LOCAL TAX 5.
Common limitations on the taxing power of LGUs
(Sections 128 to 196 of R.A. No. 7160)
I. LOCAL GOVERNMENT UNITS & SCOPE OF
LOCAL TAXATION
Territorial jurisdiction:
1. Provinces
2. Cities
3. Municipalities
4. Barangays
II. POWER TO CREATE SOURCES OF REVENUE
Power to tax of the LGUs is NOT an inherent power. It is
a delegated power from direct authority of the
Constitution and not by Congress. Without the
Constitution, LGUs have no power to tax.
Local Government Code is a product of an enactment by
Congress of a law for local taxation as authorized by the
Constitution.
Reason for giving LGUs power to tax:
Pursuant to LOCAL AUTONOMY provision of the
Constitution specifically to safeguard the viability and
self-sufficiency fo each and every LGU by directly
granting them the power to raise its own sources of
revenues
LGUs only have RESIDUAL TAXING POWERS
- Only those taxes not imposed by the National
Government through the Bureau of Customs (BOC)
and the BIR may fall within the taxing power of the
LGU. It cannot overlap generally because of the
principle of avoidance of double taxation.
SEC. 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.
LIMITATIONS of the residual taxing power of LGUs:
1. Constitutional Limitation
2. Fundamental Principles
3. Public Hearing requirement
4. Principle of Pre-emption or Exclusionary Rule
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Exclusionary Rule
- Where the Natl govt elects to tax a particular area,
the delegated power of the LGUs to tax the same
field is impliedly limited.
- Where the Natl govt elects to tax a particular area
(subject matter of taxation), impliedly withholding
form the local government the delegated power to
tax the same field.
- Example: The Natl govt already subject AAA Corp
to income tax, the LGU could no longer subject it to
income tax. However, the LGU can still impose
business taxes (different subject matter of taxation)
Natl govt > LGU
III. AUTHORITY TO GRANT TAX EXEMPTION
PRIVILEGES
SEC. 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.
LGUs can grant:
a. tax exemptions
b. tax incentives
c. tax reliefs
Requisite: Duly approved Ordinance
Note: LGUs can grant tax exemptions however,
this is not an inherent power. Since the power to tax of
LGUs is not inherent, the authority to grant tax
exemption is also not inherent.
Tax exemption, relief or incentive does NOT extend to
exemption of REGULATORY FEES. These fees are under
the police power of the LGUs.
IV. WITHDRAWAL OF TAX EXEMPTION
PRIVILEGES
SEC. 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.
Entities exempt from Local taxation (Categorical
Exemption):
1. Local water districts
2. Cooperatives duly registered under R.A. No. 6938
 (Cooperative Code of the Phils.)
3. Non-stock and non-profit hospitals
4. Non-stock and non-profit educational institutions
5. PEZA-registered companies or companies located
within the economic zones, whether the Subic Bay,
PEZA, Laguna, Cavite, etc., because theyre already
taxable to 5% preferential tax in lieu of all national
and local taxes (not expressed in the LGC but
exempt because of special laws)
For all the rest, theyre taxable already to local taxation.
Hence, GOCCs are NOT exempt from local taxation. Sec.
193 of the LGC withdrew its previous exemption.
1. Though it was a blanket exemption, it was
expressly done and is valid
The National Government continues to be exempted as
well as its agencies and instrumentalities. LGUs are
exempt from local taxes as a rule, but a law can be
enacted to impose tax on LGUs by the Natl Govt.
Proof of tax exemption of a particular entity:
Tax Exemption certificate which is Non-transferrable
ARTICLE 282 (IRR of LGC). Authority to Grant Tax Exemption
Privileges or Incentives.
(a) While sanggunians may grant tax exemption, tax incentive,
or tax relief, such grant shall not apply to regulatory fees which
are levied under the police power of LGUs. Tax exemptions shall
be conferred through the issuance of a tax exemption
certificate, which shall be non-transferable.
(b) The sanggunians granting tax exemptions, tax incentives
and tax reliefs may be guided by the following:
(1) On the grant of tax exemptions or tax reliefs:
(i) Tax exemption or tax relief may be granted in
cases of:
A. natural calamities,
B. civil disturbance,
C. general failure of crops, or
D. adverse economic conditions such as
substantial decrease in the prices of
agricultural or agri-based products;
(ii) The grant of exemption or relief shall be
through an ordinance.
(iii) Any exemption or relief granted to a type or
kind of business shall apply to all business similarly
situated; and
(iv) Any exemption or relief granted shall take
effect only during the next calendar year for a period
not exceeding twelve (12) months as may be
provided in the ordinance. In the case of shared
revenues, the exemption or relief shall only extend to
the LGU granting such exemption or relief.
Next calendar year local taxes accrue
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every January 1 and is payable every jan.
20 every year based on the past years
operations. So if there is natural calamity
this year, you will only be exempt from
paying the tax which will accrue January 1
of next year, payable on January 20 of
next year. It will not be retroactive
because tax has already accrued and has
already been paid for the present year.
(2) On the grant of tax incentives:
(i) The tax incentive shall be granted only to new
investments in the locality and the ordinance shall
prescribe the terms and conditions therefor;
(ii) The grant of the tax incentive shall be for a
definite period not exceeding one (1) calendar year;
(iii) The grant of tax incentives shall be by
ordinance passed prior to the first (1st) day of January of
any year; and
(iv) Any tax incentive granted to a type or kind of
business shall apply to all businesses similarly situated.
Special ordinance is required for tax exemptions and
incentives because these are special cases. This is not
the general rule.
Ex. When Ondoy happened, businesses were affected.
Tax exemption can be provided for a business industry
similarly situated hence, it cannot be favorable to only
one or a few businesses and adverse to other business.
OW, it becomes void.
It is only applicable for one year. However, if in that
business industry there is only one business of that kind,
it does not prevent the granting of the tax exemption.
V. FUNDAMENTAL PRINICIPLES (Sec. 130)
What are the fundamental principles (Sec. 130)?
1. Taxation shall be uniform in each LGU
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on
the TPs ability to pay
b. be levied and collected only for public
purposes
c. not unjust, excessive, oppressive, or
confiscatory; and
d. not be contrary to law, public policy, national
economic policy, or in restraint of trade
3. The collection of local taxes, fees, charges and other
impositions shall in no case be let to any private person
Unlike taxes under the national
government (BIR), the collection can be
delegated to Authorized Agent Banks (AAB),
for local taxes, this cannot be delegated by
the LGUs
 It is one of the differences between local
taxes and national taxes. In local taxation,
both RP and local taxes, the collection of
taxes cannot be delegated to any private
firm, including banks.
Public funds cannot be used to hire private
lawyers
4. The revenue collected shall inure solely to the
benefit of and be subject to disposition by the LGU
levying the tax, fee, charge or imposition unless
otherwise provided in the LGC
5. Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
VI. LOCAL TAXING AUTHORITY
VII. LOCAL TAX ORDINANCE Procedure for
Approval and Effectivity
It must observe:
a. Substantive due process
- must observe the fundamental principles provided
in Section 130
- Local tax ordinance must be within the confines of
the LGC. Any provision that is beyond the scope of
authority granted by the LGC makes such
provision void. (meaning those that are provided
in the LGC should be followed, i.e. maximum of
professional tax is P300 per profession, LGU
cannot impose 400)
b. Procedural due process
B.1 Approval of the ordinance by the Sanggunian
concerned
SEC. 54. Approval of Ordinances. - (a) Every ordinance
enacted by the sangguniang panlalawigan, sangguniang
panlungsod, or sangguniang bayan shall be presented to
the provincial governor or city or municipal mayor, as the
case may be. If the local chief executive concerned
approves the same, he shall affix his signature on each
and every page thereof; otherwise, he shall veto it and
return the same with his objections to the sanggunian,
which may proceed to reconsider the same. The
sanggunian concerned may override the veto of the local
chief executive by two-thirds (2/3) vote of all its members,
thereby making the ordinance or resolution effective for
all legal intents and purposes.
(b) The veto shall be communicated by the local chief
executive concerned to the sanggunian within fifteen (15)
days in the case of a province, and ten (10) days in the
case of a city or a municipality; otherwise, the ordinance
shall be deemed approved as if he had signed it.
(c) ordinances enacted by the sangguniang barangay
shall, upon approval by the majority of all its members, be
signed by the punong barangay.
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SEC. 55. Veto Power of the Local Chief Executive. - (a)
The local chief executive may veto any ordinance of the
sangguniang panlalawigan, sangguniang panlungsod, or
sangguniang bayan on the ground that it is ultra vires or
prejudicial to the public welfare, stating his reasons
therefor in writing.
(b) The local chief executive, except the punong barangay,
shall have the power to veto any particular item or items
of an appropriations ordinance, an ordinance or resolution
adopting a local development plan and public investment
program, or an ordinance directing the payment of money
or creating liability. In such a case, the veto shall not affect
the item or items which are not objected to. The vetoed
item or items shall not take effect unless the sanggunian
overrides the veto in the manner herein provided;
otherwise, the item or items in the appropriations
ordinance of the previous year corresponding to those
vetoed, if any, shall be deemed reenacted.
(c) The local chief executive may veto an ordinance or
resolution only once. The sanggunian may override the
veto of the local chief executive concerned by two-thirds
(2/3) vote of all its members, thereby making the
ordinance effective even without the approval of the local
chief executive concerned.
Local Chief executive may approve or veto the
ordinance. (Note: Barangay captain has no veto
powers)
- If vetoed, the Sanggunian may override the
veto by 2/3 vote of all its members
B.2 Mandatory Public Hearing
- to afford due process to the oppositors
SEC. 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
B.3 Publication of ordinances
SEC. 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.
Publication published in FULL
- meaning the Entire Ordinance
- after approval there must be
dissemination to the local treasurer of
the respective LGU for them to have it
published within 10 days from date of
approval
- published in newspaper of LOCAL
circulation for 3 consecutive days
 - If there are no such newspaper, then post
in at least 2 conspicuous and public
accessible places
Tax Ordinance No. 7988 is null and void as said ordinance was
published only for one day in the 22 May 2000 issue of the Philippine
Post in contravention of the unmistakable directive of the Local
Government Code of 1991 to publish it for 3 consecutive days. Also any
amending ordinance to Tax Ordinance No. 7988 is null and void. If an
order or law sought to be amended is invalid, then it does not legally
exist, there should be no occasion or need to amend it. (Coca-Cola
Philippines, Inc. vs. City of Manila)
Question on the constitutionality or legality
Section 187. 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.
- Raise on appeal to Secretary of Justice within
30 days from effectivity
- SOJ given 60 days after receipt of appeal to
give decision
VIII. COMMON LIMITATIONS ON THE TAXING
- After SOJ, appeal to RTC
o 30 days after adverse decision
o 30 days after end of 60 days from
receipt of SOJ without decision
Void or Suspended Tax Ordinances
Effect of appeal:
- Does not suspend the effectivity of the
ordinance nor the accrual and payment of the
tax, fee or charge levied. Hence, the ordinance
remains valid until adjudged unlawful or
unconstitutional.
Refund of taxes from a void tax ordinance
- allowed only if declaration of nullity of the
ordinance is based on the ground of void ab
initio
SEC. 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.
Administrative cases may be filed against an erring local
government official who continues to enforce the ordinance
that has been declared as void.
Penalties for Violations of Tax Ordinances
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SEC. 168. Surcharges and Penalties on Unpaid Taxes, Fees, or
Charges. - The sanggunian may impose a surcharge not
exceeding twenty-five percent (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 interest on the unpaid amount or
portion thereof exceed thirty-six (36) months.
SEC. 516. Penalties for Violation of Tax ordinances. - The
sanggunian of a local government unit is authorized to
prescribe fines or other penalties for violation of tax ordinances
but in no case shall such fines be less than One thousand pesos
(P=1,000.00) nor more than Five thousand pesos (P=5000.00),
nor shall imprisonment be less than one (1) month nor more
than six (6) months. Such fine or other penalty, or both, shall be
imposed at the discretion of the court. The sangguniang
barangay may prescribe a fine of not less than One hundred
pesos (P=100.00) nor more than One thousand pesos
(P=1,000.00).
LIMIT 25% surcharge
Interest 2% per month of the unpaid taxes, fees or
charges including surcharges (up to 36 months interest
only)
i.e. unpaid taxes of 1Million in 2007
Surcharge limit is 250,000
Interest is 2% of 1,250,000 up to 36 months only
POWER OF THE LGUs
SEC. 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;
- Income tax is already imposed by the Natl
govt (Principle of Pre-emption / Exclusionary
Rule)
- Banks and other financial institutions
(including money chargers, pawnshops etc.)
are imposed income taxes since they are
highly profitable institutions (not a high-risk
business)
(b) Documentary stamp tax;
- already covered by the NIRC
(c) Taxes on estates, inheritance, gifts, legacies and
other acquisitions mortis causa, except as otherwise
provided herein;
- already covered by NIRC.
- Except those subject to taxes on transfer or
real property by provinces and cities (Sec. 135
and 151)
 (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;
- wharfage on wharves constructed and
maintained by the local government unit
concerned still taxable
(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;
A domestic corporation certified by the Board of
Investments is not absolutely tax exempt.
If pioneer enterprise 6 years exempted
If non-pioneer enterprise 4 years only
Pioneer enterprise - first to establish such kind of
business in the Philippines
(non-pioneer already existing)
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;
- For petroleum products there is a Blanket
exemption, meaning it is tax exempt on the
business and the product itself
- For other business subject to excise taxes, only
the article or product itself is exempt, the
business can still be taxable either as
manufacture, retailer, exporter, wholesaler
etc.
Petron Corporation vs. Mayor Tobias M. Tiangco, et.al. SC
GR No. 158881, April 16, 2008
A tax on a business is distinct from a tax on the article itself, or for
that matter, that a business tax is distinct from an excise tax.
However, such distinction is immaterial insofar as the latter part of
Section 133(h) is concerned, for the phrase "taxes, fees or charges on
petroleum products" does not qualify the kind of taxes, fees or
charges that could withstand the absolute prohibition imposed by
the provision. The language of Section 133(h) makes plain that the
prohibition with respect to petroleum products extends not only to
excise taxes thereon, but all "taxes, fees and charges."
(i) Percentage or value-added tax (VAT) on sales,
barters or exchanges or similar transactions on goods
or services except as otherwise provided herein;
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- already covered by the NIRC
- However, for local business taxes, if you reach
the maximum amount, that can already be
equated to percentage taxes (i.e. 37.5% of 1%
of gross receipts for manufacturers if 6.5M or
more)
(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;
- already covered as percentage taxes in NIRC
- However, gross receipts of tricycle operators
are still subject to local taxes
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
- Hence, premiums on insurance are as a rule
covered
- Only the reinsurance is exempt since they
have already been previously subjected to
local taxes
(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;
- already covered by special laws
- Taxes, fees or charges for the registration of
tricycles and the issuance of licenses for
tricycles belong to the LGUs, including the
power to tax on their gross receipts
Land Transportation Office vs. City of Butuan, SC GR No.
131512, January 20, 2000
The newly delegated powers to the LGU pertain to the franchising
and regulatory powers theretofore exercised by the LTFRB and not
to the functions of the LTO relative to the registration of motor
vehicles and issuance of licenses for the driving thereof. Clearly
unaffected by the Local Government Code are the powers of LTO
under R.A. No. 4136 requiring the registration of all kinds of motor
vehicles "used or operated on or upon any public highway" in the
country.
The devolution of the functions of the DOTC, performed by the
LTFRB, to the LGUs, is aimed at curbing the alarming increase of
accidents in national highways involving tricycles. It has been the
perception that local governments are in good position to achieve
the end desired by the law-making body because of their proximity
to the situation that can enable them to address that serious
concern better than the national government.
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
- Local tax on every product exported is not
allowed
- However, exporters are subjected to local
taxes on their business of exporting
 (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 "Cooperatives 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.
- It contravenes the existing govt policy or
violative of the fundamental principles of
taxation
IX. COMMON REVENUE-RAISING POWERS OF
LGUS
1. Service Fees and Charges
2. Public Utility Charges
3. Toll fees or charges
SEC. 153. Service Fees and Charges. - Local government
units may impose and collect such reasonable fees and
charges for services rendered.
Ex. For whatever type of basic services (i.e. parking fees,
garbage collection)
SEC. 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.
- As long as it is the LGU that owns the public
utility (i.e. LGUs except barangays can operate
bus operations and impose common charge to
passengers)
SEC. 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:
a. Officers and enlisted men of the Armed Forces of the
Philippines (AFP) and members of the Philippine National
Police (PNP) on mission,
b. Post office personnel delivering mail,
c. Physically-handicapped, and
d. Disabled citizens who are sixty-five (65) years or older.
e. 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.
Toll fee a charge for the use of public road, pier or
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wharf, waterway, bridge, ferry or telecommunication
system funded and constructed by the local government
unit concerned
Reason for charging toll fees recovery of the costs of
these public roads and other infrastructures
Not all are subject to toll fees. There are individuals who
are exempt as stated above.
X. SCOPE OF THE POWER TO TAX
4 LGUS can tax: Province, city, municipality and
barangay.
Least taxing power Barangay
Most taxing power Cities because it may levy taxes,
fees and charges which the province or municipality may
impose. It can also impose up to 50% higher than what
the province or municipality may impose.
Taxing power of Province and municipality is mutually
exclusive. One pre-empts the other. Whatever is taxable
by the province can no longer be taxed by municipality
and vice-versa.
The city pre-empts the municipality and the province.
When the city taxes a specific subject, the municipality
and the province can no longer tax them.
A. Province (Secs. 134-141)
1. Tax on Transfer of Real Property Ownership or
Local transfer tax (LTT)
SEC. 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 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 (CARL
Comprehensive Agrarian Reform Law) 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.
 Any mode of transfer of RP ownership, such
as sale, donation, barter, succession, exchange
(whether mortis causa or inter vivos, onerous
or gratuitous)
Exceptions:
a.) Transfers pursuant to CARL (transfers from
the landlord to the tenant or the farmer)
b.) Sale of socialized housing.
c.) Transfer of personal property
RATE: At of 1% (50% of 1%) based on the
total consideration or the FMV if the total
consideration received is not substantial,
whichever is higher
Example: A religious institution donated a
parcel of land to a non-stock non-profit
foundation. Subject to LTT?
YES. The provision of the LGC is clear that all
modes of transfer of RP ownership, regardless
of who the owner is subject to LTT.
LTT is taxed on TRANSFER regardless of
ownership (whether transferee or transferor is
religious institution, non-stock, non-profit
foundation) It is a privilege of transferring the
RP ownership to another person. It is an excise
tax.
The exemption provided by the Constitution
for religious institutions only relate to real
property taxes. It does not include local
transfer tax.
Constitutional exemption only relate when it is
actually, directly and exclusively (ADE) used for its
purpose. Transferring property cannot be
considered ADE use.
RPT vs. LTT
RPT LTT
2.
property tax directed excise tax; a tax on the
against the property itself privilege of transferring RP
ownership
Is Capital gains tax (CGT) and LTT valid for the
same transfer?
Yes. This is not considered direct double
taxation in its strict sense. It is only indirect
double taxation which is allowed. They have
different taxing authority (natl govt and LGU)
BURDEN to pay LTT
It is the duty of the seller, donor, transferor,
executor or administrator (source of the RP) to
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pay the LTT.
However, the parties may agree among
themselves that the transferee will pay it to
the taxing authority. Nonetheless, this is only
biding between the parties. If the transferee
fails to pay, the LGU will still go after the
transferor who is the statutory taxpayer.
Time of Payment
Within 60 days from:
a.) Date of the execution of the deed /
notarization (i.e. deed of sale/donation)
or
b.) Date of the decedents death (for
transfer through succession)
c.) Date of execution of final deed of sale
if property sold through public auction (if
not redeemable)
d.) Date of lapse of redemption period if
foreclosed
Register of Deeds will not transfer ownership
of the RP in the new owners name unless
theres clearance from both agencies of the
government the BIR and the LGU.
There are 3 persons who are instrumental in
the collection of LTT:
1. Registrar of Deeds
2. Local treasurer
3. Notary public (NP)
Every notarization of a deed of sale or deed of
conveyance of RP, the NP is required to inform
the office of the local treasurer within 30 days
in order to put into record that theres a
collectible in favor of the government.
Tax on Business of Printing and Publication (Sec.
136)
SEC. 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.
Tax on the business of printing and publishing
NOT on the business of selling
Includes persons engaged in the business of
printing and/or publication of books, cards,
posters, leaflets, handbills, certificates,
receipts, pamphlets, and others of similar
nature
Except: Printing and/or publishing of books or
other reading materials prescribed by the
Department of Education as school texts or
references
RATE: In case of a newly started business tax
shall not exceed 1/20 of 1% of the capital
investment
In case of a business operating for more than a
year tax shall be of 1% of the gross annual
receipts for the preceding calendar year
Example:
Start of operations February 2011
Capital investment 2M
Gross annual receipts for 2011 0
Gross annual receipts for 2012 2M
Tax due:
2011 tax shall not exceed 1/20 of 1% of
the capital investment
So 1% of 2m = 20k
20k/20 = 1,000 business tax for 2011
2012 0 tax liability (base it on the
preceding calendar years gross annual
receipt)
2013 10k (1/2 of 1% of 2M)
1. Franchise Tax (Sec. 137)
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.
SEC. 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 a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year
8 TAXATION2 FINALS | maru.mhealler | 404
based on the incoming receipt, or realized, within
its territorial jurisdiction. In the case of a newly
started business, the tax shall not jhexceed 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.
Local franchise tax (LFT) is different from
national franchise tax imposed under the
NIRC.
Notwithstanding any exemption granted by
any law or other special law
If one is already subject to franchise tax (as
percentage tax under NIRC), it will still be
subject to local franchise taxes.
Tax upon those businesses enjoying a
franchise at a rate not exceeding of 1% of
the gross annual receipts for the preceding
calendar year based on the incoming receipt,
or realized, within its territorial jurisdiction.
Includes receivables for consummated sales
even if no payment has been received
However, in case of a newly started business,
the tax shall not exceed 1/20 of 1% of the
capital investment.
Franchises covered include those engaged in
telecommunications, television, broadcasting,
water, electricity franchises granted by the
National Government.
EXAMPLE: VECO, PLDT, and other public utility
companies.
Taxicabs, and other transportation contractors
are not subject to local franchise taxes
because under the common limitations
provided in Sec. 133, LGUs are pre-empted or
prohibited from imposing taxes on
transportation contractors
Holders of Certificate of Public Convenience
(CPC) are not considered franchise holders,
hence, not subject to LFT
EXAMPLE:
A telecommunications company in 2012 had
gross receipts of 100M and had 50M in
accounts receivable. What is subject to the
LFT?
150M (100 + 50)
All throughout the LGC, basis of taxes is usually the
gross receipts of the preceding calendar year
except LFT which includes incoming receipts or
uncollected gross receipts so long as there was a
consummated sale.
 This is one instance thats different. LFT is not only
imposed on the gross receipts of the preceding
calendar year but it also includes as well
uncollected gross receipts or incoming so long as
its realized receipts from the customer.
If the franchise holder is operational in many LGUs
(i.e. PLDT operating nationwide), each LGU will
claim its own stake in every operational business
within the unit.
Apportion the gross receipts coming from
every LGU and pay thereon the taxes to which LGU
it belongs. You have to determine the tax for each
LGU concerned.
PLDT vs PROVINCE OF LAGUNA
In sum, it does not appear that, in approving 23 of R.A. No. 7925
(equality of treatment n the telecommunications industry), Congress
intended it to operate as a blanket tax exemption to all
telecommunications entities. Applying the rule of strict construction of
laws granting tax exemptions and the rule that doubts should be
resolved in favor of municipal corporations in interpreting statutory
provisions on municipal taxing powers, we hold that 23 of R.A. No.
7925 cannot be considered as having amended petitioner's franchise
so as to entitle it to exemption from the imposition of local franchise
taxes.
Exemptions from taxation are highly disfavored, so much so that they
may almost be said to be odious to the law. He who claims an
exemption must be able to point to some positive provision of law
creating the right. The tax exemption must be expressed in the statute
in clear language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
Sec. 137 of the LGC provides for PLDTs liability to pay LFT despite of
the special exemption granted under the charter of PLDT. In lieu of
all taxes exemption does not make it not be liable to local franchise
taxes.
The withdrawal of all exemption privileges except for the 4 already
mentioned (local water district, non-stock non-profit hospitals, non-
stock non-profit educational institutions, cooperatives registered
under the CDA) supports this principle. Only exception would be
when a special ordinance granting an exemption for special cases or
circumstances.
9 TAXATION2 FINALS | maru.mhealler | 404
NPC vs PROVINCE OF ISABELA
Section 193 of the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and public
corporations. Contrary to the contention of Napocor, Section 193 of
the LGC is an express, albeit general, repeal of all statutes granting tax
exemptions from local taxes.
It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius.
Not being a local water district, a cooperative registered under R.A.
No. 6938, or a non-stock and non-profit hospital or educational
institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions
of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly
states that the LGUs can impose franchise tax "notwithstanding any
exemption granted by any law or other special law." This particular
provision of the LGC does not admit any exception. x x x
Franchise tax may still be imposed despite any exemption enjoyed
under special laws
Nonetheless, petitioner seeks to avoid paying the franchise tax by
arguing further that it is not liable therefor under Section 137 of the
LGC because said tax applies only to a "business enjoying a franchise."
It contends that it is not a private corporation or a business for profit.
Again, we do not agree.
In section 131 (m) of the LGC, Congress unmistakably defined a
franchise in the sense of a secondary or special franchise. This is to
avoid any confusion when the word franchise is used in the concept of
taxation. As commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate
franchises granted by the state." It is not levied on the corporation
simply for existing as a corporation, upon its property or its income,
but on its exercise of the rights or privileges granted to it by the
government. Hence, a corporation need not pay franchise tax from the
time it ceased to do business and exercise its franchise. It is within this
context that the phrase "tax on businesses enjoying a franchise" in
Section 137 of the LGC should be interpreted and understood. Verily,
to determine whether the petitioner is covered by the franchise tax in
question, the following requisites should concur: (1) that petitioner
has a "franchise" in the sense of a secondary or special franchise; and
(2) that it is exercising its rights or privileges under this franchise
within the territory of the respondent city government. Napocor fulfills
both requisites.
Although as a general rule, LGUs cannot impose taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities. Section 137 of the LGC is one
of those exceptions. It authorizes the province to impose a tax on
business enjoying a franchise, at a 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 enacting the LGC, Congress empowered the LGUs to impose certain
taxes even on instrumentalities of the National Government.
NPC is characterized as a private enterprise for profit in the
generation and sale of electricity, thus, purely private and a
commercial undertaking, which is not usually a sovereign function of
the government. Therefore, NPC cannot invoke the last provision
under Sec. 133 on common limitations against the taxing power of
the LGU. NPC is still liable to LFT.
2. Tax on Sand, Gravel and other Quarry Resources
(Sec. 138) or Sand and Gravel Tax (SGT)
SEC. 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%).
Sand and Gravel tax - tax imposed on ordinary
stones, sand, gravel, earth and other quarry
resources extracted from public lands or from
the beds of seas, lakes, rivers, streams, creeks,
and other public waters within the territorial
jurisdiction of the LGU concerned.
RATE: Not more than 10% of FMV in the
locality per cubic meter of the quarry resource
extracted
This refers to the FMV as of the moment that
youve made the extraction and not the FMV
when you sell it or deliver it for sale to an end-
user.
"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.
3. Land dug up from a residential area or from
your own backyard is not subject to SGT
because it is not PUBLIC LAND.
Hence, private lands are exempted from SGT
under the LGC. However, they are still subject
to SGT under NIRC.
It is not a requisite that you are engaged in the
business of extraction and selling the sand and
gravel to be liable for SGT. It is an excise tax on
the extraction of quarry resources from public
lands or public waters and not on the business
10
of extraction and selling the quarry resources.
The activity of extraction is taxable regardless
of the purpose.
ONLY the provinces have the authority to give
the permit to quarry resources in all areas of
the country but since every extraction would
also affect the city, municipality and the
barangay, they get a share from the SGT.
Province 30%, component city or
municipality 30%, barangay 40%
Having suffered the most from the extraction,
barangays would receive 40% share of the
taxes collected.
LEPANTO CONSOLIDATED MINING CO vs HON. AMBANLOC
Tax on the sand and gravel does not require that it must be for
business purposes or for commercial undertakings. Notwithstanding
its incidental nature, as long as theres an act of extraction, there
should be imposed SGT.
The mining contract or the mining lease agreement entered into with
the government by Lepanto does not make it an agent of the National
Government. Entering into contracts with the government for mining
or mining lease contract does not make the other party an agent nor
a representative of the state but rather an independent contractor.
5. Professional Tax (Sec. 139)
SEC. 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 (P=300.00).
(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.
TAXATION2 FINALS | maru.mhealler | 404
(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.
Professional tax - is a tax on each person
engaged in the exercise or practice of his
profession requiring government examination
(i.e. teachers, CPAs, engineers or those
professions governed by the Professional
Regulations Commission or the IBP.
Other professions that do not require
government examination are exempted from
professional tax (i.e. professional athletes,
media men).
2 requisites for imposition of Professional Tax:
1. Must be a professional in a profession
requiring government examination
2. Must be engaged in the practice of such
profession
- Both requirements should be met
Such professionals are liable for a maximum of
P300 PT every year. P300 per profession,
hence, if you are a CPA Lawyer, the maximum
PT that can be imposed is P600 regardless if
you are practicing in different LGUs.
The P300 limit cannot be increased even if the
imposing authority is the city (notwithstanding
its right to impose a 50% higher rate)
Remember, a city can impose up to the extent
of 50% higher than what the provinces or
municipalities can impose but excluding the
PT, which at all times remain at 300, and
amusement taxes. So the same rates for all
kinds of LGUs with respect to PT and
amusement taxes unless a law is subsequently
passed.
SITUS of Professional tax:
General Rule: LGU where you practice your
profession
However, if you practice in different localities,
you have to pay it where your principal office
is located.
Note:
A municipality cannot impose
professional taxes. Only a city or province can
impose PT. Imposition by city pre-empts the
province.
PT is payable annually on or before January 31.
This is for the purpose of issuing a PT receipt
(PTR) and then obtain a PTR number.
If you first begin practice after Jan. 31, then
11
pay the PT before engaging in such practice.
NOTE: Every employer who hires professionals
are obligated to inform there employees to
get PTRs.
Exception to PT: Professional exclusively
employed by the government
Hence, if you are not exclusively employed by
the government meaning you are also
engaging in part-time teaching or other
professional work, then you are still subject to
PT.
The PT of every professional is different from
mayors permit.
A mayors permit is a permit to operate
business while PT only applies to professionals
in order to enjoy the practice of profession (no
need to get mayors permit).
But once individuals or professionals form a
general professional partnership or any
partnership, a separate mayors permit is
required for the partnership. This permit does
not preclude the professionals from paying
professional tax.
6. Amusement Tax (Sec. 140)
SEC. 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 ten percent (10%) of the gross receipts from
the admissions 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,
paintings, 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 herein
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.
a. Amusement - is a pleasurable diversion and
entertainment. It is synonymous to relaxation,
avocation, pastime, or fun.
TAXATION2 FINALS | maru.mhealler | 404
b. Amusement places - includes 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.
Amusement tax (AT) is imposed for every
admission to amusement places at 10% of the
gross receipts.
It is a tax on the admission. Whether you are
actually amused or not, it does not matter.
What is taxed is the admission.
This is different to the amusement tax under
the NIRC
Cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-
Alai and racetracks taxable by amusement
taxes under the NIRC are not subject to local
AT. According to the limitations of the residual
taxing power, whatever is already taxed under
the NIRC, the LGU can no longer encroach.
However, 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
b. Statutory taxpayers for Local AT
They are the proprietors, lessees or operators
(not all of them for the same activity) of the
following amusement places:
Theaters
Cinemas
Concert halls
Circuses
Boxing stadia
And other places of
amusement
EXEMPT Amusement Places:
Operas
Concerts
Dramas
Recitals
Paintings and art
exhibitions
Flower shows
12
Musical programs
Literary and oratorical
presentations
o Except pop, rock, or
similar concerts
The exemption also includes benefit shows,
athletic metes, physical programs and
performances. Theyre still exempt from AT.
Rationale: They are artistic forms of
entertainment which the State promotes.
c. If the ticket for an amusement place does not
detail the components of the price, it means
to say that the 10% AT will be computed based
on the total cost of the ticket.
d. Collection of Amusement taxes does not
preclude the collection of business taxes
7. Annual Fixed Tax for Every Delivery Truck or Van
of Manufacturers / Producers / Wholesalers (Sec.
141)
SEC. 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.
Two Requisites:
1. Truck, van or any vehicle used by a.)
manufacturers, b.) producers, c.) wholesalers,
e.) dealers or f.) retailers
2. In the delivery or distribution of:
a. distilled spirits,
b. fermented liquors,
c. soft drinks,
d. cigars and cigarettes, and
e. other products determined by
sangguniang panlalawigan
Hence, if you are in the business of delivery
and hauling but not a manufacturer, producer,
TAXATION2 FINALS | maru.mhealler | 404
 wholesaler, dealer or retailer of the above
items, then, you are not subject to this tax.
The business is not subject to local taxes
because it is a transportation contractor
outside the reach of LGUs but subjected to tax
by the National government.
Tax amount not exceeding P500 for every
delivery truck, van or vehicle
B. Municipality (Secs. 142-150)
The scope of the taxing powers of the municipality is
limited. They may levy taxes, fees, and charges not
otherwise levied by provinces.
1. Fees and Charges (Sec. 147)
SEC. 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.
The municipality can impose fees and charges
on businesses and occupation except for those
that have been subjected already to
professional taxes by the province or the city.
Hence, they cover only those professionals not
requiring government examination (i.e.
computer engineers, media men)
No maximum amount fixed as long as
commensurate with the cost of regulation,
inspection and licensing
2. Fees for Sealing and Licensing of Weights and
Measures
SEC. 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 (P=200.00).
Municipalities and cities can impose fees for
the sealing and licensing of weights and
13
measures.
a. LGUs go to wet markets to check upon the
weights and measures and put in stickers to
those who have passed the test.
3. Fishery Rentals, Fees and Charges (Sec. 149)
SEC. 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,
oyster, 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.
4. Tax on Business (Sec. 143)
Local business tax (LBT) is the major source of
revenues for every city or municipality. This is not
imposable by:
a.) province or the b.) barangay
What is the LBT?
LBT is a tax based on gross receipts or gross
sales not on income. It is a tax on the
operation of the business and also as under
the police power of LGUs in regulating the
TAXATION2 FINALS | maru.mhealler | 404
 business.
It is not an income tax. So whether you are
operating at a gain or loss, you are still subject
to local business tax. This is used as a measure
to regulate businesses. Non-payment of LBT
based on the preceding calendar years gross
sales or receipts shall not allow you to validly
operate during the year.
time, he will only pay as manufacturer
because the distribution is only incidental
of being a manufacturer.
However, if youre a manufacturer of one
product and a distributor of another, you
will now be liable for both classification
as manufacturer of your own product and
distributor of someone elses product.

It is a prerequisite for the issuance of mayors c. Exporters, and on manufacturers,

permit. millers, producers, wholesalers,
distributors, dealers or retailers of
It partake the nature of percentage tax when essential commodities enumerated
the limit of each graduated table for different hereunder:
taxpayers is reached (see Sec. 143 of LGC) i.e.
37.5% of 1% for manufacturers. 1. Rice and corn

Example: On January 20, 2011 (deadline of 2. Wheat or cassava flour, meat, dairy
LBT), every business should pay the LBT based products, locally manufactured,
on 2010 gross sales or receipts. processed or preserved food, sugar, salt
and other agricultural, marine, and fresh
Based on the gross receipts of the preceding water products, whether in their original
calendar year, whether or not the company is state or not
actually on a calendar or fiscal year basis.
(Review: calendar year Jan Dec, fiscal year 3. Cooking oil and cooking gas
any 12 month period starting on a month
other than January) 4. Laundry soap, detergents, and
medicine
The basis of computation of the LBT remains
fixed at gross sales or receipts of the preceding 5. Agricultural implements, equipment
calendar. There could be no other basis not and post- harvest facilities, fertilizers,
the income, not the production, not the pesticides, insecticides, herbicides and
output, and not the fiscal year. other farm inputs

Businesses subject to LBT 6. Poultry feeds and other animal feeds

a. Manufacturers, assemblers, repackers, 7. School supplies; and

processors, brewers, distillers, rectifiers,
and compounders of liquors, distilled 8. Cement
spirits, and wines or manufacturers of
RATE: Not exceeding of the rates
any article of commerce of whatever
prescribed under manufacturers,
kind or nature
wholesalers, and retailers.
There is a fixed tax up to the point of the
Hence, the maximum rates are:
highest bracket wherein it becomes
already a percentage tax of 37 % of 1%.
Manufacturers of 37.5% of 1%
b. Wholesalers, distributors, or dealers in
Wholesalers of 50% of 1%
any article of commerce of whatever
kind or nature Retailers of 2% or of 1%
(depending on amount)
These are businessmen who do not have
anything to do with the manufacturing or This category actually is a concession
production or processes of the products since it has a lower rate compared to
that they are dealing, distributing, or other categories. Rationale: It involves
delivering wholesale. exportation which is favored by the State
and essential commodities (non-luxury
They shall be taxed at fixed amount of
goods or items)
taxes depending on its bracket of sales or
receipts but the highest bracket is not This category contemplates two
exceeding 50% of 1%. However, such rate classification:
may be raised by the cities to more than
the limit provided so long as its not more A. Exporters whether essential or non-
than 50% higher. essential commodity
EXAMPLE: When one is a manufacturer B. Manufacturers, millers, producers,
and wholesaler or distributor at the same wholesalers, distributors, dealers or
14 TAXATION2 FINALS | maru.mhealler | 404
 retailers of essential commodities
If you are a manufacturer, wholesaler,
distributor, or retailer of an essential
commodity, you need to pay only of
what is due to other manufacturers,
wholesalers, distributors, or retailers.
d. Retailers
Retailers are those who are engaged in a
sale where the purchaser buys the
commodity for his own consumption,
irrespective of the quantity of the
commodity sold. They are those who sell
products to end-users.
RATE: 2% or 1%
If gross sales or receipts for the preceding
calendar year is:
400k or less 2%
More than 400k 1%
However, barangays shall have the
exclusive power to levy taxes on gross
sales or receipts of the preceding
calendar year if:
A.) 50k or less, in case the barangay is
located in cities
B.) 30k or less, if located in
municipalities.
This is one area wherein the barangays
can pre-empt both the municipalities and
the cities in imposing LBT to retailers.
When you are both a wholesaler and a
retailer, you are subject to BOTH as
wholesaler and retailer. You have
different sales as wholesaler and retailer.
Unlike if both wholesaler and
manufacturer wherein you pay the lesser
rate as manufacturer only. This is because
he usually has no income for the
distribution, therefore, only as a
manufacturer.
EXAMPLE:
If youre a retailer of both essential
commodities and non-essential
commodities, how will you be taxed?
There would be a separate computation
for essential commodities and for non-
essential commodities.
2% or 1% on non-essential commodities
and 50% of 2% or 50% of 1% if essential.
e. Contractors and other independent
contractors
15
RATE: not exceeding 50% of 1% of gross
receipts of the preceding calendar year
Contractors - 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.
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
saloons 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 of
advertisements; business agents, private
detective or watchman agencies,
TAXATION2 FINALS | maru.mhealler | 404
 commercial and immigration brokers, and
cinematographic film owners, lessors and
distributors.
General Professional Partnerships are
considered as independent contractors.
f. Banks and other financial institutions
This is the exception on the limitation
wherein income tax are computed for
banks and other financial institutions
RATE: Not exceeding 50% of 1% on the
gross receipts of the preceding calendar
year
Gross receipts of banks and financial
institutions --
It is 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.
It appears that this is an exclusive list of
what will comprise the gross receipts of
banks and other financial institutions.
Hence, fees or charges not among the
gross receipts stated above, then, it will
not be covered by the LBT on banks and
financial institutions.
Example: filing fees, service fees,
administrative charges imposed by banks.
They will not be covered by this provision.
There are 2 taxes to which the bank will
be liable for under the LGC:
1. Income tax
2. LBT
Income tax is based on income. LBT is
based on gross receipts.
Note: There is no law yet which
clarifies what is the basis of income tax
on banks. Not even the LGC provides for
it. In fact, the IRR proscribe LGUs from
imposing taxes against the income of
banks.
Nonetheless, it would appear that banks
are subject to these 2 taxes.
"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
16
thereunder.
Pawnshops and Money changers are
included
Insurance companies are included.
Gross receipts of insurance companies
include:
The premiums collected, interest
earnings, if it owns property and rentals
coming from such property is also
included, income from acquired assets,
cash dividends, etc.
g. Peddlers engaged in the sale of any
merchandise or article of commerce
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.
RATE: annual tax of not exceeding 50.
It is a fixed tax.
h. Any business not otherwise specified
Categories A - G are not exclusive. This is
a catch all provision.
Special requirement for this catch-all
provision to apply:
1. Having a special ordinance for that
purpose
2. With a prior public hearing
3. It must not be excessive, unjust,
confiscatory or following the fundamental
principles of taxation and
4. It must not violate the common
limitations found under Sec. 133.
Tax rates within the Metro Manila Area (Sec. 144)
SEC. 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.
The tax rates within the Metro Manila Area may be
50% more than what the municipalities can impose.
The rate for municipalities within Metro Manila
Area is the same as a city.
Tax period (Sec. 165)
SEC. 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.
TAXATION2 FINALS | maru.mhealler | 404
Tax period calendar year (whether or not the
taxpayer follows calendar of fiscal year for income
tax purposes)
Accrual of tax (Sec. 166)
SEC. 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.
st
LBT accrues on the 1 day of January of each year.
However for new taxes, fees or charges or changes
st
in the rates, they shall accrue on the 1 day of
quarter next following the effectivity of the
ordinance imposing such new levies or rates
TAX BASIS : Gross sales or receipts excluding
returns, discounts and allowances
Time and manner of payment (Sec. 167)
SEC. 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.
Time for payment : On or before January 20
Otherwise you will be subject to surcharges and
penalties. In addition, no mayors permit is issued
when local taxes are not paid.
However, the sanggunian concerned may extend
the time to not exceeding 6 months
Local taxes can also be paid quarterly - Within 20
days of each quarter
If you opt to pay quarterly, simply divide your LBT
into 4 and you pay by installment on or before the
th
20 day of the first month of every quarter (Jan. 20,
Apr. 20, Jul. 20, Oct. 20).
This does not apply to other fees and charges. You
cannot pay in installments the other fees and
charges of the government. Only the LBT can be
payable quarterly.
17
Mobil Phils. vs. City Treasurer of Makati, GR No. 154092
(2005)
Local business tax v. income tax
Business taxes imposed in the exercise of police power for regulatory
purposes are paid for the privilege of carrying on a business in the
year the tax was paid. It is paid at the beginning of the year as a fee
to allow the business to operate for the rest of the year. It is deemed
a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising
from property, professions, trades or offices, or as a tax on a persons
income, emoluments, profits and the like. It is tax on income,
whether net or gross realized in one taxable year. It is due on or
before the 15th day of the 4th month following the close of the
taxpayers taxable year and is generally regarded as an excise tax,
levied upon the right of a person or entity to receive income or
profits.
The business tax, like income tax, is computed based on the previous
years figures. This is the reason for the confusion. A newly-started
business is already liable for business taxes (i.e. license fees) at the
start of the quarter when it commences operations. In computing the
amount of tax due for the first quarter of operations, the business
capital investment is used as the basis. For the subsequent quarters
of the first year, the tax is based on the gross sales/receipts for the
previous quarter. In the following year(s), the business is then taxed
based on the gross sales or receipts of the previous year. The
business taxes paid in the year 1998 is for the privilege of engaging in
business for the same year, and not for having engaged in business for
1997.
Erricson Case
Gross Receipts for income tax purposes vs. Gross Receipts for LBT
purposes
Gross Receipts for income tax purposes computed on accrual basis.
Includes those actually or constructively received plus those which are
yet to be received
Gross Receipts for LBT purposes only includes those actually or
constructively received (smaller in scope)
SC ruled that you cannot change the basis for computation of the LBT.
Do not confuse it with the computation of gross receipts for income
tax purposes.
When you say that business taxes accrue on Jan. 1
of each year, it does not mean that it is a tax of the
previous year. It accrues Jan. 1 of each year payable
on or before Jan. 20 and payment of which gives
you the right to carry-on legally your business.
The basis is the preceding year, however, it is a
tax on the current year. i.e. business tax for year
2012 is based on gross receipts during year 2011
but paid on year 2012 (on or before January 20)
In income taxes, the tax paid this year the basis is
the preceding year and it also pertains to income
taxes last year. i.e. income tax for year 2011 is
based on gross receipts during year 2011 but paid
on year 2012 (on or before April 15)
LBT are somewhat imposed in the exercise of the
regulatory power of the state in order to regulate
businesses and is a prerequisite before a permit can
TAXATION2 FINALS | maru.mhealler | 404
be given. Any tax that accrues on Jan. 1 as a LBT is a
tax really for that current year.
Payment of business taxes, multiple business
establishment / lines (Sec. 146)
SEC. 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.
If a person operates 2 or more businesses
mentioned in Sec. 143 which are taxed;
computation shall be based on:
1. Combined total gross sales/receipts if subject to
the same tax rate
Rationale: the Higher your gross receipts, the
higher bracket you belong, the higher tax that
will be due from you until you reach the limit.
2. Separate reports on gross sales/receipts if
subject to different tax rates (i.e. retailer and
manufacturer)
Situs of the tax (Sec. 150)
SEC. 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,
18
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; and
(c) In case of a plantation located at a place other
than the place where the factory is located, said
70% mentioned in subparagraph (b) of subsection
(2) above shall be divided as follows:
(1) 60% to the city or municipality
(2) 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
plan is located.
Situs for LBT:
Its the place where the sale is consummated
associated with the delivery of the articles of
commerce, which are the subject matter of the
contract.
Branch - an extension of the principal office of the
business. There must really be business operation.
This does not include an office displaying products
but does not maintain stocks or items for sale. It is
merely a display office and not a branch. LGUs
having jurisdiction over the display area would not
have a right to share in the taxes of the gross
receipts for the entire operation.
Rules as to the collection of LBT
Rule 1: In case of persons maintaining/operating a
branch or sales outlet making the sale or
transaction, the sale shall be recorded in said
branch or sales outlet and the tax shall be paid to
the municipality/city where the branch or sales
outlet is located.
Rule 2: Where there is no branch or sales outlet in
the city/municipality where the sale is made, sale
shall be recorded in the principal office and the tax
TAXATION2 FINALS | maru.mhealler | 404
 shall be paid to the city/municipality where such Whenever theres a factory and/or plantation
principal office is located. operated by the principal office, it will
automatically share in whatever is reflected or
ILLUSTRATION: recorded as sales by the principal office.

Oslob (principal office) 100M ILLUSTRATION:

Santander (branch) 25M Oslob (principal office) 100M

Sale of 50M was made in Dalaguete where there was no Santander (branch) 25M
branch or any office.
Balamban (plantation) 0
How is the 175M (100 + 25 + 50) divided?
Boljoon (factory) 0
Oslob 150M

Santander 25M
How is the 125M allocated?
Dalaguete - 0
Oslob 30% of 100M = 30M
Since a branch is presumed to conduct its own operations
as an extension of the principal office, it would maintain its Balamban and Boljoon 70% of 100M
own sets of books and issues receipts and invoices for its
sales. Any sales generated by the branch or sales outlet, Further subdivided into:
such as in Santander, the taxes due from it would be fully
payable, 100%, to the LGU having jurisdiction over the Boljoon (factory) 60% of 70% = 42% of 100M =
branch. 42M

Mandaue City 100% of 25m receipts Balamban (plant) 40% of 70% = 28% of 100M =
28M
If at all a sale is made as well by the principal office, the
entire of it would be collected by the LGU having
Santander (branch 100%) 25M
jurisdiction over the principal place of business in the
absence of factories, project offices, plants, and
If a plantation also has a branch then everything will go to
plantations (FPOP). So 100% of whatever is recorded in the
the branch.
principal office would be collected by the LGU having
jurisdiction over the principal office. Oslob 100% of
100M Rule 5: In case of 2 or more FPOP in different
localities, the 70% shall be prorated among the
For mobile sales in Dalaguete, since there is no branch
operating, therein, hence, it will be recorded in the localities where the FPOP are located in proportion
principal office. So the 50m receipts will be recorded to to their respective volume of production.
the principal office in the absence factory, project offices,
plants and plantation (FPOP). Oslob 100% of 50M PRORATED based on volume of production (not
distributed equally)

Note: if the sale is consummated in a place

Rule 3: In the case of manufacturers, contractors,
where there is no branch however the place where
producers, and exporters having FPOP, proceeds
it was sourced can be traced, then 100% of such
shall be allocated as follows:
sale will accrue to the source as if there was a
30% of sales recorded in the principal branch there.
office shall be made taxable by the
Example:
city/municipality where the principal office is
located
Same illustration as above. Sale was made in
Dalaguete where there was no branch however, it
70% shall be taxable by the
can be traced that the goods sold were from the
city/municipality where the FPOP is located
factory in Boljoon. 100% of such sale will accrue to
Boljoon as if there was a branch there.
Plant is somewhat similar to a factory. Project
offices include construction projects and the like.
Collecting authority (Sec. 170)
Rule 4: In case the plantation is located in a place
SEC. 170. Collection of Local Revenues by
other than the place where the factory is located,
Treasurer. - All local taxes, fees, and charges shall
the 70% in Rule 3 will be divided as follows:
be collected by the provincial, city, municipal, or
barangay treasurer, or their duly authorized
60% to the city/municipality where the
deputies. The provincial, city or municipal treasurer
factory is located
may designate the barangay treasurer as his deputy
to collect local taxes, fees, or charges. In case a
40% to the city/municipality where the
bond is required for the purpose, the provincial, city
plantation is located
or municipal government shall pay the premiums

19 TAXATION2 FINALS | maru.mhealler | 404

thereon in addition to the premiums of bond that
may be required under this Code.
The collection of taxes BY the LGUs shall be under
the local treasurers for every LGU.
Examination of books of accounts (Sec. 171)
SEC. 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.
LGUs have the right to examine the books of
accounts of every entity covered by it.
Books of accounts are kept usually for at least 5
years.
Although the law does not say that you have to
keep your books of accounts for 5 years, since the
assessment period is 5 years, its impliedly required
that you keep your books of account for 5 years.
Examination of the books of accounts can be
performed only once every tax period
Surcharges and penalties on unpaid taxes (Sec.
168)
SEC. 168. Surcharges and Penalties on Unpaid
Taxes, Fees, or Charges. - The sanggunian may
impose a surcharge not exceeding twenty-five
percent (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 interest on the unpaid amount or portion
thereof exceed thirty-six (36) months.
Ground: Not paid on time
Penalties: Surcharge + Interest
Surcharge - 25% of the taxes not paid on time
20
Interest rate not exceeding 2% per month of the
unpaid taxes including surcharges up to 36
months based on unpaid taxes plus surcharge
ILLUSTRATION:
Unpaid taxes in 2008 100M
Penalties =
Surcharge = 25% of 100M = 25M
Interest = 2% per month of 125M
(100M + 25M) up to 36 months
= 90M (125 x 2% x 36)
Although the LGUs are allowed to assess within 5
years, so that means to say that your books of
accounts and your tax liabilities would remain open
for tax examination for as long as 5 years, the
imposition of interest could only be up to 36
months of deficiency.
What is peculiar is that surcharges are actually
computed of interest also. The basis of interest is
not only the tax deficiency but also the surcharges
as well.
Retirement of business (Sec. 145)
SEC. 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.
Requirement: Submit sworn statement of gross
sales or receipts for the current year.
2 SCENARIOS:
A. 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
B. If the tax paid during the year is more than the
tax due on said gross sales or receipts of the
current year:
no more liability
TAXATION2 FINALS | maru.mhealler | 404
ILLUSTRATION:
I. Jan. 20 paid 10M LBT based on preceding year gross receipts
Feb. 14 retired. LBT based on GR for current year is 8M.
No more payment required before retiring (10M > 8M)
II. Jan. 20 paid 10M LBT based on preceding year GR
March 26 retired. LBT based GR for current year is 11M.
Pay difference of 1M before retiring (10M < 11M)
Termination of business or retirement of business
under the LGC simply means that you terminate
your business operations in a certain LGU not
necessarily your operations in the country.
You need not entirely dissolve your business
or corporation. It also includes transfer to
another LGU. You are considered as retired in
the old LGU that you belong to.
Mere change of name of your business or
assumption of a new owner in your business does
not equate to retirement of business for payment
of local taxes.
It is merely a change in the records existing
with the LGU. It does not mean that your
operations: your gross sales or gross receipts
for the year have changed. You are continually
operational.
If payment of LBT is in installments, the unpaid
balance/installments has to be paid before retiring.
Before retiring, if you paid only 125K during the
first quarter, you still have to pay the remaining
375k.
Not all businesses, which retire, will have additional
payment of taxes.
If you retire early, theres a big chance that you are
not going to pay additional taxes assuming that the
growth of your sales or receipts would be the same
as that of the preceding year.
If you retire in November, probably, you will be
paying additional taxes if your sales Jan. to Nov. is
higher than your Jan. to Dec. last year.
MOBIL CASE:
On the year an establishment retires or terminates its
business within the municipality, it would be required to
pay the difference in the amount if the tax collected, based
on the previous years gross sales or receipts, is less than
the actual tax due based on the current years gross sales
or receipts.
C. City (Sec. 151)
SEC. 151. Scope of Taxing Powers. - Except as otherwise
21
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.
The cities have the right to impose taxes 50% higher
than what the municipalities and provinces can impose
except for:
1. Professional tax (maximum is P300)
2. Amusement tax (10% of gross receipts from
admissions)
PT and AT remains fixed at what the LGC provides. The
city cannot impose higher than what the municipalities
and provinces can impose.
D. Barangays (Sec. 152)
Scope of Taxing Power
1. Taxes on Stores or Retailers
Taxes - On stores or retailers with fixed business
establishments with gross sales or receipts of the
preceding calendar year of Fifty thousand pesos
(P=50,000.00) or less, in the case of cities and Thirty
thousand pesos (P=30,000.00) or less, in the case of
municipalities, at a rate not exceeding one percent
(1%) on such gross sales or receipts.
Covers only STORES or RETAILERS with gross receipts
of:
a. P50,000 or less if located in city
b. P30,000 or less if located in municipality
Stores or retailers meaning it has a fixed place of
business unlike peddlers. The rate imposed is fixed
at 1%.
It is a type of LBT. It is an exclusive power of the
barangay. Hence, it preempts the other LGUs from
collecting.
If more than 50k or more than 30k, exclusive right
falls to the municipalities and the cities.
When you say retailers, it has a fixed place of
business unlike peddlers. And if you notice as well,
the rate imposed is 1%.
2. Service Fees or Charges
Service Fees or Charges - barangays may collect
reasonable fees or charges for services rendered in
connection with the regulation or the use of
barangay-owned properties or service facilities
such as palay, copra, or tobacco dryers.
Fees connected to regulation or the use of
TAXATION2 FINALS | maru.mhealler | 404
 barangay-owned properties or service facilities
such as palay, copra, or tobacco dryers
3. Barangay Clearance
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.
Reasonable fee = no limit fixed by the LGC. Varies
from barangay to barangay
Barangay given 7 days to issue clearance. If theres
inaction by the barangay to issue the clearance
after valid application by the taxpayer, the city
mayors office or the municipal mayors office can
proceed to issue the mayors permit or license.
4. Other Fees and Charges
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 (i.e. discoral); and
(3) On billboards, signboards, neon signs, and
outdoor advertisements.
XI. AUTHORITY OF LGUS TO ADJUST RATES OF
TAX ORDINANCES (Sec. 191)
SEC. 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.
Not oftener than once every 5 years, the rates may be
increased but such adjustments or increase shall not
exceed 10% of the rates fixed.
XII. COMMUNITY TAX (Secs. 156-164)
Only the following can collect or impose the community
tax:
A. Cities
B. Municipalities
Barangays can collect but they cannot impose CT.
22
Barangay treasurer can be deputized to collect taxes.
If the barangay is deputized to collect the CT, there will
be 50-50 sharing of the proceeds.
Taxpayers covered:
A. Individual
1. An inhabitant of the Phils.
2. 18 years of age or over
3. Falling under any of the following 4 categories:
i. Who has been regularly employed on a wage
or salary basis for at least 30 consecutive
working days during any calendar year, or
ii. Who is engaged in business or occupation,
or
iii. Who owns real property with an aggregate
assessed value of 1k or more, or
iv. Who is required by law to file an income tax
return
All 3 requisites must concur.
Hence, if you are a resident and earning income,
however you are below 18, you are still not
required to pay CT.
Non Resident Aliens-Not Engaged in Trade or
Business are not automatically exempt from CT.
He may be liable for CT if he is a transient
visitor whose stay in the Phils. exceeds 3
months.
NRAs-NETB may or may not be liable because
the exemption granted under the LGC extends
only to transient visitors whose stay in the
Phils. does not exceed 3 months while the
definition of NRA-NETB is one whose stay in
the Phils. does not exceed 180 days.
In the case of husband and wife, the tax imposed
shall be based upon the total property owned by
them and the total gross receipts or earnings
derived by them
Computation:
An annual CT of P5.00 and an annual additional tax
of P1.00 for every 1k of income regardless of
whether from business, exercise of profession or
from property which in no case shall exceed 5k.
ILLUSTRATION: You have 10m worth of real
property. You have no other income. How much CT
will you pay?
5,005.
It could have been 10k but since the maximum
TAXATION2 FINALS | maru.mhealler | 404
 additional tax is 5k, plus the P5.00 fixed basic
amount, then the total CT is P5,005.
B. Juridical persons
Corporations no matter how created or organized
whether domestic or resident foreign engaged in or
doing business in the Philippines are also liable to
pay an annual community tax.
Hence, Non Resident Foreign Corporation are not
required to pay community tax
No corporation is issued a mayors permit if no
proof of CT payment is given to the local treasurer
Exemptions granted to particular corporations from
payment of CT:
1. Cooperatives duly registered under the CDA
LGC provides for absolute exemption from all
local taxes to such cooperatives.
2. Corporations located within the economic
zones
Theyre granted exemption from all local and
national taxes in lieu of paying the 5% income
tax on their gross income.
Computation:
An annual CT of P500 and an annual additional tax,
which, in no case, shall exceed 10k in accordance
with the following schedule:
(1) For every 5k worth of real property in the
Philippines owned by it during the preceding
year based on the valuation used for the
payment of the real property tax under
existing laws, found in the assessment rolls of
the city or municipality where the real
property is situated P2.00; and
(2) For every 5k of gross receipts or earnings
derived by it from its business in the
Philippines during the preceding year - 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.
Juridical TPs of CT shall be liable for a basic annual
tax of 500 plus for any income, for any real
property owned, or for any dividends received, will
be liable for 2 pesos for every fraction of 5k.
So for every fraction of 5k income, 5k FMV of real
property, or 5k dividend, there will be 2 peso
additional CT. But not exceeding 10k.
So maximum CT for corporation is only to the
extent of P10,500.00.
Place of Payment of CT
The community tax shall be paid in the place of
23
residence of the individual, or in the place where
the principal office of the juridical entity is located.
Time of Payment of CT
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 on
or after the same date, shall not be subject to the
community tax for that year.
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.
It accrues Jan. 1 but is payable on or before the last
day of Feb.
If you are employed and turned 18 or a corporation
who loses exemption during the year:
a. anytime up to end of March - you have 20
days after such date to pay before you are
considered delinquent
b. from April 1 to last day of June pay on
such date
c. first day of July and onwards no longer
liable to pay CT
Penalty for delinquency or late payment:
The CT due plus an additional interest of 24% per
annum from the due date until it is paid
Exemptions granted:
1. Absolute exemption Diplomatic and consular
representatives
2. Relative exemption Transient visitors when
their stay in the Philippines does not exceed 3
months
TAXATION2 FINALS | maru.mhealler | 404
 If the transient visitor exceeds the 3 months In such case, the local treasurer or his deputy shall
maximum period provided by law, then, the issue a duly authenticated certificate based upon
exemption is lost. the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or
If youre still 17 years of age or below, you are charge and penalty due. Such certificate shall serve
exempt but if you turn 18 any time during the year as sufficient warrant for the distraint of personal
before July 1, then you are liable to pay CT. 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 herein
XIII. GOVERNMENT REMEDIES FOR COLLECTION provided for.
OF TAX DELINQUENCIES, FEES, CHARGES AND
- Only applies to personal property
OTHER REVENUES (Secs. 172-185)
- Duly authenticated certificate issued which
Local Governments Lien
serves as warrant
SEC. 173. Local Government's Lien. - Local taxes, fees,
(b) Accounting of distrained goods - The officer
charges and other revenues constitute a lien, superior to
executing the distraint shall make or cause to be
all liens, charges or encumbrances in favor of any
made an account of the goods, chattels or effects
person, enforceable by appropriate administrative or
distrained, a copy of which signed by himself shall
judicial action, not only upon any property or rights
be left either with the owner or person from whose
therein which may be subject to the lien but also upon
possession the goods, chattels or effects are taken,
property used in business, occupation, practice of
or at the dwelling or place of business of that
profession or calling, or exercise of privilege with respect
person and with someone of suitable age and
to which the lien is imposed. The lien may only be
discretion, to which list shall be added a statement
extinguished upon full payment of the delinquent local
of the sum demanded and a note of the time and
taxes fees and charges including related surcharges and
place of sale.
interest.
(c) Publication - The officer shall forthwith cause a
The lien of the government begin to attach from
notification to be exhibited in not less than three (3)
the time the payment of the local tax is due and
public and conspicuous places in the territory of the
theres non-payment.
local government unit where the distraint is made,
specifying the time and place of sale, and the
The LGUs, through its local treasurer, can enforce
articles distrained. The time of sale shall not be less
the remedy of lien by instituting a a.) judicial action
than twenty (20) days after notice to the owner or
or an b.) administrative action.
possessor of the property as above specified and
the publication or posting of the notice. One place
It attaches not only upon any property or rights
for the posting of the notice shall be at the office of
therein which may be subject to the lien but also
the chief executive of the local government unit in
upon property used in business, occupation,
which the property is distrained.
practice of profession or calling, or exercise of
privilege.
- NOTE: Distraint does not require publication in
a newspaper.
It would extend to any other properties regardless
of the ownership so long as that property is used in
- Notification in not less than 3 public and
trade, business, occupation or practice of
conspicuous places in the territory of the LGU
profession.
(one of which is the office of the chief
executive of the LGU)
Lien is Extinguished only upon full payment of
delinquent taxes plus surcharges and penalties - Time of sale shall not be less than twenty (20)
days after notice to the owner or possessor of
ADMINISTRATIVE ACTION
the property as above specified and the
publication or posting of the notice
1. By distraint
(d) Release of distrained property upon payment
SEC. 175. Distraint of Personal Property. - The
prior to sale - If at any time prior to the
remedy by distraint shall proceed as follows:
consummation of the sale, all the proper charges
(a) Seizure - Upon failure of the person owing any are paid to the officer conducting the sale, the
local tax, fee, or charge to pay the same at the time goods or effects distrained shall be restored to the
required, the local treasurer or his deputy may, owner.
upon written notice, seize or confiscate any
(e) Procedure of sale - At the time and place fixed in
personal property belonging to that person or any
the notice, the officer conducting the sale shall sell
personal property subject to the lien in sufficient
the goods or effects so distrained at public auction
quantity to satisfy the tax, fee, or charge in
to the highest bidder for cash. Within five (5) days
question, together with any increment thereto
after the sale, the local treasurer shall make a
incident to delinquency and the expenses of seizure.
report of the proceedings in writing to the local

24 TAXATION2 FINALS | maru.mhealler | 404

 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.
- Public auction to Highest Bidder for CASH
- If 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
- Amount of the property if not sold during
public auction would be assessed by
Committee on Appraisal
- Assessment pertains to the appraisal of the
value of the property. If property is assessed
to be less than the delinquency, then
additional properties are distrained or proceed
with judicial action
(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 vgsale are
insufficient to satisfy the claim, other property may,
in like manner, be distrained until the full amount
due, including all expenses, is collected.
- Proceeds of the sale is applied to:
Tax, including the surcharges, interest,
and other penalties incident to
delinquency, and the expenses of the
distraint and sale
Balance over and above what is required
to pay the entire claim shall be returned
to the owner of the property sold
If proceeds is insufficient, then additional
personal properties would be distrained
until sufficient or proceed to judicial
action
2. By levy
SEC. 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
25
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 Registrar 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.
- Levy may be done before, simultaneously or
after distraint
- After the execution of the duly authenticated
certificate by treasurer showing the name of
the TP and the amount of liability, there is a
need to serve the notice of the warrant of
levy. The 3 persons who must be notified of
the issuance of levy are the following:
1. Local assessor for the purpose of
annotating the levy on the tax declaration
of the RP
2. RD for the purpose of annotating the
levy on the certificate of title of the RP
3. Owner of the property himself, or in the
absence of the owner, his duly authorized
representative or agent
SEC. 178. Advertisement and Sale. - Within thirty
(30) days after 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
TAXATION2 FINALS | maru.mhealler | 404
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 the
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 proceedings 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.
- NOTE: There must be publication in case of
levy.
- Posting and Publication.
In cases of levy, since it involves real property,
it requires not only posting of the notice of
sale at the main entrance of municipal or city
hall and in conspicuous public places but it
also requires the publication of such notice
once a week for 3 consecutive weeks.
- In both cases of levy and distraint, the TP may
always pay or stop the auction sale by settling
his obligations, tax liabilities, fees and charges.
Assuming that the TP is unable to pay his
obligation, public auction will proceed.
SEC. 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.
26
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.
- Redeem the property upon payment to the
local treasurer of the:
a. Total amount of taxes, fees, or charges,
and
b. Related surcharges, interests or
penalties from the date of delinquency to
the date of sale,
c. 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.
- During the pendency of the redemption
period, the owner shall not 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
SEC. 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.
SEC. 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
TAXATION2 FINALS | maru.mhealler | 404
 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.
- Purchased by the govt when:
a. no bidder for the real property
advertised for sale, or
b. if the highest bid is for an insufficient
amount
Redemption period 1 year from
forfeiture
SEC. 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.
- Property purchased by treasurer in favor of
the LGU may be subsequent resold after
notice of not less than 20 days.
Properties exempt from distraint or levy
SEC. 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 the 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 (P=10,000.00);
(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 (P=10,000.00), 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.
- More or less, the same items that are not
subject to attachment
JUDICIAL ACTION
27
SEC. 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.
Civil action in any court of competent jurisdiction -
Regular courts depending on the amount:
If more than 300k RTC
If 300k or less MTC
Note: if within Metro Manila, threshold is 400K
Assessment and Collection Period of Local Taxes
SEC. 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 (and
payable, regardless of when you actually paid the tax or
when you actually filed for the renewal of your business
permit). 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.
ASSESSMENT
General Rule: Within 5 years from the date they
become due and payable.
LBT becomes due January 20 of every year.
th
Or if its payable in installment basis, then the 20
st
day of the 1 month of every quarter.
For CTC, on Feb. 28.
Exception: In case of fraud or intent to evade the
payment of taxes, within 10 years from discovery of the
fraud or intent to evade payment.
COLLECTION
Within 5 years from the date of assessment.
However, if no assessment is made (in which case the
LGU directly proceeded with the collection proceedings,
whether administratively or judicially) the collection of
taxes must be done within 5 years from the date they
TAXATION2 FINALS | maru.mhealler | 404
 became due and payable.
But if theres fraud or intent to evade payment of taxes,
collection w/o assessment shall be made within 10
years from the discovery of such fraud or intent to
evade payment of taxes.
SAMPLE:
2007 deficiency LBT when not assessed can be collected
only up to Jan. 20, 2012, otherwise prescribed
(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
2 Requirements
a. Request for reinvestigation
b. Execute waiver in writing before expiration of
period
(3) The taxpayer is out of the country or otherwise
cannot be located.
XIV. TAXPAYERS REMEDIES
PROTEST BY MEANS OF APPEAL TO THE SOJ
SEC. 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.
In cases where the TP questions the constitutionality or
legality of a tax ordinance, his remedy is to file an
appeal before the SOJ within 30 days from the
effectivity of the ordinance without suspending the
effects or the mandates of the ordinance unless
subsequently declared unconstitutional or illegal.
The SOJ is given 60 days to decide your appeal.
28
If a decision comes out within 60 days, the TP is given
30 days to appeal before the court of competent
jurisdiction, which is the RTC.
If no decision comes out within 60 days, its considered
as a denial of the appeal for purposes only of filing an
appeal before the court of competent jurisdiction, RTC,
within 30 days after the expiration of the 60-day
period.
Process:
a. Within 30 days from effectivity of ordinance - file
appeal with SOJ
b. Within 30 days from receipt of decision of denial by
SOF or from 60-day inaction on such appeal file with
RTC or MTC depending on amount
c. MTC to RTC to CA or RTC to CA
d. CA to SC
PROTEST AGAINST ASSESSMENT
SEC. 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 canceling 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.
Appeal from the Decision of the local treasurer is not
included in the jurisdiction of the CTA. This means that
the decision or inaction of the local treasurer is
appealable before the regular courts, and not the CTA.
Remedy of the TP if the decision, either of the RTC or
MTC or other lower courts, is still a denial of his appeal:
File an appeal before the:
CTA en banc if its a denial of RTC in the
exercise of its appellate jurisdiction (originates
from the MTC, MeTC, or MCTC)
CTA in division if its a denial of RTC in
the exercise of its original jurisdiction
Process:
a. Within 60 days from receipt of notice of
TAXATION2 FINALS | maru.mhealler | 404
 assessment - file appeal with local treasurer
b. Within 30 days from receipt of decision of denial
by local treasurer or from 60-day inaction on such
appeal file with RTC or MTC depending on
amount
c. Appeal to CTA en banc
c.1 MTC to RTC (30 days) to CA en banc
c.2 RTC (30 days) to CA in division (15 days) to
CA en banc
d. CA en banc (15 days) to SC
CLAIM FOR REFUND AND TAX CREDIT
SEC. 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
Requirements in filing a claim for refund and tax credit
1. There must be an administrative written claim for
refund or credit before the local treasurer.
2. The written claim for refund or credit must state
that there was an illegal collection or erroneous
payment of local taxes
3. The written claim must state the facts and the law
supporting the claim
4. The written claim must have a categorical demand
for reimbursement or credit
5. The written claim must include attachments of
supporting documents, such as presenting official
receipts evidencing the payment of taxes, etc.
6. The written claim must be filed within 2 years from
the date of payment of the taxes or from the date the
TP is entitled to a refund or credit
Both administrative claim before the local treasurer and
the judicial claim before the regular courts must be filed
within 2 years from the date of erroneous payment of
taxes or from the date the TP is entitled to such refund
or credit.
From the date the TP is entitled to a refund or credit
means that the supervening event applies in claims for
refund in local taxes, unlike claims for refund in national
taxes.
So, local taxation, insofar as claims for refund and credit,
admits of supervening event, meaning, sometime within
the 2-year period, such period may be suspended.
EXAMPLE: If theres a difficult interpretation of the law
insofar as whether the TP is exempt or not in a pending
case, such period when the case is still pending
29
suspends the running of the 2-year prescriptive period
and the 2-year prescriptive period will resume again
after the final decision comes out saying that the TP is
exempt.
EXAMPLE: TP paid the tax but he found out that he is
exempt. He filed a claim for refund subject to the debate
between the local treasurer and the TP. During the
period of debate, it suspended the 2-year prescriptive
period and resumes again after final decision.
TARIFF AND CUSTOMS DUTIES (TCD)
I. SCOPE OF TCD LAWS
The governing law is the Tariffs and Customs Code (TCC)
and it includes also all other laws and regulations which
are subject to enforcement by the BOC or otherwise
within its jurisdiction.
So all allied laws. It even extends to the Central Bank
circulars.
II. DIVISION OF THE TCC
Book I Tariff Laws
Book II Customs Laws
III. ADMINISTRATION
In charge of Administration:
1. THE TARIFF COMMISSION
Functions are more on administration and tariff
relations with foreign countries (Sec. 505)
Includes tariff relations with other countries
Investigation of operation of customs and tariff
laws
Assistance to the President and Congress (Sec. 506)
2. BUREAU OF CUSTOMS
Enforcement, assessment & collection (Sec. 602)
Prevention and suppression of smuggling and other
frauds
Supervision and control over entrance and
clearance of vessel and aircrafts engaged in foreign
commerce and over mails
Exclusive jurisdiction over seizure and forfeiture
under TCC
Sec. 1206. Jurisdiction of Collector Over Importation of
Articles. The Collector shall cause all articles entering
the jurisdiction of his district and destined for
TAXATION2 FINALS | maru.mhealler | 404
importation through his port to be entered at the
customhouse, shall cause all such articles to be
appraised and classified, and shall assess and collect the
duties, taxes and other charges thereon, and shall hold
possession of all imported articles upon which duties,
taxes, and other charges have not been paid or secured
to be paid, disposing of the same according to law.
1. Cause all articles entering in its jurisdiction and
destined for importation through his port to be entered
at the customhouse;
2. Then cause such articles to be appraised and
classified;
3. For the purpose of assessing and collecting the duties
and taxes and other charges thereon;
4. Then, hold possession of all imported articles until the
duties, taxes and other charges have been paid or
secured to be paid
NOTE: No release can be made without payment
of tariffs and customs duties.
Sec. 603. Territorial Jurisdiction. For the due and
effective exercise of the powers conferred by law and to
the extent requisite therefor, said bureau shall have the
right of supervision and police authority over:
A. All seas within the jurisdiction of the Philippines
and
B. All coasts, ports, airports, harbors, bays, rivers
and inland waters navigable from the sea.
Sec. 604. Jurisdiction over Premises Used for Customs
Purposes. The Bureau of Customs shall, for customs
purposes, have exclusive control, direction and
management of custom-houses, warehouses, offices,
wharves, and other premises in the respective ports of
entry, in all cases without prejudice to the general police
powers of the city or municipality wherein such premises
are situated.
- This means to say that if the BOC is given the direct
and exclusive control in a warehouse, a custom-
house or in a wharf, exclusive, so the courts cannot
touch it.
- No orders of replevin of properties, no order for
prohibition, certiorari, can be made by the courts,
unless the LGU will be exercising its general police
powers.
Doctrine of Hot Pursuit (Extraterritorial jurisdiction):
A. Of a Vessel
When a vessel becomes subject to seizure by reason
of an act done in Philippine waters in violation of
the tariff and customs laws, a pursuit of such vessel
begun within the jurisdictional waters may continue
beyond the maritime zone, and the vessel may be
seized on the high sea.
Requisites:
30
a. An act is done in Phil. Waters which constitutes a
violation of the tariff and customs laws
b. A pursuit of such vessel began within the
jurisdictional water which:
i. may continue beyond maritime zone,
and
ii. the vessel may be seized on the high
seas
If the vessel has passed the high seas meaning it is
already in the territory of a foreign or another state
(foreign waters) the hot pursuit may no longer be
continued
If the act is done or originated from the high seas,
the Philippines has no jurisdiction over it. Hot
pursuit is not applicable.
B. Of all other imported articles
Imported articles which may be subject to seizure for
violation of the tariff and customs laws may be pursued
in their transportation in the Philippines by land, water
or air and such jurisdiction exerted over it at any place
therein as may be necessary for the due enforcement of
the law.
- There is violation of the tariff and customs
laws
- As a consequence, they may be pursued in the
Phils.
- With jurisdiction over them at any place
therein for the enforcement of the law
NOTE: The only exception wherein BOC cannot exercise
the hot pursuit is inside your dwelling, without a search
warrant.
Who has primary jurisdiction over the customs laws?
BOC
RTC v. BOC
The RTCs do not have jurisdiction over seizure and
forfeiture proceedings conducted by the BOC and
to interfere with its proceedings because the COC
has exclusive jurisdiction over all questions
touching on the seizure and forfeiture of dutiable
goods.
No petitions for certiorari, prohibition or
mandamus can be filed with the RTC because these
are, in reality, an attempt to review the
Commissioners actuations. Neither replevin be
filed with the RTC.
RATIONALE: Doctrine of Primary Jurisdiction.
Even if a Customs seizure or forfeiture is illegal,
exclusive jurisdiction still belongs to the Bureau of
Customs to the exclusion of the regular courts.
EXCEPTION: The only instance, probably, that you can
TAXATION2 FINALS | maru.mhealler | 404
 question actuations of the BOC before the RTC is when it
involves general police powers of the state.
If youre not agreeable with the BOC, you cannot
question their actions before the RTC. First,
question the actions of the Collector of Customs
before the Collector himself and follow the
procedure later discussed.
IV. TARIFF AND CUSTOMS DUTIES
TARIFFS custom duties, toll or tribute payable upon
merchandise of govt
CUSTOM DUTIES tax assessed upon merchandise from
or exported to a foreign country
NOTE:
Tariff and customs duties are generally synonymous
under the custom laws.
Goods for Customs Duty Purposes
The law imposes duty on both imported as well as
exported goods.
All articles when imported from any foreign country into
the Philippines shall be subject to duty upon each
importation even though previously exported from the
Philippines, except as otherwise specifically provided for
in the Code or other laws. (Sec. 100, Title III, Book I, TCC)
NOTE:
Except as otherwise specifically provided refers
to those exempted from customs duties.
NOTE:
Right now, we concentrate imposing customs
duties on importations. Exportations, as a general
rule, are tax-free because we encourage
exportation in order to have influx of foreign
currencies, which actually supports our local
Philippine currency.
Goods for customs duty purposes are anything that may
be made the subject of importation or exportation.
Articles, when used with reference to importation or
exportation, includes goods, wares and merchandise
and, in general, anything that may be made the subject
of importation or exportation. (Sec. 3514, TCC)
In general anything that may be made the subject of
importation or exportation is sufficiently clear and
comprehensive to include checks and money orders. It
even includes foreign currencies, moneys and bills.
Kinds of Goods/Merchandise or Classes of Importations
1. Articles subject to duty
Section 101. Imported Articles Subject to Duty.
All articles, when imported from any foreign
country into the Philippines, shall be subject to
31
duty upon each importation, even though
previously exported from the Philippines, except as
otherwise specifically provided for in this Code or in
other laws.
Generally, all importations are dutiable.
2. Prohibited Importations
a. Absolutely Prohibited (Sec. 102 TCC)
In sum:
a. Weapons of war
b. Immoral / obscene or insidious articles
c. Articles for treason
d. Prohibited drugs / narcotics
e. Gambling paraphernalia devices
NOTE: But if its used for gambling that is
sanctioned by the Philippine
Government, it can be covered by the
exemption but conditionally-free
importation.
f. Those prohibited under special laws
b. Qualifiedly Prohibited
Where such conditions as to warrant a lawful
importation do not exist, the legal effects of the
importation of qualifiedly prohibited articles are
the same as those of absolutely prohibited
articles.
NOTE: This actually refers to items that can
actually be imported legally but because of some
conditions existing that cannot warrant the
lawful importation, and other circumstances
surrounding it, it becomes qualifiedly prohibited
and it would have the same effects as if youre
actually importing an absolutely prohibited
importation.
c. Conditionally free importations
Certain imported articles are exempt from
import taxes upon compliance with certain
requirement. These are:
a. Those provided for in Sec. 105 of the
TCC
b. Those granted to government
agencies, GOCC with agreements with
foreign countries;
c. Those given to international
institutions entitled to exemption by
agreement or special law
d. Those that may be granted by the
President upon NEDAs recommendation
NOTE: Once you import a product, even if its
TAXATION2 FINALS | maru.mhealler | 404
 those listed among the conditionally free When importation begins and When deemed
importations, you cant automatically withdraw terminated?
such goods from the port of the BOC without
presenting documents complying with the Sec. 1202. When Importation Begins and Deemed
requirements but not necessarily pay the Terminated.
customs duties because youre exempt. Theres
no absolutely-free importations. Importation begins when the carrying vessel or aircraft:

If an article that was imported into the Phils.,
like imported articles of raw materials for
processing and manufacturing in the Phils., are
re-exported back as finished goods, you can ask
for exemption from customs duties, provided:
A. Enters the jurisdiction of the Philippines
B. With intention to unload therein.
Importation is deemed terminated upon:

A bond is filed with the COC in an amount equal A. Payment of the duties, taxes and other charges
to one and one-half (1 ) times the ascertained due upon the articles, or secured to be paid, at a
duties, taxes and other charges thereon, port of entry and
conditioned for the exportation thereof or
B. The legal permit for withdrawal shall have been
payment of the corresponding duties, taxes and
granted, OR in case said articles are free of duties,
other charges.
taxes and other charges, until they have legally left
Seeking for exemption from customs duties on the jurisdiction of the customs.
an importation of products for processing, for
How to Prove Intent (as it is only a state of mind)
repair, or for reconditioning is conditional
because your exemption can only be fully
It does not require actual unloading. The TCC provides
guaranteed once youre able to re-export the
that even if theres no actual unloading yet, but if there
products within a period of 1 year.
is, in the vessel, unmanifested cargoes, it becomes proof
already that theres the intent to violate the customs
Personal effects and household effects of
laws because every vessel must list down, in its
returning Phil. Residents limit is P10,000
manifest, the cargoes.
Returning resident shall mean those Filipino
When theres unmanifested cargoes, it will
nationals who have stayed in a foreign
automatically be considered as if importation has begun.
country for at least 6 months.
Importation is terminated:
Importations of goods and items that will be
delivered and distributed to the Philippine
i. Upon payment of the duties and other charges and
National Red Cross for those in need will not be
theres already a legal permit for the withdrawal; or
subject to importation. As long as the relief
organization is not organized for profit and ii. When such duties and other charges are secured to
certified by DSWD or DepEd as the case may be. be paid and theres legal permit for withdrawal; or

iii. In cases of those that are exempt from taxes, you

V. IMPORTATION
When are Tariff and Customs Applied?
Section 1201. Articles to Be Imported Only Through
Customhouse. All articles imported into the
Philippines, whether subject to duty or not, shall be
entered through a customhouse at a port of entry.
- It is applied only after the importation has begun
and before importation is terminated.
- So the tariff and customs laws would only apply
whenever theres an importation or exportation
that has begun but prior to its termination.
dont pay the tax, but simply get the legal permit
for withdrawal and from the time that these
imported products, which are free of duties, have
legally left the jurisdiction of the customs,
importation is already terminated
NOTE: You cant terminate the importation of an
exempt article right then and there. It must have
legally left the jurisdiction of the customs because
even if its exempt, it may happen that it will be
assessed of customs duties if its found out that it
did not satisfy the conditions of conditionally free
importations.

- NOTE: Termination would actually mean payment

of taxes.

- Hence, there can be no tariff and customs applied

whenever its not an importation or exportation or
theres no importation or exportation that has
begun.

32 TAXATION2 FINALS | maru.mhealler | 404


Commissioner of Customs vs. CTA, GR No. 171516-17
(2009)
Under Section 1202 of the TCCP, importation takes place when
merchandise is brought into the customs territory of the Philippines
with the intention of unloading the same at port.
An exception to this rule is transit cargo28 entered for immediate
exportation. Section 2103 of the TCCP provides:
Section 2103. Articles Entered for Immediate Exportation. Where
an intent to export the article is shown by the bill of lading, invoice,
manifest or other satisfactory evidence, the whole or part of a bill
(not less than one package) may be entered for immediate
exportation under bond. The Collector shall designate the vessel or
aircraft in which the articles are laden constructively as warehouse
to facilitate the direct transfer of the articles to the exporting vessel
or aircraft.
Unless it shall appear by the bill of lading, invoice, manifest, or other
satisfactory evidence, that the articles arriving in the Philippines are
destined for transshipment, no exportation thereof shall be
permitted except under entry for immediate exportation under
irrevocable domestic letter of credit, bank guaranty or bond in an
amount equal to the ascertained duties, taxes and other charges.
Upon the exportation of the articles, and the production of proof of
lading of same beyond the limits of the Philippines, the irrevocable
domestic letter of credit, bank guaranty or bond shall be released.
For an entry for immediate exportation to be allowed under this
provision, the following must concur:
(a) there is a clear intent to export the article as shown in
the bill of lading, invoice, cargo manifest or other
satisfactory evidence;
(b) the Collector must designate the vessel or aircraft
wherein the articles are laden as a constructive
warehouse to facilitate the direct transfer of the articles
to the exporting vessel or aircraft;
(c) the imported articles are directly transferred from the
vessel or aircraft designated as a constructive warehouse
to the exporting vessel or aircraft and
(d) an irrevocable domestic letter of credit, bank
guaranty or bond in an amount equal to the ascertained
duties, taxes and other charges is submitted to the
Collector (unless it appears in the bill of lading, invoice,
manifest or satisfactory evidence that the articles are
destined for transshipment).
Government Importations
G.R.
Government importations are subject to customs
duties
Sec. 1205. Importations by the Government. Except
as otherwise specifically provided, all importations by
the government for its own use or that of its
subordinate branches on instrumentalities, or
corporations, agencies or instrumentalities owned or
controlled by the government, shall be subject to the
duties, taxes, fees and other charges provided for in
this Code:
Provided, however, That upon certification of the head of
the department or political subdivision concerned, with
the approval of the Auditor General, that the imported
33
article is actually being used by the government or any
of its political subdivision concerned, the amount of duty,
tax, fee or charge shall be refunded to the government
or the political subdivision which paid it.
NOTE: But a refund can be made thereafter so long as
theres a certification from the head of the department
with the approval of the Auditor General that its
actually being used by the government.
Owners of imported articles
The owners of imported articles are:
1. To whom the same are consigned
2. The holder of a bill of lading duly indorsed by the
consignee therein named
3. If consigned to order, by the consignor, shall be
deemed the consignee thereof
4. The underwriters of abandoned articles and the
salvors of articles saved from a wreck at sea, along
a coast or in any area of the Phils. may be regarded
as the consignees
Entry through Customhouse
1. CARGO MANIFEST
- It is important to determine the owners of the
imported articles since they can be imposed of
criminal or civil liability depending on what
violations have been made.
- A Cargo Manifest is required whenever importation
is entered through the customhouse
- Cargo Manifest pertains to the manifest of the
carrying vessel or aircraft of the correct items that
are carried by the vessel or aircraft.
- All cargoes, whether its an importation or
exportation, must be included in the cargo
manifest.
EXCEPTION: The products of the ships
stores, such as canteen.
- Right after receiving the cargo manifest, the BOC
will make appraisal and classification of the cargoes
and it will try to assess and collect the taxes.
2. IMPORT ENTRY
The importer owner must file the:
Import entry declaration, which is a
declaration to the BOC showing the
description of the cargo, value, tariff
classification and their particulars to allow the
BOC to correctly determine what are the
duties and taxes that must be paid.
Sec. 1301. Persons Authorized to Make Import
Entry. Imported articles must be entered in the
customhouse at the port of entry within thirty (30)
days, which shall not be extendible, from the date
TAXATION2 FINALS | maru.mhealler | 404
 of discharge of the last package from the vessel or
aircraft either
(a) by the importer, being holder of the bill of
lading,
(b) by a duly licensed customs broker acting under
authority from a holder of the bill or
(c) by a person duly empowered to act as agent or
attorney-in-fact for each holder: Provided, That
where the entry is filed by a party other than the
importer, said importer shall:
Himself be required to declare under oath and
under the penalties of falsification or perjury that
the declarations and statements contained in the
entry are true and correct:
Provided, further, That such statements under oath
shall constitute prima facie evidence of knowledge
and consent of the importer of violations against
applicable provisions of this Code when the
importation is found to be unlawful.
- The import entry declaration must be filed within
30 days from the date of discharge of the last
package from the vessel or aircraft
- If there is import entry declaration (IED) filed within
30 days, the imported articles are deemed
abandoned.
- All articles imported into the Phils. whether subject
to duty or not shall be entered through a customs
house at a port of entry
- ENTRY in customs law means:
a. The documents filed at the Customs house
b. the submission and acceptance of
documents
c. The procedure of passing goods through the
customs house
Kinds of abandonment (Sec. 1801)
1. Express Abandonment
When the owner, importer or consignee of the
imported article expressly signifies in writing to
the Collector of Customs his intentions to
abandon within 10 days.
If you want to expressly abandon your imported
goods, the owner, importer, or consignee must
expressly signify in writing and under oath his
intention to abandon the shipment in favor of
the government within 10 days after filing of the
import entry declaration.
Possible reason for abandonment:
The taxes are so high vis--vis the imported
articles. If you are not willing or cannot pay
the custom duties, the abandonment of the
imported articles extinguishes the civil liability.
34
2. Implied Abandonment
a. When the owner, importer, consignee or
interested party after due notice, fails to file
an entry within thirty (30) days, which shall
not be extendible, from the date of discharge
of the last package from the vessel or aircraft,
or
b. Having filed such entry, fails to claim his
importation within fifteen (15) days, which
shall not likewise be extendible, from the date
of posting of the notice to claim such
importation.
c. Failure to mark the articles within 30 days
from notice
Effects of abandonment
Any person, who abandons an article, shall be
deemed to have renounced all his rights and
interests therein
An abandoned article shall ipso facto be deemed
the property of the government
The government has the full right to dispose of the
abandoned article.
It shall not be construed as relieving the owner or
importer from any criminal liability which may arise
from any violation of law committed in connection
with the importation of the abandoned article.
Any official or employee of the Bureau of Customs
or of other government agencies who, having
knowledge of the existence of an abandoned article
or having control or custody of such abandoned
article, fails to report to the Collector within
twenty-four (24) hours from the time the article is
the deemed abandoned, shall be punished with the
penalties prescribed in Paragraph 1, Section 3604
of this Code.
CIVIL LIABILITY is extinguished but CRIMINAL
LIABILITY survives
Taxes and duties that correspond to the
importation of the abandoned articles are no
longer required to be paid by the owner, because
the extent of every importers liability extends only
to the value of the merchandise. So, taxes usually
do not exceed 100% of the value of the
merchandise, so therefore, a person who abandons
his importation is deemed to have been relieved
from payment of customs duties.
NOTE: The maximum civil penalty under remedies
of the government is forfeiture of the articles.
TAXATION2 FINALS | maru.mhealler | 404

Chevron Phils. V. COC GR No. 178759 (2008)
Both the IED and IEIRD should be filed within 30 days
from the date of discharge of the last package from the vessel or
aircraft.
In order for a shipment to be considered abandoned,
it is already sufficient that an importer fails to file the required
import entries within the indicated reglementary period as the
law no longer requires that there be acts or omissions where
intent to abandoned may be inferred.
More importantly, notice to Chevron is no longer
necessary as it was aware that the shipments already arrived at
the Port of Batangas, aside from the fact that the Company
already had actual physical possession of the property. Since the
purpose of posting an "urgent notice to file entry" pursuant to
Section B.2.1 of CMO 15-94 is only to notify the importer of the
"arrival of its shipment" and the details of said shipment.
Compliance with the notice requirement is no longer required in
the instant case. Finally, the SC ruled that the commencement of
abandonment proceedings is not a necessary requirement in
order to effect the transfer of ownership of the abandoned
articles to the government. Section 1802 of the TCC makes use of
the term ipso facto, which may be translated as by the fact
itself.
Accordingly, there was no need for any affirmative
act on the part of the government with respect to the abandoned
imported articles since the law itself provides that the abandoned
articles shall ipso facto be deemed the property of the
government. Ownership over the abandoned importation was
transferred to the government by operation of law under Section
1802 of the TCC, as amended by R.A. 7651.
VI. CLASSIFICATION OF CUSTOMS DUTIES
A. ORDINARY OR REGULAR CUSTOMS DUTIES these
are usually or generally imposed on all articles that
are subject to duty.
1. Ad valorem duty based on the value of the
imported article.
Basis of dutiable value
The basis for ad valorem rate is the
transaction value as found on the import
entry declaration and its attachments.
However, the BOC cannot fully rely on the
import entry declaration of an importer.
(METHOD ONE TRANSACTION VALUE
actually paid or payable)
If the BOC determines that there is
reasonable doubt on the transaction
value stated the following methods are
resorted by BOC in determining the true
value, (Sec. 201) in chronological order:
METHOD TWO Transaction value of
identical goods
Identical goods mean goods, which are
the same in all respects, including
physical characteristics, quality and
reputation. Minor differences in
appearances shall not preclude goods
35
otherwise conforming to the definition
from being regarded as identical.
This pertains to the transaction value of
identical goods sold for export to the
Philippines at or about the date of
exportation of the goods being valued
METHOD THREE Transaction value of
similar goods
If there are no identical goods, then the
basis will then be the transaction value of
similar goods sold for export to the
Philippines at or about the date of
exportation of the goods being valued
Similar goods mean goods which,
although not alike in all respects, have
like characteristics and like component
materials which enable them to perform
the same functions and to be
commercially interchangeable. The
quality of the goods, their reputation and
the existence of a trademark shall be
among the factors to be considered in
determining whether goods are similar.
METHOD FOUR Deductive value
Deductive value is based on the unit price
at which the imported goods or identical
or similar imported goods are sold in the
Philippines, in the same condition as
when imported, in the greatest aggregate
quantity, at or about the time of the
importation of the goods being valued, to
persons not related to the persons from
whom they buy such goods
In great numbers (greatest aggregate
quantity) meaning at a very discounted
price, assuming that it would have been
the cost had it been for export to the
Phils.
METHOD FIVE Computed value
Computed value is derived from
accounting the raw materials and all
other costs in producing the product plus
freight, insurance and packing expenses
METHOD SIX Fallback value
Fallback value is such value that can be
determined by using other reasonable
means and on the basis of data available
in the Phils.
Export Value value used during the
transition from Home Consumption Value
to Transaction Value
Home Consumption Value value based
on wholesale price in home country
2. Specific duty based on the dutiable weight
TAXATION2 FINALS | maru.mhealler | 404
 of goods.
Gross Weight is its weight plus the weight of
all containers, packages, holders and packing,
of any kind, in which said articles are
contained, held or packed at the time of
importation.
Legal Weight is its weight plus the weight of
the immediate containers, holders and/or
packing in which such articles are usually
contained, held or packed at the time of
importation and/or, when imported in retail
packages, at the time of their sale to the public
in usual retail quantities:
Provided, That when articles are packed in
single container, the weight of the latter shall
be included in the legal weight.
Net weight refers to only the actual weight of
the articles at the time of importation,
excluding the weight of the immediate and all
other containers, holders or packing in which
such articles are contained, held or packed
3. Alternating duty not ad valorem and not
specific. It means the duty which alternates
from being subject to ad valorem to specific
duty.
4. Compound duty when a specific imported
article would be computed of customs duties
using both ad valorem and specific duties.
B. SPECIAL CUSTOMS DUTIES
These are additional customs duties actually
computed on top of what you pay as ordinary or
regular customs duties to protect the local
industries against foreign competition (dumping
and countervailing duties); in order to protect
consumers from possible deceptions (marking
duty); and to protect the country and national
interest (retaliatory or discriminatory duty)
These cannot be imposed without regular duties
because the law says that it is to be in addition to
such.
1. Dumping Duty (or Anti-Dumping Duty) This is
a duty levied on imported goods where it appears
that a specific kind or class of foreign article is being
imported into or sold or is likely to be sold in the
Phils. at a price less than its fair value, the
importation and sale of which might injure, or
retard the establishment of, or is likely to injure, an
industry producing like goods in the Philippines, to
the extent of the under-pricing of the value.
- To prevent unfair competition
AMOUNT/RATE Difference between the
actual price and the normal value of the article
(extent of the under-pricing)
IMPOSING AUTHORITY - The SOTI for non-
agricultural products and SOA for agricultural
36
products
- Question the imposition made by the SOA and
SOTI with the CTA
2. Countervailing duty imposed upon foreign
goods enjoying specific subsidy upon the
production, manufacture or exportation of such
product, commodity or article and the importation
of such subsidized product has caused or threaten
to cause material injury to a domestic industry
- To prevent unfair competition
AMOUNT/RATE Equivalent to the bounty or
subsidy
Subsidy includes fiscal incentives like granting
of tax exemption in the country of origin, such
that it can export product to the Phils., which
will result to importation to us at a very low
price because it was not subject to tax in its
country of origin.
IMPOSING AUTHORITY - The SOTI for non-
agricultural products and SOA for agricultural
products
3. Marking duty This is a duty on an ad valorem basis
imposed for improperly marked articles. The law
requires that foreign importations must be marked in
any official language of the Phils. with the name of the
country of origin of the article.
NOTE: What it requires simply is that the
source or country of origin of the articles must
be indicated in the official language of the
Phils.
AMOUNT/RATE - 5% ad valorem (based on the
value of the article) accruing at the time of
importation
EXCEPTION: Not required to pay marking duty
when it is - Exported or destroyed under
customs supervision and prior to the final
liquidation of the corresponding entry
NOTE: Imported article held in customs
custody for examination may not be delivered
until marked. Further, the article shall be
deemed abandoned upon failure to mark
them within 30 days from notice.
IMPOSING AUTHORITY Commissioner of
Customs
4. Retaliatory or Discriminatory Duty This is a duty
imposed on imported goods whenever it is found that
the country of origin discriminates against the
commerce of the Phils. like imposing any unreasonable
charge, exaction, limitation or regulation not equally
enforce upon like articles of other countries or
discriminating in such a manner as to place the
commerce of the Phils. at a disadvantage compared with
the commerce of any foreign country
TAXATION2 FINALS | maru.mhealler | 404
 AMOUNT / RATE - Not exceeding 100% ad
valorem
IMPOSING AUTHORITY - The President as
provided under the Constitution and translated
in the TCC (FLEXIBLE TARIFF CLAUSE - President
has the right to increase, reduce, or remove any
existing protective rates of import duty).
Remedy of the government if the foreign
country persists in importing discriminatory
foreign articles
The discriminatory foreign articles shall be
forfeited in favor of the government and shall
be seized, prosecuted and condemned.
If still persistent, then banning of such
discriminatory foreign articles.
C. OTHER CUSTOMS FEES, DUES OR CHARGES PAYABLE-
All stages are actually imposed charges
1. Harbor fees
Section 2701. Definition. Harbor fee is the
amount which the owner, agent, operator or
master of a vessel has to pay for each entrance into
or departure from a port of entry in the Philippines.
2. Wharfage dues
Sec. 2801. Definition. Wharfage due is the
amount assessed against the cargo of a vessel
engaged in the foreign trade, based on the
quantity, weight or measure received and/or
discharged by such vessel. The owner, consignee, or
agent of either, of the article is the person liable for
such charge.
3. Berthing fees
Sec. 2901. Definition. Berthing charge is the
amount assessed against a vessel for mooring or
berthing at a pier, wharf, bulkhead-wharf, river or
channel marginal wharf at any port in the
Philippines; or for mooring or making fast to a
vessel so berthed; or for berthing or mooring within
any slip, channel, basin river or canal under the
jurisdiction of any port of the Philippines. The
owner, agent, operator or master of the vessel is
liable for this charge.
4. Storage fees
Sec. 3001. Definition. Storage charge is the
amount assessed on articles for storage in customs
premises, cargo shed and warehouses of the
government. The owner, consignee or agent of
either, of the articles, is liable for this charge.
5. Arrastre Charges
Sec. 3101. Definition. Arrastre charge is the
amount which the owner, consignee, or agent of
either, of article or baggage has to pay for the
handling, receiving and custody of the imported or
exported article or the baggage of the passengers.
37
6. Tonnage dues
Sec. 3201. Definition. Tonnage due is the amount
paid by the owner, agent, operator or master of a
vessel engaged in foreign trade coming to the
Philippines from a foreign port or going to a foreign
port from the Philippines based on the net tonnage
of the vessel or weight of the articles discharged or
laden.
7. Other fees and charges
Sec. 3302. Other Charges. When any article is
sold or any service rendered by the Bureau of
Customs in any matter for which a charge may be
collected legally, no fee therefor having been fixed
by law, such charge shall be on such amount as may
from time to time be fixed by regulation or order of
the Commissioner and approved by the department
head; and the payment of such charge may be
made by affixing and cancelling the documentary
customs stamps.
Whenever a vessel engaged in foreign trade drops
anchor in the Philippine waters, liable for anchorage fee.
Whenever a vessel engaged in domestic trade drops
anchor at any port in the Phils., liable for usage fee.
Whenever a vessel engaged in domestic trade
temporarily lays up, like parking, liable for lay-up fee.
VII. FLEXIBLE TARIFF CLAUSE
Flexible tariff import duties which are modified by the
President upon investigation by the Tariff Commission
and recommendation of NEDA in the interest of national
economy, general welfare and national security.
(1) to increase, reduce or remove existing protective
rates of import duty (including any necessary change in
classification).
The existing rates may be increased or decreased to any
level, in one or several stages but in no case shall the
increased rate of import duty be higher than a maximum
of one hundred (100) per cent ad valorem
for protective tariff rates only (refers to special
custom duties)
(2) to establish import quota or to ban imports of any
commodity, as may be necessary; and
(3) to impose an additional duty on all imports not
exceeding ten (10%) per cent ad valorem whenever
necessary;
for ordinary or regular customs duties
Except for (3), the Commission shall:
Conduct an investigation in the course of which
they shall hold public hearings wherein interested
parties shall be afforded reasonable opportunity to
be present, produce evidence and to be heard.
TAXATION2 FINALS | maru.mhealler | 404
 The Commission shall also hear the views and
recommendations of any government office,
agency or instrumentality concerned. The
Commission shall submit their findings and
recommendations to the NEDA within thirty (30)
days after the termination of the public hearings.
The power of the President to increase or decrease
rates of import duty shall include the authority to
modify the form of duty.
In modifying the form of duty, the corresponding
ad valorem or specific equivalents of the duty with
respect to imports from the principal competing
foreign country for the most recent representative
period shall be used as bases.
Any Order issued by the President pursuant to the
provisions of this section shall take effect thirty
(30) days after promulgation,
Except: Imposition of additional duty not exceeding
ten (10) per cent ad valorem which shall take effect
at the discretion of the President.
RATIONALE:
a. For expediency purposes
b. For the interest of the national economy,
national security and for general welfare.
c. For the protection of the Philippine
economy by regulating importation and
exportation
VIII. LIABILITY FOR CUSTOMS DUTIES
A. General Rule and Exceptions
GR:
No exemptions from customs duties.
The provisions of general and special laws, including
those granting franchises, to the contrary
notwithstanding, there shall be no exemptions
whatsoever from the payment of the customs duties.
EXC:
1. If provided under the TCC (e.g. conditionally-free
importations)
2. Exemptions granted to GOCCs with existing
contracts, commitment, agreements or
obligations with foreign countries
3. Exemptions of international institutions,
associations or organizations pursuant to
agreements and special laws
4. Exemptions granted by the President of the
Phils., upon recommendation from the NEDA in
the interest of national economic development
38
B. Extent of Importers Liability
Sec. 1204. Liability of Importer for Duties. Unless
relieved by laws or regulations, the liability for duties,
taxes, fees and other charges attaching on importation
constitutes a personal debt due from the importer to the
government which can be discharged only by payment
in full of all duties, taxes, fees and other charges legally
accruing. It also constitutes a lien upon the articles
imported which may be enforced while such articles are
in custody or subject to the control of the government.
NOTE: Once the imported article legally leaves the
premises of the BOC, the lien no longer attaches to such
imported article.
REMEMBER: The extent of the importers liability is
limited only to the value of the imported articles.
So, if the importer cannot settle the taxes and duties,
assuming its more than 100% of the value of the
imported articles, your remedy as an importer is simply
to abandon the imported articles. To that extent, your
abandoned articles will be considered as the full
payment of whatever your liability is.
C. Drawbacks
Drawback is a device resorted to for enabling an
imported commodity affected by taxes to be exported
back and sold in foreign markets upon the same terms
as if it had not been taxed at all.
RATIONALE: To enable a local manufacturer to compete
in foreign markets by relieving them of the payment of
taxes that will surely form part of the cost of the
product.
In sum, you pay during importation but it will be
refunded when it will be re-exported.
NOTE: If the goods are to be re-exported the importer
has two options:
A. File a bond upon importation
Govt will use this as security if you will not re-
export the articles
B. Pay customs duty but later on seek for refund
(drawback)
Commodities for which drawbacks are allowed:
1. Articles Made from Imported Materials (which are
subsequently re-exported)
Conditions for grant of drawback:
1.1. Imported material (now a component of the
finished good) was actually used in the production
of the finished good to be re-exported.
1.2. Refund or credit shall not exceed 100% of
duties paid on the imported material
1.3. No determination by NEDA of the requirement
for certification on non-availability of locally
produced or manufactured competitive substitutes
TAXATION2 FINALS | maru.mhealler | 404
 for the imported material (no local substitute for
the materials)
1.4. Exportation must be made within 1 year from
the date of acceptance of the import entry and
claim for refund or credit must be made within 6
months from exportation
1.5. When 2 or more result from the use of same
imported material, apportionment shall be made.
2. Fuels used for propulsion of vessels
Refund or tax credit shall be allowed not exceeding
ninety-nine (99) per cent of the duty imposed by
law upon such fuel
3. Petroleum Oils and Oils Obtained from Bituminous
Minerals, Crude Eventually Used for Generation of
Electric Power and for the Manufacture of City Gas
Refund or tax credit shall be allowed not exceeding
fifty per cent (50%) of the duty imposed by law
upon such oils
- Every application for drawback must pay P500
filing, processing, and supervision fees
- Claims shall be paid by BOC within 60 days after
receipt of properly accomplished claims
IX. LIQUIDATION
LIQUIDATION AND RECORD OF ENTRIES
Every import entry declaration that an importer files
must be liquidated by the COC.
Liquidation - to determine with exact finality how much
is the customs duty liability.
It can either be tentative or final liquidation.
Tentative Liquidation - some future action is
required, the liquidation shall be deemed to be
tentative as to the item or items affected and shall
to that extent be subject to future and final
readjustment and settlement.
Final Liquidation - after the expiration of three (3)
years from the date of the final payment of duties
be final and conclusive upon all parties
Exception:
a. Fraud or protest or compliance audit
b. Liquidation of the import entry was merely
tentative
NOTE: Liquidation, even if its finally made, is still open
for questions within 3 years from the date of final
payment of duties. After the 3 years, it shall prescribe.
39
X. FAILURE TO PAY DUTIES AND TAXES;
FRAUDULENT PRACTICES
3 Degrees of Culpability in the Failure to Pay correct
Duties and Taxes on Imported Goods
(a) Negligence - When the deficiency results from an
offender's failure, through an act or acts of omission or
commission, to exercise reasonable care and
competence to ensure that a statement made is correct,
it shall be determined to be negligent.
PENALTY = a fine equivalent to not less than one-
half (1/2) but not more than two (2) times the
revenue loss. [1/2 2]
(b) Gross Negligence - When a deficiency results from an
act or acts of omission or commission done with actual
knowledge or wanton disregard for the relevant facts
and with indifference to or disregard for the offender's
obligation under the statute, it shall be determined to
be grossly negligent
PENALTY = a fine equivalent to not less than two
and a half (2) but not more than four (4) times the
revenue loss. [2 - 4]
(c) Fraud - When the material false statement or act in
connection with the transaction was committed or
omitted knowingly, voluntarily and intentionally, as
established by clear and convincing evidence, it shall be
determined to be fraudulent
PENALTY =
A. a fine equivalent to not less than five (5) times
but not more than eight (8) times the revenue loss
[5 8] and
B. Imprisonment of not less than two (2) years but
not more than eight (8) years. [2 years 8 years]
The decision of the Commissioner of Customs, upon
proper hearing, to impose penalties as prescribed in this
Sec. may be appealed in accordance with Sec. 2402
hereof.
Fraudulent Practices
1. Smuggling or unlawful importation
Illegal entry of goods other than the port of entry
Persons who commit smuggling:
a. Those who fraudulently import or bring goods
into the Philippines,
b. Those who assist in so doing or
c. Those who receive, conceal, buy, sell, or in any
manner facilitate the transportation,
concealment, or sale of such article after
importation, knowing the same to have been
imported contrary to law
Note: For (a) and (b), knowledge not required. Only
in (c) is knowledge required.
TAXATION2 FINALS | maru.mhealler | 404
 PENALTY = a fine of not less than six hundred pesos
nor more than five thousand pesos and
imprisonment for not less than six months nor
more than two years and, if the offender is an alien,
he shall be deported after serving the sentence.
[P600 5,000] and [6 months 2 years
imprisonment] and [deportation if alien]
Evidence for conviction in Smuggling cases
Mere Possession of the article in question, such
possession shall be deemed sufficient evidence
to authorize conviction unless the defendant
shall explain the possession to the satisfaction of
the court
Payment of the tax after apprehension is not a
valid defense
2. Makes or attempts to make entry of imported
article:
A. By means of fraudulent invoices, declaration,
affidavit, letter, paper, or
B. By means of false statement, written or verbal,
or
C. By means of false or fraudulent practice
whatsoever, or
D. Guilty of any willful act or omission by means
whereof the Government might be deprived of the
lawful duties, taxes and other charges, or any
portion thereof
PENALTY = same with smuggling
3. Entry of goods without the declaration of the correct
or true weight or measures or upon a qualification as
to quality or value
4. Payment of taxes less than the correct taxes
5. False entry in filing for refunds or drawbacks
XI. Tax Remedies
A. GOVERNMENT
1. Administrative
a. Tax Lien
It attaches to the property, regardless of
whoever owns it and regardless of whether the
importer is known or unknown.
b. Seizures and Forfeiture
c. Administrative Fines
d. Reduction of Customs Duties / Compromise
2. Judicial
a. Civil Action
40
b. Criminal Action
NOTE: Criminal action for unlawful importation is
against the person, not the property.
The best remedy for government to take:
A. If imported goods are still within the jurisdiction
or control of the BOC
- administrative remedies (seizure and
forfeiture)
B. If legally left BOC jurisdiction
- judicial remedies
C. If illegally let BOCs jurisdiction or there was
illegal importation / smuggling
- administrative remedy (jurisdiction will
now extend beyond BOC)
B. TAXPAYER / IMPORTER
1. Administrative
a. Protest
Protest with Collector of Customs upon
payment or within 30 days thereafter.
Payment under protest required if
correctness or accuracy of assessment is
protested.
Protest Exclusive Remedy in Protestable
Cases except as to matters correctible for
manifest error
In seizure cases, the Collector, after a
hearing, shall in writing make a
declaration of forfeiture or fix the amount
of the fine or take such other action as
may be proper.
b. Refund
Manifest clerical errors made in an invoice or
entry, errors in return of weight, measure and
gauge, when duly certified to by the surveyor or
examining official (when there are such officials
at the port), and errors in the distribution of
charges on invoices not involving any question of
law and certified to by the examining official,
may be corrected in the computation of duties, if
such errors be discovered before the payment of
duties, or, if discovered within one year after the
final liquidation, upon written request and notice
of error from the importer, or upon statement of
error certified by the Collector.
Collector is authorized to reliquidate entries and
collect additional charges, or to make refunds on
statement of error within the statutory time
limit.
Sec. 1708. Claim for Refund and Mode of
Payment. All claims for refund of duties shall
TAXATION2 FINALS | maru.mhealler | 404
 be made in writing, and forwarded to the
Collector to whom such duties are paid, who
upon receipt of such claim shall verify the same
by the records of his office, and if found to be
correct and in accordance with law, shall certify
the same to the Commissioner with his
recommendation together with all necessary
papers and documents. Upon receipt by the
Commissioner of such certified claim he shall
cause the same to be paid if found correct.
c. Settlement of any seizure by payment of fine or
redemption
d. Appeal
2. Judicial
a. Appeal
b. Action to question the legality of the seizure
c. Abandonment
XII. KINDS OF PROCEEDINGS IN CUSTOMS CASES
A. Customs Protest Cases
1. File Customs Protest upon payment under
protest or within 15 days thereafter before the
Collector of Customs
NOTE: Payment under Protest (PUP) is necessary
before you can protest the assessment on its
correctness and legality. Unlike in real property
protests, in Custom protests legality of assessment
is already a question of the computation.
If PUP is done, there is an annotation that youve
paid under protest.
Requirements for protest to be valid, it must:
A. Be in writing
B. Point out the particular decision or
ruling of the Collector of Customs to
which exception is taken or objection
made
C. State the grounds relied upon for relief
D. Be limited to the subject matter of a
single adjustment
NOTE: Single adjustment refers
to the entire contents of one
liquidation, including all duties,
fees, surcharges or fines
incident thereto (not prohibited
to show independent
statements or information)
E. Be filed when the amount claimed is
paid or within 15 days after the payment
F. Furnish samples of goods under protest
41
when required
2. Then, hearing will be conducted by the Collector
of Customs within 15 days from receiving the
protest
3. Collector of Customs decision within 30 days
upon termination of the hearing
If favorable automatic review/appeal by the
Commissioner of Customs within 5 days from
promulgation of decision
REASON: For the protection of the government,
lifeblood doctrine, and the Commissioner of
Customs has direct supervision over the Collector
of Customs.
If unfavorable appeal within 15 days from
notification in writing by the Collector of his
decision before the Commissioner
4. Commissioner of Customs decision within 30
days from receipt of the records of the case
If favorable or inaction (affirmed Collectors
decision) automatic review/appeal by the SOF
within 5 days from promulgation of decision
If unfavorable appeal to the CTA in division
within 30 days from receipt of decision
5. SOFs decision within 30 days from receipt of the
records of the case
If favorable or inaction (affirmed Collectors
decision) decision shall become final and
executory if no appeal is made by the
government
If unfavorable (reversed Collectors decision)
appeal to the CTA in division within 30 days from
receipt of decision
6. CTAs decision
If favorable decision shall become final and
executory if no appeal is made by the
government
If unfavorable motion for reconsideration or
motion for new trial (if there is new evidence)
within 15 days from receipt of notice
If still unfavorable CTA en banc
If still unfavorable SC
Note: Customs protest is not required when
there is no dispute but the claim for refund
arises by reason of the happening of
supervening events such as when the raw
material imported is utilized in the production
off finished products subsequently reported
and a duty drawback is claimed.
B. Seizure and Forfeiture Cases (SFC)
Automatic review of cases is also applicable to
TAXATION2 FINALS | maru.mhealler | 404
 SFCs
Who has the authority to enforce SFC?
Sec. 2203. Persons Having Police Authority. For the
enforcement of the customs and tariff laws, the
following persons are authorized to effect searches,
seizures and arrests conformably with the provisions of
said laws:
a. Officials of the Bureau of Customs, collectors,
assistant collectors, deputy collectors, surveyors,
security and secret-service agents, inspectors, port
patrol officers and guards of the Bureau of
Customs.
b. Officers of the Philippine Navy when authorized
by the Commissioner.
c. Any person especially authorized in writing by
the Commissioner.
d. Officers generally empowered by law to effect
arrests and execute processes of courts, when
acting under direction of the Collector.
e. Any person especially authorized by a Collector,
subject to the restrictions stated in the next
succeeding section.
Persons exercising the powers hereinabove
conferred shall, in the exercise thereof, have the
same authority, be entitled to the proper
protection, and shall be governed by the same law,
not inconsistent with the provisions of this section,
as other officers exercising police authority in
general.
NOTE: This may include BIR officials
Nature of SFC
SFC are actually actions in rem which are directed
against the property itself, and not directed against
the owner.
So, when property imported is illegal or prohibited,
the penalty is directed against the property itself.
Its civil in nature.
Articles subject to Confiscation
GR: Anything that was used for smuggling or
unlawful importation is subject to confiscation,
regardless of whoever the owner is. (May include
not only the article itself but the vehicles and
machineries used)
Exc: Common Carriers holding a CPC (Certificate of
public convenience)
REASON: Common carriers are open to the public,
thus, they do no go into the legality of the articles
that are loaded or unloaded on its vessel, vehicle,
or aircraft, such that if the common carrier has no
knowledge of the unlawful importation, the vessel
cannot be subject to forfeiture
42
E to E:
The Common carrier
a.) actually knows of the unlawful importation or
b.) the vessel is privately chartered or hired, in
which case, with or without knowledge, its subject
to forfeiture
Note: If a motor vehicle is hired to carry smuggled
goods but it has no CPC, it is not a common carrier.
It is thus subject to forfeiture and lack of personal
knowledge of the owner or carrier is not defense to
forfeiture
El Greco v. COC case
The penalty of forfeiture is imposed on any vessel engaged in
smuggling, provided that the following conditions are present:
(1) The vessel is used unlawfully in the importation or
exportation of articles into or from the Philippines;
(2) The articles are imported to or exported from any
Philippine port or place, except a port of entry; or
(3) If the vessel has a capacity of less than 30 tons and is used
in the importation of articles into any Philippine port or place
other than a port of the Sulu Sea, where importation in such
vessel may be authorized by the Commissioner, with the
approval of the department head."
Also, in seizure and forfeiture cases:
A.) if the value is less than 5M - go through the
Commissioner of Customs
B.) if value is 5M or more proceed directly to Sec.
of Finance, skip the COC
Port of entry a domestic port open to both
foreign and coastwise trade including airport of
entry
Properties not subject to forfeiture
GR: The forfeiture of the vehicle, vessel or aircraft
shall not be effected if it is established that the
owner thereof or his agent in charge of the means
of the conveyance used as aforesaid has no
knowledge of or participation in the unlawful act
Exc: A prima facie presumption shall exist against
the vessel, vehicle, or aircraft under any of the
following circumstances:
1. If the conveyance has been used for smuggling
at least twice before
2. If the owner is not in the business for which
the conveyance is generally used
3. If the owner is financially not in the position to
own such conveyance
Places where search and seizure may be conducted
1. Enclosures, buildings
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 2. Dwelling house there must be search warrant
issued by a judge of a court after a sworn
application has been filed detailing therein the
description of the place to be searched and the
things to be seized
3. Vessels or aircrafts or vehicles and persons or
articles conveyed therein
4. Persons arriving from foreign countries
5. Warehouse (as long as there is probable cause)
A warehouse not be considered a
dwelling place if the employer stays therein as a
watchman together with his family because to be
considered as a dwelling place, such must be used
exclusively only for residential purposes.
6. Vehicles, beasts or persons
Goods in Customs Custody Beyond Reach
Attachment
Goods in the customs custody pending payments of
customs duties are beyond the reach of
attachment. As long as the importation has not
been terminated, the imported goods remain
under the jurisdiction of the BOC.
Burden of Proof
The burden of proof is on the importer-claimant so
long as probable cause has already been shown by
the BOC
Importer-owner of a seized article may offer to pay in
lieu of seizure or forfeiture.
GR: There can be settlement of SFC by payment of
fine or redemption of forfeited property.
Exception:
1. The importation is absolutely prohibited
2. The surrender of the property to the person
offering to redeem would be contrary to law, or
3. Where there is fraud
- If the importer is criminally charged and
subsequently acquitted of the criminal charge,
the seized and forfeited articles are not
automatically released.
Acquittal in Criminal Charge Not Res Judicata in SFC
Criminal charge is different from SFC. The acquittal
in the criminal charge is not res judicata in SFC
because the criminal case is directed against the
person himself while SFC is directed against the
property itself. In the same way that if the civil
liability is discharged by abandoning the article,
such act would not relieve the importer from his
criminal liability.
Criminal proceedings are action in personam while
SFC are actions in rem.
43
The property would be answerable for having
transported illegal articles, then the property would
have to be forfeited or seized, unless its exempt.
Customs compromise does not extinguish criminal
liability.
Administrative and Judicial Procedures relative to
Customs Seizure and Forfeitures
i. Determination of probable cause and issuance of
warrant
ii. Actual seizure of the articles
iii. Listing of description, appraisal and classification of
seized property
iv. Report of seizure to COC and the Chairman of COA
v. Issuance by the Collector of warrant of detention
of
vi. Formal hearing (Notice for 15 days)
vii. District Collector renders his decision
Payment under protest is not necessary before you
question the seizure if there is no assessment yet. If
it was still a determination of the illegality of the
imported articles, then payment under protest not
required.
You can ask for the release of the goods if file a
cash bond. A surety or property bond does not
satisfy this requirement.
If you posted a bond and you want to collect the
refund, the action is converted into a contractual
liability. You have 10 years to file this claim before
it prescribes.
If the decision of the Collector is finally adverse to
you, the imported articles will be seized and
forfeited and the remedy would have to be the
same as in customs protest cases.
The difference is that payment under protest is not
required. You may put up a bond or
settle/compromise at this stage, by paying the fees.
ABATEMENT is allowed in SFC when:
1. The imported articles suffered any damage
during the voyage
2. Loss or destruction of articles after arrival
3. Death or Injury of animals
4. Deficiency in the contents package
NOTE: Abatement in TCC pertains to the reduction
or non-imposition of customs duties (not only the
total waiver of collection)
Written claim for Refund allowed when:
1. Drawback cases where the goods are re-
exported
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2. Wherein you have already paid the customs
duties and you found out that goods have suffered
damages or are already deficient (All abatement
cases)

3. Wherein you have actually paid the customs

duties and within the 3-year period after final
liquidation, you found out that there was an
excessive payment

4. Manifest clerical errors

When the goods are lost within customs custody

and goods not illegally imported BOC would
reimburse the importer the acquisition cost of the
goods at the time of payment

NOTE: Keep books for 3 years from final liquidation

since government has 3 years to examine

This 3 year period benefits the government and the

taxpayer

The claim for refund must also be made within the

same 3 year period

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CUSTOMS PROTEST CASES

Payment under protest

15 days

Written protest to
Collector of Customs
15 days

Hearing
30 days

Decision

Favorable Unfavorable
5 days 15 days

Automatic Review by Appeal to Commissioner of Customs

Commissioner of Customs (30 days to decide) (30 days to decide)

Favorable (F) No Decision (ND) Unfavorable (U)

5 days

Automatic Review w/ Appeal to SoF

(30 days to decide)

F ND U

30 days

Decision becomes final &

executory when it is not
appealed by the govt CTA in division

F U
15 days

Motion for Reconsideration

or Motion for New Trial

F U
15 days

CTA En Banc

F U

15 days

SC

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