return for all branches or places of
business with the authorized agent bank, Revenue
District Officer, Collection Agent or duly authorized
Treasurer of the city or municipality where said
 business or principal place of business is located, as
the case may be.

TITLE VI - EXCISE TAX ON CERTAIN GOODS

CHAPTER I - GENERAL PROVISIONS

Section 129. Goods subject to Excise Taxes. - Excise taxes apply to

goods manufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition and to things
imported. The excise tax imposed herein shall be in addition to the
value-added tax imposed under Title IV.

For purposes of this Title, excise taxes herein imposed and based
on weight or volume capacity or any other physical unit of
measurement shall be referred to as 'specific tax' and an excise tax
herein imposed and based on selling price or other specified value of
the good shall be referred to as 'ad valorem tax.'

Section 130. Filing of Return and Payment of Excise Tax on Domestic

Products. -

(A) Persons Liable to File a Return, Filing of

Return on Removal and Payment of Tax. -

(1) Persons Liable to File a Return. - Every

person liable to pay excise tax imposed under
this Title shall file a separate return for each
place of production setting forth, among
others the description and quantity or volume
of products to be removed, the applicable tax
base and the amount of tax due thereon:
Provided, however, That in the case of
indigenous petroleum, natural gas or liquefied
natural gas, the excise tax shall be paid by the
first buyer, purchaser or transferee for local
sale, barter or transfer, while the excise tax on
exported products shall be paid by the owner,
lessee, concessionaire or operator of the
mining claim.

Should domestic products be removed

from the place of production without the
payment of the tax, the owner or person
having possession thereof shall be liable for the
tax due thereon.

(2) Time for Filing of Return and Payment

of the Tax. - Unless otherwise specifically
allowed, the return shall be filed and the excise
tax paid by the manufacturer or producer
before removal of domestic products form
place of production: Provided, That the tax
excise on locally manufactured petroleum
products and indigenous petroleum/levied
under Sections 148 and 151(A)(4),
respectively, of this Title shall be paid within
ten (10) days from the date of removal of such
products for the period from January 1, 1998
to June 30, 1998; within five (5) days from the
date of removal of such products for the
period from July 1, 1998 to December 31,
1998; and, before removal from the place of
production of such products from January 1,
1999 and thereafter: Provided, further, That
the excise tax on nonmetallic mineral or
mineral products, or quarry resources shall be
due and payable upon removal of such
products from the locality where mined or
extracted, but with respect to the excise tax on
locally produced or extracted metallic mineral
or mineral products, the person liable shall file
a return and pay the tax within fifteen (15)
days after the end of the calendar quarter
when such products were removed subject to
such conditions as may be prescribed by rules
and regulations to be promulgated by the
Secretary of Finance, upon recommendation
of the Commissioner. For this purpose, the
taxpayer shall file a bond in an amount which
approximates the amount of excise tax due on
the removals for the said quarter. The
foregoing rules notwithstanding, for imported
mineral or mineral products, whether metallic
or nonmetallic, the excise tax due thereon
shall be paid before their removal from
customs custody.

(3) Place of Filing of Return and Payment

of the Tax. - Except as the Commissioner
otherwise permits, the return shall be filed
with and the tax paid to any authorized agent
bank or Revenue Collection Officer, or duly
authorized City or Municipal Treasurer in the
Philippines.

(4) Exceptions. - The Secretary of Finance,

upon recommendation of the Commissioner
may, by rules and regulations, prescribe:

(a) The time for filing the return at

intervals other than the time prescribed
in the preceding paragraphs for a
particular class or classes of taxpayers
after considering factors such as
 volume of removals, adequate measures
of security and such other relevant
information required to be submitted
under the pertinent provisions of this
Code; and

(b) The manner and time of

payment of excise taxes other than as
herein prescribed, under a tax
prepayment, advance deposit or similar
schemes. In the case of locally
produced of extracted minerals and
mineral products or quarry resources
where the mine site or place of
extraction is not the same as the place
of processing or production, the return
shall be filed with and the tax paid to
the Revenue District Office having
jurisdiction over the locality where the
same are mined, extracted or quarried:
Provided, however, That for metallic
minerals processed abroad, the return
shall be filed and the tax due thereon
paid to the Revenue District Office
having jurisdiction over the locality
where the same are mined, extracted or
quarried.

(B) Determination of Gross Selling Price of

Goods Subject to Ad Valorem Tax. - Unless otherwise
provided, the price, excluding the value-added tax, at
which the goods are sold at wholesale in the place of
production or through their sales agents to the public
shall constitute the gross selling price. If the
manufacturer also sells or allows such goods to be sold
at wholesale in another establishment of which he is
the owner or in the profits of which he has an interest,
the wholesale price in such establishment shall
constitute the gross selling price. Should such price be
less than the cost of manufacture plus expenses
incurred until the goods are finally sold, then a
proportionate margin of profit, not less than ten
percent (10%) of such manufacturing cost and
expenses, shall be added to constitute the gross selling
price.

(C) Manufacturer's or Producer's Sworn

Statement. - Every manufacturer or producer of goods
or products subject to excise taxes shall file with the
Commissioner on the date or dates designated by the
latter, and as often as may be required, a sworn
statement showing, among other information, the
different goods or products manufactured or
produced and their corresponding gross selling price
or market value, together with the cost of manufacture
or production plus expenses incurred or to be
incurred until the goods or products are finally sold.

(D) Credit for Excise tax on Goods Actually

Exported. - When goods locally produced or
manufactured are removed and actually exported
without returning to the Philippines, whether so
exported in their original state or as ingredients or
parts of any manufactured goods or products, any
excise tax paid thereon shall be credited or refunded
upon submission of the proof of actual exportation
and upon receipt of the corresponding foreign
exchange payment: Provided, That the excise tax on
mineral products, except coal and coke, imposed
under Section 151 shall not be creditable or
 refundable even if the mineral products are actually
exported.

Section 131. Payment of Excise Taxes on Importer Articles. -

(A) Persons Liable. - Excise taxes on imported

articles shall be paid by the owner or importer to the
Customs Officers, conformably with the regulations of
the Department of Finance and before the release of
such articles from the customshouse, or by the person
who is found in possession of articles which are
exempt from excise taxes other than those legally
entitled to exemption.

In the case of tax-free articles brought or imported

into the Philippines by persons, entitles, or agencies
exempt from tax which are subsequently sold,
transferred or exchanged in the Philippines to non-
exempt persons or entitles, the purchasers or
recipients shall be considered the importers thereof,
and shall be liable for the duty and internal revenue
tax due on such importation.

The provision of any special or general law to the

contrary notwithstanding, the importation of cigars
and cigarettes, distilled spirits and wines into the
Philippines, even if destined for tax and duty free
shops, shall be subject to all applicable taxes, duties,
charges, including excise taxes due thereon: Provided,
however, That this shall not apply to cigars and
cigarettes, distilled spirits and wines brought directly
into the duly chartered or legislated freeports of the
Subic Special Economic and Freeport Zone, crated
under Republic Act No. 7227; the Cagayan Special
Economic Zone and Freeport, created under Republic
Act No. 7922; and the Zamboanga City Special
Economic Zone, created under Republic Act No.
7903, and are not transshipped to any other port in
the Philippines: Provided, further, That importations
of cigars and cigarettes, distilled spirits and wines by a
government-owned and operated duty-free shop, like
the Duty-Free Philippines (DFP), shall be exempted
from all applicable taxes, duties, charges, including
excise tax due thereon: Provided, still further, That if
such articles directly imported by a government-owned
and operated duty-free shop like the Duty-Free
Philippines, shall be labelled 'tax and duty-free' and
'not for resale': Provided, still further, That is such
articles brought into the duly chartered or legislated
freeports under Republic Acts No. 7227, 7922 and
7903 are subsequently introduced into the Philippine
customs territory, then such articles shall, upon such
introduction, be deemed imported into the
Philippines and shall be subject to all imposts and
excise taxes provided herein and other statutes:
Provided, finally, That the removal and transfer of tax
and duty-free goods, products, machinery, equipment
and other similar articles, from one freeport to
another freeport, shall not be deemed an introduction
into the Philippine customs territory.

Articles consfiscated shall be disposed of in

accordance with the rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner of Customs
and Internal Revenue, upon consultation with the
Secretary of Tourism and the General manager of the
Philippine Tourism Authority.
 The tax due on any such goods, products,
machinery, equipment or other similar articles shall
constitute a lien on the article itself, and such lien
shall be superior to all other charges or liens,
irrespective of the possessor thereof.

(B) Rate and Basis of the Excise Tax on Imported

Articles. - Unless otherwise specified imported articles
shall be subject to the same rates and basis of excise
taxes applicable to locally manufactured articles.

Section 132. Mode of Computing Contents of Cask or Package. -

Every fractional part of a proof liter equal to or greater than a half
liter in a cask or package containing more than one liter shall be
taxed as a liter, and any smaller fractional part shall be exempt; but
any package of spirits, the total content of which are less than a proof
liter, shall be taxed as one liter.

CHAPTER II - EXEMPTION OR CONDITIONAL TAX-FREE

REMOVAL OF CERTAIN ARTICLES

Section 133. Removal of Wines and distilled Spirits for Treatment of

Tobacco Leaf. - Upon issuance of a permit from the Commissioner
and subject to the rules and regulations prescribed by the Secretary of
Finance, manufacturers of cigars and cigarettes may withdraw from
bond, free of excise local and imported wines and distilled spirits in
specific quantities and grades for use in the treatment of tobacco leaf
to b used in the manufacture of cigars and cigarettes; but such wines
and distilled spirits must first be suitably denatured.

Section 134. Domestic Denatured Alcohol. - Domestic alcohol of

not less than one hundred eighty degrees (180O) proof (ninety
percent (90%) absolute alcohol) shall, when suitably denatured and
rendered unfit for oral intake, be exempt from the excise tax
prescribed in Section 141: Provided, however, That such denatured
alcohol shall be subject to tax under Section 106(A) of this Code:
Provided, further, That if such alcohol is to be used for motive power,
it shall be taxed under Section 148(d) of this Code: Provided, finally,
That any alcohol, previously rendered unfit for oral intake after
denaturing but subsequently rendered fit or oral intake after
undergoing fermentation, dilution, purification, mixture or any other
similar process shall be taxed under Section 141 of this Code and
such tax shall be paid by the person in possession of such reprocessed
spirits.

Section 135. Petroleum Products Sold to International Carriers and

Exempt Entities or Agencies. - Petroleum products sold to the following
are exempt from excise tax:

(a) International carriers of Philippine or foreign

registry on their use or consumption outside the
Philippines: Provided, That the petroleum products
sold to these international carriers shall be stored in a
bonded storage tank and may be disposed of only in
accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax

treaties, conventions and other international
agreements for their use of consumption: Provided,
however, That the country of said foreign
international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct

and indirect taxes.
 Section 136. Denaturation, Withdrawal and Use of Denatured
Alcohol. - Any person who produces, withdraws, sells, transports or
knowingly uses, or is in possession of denatured alcohol, or articles
containing denatured alcohol in violation of laws or regulations now
or hereafter in force pertaining thereto shall be required to pay the
corresponding tax, in addition to the penalties provided for under
Title X of this Code.

Section 137. Removal of Spirits Under Bond for Rectification. - Spirits

requiring rectification may be removed from the place of production
to another establishment for the purpose of rectification without
prepayment of the excise tax: Provided, That the distiller removing
such spirits and the rectifier receiving them shall file with the
Commissioner their joint bond conditioned upon the payment by the
rectifier of the excise tax due on the rectified alcohol: Provided,
further, That in cases where alcohol has already been rectified either
by original and continuous distillation or by redistillation, no loss for
rectification and handling shall be allowed and the rectifier thereof
shall pay the excise tax due on such losses: Provided, finally, That
where a rectifier makes use of spirits upon which the excise tax has
not been paid, he shall be liable for the payment of the tax otherwise
due thereon.

Section 138. Removal of Fermented Liquors to Bonded Warehouse. -

Any brewer may remove or transport from his brewery or other place
of manufacture to a bonded warehouse used by him exclusively for
the storage or sale in bulk of fermented liquors of his own
manufacture, any quantity of such fermented liquors, not less than
one thousand (1,000) liters at one removal, without prepayment of
the tax thereon under a permit which shall be granted by the
Commissioner. Such permit shall be affixed to every package so
removed and shall be cancelled or destroyed in such manner as the
Commissioner may prescribe. Thereafter, the manufacturer of such
fermented liquors shall pay the tax in the same manner and under
the same penalty and liability as when paid at the brewery.

Section 139. Removal of Damaged Liquors Free of Tax. - When any

fermented liquor has become sour or otherwise damaged so as to be
unfit for use as such, brewers may sell and after securing a special
permit from the Commissioner, under such conditions as may be
prescribed in the rules and regulations prescribed by the Secretary of
Finance, remove the same without the payment of tax thereon in cask
or other packages, distinct from those ordinarily used for fermented
liquors, each containing not less than one hundred seventy-five (175)
liters with a note of their contents permanently affixed thereon.

Section 140. Removal of Tobacco Products without Prepayment of

Tax. - Products of tobacco entirely unfit for chewing or smoking may
be removed free of tax for agricultural or industrial use, under such
conditions as may be prescribed in the rules and regulations
prescribed by the Secretary of Finance. Stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings,
clippings, stems, or midribs, and sweepings of tobacco may be sold in
bulk as raw material by one manufacturer directly to another without
payment of the tax, under such conditions as may be prescribed in
the rules and regulations prescribed by the Secretary of Finance.

'Stemmed leaf tobacco,' as herein used, means leaf tobacco which

has had the stem or midrib removed. The term does not include
broken leaf tobacco.

CHAPTER III- EXCISE TAX ON ALCOHOL PRODUCTS

Section 141. Distilled Spirits. - On distilled spirits, there shall be

collected, subject to the provisions of Section 133 of this Code, excise
taxes as follows:
 (a) If produced from the sap of nipa, coconut,
cassava, camote, or buri palm or from the juice, syrup
or sugar of the cane, provided such materials are
produced commercially in the country where they are
processed into distilled spirits, per proof liter, Eight
pesos (P8.00): Provided, That if produced in a pot still
or other similar primary distilling apparatus by a
distiller producing not more than one hundred (100)
liters a day, containing not more than fifty percent
(50%) of alcohol by volume, per proof liter, Four
pesos (P4.00);

(b) If produced from raw materials other than

those enumerated in the preceding paragraph, the tax
shall be in accordance with the net retail price per
bottle of seven hundred fifty milliliter (750 ml.)
volume capacity (excluding the excise tax and the
value-added tax)as follows:

(1) Less than Two hundred and fifty pesos

(P250) - Seventy-five pesos (P75), per proof
liter;

(2) Two hundred and fifty pesos (P250) up

to Six hundred and Seventy-Five pesos (P675) -
One hundred and fifty pesos (P150), per proof
liter; and

(3) More than Six hundred and seventy-

five pesos (P675) - Three hundred pesos
(P300), per proof liter.

(c) Medicinal preparations, flavoring extracts, and

all other preparations, except toilet preparations, of
which, excluding water, distilled spirits for the chief
 ingredient, shall be subject to the same tax as such
chief ingredient.

This tax shall be proportionally increased for any strength of the

spirits taxed over proof spirits, and the tax shall attach to this
substance as soon as it is in existence as such, whether it be
subsequently separated as pure or impure spirits, or transformed into
any other substance either in the process of original production or by
any subsequent process.

'Spirits or distilled spirits' is the substance known as ethyl

alcohol, ethanol or spirits of wine, including all dilutions,
purifications and mixtures thereof, from whatever source, by whatever
process produced, and shall include whisky, brandy, rum, gin and
vodka, and other similar products or mixtures.

'Proof spirits' is liquor containing one-half (1/2) of its volume of

alcohol of a specific gravity of seven thousand nine hundred and
thirty-nine thousandths (0.7939) at fifteen degrees centigrade (15O
C). A 'proof liter' means a liter of proof spirits.

The rates of tax imposed under this Section shall be increased by

twelve percent (12%) on January 1, 2000.

New brands shall be classified according to their current 'net

retail price'.

For the above purpose, 'net retail price' shall mean the price at
which the distilled spirit is sold on retail in ten (10) major
supermarkets in Metro Manila, excluding the amount intended to
cover the applicable excise tax and the value-added tax as of October
1, 1996.
 The classification of each brand of distilled spirits based on the
average net retail price as of October 1, 1996, as set forth in Annex
'A', shall remain in force until revised by Congress.

Section 142. Wines, - On wines, there shall be collected per liter

of volume capacity, the following taxes:

(a) Sparkling wines/champagnes regardless of

proof, if the net retail price per bottle (excluding the
excise tax and value-added tax) is:

(1) Five hundred pesos (P500) or less -

One hundred pesos (P100); and

(2) More than Five hundred pesos (P500) -

Three hundred pesos (P300).

(b) Still wines containing fourteen percent (14%)

of alcohol by volume or less, Twelve pesos (P12.00);
and

(c) Still wines containing more than fourteen

percent (14%) but not more than twenty-five percent
(25%) of alcohol by volume, Twenty-four pesos
(P24.00).

Fortified wines containing more than twenty-five percent of

alcohol by volume shall be taxed as distilled spirits. 'Fortified wines'
shall mean natural wines to which distilled spirits are added to
increase their alcoholic strength.

The rates of tax imposed under this Section shall be increased by

twelve percent (12%) on January 1, 2000.
 New brands shall be classified according to their current net
retail price.

For the above purpose, 'net retail price' shall mean the price at
which wine is sold on retail in ten (10) major supermarkets in Metro
Manila, excluding the amount intended to cover the applicable excise
tax and the value- added tax as of October 1, 1996.

The classification of each brand of wines based on its average net

retail price as of October 1, 1996, as set forth in Annex 'B', shall
remain in force until revised by Congress.

Section 143. Fermented Liquor. - There shall be levied, assessed

and collected an excise tax on beer, lager beer, ale, porter and other
fermented liquors except tuba, basi, tapuy and similar domestic
fermented liquors in accordance with the following schedule:

(a) If the net retail price (excluding the excise tax

and value-added tax) per liter of volume capacity is less
than Fourteen pesos and fifty centavos (P14.50), the
tax shall be Six pesos and fifteen centavos (P6.15) per
liter;

(b) If the net retail price (excluding the excise tax

and the value-added tax) the per liter of volume
capacity is Fourteen pesos and fifty centavos (P14.50)
up to Twenty-two pesos (P22.00), the tax shall be Nine
pesos and fifteen centavos (P9.15) per liter;

(c) If the net retail price (excluding the excise tax

and the value-added tax) per liter of volume capacity is
more than Twenty-two pesos (P22.00), the tax shall be
Twelve pesos and fifteen centavos (P12.15) per liter.
 Variants of existing brands which are introduced in the domestic
market after the effectivity of Republic Act No. 8240 shall be taxed
under the highest classification of any variant of that brand.

Fermented liquor which are brewed and sold at micro-breweries

or small establishments such as pubs and restaurants shall be subject
to the rate in paragraph (c) hereof.

The excise tax from any brand of fermented liquor within the
next three (3) years from the effectivity of Republic Act No. 8240
shall not be lower than the tax which was due from each brand on
October 1, 1996.

The rates of excise tax on fermented liquor under paragraphs (a),

(b) and (c) hereof shall be increased by twelve percent (12%) on
January 1, 2000.

New brands shall be classified according to their current net

retail price.

For the above purpose, 'net retail price' shall mean the price at
which the fermented liquor is sold on retail in twenty (20) major
supermarkets in Metro Manila (for brands of fermented liquor
marketed nationally) excluding the amount intended to cover the
applicable excise tax and the value-added tax. For brands which are
marketed only outside the Metro Manila, the 'net retail price' shall
mean the price at the which the fermented liquor is sold in five (5)
major supermarkets in the region excluding the amount intended to
cover the applicable excise tax and the value-added tax.

The classification of each brand of fermented liquor based on its

average net retail price as of October 1, 1996, as set forth in Annex
'C', shall remain in force until revised by Congress.
 'A variant of brand' shall refer to a brand on which a modifier is
prefixed and/or suffixed to the root name of the brand and/or a
different brand which carries the same logo or design of the existing
brand.

Every brewer or importer of fermented liquor shall, within thirty

(30) days from the effectivity of R.A. No. 8240, and within the first
five (5) days of every month thereafter, submit to the Commissioner a
sworn statement of the volume of sales for each particular brand of
fermented liquor sold at his establishment for the three-month period
immediately preceding.

Any brewer or importer who, in violation of this Section,

knowingly misdeclares or misrepresents in his or its sworn statement
herein required any pertinent data or information shall be penalized
by a summary cancellation or withdrawal of his or its permit to
engage in business as brewer of importer of fermented liquor.

Any corporation, association of partnership liable for any of the

acts or omissions in violation of this Section shall be fined treble the
amount of deficiency taxes, surcharge, and interest which may be
assessed pursuant to this Section.

Any person liable for any of the acts or omissions prohibited

under this Section shall be criminally liable and penalized under
Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be

deported immediately after serving the sentence, without further
proceedings for deportation.
 CHAPTER IV - EXCISE TAX ON TOBACCO PRODUCTS

Section 144. Tobacco Products. - There shall be collected a tax of

seventy-five centavos (P0.75) on each kilogram of the following
products of tobacco:

(a) Tobacco twisted by hand or reduced into a

condition to be consumed in any manner other than
the ordinary mode of drying and curing;

(b) Tobacco prepared or partially prepared with or

without the use of nay machine or instruments or
without being pressed or sweetened; and

(c) Fine-cut shorts and refuse, scraps, clippings,

cuttings, stems and sweepings of tobacco.

Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and

sweepings of tobacco resulting from the handling or stripping of
whole leaf tobacco may be transferred, disposed of, or otherwise sold,
without prepayment of the excise tax herein provided for under such
conditions as may be prescribed in the rules and regulations
promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, if the same are to be exported or to be used in the
manufacture of other tobacco products on which the excise tax will
eventually be paid on the finished product.

On tobacco specially prepared for chewing so as to be unsuitable

for use in any other manner, on each kilogram, Sixty centavos
(P0.60).

Section 145. Cigars and Cigarettes. -

(A) Cigars. - There shall be levied, assessed and

collected on cigars a tax of One peso (P1.00) per cigar.
 (B) Cigarettes Packed by Hand. - There shall be
levied, assessed and collected on cigarettes packed by
hand a tax of Forty centavos (P0.40) per pack.

(C) Cigarettes Packed by Machine.- There shall be

levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the

excise tax and the value-added tax) is above
Ten pesos (P10.00) per pack, the tax shall be
Twelve pesos (P12.00) per pack;

(2) If the net retail price (excluding the

excise tax and the value-added tax) exceeds Six
pesos and fifty centavos (P6.50) but does not
exceed Ten pesos (P10.00) per pack, the tax
shall be Eight pesos (8.00) per pack;

(3) If the net retail price (excluding the

excise tax and the value-added tax) is Five
pesos (P5.00) but does not exceed Six pesos
and fifty centavos (P6.50) per pack, the tax
shall be Five pesos (P5.00) per pack;

(4) If the net retail price (excluding the

excise tax and the value-added tax is below Five
pesos (P5.00) per pack, the tax shall be One
peso (P1.00) per pack;

Variants of existing brands of cigarettes which are introduced in

the domestic market after the effectivity of R.A. No. 8240 shall be
taxed under the highest classification of any variant of that brand.
 The excise tax from any brand of cigarettes within the next three
(3) years from the effectivity of R.A. No. 8240 shall not be lower than
the tax, which is due from each brand on October 1, 1996: Provided,
however, That in cases where the excise tax rates imposed in
paragraphs (1), (2), (3) and (4) hereinabove will result in an increase
in excise tax of more than seventy percent (70%); for a brand of
cigarette, the increase shall take effect in two tranches: fifty percent
(50%) of the increase shall be effective in 1997 and one hundred
percent (100%) of the increase shall be effective in 1998.

Duly registered or existing brands of cigarettes or new brands

thereof packed by machine shall only be packed in twenties.

The rates of excise tax on cigars and cigarettes under paragraphs

(1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%)
on January 1, 2000.

New brands shall be classified according to their current net

retail price.

For the above purpose, 'net retail price' shall mean the price at
which the cigarette is sold on retail in twenty (20) major supermarkets
in Metro Manila (for brands of cigarettes marketed nationally),
excluding the amount intended to cover the applicable excise tax and
the value-added tax. For brands which are marketed only outside
Metro Manila, the 'net retail price' shall mean the price at which the
cigarette is sold in five (5) major supermarkets in the region excluding
the amount intended to cover the applicable excise tax and the value-
added tax.

The classification of each brand of cigarettes based on its average

net retail price as of October 1, 1996, as set forth in Annex 'D', shall
remain in force until revised by Congress.
 Variant of a brand' shall refer to a brand on which a modifier is
prefixed and/or suffixed to the root name of the brand and/or a
different brand which carries the same logo or design of the existing
brand.

Manufactures and importers of cigars and cigarettes shall, within

thirty (30) days from the effectivity of R. A. No. 8240 and within the
first five (5) days of every month thereafter submit to the
Commissioner a sworn statement of the volume of sales for each
particular brand of cigars and/or cigarettes sold at his establishment
for the three-month period immediately preceding.

Any manufacturer or importer who, in violation of this Section,

knowingly misdeclares or misrepresents in his or its sworn statement
herein required any pertinent data or information shall, upon
discovery, be penalized by a summary cancellation or withdrawal of
his or its permit to engage in business as manufacturer or importer of
cigars or cigarettes.

Any corporation, association or partnership liable for any of the

acts or omissions in violation of this Section shall be fined treble the
amount of deficiency taxes, surcharges and interest which may be
assessed pursuant to this Section.

Any person liable for any of the acts or omissions prohibited

under this Section shall be criminally liable and penalized under
Section 254 of this Code. Any person who willfully aids or abets in
the commission of any such act or omission shall be criminally liable
in the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be

deported immediately after serving the sentence without further
proceedings for deportation.
 Section 146. Inspection Fee. - For inspection made in accordance
with this Chapter, there shall be collected a fee of Fifty centavos
(P0.50) for each thousand cigars or fraction thereof; Ten centavos
(P0.10) for each thousand cigarettes of fraction thereof; Two centavos
(P0.02) for each kilogram of leaf tobacco or fraction thereof; and
Three centavos (P0.03) for each kilogram or fraction thereof, of scrap
and other manufactured tobacco.

The inspection fee on leaf tobacco, scrap, cigars, cigarettes and

other tobacco products as defined in Section 147 of this Code shall
be paid by the wholesaler, manufacturer, producer, owner or operator
of redrying plant, as the case may be, immediately before removal
there of from the establishment of the wholesaler, manufacturer,
owner or operator of the redrying plant. In case of imported leaf
tobacco and products thereof, the inspection fee shall be paid by the
importer before removal from customs' custody.

Fifty percent (50%) of the tobacco inspection fee shall accrue to

the Tobacco Inspection Fund created by Section 12 of Act No. 2613,
as amended by Act No. 3179, and fifty percent (50%) shall accrue to
the Cultural Center of the Philippines.

Section 147. Definition of Terms. - When used herein and in

statements or official forms prescribed hereunder, the following terms
shall have the meaning indicated:

(a) 'Cigars' mean all rolls of tobacco or any

substitute thereof, wrapped in leaf tobacco.

(b) 'Cigarettes' mean all rolls of finely-cut leaf

tobacco, or any substitute therefor, wrapped in paper
or in any other material.
 (c) 'Wholesale price' shall mean the amount of
money or price paid for cigars or cigarettes purchased
for the purpose of resale, regardless of quantity.

(d) 'Retail price' shall mean the amount of money

or price which an ultimate consumer or end-user pays
for cigars or cigarettes purchased.

CHAPTER V - EXCISE TAX ON PETROLEUM PRODUCTS

Section 148. Manufactured Oils and Other Fuels. - There shall be

collected on refined and manufactured mineral oils and motor fuels,
the following excise taxes which shall attach to the goods hereunder
enumerated as soon as they are in existence as such:

(a) Lubricating oils and greases, including but not

limited to, basestock for lube oils and greases, high
vacuum distillates, aromatic extracts, and other similar
preparations, and additives for lubricating oils and
greases, whether such additives are petroleum based or
not, per liter and kilogram respectively, of volume
capacity or weight, Four pesos and fifty centavos
(P4.50): Provided, however, That the excise taxes paid
on the purchased feedstock (bunker) used in the
manufacture of excisable articles and forming part
thereof shall be credited against the excise tax due
therefrom: Provided, further, That lubricating oils and
greases produced from basestocks and additives on
which the excise tax has already been paid shall no
longer be subject to excise tax: Provided, finally, That
locally produced or imported oils previously taxed as
such but are subsequently reprocessed, rerefined or
recycled shall likewise be subject to the tax imposed
under this Section.
 (b) Processed gas, per liter of volume capacity,
Five centavos (P0.05);

(c) Waxes and petrolatum, per kilogram, Three

pesos and fifty centavos (P3.50);

(d) On denatured alcohol to be used for motive

power, per liter of volume capacity, Five centavos
(P0.05): Provided, That unless otherwise provided by
special laws, if the denatured alcohol is mixed with
gasoline, the excise tax on which has already been
paid, only the alcohol content shall be subject to the
tax herein prescribed. For purposes of this Subsection,
the removal of denatured alcohol of not less than one
hundred eighty degrees (180o ) proof (ninety percent
(90%) absolute alcohol) shall be deemed to have been
removed for motive power, unless shown otherwise;

(e) Naphtha, regular gasoline and other similar

products of distillation, per liter of volume capacity,
Four pesos and eighty centavos (P4.80): Provided,
however, That naphtha, when used as a raw material
in the production of petrochemical products or as
replacement fuel for natural-gas-fired-combined cycle
power plant, in lieu of locally-extracted natural gas
during the non-availability thereof, subject to the rules
and regulations to be promulgated by the Secretary of
Energy, in consultation with the Secretary of Finance,
per liter of volume capacity, Zero (P0.00): Provided,
further, That the by-product including fuel oil, diesel
fuel, kerosene, pyrolysis gasoline, liquefied petroleum
gases and similar oils having more or less the same
generating power, which are produced in the
processing of naphtha into petrochemical products
shall be subject to the applicable excise tax specified in
this Section, except when such by-products are
transferred to any of the local oil refineries through
sale, barter or exchange, for the purpose of further
processing or blending into finished products which
are subject to excise tax under this Section;

(f) Leaded premium gasoline, per liter of volume

capacity, Five pesos and thirty-five centavos (P5.35);
unleaded premium gasoline, per liter of volume
capacity, Four pesos and thirty-five centavos (P4.35);

(g) Aviation turbo jet fuel, per liter of volume

capacity, Three pesos and sixty-seven centavos (P3.67);

(h) Kerosene, per liter of volume capacity, Sixty

centavos (0.60): Provided, That kerosene, when used
as aviation fuel, shall be subject to the same tax on
aviation turbo jet fuel under the preceding paragraph
(g), such tax to be assessed on the user thereof;

(i) Diesel fuel oil, an on similar fuel oils having

more or less the same generating power, per liter of
volume capacity, One peso and sixty-three centavos
(P1.63);

(j) Liquefied petroleum gas, per liter, Zero (P0.00):

Provided, That liquefied petroleum gas used for
motive power shall be taxed at the equivalent rate as
the excise tax on diesel fuel oil;

(k) Asphalts, per kilogram, Fifty-six centavos

(P0.56); and
 (l) Bunker fuel oil, and on similar fuel oils having
more or less the same generating power, per liter of
volume capacity, Thirty centavos (P0.30).

CHAPTER VI - EXCISE TAX ON MISCELLANEOUS ARTICLES

Section 149. Automobiles. - There shall be levied, assessed and

collected an ad valorem tax on automobiles based on the
manufacturer's or importer's selling price, net of excise and value-
added tax, in accordance with the following schedule:

Engine Displacement (in cc.)

Gasoline Diesel Tax Rate

Up to 1600 Up to 1800 15%
1601 to 2000 1801 to 2300 35%
2001 to 2700 2301 to 3000 50%
2701 or over 3001 to over 100%

Provided, That in the case of imported automobiles not for sale,

the tax imposed herein shall be based on the total value used by the
Bureau of Customs in determining tariff and customs duties,
including customs duty and all other charges, plus ten percent (10%)
of the total thereof.

Automobiles acquired for use by persons or entities operating

within the freeport zone shall be exempt from excise tax: provided,
That utility vehicles of registered zone enterprises, which are
indispensable in the conduct and operations of their business, such as
delivery trucks and cargo vans with gross vehicle weight above three
(3) metric tons may be allowed unrestricted use outside the freeport
zone: Provided, further, That vehicles owned by tourist-oriented
enterprises, such as tourist buses and cars with yellow plates, color-
coded, and utilized exclusively for the purpose of transporting tourists
in tourism-related activities, and service vehicles of freeport registered
enterprises and executives, such as company service cars and
expatriates' and investors' automobiles brought in the name of such
enterprises, may be used outside the freeport zone for such periods as
may be prescribed by the Departments of Finance, and Trade and
Industry, the Bureau of Customs and the Freeport authorities
concerned, which in no case shall exceed fourteen (14) days per
month.

In case such tourist buses and cars, service vehicles of registered

freeport enterprises and company service cars are used for more than
an aggregate period of fourteen (14) days per month outside of the
freeport zone, the owner or importer shall pay the corresponding
customs duties, taxes and charges.

In the case of personally-owned vehicles of residents, including

leaseholders of residences inside the freeport zone, the use of such
vehicles outside of the freeport zone shall be deemed an introduction
into the Philippine customs territory, and such introduction shall be
deemed an importation into the Philippines and shall subject such
vehicles to Customs duties taxes and charges, including excise tax due
on such vehicle.

The Secretaries of Finance, and Trade and Industry, together

with the Commissioner of Customs and the administrators of the
freeports concerned, shall promulgate rules and regulations for the
proper identification and control of said automobiles.

Section 150. Non-essential Goods. - There shall be levied, assessed

and collected a tax equivalent to twenty-percent (20%) based on the
wholesale price or the value of importation used by the Bureau of
Customs in determining tariff and customs duties, net of excise tax
and value-added tax, of the following goods:

(a) All goods commonly or commercially known

as jewelry, whether real or imitation, pearls, precious
and semi-precious stones and imitations thereof;
goods made of, or ornamented, mounted or fitted
with, precious metals or imitations thereof or ivory
(not including surgical and dental instruments, silver-
plated wares, frames or mountings for spectacles or
eyeglasses, and dental gold or gold alloys and other
precious metals used in filling, mounting or fitting the
teeth); opera glasses and lorgnettes. The term 'precious
metals' shall include platinum, gold, silver and other
metals of similar or greater value. The term 'imitations
thereof shall include platings and alloys of such
metals;

(b) Perfumes and toilet waters;

(c) Yachts and other vessels intended for pleasure

or sports.

CHAPTER VII - EXCISE TAX ON MINERAL PRODUCTS

Section 151. Mineral Products. -

(A) Rates of Tax. - There shall be levied, assessed

and collected on minerals, mineral products and
quarry resources, excise tax as follows:

(1) On coal and coke, a tax of Ten pesos

(P10.00) per metric ton;
 (2) On all nonmetallic minerals and
quarry resources, a tax of two percent (2%)
based on the actual market value of the gross
output thereof at the time of removal, in the
case of those locally extracted or produced; or
the value used by the Bureau of Customs in
determining tariff and customs duties, net of
excise tax and value-added tax, in the case of
importation.

Notwithstanding the provision of

paragraph (4) of Subsection (A) of Section 151,
locally extracted natural gas and liquefied
natural gas shall be taxed at the rate of two
percent (2%);

(3) On all metallic minerals, a tax based

on the actual market value of the gross output
thereof at the time of removal, in the case of
those locally extracted or produced; or the
value used by the Bureau of Customs in
determining tariff and customs duties, net of
excise tax and value-added tax, in the case of
importation, in accordance with the following
schedule;

(a) Copper and other metallic

minerals;

(i) On the first three (3)

years upon the effectivity of
Republic Act No. 7729, one
percent (1%);
 (ii) On the fourth and the
fifth years, one and a half
percent (1 ½%); and

(iii) On the sixth year and

thereafter, two percent (2%);

(b) Gold and chromite, two

percent (2%).

(4) On indigenous petroleum, a tax of

three percent (3%) of the fair international
market price thereof, on the first taxable sale,
barter, exchange or such similar transaction,
such tax to be paid by the buyer or purchaser
before removal from the place of production.
The phrase 'first taxable sale, barter, exchange
or similar transaction' means the transfer of
indigenous petroleum in its original state to a
first taxable transferee. The fair international
market price shall be determined in
consultation with an appropriate government
agency.

For the purpose of this Subsection,

'indigenous petroleum' shall include locally-
extracted mineral oil, hydrocarbon gas,
bitumen, crude asphalt, mineral gas and all
other similar or naturally associated substances
with the exception of coal, peat, bituminous
shale and/or stratified mineral deposits.

(B) For purposes of this Section, the term -

 (1) 'Gross output' shall be interpreted as
the actual market value of minerals or mineral
products or of bullion from each mine or
mineral land operated as a separate entity,
without any deduction from mining, milling,
refining (including all expenses incurred to
prepare the said minerals or mineral products
in a marketable state), as well as transporting,
handling, marketing or any other expenses:
Provided, That if the minerals or mineral
products are sold or consigned abroad by the
lessee or owner of the mine under C.I.F.
terms, the actual cost of ocean freight and
insurance shall be deducted: provided,
however, That in the case of mineral
concentrate, not traded in commodity
exchanges in the Philippines or abroad, such
as copper concentrate, the actual market value
shall be the world price quotations of the
refined mineral products content thereof
prevailing in the said commodity exchanges,
after deducting the smelting, refining and
other charges incurred in the process of
converting the mineral concentrates into
refined metal traded in those commodity
exchanges.

(2) 'Minerals' shall mean all naturally

occurring inorganic substances (found in
nature) whether in solid, liquid, gaseous or any
intermediate state.

(3) 'Mineral products' shall mean things

produced and prepared in a marketable state
by simple treatment processes such as washing
 or drying, but without undergoing any
chemical change or process or manufacturing
by the lessee, concessionaire or owner of
mineral lands.

(4) 'Quarry resources' shall mean any

common stone or other common mineral
substances as the Director of the Bureau of
Mines and Geo-Sciences may declare to be
quarry resources such as, but not restricted to,
marl, marble, granite, volcanic cinders, basalt,
tuff and rock phosphate: Provided, That they
contain no metal or other valuable minerals in
economically workable quantities.

CHAPTER VIII - ADMINISTRATIVE PROVISIONS

REGULATING BUSINESS OF PERSONS DEALING IN
ARTICLES SUBJECT TO EXCISE TAX

Section 152. Extent of Supervision Over Establishments Producing

Taxable Output. - The Bureau of Internal Revenue has authority to
supervise establishments where articles subject to excise tax are made
or kept. The Secretary of Finance shall prescribe rules and regulations
as to the mode in which the process of production shall be conducted
insofar as may be necessary to secure a sanitary output and to
safeguard the revenue.

Section 153. Records to be Kept by Manufacturers; Assessment Based

Thereon. - Manufacturers of articles subject to excise tax shall keep
such records as required by rules and regulations recommended by
the Commissioner and approved by the Secretary of Finance, and
such records, whether of raw materials received into the factory or of
articles produced therein, shall be deemed public and official
documents for all purposes.
 The records of raw materials kept by such manufacturers may be
used as evidence by which to determine the amount of excise taxes
due from them, and whenever the amounts of raw material received
into any factory exceeds the amount of manufactured or partially
manufactured products on hand and lawfully removed from the
factory, plus waste removed or destroyed, and a reasonable allowance
for unavoidable loss in manufacture, the Commissioner may assess
and collect the tax due on the products which should have been
produced from the excess.

The excise tax due on the products as determined and assessed in

accordance with this Section shall be payable upon demand or within
the period specified therein.

Section 154. Premises Subject to Approval by Commissioner. - No

person shall engage in business as a manufacturer of or dealer in
articles subject to excise tax unless the premises upon which the
business is to conducted shall have been approved by the
Commissioner.

Section 155. Manufacturers to Provide Themselves with Counting or

Metering Devices to Determine Production. - Manufacturers of cigarettes,
alcoholic products, oil products and other articles subject to excise tax
that can be similarly measured shall provide themselves with such
necessary number of suitable counting or metering devices to
determine as accurately as possible the volume, quantity or number of
the articles produced by them under rules and regulations
promulgated by the Secretary of Finance, upon recommendation of
the Commissioner.

This requirement shall be complied with before commencement

of operations.
 Section 156. Labels and Form of Packages. - All articles of domestic
manufacture subject to excise tax and all leaf tobacco shall be put up
and prepared by the manufacturer or producer, when removed for
sale or consumption, in such packages only and bearing such marks
or brand as shall be prescribed in the rules and regulations
promulgated by the Secretary of Finance; and goods of similar
character imported into the Philippines shall likewise be packed and
marked in such a manner as may be required.

Section 157. Removal of Articles After the Payment of Tax. - When

the tax has been paid on articles or products subject to excise tax, the
same shall not thereafter be stored or permitted to remain in the
distillery, distillery warehouse, bonded warehouse, or other factory or
place where produced. However, upon prior permit from the
Commissioner, oil refineries and/or companies may store or deposit
tax-paid petroleum products and commingle the same with its own
manufactured products not yet subjected to excise tax. Imported
petroleum products may be allowed to be withdrawn from customs
custody without the prepayment of excise tax, which products may be
commingled with the tax-paid or bonded products of the importer
himself after securing a prior permit from the Commissioner:
Provided, That withdrawals shall be taxed and accounted for on a
'first-in, first-out' basis.

Section 158. Storage of Goods in Internal-revenue Bonded Warehouses.

- An internal-revenue bonded warehouse may be maintained in any
port of entry for the storing of imported or manufactured goods
which are subject to excise tax. The taxes on such goods shall be
payable only upon removal from such warehouse and a reasonable
charge shall be made for their storage therein. The Commissioner,
may, in his discretion, exact a bond to secure the payment of the tax
on any goods so stored.
 Section 159. Proof of Exportation; Exporter's Bond. - Exporters of
goods that would be subject to excise tax, if sold or removed for
consumption in the Philippines, shall submit proof of exportation
satisfactory to the Commissioner, and , when the same is deemed
necessary, shall be required to give a bond prior to the removal of the
goods for shipment, conditioned upon the exportation of the same in
good faith.

Section 160. Manufacturers' and Importers' Bond. - Manufacturers

and importers of articles subject to excise tax shall post a bond subject
to the following conditions:

(A) Initial Bond. - In case of initial bond, the

amount shall be equal to One Hundred thousand
pesos (P100,000): Provided, That if after six (6)
months of operation, the amount of initial bond is
less than the amount of the total excise tax paid
during the period, the amount of the bond shall be
adjusted to twice the tax actually paid for the period.

(B) Bond for the Succeeding Years of Operation. - The

bonds for the succeeding years of operation shall be
based on the actual total excise tax paid during the
period the year immediately preceding the year of
operation.

Such bond shall be conditioned upon faithful compliance,

during the time such business is followed, with laws and rules and
regulations relating to such business and for the satisfaction of all
fines and penalties imposed by this Code.

Section 161. Records to be Kept by Wholesale Dealers. - Wholesale

dealers shall keep records of their purchases and sales or deliveries of
articles subject to excise tax, in such form as shall be prescribed in the
rules and regulations by the Secretary of Finance. These records and
the entire stock of goods subject to tax shall be subject at all times to
inspection of internal revenue officers.

Section 162. Records to be Kept by Dealers in Leaf Tobacco. - Dealers

in leaf tobacco shall keep records of the products sold or delivered by
them to other persons in such manner as may be prescribed in the
rules and regulations by the Secretary of Finance, such records to be
at all times subject to inspection of internal revenue officers.

Section 163. Preservation of Invoices and Stamps. - All dealers

whosoever shall preserve, for the period prescribed in Section 235, all
official invoices received by them from other dealers or from
manufacturers, together with the fractional parts of stamps affixed
thereto, if any, and upon demand, shall deliver or transmit the same
to any interval revenue officer.

Section 164. Information to be Given by Manufacturers, Importers,

Indentors, and Wholesalers of any Apparatus or Mechanical Contrivance
Specially for the Manufacture of Articles Subject to Excise Tax and Importers,
Indentors, Manufacturers or Sellers of Cigarette Paper in Bobbins, Cigarette
Tipping Paper or Cigarette Filter Tips. - Manufacturers, indentors,
wholesalers and importers of any apparatus or mechanical
contrivance specially for the manufacture of articles subject to tax
shall, before any such apparatus or mechanical contrivance is
removed from the place of manufacture or from the customs house,
give written information to the Commissioner as to the nature and
capacity of the same, the time when it is to be removed, and the place
for which it is destined, as well as the name of the person by whom it
is to be used; and such apparatus or mechanical contrivance shall not
be set up nor dismantled or transferred without a permit in writing
from the Commissioner.
 A written permit from the Commissioner for importing,
manufacturing or selling of cigarette paper in bobbins or rolls,
cigarette tipping paper or cigarette filter tips is required before any
person shall engage in the importation, manufacture or sale of the
said articles. No permit to sell said articles shall be granted unless the
name and address of the prospective buyer is first submitted to the
Commissioner and approved by him. Records, showing the stock of
the said articles and the disposal thereof by sale of persons with their
respective addresses as approved by the Commissioner, shall be kept
by the seller, and records, showing stock of said articles and
consumption thereof, shall be kept by the buyer, subject to inspection
by internal revenue officers.

Section 165. Establishment of Distillery Warehouse. - Every distiller,

when so required by the Commissioner, shall provide at his own
expense a warehouse, and shall be situated in and constitute a part of
his distillery premises and to be used only for the storage of distilled
spirits of his own manufacture until the tax thereon shall have been
paid; but no dwelling house shall be used for such purpose. Such
warehouse, when approved by the Commissioner, is declared to be a
bonded warehouse, and shall be known as a distillery warehouse.

Section 166. Custody of Distillery or Distillery Warehouse. - Every

distillery or distillery warehouse shall be in the joint custody of the
revenue inspector, if one is assigned thereto, and of the proprietor
thereof. It shall be kept securely locked, and shall at no time be
unlocked or opened or remain unlocked or opened unless in the
presence of such revenue inspector or other person who may be
designated to act for him as provided by law.

Section 167. Limitation on Quantity of Spirits Removed from

Warehouse. - No distilled spirits shall be removed from any distillery,
distillery warehouse, or bonded warehouse in quantities of less than
fifteen (15) gauge liters at any one time, except bottled goods, which
may be removed by the case of not less than twelve (12) bottles.

Section 168. Denaturing Within Premises. - For purposes of this

Title, the process of denaturing alcohol shall be effected only within
the distillery premises where the alcohol to be denatured is produced
in accordance with formulas duly approved by the Bureau of Internal
Revenue and only in the presence of duly designated representatives
of said Bureau.

Section 169. Recovery of Alcohol for Use in Arts and Industries. -

Manufacturers employing processes in which denatured alcohol used
in arts and industries is expressed or evaporated from the articles
manufactured may, under rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the
Commissioner, be permitted to recover the alcohol so used and
restore it again to a condition suitable solely for use in manufacturing
processes.

Section 170. Requirements Governing Rectification and Compounding

of Liquors. - Persons engaged in the rectification or compounding of
liquors shall, as to the mode of conducting their business and
supervision over the same, be subject to all the requirements of law
applicable to distilleries: Provided, That where a rectifier makes use of
spirits upon which the excise tax has been paid, no further tax shall
be collected on any rectified spirits produced exclusively therefrom:
Provided, further, That compounders in the manufacture of any
intoxicating beverage whatever, shall not be allowed to make use of
spirits upon which the excise tax has not been previously paid.

Section 171. Authority of Internal Revenue Officer in Searching for

Taxable Articles. - Any internal revenue officer may, in the discharge of
his official duties, enter any house, building or place where articles
subject to tax under this Title are produced or kept, or are believed by
him upon reasonable grounds to be produced or kept, so far as may
be necessary to examine, discover or seize the same.

He may also stop and search any vehicle or other means of

transportation when upon reasonable grounds he believes that the
same carries any article on which the excise tax has not been paid.

Section 172. Detention of Package Containing Taxable Articles. - Any

revenue officer may detain any package containing or supposed to
contain articles subject to excise tax when he has good reason to
believe that the lawful tax has not been paid or that the package has
been or is being removed in violation of law, and every such package
shall be held by such officer in a safe place until it shall be
determined whether the property so detained is liable by law to be
proceeded against for forfeiture; but such summary detention shall
not continue in any case longer than seven (7) days without due
process of law or intervention of the officer to whom such detention
is to be reported.

TITLE VII - DOCUMENTARY STAMP TAX

Section 173. Stamp Taxes Upon Documents, Loan Agreements,

Instruments and Papers. - Upon documents, instruments, loan
agreements and papers, and upon acceptances, assignments, sales and
transfers of the obligation, right or property incident thereto, there
shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary
stamp taxes prescribed in the following Sections of this Title, by the
person making, signing, issuing, accepting, or transferring the same
wherever the document is made, signed, issued, accepted or
transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines, and the same
time such act is done or transaction had: Provided, That whenever
one party to the taxable document enjoys exemption from the tax
herein imposed, the other party who is not exempt shall be the one
directly liable for the tax.

Section 174. Stamp Tax on Debentures and Certificates of

Indebtedness. - On all debentures and certificates of indebtedness
issued by any association, company or corporation, there shall be
collected a documentary stamp tax of One peso and fifty centavos
(P1.50) on each Two hundred pesos (P200), or fractional part thereof,
of the face value of such documents.

Section 175. Stamp Tax on Original Issue of Shares of Stock. - On

every original issue, whether on organization, reorganization or for
any lawful purpose, of shares of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of Two
pesos (P2.00) on each Two hundred pesos (P200), or fractional part
thereof, of the par value, of such shares of stock: Provided, That in
the case of the original issue of shares of stock without par value the
amount of the documentary stamp tax herein prescribed shall be
based upon the actual consideration for the issuance of such shares of
stock: provided, further, That in the case of stock dividends, on the
actual value represented by each share.

Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of

Sales, Deliveries or Transfer of Due-bills, Certificates of Obligation, or Shares
of Certificates of Stock. - On all sales, or agreements to sell, or
memoranda of sale, or deliveries, or transfer of due-bills, certificates
of obligation, or shares of certificates of stock in any association,
company, or corporation, or transfer of such securities by assignment
in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling
the holder in any manner to the benefit of such due-bills, certificates
of obligation or stock, or to secure the future payment of money, or
for the future transfer of any due-bill, certificate of obligation or
stock, there shall be collected a documentary stamp tax of One peso
and fifty centavos (P1.50) on each Two hundred pesos (P200) or
fractional part thereof, of the par value of such due-bill, certificate of
obligation or stock; Provided, That only one tax shall be collected on
each sale or transfer of stock or securities from one person to another,
regardless of whether or not a certificate of stock or obligation is
issued, indorsed, or delivered in pursuance of such sale or transfer:
and Provided, further, That in the case of stock without par value the
amount of documentary stamp tax herein prescribed shall be
equivalent to twenty-five percent (25%) of the documentary stamp tax
paid upon the original issue of said stock.

Section 177. Stamp Tax on Bonds, Debentures, Certificate of Stock or

Indebtedness Issued in Foreign Countries. - On all bonds, debentures,
certificates of stock, or certificates of indebtedness issued in any
foreign country, there shall be collected from the person selling or
transferring the same in the Philippines, such as tax as is required by
law on similar instruments when issued, sold or transferred in the
Philippines.

Section 178. Stamp Tax on Certificates of Profits or Interest in

Property or Accumulations. - On all certificates of profits, or any
certificate or memorandum showing interest in the property or
accumulations of any association, company or corporation, and on all
transfers of such certificates or memoranda, there shall be collected a
documentary stamp tax of Fifty centavos (P0.50) on each Two
hundred pesos (P200), or fractional part thereof, of the face value of
such certificate or memorandum.

Section 179. Stamp Tax on Bank Checks, Drafts, Certificates of

Deposit not Bearing Interest, and Other Instruments. - On each bank
check, draft, or certificate of deposit not drawing interest, or order for
the payment of any sum of money drawn upon or issued by any bank,
trust company, or any person or persons, companies or corporations,
at sight or on demand, there shall be collected a documentary stamp
tax of One peso and fifty centavos (P1.50).

Section 180. Stamp Tax on All Bonds, Loan Agreements, promissory

Notes, Bills of Exchange, Drafts, Instruments and Securities Issued by the
Government or Any of its Instrumentalities, Deposit Substitute Debt
Instruments, Certificates of Deposits Bearing Interest and Others Not
Payable on Sight or Demand. - On all bonds, loan agreements, including
those signed abroad, wherein the object of the contract is located or
used in the Philippines, bills of exchange (between points within the
Philippines), drafts, instruments and securities issued by the
Government or any of its instrumentalities, deposit substitute debt
instruments, certificates of deposits drawing interest, orders for the
payment of any sum of money otherwise than at sight or on demand,
on all promissory notes, whether negotiable or non-negotiable, except
bank notes issued for circulation, and on each renewal of any such
note, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200), or fractional
part thereof, of the face value of any such agreement, bill of exchange,
draft, certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan agreement, or
promissory notes issued to secure such loan, whichever will yield a
higher tax: Provided, however, That loan agreements or promissory
notes the aggregate of which does not exceed Two hundred fifty
thousand pesos (P250,000) executed by an individual for his purchase
on installment for his personal use or that of his family and not for
business, resale, barter or hire of a house, lot, motor vehicle,
appliance or furniture shall be exempt from the payment of the
documentary stamp tax provided under this Section.

Section 181. Stamp Tax Upon Acceptance of Bills of Exchange and

Others. - Upon any acceptance or payment of any bill of exchange or
order for the payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two
hundred pesos (P200), or fractional part thereof, of the face value of
any such bill of exchange, or order, or the Philippine equivalent to
such value, if expressed in foreign currency.

Section 182. Stamp Tax on Foreign Bills of Exchange and Letters of

Credit. - On all foreign bills of exchange and letters of credit
(including orders, by telegraph or otherwise, for the payment of
money issued by express or steamship companies or by any person or
persons) drawn in but payable out of the Philippines in a set of three
(3) or more according to the custom of merchants and bankers, there
shall be collected a documentary stamp tax of Thirty centavos (P0.30)
on each Two hundred pesos (P200), or fractional part thereof, of the
face value of any such bill of exchange or letter of credit, or the
Philippine equivalent of such face value, if expressed in foreign
currency.

Section 183. Stamp Tax on Life Insurance Policies. - On all policies

of insurance or other instruments by whatever name the same may be
called, whereby any insurance shall be made or renewed upon any life
or lives, there shall be collected a documentary stamp tax of Fifty
centavos (P0.50) on each Two hundred pesos (P200), or fractional
part thereof, of the amount insured by any such policy.

Section 184. Stamp Tax on Policies of Insurance Upon Property. - On

all policies of insurance or other instruments by whatever name the
same may be called, by which insurance shall be made or renewed
upon property of any description, including rents or profits, against
peril by sea or on inland waters, or by fire or lightning, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each
Four pesos (P4.00), or fractional part thereof, of the amount of
premium charged: Provided, however, That no documentary stamp
tax shall be collected on reinsurance contracts or on any instrument
by which cession or acceptance of insurance risks under any
reinsurance agreement is effected or recorded.

Section 185. Stamp Tax on Fidelity Bonds and Other Insurance

Policies. - On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage or liability made or renewed by
any person, association, company or corporation transacting the
business of accident, fidelity, employer's liability, plate, glass, steam,
boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for the doing or
not doing of anything therein specified, and on all obligations
guaranteeing the validity or legality of any bond or other obligations
issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real
estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each
Four pesos (P4.00), or fractional part thereof, of the premium
charged.

Section 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. -

On all policies of annuities, or other instruments by whatever name
the same may be called, whereby an annuity may be made, transferred
or redeemed, there shall be collected a documentary stamp tax of One
peso and fifty centavos (P1.50) on each Two hundred pesos (P200) or
fractional part thereof, of the capital of the annuity, or should this be
unknown, then on each Two hundred (P200) pesos, or fractional part
thereof, of thirty-three and one-third (33 1/3) times the annual
income. On pre-need plans, the documentary stamp tax shall be Fifty
centavos (P0.50) on each Five hundred pesos (P500), or fractional
part thereof, of the value or amount of the plan.
 Section 187. Stamp Tax on Indemnity Bonds. - On all bonds for
indemnifying any person, firm or corporation who shall become
bound or engaged as surety for the payment of any sum of money or
for the due execution or performance of the duties of any office or
position or to account for money received by virtue thereof, and on
all other bonds of any description, except such as may be required in
legal proceedings, or are otherwise provided for herein, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each
Four pesos (P4.00), or fractional part thereof, of the premium
charged.

Section 188. Stamp Tax on Certificates. - On each certificate of

damages or otherwise, and on every certificate or document issued by
any customs officer, marine surveyor, or other person acting as such,
and on each certificate issued by a notary public, and on each
certificate of any description required by law or by rules or regulations
of a public office, or which is issued for the purpose of giving
information, or establishing proof of a fact, and not otherwise
specified herein, there shall be collected a documentary stamp tax of
Fifteen pesos (P15.00).

Section 189. Stamp Tax on Warehouse Receipts. - On each

warehouse receipt for property held in storage in a public or private
warehouse or yard for any person other than the proprietor of such
warehouse or yard, there shall be collected a documentary stamp tax
of Fifteen pesos (P15.00): Provided, That no tax shall be collected on
each warehouse receipt issued to any one person in any one calendar
month covering property the value of which does not exceed Two
hundred pesos (P200).

Section 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or

Other Authorized Numbers Games. - On each jai-alai, horse race ticket,
lotto, or other authorized number games, there shall be collected a
documentary stamp tax of Ten centavos (P0.10): Provided, That if the
cost of the ticket exceeds One peso (P1.00), an additional tax of Ten
centavos (P0.10) on every One peso (P1.00, or fractional part thereof,
shall be collected.

Section 191. Stamp Tax on Bills of Lading or Receipts. - On each set

of bills of lading or receipts (except charter party) for any goods,
merchandise or effects shipped from one port or place in the
Philippines to another port or place in the Philippines (except on
ferries across rivers), or to any foreign port, there shall be collected
documentary stamp tax of One peso (P1.00), if the value of such
goods exceeds One hundred pesos (P100) and does not exceed One
Thousand pesos (P1,000); Ten pesos (P10), if the value exceeds One
thousand pesos (P1,000): Provided, however, That freight tickets
covering goods, merchandise or effects carried as accompanied
baggage of passengers on land and water carriers primarily engaged in
the transportation of passengers are hereby exempt.

Section 192. Stamp Tax on Proxies. - On each proxy for voting at

any election for officers of any company or association, or for any
other purpose, except proxies issued affecting the affairs of
associations or corporations organized for religious, charitable or
literary purposes, there shall be collected a documentary stamp tax of
Fifteen pesos (P15.00).

Section 193. Stamp Tax on Powers of Attorney. - On each power of

attorney to perform any act whatsoever, except acts connected with
the collection of claims due from or accruing to the Government of
the Republic of the Philippines, or the government of any province,
city or municipality, there shall be collected a documentary stamp tax
of Five pesos (P5.00).

Section 194. Stamp tax on Leases and Other Hiring Agreements. - On

each lease, agreement, memorandum, or contract for hire, use or rent
of any lands or tenements, or portions thereof, there shall be
collected a documentary stamp tax of Three pesos (P3.00) for the first
Two thousand pesos (P2,000), or fractional part thereof, and an
additional One peso (P1.00) for every One Thousand pesos (P1,000)
or fractional part thereof, in excess of the first Two thousand pesos
(P2,000) for each year of the term of said contract or agreement.

Section 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. -

On every mortgage or pledge of lands, estate, or property, real or
personal, heritable or movable, whatsoever, where the same shall be
made as a security for the payment of any definite and certain sum of
money lent at the time or previously due and owing of forborne to be
paid, being payable and on any conveyance of land, estate, or
property whatsoever, in trust or to be sold, or otherwise converted
into money which shall be and intended only as security, either by
express stipulation or otherwise, there shall be collected a
documentary stamp tax at the following rates:

(a) When the amount secured does not exceed

Five thousand pesos (P5,000), Twenty pesos (P20.00).

(b) On each Five thousand pesos (P5,000), or

fractional part thereof in excess of Five thousand pesos
(P5,000), an additional tax of Ten pesos (P10.00).

On any mortgage, pledge, or deed of trust, where the same shall

be made as a security for the payment of a fluctuating account or
future advances without fixed limit, the documentary stamp tax on
such mortgage, pledge or deed of trust shall be computed on the
amount actually loaned or given at the time of the execution of the
mortgage, pledge or deed of trust, additional documentary stamp tax
shall be paid which shall be computed on the basis of the amount
advanced or loaned at the rates specified above: Provided, however,
That if the full amount of the loan or credit, granted under the
mortgage, pledge or deed of trust shall be computed on the amount
actually loaned or given at the time of the execution of the mortgage,
pledge or deed of trust. However, if subsequent advances are made on
such mortgage, pledge or deed of trust, additional documentary
stamp tax shall be paid which shall be computed on the basis of the
amount advanced or loaned at the rates specified above: Provided,
however, That if the full amount of the loan or credit, granted under
the mortgage, pledge or deed of trust is specified in such mortgage,
pledge or deed of trust, the documentary stamp tax prescribed in this
Section shall be paid and computed on the full amount of the loan or
credit granted.

Section 196. Stamp tax on Deeds of Sale and Conveyances of Real

Property. - On all conveyances, deeds, instruments, or writings, other
than grants, patents or original certificates of adjudication issued by
the Government, whereby any land, tenement, or other realty sold
shall be granted, assigned, transferred or otherwise conveyed to the
purchaser, or purchasers, or to any other person or persons
designated by such purchaser or purchasers, there shall be collected a
documentary stamp tax, at the rates herein below prescribed, based
on the consideration contracted to be paid for such realty or on its
fair market value determined in accordance with Section 6(E) of this
Code, whichever is higher: Provided, That when one of the
contracting parties is the Government the tax herein imposed shall be
based on the actual consideration.

(a) When the consideration, or value received or

contracted to be paid for such realty after making
proper allowance of any encumbrance, does not
exceed One thousand pesos (P1,000) fifteen pesos
(P15.00).

(b) For each additional One thousand Pesos

(P1,000), or fractional part thereof in excess of One
thousand pesos (P1,000) of such consideration or
value, Fifteen pesos (P15.00).
 When it appears that the amount of the documentary stamp tax
payable hereunder has been reduced by an incorrect statement of the
consideration in any conveyance, deed, instrument or writing subject
to such tax the Commissioner, provincial or city Treasurer, or other
revenue officer shall, from the assessment rolls or other reliable
source of information, assess the property of its true market value and
collect the proper tax thereon.

Section 197. Stamp Tax on Charter Parties and Similar Instruments. -

On every charter party, contract or agreement for the charter of any
ship, vessel or steamer, or any letter or memorandum or other writing
between the captain, master or owner, or other person acting as agent
of any ship, vessel or steamer, and any other person or persons for or
relating to the charter of any such ship, vessel or steamer, and on any
renewal or transfer of such charter, contract, agreement, letter or
memorandum, there shall be collected a documentary stamp tax at
the following rates:

(a) If the registered gross tonnage of the ship,

vessel or steamer does not exceed one thousand
(1,000) tons, and the duration of the charter or
contract does not exceed six (6) months, Five hundred
pesos (P500); and for each month or fraction of a
month in excess of six (6) months, an additional tax of
Fifty pesos (P50.00) shall be paid.

(b) If the registered gross tonnage exceeds one

thousand (1,000) tons and does not exceed ten
thousand (10,000) tons, and the duration of the
charter or contract does not exceed six (6) months,
One thousand pesos (P1,000); and for each month or
fraction of a month in excess of six (6) months, an
additional tax of One hundred pesos (P100) shall be
paid.
 (c) If the registered gross tonnage exceeds ten
thousand (10,000) tons and the duration of the
charter or contract does not exceed six (6) months,
One thousand five hundred pesos (P1,500); and for
each month or fraction of a month in excess of six (6)
months, an additional tax of One hundred fifty pesos
(P150) shall be paid.

Section 198. Stamp Tax on Assignments and Renewals of Certain

Instruments. - Upon each and every assignment or transfer of any
mortgage, lease or policy of insurance, or the renewal or continuance
of any agreement, contract, charter, or any evidence of obligation or
indebtedness by altering or otherwise, there shall be levied, collected
and paid a documentary stamp tax, at the same rate as that imposed
on the original instrument.

Section 199. Documents and Papers Not Subject to Stamp Tax. - The
provisions of Section 173 to the contrary notwithstanding, the
following instruments, documents and papers shall be exempt from
the documentary stamp tax:

(a) Policies of insurance or annuities made or

granted by a fraternal or beneficiary society, order,
association or cooperative company, operated on the
lodge system or local cooperation plan and organized
and conducted solely by the members thereof for the
exclusive benefit of each member and not for profit.

(b) Certificates of oaths administered to any

government official in his official capacity or of
acknowledgment by any government official in the
performance of his official duties, written appearance
in any court by any government official, in his official
capacity; certificates of the administration of oaths to
 any person as to the authenticity of any paper required
to be filed in court by any person or party thereto,
whether the proceedings be civil or criminal; papers
and documents filed in courts by or for the national,
provincial, city or municipal governments; affidavits of
poor persons for the purpose of proving poverty;
statements and other compulsory information
required of persons or corporations by the rules and
regulations of the national, provincial, city or
municipal governments exclusively for statistical
purposes and which are wholly for the use of the
bureau or office in which they are filed, and not at the
instance or for the use or benefit of the person filing
them; certified copies and other certificates placed
upon documents, instruments and papers for the
national, provincial, city, or municipal governments,
made at the instance and for the sole use of some
other branch of the national, provincial, city or
municipal governments; and certificates of the
assessed value of lands, not exceeding Two hundred
pesos (P200) in value assessed, furnished by the
provincial, city or municipal Treasurer to applicants
for registration of title to land.

Section 200. Payment of Documentary Stamp Tax. -

(A) In General. - The provisions of Presidential

Decree No. 1045 notwithstanding, any person liable
to pay documentary stamp tax upon any document
subject to tax under Title VII of this Code shall file a
tax return and pay the tax in accordance with the rules
and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.
 (B) Time for Filing and Payment of the Tax. - Except
as provided by rules and regulations promulgated by
the Secretary of Finance, upon recommendation of
the Commissioner, the tax return prescribed in this
Section shall be filed within ten (10) days after the
close of the month when the taxable document was
made, signed, issued, accepted, or transferred, and the
tax thereon shall be paid at the same time the
aforesaid return is filed.

(C) Where to File. - Except in cases where the

Commissioner otherwise permits, the aforesaid tax
return shall be filed with and the tax due shall be paid
through the authorized agent bank within the
territorial jurisdiction of the Revenue District Office
which has jurisdiction over the residence or principal
place of business of the taxpayer. In places where there
is no authorized agent bank, the return shall be filed
with the Revenue District Officer, collection agent, or
duly authorized Treasurer of the city or municipality
in which the taxpayer has his legal residence or
principal place of business.

(D) Exception. - In lieu of the foregoing provisions

of this Section, the tax may be paid either through
purchase and actual affixture; or by imprinting the
stamps through a documentary stamp metering
machine, on the taxable document, in the manner as
may be prescribed by rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.

Section 201. Effect of Failure to Stamp Taxable Document. - An

instrument, document or paper which is required by law to be
stamped and which has been signed, issued, accepted or transferred
without being duly stamped, shall not be recorded, nor shall it or any
copy thereof or any record of transfer of the same be admitted or
used in evidence in any court until the requisite stamp or stamps are
affixed thereto and cancelled.

TITLE VIII - REMEDIES

CHAPTER I - REMEDIES IN GENERAL

Section 202. Final Deed to Purchaser. - In case the taxpayer shall

not redeem the property as herein provided the Revenue District
Officer shall, as grantor, execute a deed conveying to the purchaser so
much of the property as has been sold, free from all liens of any kind
whatsoever, and the deed shall succintly recite all the proceedings
upon which the validity of the sale depends.

Section 203. Period of Limitation Upon Assessment and Collection. -

Except as provided in Section 222, internal revenue taxes shall be
assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)-year period
shall be counted from the day the return was filed. For purposes of
this Section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day.

Section 204. Authority of the Commissioner to Compromise, Abate

and Refund or Credit Taxes. - The Commissioner may -

(A) Compromise the payment of any internal

revenue tax, when:
 (1) A reasonable doubt as to the validity of
the claim against the taxpayer exists; or

(2) The financial position of the taxpayer

demonstrates a clear inability to pay the
assessed tax.

The compromise settlement of any tax

liability shall be subject to the following
minimum amounts:

For cases of financial incapacity, a

minimum compromise rate equivalent to ten
percent (10%) of the basic assessed tax; and

For other cases, a minimum compromise

rate equivalent to forty percent (40%) of the
basic assessed tax.

Where the basic tax involved exceeds One million

pesos (P1,000.000) or where the settlement offered is
less than the prescribed minimum rates, the
compromise shall be subject to the approval of the
Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy
Commissioners.

(B) Abate or cancel a tax liability, when:

(1) The tax or any portion thereof appears

to be unjustly or excessively assessed; or

(2) The administration and collection

costs involved do not justify the collection of
the amount due.
 All criminal violations may be
compromised except: (a) those already filed in
court, or (b) those involving fraud.

(C) Credit or refund taxes erroneously or illegally

received or penalties imposed without authority,
refund the value of internal revenue stamps when they
are returned in good condition by the purchaser, and,
in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund
of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however,
That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the

provisions of this Code may be applied against any
internal revenue tax, excluding withholding taxes, for
which the taxpayer is directly liable. Any request for
conversion into refund of unutilized tax credits may
be allowed, subject to the provisions of Section 230 of
this Code: Provided, That the original copy of the Tax
Credit Certificate showing a creditable balance is
surrendered to the appropriate revenue officer for
verification and cancellation: Provided, further, That
in no case shall a tax refund be given resulting from
availment of incentives granted pursuant to special
laws for which no actual payment was made.

The Commissioner shall submit to the Chairmen

of the Committee on Ways and Means of both the
Senate and House of Representatives, every six (6)
 months, a report on the exercise of his powers under
this Section, stating therein the following facts and
information, among others: names and addresses of
taxpayers whose cases have been the subject of
abatement or compromise; amount involved; amount
compromised or abated; and reasons for the exercise
of power: Provided, That the said report shall be
presented to the Oversight Committee in Congress
that shall be constituted to determine that said powers
are reasonably exercised and that the government is
not unduly deprived of revenues.

CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF

TAXES

Section 205. Remedies for the Collection of Delinquent Taxes. - The

civil remedies for the collection of internal revenue taxes, fees or
charges, and any increment thereto resulting from delinquency shall
be:

(a) By distraint of goods, chattels, or effects, and

other personal property of whatever character,
including stocks and other securities, debts, credits,
bank accounts and interest in and rights to personal
property, and by levy upon real property and interest
in rights to real property; and

(b) By civil or criminal action.

Either of these remedies or both simultaneously may be pursued

in the discretion of the authorities charged with the collection of such
taxes: Provided, however, That the remedies of distraint and levy shall
not be availed of where the amount of tax involve is not more than
One hundred pesos (P100).
 The judgment in the criminal case shall not only impose the
penalty but shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner.

The Bureau of Internal Revenue shall advance the amounts

needed to defray costs of collection by means of civil or criminal
action, including the preservation or transportation of personal
property distrained and the advertisement and sale thereof, as well as
of real property and improvements thereon.

Section 206. Constructive Distraint of the Property of A Taxpayer. -

To safeguard the interest of the Government, the Commissioner may
place under constructive distraint the property of a delinquent
taxpayer or any taxpayer who, in his opinion, is retiring from any
business subject to tax, or is intending to leave the Philippines or to
remove his property therefrom or to hide or conceal his property or
to perform any act tending to obstruct the proceedings for collecting
the tax due or which may be due from him.

The constructive distraint of personal property shall be affected

by requiring the taxpayer or any person having possession or control
of such property to sign a receipt covering the property distrained and
obligate himself to preserve the same intact and unaltered and not to
dispose of the same ;in any manner whatever, without the express
authority of the Commissioner.

In case the taxpayer or the person having the possession and

control of the property sought to be placed under constructive
distraint refuses or fails to sign the receipt herein referred to, the
revenue officer effecting the constructive distraint shall proceed to
prepare a list of such property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises where the property
distrained is located, after which the said property shall be deemed to
have been placed under constructive distraint.
Section 207. Summary Remedies. -

(A) Distraint of Personal Property. - Upon the

failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time
required, the Commissioner or his duly authorized
representative, if the amount involved is in excess of
One million pesos (P1,000,000), or the Revenue
District Officer, if the amount involved is One million
pesos (P1,000,000) or less, shall seize and distraint any
goods, chattels or effects, and the personal property,
including stocks and other securities, debts, credits,
bank accounts, and interests in and rights to personal
property of such persons ;in sufficient quantity to
satisfy the tax, or charge, together with any increment
thereto incident to delinquency, and the expenses of
the distraint and the cost of the subsequent sale.

A report on the distraint shall, within ten (10)

days from receipt of the warrant, be submitted by the
distraining officer to the Revenue District Officer, and
to the Revenue Regional Director: Provided, That the
Commissioner or his duly authorized representative
shall, subject to rules and regulations promulgated by
the Secretary of Finance, upon recommendation of
the Commissioner, have the power to lift such order
of distraint: Provided, further, That a consolidated
report by the Revenue Regional Director may be
required by the Commissioner as often as necessary.

(B) Levy on Real Property. - After the expiration

of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real
property may be levied upon, before simultaneously or
after the distraint of personal property belonging to
the delinquent. To this end, any internal revenue
officer designated by the Commissioner or his duly
authorized representative shall prepare a duly
authenticated certificate showing the name of the
taxpayer and the amounts of the tax and penalty due
from him. Said certificate shall operate with the force
of a legal execution throughout the Philippines.

Levy shall be affected by writing upon said

certificate a description of the property upon which
levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Register of
Deeds for the province or city where the property is
located and upon the delinquent taxpayer, or if he be
absent from the Philippines, to his agent or the
manager of the business in respect to which the
liability arose, or if there be none, to the occupant of
the property in question.

In case the warrant of levy on real property is not

issued before or simultaneously with the warrant of
distraint on personal property, and the personal
property of the taxpayer is not sufficient to satisfy his
tax delinquency, the Commissioner or his duly
authorized representative shall, within thirty (30) days
after execution of the distraint, proceed with the levy
on the taxpayer's real property.

Within ten (10) days after receipt of the warrant,

a report on any levy shall be submitted by the levying
officer to the Commissioner or his duly authorized
representative: Provided, however, That a consolidated
report by the Revenue Regional Director may be
required by the Commissioner as often as necessary:
Provided, further, That the Commissioner or his duly
 authorized representative, subject to rules and
regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, shall
have the authority to lift warrants of levy issued in
accordance with the provisions hereof.

Section 208. Procedure for Distraint and Garnishment. - The officer

serving the warrant of distraint shall make or cause to be made an
account of the goods, chattels, effects or other personal property
distrained, a copy of which, signed by himself, shall be left either with
the owner or person from whose possession such goods, chattels, or
effects or other personal property were taken, or at the dwelling or
place of business of such person and with someone of suitable age
and discretion, to which list shall be added a statement of the sum
demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy

of the warrant of distraint upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the corporation,
company or association, which issued the said stocks or securities.

Debts and credits shall be distrained by leaving with the person

owing the debts or having in his possession or under his control such
credits, or with his agent, a copy of the warrant of distraint. The
warrant of distraint shall be sufficient authority to the person owning
the debts or having in his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of
such debts or credits.

Bank accounts shall be garnished by serving a warrant of

garnishment upon the taxpayer and upon the president, manager,
treasurer or other responsible officer of the bank. Upon receipt of the
warrant of garnishment, the bank shall tun over to the Commissioner
so much of the bank accounts as may be sufficient to satisfy the claim
of the Government.
 Section 209. Sale of Property Distrained and Disposition of Proceeds. -
The Revenue District Officer or his duly authorized representative,
other than the officer referred to in Section 208 of this Code shall,
according to rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, forthwith
cause a notification to be exhibited in not less than two (2) public
places in the municipality or city where the distraint is made,
specifying; the time and place of sale and the articles distrained. The
time of sale shall not be less than twenty (20) days after notice. One
place for the posting of such notice shall be at the Office of the
Mayor of the city or municipality in which the property is distrained.

At the time and place fixed in such notice, the said revenue
officer shall sell the goods, chattels, or effects, or other personal
property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or stock exchanges.

In the case of Stocks and other securities, the officer making the
sale shall execute a bill of sale which he shall deliver to the buyer, and
a copy thereof furnished the corporation, company or association
which issued the stocks or other securities. Upon receipt of the copy
of the bill of sale, the corporation, company or association shall make
the corresponding entry in its books, transfer the stocks or other
securities sold in the name of the buyer, and issue, if required to do
so, the corresponding certificates of stock or other securities.

Any residue over and above what is required to pay the entire
claim, including expenses, shall be returned to the owner of the
property sold. The expenses chargeable upon each seizure and sale
shall embrace only the actual expenses of seizure and preservation of
the property pending ;the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy.
 Section 210. Release of Distrained Property Upon Payment Prior to
Sale. - If at any time prior to the consummation of the sale all proper
charges are paid to the officer conducting the sale, the goods or
effects distrained shall be restored to the owner.

Section 211. Report of Sale to Bureau of Internal Revenue. - Within

two (2) days after the sale, the officer making the same shall make a
report of his proceedings in writing to the Commissioner and shall
himself preserve a copy of such report as an official record.

Section 212. Purchase by Government at Sale Upon Distraint. -

When the amount bid for the property under distraint is not equal to
the amount of the tax or is very much less than the actual market
value of the articles offered for sale, the Commissioner or his deputy
may purchase the same in behalf of the national Government for the
amount of taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his

deputy, subject to the rules and regulations prescribed by the
Secretary of Finance, the net proceeds therefrom shall be remitted to
the National Treasury and accounted for as internal revenue.

Section 213. Advertisement and Sale. - Within twenty (20) days

after levy, the officer conducting the proceedings shall proceed to
advertise the property or a usable portion thereof as may be necessary
to satisfy the claim and cost of sale; and such advertisement shall
cover a period of a least thirty (30) days. It shall be effectuated by
posting a notice at the main entrance of the municipal building or
city hall and in public and conspicuous place in the barrio or district
in which the real estate lies and ;by publication once a week for three
(3) weeks in a newspaper of general circulation in the municipality or
city where the property is located. The advertisement shall contain a
statement of the amount of taxes and penalties so due and the time
and place of sale, the name of the taxpayer against whom taxes are
levied, and a short description of the property to be sold. At any time
before the day fixed for the sale, the taxpayer may discontinue all
proceedings by paying the taxes, penalties and interest. If he does not
do so, the sale shall proceed and shall be held either at the main
entrance of the municipal building or city hall, or on the premises to
be sold, as the officer conducting the proceedings shall determine and
as the notice of sale shall specify.

Within five (5) days after the sale, a return by the distraining or
levying officer of the proceedings shall be entered upon the records of
the Revenue Collection Officer, the Revenue District officer and the
Revenue Regional Director. The Revenue Collection Officer, in
consultation with the Revenue district Officer, shall then make out
and deliver to the purchaser a certificate from his records, showing
the proceedings of the sale, describing the property sold stating the
name of the purchaser and setting out the exact amount of all taxes,
penalties and interest: Provided, however, That in case the proceeds
of the sale exceeds the claim and cost of sale, the excess shall be
turned over to the owner of the property.

The Revenue Collection Officer, upon approval by the Revenue

District Officer may, out of his collection, advance an amount
sufficient to defray the costs of collection by means of the summary
remedies provided for in this Code, including ;the preservation or
transportation in case of personal property, and the advertisement
and subsequent sale, both in cases of personal and real property
including improvements found on the latter. In his monthly
collection reports, such advances shall be reflected and supported by
receipts.

Section 214. Redemption of Property Sold. - Within one (1) year

from the date of sale, the delinquent taxpayer, or any one for him,
shall have the right of paying to the Revenue District Officer the
amount of the public taxes, penalties, and interest thereon from the
date of delinquency to the date of sale, together with interest on said
purchase price at the rate of fifteen percent (15%) per annum from
the date of purchase to the date of redemption, and such payment
shall entitle the person paying to the delivery of the certificate issued
to the purchaser and a certificate from the said Revenue District
Officer that he has thus redeemed the property, and the Revenue
District Officer shall forthwith pay over to the purchaser the amount
by which such property has thus been redeemed, and said property
thereafter shall be free form the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of

the said property and shall be entitled to the rents and other income
thereof until the expiration of the time allowed for its redemption.

Section 215. Forfeiture to Government for Want of Bidder. - In case

there is no bidder for real property exposed for sale as herein above
provided or if the highest bid is for an amount insufficient to pay the
taxes, penalties and costs, the Internal Revenue Officer conducting
the sale shall declare the property forfeited to the Government in
satisfaction of the claim in question and within two (2) days
thereafter, shall make a return of his proceedings and the forfeiture
which shall be spread upon the records of his office. It shall be the
duty of the Register of Deeds concerned, upon registration with his
office of any such declaration of forfeiture, to transfer the title of the
property forfeited to the Government without the necessity of an
order from a competent court.

Within one (1) year from the date of such forfeiture, the
taxpayer, or any one for him may redeem said property by paying to
the Commissioner or the latter's Revenue Collection Officer the full
amount of the taxes and penalties, together with interest thereon and
the costs of sale, but if the property be not thus redeemed, the
forfeiture shall become absolute.

Section 216. Resale of Real Estate Taken for Taxes. - The

Commissioner shall have charge of any real estate obtained by the
Government of the Philippines in payment or satisfaction of taxes,
penalties or costs arising under this Code or in compromise or
adjustment of any claim therefore, and said Commissioner may, upon
the giving of not less than twenty (20) days notice, sell and dispose of
the same of public auction or with prior approval of the Secretary of
Finance, dispose of the same at private sale. In either case, the
proceeds of the sale shall be deposited with the National Treasury,
and an accounting of the same shall rendered to the Chairman of the
Commission on Audit.

Section 217. Further Distraint or Levy. - The remedy by distraint of

personal property and levy on realty may be repeated if necessary until
the full amount due, including all expenses, is collected.

Section 218. Injunction not Available to Restrain Collection of Tax. -

No court shall have the authority to grant an injunction to restrain
the collection of any national internal revenue tax, fee or charge
imposed by this Code.

Section 219. Nature and Extent of Tax Lien. - If any person,

corporation, partnership, joint-account (cuentas en participacion),
association or insurance company liable to pay an internal revenue
tax, neglects or refuses to pay the same after demand, the amount
shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner until paid,
with interests, penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging to the taxpayer:
Provided, That this lien shall not be valid against any mortgagee
purchaser or judgment creditor until notice of such lien shall be filed
by the Commissioner in the office of the Register of Deeds of the
province or city where the property of the taxpayer is situated or
located.
 Section 220. Form and Mode of Proceeding in Actions Arising under
this Code. - Civil and criminal actions and proceedings instituted in
behalf of the Government under the authority of this Code or other
law enforced by the Bureau of Internal Revenue shall be brought in
the name of the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Internal Revenue but no
civil or criminal action for the recovery of taxes or the enforcement of
any fine, penalty or forfeiture under this Code shall be filed in court
without the approval of the Commissioner.

Section 221. Remedy for Enforcement of Statutory Penal Provisions. -

The remedy for enforcement of statutory penalties of all sorts shall be
by criminal or civil action, as the particular situation may require,
subject to the approval of the Commissioner.

Section 222. Exceptions as to Period of Limitation of Assessment and

Collection of Taxes.

(a) In the case of a false or fraudulent return with

intent to evade tax or of failure to file a return, the tax
may be assessed, or a preceeding in court for the
collection of such tax may be filed without assessment,
at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the
collection thereof.

(b) If before the expiration of the time prescribed

in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing
to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so
 agreed upon may be extended by subsequent written
agreement made before the expiration of the period
previously agreed upon.

(c) Any internal revenue tax which has been

assessed within the period of limitation as prescribed
in paragraph (a) hereof may be collected by distraint or
levy or by a proceeding in court within five (5) years
following the assessment of the tax.

(d) Any internal revenue tax, which has been

assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by
distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of
the five (5) -year period. The period so agreed upon
may be extended by subsequent written agreements
made before the expiration of the period previously
agreed upon.

(e) Provided, however, That nothing in the

immediately preceding and paragraph (a) hereof shall
be construed to authorize the examination and
investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law
or decree.

Section 223. Suspension of Running of Statute of Limitations. - The

running of the Statute of Limitations provided in Sections 203 and
222 on the making of assessment and the beginning of distraint or
levy a proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy
or a proceeding in court and for sixty (60) days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the Commissioner of
any change in address, the running of the Statute of Limitations will
not be suspended; when the warrant of distraint or levy is duly served
upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines.

Section 224. Remedy for Enforcement of Forfeitures. - The forfeiture

of chattels and removable fixtures of any sort shall be enforced by the
seizure and sale, or destruction, of the specific forfeited property. The
forfeiture of real property shall be enforced by a judgment of
condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.

Section 225. When Property to be Sold or Destroyed. - Sales of

forfeited chattels and removable fixtures shall be effected, so far as
practicable, in the same manner and under the same conditions as
the public notice and the time and manner of sale as are prescribed
for sales of personal property distrained for the non-payment of taxes.

Distilled spirits, liquors, cigars, cigarettes, other manufactured

products of tobacco, and all apparatus used I or about the illicit
production of such articles may, upon forfeiture, be destroyed by
order of the Commissioner, when the sale of the same for
consumption or use would be injurious to public health or prejudicial
to the enforcement of the law.

All other articles subject to excise tax, which have been

manufactured or removed in violation of this Code, as well as dies for
the printing or making of internal revenue stamps and labels which
are in imitation of or purport to be lawful stamps, or labels may,
upon forfeiture, be sold or destroyed in the discretion of the
Commissioner.
 Forfeited property shall not be destroyed until at least twenty (20)
days after seizure.

Section 226. Disposition of funds Recovered in Legal Proceedings or

Obtained from Forfeitures. - all judgments and monies recovered and
received for taxes, costs, forfeitures, fines and penalties shall be paid
to the Commissioner or his authorized deputies as the taxes
themselves are required to be paid, and except as specially provided,
shall be accounted for and dealt with the same way.

Section 227. Satisfaction of Judgment Recovered Against any Internal

Revenue Officer. - When an action is brought against any Internal
Revenue officer to recover damages by reason of any act done in the
performance of official duty, and the Commissioner is notified of
such action in time to make defense against the same, through the
Solicitor General, any judgment, damages or costs recovered in such
action shall be satisfied by the Commissioner, upon approval of the
Secretary of Finance, or if the same be paid by the person used shall
be repaid or reimbursed to him.

No such judgment, damages, or costs shall be paid or reimbursed

in behalf of a person who has acted negligently or in bad faith, or
with willful oppression.

CHAPTER III - PROTESTING AN ASSESSMENT, REFUND,

ETC.

Section 228. Protesting of Assessment. - When the Commissioner

or his duly authorized representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings: provided,
however, That a preassessment notice shall not be required in the
following cases:
 (a) When the finding for any deficiency tax is the
result of mathematical error in the computation of the
tax as appearing on the face of the return; or

(b) When a discrepancy has been determined

between the tax withheld and the amount actually
remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund

or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over
and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles

has not been paid; or

(e) When the article locally purchased or

imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries
and spare parts, has been sold, traded or transferred to
non-exempt persons.

The taxpayers shall be informed in writing of the law and the

facts on which the assessment is made; otherwise, the assessment shall
be void.

Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his
findings.
 Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the
assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon

within one hundred eighty (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and
demandable.

Section 229. Recovery of Tax Erroneously or Illegally Collected. - no

suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, of any sum alleged to have
been excessively or in any manner wrongfully collected without
authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the

expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.

Section 230. Forfeiture of Cash Refund and of Tax Credit. -

(A) Forfeiture of Refund. - A refund check or

warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed
or uncashed within five (5) years from the date the
said warrant or check was mailed or delivered, shall be
forfeited in favor of the Government and the amount
thereof shall revert to the general fund.

(B) Forfeiture of Tax Credit. - A tax credit certificate

issued in accordance with the pertinent provisions of
this Code, which shall remain unutilized after five (5)
years from the date of issue, shall, unless revalidated,
be considered invalid, and shall not be allowed as
payment for internal revenue tax liabilities of the
taxpayer, and the amount covered by the certificate
shall revert to the general fund.

(C) Transitory Provision. - For purposes of the

preceding Subsection, a tax credit certificate issued by
the Commissioner or his duly authorized
representative prior to January 1, 1998, which remains
unutilized or has a creditable balance as of said date,
shall be presented for revalidation with the
Commissioner or his duly authorized representative or
on before June 30, 1998.

Section 231. Action to Contest Forfeiture of Chattel. - In case of the

seizure of personal property under claim of forfeiture, the owner
desiring to contest the validity of the forfeiture may, at any time
before sale or destruction of the property, bring an action against the
person seizing the property or having possession thereof to recover
the same, and upon giving proper bond, may enjoin the sale; or after
the sale and within six (6) months, he may bring an action to recover
the net proceeds realized at the sale.

TITLE IX - COMPLIANCE REQUIREMENTS

CHAPTER I - KEEPING OF BOOKS OF ACCOUNTS AND
RECORDS

Section 232. Keeping of Books of Accounts. -

(A) Corporations, Companies, Partnerships or

Persons Required to Keep Books of Accounts. - All
corporations, companies, partnerships or persons
required by law to pay internal revenue taxes shall
keep a journal and a ledger or their equivalents:
Provided, however, That those whose quarterly sales,
earnings, receipts, or output do not exceed Fifty
thousand pesos (P50,000) shall keep and use
simplified set of bookkeeping records duly authorized
by the Secretary of Finance where in all transactions
and results of operations are shown and from which
all taxes due the Government may readily and
accurately be ascertained and determined any time of
the year: Provided, further, That corporations,
companies, partnerships or persons whose gross
quarterly sales, earnings, receipts or output exceed
One hundred fifty thousand pesos (P150,000) shall
have their books of accounts audited and examined
yearly by independent Certified Public Accountants
and their income tax returns accompanied with a duly
accomplished Account Information Form (AIF) which
shall contain, among others, information lifted from
 certified balance sheets, profit and loss statements,
schedules listing income-producing properties and the
corresponding income therefrom and other relevant
statements.

(B) Independent Certified Public Accountant

Defined. - The term 'Independent Certified Public
Accountant', as used in the preceding paragraph,
means an accountant who possesses the independence
as defined in the rules and regulations of the Board of
Accountancy promulgated pursuant to Presidential
Decree No. 692, otherwise known as the Revised
Accountancy Law.

Section 233. Subsidiary Books. - All corporations, companies,

partnerships or persons keeping the books of accounts mentioned in
the preceding Section may, at their option, keep subsidiary books as
the needs of their business may require: Provided, That were such
subsidiaries are kept, they shall form part of the accounting system of
the taxpayer and shall be subject to the same rules and regulations as
to their keeping, translation, production and inspection as are
applicable to the journal and the ledger.

Section 234. Language in which Books are to be Kept; Translation. -

All such corporations, companies, partnerships or persons shall keep
the books or records mentioned in Section 232 hereof in native
language, English or Spanish: Provided, however, That if in addition
to said books or records the taxpayer keeps other books or records in
a language other than a native language, English or Spanish, he shall
make a true and complete translation of all the entries in suck other
books or records into a native language; English or Spanish, and the
said translation must be made by the bookkeeper, or such taxpayer, or
in his absence, by his manager and must be certified under oath as to
its correctness by the said bookkeeper or manager, and shall form an
integral part of the aforesaid books of accounts. The keeping of such
books or records in any language other than a native language,
English or Spanish, is hereby prohibited.

Section 235. Preservation of Books and Accounts and Other

Accounting Records. - All the books of accounts, including the
subsidiary books and other accounting records of corporations,
partnerships, or persons, shall be preserved by them for a period
beginning from the last entry in each book until the last day
prescribed by Section 203 within which the Commissioner is
authorized to make an assessment. The said books and records shall
be subject to examination and inspection by internal revenue officers:
Provided, That for income tax purposes, such examination and
inspection shall be made only once in a taxable year, except in the
following cases:

(a) Fraud, irregularity or mistakes, as determined

by the Commissioner;

(b) The taxpayer requests reinvestigation;

(c) Verification of compliance with withholding

tax laws and regulations;

(d) Verification of capital gains tax liabilities; and

(e) In the exercise of the Commissioner's power

under Section 5(B) to obtain information from other
persons in which case, another or separate
examination and inspection may be made.
Examination and inspection of books of accounts and
other accounting records shall be done in the
taxpayer's office or place of business or in the office of
the Bureau of Internal Revenue. All corporations,
partnerships or persons that retire from business shall,
within ten (10) days from the date of retirement or
 within such period of time as may be allowed by the
Commissioner in special cases, submit their books of
accounts, including the subsidiary books and other
accounting records to the Commissioner or any of his
deputies for examination, after which they shall be
returned. Corporations and partnerships
contemplating dissolution must notify the
Commissioner and shall not be dissolved until cleared
of any tax liability.

Any provision of existing general or special law to the contrary

notwithstanding, the books of accounts and other pertinent records
of tax-exempt organizations or grantees of tax incentives shall be
subject to examination by the Bureau of Internal Revenue for
purposes of ascertaining compliance with the conditions under which
they have been granted tax exemptions or tax incentives, and their tax
liability, if any.

CHAPTER II - ADMINISTRATIVE PROVISIONS

Section 236. Registration Requirements. -

(A) Requirements. - Every person subject to any

internal revenue tax shall register once with the
appropriate Revenue District Officer:

(1) Within ten (10) days from date of

employment, or

(2) On or before the commencement of

business,or

(3) Before payment of any tax due, or

 (4) Upon filing of a return, statement or
declaration as required in this Code.

The registration shall contain the

taxpayer's name, style, place of residence,
business and such other information as may be
required by the Commissioner in the form
prescribed therefor.

A person maintaining a head office,

branch or facility shall register with the
Revenue District Officer having jurisdiction
over the head office, brand or facility. For
purposes of this Section, the term 'facility' may
include but not be limited to sales outlets,
places of production, warehouses or storage
places.

(B) Annual Registration Fee. - An annual

registration fee in the amount of Five hundred pesos
(P500) for every separate or distinct establishment or
place of business, including facility types where sales
transactions occur, shall be paid upon registration and
every year thereafter on or before the last day of
January: Provided, however, That cooperatives,
individuals earning purely compensation income,
whether locally or abroad, and overseas workers are
not liable to the registration fee herein imposed.

The registration fee shall be paid to an authorized

agent bank located within the revenue district, or to
the Revenue Collection Officer, or duly authorized
Treasurer of the city of municipality where each place
of business or branch is registered.
 (C) Registration of Each Type of Internal Revenue
Tax. - Every person who is required to register with the
Bureau of Internal Revenue under Subsection (A)
hereof, shall register each type of internal revenue tax
for which he is obligated, shall file a return and shall
pay such taxes, and shall updates such registration of
any changes in accordance with Subsection (E) hereof.

(D) Transfer of Registration. - In case a registered

person decides to transfer his place of business or his
head office or branches, it shall be his duty to update
his registration status by filing an application for
registration information update in the form prescribed
therefor.

(E) Other Updates. - Any person registered in

accordance with this Section shall, whenever
applicable, update his registration information with
the Revenue District Office where he is registered,
specifying therein any change in type and other
taxpayer details.

(F) Cancellation of Registration. - The registration of

any person who ceases to be liable to a tax type shall
be cancelled upon filing with the Revenue District
Office where he is registered an application for
registration information update in a form prescribed
therefor.

(G) Persons Commencing Business. - Any person,

who expects to realize gross sales or receipts subject to
value-added tax in excess of the amount prescribed
under Section 109(z) of this Code for the next 12-
month period from the commencement of the
business, shall register with the Revenue District
Office which has jurisdiction over the head office or
branch and shall pay the annual registration fee
prescribed in Subsection (B) hereof.

(H) Persons Becoming Liable to the Value-added Tax. -

Any person, whose gross sales or receipts in any 12-
month period exceeds the amount prescribed under
Subsection 109(z) of this Code for exemption from
the value-added tax shall register in accordance with
Subsection (A) hereof, and shall pay the annual
registration fee prescribed within ten (10) days after
the end of the last month of that period, and shall be
liable to the value-added tax commencing from the
first day of the month following his registration.

(I) Optional Registration of Exempt Person. - Any

person whose transactions are exempt from value-
added tax under Section 109(z) of this Code; or any
person whose transactions are exempt from the value-
added tax under Section 109(a), (b), (c), and (d) of this
Code, who opts to register as a VAT taxpayer with
respect to his export sales only, may update his
registration information in accordance with
Subsection (E) hereof, not later than ten (10) days
before the beginning of the taxable quarter and shall
pay the annual registration fee prescribed in
Subsection (B) hereof.

In any case, the Commissioner may, for

administrative reasons, deny any application for
registration including updates prescribed under
Subsection (E) hereof.
 For purposes of Title IV of this Code, any person
who has registered value-added tax as a tax type in
accordance with the provisions of Subsection (C)
hereof shall be referred to as VAT-registered person
who shall be assigned only one Taxpayer Identification
Number.

(J) Supplying of Taxpayer Identification Number

(TIN). - Any person required under the authority of
this Code to make, render or file a return, statement
or other document shall be supplied with or assigned a
Taxpayer Identification Number (TIN) which he shall
indicate in such return, statement or document filed
with the Bureau of Internal Revenue for his proper
identification for tax purposes, and which he shall
indicate in certain documents, such as, but not limited
to the following:

(1) Sugar quedans, refined sugar release

order or similar instruments;

(2) Domestic bills of lading;

(3) Documents to be registered with the

Register of Deeds of Assessor's Office;

(4) Registration certificate of

transportation equipment by land, sea or air;

(5) Documents to be registered with the

Securities and Exchange Commission;

(6) Building construction permits;

 (7) Application for loan with banks,
financial institutions, or other financial
intermediaries;

(8) Application for mayor's permit;

(9) Application for business license with

the Department of Trade & Industry; and

(10) Such other documents which may

hereafter be required under rules and
regulations to be promulgated by the Secretary
of Finance, upon recommendation of the
Commissioner.

In cases where a registered taxpayer dies, the

administrator or executor shall register the estate of
the decedent in accordance with Subsection (A) hereof
and a new Taxpayer Identification Number (TIN) shall
be supplied in accordance with the provisions of this
Section.

In the case of a nonresident decedent, the

executor or administrator of the estate shall register
the estate with the Revenue District Office where he is
registered: Provided, however, That in case such
executor or administrator is not registered, registration
of the estate shall be made with the Taxpayer
Identification Number (TIN) supplied by the Revenue
District Office having jurisdiction over his legal
residence.

Only one Taxpayer identification Number (TIN)

shall be assigned to a taxpayer. Any person who shall
secure more than one Taxpayer Identification Number
 shall be criminally liable under the provision of
Section 275 on 'Violation of Other Provisions of this
Code or Regulations in General'.

Section 237. Issuance of Receipts or Sales or Commercial Invoices. -

All persons subject to an internal revenue tax shall, for each sale or
transfer of merchandise or for services rendered valued at Twenty-five
pesos (P25.00) or more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate, showing the date
of transaction, quantity, unit cost and description of merchandise or
nature of service: Provided, however, That in the case of sales, receipts
or transfers in the amount of One hundred pesos (P100.00) or more,
or regardless of the amount, where the sale or transfer is made by a
person liable to value-added tax to another person also liable to value-
added tax; or where the receipt is issued to cover payment made as
rentals, commissions, compensations or fees, receipts or invoices shall
be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further, That
where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipt shall further show
the Taxpayer Identification Number (TIN) of the purchaser.

The original of each receipt or invoice shall be issued to the

purchaser, customer or client at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall keep
and preserve the same in his place of business for a period of three (3)
years from the close of the taxable year in which such invoice or
receipt was issued, while the duplicate shall be kept and preserved by
the issuer, also in his place of business, for a like period.

The Commissioner may, in meritorious cases, exempt any person

subject to internal revenue tax from compliance with the provisions
of this Section.
 Section 238. Printing of Receipts or Sales or Commercial Invoices. - All
persons who are engaged in business shall secure from the Bureau of
Internal Revenue an authority to print receipts or sales or commercial
invoices before a printer can print the same.

No authority to print receipts or sales or commercial invoices

shall be granted unless the receipts or invoices to be printed are
serially numbered and shall show, among other things, the name,
business style, Taxpayer Identification Number (TIN) and business
address of the person or entity to use the same, and such other
information that may be required by rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of
the Commissioner.

All persons who print receipt or sales or commercial invoices

shall maintain a logbook/register of taxpayers who availed of their
printing services. The logbook/register shall contain the following
information:

(1) Names, Taxpayer Identification Numbers of

the persons or entities for whom the receipts or sales
or commercial invoices were printed; and

(2) Number of booklets, number of sets per

booklet, number of copies per set and the serial
numbers of the receipts or invoices in each booklet.

Section 239. Sign to be Exhibited by Distiller, Rectifier, Compounder,

Repacker and Wholesale Liquor Dealer. - Every person engaged in
distilling or rectifying spirits, compounding liquors, repacking wines
or distilled spirits, and every wholesale liquor dealer shall keep
conspicuously on the outside of his place of business a sign
exhibiting, in letters not less than six centimeters (6 cms.) high, his
name or firm style, with the words 'Registered Distiller,' 'Rectifier of
Spirits,' 'Compounder of Liquors,' 'Repacker of Wines or Distilled
Spirits,' or 'Wholesale Liquor Dealer,' as the case may be, and his
assessment number.

Section 240. Sign to be exhibited by manufacturer of Products of

Tobacco. - Every manufacturer of cigars, cigarettes or tobacco, and
every wholesale dealer in leaf tobacco or manufactured products of
tobacco shall place and keep on outside of the building wherein his
business is carried on, so that it can be distinctly seen, a sign stating
his full name and business in letters not less than six centimeters (6
cms.) high and also giving his assessment number.

Section 241. Exhibition of Certificate of Payment at Place of Business.

- The certificate or receipts showing payment of taxes issued to a
person engaged in a business subject to an annual registration fee
shall be kept conspicuously exhibited in plain view in or at the place
where the business is conducted; and in case of a peddler or other
persons not having a fixed place of business, shall be kept in the
possession of the holder thereof, subject to production upon demand
of any internal revenue officer.

Section 242. Continuation of Business of Deceased Person. - When

any individual who has paid the annual registration fee dies, and the
same business is continued by the person or persons interested in his
estate, no additional payment shall be required for the residue of the
term which the tax was paid: Provided, however, That the person or
persons interested in the estate should, within thirty (30) days from
the death of the decedent, submit to the Bureau of Internal Revenue
or the regional or revenue District Office inventories of goods or
stocks had at the time of such death.

The requirement under this Section shall also be applicable in

the case of transfer of ownership or change of name of the business
establishment.
 Section 243. Removal of Business to Other Location. - Any business
for which the annual registration fee has been paid may, subject to
the rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be removed and continued in
any other place without the payment of additional tax during the
term for which the payment was made.

CHAPTER III - RULES AND REGULATIONS

Section 244. Authority of Secretary of Finance to Promulgate Rules

and Regulations. - The Secretary of Finance, upon recommendation of
the Commissioner, shall promulgate all needful rules and regulations
for the effective enforcement of the provisions of this Code.

Section 245. Specific Provisions to be Contained in Rules and

Regulations. - The rules and regulations of the Bureau of Internal
Revenue shall, among other thins, contain provisions specifying,
prescribing or defining:

(a) The time and manner in which Revenue

Regional Director shall canvass their respective
Revenue Regions for the purpose of discovering
persons and property liable to national internal
revenue taxes, and the manner in which their lists and
records of taxable persons and taxable objects shall be
made and kept;

(b) The forms of labels, brands or marks to be

required on goods subject to an excise tax, and the
manner in which the labelling, branding or marking
shall be effected;

(c) The conditions under which and the manner

in which goods intended for export, which if not
exported would be subject to an excise tax, shall be
labelled, branded or marked;

(d) The conditions to be observed by revenue

officers respecting the institutions and conduct of
legal actions and proceedings;

(e) The conditions under which goods intended

for storage in bonded warehouses shall be conveyed
thither, their manner of storage and the method of
keeping the entries and records in connection
therewith, also the books to be kept by Revenue
Inspectors and the reports to be made by them in
connection with their supervision of such houses;

(f) The conditions under which denatured alcohol

may be removed and dealt in, the character and
quantity of the denaturing material to be used, the
manner in which the process of denaturing shall be
effected, so as to render the alcohol suitably denatured
and unfit for oral intake, the bonds to be given, the
books and records to be kept, the entries to be made
therein, the reports to be made to the Commissioner,
and the signs to be displayed in the business ort by the
person for whom such denaturing is done or by
whom, such alcohol is dealt in;

(g) The manner in which revenue shall be

collected and paid, the instrument, document or
object to which revenue stamps shall be affixed, the
mode of cancellation of the same, the manner in
which the proper books, records, invoices and other
papers shall be kept and entries therein made by the
person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up and
returned after serving their purposes;

(h) The conditions to be observed by revenue

officers respecting the enforcement of Title III
imposing a tax on estate of a decedent, and other
transfers mortis causa, as well as on gifts and such
other rules and regulations which the Commissioner
may consider suitable for the enforcement of the said
Title III;

(i) The manner in which tax returns, information

and reports shall be prepared and reported and the tax
collected and paid, as well as the conditions under
which evidence of payment shall be furnished the
taxpayer, and the preparation and publication of tax
statistics;

(j) The manner in which internal revenue taxes,

such as income tax, including withholding tax, estate
and donor's taxes, value-added tax, other percentage
taxes, excise taxes and documentary stamp taxes shall
be paid through the collection officers of the Bureau
of Internal Revenue or through duly authorized agent
banks which are hereby deputized to receive payments
of such taxes and the returns, papers and statements
that may be filed by the taxpayers in connection with
the payment of the tax: Provided, however, That
notwithstanding the other provisions of this Code
prescribing the place of filing of returns and payment
of taxes, the Commissioner may, by rules and
regulations, require that the tax returns, papers and
statements that may be filed by the taxpayers in
connection with the payment of the tax. Provided,
however, That notwithstanding the other provisions of
this Code prescribing the place of filing of returns and
payment of taxes, the Commissioner may, by rules and
regulations require that the tax returns, papers and
statements and taxes of large taxpayers be filed and
paid, respectively, through collection officers or
through duly authorized agent banks: Provided,
further, That the Commissioner can exercise this
power within six (6) years from the approval of
Republic Act No. 7646 or the completion of its
comprehensive computerization program, whichever
comes earlier: Provided, finally, That separate venues
for the Luzon, Visayas and Mindanao areas may be
designated for the filing of tax returns and payment of
taxes by said large taxpayers.

For the purpose of this Section, 'large taxpayer'

means a taxpayer who satisfies any of the following
criteria;

(1) Value-Added Tax (VAT) - Business

establishment with VAT paid or payable of at
least One hundred thousand pesos (P100,000)
for any quarter of the preceding taxable year;

(2) Excise tax - Business establishment

with excise tax paid or payable of at least One
million pesos (P1,000,000) for the preceding
taxable year;

(3) Corporate Income Tax - Business

establishment with annual income tax paid or
payable of at least One million pesos
(P1,000,000) for the preceding taxable year;
and
 (4) Withholding tax - Business
establishment with withholding tax payment
or remittance of at least One million pesos
(P1,000,000) for the preceding taxable year.

Provided, however, That the Secretary of Finance,

upon recommendation of the Commissioner, may
modify or add to the above criteria for determining a
large taxpayer after considering such factors as
inflation, volume of business, wage and employment
levels, and similar economic factors.

The penalties prescribed under Section 248 of

this Code shall be imposed on any violation of the
rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner,
prescribing the place of filing of returns and payments
of taxes by large taxpayers.

Section 246. Non- Retroactivity of Rulings. - Any revocation,

modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in the following
cases:

(a) Where the taxpayer deliberately misstates or

omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the

Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
 (c) Where the taxpayer acted in bad faith.

TITLE X - STATUTORY OFFENSES AND

PENALTIES
CHAPTER I - ADDITIONS TO THE TAX

Section 247. General Provisions. -

(a) The additions to the tax or deficiency tax

prescribed in this Chapter shall apply to all taxes, fees
and charges imposed in this Code. The Amount so
added to the tax shall be collected at the same time, in
the same manner and as part of the tax.

(b) If the withholding agent is the Government or

any of its agencies, political subdivisions or
instrumentalities, or a government-owned or
controlled corporation, the employee thereof
responsible for the withholding and remittance of the
tax shall be personally liable for the additions to the
tax prescribed herein.

(c) the term 'person', as used in this Chapter,

includes an officer or employee of a corporation who
as such officer, employee or member is under a duty to
perform the act in respect of which the violation
occurs.

Section 248. Civil Penalties. -

(A) There shall be imposed, in addition to the tax

required to be paid, a penalty equivalent to twenty-five
percent (25%) of the amount due, in the following
cases:
 (1) Failure to file any return and pay the
tax due thereon as required under the
provisions of this Code or rules and
regulations on the date prescribed; or

(2) Unless otherwise authorized by the

Commissioner, filing a return with an internal
revenue officer other than those with whom
the return is required to be filed; or

(3) Failure to pay the deficiency tax within

the time prescribed for its payment in the
notice of assessment; or

(4) Failure to pay the full or part of the

amount of tax shown on any return required
to be filed under the provisions of this Code
or rules and regulations, or the full amount of
tax due for which no return is required to be
filed, on or before the date prescribed for its
payment.

(B) In case of willful neglect to file the return

within the period prescribed by this Code or by rules
and regulations, or in case a false or fraudulent return
is willfully made, the penalty to be imposed shall be
fifty percent (50%) of the tax or of the deficiency tax,
in case, any payment has been made on the basis of
such return before the discovery of the falsity or fraud:
Provided, That a substantial underdeclaration of
taxable sales, receipts or income, or a substantial
overstatement of deductions, as determined by the
Commissioner pursuant to the rules and regulations
to be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false or fraudulent
 return: Provided, further, That failure to report sales,
receipts or income in an amount exceeding thirty
percent (30%) of that declared per return, and a claim
of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or
income or for overstatement of deductions, as
mentioned herein.

Section 249. Interest. -

(A) In General. - There shall be assessed and

collected on any unpaid amount of tax, interest at the
rate of twenty percent (20%) per annum, or such
higher rate as may be prescribed by rules and
regulations, from the date prescribed for payment
until the amount is fully paid.

(B) Deficiency Interest. - Any deficiency in the tax

due, as the term is defined in this Code, shall be
subject to the interest prescribed in Subsection (A)
hereof, which interest shall be assessed and collected
from the date prescribed for its payment until the full
payment thereof.

(C) Delinquency Interest. - In case of failure to pay:

(1) The amount of the tax due on any

return to be filed, or

(2) The amount of the tax due for which

no return is required, or

(3) A deficiency tax, or any surcharge or

interest thereon on the due date appearing in
 the notice and demand of the Commissioner,
there shall be assessed and collected on the
unpaid amount, interest at the rate prescribed
in Subsection (A) hereof until the amount is
fully paid, which interest shall form part of the
tax.

(D) Interest on Extended Payment. - If any person

required to pay the tax is qualified and elects to pay
the tax on installment under the provisions of this
Code, but fails to pay the tax or any installment
hereof, or any part of such amount or installment on
or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of
time within which to pay a tax or a deficiency tax or
any part thereof, there shall be assessed and collected
interest at the rate hereinabove prescribed on the tax
or deficiency tax or any part thereof unpaid from the
date of notice and demand until it is paid.

Section 250. Failure to File Certain Information Returns. - In the

case of each failure to file an information return, statement or list, or
keep any record, or supply any information required by this Code or
by the Commissioner on the date prescribed therefor, unless it is
shown that such failure is due to reasonable cause and not to willful
neglect, there shall, upon notice and demand by the Commisssioner,
be paid by the person failing to file, keep or supply the same, One
thousand pesos (1,000) for each failure: Provided, however, That the
aggregate amount to be imposed for all such failures during a
calendar year shall not exceed Twenty-five thousand pesos (P25,000).

Section 251. Failure of a Withholding Agent to Collect and Remit

Tax. - Any person required to withhold, account for, and remit any
tax imposed by this Code or who willfully fails to withhold such tax,
or account for and remit such tax, or aids or abets in any manner to
evade any such tax or the payment thereof, shall, in addition to other
penalties provided for under this Chapter, be liable upon conviction
to a penalty equal to the total amount of the tax not withheld, or not
accounted for and remitted.

Section 252. Failure of a Withholding Agent to refund Excess

Withholding Tax. - Any employer/withholding agent who fails or
refuses to refund excess withholding tax shall, in addition to the
penalties provided in this Title, be liable to a penalty to the total
amount of refunds which was not refunded to the employee resulting
from any excess of the amount withheld over the tax actually due on
their return.

CHAPTER II - CRIMES, OTHER OFFENSES AND

FORFEITURES

Section 253. General Provisions. -

(a) Any person convicted of a crime penalized by

this Code shall, in addition to being liable for the
payment of the tax, be subject to the penalties
imposed herein: Provided, That payment of the tax
due after apprehension shall not constitute a valid
defense in any prosecution for violation of any
provision of this Code or in any action for the
forfeiture of untaxed articles.

(b) Any person who willfully aids or abets in the

commission of a crime penalized herein or who causes
the commission of any such offense by another shall
be liable in the same manner as the principal.
 (c) If the offender is not a citizen of the
Philippines, he shall be deported immediately after
serving the sentence without further proceedings for
deportation. If he is a public officer or employee, the
maximum penalty prescribed for the offense shall be
imposed and, in addition, he shall be dismissed from
the public service and perpetually disqualified from
holding any public office, to vote and to participate in
any election. If the offender is a Certified Public
Accountant, his certificate as a Certified Public
Accountant shall, upon conviction, be automatically
revoked or cancelled.

(d) In the case of associations, partnerships or

corporations, the penalty shall be imposed on the
partner, president, general manager, branch manager,
treasurer, officer-in-charge, and the employees
responsible for the violation.

(e) The fines to be imposed for any violation of

the provisions of this Code shall not be lower than the
fines imposed herein or twice the amount of taxes,
interest and surcharges due from the taxpayer,
whichever is higher.

Section 254. Attempt to Evade or Defeat Tax. - Any person who

willfully attempts in any manner to evade or defeat any tax imposed
under this Code or the payment thereof shall, in addition to other
penalties provided by law, upon conviction thereof, be punished by a
fine not less than Thirty thousand (P30,000) but not more than One
hunderd thousand pesos (P100,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years: Provided,
That the conviction or acquittal obtained under this Section shall not
be a bar to the filing of a civil suit for the collection of taxes.
 Section 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes
Withheld on Compensation. - Any person required under this Code or
by rules and regulations promulgated thereunder to pay any tax make
a return, keep any record, or supply correct the accurate information,
who willfully fails to pay such tax, make such return, keep such
record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten
thousand pesos (P10,000) and suffer imprisonment of not less than
one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that
he or another has in fact filed a return or statement, or actually files a
return or statement and subsequently withdraws the same return or
statement after securing the official receiving seal or stamp of receipt
of internal revenue office wherein the same was actually filed shall,
upon conviction therefor, be punished by a fine of not less than Ten
thousand pesos (P10,000) but not more than Twenty thousand pesos
(P20,000) and suffer imprisonment of not less than one (1) year but
not more than three (3) years.

Section 256. Penal Liability of Corporations. - Any corporation,

association or general co-partnership liable for any of the acts or
omissions penalized under this Code, in addition to the penalties
imposed herein upon the responsible corporate officers, partners, or
employees shall, upon conviction for each act or omission, be
punished by a fine of not less than Fifty thousand pesos (P50,000) but
not more than One hundred thousand pesos (P100,000).

Section 257. Penal Liability for Making False Entries, Records or

Reports, or Using Falsified or Fake Accountable Forms. -
 (A) Any financial officer or independent Certified
Public Accountant engaged to examine and audit
books of accounts of taxpayers under Section 232 (A)
and any person under his direction who:

(1) Willfully falsifies any report or

statement bearing on any examination or
audit, or renders a report, including exhibits,
statements, schedules or other forms of
accountancy work which has not been verified
by him personally or under his supervision or
by a member of his firm or by a member of his
staff in accordance with sound auditing
practices; or

(2) Certifies financial statements of a

business enterprise containing an essential
misstatement of facts or omission in respect of
the transactions, taxable income, deduction
and exemption of his client; or

(B) Any person who:

(1) Not being an independent Certified

Public Accountant according to Section 232(B)
or a financial officer, examines and audits
books of accounts of taxpayers; or

(2) Offers to sign and certify financial

statements without audit; or

(3) Offers any taxpayer the use of

accounting bookkeeping records for internal
revenue purposes not in conformity with the
requirements prescribed in this Code or rules
and regulations promulgated thereunder; or

(4) Knowingly makes any false entry or

enters any false or fictitious name in the books
of accounts or record mentioned in the
preceding paragraphs; or

(5) Keeps two (2) or more sets of such

records or books of accounts; or

(6) In any way commits an act or

omission, in violation of the provisions of this
Section; or

(7) Fails to keep the books of accounts or

records mentioned in Section 232 in a native
language, English or Spanish, or to make a
true and complete translation as required in
Section 234 of this Code, or whose books of
accounts or records kept in a native language,
English or Spanish, and found to be at
material variance with books or records kept
by him in another language; or

(8) Willfully attempts in any manner to

evade or defeat any tax imposed under this
Code, or knowingly uses fake or falsified
revenue official receipts, Letters of Authority,
certificates authorizing registration, Tax Credit
Certificates, Tax Debit Memoranda and other
accountable forms shall, upon conviction for
each act or omission, be punished by a fine not
less than Fifty thousand pesos (P50,000) but
not more than One hundred pesos (P100,000)
 and suffer imprisonment of not less than two
(2) years but not more than six (6) years.

If the offender is a Certified Public Accountant,

his certificate as a Certified Public Accountant shall be
automatically revoked or cancelled upon conviction.

In the case of foreigners, conviction under this

Code shall result in his immediate deportation after
serving sentence, without further proceedings for
deportation.

Section 258. Unlawful Pursuit of Business. - Any person who

carries on any business for which an annual registration fee is
imposed without paying the tax as required by law shall, upon
conviction for each act or omission, be punished by a fine of not less
than Five thousand pesos (P5,000) but not more than Twenty
thousand pesos (P20,000) and suffer imprisonment of not less than
six (6) months but not more than two (2) years: Provided, That in the
case of a person engaged in the business of distilling, rectifying,
repacking, compounding or manufacturing any article subject to
excise tax, he shall, upon conviction for each act or omission, be
punished by a fine of not less than Thirty thousand pesos (P30,000)
but not more than Fifty thousand pesos (P50,000) and suffer
imprisonment of not less than two (2) years but not more than four
(4) years.

Section 259. Illegal Collection of Foreign Payments. - Any person

who knowingly undertakes the collection of foreign payments as
provided under Section 67 of this Code without having obtained a
license therefor, or without complying with its implementing rules
and regulations, shall, upon conviction for each act or omission, be
punished by a fine of not less than Twenty thousand pesos (P20,000)
but not more than Fifty thousand pesos (P50,000) and suffer
imprisonment of not less than one (1) year but not more than two (2)
years.

Section 260. Unlawful Possession of Cigarette Paper in Bobbins or

Rolls, Etc. - It shall be unlawful for any person to have in his
possession cigarette paper in bobbins or rolls, cigarette tipping paper
or cigarette filter tips, without the corresponding authority therefor
issued by the Commissioner. Any person, importer, manufacturer of
cigar and cigarettes, who has been found guilty under this Section,
shall, upon conviction for each act or omission, be punished by a fine
of not less than Twenty thousand pesos (P20,000) but not more than
One hundred thousand pesos (P1000,000) and suffer imprisonment
for a term of not less than six (6) years and one (1) day but not more
than twelve (12) years.

Section 261. Unlawful Use of Denatured Alcohol. - Any person who

for the purpose of manufacturing any beverage, uses denatured
alcohol or alcohol specially denatured to be used for motive power or
withdrawn under bond for industrial uses or alcohol knowingly
misrepresented to be denatured to be unfit for oral intake or who
knowingly sells or offers for sale any beverage made in whole or in
part from such alcohol or who uses such alcohol for the manufacture
of liquid medicinal preparations taken internally, or knowingly sells
or offers for sale such preparations containing as an ingredient such
alcohol, shall upon conviction for each act or omission be punished
by a fine of not less than Twenty thousand pesos (P20,000) but not
more than One hundred thousand pesos (P100,000) and suffer
imprisonment for a term of not less than six (6) years and one (1) day
but not more than twelve (12) years.

Any person who shall unlawfully recover or attempt to recover by

distillation or other process any denatured alcohol or who knowingly
sells or offers for sale, conceals or otherwise disposes of alcohol so
recovered or redistilled shall be subject to the same penalties imposed
under this Section.

Section 262. Shipment or Removal of Liquor or Tobacco Products

under False Name or Brand or as an Imitation of any Existing or Otherwise
Known Product Name or Brand. - Any person who ships, transports or
removes spirituous, compounded or fermented liquors, wines or any
manufactured products of tobacco under any other than the proper
name or brand known to the trade as designating the kind and
quality of the contents of the cask, bottle or package containing the
same or as an imitation of any existing or otherwise known product
name or brand or causes such act to be done, shall, upon conviction
for each act or omission, be punished by a fine of not less than
Twenty thousand pesos (P20,000) but not more than One hundred
thousand pesos (P1000,000) and suffer imprisonment of not less than
six (6) years and one (1) day but not more than twelve (12) years.

Section 263. Unlawful Possession or Removal of Articles Subject

to Excise Tax without Payment of the Tax. - Any person who owns
and/or is found in possession of imported articles subject to excise
tax, the tax on which has not been paid in accordance with law, or
any person who owns and/or is found in possession of imported tax-
exempt articles other than those to whom they are legally issued shall
be punished by:

(a) A fine of not less than One thousand pesos

(P1,000) nor more than Two thousand pesos (P2,000)
and suffer imprisonment of not less than sixty (60)
days but not more than one hundred (100) days, if the
appraised value, to be determined in the manner
prescribed in the Tariff and Customs Code, including
duties and taxes, of the articles does not exceed One
thousand pesos (P1,000).
 (b) A fine of not less than Ten thousand pesos
(P10,000) but not more than Twenty thousand pesos
(P20,000) and suffer imprisonment of not less than
two (2) years but not more than four (4) years, if the
appraised value, to be determined in the manner
prescribed in the Tariff and Customs Code, including
duties and taxes, of the articles exceeds One thousand
pesos (P1,000) but does not exceed Fifty thousand
pesos (P50,000);

(c) A fine of not less than Thirty thousand pesos

(P30,000) but not more than Sixty thousand pesos
(P60,000) and suffer imprisonment of not less than
four (4) years but not more than six (6) years, if the
appraised value, to be determined in the manner
prescribed in the Tariff and Customs Code, including
duties and taxes of the articles is more than Fifty
thousand pesos (P50,000) but does not exceed One
hundred fifty thousand pesos (P150,000); or

(d) A fine of not less than Fifty thousand pesos

(P50,000) but not more than One hundred thousand
pesos (P100,000) and suffer imprisonment of not less
than ten (10) years but not more than twelve (12)
years, if the appraised value, to be determined in the
manner prescribed in the Tariff and Customs Code,
including duties and taxes, of the articles exceeds One
hundred fifty thousand pesos (P150,000).

Any person who is found in possession of locally manufactured

articles subject to excise tax, the tax on which has not been paid in
accordance with law, or any person who is found in possession of
such articles which are exempt from excise tax other than those to
whom the same is lawfully issued shall be punished with a fine of not
less than (10) times the amount of excise tax due on the articles found
but not less than Five hundred pesos (P500) and suffer imprisonment
of not less than two (2) years but not more than four (4) years.

Any manufacturer, owner or person in charge of any article

subject to excise tax who removes or allows or causes the unlawful
removal of any such articles from the place of production or bonded
warehouse, upon which the excise tax has not been paid at the time
and in the manner required, and any person who knowingly aids or
abets in the removal of such articles as aforesaid, or conceals the same
after illegal removal shall, for the first offense, be punished with a fine
of not less than ten (10) times the amount of excise tax due on the
articles but not less than One thousand pesos (P1,000) and suffer
imprisonment of not less than one (1) year but not more than two (2)
years.

The mere unexplained possession of articles subject to excise tax,

the tax on which has not been paid in accordance with law, shall be
punishable under this Section.

Section 264. Failure or refusal to Issue Receipts or Sales or

Commercial Invoices, Violations related to the Printing of such Receipts or
Invoices and Other Violations. -

(a) Any person who, being required under Section

237 to issue receipts or sales or commercial invoices,
fails or refuses to issue such receipts of invoices, issues
receipts or invoices that do not truly reflect and/or
contain all the information required to be shown
therein, or uses multiple or double receipts or
invoices, shall, upon conviction for each act or
omission, be punished by a fine of not less than One
thousand pesos (P1,000) but not more than Fifty
thousand pesos (P50,000) and suffer imprisonment of
not less than two (2) years but not more than four (4)
years.
 (b) Any person who commits any of the acts
enumerated hereunder shall be penalized in the same
manner and to the same extent as provided for in this
Section:

(1) Printing of receipts or sales or

commercial invoices without authority from
the Bureau of Internal Revenue; or

(2) Printing of double or multiple sets of

invoices or receipts; or

(3) Printing of unnumbered receipts or

sales or commercial invoices, not bearing the
name, business style, Taxpayer Identification
Number, and business address of the person or
entity.

Section 265. Offenses Relating to Stamps. - Any person who

commits any of the acts enumerated hereunder shall, upon
conviction thereof, be punished by a fine of not less than Twenty
thousand pesos (P20,000) but not more than Fifty thousand pesos
(P50,000) and suffer imprisonment of not less than four (4) years but
not more than eight (8) years:

(a) making, importing, selling, using or possessing

without express authority from the Commissioner, any
die for printing or making stamps, labels, tags or
playing cards;

(b) Erasing the cancellation marks of any stamp

previously used, or altering the written figures or
letters or cancellation marks on internal revenue
stamps;
 (c) Possessing false, counterfeit, restored or altered
stamps, labels or tags or causing the commission of
any such offense by another;

(d) Selling or offering for sale any box or package

containing articles subject to excise tax with false,
spurious or counterfeit stamps or labels or selling from
any such fraudulent box, package or container as
aforementioned; or

(e) Giving away or accepting from another, or

selling, buying or using containers on which the
stamps are not completely destroyed.

Section 266. Failure to Obey Summons. - Any person who, being

duly summoned to appear to testify, or to appear and produce books
of accounts, records, memoranda or other papers, or to furnish
information as required under the pertinent provisions of this Code,
neglects to appear or to produce such books of accounts, records,
memoranda or other papers, or to furnish such information, shall,
upon conviction, be punished by a fine of not less than Five thousand
pesos (P5,000) but not more than ten thousand pesos (P10,000) and
suffer imprisonment of not less than one (1) year but not more than
two (2) years.

Section 267. Declaration under Penalties of Perjury. - Any

declaration, return and other statement required under this Code,
shall, in lieu of an oath, contain a written statement that they are
made under the penalties of perjury. Any person who willfully files a
declaration, return or statement containing information which is not
true and correct as to every material matter shall, upon conviction, be
subject to the penalties prescribed for perjury under the Revised
Penal Code.

Section 268. Other Crimes and Offenses. -

 (A) Misdeclaration or Misrepresentation of
Manufacturers Subject to Excise Tax. - Any
manufacturer who, in violation of the provisions of
Title VI of this Code, misdeclares in the sworn
statement required therein or in the sales invoice, any
pertinent data or information shall be punished by a
summary cancellation or withdrawal of the permit to
engage in business as a manufacturer of articles subject
to excise tax.

(B) Forfeiture of Property Used in Unlicensed

Business or Dies Used for Printing False Stamps, Etc. -
All chattels, machinery, and removable fixtures of any
sort used in the unlicensed production of articles
subject to excise tax shall be forfeited. Dies and other
equipment used for the printing or making of any
internal revenue stamp, label or tag which is in
imitation of or purports to be a lawful stamp, label or
tag shall also be forfeited.

(C) Forfeiture of Goods Illegally Stored or

Removed. - Unless otherwise specifically authorized by
the Commissioner, all articles subject to excise tax
should not be stored or allowed to remain in the
distillery warehouse, bonded warehouse or other place
where made, after the tax thereon has been paid;
otherwise, all such articles shall be forfeited. Articles
withdrawn from any such place or from customs
custody or imported into the country without the
payment of the required tax shall likewise be forfeited.

CHAPTER III - PENALTIES IMPOSED ON PUBLIC OFFICERS

Section 269. Violations Committed by Government Enforcement

Officers. - Every official, agent, or employee of the Bureau of Internal
Revenue or any other agency of the Government charged with the
enforcement of the provisions of this Code, who is guilty of any of
the offenses herein below specified shall, upon conviction for each act
or omission, be punished by a fine of not less than Fifty thousand
pesos (P50,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than ten (10) years
but not more than fifteen (15) years and shall likewise suffer an
additional penalty of perpetual disqualification to hold public office,
to vote, and to participate in any public election:

(a) Extortion or willful oppression through the

use of his office or willful oppression and harassment
of a taxpayer who refused, declined, turned down or
rejected any of his offers specified in paragraph (d)
hereof;

(b) Knowingly demanding or receiving any fee,

other or greater sums that are authorized by law or
receiving any fee, compensation or reward, except as
by law prescribed, for the performance of any duty;

(c) Willfully neglecting to give receipts, as by law

required, for any sum collected in the performance of
duty or willfully neglecting to perform any other duties
enjoined by law;

(d) Offering or undertaking to accomplish, file or

submit a report or assessment on a taxpayer without
the appropriate examination of the books of accounts
or tax liability, or offering or undertaking to submit a
report or assessment less than the amount due the
Government for any consideration or compensation,
or conspiring or colluding with another or others to
defraud the revenues or otherwise violate the
provisions of this Code;
 (e) Neglecting or by design permitting the
violation of the law by any other person;

(f) Making or signing any false entry or entries in

any book, or making or signing any false certificate or
return;

(g) Allowing or conspiring or colluding with

another to allow the unauthorized retrieval,
withdrawal or recall of any return, statement or
declaration after the same has been officially received
by the Bureau of Internal Revenue;

(h) Having knowledge or information of any

violation of this Code or of any fraud committed on
the revenues collectible by the Bureau of Internal
Revenue, failure to report such knowledge or
information to their superior officer, or failure to
report as otherwise required by law; and

(i) Without the authority of law, demanding or

accepting or attempting to collect, directly or
indirectly, as payment or otherwise any sum of money
or other thing of value for the compromise,
adjustment or settlement of any charge or complaint
for any violation or alleged violation of this Code.

Provided, That the provisions of the foregoing paragraph

notwithstanding, any internal revenue officer for which a prima facie
case of grave misconduct has been established shall, after due notice
and hearing of the administrative case and subject to Civil Service
Laws, be dismissed from the revenue service: Provided, further, That
the term 'grave misconduct', as defined in Civil Service Law, shall
include the issuance of fake letters of authority and receipts, forgery
of signature, unsurpation of authority and habitual issuance of
unreasonable assessments.

Section 270. Unlawful Divulgence of Trade Secrets. - Except as

provided in Section 71 of this Code and Section 26 of Republic Act
No. 6388, any officer or employee of the Bureau of Internal Revenue
who divulges to any person or makes known in any other manner
than may be provided by law information regarding the business,
income or estate of any taxpayer, the secrets, operation, style or work,
or apparatus of any manufacturer or producer, or confidential
information regarding the business of any taxpayer, knowledge of
which was acquired by him in the discharge of his official duties, shall
upon conviction for each act or omission, be punished by a fine of
not less than Fifty thousand pesos (P50,000) but not more than One
hundred thousand pesos (P100,000), or suffer imprisonment of not
less than two (2) years but not more than five (5) years, or both.

Section 271. Unlawful Interest of Revenue Law Enforcers in Business.

- Any internal revenue officer who is or shall become interested,
directly or indirectly, in the manufacture, sale or importation of any
article subject to excise tax under Title VI of this Code or in the
manufacture or repair or sale, of any die for printing, or making of
stamps, or labels shall upon conviction for each act or omission, be
punished by a fine of not less than Five thousand pesos (P5,000) but
not more than Ten thousand pesos (P10,000), or suffer
imprisonment of not less than two (2) years and one (1) day but not
more than four (4) years, or both.

Section 272. Violation of Withholding Tax Provision. - Every officer

or employee of the Government of the Republic of the Philippines or
any of its agencies and instrumentalities, its political subdivisions, as
well as government-owned or controlled corporations, including the
Bangko Sentral ng Pilipinas (BSP), who, under the provisions of this
Code or rules and regulations promulgated thereunder, is charged
with the duty to deduct and withhold any internal revenue tax and to
remit the same in accordance with the provisions of this Code and
other laws is guilty of any offense herein below specified shall, upon
conviction for each act or omission be punished by a fine of not less
than Five thousand pesos (P5,000) but not more than Fifty thousand
pesos (P50,000) or suffer imprisonment of not less than six (6)
months and one (1) day but not more than two (2) years, or both:

(a) Failing or causing the failure to deduct and

withhold any internal revenue tax under any of the
withholding tax laws and implementing rules and
regulations;

(b) Failing or causing the failure to remit taxes

deducted and withheld within the time prescribed by
law, and implementing rules and regulations; and

(c) Failing or causing the failure to file return or

statement within the time prescribed, or rendering or
furnishing a false or fraudulent return or statement
required under the withholding tax laws and rules and
regulations.

Section 273. Penalty for Failure to Issue and Execute Warrant. - Any
official who fails to issue or execute the warrant of distraint or levy
within thirty (30) days after the expiration of the time prescribed in
Section 207 or who is found guilty of abusing the exercise thereof by
competent authority shall be automatically dismissed from the service
after due notice and hearing.

CHAPTER IV - OTHER PENAL PROVISIONS

Section 274. Penalty for Second and Subsequent Offenses. - In the

case of reincidence, the maximum of the penalty prescribed for the
offense shall be imposed.
 Section 275. Violation of Other Provisions of this Code or Rules and
Regulations in General. - Any person who violates any provision of this
Code or any rule or regulation promulgated by the Department of
Finance, for which no specific penalty is provided by law, shall, upon
conviction for each act or omission, be punished by a fine of not
more than One thousand pesos (P1,000) or suffer imprisonment of
not more than six (6) months, or both.

Section 276. Penalty for Selling, Transferring, Encumbering or in any

way Disposing of Property Placed under Constructive Distraint. - Any
taxpayer, whose property has been placed under constructive
distraint, who sells, transfers, encumbers or in any way disposes of
said property, or any part thereof, without the knowledge and consent
of the Commissioner, shall, upon conviction for each act or
omission, be punished by a fine of not less than twice the value of the
property so sold, encumbered or disposed of but not less than Five
Thousand pesos (P5,000), or suffer imprisonment of not less than
two (2) years and one (1) day but not more than four (4) years, of
both.

Section 277. Failure to Surrender Property Placed under Distraint and

Levy. - Any person having in his possession or under his control any
property or rights to property, upon which a warrant of constructive
distraint, or actual distraint and levy has been issued shall, upon
demand by the Commissioner or any of his deputies executing such
warrant, surrender such property or right to property to the
Commissioner or any of his deputies, unless such property or right is,
at the time of such demand, subject to an attachment or execution
under any judicial process. Any person who fails or refuses to
surrender any of such property or right shall be liable in his own
person and estate to the Government in a sum equal to the value of
the property or rights not so surrendered but not exceeding the
amount of the taxes (including penalties and interest) for the
collection of which such warrant had been issued, together with cost
and interest if any, from the date of such warrant. In addition, such
person shall, upon conviction for each act or omission, be punished
by a fine of not less than Five thousand pesos (P5,000), or suffer
imprisonment of not less than six (6) months and one (1) day but not
more than two (2) years, or both.

Section 278. Procuring Unlawful Divulgence of Trade Secrets. - Any

person who causes or procures an officer or employee of the Bureau
of Internal Revenue to divulge any confidential information
regarding the business, income or inheritance of any taxpayer,
knowledge of which was acquired by him in the discharge of his
official duties, and which it is unlawful for him to reveal, and any
person who publishes or prints in any manner whatever, not provided
by law, any income, profit, loss or expenditure appearing in any
income tax return, shall be punished by a fine of not more than Two
thousand pesos (P2,000), or suffer imprisonment of not less than six
(6) months nor more than five (5) years, or both.

Section 279. Confiscation and Forfeiture of the Proceeds or

Instruments of Crime. - In addition to the penalty Imposed for the
violation of the provisions of Title X of this Code, the same shall
carry with it the confiscation and forfeiture in favor of the
government of the proceeds of the crime or value of the goods, and
the instruments or tools with which the crime was committed:
Provided, however, That if in the course of the proceedings, it is
established that the instruments or tools used in the illicit act belong
to a third person, the same shall be confiscated and forfeited after
due notice and hearing in a separate proceeding in favor of the
Government if such third person leased, let, chartered or otherwise
entrusted the same to the offender: Provided, further, That in case
the lessee subleased, or the borrower, charterer, or trustee allowed the
use of the instruments or tools to the offender, such instruments or
tools shall, likewise, be confiscated and forfeited: Provided, finally,
That property of common carriers shall not be subject to forfeiture
when used in the transaction of their business as such common
carrier, unless the owner or operator of said common carrier was, at
the time of the illegal act, a consenting party or privy thereto, without
prejudice to the owner's right of recovery against the offender in a
civil or criminal action. Articles which are not subject of lawful
commerce shall be destroyed.

Section 280. Subsidiary Penalty. - If the person convicted for

violation of any of the provisions of this Code has no property with
which to meet the fine imposed upon him by the court, or is unable
to pay such fine, he shall be subject to a subsidiary personal liability at
the rate of one (1) day for each Eight pesos and fifty centavos (P8.50)
subject to the rules established in Article 39 of the Revised Penal
Code.

Section 281. Prescription for Violations of any Provision of this Code. -

All violations of any provision of this Code shall prescribe after Five
(5) years.

Prescription shall begin to run from the day of the commission

of the violation of the law, and if the same be not known at the time,
from the discovery thereof and the institution of judicial proceedings
for its investigation and punishment.

The prescription shall be interrupted when proceedings are

instituted against the guilty persons and shall begin to run again if the
proceedings are dismissed for reasons not constituting jeopardy.

The term of prescription shall not run when the offender is

absent from the Philippines.

Section 282. Informer's Reward to Persons Instrumental in the

Discovery of Violations of the National Internal Revenue Code and in the
Discovery and Seizure of Smuggled Goods. -
 (A) For Violations of the National Internal Revenue Code. Any
person, except an internal revenue official or employee, or other
public official or employee, or his relative within the sixth degree of
consanguinity, who voluntarily gives definite and sworn information,
not yet in the possession of the Bureau of Internal Revenue, leading
to the discovery of frauds upon the internal revenue laws or violations
of any of the provisions thereof, thereby resulting in the recovery of
revenues, surcharges and fees and/or the conviction of the guilty
party and/or the imposition of any of the fine or penalty, shall be
rewarded in a sum equivalent to ten percent (10%) of the revenues,
surcharges or fees recovered and/or fine or penalty imposed and
collected or One Million Pesos (P1,000,000) per case, whichever is
lower. The same amount of reward shall also be given to an informer
where the offender has offered to compromise the violation of law
committed by him and his offer has been accepted by the
Commissioner and collected from the offender: Provided, That
should no revenue, surcharges or fees be actually recovered or
collected, such person shall not be entitled to a reward: Provided,
further, That the information mentioned herein shall not refer to a
case already pending or previously investigated or examined by the
Commissioner or any of his deputies, agents or examiners, or the
Secretary of Finance or any of his deputies or agents: Provided,
finally, That the reward provided herein shall be paid under rules and
regulations issued by the Secretary of Finance, upon recommendation
of the Commissioner.

(B) For Discovery and Seizure of Smuggled Goods. To encourage

the public to extend full cooperation in eradicating smuggling, a cash
reward equivalent to ten percent (10%) of the fair market value of the
smuggled and confiscated goods or One Million Pesos (P1,000,000)
per case, whichever is lower, shall be given to persons instrumental in
the discovery and seizure of such smuggled goods.

The cash rewards of informers shall be subject to income tax,

collected as a final withholding tax, at a rate of ten percent (10%).
 The Provisions of the foregoing Subsections notwithstanding, all
public officials, whether incumbent or retired, who acquired the
information in the course of the performance of their duties during
their incumbency, are prohibited from claiming informer's reward.

TITLE XI - ALLOTMENT OF INTERNAL

REVENUE
CHAPTER 1 - DISPOSITION AND ALLOTMENT OF
NATIONAL INTERNAL REVENUE IN GENERAL

Section 283. Disposition of National Internal Revenue. - National

Internal revenue collected and not applied as herein above provided
or otherwise specially disposed of by law shall accrue to the National
Treasury and shall be available for the general purposes of the
Government, with the exception of the amounts set apart by way of
allotment as provided for under Republic Act No. 7160, otherwise
known as the Local Government Code of 1991.

In addition to the internal revenue allotment as provided for in

the preceding paragraph, fifty percent (50%) of the national taxes
collected under Sections 106, 108 and 116 of this Code in excess of
the increase in collections for the immediately preceding year shall be
distributed as follows:

(a) Twenty percent (20%) shall accrue to the city

or municipality where such taxes are collected and
shall be allocated in accordance with Section 150 of
Republic Act No. 7160, otherwise known as the Local
Government Code of 1991; and

(b) Eighty percent (80%) shall accrue to the

National Government.
 Section 284. Allotment for the Commission on Audit. - One-half of
one percent (1/2 of 1%) of the collections from the national internal
revenue taxes not otherwise accruing to special accounts in the
general fund of the national government shall accrue to the
Commission on Audit as a fee for auditing services rendered to local
government units, excluding maintenance, equipment, and other
operating expenses as provided for in Section 21 of Presidential
Decree No. 898.

The Secretary of Finance is hereby authorized to deduct from the

monthly internal revenue tax collections an amount equivalent to the
percentage as herein fixed, and to remit the same directly to the
Commission on Audit under such rules and regulations as may be
promulgated by the Secretary of Finance and the Chairman of the
Commission on Audit.

Section 285. Allotment for the Bureau of Internal Revenue. - An

amount equivalent to five percent (5%) of the excess of actual
collections of national internal revenue taxes over the collection goal
shall accrue to the special fund of the Bureau of Internal Revenue
and shall be treated as receipts automatically appropriated. Said
amount shall be utilized as incentive bonus for revenue personnel,
purchase of necessary equipment and facilities for the improvement
of tax administration, as approved by the Commissioner: Provided,
That the President may, upon recommendation of the
Commissioner, direct that the excess be credited to a Special Account
in the National Treasury to be held in the reserve available for
distribution as incentive bonus in the subsequent years.

The Secretary of Finance is hereby authorized to transfer from

the Treasury an amount equivalent to the percentage as herein fixed
and to remit the same directly to the Bureau of Internal Revenue
under such rules and regulations as may be promulgated by the
Secretary of Finance.
 CHAPTER II - SPECIAL DISPOSITION OF CERTAIN
NATIONAL INTERNAL REVENUE TAXES

Section 286. Disposition of Proceeds of insurance Premium Tax. -

Twenty-five percent (25%) of the premium tax collected under
Section 123 of this Code shall accrue to the Insurance Fund as
contemplated in Section 418 of Presidential Decree No. 612 which
shall be used for the purpose of defraying the expenses of the
Insurance Commission. The Commissioner shall turn over and
deliver the said Insurance Fund to the Insurance Commissioner as
soon as the collection is made.

Section 287. Shares of Local Government Units in the Proceeds from

the Development and Utilization of the National Wealth. - Local
Government units shall have an equitable share in the proceeds
derived from the utilization and development of the national wealth,
within their respective areas, including sharing the same with the
inhabitants by way of direct benefits.

(A) Amount of Share of Local Government Units.

- Local government units shall, in addition to the
internal revenue allotment, have a share of forty
percent (40%) of the gross collection derived by the
national government from the preceding fiscal year
from excise taxes on mineral products, royalties, and
such other taxes, fees or charges, including related
surcharges, interests or fines, and from its share in any
co-production, joint venture or production sharing
agreement in the utilization and development of the
national wealth within their territorial jurisdiction.

(B) Share of the Local Governments from Any

Government Agency or Government-owned or -
Controlled Corporation. - Local Government Units
shall have a share, based on the preceding fiscal year,
from the proceeds derived by any government agency
or government-owned or controlled corporation
engaged in the utilization and development of the
national wealth based on the following formula,
whichever will produce a higher share for the local
government unit:

(1) One percent (1%) of the gross sales or

receipts of the preceding calendar year, or

(2) Forty percent (40%) of the excise taxes

on mineral products, royalties, and such other
taxes, fees or charges, including related
surcharges, interests or fines the government
agency or government-owned or -controlled
corporations would have paid if it were not
otherwise exempt.

(C) Allocation of Shares. - The share in the

preceding Section shall be distributed in the following
manner:

(1) Where the natural resources are

located in the province:

(a) Province - twenty percent (20%)

(b) Component city/municipality -

forty-five percent (45%); and

(c) Barangay - thirty-five percent

(35%)
 Provided, however, That where the
natural resources are located in two (2)
or more cities, the allocation of shares
shall be based on the formula on
population and land area as specified
in subsection (C)(1) hereof.

(2) Where the natural resources are

located in a highly urbanized or independent
component city:

(a) City - sixty - five percent (65%);

and

(b) Barangay - thirty - five percent

(35%)

Provided, however, That where the

natural resources are located in two (2)
or more cities, the allocation of shares
shall be based on the formula on
population and land area as specified
in subsection (c)(1) hereof.

Section 288. Disposition of Incremental Revenues. -

(A) Incremental Revenues from Republic Act No.

7660. - The incremental revenues from the increase in
the documentary stamp taxes under R.A. No. 7660
shall be set aside for the following purposes:

(1) In 1994 and 1995, twenty five percent

(25%) thereof respectively, shall accrue to the
Unified Home-Lending Program under
Executive Order No. 90 particularly for mass
socialized housing program to be allocated as
follows: fifty percent (50%) for mass-socialized
housing; thirty percent (30%) for the
community mortgage program; and twenty
percent (20%) for land banking and
development to be administered by the
National Housing Authority: Provided, That
no more than one percent (1%) of the
respective allocations hereof shall be used for
administrative expenses;

(2) In 1996, twenty five percent (25%)

thereof to be utilized for the National Health
Insurance Program that hereafter may be
mandated by law;

(3) In 1994 and every year thereafter,

twenty five percent (25%) thereof shall accrue
to a Special Education Fund to be
Administered by the Department of
Education, Culture and Sports for the
construction and repair of school facilities,
training or teachers, and procurement or
production of instructional materials and
teaching aids; and

(4) In 1994 and every year thereafter, fifty

percent (50%) thereof shall accrue to a Special
Infrastructure Fund for the Construction and
repair of roads, bridges, dams and irrigation,
seaports and hydroelectric and other
indigenous power projects: Provided, however,
That for the years 1994 and 1995, thirty
percent (30%), and for the years 1996, 1997
and 1998, twenty percent (20%), of this fund
 shall be allocated for depressed provinces as
declared by the President as of the time of the
effectivity of R.A. No. 7660: Provided, further,
That availments under this fund shall be
determined by the President on the basis of
equity.

Provided, finally, That in paragraphs (2), (3), and

(4) of this Section, not more one percent (1%) of the
allocated funds thereof shall be used for
administrative expenses by the implementing agencies.

(B) Incremental Revenues from Republic Act No.

8240. - Fifteen percent (15%) of the incremental
revenue collected from the excise tax on tobacco
products under R.A. No. 8240 shall be allocated and
divided among the provinces producing burley and
native tobacco in accordance with the volume of
tobacco leaf production. The fund shall be exclusively
utilized for programs in pursuit of the following
objectives:

(1) Cooperative projects that will enhance

better quality of agricultural products and
increase income and productivity of farmers;

(2) Livelihood projects, particularly the

development of alternative farming system to
enhance farmer's income; and

(3) Agro-industrial projects that will

enable tobacco farmers to be involved in the
management and subsequent ownership of
projects, such as post-harvest and secondary
 processing like cigarette manufacturing and by-
product utilization.

The Department of Budget and Management, in

consultation with the Oversight Committee created
under said R.A. No. 8240, shall issue the
corresponding rules and regulations governing the
allocation and disbursement of this fund.

Section 289. Special Financial Support to Beneficiary Provinces

Producing Virginia Tobacco. - The financial support given by the
National Government for the beneficiary provinces shall be
constituted and collected from the proceeds of fifteen percent (15%)
of the excise taxes on locally manufactured Virginia-type of cigarettes.

The funds allotted shall be divided among the beneficiary

provinces pro-rata according to the volume of Virginia tobacco
production.

Production producing Virginia tobacco shall be the beneficiary

provinces under Republic Act No. 7171. Provided, however, that to
qualify as beneficiary under R.A. No. 7171, a province must have an
average annual production of Virginia leaf tobacco in an amount not
less than one million kilos: Provided, further, that the Department of
Budget and Management (DBM) shall each year determine the
beneficiary provinces and their computed share of the funds under
R.A. No. 7171, referring to the National Tobacco Administration
(NTA) records of tobacco acceptances, at the tobacco trading centers
for the immediate past year.

The Secretary of Budget and Management is hereby directed to

retain annually the said funds equivalent to fifteen percent (15%) of
excise taxes on locally manufactured Virginia type cigarettes to be
remitted to the beneficiary provinces qualified under R.A. No. 7171.
 The provision of existing laws to the contrary notwithstanding,
the fifteen percent (15%) share from government revenues
mentioned in R.A. No. 7171 and due to the Virginia tobacco-
producing provinces shall be directly remitted to the provinces
concerned.

Provided, That this Section shall be implemented in accordance

with the guidelines of Memorandum Circular No. 61-A dated
November 28, 1993, which amended Memorandum Circular No. 61,
entitled "Prescribing Guidelines for Implementing Republic Act No.
7171", dated January 1, 1992.

Provided, further, That in addition to the local government units

mentioned in the above circular, the concerned officials in the
province shall be consulted as regards the identification of projects to
be financed.

TITLE XII - OVERSIGHT COMMITTEE

Section 290. Congressional Oversight Committee. -

A Congressional Oversight Committee, hereinafter referred to as

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

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

(1) Monitor and ensure the proper

implementation of Republic Act No. 8240;
 (2) Determine that the power of the
Commissioner to compromise and abate is reasonably
exercised;

(3) Review the collection performance of the

Bureau of Internal Revenue; and

(4) Review the implementation of the programs of

the Bureau of Internal Revenue.

In furtherance of the hereinabove cited objectives, the

Committee is empowered to require of the Bureau of Internal
Revenue, submission of all pertinent information, including but not
limited to: industry audits; collection performance data; status report
on criminal actions initiated against persons; and submission of
taxpayer returns: Provided, however, That any return or return
information which can be associated with, or otherwise identify,
directly or indirectly, a particular taxpayer shall be furnished the
Committee only when sitting in Executive Session unless such
taxpayer otherwise consents in writing to such disclosure

TITLE XIII - REPEALING PROVISIONS

Section 291. In General. - All laws, decrees, executive orders, rules

and regulations or parts thereof which are contrary to or inconsistent
with this Code are hereby repealed, amended or modified
accordingly.

TITLE XIV - FINAL PROVISIONS

Section 292. Separability Clause. - If any clause, sentence,

paragraph or part of this Code shall be adjudged by any Court of
competent jurisdiction to be invalid, such judgment shall not affect,
impair or invalidate the remainder of said Code, but shall be
confined in its operation to the clause, sentence, paragraph or part
thereof directly involved in the controversy.

LOCAL GOVERNMENT
TAXATION
 Republic of the Philippines
Congress of the Philippines
Metro Manila
Eighth Congress
Republic Act No. 7160 October 10, 1991

AN ACT PROVIDING FOR A LOCAL GOVERNMENT CODE

OF 1991

xxxx
xxxx
xxxx
xxxx
BOOK II
LOCAL TAXATION AND FISCAL MATTERS

TITLE I: LOCAL GOVERNMENT TAXATION

CHAPTER I - GENERAL PROVISIONS

Section 128. Scope. - The provisions herein shall govern the

exercise by provinces, cities, municipalities, and barangays of their
taxing and other revenue-raising powers.

Section 129. Power to Create Sources of Revenue. - Each local

government unit shall exercise its power to create its own sources of
revenue and to levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local government
units.
 Section 130. Fundamental Principles. - The following fundamental
principles shall govern the exercise of the taxing and other revenue-
raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's
ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic
policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of this Code
shall inure solely to the benefit of, and be subject to the disposition
by, the local government unit levying the tax, fee, charge or other
imposition unless otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve
a progressive system of taxation.

Section 131. Definition of Terms. - When used in this Title, the

term:
(a) "Agricultural Product" includes the yield of the soil, such as
corn, rice, wheat, rye, hay. coconuts, sugarcane, tobacco, root crops,
vegetables, fruits, flowers, and their by-products; ordinary salt; all
kinds of fish; poultry; and livestock and animal products, whether in
their original form or not.
 The phrase "whether in their original form or not" refers to the
transformation of said products by the farmer, fisherman, producer
or owner through the application of processes to preserve or
otherwise to prepare said products for market such as freezing, drying,
salting, smoking, or stripping for purposes of preserving or otherwise
preparing said products for market;
(b) "Amusement" is a pleasurable diversion and entertainment. It
is synonymous to relaxation, avocation, pastime, or fun;
(c) "Amusement Places" include theaters, cinemas, concert halls,
circuses and other places of amusement where one seeks admission to
entertain oneself by seeing or viewing the show or performances;
(d) "Business" means trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit;
(e) "Banks and other financial institutions" include non-bank
financial intermediaries, lending investors, finance and investment
companies, pawnshops, money shops, insurance companies, stock
markets, stock brokers and dealers in securities and foreign exchange,
as defined under applicable laws, or rules and regulations thereunder;
(f) "Capital Investment" is the capital which a person employs in
any undertaking, or which he contributes to the capital of a
partnership, corporation, or any other juridical entity or association
in a particular taxing jurisdiction;
(g) "Charges" refers to pecuniary liability, as rents or fees against
persons or property;
(h) "Contractor" includes persons, natural or juridical, not
subject to professional tax under Section 139 of this Code, whose
activity consists essentially of the sale of all kinds of services for a fee,
regardless of whether or not the performance of the service calls for
the exercise or use of the physical or mental faculties of such
contractor or his employees.
As used in this Section, the term "contractor" shall include
general engineering, general building and specialty contractors as
defined under applicable laws; filling, demolition and salvage works
contractors; proprietors or operators of mine drilling apparatus;
proprietors or operators of dockyards; persons engaged in the
installation of water system, and gas or electric light, heat, or power;
proprietors or operators of smelting plants, engraving, plating, and
plastic lamination establishments; proprietors or operators of
establishments for repairing, repainting, upholstering, washing or
greasing of vehicles, heavy equipment, vulcanizing, recapping and
battery charging; proprietors or operators of furniture shops and
establishments for planing or surfacing and recutting of lumber, and
sawmills under contract to saw or cut logs belonging to others;
proprietors or operators of dry cleaning or dyeing establishments,
steam laundries, and laundries using washing machines; proprietors
or owners of shops for the repair of any kind of mechanical and
electrical devices, instruments, apparatus, or furniture and shoe
repairing by machine or any mechanical contrivance; proprietors or
operators of establishments or lots for parking purposes; proprietors
or operators of tailor shops, dress shops, milliners and hatters, beauty
parlors, barbershops, massage clinics, sauna, Turkish and Swedish
baths, slenderizing and building salons and similar establishments;
photographic studios; funeral parlors; proprietors or operators of
hotels, motels, and lodging houses; proprietors or operators of
arrastre and stevedoring, warehousing, or forwarding establishments;
master plumbers, smiths, and house or sign painters; printers,
bookbinders, lithographers; publishers except those engaged in the
publication or printing of any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the
publication and advertisements; business agents, private detective or
watchman agencies, commercial and immigration brokers, and
cinematographic film owners, lessors and distributors.
(i) "Corporation" includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en
participacion), associations or insurance companies but does not
include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal, and other energy
operations pursuant to an operating or consortium agreement under
a service contract with the government. General professional
partnership are partnerships formed by persons for the sole purpose
of exercising their common profession, no part of the income of
which is derived from engaging in any trade or business.
The term "resident foreign" when applied to a corporation means
a foreign corporation not otherwise organized under the laws of the
Philippines but engaged in trade or business within the Philippines;
(j) "Countryside and Barangay Business Enterprise" refers to any
business entity, association, or cooperative registered under the
provisions of Republic Act Numbered Sixty-eight hundred ten (R.A.
No. 6810), otherwise known as "Magna Carta For Countryside And
Barangay Business Enterprises (Kalakalan 20)";
(k) "Dealer" means one whose business is to buy and sell
merchandise, goods, and chattels as a merchant. He stands
immediately between the producer or manufacturer and the
consumer and depends for his profit not upon the labor he bestows
upon his commodities but upon the skill and foresight with which he
watches the market;
 (l) "Fee" means a charge fixed by law or ordinance for the
regulation or inspection of a business or activity;
(m) "Franchise" is a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such
terms and conditions as the government and its political subdivisions
may impose in the interest of public welfare, security, and safety;
(n) "Gross Sales or Receipts" include the total amount of money
or its equivalent representing the contract price, compensation or
service fee, including the amount charged or materials supplied with
the services and deposits or advance payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person excluding discounts
if determinable at the time of sales, sales return, excise tax, and value-
added tax (VAT);
(o) "Manufacturer" includes every person who, by physical or
chemical process, alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such manner as to have been put in its
original condition, or who by any such process alters the quality of
any such raw material or manufactured or partially manufactured
products so as to reduce it to marketable shape or prepare it for any
of the use of industry, or who by any such process combines any such
raw material or manufactured or partially manufactured products
with other materials or products of the same or of different kinds and
in such manner that the finished products of such process or
manufacture can be put to a special use or uses to which such raw
material or manufactured or partially manufactured products in their
original condition could not have been put, and who in addition
alters such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished products
for the purpose of their sale or distribution to others and not for his
own use or consumption;
(p) "Marginal Farmer or Fisherman" refers to an individual
engaged in subsistence farming or fishing which shall be limited to
the sale, barter or exchange of agricultural or marine products
produced by himself and his immediate family;
(q) "Motor Vehicle" means any vehicle propelled by any power
other than muscular power using the public roads, but excluding road
rollers, trolley cars, street-sweepers, sprinklers, lawn mowers,
bulldozers, graders, fork-lifts, amphibian trucks, and cranes if not
used on public roads, vehicles which run only on rails or tracks, and
tractors, trailers, and traction engines of all kinds used exclusively for
agricultural purposes;
(r) "Municipal Waters" includes not only streams, lakes, and tidal
waters within the municipality, not being the subject of private
ownership and not comprised within the national parks, public
forest, timber lands, forest reserves or fishery reserves, but also marine
waters included between two lines drawn perpendicularly to the
general coastline from points where the boundary lines of the
municipality or city touch the sea at low tide and a third line parallel
with the general coastline and fifteen (15) kilometers from it. Where
two (2) municipalities are so situated on the opposite shores that
there is less than fifteen (15) kilometers of marine waters between
them, the third line shall be equally distant from opposite shores of
their respective municipalities;
(s) "Operator" includes the owner, manager, administrator, or
any other person who operates or is responsible for the operation of a
business establishment or undertaking;
 (t) "Peddler" means any person who, either for himself or on
commission, travels from place to place and sells his goods or offers
to sell and deliver the same. Whether a peddler is a wholesale peddler
or a retail peddler of a particular commodity shall be determined
from the definition of wholesale dealer or retail dealer as provided in
this Title;
(u) "Persons" means every natural or juridical being, susceptible
of rights and obligations or of being the subject of legal relations;
(v) "Residents" refer to natural persons who have their habitual
residence in the province, city, or municipality where they exercise
their civil rights and fulfill their civil obligations, and to juridical
persons for which the law or any other provisions creating or
recognizing them fixes their residence in a particular province, city, or
municipality. In the absence of such law, juridical persons are
residents of the province, city, or municipality where they have their
legal residence or principal place of business or where they conduct
their principal business or occupation;
(w) "Retail" means a sale where the purchaser buys the
commodity for his own consumption, irrespective of the quantity of
the commodity sold;
(x) "Vessel" includes every type of boat, craft, or other artificial
contrivance used, or capable of being used, as a means of
transportation on water;
(y) "Wharfage" means a fee assessed against the cargo of a vessel
engaged in foreign or domestic trade based on quantity, weight, or
measure received and/or discharged by vessel; and
(z) "Wholesale" means a sale where the purchaser buys or imports
the commodities for resale to persons other than the end user
regardless of the quantity of the transaction.
 Section 132. Local Taxing Authority. - The power to impose a tax,
fee, or charge or to generate revenue under this Code shall be
exercised by the sanggunian of the local government unit concerned
through an appropriate ordinance.

Section 133. Common Limitations on the Taxing Powers of Local

Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on
wharves, tonnage dues, and all other kinds of customs fees, charges
and dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods
carried into or out of, or passing through, the territorial jurisdictions
of local government units in the guise of charges for wharfage, tolls
for bridges or otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6) and four
(4) years, respectively from the date of registration;
 (h) Excise taxes on articles enumerated under the national
Internal Revenue Code, as amended, and taxes, fees or charges on
petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as
otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire
and common carriers by air, land or water, except as provided in this
Code;
(k) Taxes on premiums paid by way or reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles
and for the issuance of all kinds of licenses or permits for the driving
thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually
exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under R.A. No.
6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
CHAPTER II - SPECIFIC PROVISIONS ON THE TAXING AND
OTHER REVENUE-RAISING POWERS OF LOCAL
GOVERNMENT UNITS

ARTICLE I – PROVINCES

Section 134. Scope of Taxing Powers. - Except as otherwise

provided in this Code, the province may levy only the taxes, fees, and
charges as provided in this Article.

Section 135. Tax on Transfer of Real Property Ownership.

(a) The province may impose a tax on the sale , donation, barter,
or on any other mode of transferring ownership or title of real
property at the rate of not more than fifty percent (50%) of the one
percent (1%) of the total consideration involved in the acquisition of
the property or of the fair market value in case the monetary
consideration involved in the transfer is not substantial, whichever is
higher. The sale, transfer or other disposition of real property
pursuant to R.A. No. 6657 shall be exempt from this tax.
(b) For this purpose, the Register of Deeds of the province
concerned shall, before registering any deed, require the presentation
of the evidence of payment of this tax. The provincial assessor shall
likewise make the same requirement before cancelling an old tax
declaration and issuing a new one in place thereof, Notaries public
shall furnish the provincial treasurer with a copy of any deed
transferring ownership or title to any real property within thirty (30)
days from the date of notarization.
It shall be the duty of the seller, donor, transferor, executor or
administrator to pay the tax herein imposed within sixty (60) days
from the date of the execution of the deed or from the date of the
decedent's death.

Section 136. Tax on Business of Printing and Publication. - The

province may impose a tax on the business of persons engaged in the
printing and/or publication of books, cards, posters, leaflets,
handbills, certificates, receipts, pamphlets, and others of similar
nature, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment.
In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein.
The receipts from the printing and/or publishing of books or
other reading materials prescribed by the Department of Education,
Culture and Sports as school texts or references shall be exempt from
the tax herein imposed.

Section 137. Franchise Tax. - Notwithstanding any exemption

granted by any law or other special law, the province may impose a
tax on businesses enjoying a franchise, at the rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment.
In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereon, as provided herein.
 Section 138. Tax on Sand, Gravel and Other Quarry Resources. - The
province may levy and collect not more than ten percent (10%) of fair
market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the
National Internal Revenue Code, as amended, extracted from public
lands or from the beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.
The permit to extract sand, gravel and other quarry resources
shall be issued exclusively by the provincial governor, pursuant to the
ordinance of the sangguniang panlalawigan.
The proceeds of the tax on sand, gravel and other quarry
resources shall be distributed as follows:
(1) Province - Thirty percent (30%);
(2) Component City or Municipality where the sand, gravel, and
other quarry resources are extracted - Thirty percent (30%); and
(3) Barangay where the sand, gravel, and other quarry resources
are extracted - Forty percent (40%).

Section 139. Professional Tax. -

(a) The province may levy an annual professional tax on each
person engaged in the exercise or practice of his profession requiring
government examination at such amount and reasonable
classification as the sangguniang panlalawigan may determine but
shall in no case exceed Three hundred pesos (P300.00).
(b) Every person legally authorized to practice his profession shall
pay the professional tax to the province where he practices his
profession or where he maintains his principal office in case he
practices his profession in several places: Provided, however, That
such person who has paid the corresponding professional tax shall be
entitled to practice his profession in any part of the Philippines
without being subjected to any other national or local tax, license, or
fee for the practice of such profession.
(c) Any individual or corporation employing a person subject to
professional tax shall require payment by that person of the tax on his
profession before employment and annually thereafter.
(d) The professional tax shall be payable annually, on or before
the thirty-first (31st) day of January. Any person first beginning to
practice a profession after the month of January must, however, pay
the full tax before engaging therein. A line of profession does not
become exempt even if conducted with some other profession for
which the tax has been paid. Professionals exclusively employed in the
government shall be exempt from the payment of this tax.
(e) Any person subject to the professional tax shall write in deeds,
receipts, prescriptions, reports, books of account, plans and designs,
surveys and maps, as the case may be, the number of the official
receipt issued to him.

Section 140. Amusement Tax. -

(a) The province may levy an amusement tax to be collected from
the proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement at a rate
of not more than thirty percent (30%) of the gross receipts from
admission fees.
(b) In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators and
paid to the provincial treasurer before the gross receipts are divided
between said proprietors, lessees, or operators and the distributors of
the cinematographic films.
 (c) The holding of operas, concerts, dramas, recitals, painting and
art exhibitions, flower shows, musical programs, literary and
oratorical presentations, except pop, rock, or similar concerts shall be
exempt from the payment of the tax hereon imposed.
(d) The sangguniang panlalawigan may prescribe the time,
manner, terms and conditions for the payment of tax. In case of fraud
or failure to pay the tax, the sangguniang panlalawigan may impose
such surcharges, interest and penalties as it may deem appropriate.
(e) The proceeds from the amusement tax shall be shared equally
by the province and the municipality where such amusement places
are located.

Section 141. Annual Fixed Tax For Every Delivery Truck or Van of
Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain
Products. -
(a) The province may levy an annual fixed tax for every truck, van
or any vehicle used by manufacturers, producers, wholesalers, dealers
or retailers in the delivery or distribution of distilled spirits,
fermented liquors, soft drinks, cigars and cigarettes, and other
products as may be determined by the sangguniang panlalawigan, to
sales outlets, or consumers, whether directly or indirectly, within the
province in an amount not exceeding Five hundred pesos (P500.00).
(b) The manufacturers, producers, wholesalers, dealers and
retailers referred to in the immediately foregoing paragraph shall be
exempt from the tax on peddlers prescribed elsewhere in this Code.
ARTICLE II - MUNICIPALITIES
 Section 142. Scope of Taxing Powers. - Except as otherwise
provided in this Code, municipalities may levy taxes, fees, and charges
not otherwise levied by provinces.

Section 143. Tax on Business. - The municipality may impose taxes

on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits, and
wines or manufacturers of any article of commerce of whatever kind
or nature, in accordance with the following schedule:

With gross sales or receipts for the preceding Amount of Tax

calendar year in the amount of: Per Annum
Less than 10,000.00 165.00
P 10,000.00 or more but less than 220.00
15,000.00
15,000.00 or more but less than 20,000.00 202.00
20,000.00 or more but less than 30,000.00 440.00
30,000.00 or more but less than 40,000.00 660.00
40,000.00 or more but less than 50,000.00 825.00
50,000.00 or more but less than 75,000.00 1,320.00
75,000.00 or more but less than 100,000.00 1,650.00
100,000.00 or more but less than 2,200.00
150,000.00
150,000.00 or more but less than 2,750.00
200,000.00
 200,000.00 or more but less than 3,850.00
300,000.00
300,000.00 or more but less than 5,500.00
500,000.00
500,000.00 or more but less than 8,000.00
750,000.00
750,000.00 or more but less than 10,000.00
1,000,000.00
1,000,000.00 or more but less than 13,750.00
2,000,000.00
2,000,000.00 or more but less than 16,500.00
3,000,000.00
3,000,000.00 or more but less than 19,000.00
4,000,000.00
4,000,000.00 or more but less than 23,100.00
5,000,000.00
5,000,000.00 or more but less than 24,375.00
6,500,000.00
6,000,000.00 or more at a rate not exceeding thirty-seven and a
half percent (37½%) of one percent (1%)
(b) On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature in accordance with the
following schedule:

With gross sales or receipts for the preceding Amount of Tax

calendar year in the amount of: Per Annum
 Less than 1,000.00 18.00
P 1,000.00 or more but less than 2,000.00 33.00
2,000.00 or more but less than 3,000.00 50.00
3,000.00 or more but less than 4,000.00 72.00
4,000.00 or more but less than 5,000.00 100.00
5,000.00 or more but less than 6,000.00 121.00
6,000.00 or more but less than 7,000.00 143.00
7,000.00 or more but less than 8,000.00 165.00
8,000.00 or more but less than 10,000.00 187.00
10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 275.00
20,000.00 or more but less than 30,000.00 330.00
30,000.00 or more but less than 40,000.00 440.00
40,000.00 or more but less than 50,000.00 660.00
50,000.00 or more but less than 75,000.00 990.00
75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 1,870.00
150,000.00
150,000.00 or more but less than 2,420.00
200,000.00
200,000.00 or more but less than 3,300.00
300,000.00
 300,000.00 or more but less than 4,400.00
500,000.00
500,000.00 or more but less than 6,600.00
750,000.00
750,000.00 or more but less than 8,800.00
1,000,000.00
1,000,000.00 or more but less than 10,000.00
2,000,000.00
2,000,000.00 or more at a rate not exceeding fifty percent (50%)
of one percent (1%).
(c) On exporters, and on manufacturers , millers, producers,
wholesalers, distributors, dealers or retailers of essential commodities
enumerated hereunder at a rate not exceeding one-half (½) of the
rates prescribed under subsection (a), (b) and (d) of this Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally
manufactured, processed or preserved food, sugar, salt and other
agricultural, marine, and fresh water products, whether in their
original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements. equipment and post-harvest
facilities, fertilizers, pesticides, insecticides, herbicides and other farm
inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
 (8) Cement.
(d) On retailers.

With gross sales or receipts for the preceding Rate of Tax

calendar year in the amount of: Per Annum
P400,000.00 or less 2%
more than P400,000.00 1%
Provided, however, That barangays shall have the exclusive power
to levy taxes, as provided under Section 152 hereof, on gross sales or
receipts of the preceding calendar year of Fifty thousand pesos
(P50,000.00) or less, in the case of cities, and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities.
(e) On contractors and other independent contractors, in
accordance with the following schedule:

Amount of
With gross sales or receipts for the preceding
Tax Per
calendar year in the amount of:
Annum
Less than 5,000.00 27.50
P 5,000.00 or more but less than P 10,000.00 61.60
10,000.00 or more but less than 15,000.00 104.50
15,000.00 or more but less than 20,000.00 165.00
20,000.00 or more but less than 30,000.00 275.00
30,000.00 or more but less than 40,000.00 385.00
40,000.00 or more but less than 50,000.00 550.00
50,000.00 or more but less than 75,000.00 880.00
 75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 150,000.00 1,980.00
150,000.00 or more but less than 200,000.00 2,640.00
200,000.00 or more but less than 250,000.00 3,630.00
250,000.00 or more but less than 300,000.00 4,620.00
300,000.00 or more but less than 400,000.00 6,160.00
400,000.00 or more but less than 500,000.00 8,250.00
500,000.00 or more but less than 750,000.00 9,250.00
750,000.00 or more but less than 1,000,000.00 10,250.00
1,000,000.00 or more but less than 11,500.00
2,000,000.00
2,000,000.00 or more at a rate not exceeding fifty percent (50%)
of one percent (1%)
(f) On banks and other financial institutions, at a rate not
exceeding fifty percent (50%) of one percent (1%) on the gross
receipts of the preceding calendar year derived from interest,
commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article
of commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler
annually.
(h) On any business, not otherwise specified in the preceding
paragraphs, which the sanggunian concerned may deem proper to tax:
Provided, That on any business subject to the excise, value-added or
percentage tax under the National Internal Revenue Code, as
amended, the rate of tax shall not exceed two percent (2%) of gross
sales or receipts of the preceding calendar year.
The sanggunian concerned may prescribe a schedule of
graduated tax rates but in no case to exceed the rates prescribed
herein.

Section 144. Rates of Tax within the Metropolitan Manila Area. -

The municipalities within the Metropolitan Manila Area may levy
taxes at rates which shall not exceed by fifty percent (50%) the
maximum rates prescribed in the preceding Section.

Section 145. Retirement of Business. - A business subject to tax

pursuant to the preceding sections shall, upon termination thereof,
submit a sworn statement of its gross sales or receipts for the current
year. If the tax paid during the year be less than the tax due on said
gross sales or receipts of the current year, the difference shall be paid
before the business is considered officially retired.

Section 146. Payment of Business Taxes. -

(a) The taxes imposed under Section 143 shall be payable for
every separate or distinct establishment or place where business
subject to the tax is conducted and one line of business does not
become exempt by being conducted with some other business for
which such tax has been paid. The tax on a business must be paid by
the person conducting the same.
(b) In cases where a person conducts or operates two (2) or more
of the businesses mentioned in Section 143 of this Code which are
subject to the same rate of tax, the tax shall be computed on the
combined total gross sales or receipts of the said two (2) or more
related businesses.
 (c) In cases where a person conducts or operates two (2) or more
businesses mentioned in Section 143 of this Code which are subject
to different rates of tax, the gross sales or receipts of each business
shall be separately reported for the purpose of computing the tax due
from each business.

Section 147. Fees and Charges. - The municipality may impose and
collect such reasonable fees and charges on business and occupation
and, except as reserved to the province in Section 139 of this Code,
on the practice of any profession or calling, commensurate with the
cost of regulation, inspection and licensing before any person may
engage in such business or occupation, or practice such profession or
calling.

Section 148. Fees for Sealing and Licensing of Weights and Measures. -
(a) The municipality may levy fees for the sealing and licensing of
weights and measures at such reasonable rates as shall be prescribed
by the sangguniang bayan.
(b) The sangguniang bayan shall prescribe the necessary
regulations for the use of such weights and measures, subject to such
guidelines as shall be prescribed by the Department of Science and
Technology. The sanggunian concerned shall, by appropriate
ordinance, penalize fraudulent practices and unlawful possession or
use of instruments of weights and measures and prescribe the
criminal penalty therefor in accordance with the provisions of this
Code. Provided, however, That the sanggunian concerned may
authorize the municipal treasurer to settle an offense not involving
the commission of fraud before a case therefor is filed in court, upon
payment of a compromise penalty of not less than Two hundred
pesos (P200.00).

Section 149. Fishery Rentals, Fees and Charges. -

 (a) Municipalities shall have the exclusive authority to grant
fishery privileges in the municipal waters and impose rentals, fees or
charges therefor in accordance with the provisions of this Section.
(b) The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals, oysters, mussels
or other aquatic beds or bangus fry areas, within a definite zone of the
municipal waters, as determined by it: Provided, however, That duly
registered organizations and cooperatives of marginal fishermen shall
have the preferential right to such fishery privileges: Provided,
further, That the sangguniang bayan may require a public bidding in
conformity with and pursuant to an ordinance for the grant of such
privileges: Provided, finally, That in the absence of such organizations
and cooperatives or their failure to exercise their preferential right,
other parties may participate in the public bidding in conformity with
the above cited procedure.
(2) Grant the privilege to gather, take or catch bangus fry, prawn
fry or kawag-kawag or fry of other species and fish from the municipal
waters by nets, traps or other fishing gears to marginal fishermen free
of any rental, fee, charge or any other imposition whatsoever.
(3) Issue licenses for the operation of fishing vessels of three (3)
tons or less for which purpose the sangguniang bayan shall
promulgate rules and regulations regarding the issuances of such
licenses to qualified applicants under existing laws.
Provided, however, That the sanggunian concerned shall, by
appropriate ordinance, penalize the use of explosives, noxious or
poisonous substances, electricity, muro-ami, and other deleterious
methods of fishing and prescribe a criminal penalty therefor in
accordance with the provisions of this Code: Provided, finally, That
the sanggunian concerned shall have the authority to prosecute any
violation of the provisions of applicable fishery laws.

Section 150. Situs of the Tax. -

(a) For purposes of collection of the taxes under Section 143 of
this Code, manufacturers, assemblers, repackers, brewers, distillers,
rectifiers and compounders of liquor, distilled spirits and wines,
millers, producers, exporters, wholesalers, distributors, dealers,
contractors, banks and other financial institutions, and other
businesses, maintaining or operating branch or sales outlet elsewhere
shall record the sale in the branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue and shall be paid to the
municipality where such branch or sales outlet is located. In cases
where there is no such branch or sales outlet in the city or
municipality where the sale or transaction is made, the sale shall be
duly recorded in the principal office and the taxes due shall accrue
and shall be paid to such city or municipality.
(b) The following sales allocation shall apply to manufacturers,
assemblers, contractors, producers, and exporters with factories,
project offices, plants, and plantations in the pursuit of their
business:
(1) Thirty percent (30%) of all sales recorded in the principal
office shall be taxable by the city or municipality where the principal
office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal
office shall be taxable by the city or municipality where the factory,
project office, plant, or plantation is located.
(c) In case of a plantation located at a place other than the place
where the factory is located, said seventy percent (70%) mentioned in
subparagraph (b) of subsection (2) above shall be divided as follows:
 (1) Sixty percent (60%) to the city or municipality where the
factory is located; and
(2) Forty percent (40%) to the city or municipality where the
plantation is located.
(d) In cases where a manufacturer, assembler, producer, exporter
or contractor has two (2) or more factories, project offices, plants, or
plantations located in different localities, the seventy percent (70%)
sales allocation mentioned in subparagraph (b) of subsection (2)
above shall be prorated among the localities where the factories,
project offices, plants, and plantations are located in proportion to
their respective volumes of production during the period for which
the tax is due.
(e) The foregoing sales allocation shall be applied irrespective of
whether or not sales are made in the locality where the factory,
project office, plant, or plantation is located.
ARTICLE III – CITIES

Section 151. Scope of Taxing Powers. - Except as otherwise

provided in this Code, the city, may levy the taxes, fees, and charges
which the province or municipality may impose: Provided, however,
That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them
and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not more
than fifty percent (50%) except the rates of professional and
amusement taxes.
 ARTICLE IV – BARANGAYS
Section 152. Scope of Taxing Powers. - The barangays may levy
taxes, fees, and charges, as provided in this Article, which shall
exclusively accrue to them:
(a) Taxes - On stores or retailers with fixed business
establishments with gross sales of receipts of the preceding calendar
year of Fifty thousand pesos (P50,000.00) or less, in the case of cities
and Thirty thousand pesos (P30,000.00) or less, in the case of
municipalities, at a rate not exceeding one percent (1%) on such gross
sales or receipts.
(b) Service Fees or Charges. - Barangays may collect reasonable
fees or charges for services rendered in connection with the
regulations or the use of barangay-owned properties or service
facilities such as palay, copra, or tobacco dryers.
(c) Barangay Clearance. - No city or municipality may issue any
license or permit for any business or activity unless a clearance is first
obtained from the barangay where such business or activity is located
or conducted. For such clearance, the sangguniang barangay may
impose a reasonable fee. The application for clearance shall be acted
upon within seven (7) working days from the filing thereof. In the
event that the clearance is not issued within the said period, the city
or municipality may issue the said license or permit.
(d) Other fees and Charges. - The barangay may levy reasonable
fees and charges:
(1) On commercial breeding of fighting cocks, cockfights and
cockpits;
(2) On places of recreation which charge admission fees; and
 (3) On billboards, signboards, neon signs, and outdoor
advertisements.
ARTICLE V - COMMON REVENUE-RAISING POWERS
Section 153. Service Fees and Charges. - Local government units
may impose and collect such reasonable fees and charges for services
rendered.

Section 154. Public Utility Charges. - Local government units may

fix the rates for the operation of public utilities owned, operated and
maintained by them within their jurisdiction.

Section 155. Toll Fees or Charges. - The sanggunian concerned

may prescribe the terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of any public road, pier,
or wharf, waterway, bridge, ferry or telecommunication system funded
and constructed by the local government unit concerned: Provided,
That no such toll fees or charges shall be collected from officers and
enlisted men of the Armed Forces of the Philippines and members of
the Philippine National Police on mission, post office personnel
delivering mail, physically-handicapped, and disabled citizens who are
sixty-five (65) years or older.
When public safety and welfare so requires, the sanggunian
concerned may discontinue the collection of the tolls, and thereafter
the said facility shall be free and open for public use.
ARTICLE VI - COMMUNITY TAX
Section 156. Community Tax. - Cities or municipalities may levy a
community tax in accordance with the provisions of this Article.

Section 157. Individuals Liable to Community Tax. - Every

inhabitant of the Philippines eighteen (18) years of age or over who
has been regularly employed on a wage or salary basis for at least
thirty (30) consecutive working days during any calendar year, or who
is engaged in business or occupation, or who owns real property with
an aggregate assessed value of One thousand pesos (P1,000.00) or
more, or who is required by law to file an income tax return shall pay
an annual additional tax of Five pesos (P5.00) and an annual
additional tax of One peso (P1.00) for every One thousand pesos
(P1,000.00) of income regardless of whether from business, exercise
of profession or from property which in no case shall exceed Five
thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein
imposed shall be based upon the total property owned by them and
the total gross receipts or earnings derived by them.

Section 158. Juridical Persons Liable to Community Tax. - Every

corporation no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines shall
pay an annual community tax of Five hundred pesos (P500.00) and
an annual additional tax, which, in no case, shall exceed Ten
thousand pesos (P10,000.00) in accordance with the following
schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real
property in the Philippines owned by it during the preceding year
based on the valuation used for the payment of real property tax
under existing laws, found in the assessment rolls of the city or
municipality where the real property is situated - Two pesos (P2.00);
and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or
earnings derived by it from its business in the Philippines during the
preceding year - Two pesos (P2.00).
 The dividends received by a corporation from another
corporation however shall, for the purpose of the additional tax, be
considered as part of the gross receipts or earnings of said
corporation.

Section 159. Exemptions. - The following are exempt from the

community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not
exceed three (3) months.

Section 160. Place of Payment. - The community tax shall be paid

in the place of residence of the individual, or in the place where the
principal office of the juridical entity is located.

Section 161. Time for Payment; Penalties for Delinquency. -

(a) The community tax shall accrue on the first (1st) day of
January of each year which shall be paid not later than the last day of
February of each year. If a person reaches the age of eighteen (18)
years or otherwise loses the benefit of exemption on or before the last
day of June, he shall be liable for the community tax on the day he
reaches such age or upon the day the exemption ends. However, if a
person reaches the age of eighteen (18) years or loses the benefit of
exemption on or before the last day of March, he shall have twenty
(20) days to pay the community tax without becoming delinquent.
Persons who come to reside in the Philippines or reach the age of
eighteen (18) years on or after the first (1st) day of July of any year, or
who cease to belong to an exempt class or after the same date, shall
not be subject to the community tax for that year.
(b) Corporations established and organized on or before the last
day of June shall be liable for the community tax for that year. But
corporations established and organized on or before the last day of
March shall have twenty (20) days within which to pay the community
tax without becoming delinquent. Corporations established and
organized on or after the first day of July shall not be subject to the
community tax for that year.
If the tax is not paid within the time prescribed above, there shall
be added to the unpaid amount an interest of twenty-four percent
(24%) per annum from the due date until it is paid.

Section 162. Community Tax Certificate. - A community tax

certificate shall be issued to every person or corporation upon
payment of the community tax. A community tax certificate may also
be issued to any person or corporation not subject to the community
tax upon payment of One peso (P1.00).

Section 163. Presentation of Community Tax Certificate On Certain

Occasions. -
(a) When an individual subject to the community tax
acknowledges any document before a notary public, takes the oath of
office upon election or appointment to any position in the
government service; receives any license, certificate. or permit from
any public authority; pays any tax or free; receives any money from
any public fund; transacts other official business; or receives any
salary or wage from any person or corporation with whom such
transaction is made or business done or from whom any salary or
wage is received to require such individual to exhibit the community
tax certificate.
The presentation of community tax certificate shall not be
required in connection with the registration of a voter.
(b) When, through its authorized officers, any corporation
subject to the community tax receives any license, certificate, or
permit from any public authority, pays any tax or fee, receives money
from public funds, or transacts other official business, it shall be the
duty of the public official with whom such transaction is made or
business done, to require such corporation to exhibit the community
tax certificate.
(c) The community tax certificate required in the two preceding
paragraphs shall be the one issued for the current year, except for the
period from January until the fifteenth (15th) of April each year, in
which case, the certificate issued for the preceding year shall suffice.

Section 164. Printing of Community Tax Certificates and Distribution

of Proceeds. -
(a) The Bureau of Internal Revenue shall cause the printing of
community tax certificates and distribute the same to the cities and
municipalities through the city and municipal treasurers in
accordance with prescribed regulations.
The proceeds of the tax shall accrue to the general funds of the
cities, municipalities and barangays except a portion thereof which
shall accrue to the general fund of the national government to cover
the actual cost of printing and distribution of the forms and other
related expenses. The city or municipal treasurer concerned shall
remit to the national treasurer the said share of the national
government in the proceeds of the tax within ten (10) days after the
end of each quarter.
(b) The city or municipal treasurer shall deputize the barangay
treasurer to collect the community tax in their respective
jurisdictions: Provided, however, That said barangay treasurer shall be
bonded in accordance with existing laws.
(c) The proceeds of the community tax actually and directly
collected by the city or municipal treasurer shall accrue entirely to the
general fund of the city or municipality concerned. However,
proceeds of the community tax collected through the barangay
treasurers shall be apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city
or municipality concerned; and
(2) Fifty percent (50%) shall accrue to the barangay where the tax
is collected.

CHAPTER III - COLLECTION OF TAXES

Section 165. Tax Period and Manner of Payment. - Unless otherwise
provided in this Code, the tax period of all local taxes, fees and
charges shall be the calendar year. Such taxes, fees and charges may be
paid in quarterly installments.

Section 166. Accrual of Tax. - Unless otherwise provided in this

Code, all local taxes, fees, and charges shall accrue on the first (1st)
day of January of each year. However, new taxes, fees or charges, or
changes in the rates thereof, shall accrue on the first (1st) day of the
quarter next following the effectivity of the ordinance imposing such
new levies or rates.

Section 167. Time of Payment. - Unless otherwise provided in this

Code, all local taxes, fees, and charges shall be paid within the first
twenty (20) days of January or of each subsequent quarter, as the case
may be. The sanggunian concerned may, for a justifiable reason or
cause, extend the time for payment of such taxes, fees, or charges
without surcharges or penalties, but only for a period not exceeding
six (6) months.

Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or

Charges. - The sanggunian may impose a surcharge not exceeding
twenty-five (25%) of the amount of taxes, fees or charges not paid on
time and an interest at the rate not exceeding two percent (2%) per
month of the unpaid taxes, fees or charges including surcharges, until
such amount is fully paid but in no case shall the total thirty-six (36%)
months.

Section 169. Interests on Other Unpaid Revenues. - Where the

amount of any other revenue due a local government unit, except
voluntary contributions or donations, is not paid on the date fixed in
the ordinance, or in the contract, expressed or implied, or upon the
occurrence of the event which has given rise to its collection, there
shall be collected as part of that amount an interest thereon at the
rate not exceeding two percent (2%) per month from the date it is
due until it is paid, but in no case shall the total interest on the
unpaid amount or a portion thereof exceed thirty-six (36) months.

Section 170. Collection of Local Revenue by Treasurer. - All local

taxes, fees, and charges shall be collected by the provincial, city,
municipal, or barangay treasurer, or their duly authorized deputies.
The provincial, city or municipal treasurer may designate the
barangay treasurer as his deputy to collect local taxes, fees, or charges.
In case a bond is required for the purpose, the provincial, city or
municipal government shall pay the premiums thereon in addition to
the premiums of bond that may be required under this Code.

Section 171. Examination of Books of Accounts and Pertinent Records

of Businessmen by Local Treasurer. - The provincial, city, municipal or
barangay treasurer may, by himself or through any of his deputies
duly authorized in writing, examine the books, accounts, and other
pertinent records of any person, partnership, corporation, or
association subject to local taxes, fees and charges in order to
ascertain. assess, and collect the correct amount of the tax, fee, or
charge. Such examination shall be made during regular business
hours, only once for every tax period, and shall be certified to by the
examining official. Such certificate shall be made of record in the
books of accounts of the taxpayer examined.
In case the examination herein authorized is made by a duly
authorized deputy of the local treasurer, the written authority of the
deputy concerned shall specifically state the name, address, and
business of the taxpayer whose books, accounts, and pertinent records
are to be examined, the date and place of such examination and the
procedure to be followed in conducting the same.
For this purpose, the records of the revenue district office of the
Bureau of Internal Revenue shall be made available to the local
treasurer, his deputy or duly authorized representative.

CHAPTER IV - CIVIL REMEDIES FOR

COLLECTION OF REVENUES
Section 172. Application of Chapter. - The provisions of this
Chapter and the remedies provided hereon may be availed of for the
collection of any delinquent local tax, fee, charge, or other revenue.

Section 173. Local Government's Lien. - Local taxes, fees, charges

and other revenues constitute a lien, superior to all liens, charges or
encumbrances in favor of any person, enforceable by appropriate
administrative or judicial action, not only upon any property or rights
therein which may be subject to the lien but also upon property used
in business, occupation, practice of profession or calling, or exercise
of privilege with respect to which the lien is imposed. The lien may
only be extinguished upon full payment of the delinquent local taxes
fees and charges including related surcharges and interest.

Section 174. Civil Remedies. - The civil remedies for the collection
of local taxes, fees, or charges, and related surcharges and interest
resulting from delinquency shall be:
 (a) By administrative action thru distraint of goods, chattels, or
effects, and other personal property of whatever character, including
stocks and other securities, debts, credits, bank accounts, and interest
in and rights to personal property, and by levy upon real property and
interest in or rights to real property;
(b) By judicial action.
Either of these remedies or all may be pursued concurrently or
simultaneously at the discretion of the local government unit
concerned.

Section 175. Distraint of Personal Property. - The remedy by

distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any local tax, fee,
or charge to pay the same at the time required, the local treasurer or
his deputy may, upon written notice, seize or confiscate any personal
property belonging to that person or any personal property subject to
the lien in sufficient quantity to satisfy the tax, fee, or charge in
question, together with any increment thereto incident to
delinquency and the expenses of seizure. In such case, the local
treasurer or his deputy shall issue a duly authenticated certificate
based upon the records of his office showing the fact of delinquency
and the amounts of the tax, fee, or charge and penalty due. Such
certificate shall serve as sufficient warrant for the distraint of personal
property aforementioned, subject to the taxpayer's right to claim
exemption under the provisions of existing laws. Distrained personal
property shall be sold at public auction in the manner hereon
provided for.
(b) Accounting of distrained goods. - The officer executing the
distraint shall make or cause to be made an account of the goods,
chattels or effects distrained, a copy of which signed by himself shall
be left either with the owner or person from whose possession the
goods, chattels or effects are taken, or at the dwelling or place or
business of that person and with someone of suitable age and
discretion, to which list shall be added a statement of the sum
demanded and a note of the time and place of sale.
(c) Publication - The officer shall forthwith cause a notification to
be exhibited in not less than three (3) public and conspicuous places
in the territory of the local government unit where the distraint is
made, specifying the time and place of sale, and the articles
distrained. The time of sale shall not be less than twenty (20) days
after the notice to the owner or possessor of the property as above
specified and the publication or posting of the notice. One place for
the posting of the notice shall be at the office of the chief executive of
the local government unit in which the property is distrained.
(d) Release of distrained property upon payment prior to sale - If
at any time prior to the consummation of the sale, all the proper
charges are paid to the officer conducting the sale, the goods or
effects distrained shall be restored to the owner.
(e) Procedure of sale - At the time and place fixed in the notice,
the officer conducting the sale shall sell the goods or effects so
distrained at public auction to the highest bidder for cash. Within
five (5) days after the sale, the local treasurer shall make a report of
the proceedings in writing to the local chief executive concerned.
Should the property distrained be not disposed of within one
hundred and twenty (120) days from the date of distraint, the same
shall be considered as sold to the local government unit concerned
for the amount of the assessment made thereon by the Committee on
Appraisal and to the extent of the same amount, the tax
delinquencies shall be cancelled.
 Said Committee on Appraisal shall be composed of the city or
municipal treasurer as chairman, with a representative of the
Commission on Audit and the city or municipal assessor as members.
(f) Disposition of proceeds - The proceeds of the sale shall be
applied to satisfy the tax, including the surcharges, interest, and other
penalties incident to delinquency, and the expenses of the distraint
and sale. The balance over and above what is required to pay the
entire claim shall be returned to the owner of the property sold. The
expenses chargeable upon the seizure and sale shall embrace only the
actual expenses of seizure and preservation of the property pending
the sale, and no charge shall be imposed for the services of the local
officer or his deputy. Where the proceeds of the sale are insufficient
to satisfy the claim, other property may, in like manner, be distrained
until the full amount due, including all expenses, is collected.

Section 176. Levy on Real Property. - After the expiration of the

time required to pay the delinquent tax, fee, or charge, real property
may be levied on before, simultaneously, or after the distraint of
personal property belonging to the delinquent taxpayer. To this end,
the provincial, city or municipal treasurer, as the case may be, shall
prepare a duly authenticated certificate showing the name of the
taxpayer and the amount of the tax, fee, or charge, and penalty due
from him. Said certificate shall operate with the force of a legal
execution throughout the Philippines. Levy shall be effected by
writing upon said certificate the description of the property upon
which levy is made. At the same time, written notice of the levy shall
be mailed to or served upon the assessor and the Register of Deeds of
the province or city where the property is located who shall annotate
the levy on the tax declaration and certificate of title of the property,
respectively, and the delinquent taxpayer or, if he be absent from the
Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the
property in question.
In case the levy on real property is not issued before or
simultaneously with the warrant of distraint on personal property,
and the personal property of the taxpayer is not sufficient to satisfy
his delinquency, the provincial, city or municipal treasurer, as the
case may be, shall within thirty (30) days after execution of the
distraint, proceed with the levy on the taxpayer's real property.
A report on any levy shall, within ten (10) days after receipt of
the warrant, be submitted by the levying officer to the sanggunian
concerned.

Section 177. Penalty for Failure to Issue and Execute Warrant. -

Without prejudice to criminal prosecution under the Revised Penal
Code and other applicable laws, any local treasurer who fails to issue
or execute the warrant of distraint or levy after the expiration of the
time prescribed, or who is found guilty of abusing the exercise thereof
by competent authority shall be automatically dismissed from the
service after due notice and hearing.

Section 178. Advertisement and Sale. - Within thirty (30) days after
the levy, the local treasurer shall proceed to publicly advertise for sale
or auction the property or a usable portion thereof as may be
necessary to satisfy the claim and cost of sale; and such advertisement
shall cover a period of at least thirty (30) days. It shall be effected by
posting a notice at the main entrance of the municipal building or
city hall, and in a public and conspicuous place in the barangay where
the real property is located, and by publication once a week for three
(3) weeks in a newspaper of general circulation in the province, city or
municipality where the property is located. The advertisement shall
contain the amount of taxes, fees or charges, and penalties due
thereon, and the time and place of sale, the name of the taxpayer
against whom the taxes, fees, or charges are levied, and a short
description of the property to be sold. At any time before the date
fixed for the sale, the taxpayer may stay they proceedings by paying
the taxes, fees, charges, penalties and interests. If he fails to do so, the
sale shall proceed and shall be held either at the main entrance of the
provincial, city or municipal building, or on the property to be sold,
or at any other place as determined by the local treasurer conducting
the sale and specified in the notice of sale.
Within thirty (30) days after the sale, the local treasurer or his
deputy shall make a report of the sale to the sanggunian concerned,
and which shall form part of his records. After consultation with the
sanggunian, the local treasurer shall make and deliver to the
purchaser a certificate of sale, showing the proceeding of the sale,
describing the property sold, stating the name of the purchaser and
setting out the exact amount of all taxes, fees, charges, and related
surcharges, interests, or penalties: Provided, however, That any excess
in the proceeds of the sale over the claim and cost of sales shall be
turned over to the owner of the property.
The local treasurer may, by ordinance duly approved, advance an
amount sufficient to defray the costs of collection by means of the
remedies provided for in this Title, including the preservation or
transportation in case of personal property, and the advertisement
and subsequent sale, in cases of personal and real property including
improvements thereon.

Section 179. Redemption of Property Sold. - Within one (1) year

from the date of sale, the delinquent taxpayer or his representative
shall have the right to redeem the property upon payment to the local
treasurer of the total amount of taxes, fees, or charges, and related
surcharges, interests or penalties from the date of delinquency to the
date of sale, plus interest of not more than two percent (2%) per
month on the purchase price from the date of purchase to the date of
redemption. Such payment shall invalidate the certificate of sale
issued to the purchaser and the owner shall be entitled to a certificate
of redemption from the provincial, city or municipal treasurer or his
deputy.
The provincial, city or municipal treasurer or his deputy, upon
surrender by the purchaser of the certificate of sale previously issued
to him, shall forthwith return to the latter the entire purchase price
paid by him plus the interest of not more than two percent (2%) per
month herein provided for, the portion of the cost of sale and other
legitimate expenses incurred by him, and said property thereafter
shall be free from the lien of such taxes, fees, or charges, related
surcharges, interests, and penalties.
The owner shall not, however, be deprived of the possession of
said property and shall be entitled to the rentals and other income
thereof until the expiration of the time allowed for its redemption.

Section 180. Final Deed to Purchaser. - In case the taxpayer fails to

redeem the property as provided herein, the local treasurer shall
execute a deed conveying to the purchaser so much of the property as
has been sold, free from liens of any taxes, fees, charges, related
surcharges, interests, and penalties. The deed shall succinctly recite all
the proceedings upon which the validity of the sale depends.

Section 181. Purchase of Property By the Local Government Units for

Want of Bidder. - In case there is no bidder for the real property
advertised for sale as provided herein, or if the highest bid is for an
amount insufficient to pay the taxes, fees, or charges, related
surcharges, interests, penalties and costs, the local treasurer
conducting the sale shall purchase the property in behalf of the local
government unit concerned to satisfy the claim and within two (2)
days thereafter shall make a report of his proceedings which shall be
reflected upon the records of his office. It shall be the duty of the
Registrar of Deeds concerned upon registration with his office of any
such declaration of forfeiture to transfer the title of the forfeited
property to the local government unit concerned without the
necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer
or any of his representative, may redeem the property by paying to the
local treasurer the full amount of the taxes, fees, charges, and related
surcharges, interests, or penalties, and the costs of sale. If the property
is not redeemed as provided herein, the ownership thereof shall be
fully vested on the local government unit concerned.

Section 182. Resale of Real Estate Taken for Taxes, Fees, or Charges. -
The sanggunian concerned may, by ordinance duly approved, and
upon notice of not less than twenty (20) days, sell and dispose of the
real property acquired under the preceding section at public auction.
The proceeds of the sale shall accrue to the general fund of the local
government unit concerned.

Section 183. Collection of Delinquent Taxes, Fees, Charges or other

Revenues through Judicial Action. - The local government unit concerned
may enforce the collection of delinquent taxes, fees, charges or other
revenues by civil action in any court of competent jurisdiction. The
civil action shall be filed by the local treasurer within the period
prescribed in Section 194 of this Code.

Section 184. Further Distraint or Levy. - The remedies by distraint

and levy may be repeated if necessary until the full amount due,
including all expenses, is collected.

Section 185. Personal Property Exempt from Distraint or Levy. - The

following property shall be exempt from distraint and the levy,
attachment or execution thereof for delinquency in the payment of
any local tax, fee or charge, including the related surcharge and
interest:
(a) Tools and implements necessarily used by the delinquent
taxpayer in his trade or employment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as
the delinquent taxpayer may select, and necessarily used by him in his
ordinary occupation;
(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for housekeeping
and used for that purpose by the delinquent taxpayer, such as he may
select, of a value not exceeding Ten thousand pesos (P10,000.00);
(e) Provisions, including crops, actually provided for individual
or family use sufficient for four (4) months;
(f) The professional libraries of doctors, engineers, lawyers and
judges;
(g) One fishing boat and net, not exceeding the total value of
Ten thousand pesos (P10,000.00), by the lawful use of which a
fisherman earns his livelihood; and
(h) Any material or article forming part of a house or
improvement of any real property.

CHAPTER V - MISCELLANEOUS PROVISIONS

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local
government units may exercise the power to levy taxes, fees or charges
on any base or subject not otherwise specifically enumerated herein
or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory
or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not be enacted
without any prior public hearing conducted for the purpose.

Section 187. Procedure for Approval and Effectivity of Tax,

Ordinances and Revenue Measures; Mandatory Public Hearings. - The
procedure for approval of local tax ordinances and revenue measures
shall be in accordance with the provisions of this Code: Provided,
That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within thirty (30) days from the effectivity
thereof to the Secretary of Justice who shall render a decision within
sixty (60) days from the date of receipt of the appeal: Provided,
however, That such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the tax,
fee, or charge levied therein: Provided, finally, That within thirty (30)
days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the aggrieved
party may file appropriate proceedings with a court of competent
jurisdiction.

Section 188. Publication of Tax Ordinances and Revenue Measures. -

Within ten (10) days after their approval, certified true copies of all
provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper
of local circulation: Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local circulation, the
same may be posted in at least two (2) conspicuous and publicly
accessible places.

Section 189. Furnishing of Copies of Tax Ordinances and Revenue

Measures. - Copies of all provincial, city, and municipal and barangay
tax ordinances and revenue measures shall be furnished the respective
local treasurers for public dissemination.

Section 190. Attempt to Enforce Void or Suspended Tax Ordinances

and revenue measures. - The enforcement of any tax ordinance or
revenue measure after due notice of the disapproval or suspension
thereof shall be sufficient ground for administrative disciplinary
action against the local officials and employees responsible therefor.

Section 191. Authority of Local Government Units to Adjust Rates of

Tax Ordinances. - Local government units shall have the authority to
adjust the tax rates as prescribed herein not oftener than once every
five (5) years, but in no case shall such adjustment exceed ten percent
(10%) of the rates fixed under this Code.

Section 192. Authority to Grant Tax Exemption Privileges. - Local

government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as
they may deem necessary.

Section 193. Withdrawal of Tax Exemption Privileges. - Unless

otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.

CHAPTER VI - TAXPAYER'S REMEDIES

Section 194. Periods of Assessment and Collection. -
(a) Local taxes, fees, or charges shall be assessed within five (5)
years from the date they became due. No action for the collection of
such taxes, fees, or charges, whether administrative or judicial, shall
be instituted after the expiration of such period: Provided, That.
taxes, fees or charges which have accrued before the effectivity of this
Code may be assessed within a period of three (3) years from the date
they became due.
(b) In case of fraud or intent to evade the payment of taxes, fees,
or charges, the same may be assessed within ten (10) years from
discovery of the fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected within five (5)
years from the date of assessment by administrative or judicial action.
No such action shall be instituted after the expiration of said period:
Provided, however, That, taxes, fees or charges assessed before the
effectivity of this Code may be collected within a period of three (3)
years from the date of assessment.
(d) The running of the periods of prescription provided in the
preceding paragraphs shall be suspended for the time during which:
(1) The treasurer is legally prevented from making the assessment
of collection;
(2) The taxpayer requests for a reinvestigation and executes a
waiver in writing before expiration of the period within which to
assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be
located.

Section 195. Protest of Assessment. - When the local treasurer or

his duly authorized representative finds that correct taxes, fees, or
charges have not been paid, he shall issue a notice of assessment
stating the nature of the tax, fee, or charge, the amount of deficiency,
the surcharges, interests and penalties. Within sixty (60) days from
the receipt of the notice of assessment, the taxpayer may file a written
protest with the local treasurer contesting the assessment; otherwise,
the assessment shall become final and executory. The local treasurer
shall decide the protest within sixty (60) days from the time of its
filing. If the local treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice cancelling wholly or partially the
assessment. However, if the local treasurer finds the assessment to be
wholly or partly correct, he shall deny the protest wholly or partly
with notice to the taxpayer. The taxpayer shall have thirty (30) days
from the receipt of the denial of the protest or from the lapse of the
sixty (60) day period prescribed herein within which to appeal with
the court of competent jurisdiction otherwise the assessment becomes
conclusive and unappealable.

Section 196. Claim for Refund of Tax Credit. - No case or

proceeding shall be maintained in any court for the recovery of any
tax, fee, or charge erroneously or illegally collected until a written
claim for refund or credit has been filed with the local treasurer. No
case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax,
fee, or charge, or from the date the taxpayer is entitled to a refund or
credit.
REAL PROPERTY
TAXATION
 TITLE II
REAL PROPERTY TAXATION

CHAPTER I - GENERAL PROVISIONS

Section 197. Scope. - This Title shall govern the administration,
appraisal, assessment, levy and collection of real property tax.

Section 198. Fundamental Principles. - The appraisal, assessment,

levy and collection of real property tax shall be guided by the
following fundamental principles:
(a) Real property shall be appraised at its current and fair market
value;
(b) Real property shall be classified for assessment purposes on
the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform
classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real property
tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable.

Section 199. Definitions. - When used in this Title:

(a) "Acquisition Cost" for newly-acquired machinery not yet
depreciated and appraised within the year of its purchase, refers to
the actual cost of the machinery to its present owner, plus the cost of
transportation, handling, and installation at the present site;
(b) "Actual Use" refers to the purpose for which the property is
principally or predominantly utilized by the person in possession
thereof;
 (c) "Ad Valorem Tax" is a levy on real property determined on
the basis of a fixed proportion of the value of the property;
(d) "Agricultural Land" is land devoted principally to the planting
of trees, raising of crops, livestock and poultry, dairying, salt making,
inland fishing and similar aquacultural activities, and other
agricultural activities, and is not classified as mineral, timber,
residential, commercial or industrial land;
(e) "Appraisal" is the act or process of determining the value of
property as of a specified date for a specific purpose;
(f) "Assessment" is the act or process of determining the value of
a property, or proportion thereof subject to tax, including the
discovery, listing, classification, and appraisal of properties;
(g) "Assessment Level" is the percentage applied to the fair market
value to determine the taxable value of the property;
(h) "Assessed Value" is the fair market value of the real property
multiplied by the assessment level. It is synonymous to taxable value;
(i) "Commercial Land" is land devoted principally for the object
of profit and is not classified as agricultural, industrial, mineral,
timber, or residential land;
(j) "Depreciated Value" is the value remaining after deducting
depreciation from the acquisition cost;
(k) "Economic Life" is the estimated period over which it is
anticipated that a machinery or equipment may be profitably utilized;
(l) "Fair Market Value" is the price at which a property may be
sold by a seller who is not compelled to sell and bought by a buyer
who is not compelled to buy;
 (m) "Improvement" is a valuable addition made to a property or
an amelioration in its condition, amounting to more than a mere
repair or replacement of parts involving capital expenditures and
labor, which is intended to enhance its value, beauty or utility or to
adapt it for new or further purposes;
(n) "Industrial Land" is land devoted principally to industrial
activity as capital investment and is not classified as agricultural,
commercial, timber, mineral or residential land;
(o) "Machinery" embraces machines, equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may
not be attached, permanently or temporarily, to the real property. It
includes the physical facilities for production, the installations and
appurtenant service facilities, those which are mobile, self-powered or
self-propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to meet the
needs of the particular industry, business or activity and which by
their very nature and purpose are designed for, or necessary to its
manufacturing, mining, logging, commercial, industrial or
agricultural purposes;
(p) "Mineral Lands" are lands in which minerals, metallic or non-
metallic, exist in sufficient quantity or grade to justify the necessary
expenditures to extract and utilize such materials;
(q) "Reassessment" is the assigning of new assessed values to
property, particularly real estate, as the result of a general, partial, or
individual reappraisal of the property;
(r) "Remaining Economic Life" is the period of time expressed in
years from the date of appraisal to the date when the machinery
becomes valueless;
 (s) "Remaining Value" is the value corresponding to the
remaining useful life of the machinery;
(t) "Replacement or Reproduction Cost" is the cost that would be
incurred on the basis of current prices, in acquiring an equally
desirable substitute property, or the cost of reproducing a new replica
of the property on the basis of current prices with the same or closely
similar material; and
(u) "Residential Land" is land principally devoted to habitation.

Section 200. Administration of the Real Property Tax. - The

provinces and cities, including the municipalities within the
Metropolitan Manila Area, shall be primarily responsible for the
proper, efficient and effective administration of the real property tax.

CHAPTER II - APPRAISAL AND ASSESSMENT OF

REAL PROPERTY
Section 201. Appraisal of Real Property. - All real property, whether
taxable or exempt, shall be appraised at the current and fair market
value prevailing in the locality where the property is situated. The
Department of Finance shall promulgate the necessary rules and
regulations for the classification, appraisal, and assessment of real
property pursuant to the provisions of this Code.

Section 202. Declaration of real Property by the Owner or

Administrator. - It shall be the duty of all persons, natural or juridical,
owning or administering real property, including the improvements
therein, within a city or municipality, or their duly authorized
representative, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the
true value of their property, whether previously declared or
undeclared, taxable or exempt, which shall be the current and fair
market value of the property, as determined by the declarant. Such
declaration shall contain a description of the property sufficient in
detail to enable the assessor or his deputy to identify the same for
assessment purposes. The sworn declaration of real property herein
referred to shall be filed with the assessor concerned once every three
(3) years during the period from January first (1st) to June thirtieth
(30th) commencing with the calendar year 1992.

Section 203. Duty of Person Acquiring Real Property or Making

Improvement Thereon. - It shall also be the duty of any person, or his
authorized representative, acquiring at any time real property in any
municipality or city or making any improvement on real property, to
prepare, or cause to be prepared, and file with the provincial, city or
municipal assessor, a sworn statement declaring the true value of
subject property, within sixty (60) days after the acquisition of such
property or upon completion or occupancy of the improvement,
whichever comes earlier.

Section 204. Declaration of Real Property by the Assessor. - When

any person, natural or juridical, by whom real property is required to
be declared under Section 202 hereof, refuses or fails for any reason
to make such declaration within the time prescribed, the provincial,
city or municipal assessor shall himself declare the property in the
name of the defaulting owner, if known, or against an unknown
owner, as the case may be, and shall assess the property for taxation in
accordance with the provision of this Title. No oath shall be required
of a declaration thus made by the provincial, city or municipal
assessor.

Section 205. Listing of Real Property in the Assessment Rolls. -

(a) In every province and city, including the municipalities within
the Metropolitan Manila Area, there shall be prepared and
maintained by the provincial, city or municipal assessor an assessment
roll wherein shall be listed all real property, whether taxable or
exempt, located within the territorial jurisdiction of the local
government unit concerned. Real property shall be listed, valued and
assessed in the name of the owner or administrator, or anyone having
legal interest in the property.
(b) The undivided real property of a deceased person may be
listed, valued and assessed in the name of the estate or of the heirs
and devisees without designating them individually; and undivided
real property other than that owned by a deceased may be listed,
valued and assessed in the name of one or more co-owners: Provided,
however, That such heir, devisee, or co-owner shall be liable severally
and proportionately for all obligations imposed by this Title and the
payment of the real property tax with respect to the undivided
property.
(c) The real property of a corporation, partnership, or association
shall be listed, valued and assessed in the same manner as that of an
individual.
(d) Real property owned by the Republic of the Philippines, its
instrumentalities and political subdivisions, the beneficial use of
which has been granted, for consideration or otherwise, to a taxable
person, shall be listed, valued and assessed in the name of the
possessor, grantee or of the public entity if such property has been
acquired or held for resale or lease.

Section 206. Proof of Exemption of Real Property from Taxation. -

Every person by or for whom real property is declared, who shall
claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from
the date of the declaration of real property sufficient documentary
evidence in support of such claim including corporate charters, title
of ownership, articles of incorporation, by-laws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.
 If the required evidence is not submitted within the period
herein prescribed, the property shall be listed as taxable in the
assessment roll. However, if the property shall be proven to be tax
exempt, the same shall be dropped from the assessment roll.

Section 207. Real Property Identification System. - All declarations

of real property made under the provisions of this Title shall be kept
and filed under a uniform classification system to be established by
the provincial, city or municipal assessor.

Section 208. Notification of Transfer of Real Property Ownership. -

Any person who shall transfer real property ownership to another
shall notify the provincial, city or municipal assessor concerned
within sixty (60) days from the date of such transfer. The notification
shall include the mode of transfer, the description of the property
alienated, the name and address of the transferee.

Section 209. Duty of Registrar of Deeds to Appraise Assessor of Real

Property Listed in Registry. -
(a) To ascertain whether or not any real property entered in the
Registry of Property has escaped discovery and listing for the purpose
of taxation, the Registrar of Deeds shall prepare and submit to the
provincial, city or municipal assessor, within six (6) months from the
date of effectivity of this Code and every year thereafter, an abstract of
his registry, which shall include brief but sufficient description of the
real properties entered therein, their present owners, and the dates of
their most recent transfer or alienation accompanied by copies of
corresponding deeds of sale, donation, or partition or other forms of
alienation.
(b) It shall also be the duty of the Registrar of Deeds to require
every person who shall present for registration a document of
transfer, alienation, or encumbrance of real property to accompany
the same with a certificate to the effect that the real property subject
of the transfer, alienation, or encumbrance, as the case may be, has
been fully paid of all real property taxes due thereon. Failure to
provide such certificate shall be a valid cause for the Registrar of
Deeds to refuse the registration of the document.

Section 210. Duty of Official Issuing Building Permit or Certificate of

Registration of Machinery to Transmit Copy to Assessor. - Any public
official or employee who may now or hereafter be required by law or
regulation to issue to any person a permit for the construction,
addition, repair, or renovation of a building, or permanent
improvement on land, or a certificate of registration for any
machinery, including machines, mechanical contrivances, and
apparatus attached or affixed on land or to another real property,
shall transmit a copy of such permit or certificate within thirty (30)
days of its issuance, to the assessor of the province, city or
municipality where the property is situated.

Section 211. Duty of Geodetic Engineers to Furnish Copy of Plans to

Assessor. - It shall be the duty of all geodetic engineers, public or
private, to furnish free of charge to the assessor of the province, city
or municipality where the land is located with a white or blue print
copy of each of all approved original or subdivision plans or maps of
surveys executed by them within thirty (30) days from receipt of such
plans from the Lands Management Bureau, the Land Registration
Authority, or the Housing and Land Use Regulatory Board, as the
case may be.

Section 212. Preparation of Schedule of Fair Market Values. - Before

any general revision of property assessment is made pursuant to the
provisions of this Title, there shall be prepared a schedule of fair
market values by the provincial, city and municipal assessor of the
municipalities within the Metropolitan Manila Area for the different
classes of real property situated in their respective local government
units for enactment by ordinance of the sanggunian concerned. The
schedule of fair market values shall be published in a newspaper of
general circulation in the province, city or municipality concerned or
in the absence thereof, shall be posted in the provincial capitol, city
or municipal hall and in two other conspicuous public places therein.

Section 213. Authority of Assessor to Take Evidence. - For the

purpose of obtaining information on which to base the market value
of any real property, the assessor of the province, city or municipality
or his deputy may summon the owners of the properties to be
affected or persons having legal interest therein and witnesses,
administer oaths, and take deposition concerning the property, its
ownership, amount, nature, and value.

Section 214. Amendment of Schedule of Fair Market Values. - The

provincial, city or municipal assessor may recommend to the
sanggunian concerned amendments to correct errors in valuation in
the schedule of fair market values. The sanggunian concerned shall,
by ordinance, act upon the recommendation within ninety (90) days
from receipt thereof.

Section 215. Classes of Real Property for Assessment Purposes. - For

purposes of assessment, real property shall be classified as residential,
agricultural, commercial, industrial, mineral, timberland or special.
The city or municipality within the Metropolitan Manila Area,
through their respective sanggunian, shall have the power to classify
lands as residential, agricultural, commercial, industrial, mineral,
timberland, or special in accordance with their zoning ordinances.

Section 216. Special Classes of Real Property. - All lands, buildings,

and other improvements thereon actually, directly and exclusively
used for hospitals, cultural, or scientific purposes, and those owned
and used by local water districts, and government-owned or
controlled corporations rendering essential public services in the
supply and distribution of water and/or generation and transmission
of electric power shall be classified as special.

Section 217. Actual Use of Real Property as Basis for Assessment. -

Real property shall be classified, valued and assessed on the basis of
its actual use regardless of where located, whoever owns it, and
whoever uses it.

Section 218. Assessment Levels. - The assessment levels to be

applied to the fair market value of real property to determine its
assessed value shall be fixed by ordinances of the sangguniang
panlalawigan, sangguniang panlungsod or sangguniang bayan of a
municipality within the Metropolitan Manila Area, at the rates not
exceeding the following:
(a) On Lands:

CLASS ASSESSMENT LEVELS

Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
(b) On Buildings and Other Structures:

(1) Residential
Fair market Value
Over Not Over Assessment Levels
P175,000.00 0%
P175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%
750,000.00 1,000,000.00 30%
1,000,000.00 2,000,000.00 35%
2,000,000.00 5,000,000.00 40%
5,000,000.00 10,000,000.00 50%
10,000,000.00 60%
(2) Agricultural
Fair Market Value
Over Not Over Assessment Levels
P300,000.00 25%
P300,000.00 500,000.00 30%
500,000.00 750,000.00 35%
750,000.00 1,000,000.00 40%
1,000,000.00 2,000,000.00 45%
2,000,000.00 50%
(3) Commercial / Industrial
Fair Market Value
Over Not Over Assessment Levels
P300,000.00 30%
P300,000.00 500,000.00 35%
500,000.00 750,000.00 40%
750,000.00 1,000,000.00 50%
1,000,000.00 2,000,000.00 60%
2,000,000.00 5,000,000.00 70%
5,000,000.00 10,000,000.00 75%
10,000,000.00 80%
(4) Timberland
Fair Market Value
Over Not Over Assessment Levels
P300,000.00 45%
P300,000.00 500,000.00 50%
500,000.00 750,000.00 55%
750,000.00 1,000,000.00 60%
5,000,000.00 2,000,000.00 65%
2,000,000.00 70%
(c) On Machineries

Class Assessment Levels

Agricultural 40%
Residential 50%
Commercial 80%
 Industrial 80%
(d) On Special Classes: The assessment levels for all lands
buildings, machineries and other improvements;

Actual Use Assessment Level

Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or controlled 10%
corporations engaged in the supply
and distribution of water and/or
generation and transmission of electric
power
Section 219. General Revision of Assessment and Property
Classification. - The provincial, city or municipal assessor shall
undertake a general revision of real property assessments within two
(2) years after the effectivity of this Code and every three (3) years
thereafter.

Section 220. Valuation of Real Property. - In cases where (a) real

property is declared and listed for taxation purposes for the first time;
(b) there is an ongoing general revision of property classification and
assessment; or (c) a request is made by the person in whose name the
property is declared, the provincial, city or municipal assessor or his
duly authorized deputy shall, in accordance with the provisions of this
Chapter, make a classification, appraisal and assessment or taxpayer's
valuation thereon: Provided, however, That the assessment of real
property shall not be increased oftener than once every three (3) years
except in case of new improvements substantially increasing the value
of said property or of any change in its actual use.

Section 221. Date of Effectivity of Assessment or Reassessment. - All

assessments or reassessments made after the first (1st) day of January
of any year shall take effect on the first (1st) day of January of the
succeeding year: Provided, however, That the reassessment of real
property due to its partial or total destruction, or to a major change in
its actual use, or to any great and sudden inflation or deflation of real
property values, or to the gross illegality of the assessment when made
or to any other abnormal cause, shall be made within ninety (90) days
from the date any such cause or causes occurred, and shall take effect
at the beginning of the quarter next following the reassessment.

Section 222. Assessment of Property Subject to Back Taxes. - Real

property declared for the first time shall be assessed for taxes for the
period during which it would have been liable but in no case of more
than ten (10) years prior to the date of initial assessment: Provided,
however, That such taxes shall be computed on the basis of the
applicable schedule of values in force during the corresponding
period.
If such taxes are paid on or before the end of the quarter
following the date the notice of assessment was received by the owner
or his representative, no interest for delinquency shall be imposed
thereon; otherwise, such taxes shall be subject to an interest at the
rate of two percent (2%) per month or a fraction thereof from the
date of the receipt of the assessment until such taxes are fully paid.

Section 223. Notification of New or Revised Assessment. - When real

property is assessed for the first time or when an existing assessment
is increased or decreased, the provincial, city or municipal assessor
shall within thirty (30) days give written notice of such new or revised
assessment to the person in whose name the property is declared. The
notice may be delivered personally or by registered mail or through
the assistance of the punong barangay to the last known address of
the person to be served.

Section 224. Appraisal and Assessment of Machinery. -

(a) The fair market value of a brand-new machinery shall be the
acquisition cost. In all other cases, the fair market value shall be
determined by dividing the remaining economic life of the machinery
by its estimated economic life and multiplied by the replacement or
reproduction cost.
(b) If the machinery is imported, the acquisition cost includes
freight, insurance, bank and other charges, brokerage, arrastre and
handling, duties and taxes, plus charges at the present site. The cost
in foreign currency of imported machinery shall be converted to peso
cost on the basis of foreign currency exchange rates as fixed by the
Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes

of assessment, a depreciation allowance shall be made for machinery
at a rate not exceeding five percent (5%) of its original cost or its
replacement or reproduction cost, as the case may be, for each year of
use: Provided, however, That the remaining value for all kinds of
machinery shall be fixed at not less than twenty percent (20%) of such
original, replacement, or reproduction cost for so long as the
machinery is useful and in operation.

CHAPTER III - ASSESSMENT APPEALS

Section 226. Local Board of Assessment Appeals. - Any owner or
person having legal interest in the property who is not satisfied with
the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of
receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the provincial or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of
the tax declarations and such affidavits or documents submitted in
support of the appeal.

Section 227. Organization, Powers, Duties, and Functions of the Local

Board of Assessment Appeals. -
(a) The Board of Assessment Appeals of the province or city shall
be composed of the Registrar of Deeds, as Chairman, the provincial
or city prosecutor and the provincial, or city engineer as members,
who shall serve as such in an ex officio capacity without additional
compensation.
(b) The chairman of the Board shall have the power to designate
any employee of the province or city to serve as secretary to the Board
also without additional compensation.
(c) The chairman and members of the Board of Assessment
Appeals of the province or city shall assume their respective positions
without need of further appointment or special designations
immediately upon effectivity of this Code. They shall take oath or
affirmation of office in the prescribed form.
(d) In provinces and cities without a provincial or city engineer,
the district engineer shall serve as member of the Board. In the
absence of the Registrar of Deeds, or the provincial or city prosecutor,
or the provincial or city engineer, or the district engineer, the persons
performing their duties, whether in an acting capacity or as a duly
designated officer-in-charge, shall automatically become the chairman
or member, respectively, of the said Board, as the case may be.

Section 228. Meetings and Expenses of the Local Board of Assessment

Appeals. -
 (a) The Board of Assessment Appeals of the province or city shall
meet once a month and as often as may be necessary for the prompt
disposition of appealed cases. No member of the Board shall be
entitled to per diems or traveling expenses for his attendance in
Board meetings, except when conducting an ocular inspection in
connection with a case under appeal.
(b) All expenses of the Board shall be charged against the general
fund of the province or city, as the case may be. The sanggunian
concerned shall appropriate the necessary funds to enable the Board
in their respective localities to operate effectively.

Section 229. Action by the Local Board of Assessment Appeals. -

(a) The Board shall decide the appeal within one hundred twenty
(120) days from the date of receipt of such appeal. The Board, after
hearing, shall render its decision based on substantial evidence or
such relevant evidence on record as a reasonable mind might accept
as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall
have the power to summon witnesses, administer oaths, conduct
ocular inspection, take depositions, and issue subpoena and
subpoena duces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial
proceedings.
(c) The secretary of the Board shall furnish the owner of the
property or the person having legal interest therein and the provincial
or city assessor with a copy of the decision of the Board. In case the
provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for
the purpose. The owner of the property or the person having legal
interest therein or the assessor who is not satisfied with the decision
of the Board, may, within thirty (30) days after receipt of the decision
of said Board, appeal to the Central Board of Assessment Appeals, as
herein provided. The decision of the Central Board shall be final and
executory.

Section 230. Central Board of Assessment Appeals. - The Central

Board of Assessment Appeals shall be composed of a chairman, and
two (2) members to be appointed by the President, who shall serve for
a term of seven (7) years, without reappointment. Of those first
appointed, the chairman shall hold office for seven (7) years, one
member for five (5) years, and the other member for three (3) years.
Appointment to any vacancy shall be only for the unexpired portion
of the term of the predecessor. In no case shall any member be
appointed or designated in a temporary or acting capacity. The
chairman and the members of the Board shall be Filipino citizens, at
least forty (40) years old at the time of their appointment, and
members of the Bar or Certified Public Accountants for at least ten
(10) years immediately preceding their appointment. The chairman of
the Board of Assessment Appeals shall have the salary grade
equivalent to the rank of Director III under the Salary
Standardization Law exclusive of allowances and other emoluments.
The members of the Board shall have the salary grade equivalent to
the rank of Director II under the Salary Standardization Law
exclusive of allowances and other emoluments. The Board shall have
appellate jurisdiction over all assessment cases decided by the Local
Board of Assessment Appeals.
There shall be Hearing Officers to be appointed by the Central
Board of Assessment Appeals pursuant to civil service laws, rules and
regulations, one each for Luzon, Visayas and Mindanao, who shall
hold office in Manila, Cebu City and Cagayan de Oro City,
respectively, and who shall serve for a term of six (6) years, without
reappointment until their successors have been appointed and
qualified. The Hearing Officers shall have the same qualifications as
that of the Judges of the Municipal Trial Courts.
The Central Board Assessment Appeals, in the performance of
its powers and duties, may establish and organize staffs, offices, units,
prescribe the titles, functions and duties of their members and adopt
its own rules and regulations.
Unless otherwise provided by law, the annual appropriations for
the Central Board of Assessment Appeals shall be included in the
budget of the Department of Finance in the corresponding General
Appropriations Act.

Section 231. Effect of Appeal on the Payment of Real Property Tax. -

Appeal on assessments of real property made under the provisions of
this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the
provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal.

CHAPTER IV - IMPOSITION OF REAL

PROPERTY TAX
Section 232. Power to Levy Real Property Tax. - A province or city
or a municipality within the Metropolitan Manila Area my levy an
annual ad valorem tax on real property such as land, building,
machinery, and other improvement not hereinafter specifically
exempted.

Section 233. Rates of Levy. - A province or city or a municipality

within the Metropolitan Manila Area shall fix a uniform rate of basic
real property tax applicable to their respective localities as follows:
 (a) In the case of a province, at the rate not exceeding one
percent (1%) of the assessed value of real property; and
(b) In the case of a city or a municipality within the Metropolitan
Manila Area, at the rate not exceeding two percent (2%) of the
assessed value of real property.

Section 234. Exemptions from Real Property Tax. - The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity
of this Code.
 CHAPTER V - SPECIAL LEVIES ON REAL
PROPERTY
Section 235. Additional Levy on Real Property for the Special
Education Fund. - A province or city, or a municipality within the
Metropolitan Manila Area, may levy and collect an annual tax of one
percent (1%) on the assessed value of real property which shall be in
addition to the basic real property tax. The proceeds thereof shall
exclusively accrue to the Special Education Fund (SEF).

Section 236. Additional Ad Valorem Tax on Idle Lands. - A province

or city, or a municipality within the Metropolitan Manila Area, may
levy an annual tax on idle lands at the rate not exceeding five percent
(5%) of the assessed value of the property which shall be in addition
to the basic real property tax.

Section 237. Idle Lands, Coverage. - For purposes of real property

taxation, idle lands shall include the following:
(a) Agricultural lands, more than one (1) hectare in area, suitable
for cultivation, dairying, inland fishery, and other agricultural uses,
one-half (1/2) of which remain uncultivated or unimproved by the
owner of the property or person having legal interest therein.
Agricultural lands planted to permanent or perennial crops with at
least fifty (50) trees to a hectare shall not be considered idle lands.
Lands actually used for grazing purposes shall likewise not be
considered idle lands.
(b) Lands, other than agricultural, located in a city or
municipality, more than one thousand (1,000) square meters in area
one-half (1/2) of which remain unutilized or unimproved by the
owner of the property or person having legal interest therein.
Regardless of land area, this Section shall likewise apply to
residential lots in subdivisions duly approved by proper authorities,
the ownership of which has been transferred to individual owners,
who shall be liable for the additional tax: Provided, however, That
individual lots of such subdivisions, the ownership of which has not
been transferred to the buyer shall be considered as part of the
subdivision, and shall be subject to the additional tax payable by
subdivision owner or operator.

Section 238. Idle Lands Exempt from Tax. - A province or city or a

municipality within the Metropolitan Manila Area may exempt idle
lands from the additional levy by reason of force majeure, civil
disturbance, natural calamity or any cause or circumstance which
physically or legally prevents the owner of the property or person
having legal interest therein from improving, utilizing or cultivating
the same.

Section 239. Listing of Idle Lands by the Assessor. - The provincial,

city or municipal assessor shall make and keep an updated record of
all idle lands located within his area of jurisdiction. For purposes of
collection, the provincial, city or municipal assessor shall furnish a
copy thereof to the provincial or city treasurer who shall notify, on
the basis of such record, the owner of the property or person having
legal interest therein of the imposition of the additional tax.

Section 240. Special Levy by Local Government Units. - A province,

city or municipality may impose a special levy on the lands comprised
within its territorial jurisdiction specially benefited by public works
projects or improvements funded by the local government unit
concerned: Provided, however, That the special levy shall not exceed
sixty percent (60%) of the actual cost of such projects and
improvements, including the costs of acquiring land and such other
real property in connection therewith: Provided, further, That the
special levy shall not apply to lands exempt from basic real property
tax and the remainder of the land portions of which have been
donated to the local government unit concerned for the construction
of such projects or improvements.

Section 241. Ordinance Imposing a Special Levy. - A tax ordinance

imposing a special levy shall describe with reasonable accuracy the
nature, extent, and location of the public works projects or
improvements to be undertaken, state the estimated cost thereof,
specify the metes and bounds by monuments and lines and the
number of annual installments for the payment of the special levy
which in no case shall be less than five (5) nor more than ten (10)
years. The sanggunian concerned shall not be obliged, in the
apportionment and computation of the special levy, to establish a
uniform percentage of all lands subject to the payment of the tax for
the entire district, but it may fix different rates for different parts or
sections thereof, depending on whether such land is more or less
benefited by proposed work.

Section 242. Publication of Proposed Ordinance Imposing a Special

Levy. - Before the enactment of an ordinance imposing a special levy,
the sanggunian concerned shall conduct a public hearing thereon;
notify in writing the owners of the real property to be affected or the
persons having legal interest therein as to the date and place thereof
and afford the latter the opportunity to express their positions or
objections relative to the proposed ordinance.

Section 243. Fixing the Amount of Special Levy. - The special levy
authorized herein shall be apportioned, computed, and assessed
according to the assessed valuation of the lands affected as shown by
the books of the assessor concerned, or its current assessed value as
fixed by said assessor if the property does not appear of record in his
books. Upon the effectivity of the ordinance imposing special levy,
the assessor concerned shall forthwith proceed to determine the
annual amount of special levy assessed against each parcel of land
comprised within the area especially benefited and shall send to each
landowner a written notice thereof by mail, personal service or
publication in appropriate cases.

Section 244. Taxpayer's Remedies Against Special Levy. - Any owner

of real property affected by a special levy or any person having a legal
interest therein may, upon receipt of the written notice of assessment
of the special levy, avail of the remedies provided for in Chapter 3,
Title Two, Book II of this Code.

Section 245. Accrual of Special Levy. - The special levy shall accrue
on the first day of the quarter next following the effectivity of the
ordinance imposing such levy.lawphil.net

CHAPTER VI - COLLECTION OF REAL

PROPERTY TAX
Section 246. Date of Accrual of Tax. - The real property tax for any
year shall accrue on the first day of January and from that date it shall
constitute a lien on the property which shall be superior to any other
lien, mortgage, or encumbrance of any kind whatsoever, and shall be
extinguished only upon the payment of the delinquent tax.

Section 247. Collection of Tax. - The collection of the real

property tax with interest thereon and related expenses, and the
enforcement of the remedies provided for in this Title or any
applicable laws, shall be the responsibility of the city or municipal
treasurer concerned.
The city or municipal treasurer may deputize the barangay
treasurer to collect all taxes on real property located in the barangay:
Provided, That the barangay treasurer is properly bonded for the
purpose: Provided, further, That the premium on the bond shall be
paid by the city or municipal government concerned.
 Section 248. Assessor to Furnish Local Treasurer with Assessment Roll.
- The provincial, city or municipal assessor shall prepare and submit
to the treasurer of the local government unit, on or before the thirty-
first (31st) day of December each year, an assessment roll containing a
list of all persons whose real properties have been newly assessed or
reassessed and the values of such properties.

Section 249. Notice of Time for Collection of Tax. - The city or

municipal treasurer shall, on or before the thirty-first (31st) day of
January each year, in the case of the basic real property tax and the
additional tax for the Special Education Fund (SEF) or any other date
to be prescribed by the sanggunian concerned in the case of any other
tax levied under this title, post the notice of the dates when the tax
may be paid without interest at a conspicuous and publicly accessible
place at the city or municipal hall. Said notice shall likewise be
published in a newspaper of general circulation in the locality once a
week for two (2) consecutive weeks.

Section 250. Payment of Real Property Taxes in Installments. - The

owner of the real property or the person having legal interest therein
may pay the basic real property tax and the additional tax for Special
Education Fund (SEF) due thereon without interest in four (4) equal
installments; the first installment to be due and payable on or before
March Thirty-first (31st); the second installment, on or before June
Thirty (30); the third installment, on or before September Thirty (30);
and the last installment on or before December Thirty-first (31st),
except the special levy the payment of which shall be governed by
ordinance of the sanggunian concerned.
The date for the payment of any other tax imposed under this
Title without interest shall be prescribed by the sanggunian
concerned.
 Payments of real property taxes shall first be applied to prior
years delinquencies, interests, and penalties, if any, and only after said
delinquencies are settled may tax payments be credited for the current
period.

Section 251. Tax Discount for Advanced Prompt Payment. - If the

basic real property tax and the additional tax accruing to the Special
Education Fund (SEF) are paid in advance in accordance with the
prescribed schedule of payment as provided under Section 250, the
sanggunian concerned may grant a discount not exceeding twenty
percent (20%) of the annual tax due.

Section 252. Payment Under Protest. -

(a) No protest shall be entertained unless the taxpayer first pays
the tax. There shall be annotated on the tax receipts the words "paid
under protest". The protest in writing must be filed within thirty (30)
days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan
Manila Area, who shall decide the protest within sixty (60) days from
receipt.
(b) The tax or a portion thereof paid under protest, shall be held
in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be
refunded to the protestant, or applied as tax credit against his existing
or future tax liability.
(d) In the event that the protest is denied or upon the lapse of
the sixty day period prescribed in subparagraph (a), the taxpayer may
avail of the remedies as provided for in Chapter 3, Title II, Book II of
this Code.
 Section 253. Repayment of Excessive Collections. - When an
assessment of basic real property tax, or any other tax levied under
this Title, is found to be illegal or erroneous and the tax is accordingly
reduced or adjusted, the taxpayer may file a written claim for refund
or credit for taxes and interests with the provincial or city treasurer
within two (2) years from the date the taxpayer is entitled to such
reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax
refund or credit within sixty (60) days from receipt thereof. In case
the claim for tax refund or credit is denied, the taxpayer may avail of
the remedies as provided in Chapter 3, Title II, Book II of this Code.

Section 254. Notice of Delinquency in the Payment of the Real

Property Tax. -
(a) When the real property tax or any other tax imposed under
this Title becomes delinquent, the provincial, city or municipal
treasurer shall immediately cause a notice of the delinquency to be
posted at the main hall and in a publicly accessible and conspicuous
place in each barangay of the local government unit concerned. The
notice of delinquency shall also be published once a week for two (2)
consecutive weeks, in a newspaper of general circulation in the
province, city, or municipality.
(b) Such notice shall specify the date upon which the tax became
delinquent and shall state that personal property may be distrained to
effect payment. It shall likewise state that any time before the distraint
of personal property, payment of the tax with surcharges, interests
and penalties may be made in accordance with the next following
Section, and unless the tax, surcharges and penalties are paid before
the expiration of the year for which the tax is due except when the
notice of assessment or special levy is contested administratively or
judicially pursuant to the provisions of Chapter 3, Title II, Book II of
this Code, the delinquent real property will be sold at public auction,
and the title to the property will be vested in the purchaser, subject,
however, to the right of the delinquent owner of the property or any
person having legal interest therein to redeem the property within
one (1) year from the date of sale.

Section 255. Interests on Unpaid Real Property Tax. - In case of

failure to pay the basic real property tax or any other tax levied under
this Title upon the expiration of the periods as provided in Section
250, or when due, as the case may be, shall subject the taxpayer to the
payment of interest at the rate of two percent (2%) per month on the
unpaid amount or a fraction thereof, until the delinquent tax shall
have been fully paid: Provided, however, That in no case shall the
total interest on the unpaid tax or portion thereof exceed thirty-six
(36) months.

Section 256. Remedies For The Collection Of Real Property Tax. - For
the collection of the basic real property tax and any other tax levied
under this Title, the local government unit concerned may avail of
the remedies by administrative action thru levy on real property or by
judicial action.

Section 257. Local Governments Lien. - The basic real property tax
and any other tax levied under this Title constitutes a lien on the
property subject to tax, superior to all liens, charges or encumbrances
in favor of any person, irrespective of the owner or possessor thereof,
enforceable by administrative or judicial action, and may only be
extinguished upon payment of the tax and the related interests and
expenses.

Section 258. Levy on Real Property. - After the expiration of the

time required to pay the basic real property tax or any other tax levied
under this Title, real property subject to such tax may be levied upon
through the issuance of a warrant on or before, or simultaneously
with, the institution of the civil action for the collection of the
delinquent tax. The provincial or city treasurer, or a treasurer of a
municipality within the Metropolitan Manila Area, as the case may
be, when issuing a warrant of levy shall prepare a duly authenticated
certificate showing the name of the delinquent owner of the property
or person having legal interest therein, the description of the
property, the amount of the tax due and the interest thereon. The
warrant shall operate with the force of a legal execution throughout
the province, city or a municipality, within the Metropolitan Manila
Area. The warrant shall be mailed to or served upon the delinquent
owner of the real property or person having legal interest therein, or
in case he is out of the country or cannot be located, the
administrator or occupant of the property. At the same time, written
notice of the levy with the attached warrant shall be mailed to or
served upon the assessor and the Registrar of Deeds of the province,
city or municipality within the Metropolitan Manila Area where the
property is located, who shall annotate the levy on the tax declaration
and certificate of title of the property, respectively.
The levying officer shall submit a report on the levy to the
sanggunian concerned within ten (10) days after receipt of the
warrant by the owner of the property or person having legal interest
therein.

Section 259. Penalty for Failure to Issue and Execute Warrant. -

Without prejudice to criminal prosecution under the Revised Penal
Code and other applicable laws, any local treasurer or his deputy who
fails to issue or execute the warrant of levy within one (1) year from
the time the tax becomes delinquent or within thirty (30) days from
the date of the issuance thereof, or who is found guilty of abusing the
exercise thereof in an administrative or judicial proceeding shall be
dismissed from the service.
 Section 260. Advertisement and Sale. - Within thirty (30) days after
service of the warrant of levy, the local treasurer shall proceed to
publicly advertise for sale or auction the property or a usable portion
thereof as may be necessary to satisfy the tax delinquency and
expenses of sale. The advertisement shall be effected by posting a
notice at the main entrance of the provincial, city or municipal
building, and in a publicly accessible and conspicuous place in the
barangay where the real property is located, and by publication once a
week for two (2) weeks in a newspaper of general circulation in the
province, city or municipality where the property is located. The
advertisement shall specify the amount of the delinquent tax, the
interest due thereon and expenses of sale, the date and place of sale,
the name of the owner of the real property or person having legal
interest therein, and a description of the property to be sold. At any
time before the date fixed for the sale, the owner of the real property
or person having legal interest therein may stay the proceedings by
paying the delinquent tax, the interest due thereon and the expenses
of sale. The sale shall be held either at the main entrance of the
provincial, city or municipal building, or on the property to be sold,
or at any other place as specified in the notice of the sale.
Within thirty (30) days after the sale, the local treasurer or his
deputy shall make a report of the sale to the sanggunian concerned,
and which shall form part of his records. The local treasurer shall
likewise prepare and deliver to the purchaser a certificate of sale
which shall contain the name of the purchaser, a description of the
property sold, the amount of the delinquent tax, the interest due
thereon, the expenses of sale and a brief description of the
proceedings: Provided, however, That proceeds of the sale in excess of
the delinquent tax, the interest due thereon, and the expenses of sale
shall be remitted to the owner of the real property or person having
legal interest therein.
 The local treasurer may, by ordinance duly approved, advance an
amount sufficient to defray the costs of collection thru the remedies
provided for in this Title, including the expenses of advertisement
and sale.

Section 261. Redemption of Property Sold. - Within one (1) year

from the date of sale, the owner of the delinquent real property or
person having legal interest therein, or his representative, shall have
the right to redeem the property upon payment to the local treasurer
of the amount of the delinquent tax, including the interest due
thereon, and the expenses of sale from the date of delinquency to the
date of sale, plus interest of not more than two percent (2%) per
month on the purchase price from the date of sale to the date of
redemption. Such payment shall invalidate the certificate of sale
issued to the purchaser and the owner of the delinquent real property
or person having legal interest therein shall be entitled to a certificate
of redemption which shall be issued by the local treasurer or his
deputy.
From the date of sale until the expiration of the period of
redemption, the delinquent real property shall remain in possession
of the owner or person having legal interest therein who shall be
entitled to the income and other fruits thereof.
The local treasurer or his deputy, upon receipt from the
purchaser of the certificate of sale, shall forthwith return to the latter
the entire amount paid by him plus interest of not more than two
percent (2%) per month. Thereafter, the property shall be free from
lien of such delinquent tax, interest due thereon and expenses of sale.

Section 262. Final Deed to Purchaser. - In case the owner or person

having legal interest fails to redeem the delinquent property as
provided herein, the local treasurer shall execute a deed conveying to
the purchaser said property, free from lien of the delinquent tax,
interest due thereon and expenses of sale. The deed shall briefly state
the proceedings upon which the validity of the sale rests.

Section 263. Purchase of Property By the Local Government Units for

Want of Bidder. - In case there is no bidder for the real property
advertised for sale as provided herein, the real property tax and the
related interest and costs of sale the local treasurer conducting the
sale shall purchase the property in behalf of the local government unit
concerned to satisfy the claim and within two (2) days thereafter shall
make a report of his proceedings which shall be reflected upon the
records of his office. It shall be the duty of the Registrar of Deeds
concerned upon registration with his office of any such declaration of
forfeiture to transfer the title of the forfeited property to the local
government unit concerned without the necessity of an order from a
competent court.
Within one (1) year from the date of such forfeiture, the taxpayer
or any of his representative, may redeem the property by paying to the
local treasurer the full amount of the real property tax and the related
interest and the costs of sale. If the property is not redeemed as
provided herein, the ownership thereof shall be vested on the local
government unit concerned.

Section 264. Resale of Real Estate Taken for Taxes, Fees, or Charges. -
The sanggunian concerned may, by ordinance duly approved, and
upon notice of not less than twenty (20) days, sell and dispose of the
real property acquired under the preceding section at public auction.
The proceeds of the sale shall accrue to the general fund of the local
government unit concerned.

Section 265. Further Distraint or Levy. - Levy may be repeated if

necessary until the full amount due, including all expenses, is
collected.
 Section 266. Collection of Real Property Tax Through the Courts. -
The local government unit concerned may enforce the collection of
the basic real property tax or any other tax levied under this Title by
civil action in any court of competent jurisdiction. The civil action
shall be filed by the local treasurer within the period prescribed in
Section 270 of this Code.

Section 267. Action Assailing Validity of Tax Sale. - No court shall

entertain any action assailing the validity or any sale at public auction
of real property or rights therein under this Title until the taxpayer
shall have deposited with the court the amount for which the real
property was sold, together with interest of two percent (2%) per
month from the date of sale to the time of the institution of the
action. The amount so deposited shall be paid to the purchaser at the
auction sale if the deed is declared invalid but it shall be returned to
the depositor if the action fails.
Neither shall any court declare a sale at public auction invalid by
reason or irregularities or informalities in the proceedings unless the
substantive rights of the delinquent owner of the real property or the
person having legal interest therein have been impaired.

Section 268. Payment of Delinquent Taxes on Property Subject of

Controversy. - In any action involving the ownership or possession of,
or succession to, real property, the court may, motu propio or upon
representation of the provincial, city, or municipal treasurer or his
deputy, award such ownership, possession, or succession to any party
to the action upon payment to the court of the taxes with interest due
on the property and all other costs that may have accrued, subject to
the final outcome of the action.

Section 269. Treasurer to Certify Delinquencies Remaining

Uncollected. - The provincial, city or municipal treasurer or their
deputies shall prepare a certified list of all real property tax
delinquencies which remained uncollected or unpaid for at least one
(1) year in his jurisdiction, and a statement of the reason or reasons
for such non-collection or non-payment, and shall submit the same to
the sanggunian concerned on or before December thirty-first (31st) of
the year immediately succeeding the year in which the delinquencies
were incurred, with a request for assistance in the enforcement of the
remedies for collection provided herein.

Section 270. Periods Within Which To Collect Real Property Taxes. -

The basic real property tax and any other tax levied under this Title
shall be collected within five (5) years from the date they become due.
No action for the collection of the tax, whether administrative or
judicial, shall be instituted after the expiration of such period. In case
of fraud or intent to evade payment of the tax, such action may be
instituted for the collection of the same within ten (10) years from the
discovery of such fraud or intent to evade payment.
The period of prescription within which to collect shall be
suspended for the time during which:
(1) The local treasurer is legally prevented from collecting the tax;
(2) The owner of the property or the person having legal interest
therein requests for reinvestigation and executes a waiver in writing
before the expiration of the period within which to collect; and
(3) The owner of the property or the person having legal interest
therein is out of the country or otherwise cannot be located.

CHAPTER VII - DISPOSITION OF PROCEEDS

Section 271. Distribution of Proceeds. - The proceeds of the basic
real property tax, including interest thereon, and proceeds from the
use, lease or disposition, sale or redemption of property acquired at a
public auction in accordance with the provisions of this Title by the
province or city or a municipality within the Metropolitan Manila
Area shall be distributed as follows:
(a) In the case of provinces:
(1) Province - Thirty-five percent (35%) shall accrue to the general
fund;
(2) Municipality - Forty percent (40%) to the general fund of the
municipality where the property is located; and
(3) Barangay - Twenty-five percent (25%) shall accrue to the
barangay where the property is located.
(b) In the case of cities:
(1) City - Seventy percent (70%) shall accrue to the general fund
of the city; and
(2) Thirty percent (30%) shall be distributed among the
component barangays of the cities where the property is located in the
following manner:
(i) Fifty percent (50%) shall accrue to the barangay where the
property is located;
(ii) Fifty percent (50%) shall accrue equally to all component
barangays of the city; and
(c) In the case of a municipality within the Metropolitan Manila
Area:
(1) Metropolitan Manila Authority - Thirty-five percent (35%)
shall accrue to the general fund of the authority;
(2) Municipality - Thirty-five percent (35% shall accrue to the
general fund of the municipality where the property is located;
 (3) Barangays - Thirty percent (30%) shall be distributed among
the component barangays of the municipality where the property is
located in the following manner:
(i) Fifty percent (50%) shall accrue to the barangay where the
property is located;
(ii) Fifty percent (50%) shall accrue equally to all component
barangays of the municipality.
(d) The share of each barangay shall be released, without need of
any further action, directly to the barangay treasurer on a quarterly
basis within five (5) days after the end of each quarter and shall not
be subject to any lien or holdback for whatever purpose.

Section 272. Application of Proceeds of the Additional One Percent

SEF Tax. - The proceeds from the additional one percent (1%) tax on
real property accruing to the Special Education Fund (SEF) shall be
automatically released to the local school boards: Provided, That, in
case of provinces, the proceeds shall be divided equally between the
provincial and municipal school boards: Provided, however, That the
proceeds shall be allocated for the operation and maintenance of
public schools, construction and repair of school buildings, facilities
and equipment, educational research, purchase of books and
periodicals, and sports development as determined and approved by
the Local School Board.

Section 273. Proceeds of the Tax on Idle Lands. - The proceeds of

the additional real property tax on idle lands shall accrue to the
respective general fund of the province or city where the land is
located. In the case of a municipality within the Metropolitan Manila
Area, the proceeds shall accrue equally to the Metropolitan Manila
Authority and the municipality where the land is located.
 Section 274. Proceeds of the Special Levy. - The proceeds of the
special levy on lands benefited by public works, projects and other
improvements shall accrue to the general fund of the local
government unit which financed such public works, projects or other
improvements.

CHAPTER VIII - SPECIAL PROVISIONS

Section 275. General Assessment Revision; Expenses Incident Thereto.
- The sanggunian of provinces, cities and municipalities within the
Metropolitan Manila Area shall provide the necessary appropriations
to defray the expenses incident to the general revision of real property
assessment.
All expenses incident to a general revision of real property
assessment shall, by ordinance of the sangguniang panlalawigan, be
apportioned between the province and the municipality on the basis
of the taxable area of the municipality concerned.

Section 276. Condonation or Reduction of Real Property Tax and

Interest. - In case of a general failure of crops or substantial decrease in
the price of agricultural or agribased products, or calamity in any
province, city or municipality, the sanggunian concerned, by
ordinance passed prior to the first (1st) day of January of any year and
upon recommendation of the Local Disaster Coordinating Council,
may condone or reduce, wholly or partially, the taxes and interest
thereon for the succeeding year or years in the city or municipality
affected by the calamity.

Section 277. Condonation or Reduction of Tax by the President of the

Philippines. - The President of the Philippines may, when public
interest so requires, condone or reduce the real property tax and
interest for any year in any province or city or a municipality within
the Metropolitan Manila Area.
 Section 278. Duty of Registrar of Deeds and Notaries Public to Assist
the Provincial, City or Municipal Assessor. - It shall be the duty of the
Registrar of Deeds and notaries public to furnish the provincial, city
or municipal assessor with copies of all contracts selling, transferring,
or otherwise conveying, leasing, or mortgaging real property received
by, or acknowledged before them.

Section 279. Insurance Companies to Furnish Information. -

Insurance companies are hereby required to furnish the provincial,
city or municipal assessor copies of any contract or policy insurance
on buildings, structures, and improvements insured by them or such
other documents which may be necessary for the proper assessment
thereof.

Section 280. Fees in Court Actions. - All court actions, criminal or

civil, instituted at the instance of the provincial, city or municipal
treasurer or assessor under the provisions of this Code, shall be
exempt from the payment of court and sheriff's fees.

Section 281. Fees in Registration of Papers or Documents on Sale of

Delinquent Real Property to Province, City or Municipality. - All
certificates, documents, and papers covering the sale of delinquent
property to the province, city or municipality, if registered in the
Registry of Property, shall be exempt from the documentary stamp tax
and registration fees.

Section 282. Real Property Assessment Notices or Owner's Copies of

Tax Declarations to be Exempt from Postal Charges or Fees. - All real
property assessment notices or owner's copies of tax declaration sent
through the mails by the assessor shall be exempt from the payment
of postal charges or fees.

Section 283. Sale and Forfeiture Before Effectivity of Code. - Tax

delinquencies incurred, and sales and forfeitures of delinquent real
property effected, before the effectivity of this Code shall be governed
by the provisions of applicable laws then in force.
 SHARES OF LOCAL
GOVERNMENT UNITS IN
THE PROCEEDS OF
NATIONAL TAXES
 TITLE III
SHARES OF LOCAL GOVERNMENT UNITS IN THE
PROCEEDS OF NATIONAL TAXES

CHAPTER I - ALLOTMENT OF INTERNAL

REVENUE
Section 284. Allotment of Internal Revenue Taxes. - Local
government units shall have a share in the national internal revenue
taxes based on the collection of the third fiscal year preceding the
current fiscal year as follows:
(a) On the first year of the effectivity of this Code, thirty percent
(30%);
(b) On the second year, thirty-five percent (35%); and
(c) On the third year and thereafter, forty percent (40%).
Provided, That in the event that the national government incurs
an unmanageable public sector deficit, the President of the
Philippines is hereby authorized, upon the recommendation of
Secretary of Finance, Secretary of Interior and Local Government and
Secretary of Budget and Management, and subject to consultation
with the presiding officers of both Houses of Congress and the
presidents of the "liga", to make the necessary adjustments in the
internal revenue allotment of local government units but in no case
shall the allotment be less than thirty percent (30%) of the collection
of national internal revenue taxes of the third fiscal year preceding
the current fiscal year: Provided, further, That in the first year of the
effectivity of this Code, the local government units shall, in addition
to the thirty percent (30%) internal revenue allotment which shall
include the cost of devolved functions for essential public services, be
entitled to receive the amount equivalent to the cost of devolved
personal services.
 Section 285. Allocation to Local Government Units. - The share of
local government units in the internal revenue allotment shall be
collected in the following manner:
(a) Provinces - Twenty-three percent (23%);
(b) Cities - Twenty-three percent (23%);
(c) Municipalities - Thirty-four percent (34%); and
(d) Barangays - Twenty percent (20%)
Provided, however, That the share of each province, city, and
municipality shall be determined on the basis of the following
formula:
(a) Population - Fifty percent (50%);
(b) Land Area - Twenty-five percent (25%); and
(c) Equal sharing - Twenty-five percent (25%)
Provided, further, That the share of each barangay with a
population of not less than one hundred (100) inhabitants shall not
be less than Eighty thousand (P80,000.00) per annum chargeable
against the twenty percent (20%) share of the barangay from the
internal revenue allotment, and the balance to be allocated on the
basis of the following formula:
(a) On the first year of the effectivity of this Code:
(1) Population - Forty percent (40%); and
(2) Equal sharing - Sixty percent (60%)
(b) On the second year:
(1) Population - Fifty percent (50%); and
 (2) Equal sharing - Fifty percent (50%)
(c) On the third year and thereafter:
(1) Population - Sixty percent (60%); and
(2) Equal sharing - Forty percent (40%).
Provided, finally, That the financial requirements of barangays
created by local government units after the effectivity of this Code
shall be the responsibility of the local government unit concerned.

Section 286. Automatic Release of Shares. -

(a) The share of each local government unit shall be released,
without need of any further action, directly to the provincial, city,
municipal or barangay treasurer, as the case may be, on a quarterly
basis within five (5) days after the end of each quarter, and which
shall not be subject to any lien or holdback that may be imposed by
the national government for whatever purpose.
(b) Nothing in this Chapter shall be understood to diminish the
share of local government units under existing laws.

Section 287. Local Development Projects. - Each local government

unit shall appropriate in its annual budget no less than twenty
percent (20%) of its annual internal revenue allotment for
development projects. Copies of the development plans of local
government units shall be furnished the Department of Interior and
Local Government.

Section 288. Rules and Regulations. - The Secretary of Finance, in

consultation with the Secretary of Budget and Management, shall
promulgate the necessary rules and regulations for a simplified
disbursement scheme designed for the speedy and effective
enforcement of the provisions of this Chapter.
CHAPTER II - SHARE OF LOCAL GOVERNMENT
UNITS IN THE NATIONAL WEALTH
Section 289. Share in the Proceeds from the Development and
Utilization of the National Wealth. - Local government units shall have
an equitable share in the proceeds derived from the utilization and
development of the national wealth within their respective areas,
including sharing the same with the inhabitants by way of direct
benefits.

Section 290. Amount of Share of Local Government Units. - Local

government units shall, in addition to the internal revenue allotment,
have a share of forty percent (40%) of the gross collection derived by
the national government from the preceding fiscal year from mining
taxes, royalties, forestry and fishery charges, and such other taxes, fees,
or charges, including related surcharges, interests, or fines, and from
its share in any co-production, joint venture or production sharing
agreement in the utilization and development of the national wealth
within their territorial jurisdiction.

Section 291. Share of the Local Governments from any Government

Agency or Owned or Controlled Corporation. - Local government units
shall have a share based on the preceding fiscal year from the
proceeds derived by any government agency or government-owned or
controlled corporation engaged in the utilization and development of
the national wealth based on the following formula whichever will
produce a higher share for the local government unit:
(a) One percent (1%) of the gross sales or receipts of the
preceding calendar year; or
(b) Forty percent (40%) of the mining taxes, royalties, forestry
and fishery charges and such other taxes, fees or charges, including
related surcharges, interests, or fines the government agency or
government owned or controlled corporation would have paid if it
were not otherwise exempt.

Section 292. Allocation of Shares. - The share in the preceding

Section shall be distributed in the following manner:
(a) Where the natural resources are located in the province:
(1) Province - Twenty percent (20%);
(2) Component City/Municipality - Forty-five percent (45%); and
(3) Barangay - Thirty-five percent (35%)
Provided, however, That where the natural resources are located
in two (2) or more provinces, or in two (2) or more component cities
or municipalities or in two (2) or more barangays, their respective
shares shall be computed on the basis of:
(1) Population - Seventy percent (70%); and
(2) Land area - Thirty percent (30%)
(b) Where the natural resources are located in a highly urbanized
or independent component city:
(1) City - Sixty-five percent (65%); and
(2) Barangay - Thirty-five percent (35%)
Provided, however, That where the natural resources are located
in such two (2) or more cities, the allocation of shares shall be based
on the formula on population and land area as specified in paragraph
(a) of this Section.

Section 293. Remittance of the Share of Local Government Units. -

The share of local government units from the utilization and
development of national wealth shall be remitted in accordance with
Section 286 of this Code: Provided, however, That in the case of any
government agency or government-owned or controlled corporation
engaged in the utilization and development of the national wealth,
such share shall be directly remitted to the provincial, city, municipal
or barangay treasurer concerned within five (5) days after the end of
each quarter.

Section 294. Development and Livelihood Projects. - The proceeds

from the share of local government units pursuant to this chapter
shall be appropriated by their respective sanggunian to finance local
government and livelihood projects: Provided, however, That at least
eighty percent (80%) of the proceeds derived from the development
and utilization of hydrothermal. geothermal, and other sources of
energy shall be applied solely to lower the cost of electricity in the
local government unit where such a source of energy is located.