THE to be known as Deputy Commissioners.

may be liable to pay any internal revenue tax, and all

NATIONAL INTERNAL REVENUE CODE SEC. 4. Power of the Commissioner to Interpret Tax Laws persons owning or having the care, management or
OF THE PHILIPPINES and to Decide Tax Cases - The power to interpret the possession of any object with respect to which a tax is
[Tax Reform Act of 1997] provisions of this Code and other tax laws shall be under the imposed.
exclusive and original jurisdiction of the Commissioner, The provisions of the foregoing paragraphs notwithstanding,
Republic Act No. 8424 subject to review by the Secretary of Finance. nothing in this Section shall be construed as granting the
AN ACT AMENDING THE NATIONAL INTERNAL The power to decide disputed assessments, refunds of Commissioner the authority to inquire into bank deposits
REVENUE CODE, AS AMENDED, AND FOR OTHER internal revenue taxes, fees or other charges, penalties other than as provided for in Section 6(F) of this Code.
PURPOSES imposed in relation thereto, or other matters arising under SEC. 6. Power of the Commissioner to Make assessments
this Code or other laws or portions thereof administered by and Prescribe additional Requirements for Tax
SECTION 1. Short Title - This Act shall be cited as the "Tax the Bureau of Internal Revenue is vested in the Administration and Enforcement. - (A) Examination of
Reform Act of 1997" Commissioner, subject to the exclusive appellate jurisdiction Returns and Determination of Tax Due - After a return has
of the Court of Tax Appeals. been filed as required under the provisions of this Code, the
SEC. 2. State Policy. It is hereby declared the policy of the SEC. 5 Power of the Commissioner to Obtain Information, Commissioner or his duly authorized representative may
State to promote sustainable economic growth through the and to Summon, Examine, and Take Testimony of Persons - authorize the examination of any taxpayer and the
rationalization of the Philippine internal revenue tax system, In ascertaining the correctness of any return, or in making a assessment of the correct amount of tax: Provided, however;
including tax administration; to provide, as much as return when none has been made, or in determining the That failure to file a return shall not prevent the
possible, an equitable relief to a greater number of taxpayers liability of any person for any internal revenue tax, or in Commissioner from authorizing the examination of any
in order to improve levels of disposable income and increase collecting any such liability, or in evaluating tax compliance, taxpayer.
economic activity; and to create a robust environment for the Commissioner is authorized: Any return, statement of declaration filed in any office
business to enable firms to compete better in the regional as (A) To examine any book, paper, record, or other data which authorized to receive the same shall not be withdrawn:
well as the global market, at the same time that the State may be relevant or material to such inquiry; Provided, That within three (3) years from the date of such
ensures that Government is able to provide for the needs of (B) To obtain on a regular basis from any person other than filing, the same may be modified, changed, or amended:
those under its jurisdiction and care. the person whose internal revenue tax liability is subject to Provided, further, That no notice for audit or investigation of
SEC. 3. Presidential Decree No. 1158, as amended by, among audit or investigation, or from any office or officer of the such return, statement or declaration has in the meantime
others, Presidential Decree No. 1994 and Executive Order national and local governments, government agencies and been actually served upon the taxpayer.
No. 273, otherwise known as the National Internal Revenue instrumentalities, including the Bangko Sentral ng Pilipinas (B) Failure to Submit Required Returns, Statements,
Code, is hereby further amended. and government-owned or -controlled corporations, any Reports and other Documents - When a report required by
TITLE I information such as, but not limited to, costs and volume of law as a basis for the assessment of any national internal
ORGANIZATION AND FUNCTION OF production, receipts or sales and gross incomes of taxpayers, revenue tax shall not be forthcoming within the time fixed by
THE BUREAU OF INTERNAL REVENUE and the names, addresses, and financial statements of laws or rules and regulations or when there is reason to
SECTION 1. Title of the Code - This Code shall be known as corporations, mutual fund companies, insurance companies, believe that any such report is false, incomplete or erroneous,
the National Internal Revenue Code of 1997. regional operating headquarters of multinational companies, the Commissioner shall assess the proper tax on the best
SEC. 2. Powers and Duties of the Bureau of Internal joint accounts, associations, joint ventures of consortia and evidence obtainable.
Revenue - The Bureau of Internal Revenue shall be under registered partnerships, and their members; In case a person fails to file a required return or other
the supervision and control of the Department of Finance (C) To summon the person liable for tax or required to file a document at the time prescribed by law, or willfully or
and its powers and duties shall comprehend the assessment return, or any officer or employee of such person, or any otherwise files a false or fraudulent return or other
and collection of all national internal revenue taxes, fees, and person having possession, custody, or care of the books of document, the Commissioner shall make or amend the
charges, and the enforcement of all forfeitures, penalties, and accounts and other accounting records containing entries return from his own knowledge and from such information
fines connected therewith, including the execution of relating to the business of the person liable for tax, or any as he can obtain through testimony or otherwise, which shall
judgments in all cases decided in its favor by the Court of other person, to appear before the Commissioner or his duly be prima facie correct and sufficient for all legal purposes.
Tax Appeals and the ordinary courts. authorized representative at a time and place specified in the (C) Authority to Conduct Inventory-taking, surveillance and
The Bureau shall give effect to and administer the summons and to produce such books, papers, records, or to Prescribe Presumptive Gross Sales and Receipts - The
supervisory and police powers conferred to it by this Code or other data, and to give testimony; Commissioner may, at any time during the taxable year,
other laws. (D) To take such testimony of the person concerned, under order inventory-taking of goods of any taxpayer as a basis
SEC. 3. Chief Officials of the Bureau of Internal Revenue - oath, as may be relevant or material to such inquiry; and for determining his internal revenue tax liabilities, or may
The Bureau of Internal Revenue shall have a chief to be (E) To cause revenue officers and employees to make a place the business operations of any person, natural or
known as Commissioner of Internal Revenue, hereinafter canvass from time to time of any revenue district or region juridical, under observation or surveillance if there is reason
referred to as the Commissioner and four (4) assistant chiefs and inquire after and concerning all persons therein who to believe that such person is not declaring his correct

1
income, sales or receipts for internal revenue tax purposes. (F) Authority of the Commissioner to inquire into Bank under the pertinent provisions of this Code to any or such
The findings may be used as the basis for assessing the taxes Deposit Accounts - Notwithstanding any contrary provision subordinate officials with the rank equivalent to a division
for the other months or quarters of the same or different of Republic Act No. 1405 and other general or special laws, chief or higher, subject to such limitations and restrictions as
taxable years and such assessment shall be deemed prima the Commissioner is hereby authorized to inquire into the may be imposed under rules and regulations to be
facie correct. bank deposits of: promulgated by the Secretary of finance, upon
When it is found that a person has failed to issue receipts (1) a decedent to determine his gross estate; and (2) any recommendation of the Commissioner: Provided, however,
and invoices in violation of the requirements of Sections 113 taxpayer who has filed an application for compromise of his That the following powers of the Commissioner shall not be
and 237 of this Code, or when there is reason to believe that tax liability under Sec. 204 (A) (2) of this Code by reason of delegated:(a) The power to recommend the promulgation of
the books of accounts or other records do not correctly financial incapacity to pay his tax liability. rules and regulations by the Secretary of Finance;(b) The
reflect the declarations made or to be made in a return In case a taxpayer files an application to compromise the power to issue rulings of first impression or to reverse,
required to be filed under the provisions of this Code, the payment of his tax liabilities on his claim that his financial revoke or modify any existing ruling of the Bureau;(c) The
Commissioner, after taking into account the sales, receipts, position demonstrates a clear inability to pay the tax power to compromise or abate, under Sec. 204 (A) and (B) of
income or other taxable base of other persons engaged in assessed, his application shall not be considered unless and this Code, any tax liability: Provided, however, That
similar businesses under similar situations or circumstances until he waives in writing his privilege under Republic Act assessments issued by the regional offices involving basic
or after considering other relevant information may No. 1405 or under other general or special laws, and such deficiency taxes of Five hundred thousand pesos (P500,000)
prescribe a minimum amount of such gross receipts, sales waiver shall constitute the authority of the Commissioner to or less, and minor criminal violations, as may be determined
and taxable base, and such amount so prescribed shall be inquire into the bank deposits of the taxpayer. by rules and regulations to be promulgated by the Secretary
prima facie correct for purposes of determining the internal (G) Authority to Accredit and Register Tax Agents - The of finance, upon recommendation of the Commissioner,
revenue tax liabilities of such person. Commissioner shall accredit and register, based on their discovered by regional and district officials, may be
(D) Authority to Terminate Taxable Period - When it shall professional competence, integrity and moral fitness, compromised by a regional evaluation board which shall be
come to the knowledge of the Commissioner that a taxpayer individuals and general professional partnerships and their composed of the Regional Director as Chairman, the
is retiring from business subject to tax, or is intending to representatives who prepare and file tax returns, statements, Assistant Regional Director, the heads of the Legal,
leave the Philippines or to remove his property therefrom or reports, protests, and other papers with or who appear Assessment and Collection Divisions and the Revenue
to hide or conceal his property, or is performing any act before, the Bureau for taxpayers. District Officer having jurisdiction over the taxpayer, as
tending to obstruct the proceedings for the collection of the Within one hundred twenty (120) days from January 1, 1998, members; and(d) The power to assign or reassign internal
tax for the past or current quarter or year or to render the the Commissioner shall create national and regional revenue officers to establishments where articles subject to
same totally or partly ineffective unless such proceedings are accreditation boards, the members of which shall serve for excise tax are produced or kept.
begun immediately, the Commissioner shall declare the tax three (3) years, and shall designate from among the senior SEC. 8. Duty of the Commissioner to Ensure the Provision
period of such taxpayer terminated at any time and shall officials of the Bureau, one (1) chairman and two (2) and Distribution of forms, Receipts, Certificates, and
send the taxpayer a notice of such decision, together with a members for each board, subject to such rules and Appliances, and the Acknowledgment of Payment of Taxes. -
request for the immediate payment of the tax for the period regulations as the Secretary of Finance shall promulgate (A) Provision and Distribution to Proper Officials. - It shall
so declared terminated and the tax for the preceding year or upon the recommendation of the Commissioner. be the duty of the Commissioner, among other things, to
quarter, or such portion thereof as may be unpaid, and said Individuals and general professional partnerships and their prescribe, provide, and distribute to the proper officials the
taxes shall be due and payable immediately and shall be representatives who are denied accreditation by the requisite licenses internal revenue stamps, labels all other
subject to all the penalties hereafter prescribed, unless paid Commissioner and/or the national and regional accreditation forms, certificates, bonds, records, invoices, books, receipts,
within the time fixed in the demand made by the boards may appeal such denial to the Secretary of Finance, instruments, appliances and apparatus used in administering
Commissioner. who shall rule on the appeal within sixty (60) days from the laws falling within the jurisdiction of the Bureau.
(E) Authority of the Commissioner to Prescribe Real receipt of such appeal. For this purpose, internal revenue stamps, strip stamps and
Property Values - The Commissioner is hereby authorized to Failure of the Secretary of Finance to rule on the Appeal labels shall be caused by the Commissioner to be printed
divide the Philippines into different zones or areas and shall, within the prescribed period shall be deemed as approval of with adequate security features.
upon consultation with competent appraisers both from the the application for accreditation of the appellant. Internal revenue stamps, whether of a bar code or fusion
private and public sectors, determine the fair market value (H) Authority of the Commissioner to Prescribe Additional design, shall be firmly and conspicuously affixed on each
of real properties located in each zone or area. Procedural or Documentary Requirements - The pack of cigars and cigarettes subject to excise tax in the
For purposes of computing any internal revenue tax, the Commissioner may prescribe the manner of compliance with manner and form as prescribed by the Commissioner, upon
value of the property shall be, whichever is the higher of: any documentary or procedural requirement in connection approval of the Secretary of Finance.
(1) the fair market value as determined by the with the submission or preparation of financial statements (B) Receipts for Payment Made - It shall be the duty of the
Commissioner, or accompanying the tax returns. Commissioner or his duly authorized representative or an
(2) the fair market value as shown in the schedule of values SEC. 7. Authority of the Commissioner to Delegate Power - authorized agent bank to whom any payment of any tax is
of the Provincial and City Assessors. The Commissioner may delegate the powers vested in him made under the provision of this Code to acknowledge the

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payment of such tax, expressing the amount paid and the Commissioner of Customs and his subordinates with respect establishments or places where articles subject to excise tax
particular account for which such payment was made in a to the collection of national internal revenue taxes on are produced or kept: Provided, That an internal revenue
form and manner prescribed therefor by the Commissioner. imported goods;(b) The head of the appropriate government officer assigned to any such establishment shall in no case
SEC. 9. Internal Revenue Districts - With the approval of the office and his subordinates with respect to the collection of stay in his assignment for more than two (2) years, subject to
Secretary of Finance, the Commissioner shall divide the energy tax; and(c) Banks duly accredited by the rules and regulations to be prescribed by the Secretary of
Philippines into such number of revenue districts as may Commissioner with respect to receipt of payments internal Finance, upon recommendation of the Commissioner.
form time to time be required for administrative purposes. revenue taxes authorized to be made thru bank.Any officer SEC. 17. Assignment of Internal Revenue Officers and Other
Each of these districts shall be under the supervision of a or employee of an authorized agent bank assigned to receive Employees to Other Duties. - The Commissioner may,
Revenue District Officer. internal revenue tax payments and transmit tax returns or subject to the provisions of Section 16 and the laws on civil
SEC. 10. Revenue Regional Director. - Under rules and documents to the Bureau of Internal Revenue shall be service, as well as the rules and regulations to be prescribed
regulations, policies and standards formulated by the subject to the same sanctions and penalties prescribed in by the Secretary of Finance upon the recommendation of the
Commissioner, with the approval of the Secretary of Sections 269 and 270 of this Code. Commissioner, assign or reassign internal revenue officers
Finance, the Revenue Regional director shall, within the SEC. 13. Authority of a Revenue Offices. - subject to the and employees of the Bureau of Internal Revenue, without
region and district offices under his jurisdiction, among rules and regulations to be prescribed by the Secretary of change in their official rank and salary, to other or special
others: Finance, upon recommendation of the Commissioner, a duties connected with the enforcement or administration of
(a) Implement laws, policies, plans, programs, rules and Revenue Officer assigned to perform assessment functions in the revenue laws as the exigencies of the service may require:
regulations of the department or agencies in the regional any district may, pursuant to a Letter of Authority issued by Provided, That internal revenue officers assigned to perform
area; the Revenue Regional Director, examine taxpayers within the assessment or collection function shall not remain in the
(b) Administer and enforce internal revenue laws, and rules jurisdiction of the district in order to collect the correct same assignment for more than three (3) years; Provided,
and regulations, including the assessment and collection of amount of tax, or to recommend the assessment of any further, That assignment of internal revenue officers and
all internal revenue taxes, charges and fees. deficiency tax due in the same manner that the said acts employees of the Bureau to special duties shall not exceed
(c) Issue Letters of authority for the examination of could have been performed by the Revenue Regional one (1) year.
taxpayers within the region;(d) Provide economical, efficient Director himself. SEC. 18. Reports of Violation of Laws. - When an internal
and effective service to the people in the area;(e) Coordinate SEC. 14. Authority of Officers to Administer Oaths and Take revenue officer discovers evidence of a violation of this Code
with regional offices or other departments, bureaus and Testimony. - The Commissioner, Deputy Commissioners, or of any law, rule or regulations administered by the Bureau
agencies in the area;(f) Coordinate with local government Service Chiefs, Assistant Service Chiefs, Revenue Regional of Internal Revenue of such character as to warrant the
units in the area;(g) Exercise control and supervision over Directors, Assistant Revenue Regional Directors, Chiefs and institution of criminal proceedings, he shall immediately
the officers and employees within the region; and(h) Perform Assistant Chiefs of Divisions, Revenue District Officers, report the facts to the Commissioner through his immediate
such other functions as may be provided by law and as may special deputies of the Commissioner, internal revenue superior, giving the name and address of the offender and
be delegated by the Commissioner. officers and any other employee of the Bureau thereunto the names of the witnesses if possible: Provided, That in
SEC. 11. Duties of Revenue District Officers and Other especially deputized by the Commissioner shall have the urgent cases, the Revenue Regional director or Revenue
Internal Revenue Officers - It shall be the duty of every power to administer oaths and to take testimony in any District Officer, as the case may be, may send the report to
Revenue District Officer or other internal revenue officers official matter or investigation conducted by them regarding the corresponding prosecuting officer in the latter case, a
and employees to ensure that all laws, and rules and matters within the jurisdiction of the Bureau. copy of his report shall be sent to the Commissioner.
regulations affecting national internal revenue are faithfully SEC. 15. Authority of Internal Revenue Officers to Make SEC. 19. Contents of Commissioner's Annual Report. - The
executed and complied with, and to aid in the prevention, Arrests and Seizures. - The Commissioner, the Deputy Annual Report of the Commissioner shall contain detailed
detection and punishment of frauds of delinquencies in Commissioners, the Revenue Regional Directors, the statements of the collections of the Bureau with
connection therewith. Revenue District Officers and other internal revenue officers specifications of the sources of revenue by type of tax, by
It shall be the duty of every Revenue District Officer to shall have authority to make arrests and seizures for the manner of payment, by revenue region and by industry
examine the efficiency of all officers and employees of the violation of any penal law, rule or regulation administered by group and its disbursements by classes of expenditures.
Bureau of Internal Revenue under his supervision, and to the Bureau of Internal Revenue. In case the actual collection exceeds or falls short of target as
report in writing to the Commissioner, through the Regional Any person so arrested shall be forthwith brought before a set in the annual national budget by fifteen percent (15%) or
Director, any neglect of duty, incompetency, delinquency, or court, there to be dealt with according to law. more, the Commissioner shall explain the reason for such
malfeasance in office of any internal revenue officer of which SEC. 16. Assignment of Internal Revenue Officers Involved excess or shortfall.
he may obtain knowledge, with a statement of all the facts in Excise Tax Functions to Establishments Where Articles SEC. 20. Submission of Report and Pertinent Information by
and any evidence sustaining each case. subject to Excise Tax are Produced or Kept. - The the Commissioner - (A) Submission of Pertinent Information
SEC. 12. Agents and Deputies for Collection of National Commissioner shall employ, assign, or reassign internal to Congress. - The provision of Section 270 of this Code to
Internal Revenue Taxes - The following are hereby revenue officers involved in excise tax functions, as often as the contrary notwithstanding, the Commissioner shall, upon
constituted agents of the Commissioner:(a) The the exigencies of the revenue service may require, to request of Congress and in aid of legislation, furnish its

3
appropriate Committee pertinent information including but means created or organized in the Philippines or under its corporations, associations and recreation or amusement
not limited to: industry audits, collection performance data, laws cralaw clubs (such as golf, polo or similar clubs), and mutual fund
status reports in criminal actions initiated against persons (D) The term "foreign", when applied to a corporation, certificates.
and taxpayer's returns: Provided, however, That any return means a corporation which is not domestic cralaw (M) The term "shareholder" shall include holders of a
or return information which can be associated with, or (E) The term "nonresident citizen" means: share/s of stock, warrant/s and/or option/s to purchase shares
otherwise identify, directly or indirectly, a particular (1) A citizen of the Philippines who establishes to the of stock of a corporation, as well as a holder of a unit of
taxpayer shall be furnished the appropriate Committee of satisfaction of the Commissioner the fact of his physical participation in a partnership (except general professional
Congress only when sitting in Executive Session Unless such presence abroad with a definite intention to reside therein. partnerships) in a joint stock company, a joint account, a
taxpayer otherwise consents in writing to such disclosure. (2) A citizen of the Philippines who leaves the Philippines taxable joint venture, a member of an association, recreation
(B) Report to Oversight Committee. - The Commissioner during the taxable year to reside abroad, either as an or amusement club (such as golf, polo or similar clubs) and a
shall, with reference to Section 204 of this Code, submit to immigrant or for employment on a permanent basis. holder of a mutual fund certificate, a member in an
the Oversight Committee referred to in Section 290 hereof, (3) A citizen of the Philippines who works and derives association, joint-stock company, or insurance company.
through the Chairmen of the Committee on Ways and Means income from abroad and whose employment thereat requires (N) The term "taxpayer" means any person subject to tax
of the Senate and House of Representatives, a report on the him to be physically present abroad most of the time during imposed by this Title.
exercise of his powers pursuant to the said section, every six the taxable year. (O) The terms "including" and "includes", when used in a
(6) months of each calendar year. (4) A citizen who has been previously considered as definition contained in this Title, shall not be deemed to
SEC. 21. Sources of Revenue - The following taxes, fees and nonresident citizen and who arrives in the Philippines at any exclude other things otherwise within the meaning of the
charges are deemed to be national internal revenue taxes: time during the taxable year to reside permanently in the term defined.
(a) Income tax; Philippines shall likewise be treated as a nonresident citizen (P) The term "taxable year" means the calendar year, or the
(b) Estate and donor's taxes; for the taxable year in which he arrives in the Philippines fiscal year ending during such calendar year, upon the basis
(c) Value-added tax; with respect to his income derived from sources abroad until of which the net income is computed under this Title.
(d) Other percentage taxes; the date of his arrival in the Philippines. 'Taxable year' includes, in the case of a return made for a
(e) Excise taxes; (5) The taxpayer shall submit proof to the Commissioner to fractional part of a year under the provisions of this Title or
(f) Documentary stamp taxes; and show his intention of leaving the Philippines to reside under rules and regulations prescribed by the Secretary of
(g) Such other taxes as are or hereafter may be imposed and permanently abroad or to return to and reside in the Finance, upon recommendation of the commissioner, the
collected by the Bureau of Internal Revenue. Philippines as the case may be for purpose of this Section. period for which such return is made.
(F) The term "resident alien" means an individual whose (Q) The term "fiscal year" means an accounting period of
TITLE II residence is within the Philippines and who is not a citizen twelve (12) months ending on the last day of any month other
TAX ON INCOME thereof. than December.
(G) The term "nonresident alien" means an individual whose (R) The terms "paid or incurred" and 'paid or accrued' shall
CHAPTER I residence is not within the Philippines and who is not a be construed according to the method of accounting upon
DEFINITIONS citizen thereof. the basis of which the net income is computed under this
SEC. 22 Definitions - When used in this Title: (H) The term "resident foreign corporation" applies to a Title.
(A) The term "person" means an individual, a trust, estate foreign corporation engaged in trade or business within the (S) The term "trade or business" includes the performance
or corporation cralaw Philippines. of the functions of a public office.
(B) The term "corporation" shall include partnerships, no (I) The term 'nonresident foreign corporation' applies to a (T) The term "securities" means shares of stock in a
matter how created or organized, joint-stock companies, foreign corporation not engaged in trade or business within corporation and rights to subscribe for or to receive such
joint accounts (cuentas en participacion), association, or the Philippines. shares.
insurance companies, but does not include general (J) The term "fiduciary" means a guardian, trustee, The term includes bonds, debentures, notes or certificates, or
professional partnerships and a joint venture or consortium executor, administrator, receiver, conservator or any person other evidence or indebtedness, issued by any corporation,
formed for the purpose of undertaking construction projects acting in any fiduciary capacity for any person. including those issued by a government or political
or engaging in petroleum, coal, geothermal and other energy (K) The term "withholding agent" means any person subdivision thereof, with interest coupons or in registered
operations pursuant to an operating consortium agreement required to deduct and withhold any tax under the form.
under a service contract with the Government "General provisions of Section 57. (U) The term "dealer in securities" means a merchant of
professional partnerships" are partnerships formed by (L) The term "shares of stock" shall include shares of stock stocks or securities, whether an individual, partnership or
persons for the sole purpose of exercising their common of a corporation, warrants and/or options to purchase shares corporation, with an established place of business, regularly
profession, no part of the income of which is derived from of stock, as well as units of participation in a partnership engaged in the purchase of securities and the resale thereof
engaging in any trade or business cralaw (except general professional partnerships), joint stock to customers; that is, one who, as a merchant, buys securities
(C) The term "domestic", when applied to a corporation, companies, joint accounts, joint ventures taxable as and re-sells them to customers with a view to the gains and

4
profits that may be derived therefrom. property described in Section 39(A)(1). (P10,000) and other denominations as may be prescribed by
(V) The term "bank" means every banking institution, as Any gain from the sale or exchange of property which is the BS.
defined in Section 2 of Republic Act No. 337, as amended, treated or considered, under other provisions of this Title, as CHAPTER II
otherwise known as the General banking Act. 'ordinary income' shall be treated as gain from the sale or GENERAL PRINCIPLES
A bank may either be a commercial bank, a thrift bank, a exchange of property which is not a capital asset as defined
development bank, a rural bank or specialized government in Section 39(A)(1). SEC. 23. General Principles of Income Taxation in the
bank. The term 'ordinary loss' includes any loss from the sale or Philippines- Except when otherwise provided in this
(W) The term "non-bank financial intermediary" means a exchange of property which is not a capital asset. Code:(A) A citizen of the Philippines residing therein is
financial intermediary, as defined in Section 2(D)(C) of Any loss from the sale or exchange of property which is taxable on all income derived from sources within and
Republic Act No. 337, as amended, otherwise known as the treated or considered, under other provisions of this Title, as without the Philippines;(B) A nonresident citizen is taxable
General Banking Act, authorized by the Bangko Sentral ng 'ordinary loss' shall be treated as loss from the sale or only on income derived from sources within the
Pilipinas (BSP) to perform quasi-banking activities. exchange of property which is not a capital asset. Philippines;(C) An individual citizen of the Philippines who
(X) The term "quasi-banking activities" means borrowing (AA) The term "rank and file employees" shall mean all is working and deriving income from abroad as an overseas
funds from twenty (20) or more personal or corporate employees who are holding neither managerial nor contract worker is taxable only on income derived from
lenders at any one time, through the issuance, endorsement, supervisory position as defined under existing provisions of sources within the Philippines: Provided, That a seaman who
or acceptance of debt instruments of any kind other than the Labor Code of the Philippines, as amended. is a citizen of the Philippines and who receives compensation
deposits for the borrower's own account, or through the (BB) The term "mutual fund company" shall mean an open- for services rendered abroad as a member of the complement
issuance of certificates of assignment or similar instruments, end and close-end investment company as defined under the of a vessel engaged exclusively in international trade shall be
with recourse, or of repurchase agreements for purposes of Investment Company Act. treated as an overseas contract worker;(D) An alien
relending or purchasing receivables and other similar (CC) The term "trade, business or profession" shall not individual, whether a resident or not of the Philippines, is
obligations: Provided, however, That commercial, industrial include performance of services by the taxpayer as an taxable only on income derived from sources within the
and other non-financial companies, which borrow funds employee. Philippines;(E) A domestic corporation is taxable on all
through any of these means for the limited purpose of (DD) The term "regional or area headquarters" shall mean a income derived from sources within and without the
financing their own needs or the needs of their agents or branch established in the Philippines by multinational Philippines; and (F) A foreign corporation, whether engaged
dealers, shall not be considered as performing quasi-banking companies and which headquarters do not earn or derive or not in trade or business in the Philippines, is taxable only
functions. income from the Philippines and which act as supervisory, on income derived from sources within the Philippines.
(Y) The term "deposit substitutes" shall mean an alternative communications and coordinating center for their affiliates,
from of obtaining funds from the public (the term 'public' subsidiaries, or branches in the Asia-Pacific Region and CHAPTER III
means borrowing from twenty (20) or more individual or other foreign markets. TAX ON INDIVIDUALS
corporate lenders at any one time) other than deposits, (EE) The term "regional operating headquarters" shall SEC. 24. Income Tax Rates -
through the issuance, endorsement, or acceptance of debt mean a branch established in the Philippines by (A) Rates of Income Tax on Individual Citizen and
instruments for the borrowers own account, for the purpose multinational companies which are engaged in any of the Individual Resident Alien of the Philippines.
of relending or purchasing of receivables and other following services: general administration and planning; (1) An income tax is hereby imposed: (a) On the taxable
obligations, or financing their own needs or the needs of their business planning and coordination; sourcing and income defined in Section 31 of this Code, other than income
agent or dealer. procurement of raw materials and components; corporate subject to tax under Subsections (B), (C) and (D) of this
These instruments may include, but need not be limited to finance advisory services; marketing control and sales Section, derived for each taxable year from all sources within
bankers' acceptances, promissory notes, repurchase promotion; training and personnel management; logistic and without the Philippines be every individual citizen of the
agreements, including reverse repurchase agreements services; research and development services and product Philippines residing therein; (b) On the taxable income
entered into by and between the Bangko Sentral ng Pilipinas development; technical support and maintenance; data defined in Section 31 of this Code, other than income subject
(BSP) and any authorized agent bank, certificates of processing and communications; and business development. to tax under Subsections (B), (C) and (D) of this Section,
assignment or participation and similar instruments with (FF) The term "long-term deposit or investment certificates" derived for each taxable year from all sources within the
recourse: Provided, however, That debt instruments issued shall refer to certificate of time deposit or investment in the Philippines by an individual citizen of the Philippines who is
for interbank call loans with maturity of not more than five form of savings, common or individual trust funds, deposit residing outside of the Philippines including overseas
(5) days to cover deficiency in reserves against deposit substitutes, investment management accounts and other contract workers referred to in Subsection(C) of Section 23
liabilities, including those between or among banks and investments with a maturity period of not less than five (5) hereof; and (c) On the taxable income defined in Section 31
quasi-banks, shall not be considered as deposit substitute years, the form of which shall be prescribed by the Bangko of this Code, other than income subject to tax under
debt instruments. Sentral ng Pilipinas (BSP) and issued by banks only (not by Subsections (b), (C) and (D) of this Section, derived for each
(Z) The term "ordinary income" includes any gain from the nonbank financial intermediaries and finance companies) to taxable year from all sources within the Philippines by an
sale or exchange of property which is not a capital asset or individuals in denominations of Ten thousand pesos individual alien who is a resident of the Philippines.

5
The tax shall be computed in accordance with and at the accounts and other investments evidenced by certificates in from the sale, exchange, or other disposition of real property
rates established in the following schedule: such form prescribed by the Bangko Sentral ng Pilipinas located in the Philippines, classified as capital assets,
Not over P10,000........ (BSP) shall be exempt from the tax imposed under this including pacto de retro sales and other forms of conditional
5% Subsection: Provided, finally, That should the holder of the sales, by individuals, including estates and trusts: Provided,
Over P10,000 but not over P30,000.. certificate pre-terminate the deposit or investment before the That the tax liability, if any, on gains from sales or other
P500+10% of the excess over P10,000 fifth (5th) year, a final tax shall be imposed on the entire dispositions of real property to the government or any of its
Over P30,000 but not over P70,000.. income and shall be deducted and withheld by the depository political subdivisions or agencies or to government-owned or
P2,500+15% of the excess over P30,000 bank from the proceeds of the long-term deposit or controlled corporations shall be determined either under
Over P70,000 but not over P140,000. investment certificate based on the remaining maturity Section 24 (A) or under this Subsection, at the option of the
P8,500+20% of the excess over P70,000 thereof: taxpayer.
Over P140,000 but not over P250,000. (2) Exception - The provisions of paragraph (1) of this
P22,500+25% of the excess over P140,000 Four (4) years to less than five (5) years - 5%; Subsection to the contrary notwithstanding, capital gains
Over P250,000 but not over P500,000. Three (3) years to less than (4) years - 12%; presumed to have been realized from the sale or disposition
P50,000+30% of the excess over P250,000 and Less than three (3) years - 20% of their principal residence by natural persons, the proceeds
Over P500,000 ..... (2) Cash and/or Property Dividends - A final tax at the of which is fully utilized in acquiring or constructing a new
P125,000+34% of the excess over P500,000 in 1998. following rates shall be imposed upon the cash and/or principal residence within eighteen (18) calendar months
Provided, That effective January 1, 1999, the top marginal property dividends actually or constructively received by an from the date of sale or disposition, shall be exempt from the
rate shall be thirty-three percent (33%) and effective individual from a domestic corporation or from a joint stock capital gains tax imposed under this Subsection: Provided,
January 1, 2000, the said rate shall be thirty-two percent company, insurance or mutual fund companies and regional That the historical cost or adjusted basis of the real property
(32%) operating headquarters of multinational companies, or on sold or disposed shall be carried over to the new principal
For married individuals, the husband and wife, subject to the share of an individual in the distributable net income residence built or acquired: Provided, further, That the
the provision of Section 51 (D) hereof, shall compute after tax of a partnership (except a general professional Commissioner shall have been duly notified by the taxpayer
separately their individual income tax based on their partnership) of which he is a partner, or on the share of an within thirty (30) days from the date of sale or disposition
respective total taxable income: Provided, That if any income individual in the net income after tax of an association, a through a prescribed return of his intention to avail of the
cannot be definitely attributed to or identified as income joint account, or a joint venture or consortium taxable as a tax exemption herein mentioned: Provided, still further, That
exclusively earned or realized by either of the spouses, the corporation of which he is a member or co-venturer: the said tax exemption can only be availed of once every ten
same shall be divided equally between the spouses for the Six percent (6%) beginning January 1, 1998; (10) years: Provided, finally, that if there is no full utilization
purpose of determining their respective taxable income. Eight percent (8%) beginning January 1, 1999; and of the proceeds of sale or disposition, the portion of the gain
(B) Rate of Tax on Certain Passive Income (1) Interests, Ten percent (10% beginning January 1, 2000 presumed to have been realized from the sale or disposition
Royalties, Prizes, and Other Winnings. - A final tax at the Provided, however, That the tax on dividends shall apply shall be subject to capital gains tax.
rate of twenty percent (20%) is hereby imposed upon the only on income earned on or after January 1, 1998. For this purpose, the gross selling price or fair market value
amount of interest from any currency bank deposit and yield Income forming part of retained earnings as of December 31, at the time of sale, whichever is higher, shall be multiplied by
or any other monetary benefit from deposit substitutes and 1997 shall not, even if declared or distributed on or after a fraction which the unutilized amount bears to the gross
from trust funds and similar arrangements; royalties, except January 1, 1998, be subject to this tax. selling price in order to determine the taxable portion and
on books, as well as other literary works and musical (C) Capital Gains from Sale of Shares of Stock not Traded in the tax prescribed under paragraph (1) of this Subsection
compositions, which shall be imposed a final tax of ten the Stock Exchange - The provisions of Section 39(B) shall be imposed thereon.
percent (10%); prizes (except prizes amounting to Ten notwithstanding, a final tax at the rates prescribed below is SEC. 25. Tax on Nonresident Alien Individual-
thousand pesos (P10,000) or less which shall be subject to tax hereby imposed upon the net capital gains realized during (A) Nonresident Alien Engaged in trade or Business Within
under Subsection (A) of Section 24; and other winnings the taxable year from the sale, barter, exchange or other the Philippines. - (1) In General. - A nonresident alien
(except Philippine Charity Sweepstakes and Lotto winnings), disposition of shares of stock in a domestic corporation, individual engaged in trade or business in the Philippines
derived from sources within the Philippines: Provided, except shares sold, or disposed of through the stock exchange shall be subject to an income tax in the same manner as an
however, That interest income received by an individual Not over P100,000. 5% individual citizen and a resident alien individual, on taxable
taxpayer (except a nonresident individual) from a depository On any amount in excess of P100,000 10% income received from all sources within the Philippines.
bank under the expanded foreign currency deposit system (D) Capital Gains from Sale of Real Property. - (1) In A nonresident alien individual who shall come to the
shall be subject to a final income tax at the rate of seven and General. - The provisions of Section 39(B) notwithstanding, a Philippines and stay therein for an aggregate period of more
one-half percent (7 1/2%) of such interest income: Provided, final tax of six percent (6%) based on the gross selling price than one hundred eighty (180) days during any calendar
further, That interest income from long-term deposit or or current fair market value as determined in accordance year shall be deemed a 'nonresident alien doing business in
investment in the form of savings, common or individual with Section 6(E) of this Code, whichever is higher, is hereby the Philippines'. Section 22 (G) of this Code notwithstanding.
trust funds, deposit substitutes, investment management imposed upon capital gains presumed to have been realized (2) Cash and/or Property Dividends from a Domestic

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Corporation or Joint Stock Company, or Insurance or (B) Nonresident Alien Individual Not Engaged in Trade or permanent resident of a foreign country but who is employed
Mutual Fund Company or Regional Operating Business Within the Philippines. - There shall be levied, and assigned in the Philippines by a foreign service
Headquarters or Multinational Company, or Share in the collected and paid for each taxable year upon the entire contractor or by a foreign service subcontractor engaged in
Distributable Net Income of a Partnership (Except a General income received from all sources within the Philippines by petroleum operations in the Philippines shall be liable to a
Professional Partnership), Joint Account, Joint Venture every nonresident alien individual not engaged in trade or tax of fifteen percent (15%) of the salaries, wages, annuities,
Taxable as a Corporation or Association., Interests, business within the Philippines as interest, cash and/or compensation, remuneration and other emoluments, such as
Royalties, Prizes, and Other Winnings. - Cash and/or property dividends, rents, salaries, wages, premiums, honoraria and allowances, received from such contractor or
property dividends from a domestic corporation, or from a annuities, compensation, remuneration, emoluments, or subcontractor: Provided, however, That the same tax
joint stock company, or from an insurance or mutual fund other fixed or determinable annual or periodic or casual treatment shall apply to a Filipino employed and occupying
company or from a regional operating headquarters of gains, profits, and income, and capital gains, a tax equal to the same position as an alien employed by petroleum service
multinational company, or the share of a nonresident alien twenty-five percent (25%) of such income. contractor and subcontractor. cralaw
individual in the distributable net income after tax of a Capital gains realized by a nonresident alien individual not Any income earned from all other sources within the
partnership (except a general professional partnership) of engaged in trade or business in the Philippines from the sale Philippines by the alien employees referred to under
which he is a partner, or the share of a nonresident alien of shares of stock in any domestic corporation and real Subsections (C), (D) and (E) hereof shall be subject to the
individual in the net income after tax of an association, a property shall be subject to the income tax prescribed under pertinent income tax, as the case may be, imposed under this
joint account, or a joint venture taxable as a corporation of Subsections (C) and (D) of Section 24. Code.
which he is a member or a co-venturer; interests; royalties (C) Alien Individual Employed by Regional or Area SEC. 26. Tax Liability of Members of General Professional
(in any form); and prizes (except prizes amounting to Ten Headquarters and Regional Operating Headquarters of Partnerships. - A general professional partnership as such
thousand pesos (P10,000) or less which shall be subject to tax Multinational Companies. - There shall be levied, collected shall not be subject to the income tax imposed under this
under Subsection (B)(1) of Section 24) and other winnings and paid for each taxable year upon the gross income Chapter.
(except Philippine Charity Sweepstakes and Lotto winnings); received by every alien individual employed by regional or Persons engaging in business as partners in a general
shall be subject to an income tax of twenty percent (20%) on area headquarters and regional operating headquarters professional partnership shall be liable for income tax only
the total amount thereof: Provided, however, that royalties established in the Philippines by multinational companies as in their separate and individual capacities. cralaw
on books as well as other literary works, and royalties on salaries, wages, annuities, compensation, remuneration and For purposes of computing the distributive share of the
musical compositions shall be subject to a final tax of ten other emoluments, such as honoraria and allowances, from partners, the net income of the partnership shall be
percent (10%) on the total amount thereof: Provided, such regional or area headquarters and regional operating computed in the same manner as a corporation.
further, That cinematographic films and similar works shall headquarters, a tax equal to fifteen percent (15%) of such Each partner shall report as gross income his distributive
be subject to the tax provided under Section 28 of this Code: gross income: Provided, however, That the same tax share, actually or constructively received, in the net income
Provided, furthermore, That interest income from long-term treatment shall apply to Filipinos employed and occupying of the partnership.
deposit or investment in the form of savings, common or the same position as those of aliens employed by these CHAPTER IV
individual trust funds, deposit substitutes, investment multinational companies. TAX ON CORPORATIONS
management accounts and other investments evidenced by For purposes of this Chapter, the term 'multinational SEC. 27. Rates of Income tax on Domestic Corporations. -
certificates in such form prescribed by the Bangko Sentral company' means a foreign firm or entity engaged in (A) In General. - Except as otherwise provided in this Code,
ng Pilipinas (BSP) shall be exempt from the tax imposed international trade with affiliates or subsidiaries or branch an income tax of thirty-five percent (35%) is hereby imposed
under this Subsection: Provided, finally, that should the offices in the Asia-Pacific Region and other foreign markets. upon the taxable income derived during each taxable year
holder of the certificate pre-terminate the deposit or cralaw from all sources within and without the Philippines by every
investment before the fifth (5th) year, a final tax shall be (D) Alien Individual Employed by Offshore Banking Units. - corporation, as defined in Section 22(B) of this Code and
imposed on the entire income and shall be deducted and There shall be levied, collected and paid for each taxable taxable under this Title as a corporation, organized in, or
withheld by the depository bank from the proceeds of the year upon the gross income received by every alien existing under the laws of the Philippines: Provided, That
long-term deposit or investment certificate based on the individual employed by offshore banking units established in effective January 1, 1998, the rate of income tax shall be
remaining maturity thereof: the Philippines as salaries, wages, annuities, compensation, thirty-four percent (34%); effective January 1, 1999, the rate
Four (4) years to less than five (5) years - 5%; remuneration and other emoluments, such as honoraria and shall be thirty-three percent (33%); and effective January 1,
Three (3) years to less than four (4) years - 12%; and allowances, from such off-shore banking units, a tax equal to 2000 and thereafter, the rate shall be thirty-two percent
Less than three (3) years - 20%. fifteen percent (15%) of such gross income: Provided, (32%). cralaw
(3) Capital Gains. - Capital gains realized from sale, barter however, That the same tax treatment shall apply to Filipinos In the case of corporations adopting the fiscal-year
or exchange of shares of stock in domestic corporations not employed and occupying the same positions as those of aliens accounting period, the taxable income shall be computed
traded through the local stock exchange, and real properties employed by these offshore banking units. cralaw without regard to the specific date when specific sales,
shall be subject to the tax prescribed under Subsections (C) (E) Alien Individual Employed by Petroleum Service purchases and other transactions occur.
and (D) of Section 24. Contractor and Subcontractor - An Alien individual who is a Their income and expenses for the fiscal year shall be

7
deemed to have been earned and spent equally for each taxable income except those covered by Subsection (D) prescribed below shall be imposed on net capital gains
month of the period. cralaw hereof: Provided, that if the gross income from unrelated realized during the taxable year from the sale, exchange or
The reduced corporate income tax rates shall be applied on trade, business or other activity exceeds fifty percent (50%) other disposition of shares of stock in a domestic corporation
the amount computed by multiplying the number of months of the total gross income derived by such educational except shares sold or disposed of through the stock
covered by the new rates within the fiscal year by the taxable institutions or hospitals from all sources, the tax prescribed exchange:
income of the corporation for the period, divided by in Subsection (A) hereof shall be imposed on the entire Not over P100,000.5%
twelvecralawProvided, further, That the President, upon the taxable income. Amount in excess of P100,000.10%
recommendation of the Secretary of Finance, may effective For purposes of this Subsection, the term 'unrelated trade, (3) Tax on Income Derived under the Expanded Foreign
January 1, 2000, allow corporations the option to be taxed at business or other activity' means any trade, business or other Currency Deposit System. - Income derived by a depository
fifteen percent (15%) of gross income as defined herein, after activity, the conduct of which is not substantially related to bank under the expanded foreign currency deposit system
the following conditions have been satisfied: the exercise or performance by such educational institution from foreign currency transactions with local commercial
(1) A tax effort ratio of twenty percent (20%) of Gross or hospital of its primary purpose or function. banks, including branches of foreign banks that may be
National Product (GNP); A "Proprietary educational institution" is any private school authorized by the Bangko Sentral ng Pilipinas (BSP) to
(2) A ratio of forty percent (40%) of income tax collection to maintained and administered by private individuals or transact business with foreign currency depository system
total tax revenues; groups with an issued permit to operate from the units and other depository banks under the expanded foreign
(3) A VAT tax effort of four percent (4%) of GNP; and Department of Education, Culture and Sports (DECS), or currency deposit system, including interest income from
(4) A 0.9 percent (0.9%) ratio of the Consolidated Public the Commission on Higher Education (CHED), or the foreign currency loans granted by such depository banks
Sector Financial Position (CPSFP) to GNP. Technical Education and Skills Development Authority under said expanded foreign currency deposit system to
The option to be taxed based on gross income shall be (TESDA), as the case may be, in accordance with existing residents, shall be subject to a final income tax at the rate of
available only to firms whose ratio of cost of sales to gross laws and regulations. ten percent (10%) of such income.
sales or receipts from all sources does not exceed fifty-five (C) Government-owned or Controlled-Corporations, Any income of nonresidents, whether individuals or
percent (55%). Agencies or Instrumentalities - The provisions of existing corporations, from transactions with depository banks under
The election of the gross income tax option by the special or general laws to the contrary notwithstanding, all the expanded system shall be exempt from income tax.
corporation shall be irrevocable for three (3) consecutive corporations, agencies, or instrumentalities owned or (4) Intercorporate Dividends. - Dividends received by a
taxable years during which the corporation is qualified controlled by the Government, except the Government domestic corporation from another domestic corporation
under the scheme. cralaw Service Insurance System (GSIS), the Social Security System shall not be subject to tax.
For purposes of this Section, the term 'gross income' derived (SSS), the Philippine Health Insurance Corporation (PHIC), (5) Capital Gains Realized from the Sale, Exchange or
from business shall be equivalent to gross sales less sales the Philippine Charity Sweepstakes Office (PCSO) and the Disposition of Lands and/or Buildings. - A final tax of six
returns, discounts and allowances and cost of goods Philippine Amusement and Gaming Corporation percent (6%) is hereby imposed on the gain presumed to
sold"Cost of goods sold" shall include all business expenses (PAGCOR), shall pay such rate of tax upon their taxable have been realized on the sale, exchange or disposition of
directly incurred to produce the merchandise to bring them income as are imposed by this Section upon corporations or lands and/or buildings which are not actually used in the
to their present location and use. cralaw associations engaged in s similar business, industry, or business of a corporation and are treated as capital assets,
For a trading or merchandising concern, "cost of goods" activity. cralaw based on the gross selling price of fair market value as
sold shall include the invoice cost of the goods sold, plus (D) Rates of Tax on Certain Passive Incomes. - determined in accordance with Section 6(E) of this Code,
import duties, freight in transporting the goods to the place (1) Interest from Deposits and Yield or any other Monetary whichever is higher, of such lands and/or buildings.
where the goods are actually sold, including insurance while Benefit from Deposit Substitutes and from Trust Funds and (E) Minimum Corporate Income Tax on Domestic
the goods are in transit. cralaw Similar Arrangements, and Royalties - A final tax at the rate Corporations. -
For a manufacturing concern, "cost of goods manufactured of twenty percent (20%) is hereby imposed upon the amount (1) Imposition of Tax - A minimum corporate income tax of
and sold" shall include all costs of production of finished of interest on currency bank deposit and yield or any other two percent (2%0 of the gross income as of the end of the
goods, such as raw materials used, direct labor and monetary benefit from deposit substitutes and from trust taxable year, as defined herein, is hereby imposed on a
manufacturing overhead, freight cost, insurance premiums funds and similar arrangements received by domestic corporation taxable under this Title, beginning on the fourth
and other costs incurred to bring the raw materials to the corporations, and royalties, derived from sources within the taxable year immediately following the year in which such
factory or warehouse. cralaw Philippines: Provided, however, That interest income derived corporation commenced its business operations, when the
In the case of taxpayers engaged in the sale of service, 'gross by a domestic corporation from a depository bank under the minimum income tax is greater than the tax computed under
income' means gross receipts less sales returns, allowances expanded foreign currency deposit system shall be subject to Subsection (A) of this Section for the taxable year.
and discounts. cralaw a final income tax at the rate of seven and one-half percent (7 (2) Carry Forward of Excess Minimum Tax. - Any excess of
(B) Proprietary Educational Institutions and Hospitals. - 1/2%) of such interest income. the minimum corporate income tax over the normal income
Proprietary educational institutions and hospitals which are (2) Capital Gains from the Sale of Shares of Stock Not tax as computed under Subsection (A) of this Section shall be
nonprofit shall pay a tax of ten percent (10%) on their Traded in the Stock Exchange. - A final tax at the rates carried forward and credited against the normal income tax

8
for the three (3) immediately succeeding taxable years. the Philippines: Provided, That effective January 1, 1998, the freight documents.
(3) Relief from the Minimum Corporate Income Tax Under rate of income tax shall be thirty-four percent (34%); (4) Offshore Banking Units - The provisions of any law to the
Certain Conditions. - The Secretary of Finance is hereby effective January 1, 1999, the rate shall be thirty-three contrary notwithstanding, income derived by offshore
authorized to suspend the imposition of the minimum percent (33%), and effective January 1, 2000 and thereafter, banking units authorized by the Bangko Sentral ng Pilipinas
corporate income tax on any corporation which suffers losses the rate shall be thirty-two percent (32%). (BSP) to transact business with offshore banking units,
on account of prolonged labor dispute, or because of force In the case of corporations adopting the fiscal-year including any interest income derived from foreign currency
majeure, or because of legitimate business reverses. accounting period, the taxable income shall be computed loans granted to residents, shall be subject to a final income
The Secretary of Finance is hereby authorized to without regard to the specific date when sales, purchases and tax at the rate of ten percent (10%) of such income.
promulgate, upon recommendation of the Commissioner, the other transactions occur. Any income of nonresidents, whether individuals or
necessary rules and regulation that shall define the terms Their income and expenses for the fiscal year shall be corporations, from transactions with said offshore banking
and conditions under which he may suspend the imposition deemed to have been earned and spent equally for each units shall be exempt from income tax.
of the minimum corporate income tax in a meritorious case. month of the period. (5) Tax on Branch Profits Remittances. - Any profit remitted
(4) Gross Income Defined - For purposes of applying the The reduced corporate income tax rates shall be applied on by a branch to its head office shall be subject to a tax of
minimum corporate income tax provided under Subsection the amount computed by multiplying the number of months fifteen (15%) which shall be based on the total profits
(E) hereof, the term 'gross income' shall mean gross sales less covered by the new rates within the fiscal year by the taxable applied or earmarked for remittance without any deduction
sales returns, discounts and allowances and cost of goods income of the corporation for the period, divided by for the tax component thereof (except those activities which
sold"Cost of goods sold' shall include all business expenses twelveProvided, however, That a resident foreign are registered with the Philippine Economic Zone
directly incurred to produce the merchandise to bring them corporation shall be granted the option to be taxed at fifteen Authority).
to their present location and use. percent (15%) on gross income under the same conditions, as The tax shall be collected and paid in the same manner as
For a trading or merchandising concern, "cost of goods sold' provided in Section 27 (A). provided in Sections 57 and 58 of this Code: provided, that
shall include the invoice cost of the goods sold, plus import (2) Minimum Corporate Income Tax on Resident Foreign interests, dividends, rents, royalties, including remuneration
duties, freight in transporting the goods to the place where Corporations. - A minimum corporate income tax of two for technical services, salaries, wages premiums, annuities,
the goods are actually sold including insurance while the percent (2%) of gross income, as prescribed under Section 27 emoluments or other fixed or determinable annual, periodic
goods are in transit. (E) of this Code, shall be imposed, under the same or casual gains, profits, income and capital gains received by
For a manufacturing concern, cost of "goods manufactured conditions, on a resident foreign corporation taxable under a foreign corporation during each taxable year from all
and sold" shall include all costs of production of finished paragraph (1) of this Subsection. sources within the Philippines shall not be treated as branch
goods, such as raw materials used, direct labor and (3) International Carrier. - An international carrier doing profits unless the same are effectively connected with the
manufacturing overhead, freight cost, insurance premiums business in the Philippines shall pay a tax of two and one- conduct of its trade or business in the Philippines.
and other costs incurred to bring the raw materials to the half percent (2 1/2%) on its "Gross Philippine Billings" as (6) Regional or Area Headquarters and Regional Operating
factory or warehouse. defined hereunder: (a) International Air Carrier. - "Gross Headquarters of Multinational Companies. - (a) Regional or
In the case of taxpayers engaged in the sale of service, 'gross Philippine Billings" refers to the amount of gross revenue area headquarters as defined in Section 22(DD) shall not be
income' means gross receipts less sales returns, allowances, derived from carriage of persons, excess baggage, cargo and subject to income tax.
discounts and cost of services"Cost of services" shall mean mail originating from the Philippines in a continuous and (b) Regional operating headquarters as defined in Section
all direct costs and expenses necessarily incurred to provide uninterrupted flight, irrespective of the place of sale or issue 22(EE) shall pay a tax of ten percent (10%) of their taxable
the services required by the customers and clients including and the place of payment of the ticket or passage document: income.
(A) salaries and employee benefits of personnel, consultants Provided, That tickets revalidated, exchanged and/or (7) Tax on Certain Incomes Received by a Resident Foreign
and specialists directly rendering the service and (B) cost of indorsed to another international airline form part of the Corporation. - (a) Interest from Deposits and Yield or any
facilities directly utilized in providing the service such as Gross Philippine Billings if the passenger boards a plane in a other Monetary Benefit from Deposit Substitutes, Trust
depreciation or rental of equipment used and cost of port or point in the Philippines: Provided, further, That for a Funds and Similar Arrangements and Royalties - Interest
supplies: Provided, however, That in the case of banks, "cost flight which originates from the Philippines, but from any currency bank deposit and yield or any other
of services" shall include interest expense. transshipment of passenger takes place at any port outside monetary benefit from deposit substitutes and from trust
SEC. 28. Rates of Income Tax on Foreign Corporations. - the Philippines on another airline, only the aliquot portion of funds and similar arrangements and royalties derived from
(A) Tax on Resident Foreign Corporations. - . the cost of the ticket corresponding to the leg flown from the sources within the Philippines shall be subject to a final
(1) In General. - Except as otherwise provided in this Code, a Philippines to the point of transshipment shall form part of income tax at the rate of twenty percent (20%) of such
corporation organized, authorized, or existing under the Gross Philippine Billings. interest: Provided, however, That interest income derived by
laws of any foreign country, engaged in trade or business (b) International Shipping. - "Gross Philippine Billings" a resident foreign corporation from a depository bank under
within the Philippines, shall be subject to an income tax means gross revenue whether for passenger, cargo or mail the expanded foreign currency deposit system shall be
equivalent to thirty-five percent (35%) of the taxable income originating from the Philippines up to final destination, subject to a final income tax at the rate of seven and one-half
derived in the preceding taxable year from all sources within regardless of the place of sale or payments of the passage or percent (7 1/2%) of such interest income.

9
(b) Income Derived under the Expanded Foreign Currency (4 1/2%) of gross rentals, lease or charter fees from leases or imposed in the preceding Section shall apply to every
Deposit System - Income derived by a depository bank under charters to Filipino citizens or corporations, as approved by corporation formed or availed for the purpose of avoiding
the expanded foreign currency deposit system from foreign the Maritime Industry Authority. the income tax with respect to its shareholders or the
currency transactions with local commercial banks including (4) Nonresident Owner or Lessor of Aircraft, Machineries shareholders of any other corporation, by permitting
branches of foreign banks that may be authorized by the and Other Equipment. - Rentals, charters and other fees earnings and profits to accumulate instead of being divided
Bangko Sentral ng Pilipinas (BSP) to transact business with derived by a nonresident lessor of aircraft, machineries and or distributed.
foreign currency deposit system units, including interest other equipment shall be subject to a tax of seven and one- (2) Exceptions - The improperly accumulated earnings tax as
income from foreign currency loans granted by such half percent (7 1/2%) of gross rentals or fees. provided for under this Section shall not apply to:.
depository banks under said expanded foreign currency (5) Tax on Certain Incomes Received by a Nonresident (a) Publicly-held corporations;
deposit system to residents, shall be subject to a final income Foreign Corporation. - (a) Interest on Foreign Loans. - A (b) Banks and other nonbank financial intermediaries; and
tax at the rate of ten percent (10%) of such income. final withholding tax at the rate of twenty percent (20%) is (c) Insurance companies.
Any income of nonresidents, whether individuals or hereby imposed on the amount of interest on foreign loans (C) Evidence of Purpose to Avoid Income Tax. - (1) Prima
corporations, from transactions with depository banks under contracted on or after August 1, 1986; (b) Intercorporate Facie Evidence. - the fact that any corporation is a mere
the expanded system shall be exempt from income tax. Dividends - A final withholding tax at the rate of fifteen holding company or investment company shall be prima
(c) Capital Gains from Sale of Shares of Stock Not Traded in percent (15%) is hereby imposed on the amount of cash facie evidence of a purpose to avoid the tax upon its
the Stock Exchange. - A final tax at the rates prescribed and/or property dividends received from a domestic shareholders or members.
below is hereby imposed upon the net capital gains realized corporation, which shall be collected and paid as provided in (2) Evidence Determinative of Purpose. - The fact that the
during the taxable year from the sale, barter, exchange or Section 57 (A) of this Code, subject to the condition that the earnings or profits of a corporation are permitted to
other disposition of shares of stock in a domestic corporation country in which the nonresident foreign corporation is accumulate beyond the reasonable needs of the business shall
except shares sold or disposed of through the stock domiciled, shall allow a credit against the tax due from the be determinative of the purpose to avoid the tax upon its
exchange: nonresident foreign corporation taxes deemed to have been shareholders or members unless the corporation, by the clear
Not over P100,000. 5% paid in the Philippines equivalent to twenty percent (20%) preponderance of evidence, shall prove to the contrary.
On any amount in excess of P100,000.10% for 1997, nineteen percent (19%) for 1998, eighteen percent (D) Improperly Accumulated Taxable Income - For purposes
(d) Intercorporate Dividends. - Dividends received by a (18%) for 1999, and seventeen percent (17%) thereafter, of this Section, the term 'improperly accumulated taxable
resident foreign corporation from a domestic corporation which represents the difference between the regular income income' means taxable income' adjusted by:
liable to tax under this Code shall not be subject to tax under tax of thirty-five percent (35%) in 1997, thirty-four percent (1) Income exempt from tax;
this Title. (34%) in 1998, and thirty-three percent (33%) in 1999, and (2) Income excluded from gross income;
(B) Tax on Nonresident Foreign Corporation. - (1) In thirty-two percent (32%) thereafter on corporations and the (3) Income subject to final tax; and
General. - Except as otherwise provided in this Code, a fifteen percent (15%) tax on dividends as provided in this (4) The amount of net operating loss carry-over deducted;
foreign corporation not engaged in trade or business in the subparagraph; (c) Capital Gains from Sale of Shares of And reduced by the sum of:
Philippines shall pay a tax equal to thirty-five percent (35%) Stock not Traded in the Stock Exchange. - A final tax at the (1) Dividends actually or constructively paid; and
of the gross income received during each taxable year from rates prescribed below is hereby imposed upon the net (2) Income tax paid for the taxable yearProvided, however,
all sources within the Philippines, such as interests, capital gains realized during the taxable year from the sale, That for corporations using the calendar year basis, the
dividends, rents, royalties, salaries, premiums (except barter, exchange or other disposition of shares of stock in a accumulated earnings under tax shall not apply on
reinsurance premiums), annuities, emoluments or other fixed domestic corporation, except shares sold, or disposed of improperly accumulated income as of December 31, 1997.
or determinable annual, periodic or casual gains, profits and through the stock exchange: In the case of corporations adopting the fiscal year
income, and capital gains, except capital gains subject to tax Not over P100,000..5% accounting period, the improperly accumulated income not
under subparagraphs (C) and (d): Provided, That effective 1, On any amount in excess of P100,000 10% subject to this tax, shall be reckoned, as of the end of the
1998, the rate of income tax shall be thirty-four percent SEC. 29. Imposition of Improperly Accumulated Earnings month comprising the twelve (12)-month period of fiscal
(34%); effective January 1, 1999, the rate shall be thirty- Tax - year 1997-1998.
three percent (33%); and, effective January 1, 2000 and (A) In General. - In addition to other taxes imposed by this (E) Reasonable Needs of the Business - For purposes of this
thereafter, the rate shall be thirty-two percent (32%). Title, there is hereby imposed for each taxable year on the Section, the term 'reasonable needs of the business' includes
(2) Nonresident Cinematographic Film Owner, Lessor or improperly accumulated taxable income of each corporation the reasonably anticipated needs of the business.
Distributor. - A cinematographic film owner, lessor, or described in Subsection B hereof, an improperly SEC. 30Exemptions from Tax on Corporations chanrobles
distributor shall pay a tax of twenty-five percent (25%) of its accumulated earnings tax equal to ten percent (10%) of the virtual law library - The following organizations shall not be
gross income from all sources within the Philippines. improperly accumulated taxable income. cralaw taxed under this Title in respect to income received by them
(3) Nonresident Owner or Lessor of Vessels Chartered by (B) Tax on Corporations Subject to Improperly Accumulated as such:
Philippine Nationals. - A nonresident owner or lessor of Earnings Tax. - (A) Labor, agricultural or horticultural organization not
vessels shall be subject to a tax of four and one-half percent (1) In General - The improperly accumulated earnings tax organized principally for profit;

10
(B) Mutual savings bank not having a capital stock means the pertinent items of gross income specified in this personal injuries or sickness, plus the amounts of any
represented by shares, and cooperative bank without capital Code, less the deductions and/or personal and additional damages received, whether by suit or agreement, on account
stock organized and operated for mutual purposes and exemptions, if any, authorized for such types of income by of such injuries or sickness.
without profit; this Code or other special laws. (5) Income Exempt under Treaty. - Income of any kind, to
(C) A beneficiary society, order or association, operating fort CHAPTER VI the extent required by any treaty obligation binding upon
he exclusive benefit of the members such as a fraternal COMPUTATION OF GROSS INCOME the Government of the Philippines.
organization operating under the lodge system, or mutual SEC. 32Gross Income. - (6) Retirement Benefits, Pensions, Gratuities, etc. -
aid association or a nonstock corporation organized by (A) General Definition. - Except when otherwise provided in (a) Retirement benefits received under Republic Act No.
employees providing for the payment of life, sickness, this Title, gross income means all income derived from 7641 and those received by officials and employees of private
accident, or other benefits exclusively to the members of such whatever source, including (but not limited to) the following firms, whether individual or corporate, in accordance with a
society, order, or association, or nonstock corporation or items: reasonable private benefit plan maintained by the employer:
their dependents; (1) Compensation for services in whatever form paid, Provided, That the retiring official or employee has been in
(D) Cemetery company owned and operated exclusively for including, but not limited to fees, salaries, wages, the service of the same employer for at least ten (10) years
the benefit of its members; commissions, and similar items; and is not less than fifty (50) years of age at the time of his
(E) Nonstock corporation or association organized and (2) Gross income derived from the conduct of trade or retirement: Provided, further, That the benefits granted
operated exclusively for religious, charitable, scientific, business or the exercise of a profession; under this subparagraph shall be availed of by an official or
athletic, or cultural purposes, or for the rehabilitation of (3) Gains derived from dealings in property; employee only once.
veterans, no part of its net income or asset shall belong to or (4) Interests; For purposes of this Subsection, the term 'reasonable private
inures to the benefit of any member, organizer, officer or any (5) Rents; benefit plan' means a pension, gratuity, stock bonus or
specific person; (6) Royalties; profit-sharing plan maintained by an employer for the
(F) Business league chamber of commerce, or board of trade, (7) Dividends; benefit of some or all of his officials or employees, wherein
not organized for profit and no part of the net income of (8) Annuities; contributions are made by such employer for the officials or
which inures to the benefit of any private stock-holder, or (9) Prizes and winnings; employees, or both, for the purpose of distributing to such
individual; (10) Pensions; and officials and employees the earnings and principal of the
(G) Civic league or organization not organized for profit but (11) Partner's distributive share from the net income of the fund thus accumulated, and wherein its is provided in said
operated exclusively for the promotion of social welfare; general professional partnership. plan that at no time shall any part of the corpus or income of
(H) A nonstock and nonprofit educational institution; (B) Exclusions from Gross Income. - The following items the fund be used for, or be diverted to, any purpose other
(I) Government educational institution; shall not be included in gross income and shall be exempt than for the exclusive benefit of the said officials and
(J) Farmers' or other mutual typhoon or fire insurance from taxation under this title: (1) Life Insurance - The employees.
company, mutual ditch or irrigation company, mutual or proceeds of life insurance policies paid to the heirs or (b) Any amount received by an official or employee or by his
cooperative telephone company, or like organization of a beneficiaries upon the death of the insured, whether in a heirs from the employer as a consequence of separation of
purely local character, the income of which consists solely of single sum or otherwise, but if such amounts are held by the such official or employee from the service of the employer
assessments, dues, and fees collected from members for the insurer under an agreement to pay interest thereon, the because of death sickness or other physical disability or for
sole purpose of meeting its expenses; and interest payments shall be included in gross income. any cause beyond the control of the said official or employee.
(K) Farmers', fruit growers', or like association organized (2) Amount Received by Insured as Return of Premium - The (c) The provisions of any existing law to the contrary
and operated as a sales agent for the purpose of marketing amount received by the insured, as a return of premiums notwithstanding, social security benefits, retirement
the products of its members and turning back to them the paid by him under life insurance, endowment, or annuity gratuities, pensions and other similar benefits received by
proceeds of sales, less the necessary selling expenses on the contracts, either during the term or at the maturity of the resident or nonresident citizens of the Philippines or aliens
basis of the quantity of produce finished by them; term mentioned in the contract or upon surrender of the who come to reside permanently in the Philippines from
Notwithstanding the provisions in the preceding paragraphs, contract. foreign government agencies and other institutions, private
the income of whatever kind and character of the foregoing (3) Gifts, Bequests, and Devises. - The value of property or public.
organizations from any of their properties, real or personal, acquired by gift, bequest, devise, or descent: Provided, (d) Payments of benefits due or to become due to any person
or from any of their activities conducted for profit regardless however, That income from such property, as well as gift, residing in the Philippines under the laws of the United
of the disposition made of such income, shall be subject to bequest, devise or descent of income from any property, in States administered by the United States Veterans
tax imposed under this Code. cases of transfers of divided interest, shall be included in Administration.
CHAPTER V gross income. (e) Benefits received from or enjoyed under the Social
COMPUTATION OF TAXABLE INCOME (4) Compensation for Injuries or Sickness - amounts Security System in accordance with the provisions of
received, through Accident or Health Insurance or under Republic Act No. 8282.
SEC. 31Taxable Income Defined - The term taxable income Workmen's Compensation Acts, as compensation for (f) Benefits received from the GSIS under Republic Act No.

11
8291, including retirement gratuity received by government (g) Gains from the Sale of Bonds, Debentures or other the difference between the market rate and actual rate
officials and employees. Certificate of Indebtedness. - Gains realized from the same granted;
(7) Miscellaneous Items. - (a) Income Derived by Foreign or exchange or retirement of bonds, debentures or other (6) Membership fees, dues and other expenses borne by the
Government - Income derived from investments in the certificate of indebtedness with a maturity of more than five employer for the employee in social and athletic clubs or
Philippines in loans, stocks, bonds or other domestic (5) years. other similar organizations;
securities, or from interest on deposits in banks in the (h) Gains from Redemption of Shares in Mutual Fund. - (7) Expenses for foreign travel;
Philippines by (i) foreign governments, (ii) financing Gains realized by the investor upon redemption of shares of (8) Holiday and vacation expenses;
institutions owned, controlled, or enjoying refinancing from stock in a mutual fund company as defined in Section 22 (9) Educational assistance to the employee or his dependents;
foreign governments, and (iii) international or regional (BB) of this Code. and
financial institutions established by foreign governments. SEC. 33. Special Treatment of Fringe Benefit. - (10) Life or health insurance and other non-life insurance
(b) Income Derived by the Government or its Political (A) Imposition of Tax.- A final tax of thirty-four percent premiums or similar amounts in excess of what the law
Subdivisions. - Income derived from any public utility or (34%) effective January 1, 1998; thirty-three percent (33%) allows.
from the exercise of any essential governmental function effective January 1, 1999; and thirty-two percent (32%) (C) Fringe Benefits Not Taxable. - The following fringe
accruing to the Government of the Philippines or to any effective January 1, 2000 and thereafter, is hereby imposed benefits are not taxable under this Section:
political subdivision thereof. on the grossed-up monetary value of fringe benefit furnished (1) fringe benefits which are authorized and exempted from
(c) Prizes and Awards - Prizes and awards made primarily in or granted to the employee (except rank and file employees tax under special laws;
recognition of religious, charitable, scientific, educational, as defined herein) by the employer, whether an individual or (2) Contributions of the employer for the benefit of the
artistic, literary, or civic achievement but only if: (i) The a corporation (unless the fringe benefit is required by the employee to retirement, insurance and hospitalization
recipient was selected without any action on his part to enter nature of, or necessary to the trade, business or profession of benefit plans;
the contest or proceeding; and (ii) The recipient is not the employer, or when the fringe benefit is for the (3) Benefits given to the rank and file employees, whether
required to render substantial future services as a condition convenience or advantage of the employer). granted under a collective bargaining agreement or not; and
to receiving the prize or award. The tax herein imposed is payable by the employer which tax (4) De minimis benefits as defined in the rules and
(d) Prizes and Awards in Sports Competition. - All prizes and shall be paid in the same manner as provided for under regulations to be promulgated by the Secretary of Finance,
awards granted to athletes in local and international sports Section 57 (A) of this Code. upon recommendation of the Commissioner.
competitions and tournaments whether held in the The grossed-up monetary value of the fringe benefit shall be The Secretary of Finance is hereby authorized to
Philippines or abroad and sanctioned by their national determined by dividing the actual monetary value of the promulgate, upon recommendation of the Commissioner,
sports associations. fringe benefit by sixty-six percent (66%) effective January 1, such rules and regulations as are necessary to carry out
(e) 13th Month Pay and Other Benefits. - Gross benefits 1998; sixty-seven percent (67%) effective January 1, 1999; efficiently and fairly the provisions of this Section, taking
received by officials and employees of public and private and sixty-eight percent (68%) effective January 1, 2000 and into account the peculiar nature and special need of the
entities: Provided, however, That the total exclusion under thereafter: Provided, however, That fringe benefit furnished trade, business or profession of the employer.
this subparagraph shall not exceed Thirty thousand pesos to employees and taxable under Subsections (B), (C), (D) and CHAPTER VII
(P30,000) which shall cover: (i) Benefits received by officials (E) of Section 25 shall be taxed at the applicable rates ALLOWABLE DEDUCTIONS
and employees of the national and local government imposed thereat: Provided, further, That the grossed -Up SEC. 34. Deductions from Gross Income. - Except for
pursuant to Republic Act No. 6686; (ii) Benefits received by value of the fringe benefit shall be determined by dividing taxpayers earning compensation income arising from
employees pursuant to Presidential Decree No. 851, as the actual monetary value of the fringe benefit by the personal services rendered under an employer-employee
amended by Memorandum Order No. 28, dated August 13, difference between one hundred percent (100%) and the relationship where no deductions shall be allowed under this
1986; (iii) Benefits received by officials and employees not applicable rates of income tax under Subsections (B), (C), Section other than under subsection (M) hereof, in
covered by Presidential decree No. 851, as amended by (D), and (E) of Section 25. cralaw computing taxable income subject to income tax under
Memorandum Order No. 28, dated August 13, 1986; and (iv) (B) Fringe Benefit defined. - For purposes of this Section, the Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A)
Other benefits such as productivity incentives and Christmas term "fringe benefit" means any good, service or other (1), there shall be allowed the following deductions from
bonus: Provided, further, That the ceiling of Thirty thousand benefit furnished or granted in cash or in kind by an gross income;
pesos (P30,000) may be increased through rules and employer to an individual employee (except rank and file (A) Expenses. -
regulations issued by the Secretary of Finance, upon employees as defined herein) such as, but not limited to, the (1) Ordinary and Necessary Trade, Business or Professional
recommendation of the Commissioner, after considering following:. Expenses. - (a) In General. - There shall be allowed as
among others, the effect on the same of the inflation rate at (1) Housing; deduction from gross income all the ordinary and necessary
the end of the taxable year. (2) Expense account; expenses paid or incurred during the taxable year in
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, (3) Vehicle of any kind; carrying on or which are directly attributable to, the
SSS, Medicare and Pag-ibig contributions, and union dues of (4) Household personnel, such as maid, driver and others; development, management, operation and/or conduct of the
individuals. (5) Interest on loan at less than market rate to the extent of trade, business or exercise of a profession, including: (i) A

12
reasonable allowance for salaries, wages, and other forms of this Chapter, a private educational institution, referred to income in the year of receipt to the extent of the income tax
compensation for personal services actually rendered, under Section 27 (B) of this Code, may at its option elect benefit of said deduction.
including the grossed-up monetary value of fringe benefit either: (a) to deduct expenditures otherwise considered as (2) Limitations on Deductions. - In the case of a nonresident
furnished or granted by the employer to the employee: capital outlays of depreciable assets incurred during the alien individual engaged in trade or business in the
Provided, That the final tax imposed under Section 33 hereof taxable year for the expansion of school facilities or (b) to Philippines and a resident foreign corporation, the
has been paid; (ii) A reasonable allowance for travel deduct allowance for depreciation thereof under Subsection deductions for taxes provided in paragraph (1) of this
expenses, here and abroad, while away from home in the (F) hereof. Subsection (C) shall be allowed only if and to the extent that
pursuit of trade, business or profession; (iii) A reasonable (B) Interest.- (1) In General. - The amount of interest paid or they are connected with income from sources within the
allowance for rentals and/or other payments which are incurred within a taxable year on indebtedness in connection Philippines.
required as a condition for the continued use or possession, with the taxpayer's profession, trade or business shall be (3) Credit Against Tax for Taxes of Foreign Countries. - If
for purposes of the trade, business or profession, of property allowed as deduction from gross income: Provided, however, the taxpayer signifies in his return his desire to have the
to which the taxpayer has not taken or is not taking title or That the taxpayer's otherwise allowable deduction for benefits of this paragraph, the tax imposed by this Title shall
in which he has no equity other than that of a lessee, user or interest expense shall be reduced by an amount equal to the be credited with: (a) Citizen and Domestic Corporation. - In
possessor; (iv) A reasonable allowance for entertainment, following percentages of the interest income subjected to the case of a citizen of the Philippines and of a domestic
amusement and recreation expenses during the taxable year, final tax: Forty-one percent (41%) beginning January 1, corporation, the amount of income taxes paid or incurred
that are directly connected to the development, management 1998; Thirty-nine percent (39%) beginning January 1, 1999; during the taxable year to any foreign country; and (b)
and operation of the trade, business or profession of the and Thirty-eight percent (38%) beginning January 1, 2000; Partnerships and Estates. - In the case of any such individual
taxpayer, or that are directly related to or in furtherance of (2) Exceptions. - No deduction shall be allowed in respect of who is a member of a general professional partnership or a
the conduct of his or its trade, business or exercise of a interest under the succeeding subparagraphs: (a) If within beneficiary of an estate or trust, his proportionate share of
profession not to exceed such ceilings as the Secretary of the taxable year an individual taxpayer reporting income on such taxes of the general professional partnership or the
Finance may, by rules and regulations prescribe, upon the cash basis incurs an indebtedness on which an interest is estate or trust paid or incurred during the taxable year to a
recommendation of the Commissioner, taking into account paid in advance through discount or otherwise: Provided, foreign country, if his distributive share of the income of
the needs as well as the special circumstances, nature and That such interest shall be allowed a a deduction in the year such partnership or trust is reported for taxation under this
character of the industry, trade, business, or profession of the indebtedness is paid: Provided, further, That if the Title.
the taxpayer: Provided, That any expense incurred for indebtedness is payable in periodic amortizations, the An alien individual and a foreign corporation shall not be
entertainment, amusement or recreation that is contrary to amount of interest which corresponds to the amount of the allowed the credits against the tax for the taxes of foreign
law, morals public policy or public order shall in no case be principal amortized or paid during the year shall be allowed countries allowed under this paragraph.
allowed as a deduction. as deduction in such taxable year; (b) If both the taxpayer (4) Limitations on Credit. - The amount of the credit taken
(b) Substantiation Requirements. - No deduction from gross and the person to whom the payment has been made or is to under this Section shall be subject to each of the following
income shall be allowed under Subsection (A) hereof unless be made are persons specified under Section 36 (B); or (c)If limitations: (a) The amount of the credit in respect to the tax
the taxpayer shall substantiate with sufficient evidence, such the indebtedness is incurred to finance petroleum paid or incurred to any country shall not exceed the same
as official receipts or other adequate records: (i) the amount exploration. proportion of the tax against which such credit is taken,
of the expense being deducted, and (ii) the direct connection (3) Optional Treatment of Interest Expense. - At the option of which the taxpayer's taxable income from sources within
or relation of the expense being deducted to the development, the taxpayer, interest incurred to acquire property used in such country under this Title bears to his entire taxable
management, operation and/or conduct of the trade, business trade business or exercise of a profession may be allowed as income for the same taxable year; and (b) The total amount
or profession of the taxpayer. a deduction or treated as a capital expenditure. of the credit shall not exceed the same proportion of the tax
(c) Bribes, Kickbacks and Other Similar Payments. - No (C) Taxes. - (1) In General. - Taxes paid or incurred within against which such credit is taken, which the taxpayer's
deduction from gross income shall be allowed under the taxable year in connection with the taxpayer's profession, taxable income from sources without the Philippines taxable
Subsection (A) hereof for any payment made, directly or trade or business, shall be allowed as deduction, except under this Title bears to his entire taxable income for the
indirectly, to an official or employee of the national (a) The income tax provided for under this Title; (b) Income same taxable year.
government, or to an official or employee of any local taxes imposed by authority of any foreign country; but this (5) Adjustments on Payment of Incurred Taxes. - If accrued
government unit, or to an official or employee of a deduction shall be allowed in the case of a taxpayer who does taxes when paid differ from the amounts claimed as credits
government-owned or -controlled corporation, or to an not signify in his return his desire to have to any extent the by the taxpayer, or if any tax paid is refunded in whole or in
official or employee or representative of a foreign benefits of paragraph (3) of this subsection (relating to part, the taxpayer shall notify the Commissioner; who shall
government, or to a private corporation, general professional credits for taxes of foreign countries); (c) Estate and donor's redetermine the amount of the tax for the year or years
partnership, or a similar entity, if the payment constitutes a taxes; and (d) Taxes assessed against local benefits of a kind affected, and the amount of tax due upon such
bribe or kickback. tending to increase the value of the property assessed. redetermination, if any, shall be paid by the taxpayer upon
(2) Expenses Allowable to Private Educational Institutions. - Provided, That taxes allowed under this Subsection, when notice and demand by the Commissioner, or the amount of
In addition to the expenses allowable as deductions under refunded or credited, shall be included as part of gross tax overpaid, if any, shall be credited or refunded to the

13
taxpayer. loss. immediately following the year of such loss.
In the case of such a tax incurred but not paid, the (c) No loss shall be allowed as a deduction under this The entire amount of the loss shall be carried over to the first
Commissioner as a condition precedent to the allowance of Subsection if at the time of the filing of the return, such loss of the five (5) taxable years following the loss, and any
this credit may require the taxpayer to give a bond with has been claimed as a deduction for estate tax purposes in portion of such loss which exceeds, the taxable income of
sureties satisfactory to and to be approved by the the estate tax return. such first year shall be deducted in like manner form the
Commissioner in such sum as he may require, conditioned (2) Proof of Loss. - In the case of a nonresident alien taxable income of the next remaining four (4) years.
upon the payment by the taxpayer of any amount of tax individual or foreign corporation, the losses deductible shall (4) Capital Losses. -
found due upon any such redetermination. be those actually sustained during the year incurred in (a) Limitation. - Loss from sales or Exchanges of capital
The bond herein prescribed shall contain such further business, trade or exercise of a profession conducted within assets shall be allowed only to the extent provided in Section
conditions as the Commissioner may require. the Philippines, when such losses are not compensated for by 39.
(6) Year in Which Credit Taken. - The credits provided for in insurance or other forms of indemnity. (b) Securities Becoming Worthless. - If securities as defined
Subsection (C)(3) of this Section may, at the option of the The Secretary of Finance, upon recommendation of the in Section 22 (T) become worthless during the taxable year
taxpayer and irrespective of the method of accounting Commissioner, is hereby authorized to promulgate rules and and are capital assets, the loss resulting therefrom shall, for
employed in keeping his books, be taken in the year which regulations prescribing, among other things, the time and purposes of this Title, be considered as a loss from the sale or
the taxes of the foreign country were incurred, subject, manner by which the taxpayer shall submit a declaration of exchange, on the last day of such taxable year, of capital
however, to the conditions prescribed in Subsection (C)(5) of loss sustained from casualty or from robbery, theft or assets.
this Section. embezzlement during the taxable year: Provided, That the (5) Losses From Wash Sales of Stock or Securities. - Losses
If the taxpayer elects to take such credits in the year in which time to be so prescribed in the rules and regulations shall not from "wash sales" of stock or securities as provided in
the taxes of the foreign country accrued, the credits for all be less than thirty (30) days nor more than ninety (90) days Section 38.
subsequent years shall be taken upon the same basis and no from the date of discovery of the casualty or robbery, theft or (6) Wagering Losses. - Losses from wagering transactions
portion of any such taxes shall be allowed as a deduction in embezzlement giving rise to the loss; and shall b allowed only to the extent of the gains from such
the same or any succeeding year. (3) Net Operating Loss Carry-Over. - The net operating loss transactions.
(7) Proof of Credits. - The credits provided in Subsection of the business or enterprise for any taxable year (7) Abandonment Losses. - (a) In the event a contract area
(C)(3) hereof shall be allowed only if the taxpayer establishes immediately preceding the current taxable year, which had where petroleum operations are undertaken is partially or
to the satisfaction of the Commissioner the following: (a) The not been previously offset as deduction from gross income wholly abandoned, all accumulated exploration and
total amount of income derived from sources without the shall be carried over as a deduction from gross income for development expenditures pertaining thereto shall be
Philippines; (b) The amount of income derived from each the next three (3) consecutive taxable years immediately allowed as a deduction: Provided, That accumulated
country, the tax paid or incurred to which is claimed as a following the year of such loss: Provided, however, That any expenditures incurred in that area prior to January 1, 1979
credit under said paragraph, such amount to be determined net loss incurred in a taxable year during which the taxpayer shall be allowed as a deduction only from any income
under rules and regulations prescribed by the Secretary of was exempt from income tax shall not be allowed as a derived from the same contract area.
Finance; and (c) All other information necessary for the deduction under this Subsection: Provided, further, That a In all cases, notices of abandonment shall be filed with the
verification and computation of such credits. net operating loss carry-over shall be allowed only if there Commissioner.
(D) Losses. - (1) In General. - Losses actually sustained has been no substantial change in the ownership of the (b) In case a producing well is subsequently abandoned, the
during the taxable year and not compensated for by business or enterprise in that - (i) Not less than seventy-five unamortized costs thereof, as well as the undepreciated costs
insurance or other forms of indemnity shall be allowed as percent (75%) in nominal value of outstanding issued shares, of equipment directly used therein, shall be allowed as a
deductions: (a) If incurred in trade, profession or business; if the business is in the name of a corporation, is held by or deduction in the year such well, equipment or facility is
(b) Of property connected with the trade, business or on behalf of the same persons; or (ii) Not less than seventy- abandoned by the contractor: Provided, That if such
profession, if the loss arises from fires, storms, shipwreck, or five percent (75%) of the paid up capital of the corporation, abandoned well is reentered and production is resumed, or if
other casualties, or from robbery, theft or embezzlement. if the business is in the name of a corporation, is held by or such equipment or facility is restored into service, the said
The Secretary of Finance, upon recommendation of the on behalf of the same persons. costs shall be included as part of gross income in the year of
Commissioner, is hereby authorized to promulgate rules and For purposes of this subsection, the term "not operating resumption or restoration and shall be amortized or
regulations prescribing, among other things, the time and loss" shall mean the excess of allowable deduction over gross depreciated, as the case may be.
manner by which the taxpayer shall submit a declaration of income of the business in a taxable year. Provided, That for (E) Bad Debts. - (1) In General. - Debts due to the taxpayer
loss sustained from casualty or from robbery, theft or mines other than oil and gas wells, a net operating loss actually ascertained to be worthless and charged off within
embezzlement during the taxable year: Provided, however, without the benefit of incentives provided for under the taxable year except those not connected with profession,
That the time limit to be so prescribed in the rules and Executive Order No. 226, as amended, otherwise known as trade or business and those sustained in a transaction
regulations shall not be less than thirty (30) days nor more the Omnibus Investments Code of 1987, incurred in any of entered into between parties mentioned under Section 36 (B)
than ninety (90) days from the date of discovery of the the first ten (10) years of operation may be carried over as a of this Code: Provided, That recovery of bad debts
casualty or robbery, theft or embezzlement giving rise to the deduction from taxable income for the next five (5) years previously allowed as deduction in the preceding years shall

14
be included as part of the gross income in the year of adoption of such agreement. allowance for the deterioration of Property arising out of its
recovery to the extent of the income tax benefit of said The responsibility of establishing the existence of such facts use or employment or its non-use in the business trade or
deduction. and circumstances shall rest with the party initiating the profession shall be permitted only when such property is
(2) Securities Becoming Worthless. - If securities, as defined modification. located in the Philippines.
in Section 22 (T), are ascertained to be worthless and Any change in the agreed rate and useful life of the (G) Depletion of Oil and Gas Wells and Mines. - (1) In
charged off within the taxable year and are capital assets, the depreciable property as specified in the agreement shall not General. - In the case of oil and gas wells or mines, a
loss resulting therefrom shall, in the case of a taxpayer other be effective for taxable years prior to the taxable year in reasonable allowance for depletion or amortization
than a bank or trust company incorporated under the laws which notice in writing by certified mail or registered mail is computed in accordance with the cost-depletion method shall
of the Philippines a substantial part of whose business is the served by the party initiating such change to the other party be granted under rules and regulations to be prescribed by
receipt of deposits, for the purpose of this Title, be to the agreement: Provided, however, that where the the Secretary of finance, upon recommendation of the
considered as a loss from the sale or exchange, on the last taxpayer has adopted such useful life and depreciation rate Commissioner. Provided, That when the allowance for
day of such taxable year, of capital assets. for any depreciable and claimed the depreciation expenses as depletion shall equal the capital invested no further
(F) Depreciation. - (1) General Rule. - There shall be allowed deduction from his gross income, without any written allowance shall be granted: Provided, further, That after
as a depreciation deduction a reasonable allowance for the objection on the part of the Commissioner or his duly production in commercial quantities has commenced, certain
exhaustion, wear and tear (including reasonable allowance authorized representatives, the aforesaid useful life and intangible exploration and development drilling costs: (a)
for obsolescence) of property used in the trade or business. depreciation rate so adopted by the taxpayer for the shall be deductible in the year incurred if such expenditures
In the case of property held by one person for life with aforesaid depreciable asset shall be considered binding for are incurred for non-producing wells and/or mines, or (b)
remainder to another person, the deduction shall be purposes of this Subsection. shall be deductible in full in the year paid or incurred or at
computed as if the life tenant were the absolute owner of the (4) Depreciation of Properties Used in Petroleum Operations. the election of the taxpayer, may be capitalized and
property and shall be allowed to the life tenant. - An allowance for depreciation in respect of all properties amortized if such expenditures incurred are for producing
In the case of property held in trust, the allowable deduction directly related to production of petroleum initially placed in wells and/or mines in the same contract area. "Intangible
shall be apportioned between the income beneficiaries and service in a taxable year shall be allowed under the straight- costs in petroleum operations" refers to any cost incurred in
the trustees in accordance with the pertinent provisions of line or declining-balance method of depreciation at the petroleum operations which in itself has no salvage value and
the instrument creating the trust, or in the absence of such option of the service contractor. which is incidental to and necessary for the drilling of wells
provisions, on the basis of the trust income allowable to each. However, if the service contractor initially elects the and preparation of wells for the production of petroleum:
(2) Use of Certain Methods and Rates. - The term declining-balance method, it may at any subsequent date, Provided, That said costs shall not pertain to the acquisition
"reasonable allowance" as used in the preceding paragraph shift to the straight-line method. or improvement of property of a character subject to the
shall include, but not limited to, an allowance computed in The useful life of properties used in or related to production allowance for depreciation except that the allowances for
accordance with rules and regulations prescribed by the of petroleum shall be ten (10) years of such shorter life as depreciation on such property shall be deductible under this
Secretary of Finance, upon recommendation of the may be permitted by the Commissioner. Subsection.
Commissioner, under any of the following methods: Properties not used directly in the production of petroleum Any intangible exploration, drilling and development
(a) The straight-line method; shall be depreciated under the straight-line method on the expenses allowed as a deduction in computing taxable
(b) Declining-balance method, using a rate not exceeding basis of an estimated useful life of five (5) years. income during the year shall not be taken into consideration
twice the rate which would have been used had the annual (5) Depreciation of Properties Used in Mining Operations. - in computing the adjusted cost basis for the purpose of
allowance been computed under the method described in an allowance for depreciation in respect of all properties computing allowable cost depletion.
Subsection (F) (1); used in mining operations other than petroleum operations, (2) Election to Deduct Exploration and Development
(c) The sum-of-the-years-digit method; and shall be computed as follows: (a) At the normal rate of Expenditures. - In computing taxable income from mining
(d) any other method which may be prescribed by the depreciation if the expected life is ten (10) years or less; or operations, the taxpayer may at his option, deduct
Secretary of Finance upon recommendation of the (b) Depreciated over any number of years between five (5) exploration and development expenditures accumulated as
Commissioner. years and the expected life if the latter is more than ten (10) cost or adjusted basis for cost depletion as of date of
(3) Agreement as to Useful Life on Which Depreciation Rate years, and the depreciation thereon allowed as deduction prospecting, as well as exploration and development
is Based. - Where under rules and regulations prescribed by from taxable income: Provided, That the contractor notifies expenditures paid or incurred during the taxable year:
the Secretary of Finance upon recommendation of the the Commissioner at the beginning of the depreciation Provided, That the amount deductible for exploration and
Commissioner, the taxpayer and the Commissioner have period which depreciation rate allowed by this Section will development expenditures shall not exceed twenty-five
entered into an agreement in writing specifically dealing with be used. percent (25%) of the net income from mining operations
the useful life and rate of depreciation of any property, the (6) Depreciation Deductible by Nonresident Aliens Engaged computed without the benefit of any tax incentives under
rate so agreed upon shall be binding on both the taxpayer in Trade or Business or Resident Foreign Corporations. - In existing laws.
and the national Government in the absence of facts and the case of a nonresident alien individual engaged in trade or The actual exploration and development expenditures minus
circumstances not taken into consideration during the business or resident foreign corporation, a reasonable twenty-five percent (25%) of the net income from mining

15
shall be carried forward to the succeeding years until fully Secretary of finance, upon recommendation of the granted by the Secretary of Finance in accordance with the
deducted. Commissioner, no part of the net income of which inures to rules and regulations to be promulgated, upon
The election by the taxpayer to deduct the exploration and the benefit of any private stockholder or individual in an recommendation of the Commissioner;
development expenditures is irrevocable and shall be binding amount not in excess of ten percent (10%) in the case of an (3) The level of administrative expense of which shall, on an
in succeeding taxable years. "Net income from mining individual, and five percent (%) in the case of a corporation, annual basis, conform with the rules and regulations to be
operations", as used in this Subsection, shall mean gross of the taxpayer's taxable income derived from trade, prescribed by the Secretary of Finance, upon
income from operations less "allowable deductions" which business or profession as computed without the benefit of recommendation of the Commissioner, but in no case to
are necessary or related to mining operations. "Allowable this and the following subparagraphs. exceed thirty percent (30%) of the total expenses; and
deductions" shall include mining, milling and marketing (2) Contributions Deductible in Full. - Notwithstanding the (4) The assets of which, in the even of dissolution, would be
expenses, and depreciation of properties directly used in the provisions of the preceding subparagraph, donations to the distributed to another nonprofit domestic corporation
mining operations. following institutions or entities shall be deductible in full; organized for similar purpose or purposes, or to the state for
This paragraph shall not apply to expenditures for the (a) Donations to the Government. - Donations to the public purpose, or would be distributed by a court to
acquisition or improvement of property of a character which Government of the Philippines or to any of its agencies or another organization to be used in such manner as in the
is subject to the allowance for depreciation. political subdivisions, including fully-owned government judgment of said court shall best accomplish the general
In no case shall this paragraph apply with respect to corporations, exclusively to finance, to provide for, or to be purpose for which the dissolved organization was organized.
amounts paid or incurred for the exploration and used in undertaking priority activities in education, health, Subject to such terms and conditions as may be prescribed
development of oil and gas. youth and sports development, human settlements, science by the Secretary of Finance, the term "utilization" means:
The term "exploration expenditures" means expenditures and culture, and in economic development according to a (i) Any amount in cash or in kind (including administrative
paid or incurred for the purpose of ascertaining the National Priority Plan determined by the National Economic expenses) paid or utilized to accomplish one or more
existence, location, extent or quality of any deposit of ore or and Development Authority (NEDA), In consultation with purposes for which the accredited nongovernment
other mineral, and paid or incurred before the beginning of appropriate government agencies, including its regional organization was created or organized.
the development stage of the mine or deposit. development councils and private philantrophic persons and (ii) Any amount paid to acquire an asset used (or held for
The term "development expenditures" means expenditures institutions: Provided, That any donation which is made to use) directly in carrying out one or more purposes for which
paid or incurred during the development stage of the mine or the Government or to any of its agencies or political the accredited nongovernment organization was created or
other natural deposits. subdivisions not in accordance with the said annual priority organized.
The development stage of a mine or other natural deposit plan shall be subject to the limitations prescribed in An amount set aside for a specific project which comes
shall begin at the time when deposits of ore or other minerals paragraph (1) of this Subsection; within one or more purposes of the accredited
are shown to exist in sufficient commercial quantity and (b) Donations to Certain Foreign Institutions or nongovernment organization may be treated as a utilization,
quality and shall end upon commencement of actual International Organizations. - Donations to foreign but only if at the time such amount is set aside, the
commercial extraction. institutions or international organizations which are fully accredited nongovernment organization has established to
(3) Depletion of Oil and Gas Wells and Mines Deductible by deductible in pursuance of or in compliance with the satisfaction of the Commissioner that the amount will be
a Nonresident Alien individual or Foreign Corporation. - In agreements, treaties, or commitments entered into by the paid for the specific project within a period to be prescribed
the case of a nonresident alien individual engaged in trade or Government of the Philippines and the foreign institutions or in rules and regulations to be promulgated by the Secretary
business in the Philippines or a resident foreign corporation, international organizations or in pursuance of special laws; of Finance, upon recommendation of the Commissioner, but
allowance for depletion of oil and gas wells or mines under (c) Donations to Accredited Nongovernment Organizations. - not to exceed five (5) years, and the project is one which can
paragraph (1) of this Subsection shall be authorized only in The term "nongovernment organization" means a non profit be better accomplished by setting aside such amount than by
respect to oil and gas wells or mines located within the domestic corporation: immediate payment of funds.
Philippines. (1) Organized and operated exclusively for scientific, (3) Valuation.chanrobles virtual law library - The amount of
(H) Charitable and Other Contributions. - (1) In General. - research, educational, character-building and youth and any charitable contribution of property other than money
Contributions or gifts actually paid or made within the sports development, health, social welfare, cultural or shall be based on the acquisition cost of said property.
taxable year to, or for the use of the Government of the charitable purposes, or a combination thereof, no part of the (4) Proof of Deductions.chanrobles virtual law library -
Philippines or any of its agencies or any political subdivision net income of which inures to the benefit of any private Contributions or gifts shall be allowable as deductions only if
thereof exclusively for public purposes, or to accredited individual; verified under the rules and regulations prescribed by the
domestic corporation or associations organized and operated (2) Which, not later than the 15th day of the third month Secretary of Finance, upon recommendation of the
exclusively for religious, charitable, scientific, youth and after the close of the accredited nongovernment Commissioner.
sports development, cultural or educational purposes or for organizations taxable year in which contributions are (I) Research and Development. - (1) In General. - a taxpayer
the rehabilitation of veterans, or to social welfare received, makes utilization directly for the active conduct of may treat research or development expenditures which are
institutions, or to non-government organizations, in the activities constituting the purpose or function for which paid or incurred by him during the taxable year in
accordance with rules and regulations promulgated by the it is organized and operated, unless an extended period is connection with his trade, business or profession as ordinary

16
and necessary expenses which are not chargeable to capital deduction under Subsection (A) (1) of this Section ) a Notwithstanding the provision of the preceding Subsections,
account. reasonable amount transferred or paid into such trust The Secretary of Finance, upon recommendation of the
The expenditures so treated shall be allowed as deduction during the taxable year in excess of such contributions, but Commissioner, after a public hearing shall have been held
during the taxable year when paid or incurred. only if such amount (1) has not theretofore been allowed as a for this purpose, may prescribe by rules and regulations,
(2) Amortization of Certain Research and Development deduction, and (2) is apportioned in equal parts over a limitations or ceilings for any of the itemized deductions
Expenditures. - At the election of the taxpayer and in period of ten (10) consecutive years beginning with the year under Subsections (A) to (J) of this Section: Provided, That
accordance with the rules and regulations to be prescribed in which the transfer or payment is made. for purposes of determining such ceilings or limitations, the
by the Secretary of Finance, upon recommendation of the (K) Additional Requirements for Deductibility of Certain Secretary of Finance shall consider the following factors: (1)
Commissioner, the following research and development Payments. - Any amount paid or payable which is otherwise adequacy of the prescribed limits on the actual expenditure
expenditures may be treated as deferred expenses: (a) Paid deductible from, or taken into account in computing gross requirements of each particular industry; and (2) effects of
or incurred by the taxpayer in connection with his trade, income or for which depreciation or amortization may be inflation on expenditure levels: Provided, further, That no
business or profession; allowed under this Section, shall be allowed as a deduction ceilings shall further be imposed on items of expense already
(b) Not treated as expenses under paragraph 91) hereof; and only if it is shown that the tax required to be deducted and subject to ceilings under present law.
(c) Chargeable to capital account but not chargeable to withheld therefrom has been paid to the Bureau of Internal SEC. 35. Allowance of Personal Exemption for Individual
property of a character which is subject to depreciation or Revenue in accordance with this Section 58 and 81 of this Taxpayer. -
depletion. Code. (A) In General.chanrobles virtual law library - For purposes
In computing taxable income, such deferred expenses shall (L) Optional Standard Deduction. - In lieu of the deductions of determining the tax provided in Section 24 (A) of this
be allowed as deduction ratably distributed over a period of allowed under the preceding Subsections, an individual Title, there shall be allowed a basic personal exemption as
not less than sixty (60) months as may be elected by the subject to tax under Section 24, other than a nonresident follows:
taxpayer (beginning with the month in which the taxpayer alien, may elect a standard deduction in an amount not For single individual or married individual judicially
first realizes benefits from such expenditures). exceeding ten percent (10%) of his gross income. decreed as legally separated with no qualified dependents
The election provided by paragraph (2) hereof may be made Unless the taxpayer signifies in his return his intention to P20,000
for any taxable year beginning after the effectivity of this elect the optional standard deduction, he shall be considered For Head of Family P25,000
Code, but only if made not later than the time prescribed by as having availed himself of the deductions allowed in the For each married individual P32,000 In the case of married
law for filing the return for such taxable year. preceding Subsections. individuals where only one of the spouses is deriving gross
The method so elected, and the period selected by the Such election when made in the return shall be irrevocable income, only such spouse shall be allowed the personal
taxpayer, shall be adhered to in computing taxable income for the taxable year for which the return is made: Provided, exemption.
for the taxable year for which the election is made and for all That an individual who is entitled to and claimed for the For purposes of this paragraph, the term "head of family"
subsequent taxable years unless with the approval of the optional standard deduction shall not be required to submit means an unmarried or legally separated man or woman
Commissioner, a change to a different method is authorized with his tax return such financial statements otherwise with one or both parents, or with one or more brothers or
with respect to a part or all of such expenditures. required under this Code: Provided, further, That except sisters, or with one or more legitimate, recognized natural or
The election shall not apply to any expenditure paid or when the Commissioner otherwise permits, the said legally adopted children living with and dependent upon him
incurred during any taxable year for which the taxpayer individual shall keep such records pertaining to his gross for their chief support, where such brothers or sisters or
makes the election. income during the taxable year, as may be required by the children are not more than twenty-one (21) years of age,
(3) Limitations on Deduction.chanrobles virtual law library - rules and regulations promulgated by the Secretary of unmarried and not gainfully employed or where such
This Subsection shall not apply to: (a) Any expenditure for Finance, upon recommendation of the Commissioner. children, brothers or sisters, regardless of age are incapable
the acquisition or improvement of land, or for the (M) Premium Payments on Health and/or Hospitalization of self-support because of mental or physical defect.
improvement of property to be used in connection with Insurance of an Individual Taxpayer. - The amount of (B) Additional Exemption for Dependents.chanrobles virtual
research and development of a character which is subject to premiums not to exceed Two thousand four hundred pesos law library - There shall be allowed an additional exemption
depreciation and depletion; and (b) Any expenditure paid or (P2,400) per family or Two hundred pesos (P200) a month of Eight thousand pesos (P8,000) for each dependent not
incurred for the purpose of ascertaining the existence, paid during the taxable year for health and/or exceeding four (4).
location, extent, or quality of any deposit of ore or other hospitalization insurance taken by the taxpayer for himself, The additional exemption for dependent shall be claimed by
mineral, including oil or gas. including his family, shall be allowed as a deduction from his only one of the spouses in the case of married individuals.
(J) Pension Trusts.chanrobles virtual law library - An gross income: Provided, That said family has a gross income In the case of legally separated spouses, additional
employer establishing or maintaining a pension trust to of not more than Two hundred fifty thousand pesos exemptions may be claimed only by the spouse who has
provide for the payment of reasonable pensions to his (P250,000) for the taxable year: Provided, finally, That in the custody of the child or children: Provided, That the total
employees shall be allowed as a deduction (in addition to the case of married taxpayers, only the spouse claiming the amount of additional exemptions that may be claimed by
contributions to such trust during the taxable year to cover additional exemption for dependents shall be entitled to this both shall not exceed the maximum additional exemptions
the pension liability accruing during the year, allowed as a deduction. herein allowed. cralaw

17
For purposes of this Subsection, a "dependent" means a on by the taxpayer, individual or corporate, when the the companies for purposes other than the payment of losses
legitimate, illegitimate or legally adopted child chiefly taxpayer is directly or indirectly a beneficiary under such and expenses and reinsurance reserves.
dependent upon and living with the taxpayer if such policy. (C) Mutual Marine Insurance Companies. - Mutual marine
dependent is not more than twenty-one (21) years of age, (B) Losses from Sales or Exchanges of Property.chanrobles insurance companies shall include in their return of gross
unmarried and not gainfully employed or if such dependent, virtual law library - In computing net income, no deductions income, gross premiums collected and received by them less
regardless of age, is incapable of self-support because of shall in any case be allowed in respect of losses from sales or amounts paid to policyholders on account of premiums
mental or physical defect. exchanges of property directly or indirectly - (1) Between previously paid by them and interest paid upon those
(C) Change of Status.chanrobles virtual law library - If the members of a family. amounts between the ascertainment and payment thereof.
taxpayer marries or should have additional dependent(s) as For purposes of this paragraph, the family of an individual (D) Assessment Insurance Companies. - Assessment
defined above during the taxable year, the taxpayer may shall include only his brothers and sisters (whether by the insurance companies, whether domestic or foreign, may
claim the corresponding additional exemption, as the case whole or half-blood), spouse, ancestors, and lineal deduct from their gross income the actual deposit of sums
may be, in full for such year. cralaw descendants; or (2) Except in the case of distributions in with the officers of the Government of the Philippines
If the taxpayer dies during the taxable year, his estate may liquidation, between an individual and corporation more pursuant to law, as additions to guarantee or reserve funds.
still claim the personal and additional exemptions for himself than fifty percent (50%) in value of the outstanding stock of cralaw
and his dependent(s) as if he died at the close of such year. which is owned, directly or indirectly, by or for such SEC. 38. Losses from Wash Sales of Stock or Securities. -
If the spouse or any of the dependents dies or if any of such individual; or (3) Except in the case of distributions in (A) In the case of any loss claimed to have been sustained
dependents marries, becomes twenty-one (21) years old or liquidation, between two corporations more than fifty from any sale or other disposition of shares of stock or
becomes gainfully employed during the taxable year, the percent (50%) in value of the outstanding stock of which is securities where it appears that within a period beginning
taxpayer may still claim the same exemptions as if the spouse owned, directly or indirectly, by or for the same individual if thirty (30) days before the date of such sale or disposition
or any of the dependents died, or as if such dependents either one of such corporations, with respect to the taxable and ending thirty (30) days after such date, the taxpayer has
married, became twenty-one (21) years old or became year of the corporation preceding the date of the sale of acquired (by purchase or by exchange upon which the entire
gainfully employed at the close of such year. exchange was under the law applicable to such taxable year, amount of gain or loss was recognized by law), or has
(D) Personal Exemption Allowable to Nonresident Alien a personal holding company or a foreign personal holding entered into a contact or option so to acquire, substantially
Individual. - A nonresident alien individual engaged in trade, company; (4) Between the grantor and a fiduciary of any identical stock or securities, then no deduction for the loss
business or in the exercise of a profession in the Philippines trust; or (5) Between the fiduciary of and the fiduciary of a shall be allowed under Section 34 unless the claim is made by
shall be entitled to a personal exemption in the amount equal trust and the fiduciary of another trust if the same person is a dealer in stock or securities and with respect to a
to the exemptions allowed in the income tax law in the a grantor with respect to each trust; or (6) Between a transaction made in the ordinary course of the business of
country of which he is a subject - or citizen, to citizens of the fiduciary of a trust and beneficiary of such trust. such dealer.
Philippines not residing in such country, not to exceed the SEC. 37. Special Provisions Regarding Income and (B) If the amount of stock or securities acquired (or covered
amount fixed in this Section as exemption for citizens or Deductions of Insurance Companies, Whether Domestic or by the contract or option to acquire) is less than the amount
resident of the Philippines: Provided, That said nonresident Foreign. - of stock or securities sold or otherwise disposed of, then the
alien should file a true and accurate return of the total (A) Special Deduction Allowed to Insurance particular shares of stock or securities, the loss form the sale
income received by him from all sources in the Philippines, Companies.chanrobles virtual law library- In the case of or other disposition of which is not deductible, shall be
as required by this Title. insurance companies, whether domestic or foreign doing determined under rules and regulations prescribed by the
SEC. 36. Items Not Deductible. - business in the Philippines, the net additions, if any, required Secretary of Finance, upon recommendation of the
(A) General Rule. - In computing net income, no deduction by law to be made within the year to reserve funds and the Commissioner.
shall in any case be allowed in respect to - sums other than dividends paid within the year on policy and (C) If the amount of stock or securities acquired (or covered
(1) Personal, living or family expenses; (2) Any amount paid annuity contracts may be deducted from their gross income: by the contract or option to acquire which) resulted in the
out for new buildings or for permanent improvements, or Provided, however, That the released reserve be treated as non-deductibility of the loss, shall be determined under rules
betterments made to increase the value of any property or income for the year of release. and regulations prescribed by the Secretary of Finance, upon
estate; This Subsection shall not apply to intangible drilling (B) Mutual Insurance Companies. - In the case of mutual fire recommendation of the Commissioner. cralaw
and development costs incurred in petroleum operations and mutual employers' liability and mutual workmen's SEC. 39. Capital Gains and Losses. -
which are deductible under Subsection (G) (1) of Section 34 compensation and mutual casualty insurance companies (A) Definitions.chanrobles virtual law library - As used in
of this Code. requiring their members to make premium deposits to this Title -
(3) Any amount expended in restoring property or in making provide for losses and expenses, said companies shall not (1) Capital Assets. - The term "capital assets" means
good the exhaustion thereof for which an allowance is or has return as income any portion of the premium deposits property held by the taxpayer (whether or not connected
been made; or (4) Premiums paid on any life insurance returned to their policyholders, but shall return as taxable with his trade or business), but does not include stock in
policy covering the life of any officer or employee, or of any income all income received by them from all other sources trade of the taxpayer or other property of a kind which
person financially interested in any trade or business carried plus such portion of the premium deposits as are retained by would properly be included in the inventory of the taxpayer

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if on hand at the close of the taxable year, or property held this Title - merger or consolidation, exchanges his securities in such
by the taxpayer primarily for sale to customers in the (1) Gains or losses from short sales of property shall be corporation, solely for stock or securities in such
ordinary course of his trade or business, or property used in considered as gains or losses from sales or exchanges of corporation, a party to the merger or consolidation.
the trade or business, of a character which is subject to the capital assets; and (2) Gains or losses attributable to the No gain or loss shall also be recognized if property is
allowance for depreciation provided in Subsection (F) of failure to exercise privileges or options to buy or sell transferred to a corporation by a person in exchange for
Section 34; or real property used in trade or business of the property shall be considered as capital gains or losses. stock or unit of participation in such a corporation of which
taxpayer. SEC. 40. Determination of Amount and Recognition of Gain as a result of such exchange said person, alone or together
(2) Net Capital Gain. - The term "net capital gain" means or Loss. - with others, not exceeding four (4) persons, gains control of
the excess of the gains from sales or exchanges of capital (A) Computation of Gain or Loss. - The gain from the sale or said corporation: Provided, That stocks issued for services
assets over the losses from such sales or exchanges. other disposition of property shall be the excess of the shall not be considered as issued in return for property.
(3) Net Capital Loss. - The term "net capital loss" means the amount realized therefrom over the basis or adjusted basis (3) Exchange Not Solely in Kind. -
excess of the losses from sales or exchanges of capital assets for determining gain, and the loss shall be the excess of the (a) If, in connection with an exchange described in the above
over the gains from such sales or exchanges. basis or adjusted basis for determining loss over the amount exceptions, an individual, a shareholder, a security holder or
(B) Percentage Taken Into Account. - In the case of a realized. a corporation receives not only stock or securities permitted
taxpayer, other than a corporation, only the following The amount realized from the sale or other disposition of to be received without the recognition of gain or loss, but also
percentages of the gain or loss recognized upon the sale or property shall be the sum of money received plus the fair money and/or property, the gain, if any, but not the loss,
exchange of a capital asset shall be taken into account in market value of the property (other than money) received; shall be recognized but in an amount not in excess of the sum
computing net capital gain, net capital loss, and net income: (B) Basis for Determining Gain or Loss from Sale or of the money and fair market value of such other property
(1) One hundred percent (100%) if the capital asset has been Disposition of Property. - The basis of property shall be - received: Provided, That as to the shareholder, if the money
held for not more than twelve (12) months; and (2) Fifty (1) The cost thereof in the case of property acquired on or and/or other property received has the effect of a
percent (50%) if the capital asset has been held for more after March 1, 1913, if such property was acquired by distribution of a taxable dividend, there shall be taxed as
than twelve (12) months;(C) Limitation on Capital Losses. - purchase; or (2) The fair market price or value as of the date dividend to the shareholder an amount of the gain
Losses from sales or exchanges of capital assets shall be of acquisition, if the same was acquired by inheritance; or (3) recognized not in excess of his proportionate share of the
allowed only to the extent of the gains from such sales or If the property was acquired by gift, the basis shall be the undistributed earnings and profits of the corporation; the
exchanges. same as if it would be in the hands of the donor or the last remainder, if any, of the gain recognized shall be treated as a
If a bank or trust company incorporated under the laws of preceding owner by whom it was not acquired by gift, except capital gain.
the Philippines, a substantial part of whose business is the that if such basis is greater than the fair market value of the (b) If, in connection with the exchange described in the
receipt of deposits, sells any bond, debenture, note, or property at the time of the gift then, for the purpose of above exceptions, the transferor corporation receives not
certificate or other evidence of indebtedness issued by any determining loss, the basis shall be such fair market value; only stock permitted to be received without the recognition
corporation (including one issued by a government or or (4) If the property was acquired for less than an adequate of gain or loss but also money and/or other property, then (i)
political subdivision thereof), with interest coupons or in consideration in money or money's worth, the basis of such if the corporation receiving such money and/or other
registered form, any loss resulting from such sale shall not be property is the amount paid by the transferee for the property distributes it in pursuance of the plan of merger or
subject to the foregoing limitation and shall not be included property; or (5) The basis as defined in paragraph (C)(5) of consolidation, no gain to the corporation shall be recognized
in determining the applicability of such limitation to other this Section, if the property was acquired in a transaction from the exchange, but (ii) if the corporation receiving such
losses. where gain or loss is not recognized under paragraph (C)(2) other property and/or money does not distribute it in
(D) Net Capital Loss Carry-over. - If any taxpayer, other of this Section. pursuance of the plan of merger or consolidation, the gain, if
than a corporation, sustains in any taxable year a net capital (C) Exchange of Property. - (1) General Rule. - Except as any, but not the loss to the corporation shall be recognized
loss, such loss (in an amount not in excess of the net income herein provided, upon the sale or exchange or property, the but in an amount not in excess of the sum of such money and
for such year) shall be treated in the succeeding taxable year entire amount of the gain or loss, as the case may be, shall be the fair market value of such other property so received,
as a loss from the sale or exchange of a capital asset held for recognized. which is not distributed.
not more than twelve (12) months. (2) Exception. - No gain or loss shall be recognized if in (4) Assumption of Liability. - (a) If the taxpayer, in
(E) Retirement of Bonds, Etc. - For purposes of this Title, pursuance of a plan of merger or consolidation - (a) A connection with the exchanges described in the foregoing
amounts received by the holder upon the retirement of corporation, which is a party to a merger or consolidation, exceptions, receives stock or securities which would be
bonds, debentures, notes or certificates or other evidences of exchanges property solely for stock in a corporation, which is permitted to be received without the recognition of the gain
indebtedness issued by any corporation (including those a party to the merger or consolidation; or (b) A shareholder if it were the sole consideration, and as part of the
issued by a government or political subdivision thereof) with exchanges stock in a corporation, which is a party to the consideration, another party to the exchange assumes a
interest coupons or in registered form, shall be considered as merger or consolidation, solely for the stock of another liability of the taxpayer, or acquires from the taxpayer
amounts received in exchange therefor. cralaw corporation also a party to the merger or consolidation; or property, subject to a liability, then such assumption or
(F) Gains or Losses From Short Sales, Etc. - For purposes of (c) A security holder of a corporation, which is a party to the acquisition shall not be treated as money and/or other

19
property, and shall not prevent the exchange from being substantial portion of the property of the transferor, the three-year period ending with the close of its taxable year
within the exceptions. term 'property' shall be taken to include the cash assets of preceding the declaration of such dividends or for such part
(b) If the amount of the liabilities assumed plus the amount the transferor. of such period as the corporation has been in existence) was
of the liabilities to which the property is subject exceed the (c) The term "control", when used in this Section, shall mean derived from sources within the Philippines as determined
total of the adjusted basis of the property transferred ownership of stocks in a corporation possessing at least fifty- under the provisions of this Section; but only in an amount
pursuant to such exchange, then such excess shall be one percent (51%) of the total voting power of all classes of which bears the same ration to such dividends as the gross
considered as a gain from the sale or exchange of a capital stocks entitled to vote. income of the corporation for such period derived from
asset or of property which is not a capital asset, as the case (d) The Secretary of Finance, upon recommendation of the sources within the Philippines bears to its gross income from
may be. Commissioner, is hereby authorized to issue rules and all sources.
(5) Basis - (a) The basis of the stock or securities received by regulations for the purpose "substantially all" and for the (3) Services.chanrobles virtual law library - Compensation
the transferor upon the exchange specified in the above proper implementation of this Section. for labor or personal services performed in the Philippines;
exception shall be the same as the basis of the property, stock SEC. 41. Inventories.chanrobles virtual law library - (4) Rentals and Royalties. - Rentals and royalties from
or securities exchanged, decreased by (1) the money received, Whenever in the judgment of the Commissioner, the use of property located in the Philippines or from any interest in
and (2) the fair market value of the other property received, inventories is necessary in order to determine clearly the such property, including rentals or royalties for - (a) The use
and increased by (a) the amount treated as dividend of the income of any taxpayer, inventories shall be taken by such of or the right or privilege to use in the Philippines any
shareholder and (b) the amount of any gain that was taxpayer upon such basis as the Secretary of Finance, upon copyright, patent, design or model, plan, secret formula or
recognized on the exchange: Provided, That the property recommendation of the Commissioner, may, by rules and process, goodwill, trademark, trade brand or other like
received as "boot" shall have as basis its fair market value: regulations, prescribe as conforming as nearly as may be to property or right; (b) The use of, or the right to use in the
Provided, further, That if as part of the consideration to the the best accounting practice in the trade or business and as Philippines any industrial, commercial or scientific
transferor, the transferee of property assumes a liability of most clearly reflecting the income. equipment; (c) The supply of scientific, technical, industrial
the transferor or acquires form the latter property subject to If a taxpayer, after having complied with the terms and a or commercial knowledge or information; (d) The supply of
a liability, such assumption or acquisition (in the amount of conditions prescribed by the Commissioner, uses a particular any assistance that is ancillary and subsidiary to, and is
the liability) shall, for purposes of this paragraph, be treated method of valuing its inventory for any taxable year, then furnished as a means of enabling the application or
as money received by the transferor on the exchange: such method shall be used in all subsequent taxable years enjoyment of, any such property or right as is mentioned in
Provided, finally, That if the transferor receives several kinds unless: paragraph (a), any such equipment as is mentioned in
of stock or securities, the Commissioner is hereby authorized (i) with the approval of the Commissioner, a change to a paragraph (b) or any such knowledge or information as is
to allocate the basis among the several classes of stocks or different method is authorized; or (ii) the Commissioner mentioned in paragraph (c); (e) The supply of services by a
securities. finds that the nature of the stock on hand (e.g., its scarcity, nonresident person or his employee in connection with the
(b) The basis of the property transferred in the hands of the liquidity, marketability and price movements) is such that use of property or rights belonging to, or the installation or
transferee shall be the same as it would be in the hands of the inventory gains should be considered realized for tax operation of any brand, machinery or other apparatus
transferor increased by the amount of the gain recognized to purposes and, therefore, it is necessary to modify the purchased from such nonresident person; (f) Technical
the transferor on the transfer. valuation method for purposes of ascertaining the income, advice, assistance or services rendered in connection with
(6) Definitions. - profit, or loss in a more realistic manner: Provided, however, technical management or administration of any scientific,
(a) The term "securities" means bonds and debentures but That the Commissioner shall not exercise his authority to industrial or commercial undertaking, venture, project or
not "notes" of whatever class or duration. require a change in inventory method more often than once scheme; and (g) The use of or the right to use: (i) Motion
(b) The term "merger" or "consolidation", when used in this every three (3) years: Provided, further, That any change in picture films;
Section, shall be understood to mean: (i) the ordinary an inventory valuation method must be subject to approval (ii) Films or video tapes for use in connection with television;
merger or consolidation, or (ii) the acquisition by one by the Secretary of Finance. and
corporation of all or substantially all the properties of SEC. 42. Income from Sources Within the Philippines. - (iii) Tapes for use in connection with radio broadcasting.
another corporation solely for stock: Provided, That for a (A) Gross Income From Sources Within the Philippines. - (5) Sale of Real Property.chanrobles virtual law library -
transaction to be regarded as a merger or consolidation The following items of gross income shall be treated as gross Gains, profits and income from the sale of real property
within the purview of this Section, it must be undertaken for income from sources within the Philippines: located in the Philippines; and
a bona fide business purpose and not solely for the purpose (1) Interests. - Interests derived from sources within the (6) Sale of Personal Property. chanrobles virtual law library
of escaping the burden of taxation: Provided, further, That Philippines, and interests on bonds, notes or other interest- - Gains; profits and income from the sale of personal
in determining whether a bona fide business purpose exists, bearing obligation of residents, corporate or otherwise; property, as determined in Subsection (E) of this Section.
each and every step of the transaction shall be considered (2) Dividends. - The amount received as dividends:. (B) Taxable Income From Sources Within the Philippines. -
and the whole transaction or series of transaction shall be (a) from a domestic corporation; and (1) General Rule. - From the items of gross income specified
treated as a single unit: Provided, finally , That in (b) from a foreign corporation, unless less than fifty percent in Subsection (A) of this Section, there shall be deducted the
determining whether the property transferred constitutes a (50%) of the gross income of such foreign corporation for the expenses, losses and other deductions properly allocated

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thereto and a ratable part of expenses, interests, losses and and regulations prescribed by the Secretary of Finance, upon (F) Definitions. - As used in this Section the words "sale" or
other deductions effectively connected with the business or recommendation of the Commissioner. "sold" include "exchange" or "exchanged"; and the word
trade conducted exclusively within the Philippines which Where items of gross income are separately allocated to "produced" includes "created", "fabricated",
cannot definitely be allocated to some items or class of gross sources within the Philippines, there shall be deducted (for "manufactured", "extracted", "processed", "cured" or
income: Provided, That such items of deductions shall be the purpose of computing the taxable income therefrom) the "aged".
allowed only if fully substantiated by all the information expenses, losses and other deductions properly apportioned CHAPTER VIII
necessary for its calculation. or allocated thereto and a ratable part of other expenses, ACCOUNTING PERIODS
The remainder, if any, shall be treated in full as taxable losses or other deductions which cannot definitely be AND METHODS OF ACCOUNTING
income from sources within the Philippines. allocated to some items or classes of gross income. SEC. 43. General Rule. - The taxable income shall be
(2) Exception. - No deductions for interest paid or incurred The remainder, if any, shall be included in full as taxable computed upon the basis of the taxpayer's annual accounting
abroad shall be allowed from the item of gross income income from sources within the Philippines. period (fiscal year or calendar year, as the case may be) in
specified in subsection (A) unless indebtedness was actually In the case of gross income derived from sources partly accordance with the method of accounting regularly
incurred to provide funds for use in connection with the within and partly without the Philippines, the taxable employed in keeping the books of such taxpayer, but if no
conduct or operation of trade or business in the Philippines. income may first be computed by deducting the expenses, such method of accounting has been so employed, or if the
(C) Gross Income From Sources Without the Philippines. - losses or other deductions apportioned or allocated thereto method employed does not clearly reflect the income, the
The following items of gross income shall be treated as and a ratable part of any expense, loss or other deduction computation shall be made in accordance with such method
income from sources without the Philippines: (1) Interests which cannot definitely be allocated to some items or classes as in the opinion of the Commissioner clearly reflects the
other than those derived from sources within the Philippines of gross income; and the portion of such taxable income income.
as provided in attributable to sources within the Philippines may be If the taxpayer's annual accounting period is other than a
paragraph (1) of Subsection (A) of this Section; (2) determined by processes or formulas of general fiscal year, as defined in Section 22(Q), or if the taxpayer has
Dividends other than those derived from sources within the apportionment prescribed by the Secretary of Finance. no annual accounting period, or does not keep books, or if
Philippines as provided in Gains, profits and income from the sale of personal property the taxpayer is an individual, the taxable income shall be
paragraph (2) of Subsection (A) of this Section; (3) produced (in whole or in part) by the taxpayer within and computed on the basis of the calendar year. cralaw
Compensation for labor or personal services performed sold without the Philippines, or produced (in whole or in SEC. 44. Period in which Items of Gross Income Included. -
without the Philippines; (4) Rentals or royalties from part) by the taxpayer without and sold within the The amount of all items of gross income shall be included in
property located without the Philippines or from any interest Philippines, shall be treated as derived partly from sources the gross income for the taxable year in which received by
in within and partly from sources without the Philippines. the taxpayer, unless, under methods of accounting permitted
such property including rentals or royalties for the use of or cralaw under Section 43, any such amounts are to be properly
for the privilege of using Gains, profits and income derived from the purchase of accounted for as of a different period.
without the Philippines, patents, copyrights, secret processes personal property within and its sale without the Philippines, In the case of the death of a taxpayer, there shall be included
and formulas, goodwill, or from the purchase of personal property without and its in computing taxable income for the taxable period in which
trademarks, trade brands, franchises and other like sale within the Philippines shall be treated as derived falls the date of his death, amounts accrued up to the date of
properties; and (5) Gains, profits and income from the sale entirely form sources within the country in which sold: his death if not otherwise properly includible in respect of
of real property located without the Philippines. Provided, however, That gain from the sale of shares of stock such period or a prior period. cralaw
(D) Taxable Income From Sources Without the Philippines. - in a domestic corporation shall be treated as derived entirely SEC. 45. Period for which Deductions and Credits Taken. -
From the items of gross income specified in Subsection (C) of form sources within the Philippines regardless of where the The deductions provided for in this Title shall be taken for
this Section there shall be deducted the expenses, losses, and said shares are sold. the taxable year in which "paid or accrued" or "paid or
other deductions properly apportioned or allocated thereto The transfer by a nonresident alien or a foreign corporation incurred", dependent upon the method of accounting the
and a ratable part of any expense, loss or other deduction to anyone of any share of stock issued by a domestic basis of which the net income is computed, unless in order to
which cannot definitely be allocated to some items or classes corporation shall not be effected or made in its book unless: clearly reflect the income, the deductions should be taken as
of gross income. (1) the transferor has filed with the Commissioner a bond of a different period.
The remainder, if any, shall be treated in full as taxable conditioned upon the future payment by him of any income In the case of the death of a taxpayer, there shall be allowed
income from sources without the Philippines. tax that may be due on the gains derived from such transfer, as deductions for the taxable period in which falls the date of
or (2) the Commissioner has certified that the taxes, if any, his death, amounts accrued up to the date of his death if not
(E) Income From Sources Partly Within and Partly Without imposed in this Title and due on the gain realized from such otherwise properly allowable in respect of such period or a
the Philippines. - Items of gross income, expenses, losses and sale or transfer have been paid. prior period. cralaw
deductions, other than those specified in Subsections (A) and It shall be the duty of the transferor and the corporation the SEC. 46. Change of Accounting Period.
(C) of this Section, shall be allocated or apportioned to shares of which are sold or transferred, to advise the If a taxpayer, other than an individual, changes his
sources within or without the Philippines, under the rules transferee of this requirement. accounting period from fiscal year to calendar year, from

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calendar year to fiscal year, or from one fiscal year to hand at the beginning and end of the taxable period for use SEC. 50. Allocation of Income and Deductions. - In the case
another, the net income shall, with the approval of the in connection with the work under the contract but not yet so of two or more organizations, trades or businesses (whether
Commissioner, be computed on the basis of such new applied. or not incorporated and whether or not organized in the
accounting period, subject to the provisions of Section 47. If upon completion of a contract, it is found that the taxable Philippines) owned or controlled directly or indirectly by the
cralaw net income arising thereunder has not been clearly reflected same interests, the Commissioner is authorized to distribute,
SEC. 47. Final or Adjustment Returns for a Period of Less for any year or years, the Commissioner may permit or apportion or allocate gross income or deductions between or
than Twelve (12) Months. - require an amended return. cralaw among such organization, trade or business, if he determined
(A) Returns for Short Period Resulting from Change of SEC. 49. Installment Basis. - that such distribution, apportionment or allocation is
Accounting Period. - If a taxpayer, other than an individual, (A) Sales of Dealers in Personal Property. - Under rules and necessary in order to prevent evasion of taxes or clearly to
with the approval of the Commissioner, changes the basis of regulations prescribed by the Secretary of Finance, upon reflect the income of any such organization, trade or
computing net income from fiscal year to calendar year, a recommendation of the Commissioner, a person who business.
separate final or adjustment return shall be made for the regularly sells or otherwise disposes of personal property on
period between the close of the last fiscal year for which the installment plan may return as income therefrom in any
return was made and the following December 31. taxable year that proportion of the installment payments CHAPTER IX
If the change is from calendar year to fiscal year, a separate actually received in that year, which the gross profit realized RETURNS AND PAYMENT OF TAX
final or adjustment return shall be made for the period or to be realized when payment is completed, bears to the SEC. 51. Individual Return. -
between the close of the last calendar year for which return total contract price. cralaw (A) Requirements. -
was made and the date designated as the close of the fiscal (B) Sales of Realty and Casual Sales of Personality. - In the (1) Except as provided in paragraph (2) of this Subsection,
year. case (1) of a casual sale or other casual disposition of the following individuals are required to file an income tax
If the change is from one fiscal year to another fiscal year, a personal property (other than property of a kind which return: (a) Every Filipino citizen residing in the Philippines;
separate final or adjustment return shall be made for the would properly be included in the inventory of the taxpayer (b) Every Filipino citizen residing outside the Philippines, on
period between the close of the former fiscal year and the if on hand at the close of the taxable year), for a price his income from sources within the Philippines; (c) Every
date designated as the close of the new fiscal year. cralaw exceeding One thousand pesos (P1,000), or (2) of a sale or alien residing in the Philippines, on income derived from
(B) Income Computed on Basis of Short Period. - Where a other disposition of real property, if in either case the initial sources within the Philippines; and (d) Every nonresident
separate final or adjustment return is made under payments do not exceed twenty-five percent (25%) of the alien engaged in trade or business or in the exercise of
Subsection (A) on account of a change in the accounting selling price, the income may, under the rules and profession in the Philippines.
period, and in all other cases where a separate final or regulations prescribed by the Secretary of Finance, upon (2) The following individuals shall not be required to file an
adjustment return is required or permitted by rules and recommendation of the Commissioner, be returned on the income tax return; (a) An individual whose gross income
regulations prescribed by the Secretary of Finance, upon basis and in the manner above prescribed in this Section. does not exceed his total personal and additional exemptions
recommendation of the Commissioner, to be made for a As used in this Section, the term "initial payments" means for dependents under Section 35: Provided, That a citizen of
fractional part of a year, then the income shall be computed the payments received in cash or property other than the Philippines and any alien individual engaged in business
on the basis of the period for which separate final or evidences of indebtedness of the purchaser during the or practice of profession within the Philippine shall file an
adjustment return is made. cralaw taxable period in which the sale or other disposition is made. income tax return, regardless of the amount of gross income;
SEC. 48. Accounting for Long-Term Contracts. - Income cralaw (b) An individual with respect to pure compensation income,
from long-term contracts shall be reported for tax purposes (C) Sales of Real Property Considered as Capital Asset by as defined in Section 32 (A)(1), derived from sources within
in the manner as provided in this Section. Individuals. - An individual who sells or disposes of real the Philippines, the income tax on which has been correctly
As used herein, the term 'long-term contracts' means property, considered as capital asset, and is otherwise withheld under the provisions of Section 79 of this Code:
building, installation or construction contracts covering a qualified to report the gain therefrom under Subsection (B) Provided, That an individual deriving compensation
period in excess of one (1) year. may pay the capital gains tax in installments under rules and concurrently from two or more employers at any time during
Persons whose gross income is derived in whole or in part regulations to be promulgated by the Secretary of Finance, the taxable year shall file an income tax return: Provided,
from such contracts shall report such income upon the basis upon recommendation of the Commissioner. cralaw further, That an individual whose compensation income
of percentage of completion. (D) Change from Accrual to Installment Basis. - If a derived from sources within the Philippines exceeds Sixty
The return should be accompanied by a return certificate of taxpayer entitled to the benefits of Subsection (A) elects for thousand pesos (P60,000) shall also file an income tax return;
architects or engineers showing the percentage of completion any taxable year to report his taxable income on the (c) An individual whose sole income has been subjected to
during the taxable year of the entire work performed under installment basis, then in computing his income for the year final withholding tax pursuant to Section 57(A) of this Code;
contract. of change or any subsequent year, amounts actually received and (d) An individual who is exempt from income tax
There should be deducted from such gross income all during any such year on account of sales or other pursuant to the provisions of this Code and other laws,
expenditures made during the taxable year on account of the dispositions of property made in any prior year shall not be general or special.
contract, account being taken of the material and supplies on excluded. (3) The forgoing notwithstanding, any individual not

22
required to file an income tax return may nevertheless be make his own return, the return may be made by his duly of shares of stock not traded thru a local stock exchange as
required to file an information return pursuant to rules and authorized agent or representative or by the guardian or prescribed under Sections 24 (c), 25 (A)(3), 27 (E)(2),
regulations prescribed by the Secretary of Finance, upon other person charged with the care of his person or property, 28(A)(8)(c) and 28 (B)(5)(c), shall file a return within thirty
recommendation of the Commissioner. the principal and his representative or guardian assuming (30) days after each transactions and a final consolidated
(4) The income tax return shall be filed in duplicate by the the responsibility of making the return and incurring return of all transactions during the taxable year on or
following persons: (a) A resident citizen - on his income from penalties provided for erroneous, false or fraudulent returns. before the fifteenth (15th) day of the fourth (4th) month
all sources; (b) A nonresident citizen - on his income derived (G) Signature Presumed Correct. - The fact that an following the close of the taxable year. cralaw
from sources within the Philippines; (c) A resident alien - on individual's name is signed to a filed return shall be prima SEC. 53. Extension of Time to File Returns. - The
his income derived from sources within the Philippines; and facie evidence for all purposes that the return was actually Commissioner may, in meritorious cases, grant a reasonable
(d) A nonresident alien engaged in trade or business in the signed by him. extension of time for filing returns of income (or final and
Philippines - on his income derived from sources within the SEC. 52. Corporation Returns. - adjustment returns in case of corporations), subject to the
Philippines. (A) Requirements. - Every corporation subject to the tax provisions of Section 56 of this Code. cralaw
(B) Where to File.chanrobles virtual law library - Except in herein imposed, except foreign corporations not engaged in SEC. 54. Returns of Receivers, Trustees in Bankruptcy or
cases where the Commissioner otherwise permits, the return trade or business in the Philippines, shall render, in Assignees. - In cases wherein receivers, trustees in
shall be filed with an authorized agent bank, Revenue duplicate, a true and accurate quarterly income tax return bankruptcy or assignees are operating the property or
District Officer, Collection Agent or duly authorized and final or adjustment return in accordance with the business of a corporation, subject to the tax imposed by this
Treasurer of the city or municipality in which such person provisions of Chapter XII of this Title. Title, such receivers, trustees or assignees shall make returns
has his legal residence or principal place of business in the The return shall be filed by the president, vice-president or of net income as and for such corporation, in the same
Philippines, or if there be no legal residence or place of other principal officer, and shall be sworn to by such officer manner and form as such organization is hereinbefore
business in the Philippines, with the Office of the and by the treasurer or assistant treasurer. cralaw required to make returns, and any tax due on the income as
Commissioner. (B) Taxable Year of Corporation. - A corporation may returned by receivers, trustees or assignees shall be assessed
(C) When to File. - employ either calendar year or fiscal year as a basis for filing and collected in the same manner as if assessed directly
(1) The return of any individual specified above shall be filed its annual income tax return: Provided, That the corporation against the organizations of whose businesses or properties
on or before the fifteenth (15th) day of April of each year shall not change the accounting period employed without they have custody or control.
covering income for the preceding taxable year. prior approval from the Commissioner in accordance with SEC. 55. Returns of General Professional Partnerships. -
(2) Individuals subject to tax on capital gains; (a) From the the provisions of Section 47 of this Code. cralaw Every general professional partnership shall file, in
sale or exchange of shares of stock not traded thru a local (C) Return of Corporation Contemplating Dissolution or duplicate, a return of its income, except income exempt
stock exchange as prescribed under Section 24(c) shall file a Reorganization. - Every corporation shall, within thirty (30) under Section 32 (B) of this Title, setting forth the items of
return within thirty (30) days after each transaction and a days after the adoption by the corporation of a resolution or gross income and of deductions allowed by this Title, and the
final consolidated return on or before April 15 of each year plan for its dissolution, or for the liquidation of the whole or names, Taxpayer Identification Numbers (TIN), addresses
covering all stock transactions of the preceding taxable year; any part of its capital stock, including a corporation which and shares of each of the partners.
and (b) From the sale or disposition of real property under has been notified of possible involuntary dissolution by the SEC. 56. Payment and Assessment of Income Tax for
Section 24(D) shall file a return within thirty (30) days Securities and Exchange Commission, or for its Individuals and Corporation. -
following each sale or other disposition. reorganization, render a correct return to the Commissioner, (A) Payment of Tax. -
(D) Husband and Wife. - Married individuals, whether verified under oath, setting forth the terms of such resolution (1) In General. - The total amount of tax imposed by this
citizens, resident or nonresident aliens, who do not derive or plan and such other information as the Secretary of Title shall be paid by the person subject thereto at the time
income purely from compensation, shall file a return for the Finance, upon recommendation of the commissioner, shall, the return is filed.
taxable year to include the income of both spouses, but by rules and regulations, prescribe. cralaw In the case of tramp vessels, the shipping agents and/or the
where it is impracticable for the spouses to file one return, The dissolving or reorganizing corporation shall, prior to the husbanding agents, and in their absence, the captains thereof
each spouse may file a separate return of income but the issuance by the Securities and Exchange Commission of the are required to file the return herein provided and pay the
returns so filed shall be consolidated by the Bureau for Certificate of Dissolution or Reorganization, as may be tax due thereon before their departure.
purposes of verification for the taxable year. defined by rules and regulations prescribed by the Secretary Upon failure of the said agents or captains to file the return
(E) Return of Parent to Include Income of Children. - The of Finance, upon recommendation of the Commissioner, and pay the tax, the Bureau of Customs is hereby authorized
income of unmarried minors derived from properly received secure a certificate of tax clearance from the Bureau of to hold the vessel and prevent its departure until proof of
from a living parent shall be included in the return of the Internal Revenue which certificate shall be submitted to the payment of the tax is presented or a sufficient bond is filed to
parent, except (1) when the donor's tax has been paid on Securities and Exchange Commission. cralaw answer for the tax due.
such property, or (2) when the transfer of such property is (D) Return on Capital Gains Realized from Sale of Shares of (2) Installment of Payment.chanrobles virtual law library -
exempt from donor's tax. Stock not Traded in the Local Stock Exchange. - Every When the tax due is in excess of Two thousand pesos
(F) Persons Under Disability. - If the taxpayer is unable to corporation deriving capital gains from the sale or exchange (P2,000), the taxpayer other than a corporation may elect to

23
pay the tax in two (2) equal installments in which case, the this return, or if no return is made by the taxpayer, then the SEC. 58. Returns and Payment of Taxes Withheld at Source.
first installment shall be paid at the time the return is filed amount by which the tax exceeds the amounts previously -
and the second installment, on or before July 15 following assessed (or collected without assessment) as a deficiency; (A) Quarterly Returns and Payments of Taxes Withheld. -
the close of the calendar year. but such amounts previously assessed or collected without Taxes deducted and withheld under Section 57 by
If any installment is not paid on or before the date fixed for assessment shall first be decreased by the amounts withholding agents shall be covered by a return and paid to,
its payment, the whole amount of the tax unpaid becomes previously abated, credited returned or otherwise repaid in except in cases where the Commissioner otherwise permits,
due and payable, together with the delinquency penalties. respect of such tax. an authorized Treasurer of the city or municipality where the
(3) Payment of Capital Gains Tax. - The total amount of tax SEC. 57. Withholding of Tax at Source. - withholding agent has his legal residence or principal place
imposed and prescribed under Section 24 (c), 24(D), (A) Withholding of Final Tax on Certain Incomes. - Subject of business, or where the withholding agent is a corporation,
27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date to rules and regulations the Secretary of Finance may where the principal office is located. cralaw
the return prescribed therefor is filed by the person liable promulgate, upon the recommendation of the Commissioner, The taxes deducted and withheld by the withholding agent
thereto: Provided, That if the seller submits proof of his requiring the filing of income tax return by certain income shall be held as a special fund in trust for the government
intention to avail himself of the benefit of exemption of payees, the tax imposed or prescribed by Sections 24(B)(1), until paid to the collecting officers. cralaw
capital gains under existing special laws, no such payments 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), The return for final withholding tax shall be filed and the
shall be required : Provided, further, That in case of failure 25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), payment made within twenty-five (25) days from the close of
to qualify for exemption under such special laws and 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), each calendar quarter, while the return for creditable
implementing rules and regulations, the tax due on the gains 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), withholding taxes shall be filed and the payment made not
realized from the original transaction shall immediately 28(B)(5)(c); 33; and 282 of this Code on specified items of later than the last day of the month following the close of the
become due and payable, subject to the penalties prescribed income shall be withheld by payor-corporation and/or quarter during which withholding was made: Provided, That
under applicable provisions of this Code: Provided, finally, person and paid in the same manner and subject to the same the Commissioner, with the approval of the Secretary of
That if the seller, having paid the tax, submits such proof of conditions as provided in Section 58 of this Code. cralaw Finance, may require these withholding agents to pay or
intent within six (6) months from the registration of the (B) Withholding of Creditable Tax at Source.chanrobles deposit the taxes deducted or withheld at more frequent
document transferring the real property, he shall be entitled virtual law library - The Secretary of Finance may, upon the intervals when necessary to protect the interest of the
to a refund of such tax upon verification of his compliance recommendation of the Commissioner, require the government. cralaw
with the requirements for such exemption. withholding of a tax on the items of income payable to (B) Statement of Income Payments Made and Taxes
In case the taxpayer elects and is qualified to report the gain natural or juridical persons, residing in the Philippines, by Withheld. - Every withholding agent required to deduct and
by installments under Section 49 of this Code, the tax due payor-corporation/persons as provided for by law, at the rate withhold taxes under Section 57 shall furnish each recipient,
from each installment payment shall be paid within (30) days of not less than one percent (1%) but not more than thirty- in respect to his or its receipts during the calendar quarter or
from the receipt of such payments. two percent (32%) thereof, which shall be credited against year, a written statement showing the income or other
No registration of any document transferring real property the income tax liability of the taxpayer for the taxable year. payments made by the withholding agent during such
shall be effected by the Register of Deeds unless the cralaw quarter or year, and the amount of the tax deducted and
Commissioner or his duly authorized representative has (C) Tax-free Covenant Bonds.chanrobles virtual law library withheld therefrom, simultaneously upon payment at the
certified that such transfer has been reported, and the tax In any case where bonds, mortgages, deeds of trust or other request of the payee, but not late than the twentieth (20th)
herein imposed, if any, has been paid. similar obligations of domestic or resident foreign day following the close of the quarter in the case of corporate
(B) Assessment and Payment of Deficiency Tax. - After the corporations, contain a contract or provisions by which the payee, or not later than March 1 of the following year in the
return is filed, the Commissioner shall examine it and assess obligor agrees to pay any portion of the tax imposed in this case of individual payee for creditable withholding taxes.
the correct amount of the tax. Title upon the obligee or to reimburse the obligee for any For final withholding taxes, the statement should be given to
The tax or deficiency income tax so discovered shall be paid portion of the tax or to pay the interest without deduction for the payee on or before January 31 of the succeeding year.
upon notice and demand from the Commissioner. cralaw any tax which the obligor may be required or permitted to cralaw
As used in this Chapter, in respect of a tax imposed by this pay thereon or to retain therefrom under any law of the (C) Annual Information Return. - Every withholding agent
Title, the term "deficiency" means:. Philippines, or any state or country, the obligor shall deduct required to deduct and withhold taxes under Section 57 shall
(1) The amount by which the tax imposed by this Title bonds, mortgages, deeds of trust or other obligations, submit to the Commissioner an annual information return
exceeds the amount shown as the tax by the taxpayer upon whether the interest or other payments are payable annually containing the list of payees and income payments, amount
his return; but the amount so shown on the return shall be or at shorter or longer periods, and whether the bonds, of taxes withheld from each payee and such other pertinent
increased by the amounts previously assessed (or collected securities or obligations had been or will be issued or information as may be required by the Commissioner.
without assessment) as a deficiency, and decreased by the marketed, and the interest or other payment thereon paid, In the case of final withholding taxes, the return shall be
amount previously abated, credited, returned or otherwise within or without the Philippines, if the interest or other filed on or before January 31 of the succeeding year, and for
repaid in respect of such tax; or payment is payable to a nonresident alien or to a citizen or creditable withholding taxes, not later than March 1 of the
(2) If no amount is shown as the tax by the taxpayer upon resident of the Philippines. year following the year for which the annual report is being

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submitted. returned and paid by virtue of the foregoing or as otherwise shall be computed upon the taxable income of the estate or
This return, if made and filed in accordance with the rules provided by law shall be assessed by personal return under trust and shall be paid by the fiduciary, except as provided in
and regulations approved by the Secretary of Finance, upon rules and regulations to be prescribed by the Secretary of Section 63 (relating to revocable trusts) and Section 64
recommendation of the Commissioner, shall be sufficient Finance, upon recommendation of the Commissioner. (relating to income for the benefit of the grantor).
compliance with the requirements of Section 68 of this Title The intent and purpose of the Title is that all gains, profits (2) Consolidation of Income of Two or More Trusts. - Where,
in respect to the income payments. cralaw and income of a taxable class, as defined in this Title, shall be in the case of two or more trusts, the creator of the trust in
The Commissioner may, by rules and regulations, grant to charged and assessed with the corresponding tax prescribed each instance is the same person, and the beneficiary in each
any withholding agent a reasonable extension of time to by this Title, and said tax shall be paid by the owners of such instance is the same, the taxable income of all the trusts shall
furnish and submit the return required in this Subsection. gains, profits and income, or the proper person having the be consolidated and the tax provided in this Section
cralaw receipt, custody, control or disposal of the same. computed on such consolidated income, and such proportion
(D) Income of Recipient. - Income upon which any creditable For purposes of this Title, ownership of such gains, profits of said tax shall be assessed and collected from each trustee
tax is required to be withheld at source under Section 57 and income or liability to pay the tax shall be determined as which the taxable income of the trust administered by him
shall be included in the return of its recipient but the excess of the year for which a return is required to be rendered. bears to the consolidated income of the several trusts.
of the amount of tax so withheld over the tax due on his CHAPTER X SEC. 61. Taxable Income. - The taxable income of the estate
return shall be refunded to him subject to the provisions of ESTATES AND TRUSTS or trust shall be computed in the same manner and on the
Section 204; if the income tax collected at source is less than SEC. 60. Imposition of Tax. - same basis as in the case of an individual, except that:
the tax due on his return, the difference shall be paid in (A) Application of Tax. - The tax imposed by this Title upon (A) There shall be allowed as a deduction in computing the
accordance with the provisions of Section 56. cralaw individuals shall apply to the income of estates or of any kind taxable income of the estate or trust the amount of the
All taxes withheld pursuant to the provisions of this Code of property held in trust, including:. income of the estate or trust for the taxable year which is to
and its implementing rules and regulations are hereby (1) Income accumulated in trust for the benefit of unborn or be distributed currently by the fiduciary to the beneficiaries,
considered trust funds and shall be maintained in a separate unascertained person or persons with contingent interests, and the amount of the income collected by a guardian of an
account and not commingled with any other funds of the and income accumulated or held for future distribution infant which is to be held or distributed as the court may
withholding agent. under the terms of the will or trust; direct, but the amount so allowed as a deduction shall be
(E) Registration with Register of Deeds. - No registration of (2) Income which is to be distributed currently by the included in computing the taxable income of the
any document transferring real property shall be effected by fiduciary to the beneficiaries, and income collected by a beneficiaries, whether distributed to them or not.
the Register of Deeds unless the Commissioner or his duly guardian of an infant which is to be held or distributed as Any amount allowed as a deduction under this Subsection
authorized representative has certified that such transfer has the court may direct; (3) Income received by estates of shall not be allowed as a deduction under Subsection (B) of
been reported, and the capital gains or creditable deceased persons during the period of administration or this Section in the same or any succeeding taxable year.
withholding tax, if any, has been paid: Provided, however, settlement of the estate; and (4) Income which, in the cralaw
That the information as may be required by rules and discretion of the fiduciary, may be either distributed to the (B) In the case of income received by estates of deceased
regulations to be prescribed by the Secretary of Finance, beneficiaries or accumulated. persons during the period of administration or settlement of
upon recommendation of the Commissioner, shall be (B) Exception. - The tax imposed by this Title shall not apply the estate, and in the case of income which, in the discretion
annotated by the Register of Deeds in the Transfer to employee's trust which forms part of a pension, stock of the fiduciary, may be either distributed to the beneficiary
Certificate of Title or Condominium Certificate of Title: bonus or profit-sharing plan of an employer for the benefit or accumulated, there shall be allowed as an additional
Provided, further, That in cases of transfer of property to a of some or all of his employees (1) if contributions are made deduction in computing the taxable income of the estate or
corporation, pursuant to a merger, consolidation or to the trust by such employer, or employees, or both for the trust the amount of the income of the estate or trust for its
reorganization, and where the law allows deferred purpose of distributing to such employees the earnings and taxable year, which is properly paid or credited during such
recognition of income in accordance with Section 40, the principal of the fund accumulated by the trust in accordance year to any legatee, heir or beneficiary but the amount so
information as may be required by rules and regulations to with such plan, and (2) if under the trust instrument it is allowed as a deduction shall be included in computing the
be prescribed by the Secretary of Finance, upon impossible, at any time prior to the satisfaction of all taxable income of the legatee, heir or beneficiary. cralaw
recommendation of the Commissioner, shall be annotated by liabilities with respect to employees under the trust, for any (C) In the case of a trust administered in a foreign country,
the Register of Deeds at the back of the Transfer Certificate part of the corpus or income to be (within the taxable year or the deductions mentioned in Subsections (A) and (B) of this
of Title or Condominium Certificate of Title of the real thereafter) used for, or diverted to, purposes other than for Section shall not be allowed: Provided, That the amount of
property involved: Provided, finally, That any violation of the exclusive benefit of his employees: Provided, That any any income included in the return of said trust shall not be
this provision by the Register of Deeds shall be subject to the amount actually distributed to any employee or distributee included in computing the income of the beneficiaries.
penalties imposed under Section 269 of this Code. shall be taxable to him in the year in which so distributed to cralaw
SEC. 59. Tax on Profits Collectible from Owner or Other the extent that it exceeds the amount contributed by such SEC. 62. Exemption Allowed to Estates and Trusts. - For the
Persons. - The tax imposed under this Title upon gains, employee or distributee. purpose of the tax provided for in this Title, there shall be
profits, and income not falling under the foregoing and not (C) Computation and Payment. - (1) In General. - The tax allowed an exemption of Twenty thousand pesos (P20,000)

25
from the income of the estate or trust. recommendation of the Commissioner, shall prescribe, shall upon the bonds of foreign countries and interest from the
SEC. 63. Revocable Trusts. - Where at any time the power to be a sufficient compliance with the requirements of this bonds and dividends from the stock of foreign corporations
revest in the grantor title to any part of the corpus of the Section. by persons, corporations or duly registered general co-
trust is vested (1) in the grantor either alone or in SEC. 66. Fiduciaries Indemnified Against Claims for Taxes partnerships (companias colectivas), undertaking as a matter
conjunction with any person not having a substantial Paid. - Trustees, executors, administrators and other of business or for profit or otherwise the collection of foreign
adverse interest in the disposition of such part of the corpus fiduciaries are indemnified against the claims or demands of payments of such interests or dividends by means of coupons
or the income therefrom, or (2) in any person not having a every beneficiary for all payments of taxes which they shall or bills of exchange.
substantial adverse interest in the disposition of such part of be required to make under the provisions of this Title, and SEC. 69. Return of Information of Brokers.chanrobles
the corpus or the income therefrom, the income of such part they shall have credit for the amount of such payments virtual law library - Every person, corporation or duly
of the trust shall be included in computing the taxable against the beneficiary or principal in any accounting which registered general co-partnership (compania colectiva),
income of the grantor. they make as such trustees or other fiduciaries. doing business as a broker in any exchange or board or other
SEC. 64. Income for Benefit of Grantor. - CHAPTER XI similar place of business, shall, when required by the
(A) Where any part of the income of a trust (1) is, or in the OTHER INCOME TAX REQUIREMENTS Commissioner, render a correct return duly verified under
discretion of the grantor or of any person not having a SEC. 67. Collection of Foreign Payments. - All persons, oath under such rules and regulations as the Secretary of
substantial adverse interest in the disposition of such part of corporations, duly registered general co-partnerships Finance, upon recommendation of the Commissioner, may
the income may be held or accumulated for future (companias colectivas) undertaking for profit or otherwise prescribe, showing the names of customers for whom such
distribution to the grantor, or (2) may, or in the discretion of the collection of foreign payments of interests or dividends person, corporation or duly registered general co-
the grantor or of any person not having a substantial adverse by means of coupons, checks or bills of exchange shall obtain partnership (compania colectiva) has transacted any
interest in the disposition of such part of the income, be a license from the Commissioner, and shall be subject to such business, with such details as to the profits, losses or other
distributed to the grantor, or (3) is, or in the discretion of the rules and regulations enabling the government to obtain the information which the Commissioner, may require as to each
grantor or of any person not having a substantial adverse information required under this Title, as the Secretary of of such customers as will enable the Commissioner to
interest in the disposition of such part of the income may be Finance, upon recommendation of the Commissioner, shall determine whether all income tax due on profits or gains of
applied to the payment of premiums upon policies of prescribe. such customers has been paid.
insurance on the life of the grantor, such part of the income SEC. 68. Information at Source as to Income Payments. - all SEC. 70. Returns of Foreign Corporations. -
of the trust shall be included in computing the taxable persons, corporations or duly registered co- partnerships (A) Requirements. - Under rules and regulations prescribed
income of the grantor. (companias colectivas), in whatever capacity acting, by the Secretary of finance, upon the recommendation of the
(B) As used in this Section, the term 'in the discretion of the including lessees or mortgagors of real or personal property, Commissioner, any attorney, accountant, fiduciary, bank,
grantor' means in the discretion of the grantor, either alone trustees, acting in any trust capacity, executors, trust company, financial institution or other person, who
or in conjunction with any person not having a substantial administrators, receivers, conservators and employees aids, assists, counsels or advises in, o with respect to; the
adverse interest in the disposition of the part of the income in making payment to another person, corporation or duly formation, organization or reorganization of any foreign
question. registered general co-partnership (compania colectiva), of corporation, shall, within thirty (30) days thereafter, file with
SEC. 65. Fiduciary Returns. - Guardians, trustees, interests, rents, salaries, wages, premiums, annuities, the Commissioner a return.
executors, administrators, receivers, conservators and all compensations, remunerations, emoluments or other fixed or (B) Form and Contents of Return. - Such return shall be in
persons or corporations, acting in any fiduciary capacity, determinable gains, profits and income, other than payment such form and shall set forth; under oath, in respect of each
shall render, in duplicate, a return of the income of the described in Section 69, in any taxable year, or in the case of such corporation, to the full extent of the information within
person, trust or estate for whom or which they act, and be such payments made by the Government of the Philippines, the possession or knowledge or under the control of the
subject to all the provisions of this Title, which apply to the officers or employees of the Government having person required to file the return, such information as the
individuals in case such person, estate or trust has a gross information as to such payments and required to make Secretary of Finance, upon recommendation of the
income of Twenty thousand pesos (P20,000) or over during returns in regard thereto, are authorized and required to Commissioner, shall prescribe by rules and regulations as
the taxable year. render a true and accurate return to the Commissioner, necessary for carrying out the provisions of this Title.
Such fiduciary or person filing the return for him or it, shall under such rules and regulations, and in such form and Nothing in this Section shall be construed to require the
take oath that he has sufficient knowledge of the affairs of manner as may be prescribed by the Secretary of Finance, divulging of privileged communications between attorney
such person, trust or estate to enable him to make such upon recommendation of the Commissioner, setting forth the and client.
return and that the same is, to the best of his knowledge and amount of such gains, profits and income and the name and SEC. 71. Disposition of Income Tax Returns, Publication of
belief, true and correct, and be subject to all the provisions address of the recipient of such payments: Provided, That Lists of Taxpayers and Filers. - After the assessment shall
of this Title which apply to individuals: Provided, That a such returns shall be required, in the case of payments of have been made, as provided in this Title, the returns,
return made by or for one or two or more joint fiduciaries interest upon bonds and mortgages or deeds of trust or other together with any corrections thereof which may have been
filed in the province where such fiduciaries reside; under similar obligations of corporations, and in the case of made by the Commissioner, shall be filed in the Office of the
such rules and regulations as the Secretary of Finance, upon collections of items, not payable in the Philippines, of interest Commissioner and shall constitute public records and be

26
open to inspection as such upon the order of the President of Received by Partners.- The taxable income declared by a which the individual declared as income tax in his final
the Philippines, under rules and regulations to be prescribed partnership for a taxable year which is subject to tax under adjusted and annual income tax return for the preceding
by the Secretary of Finance, upon recommendation of the Section 27 (A) of this Code, after deducting the corporate taxable year minus the sum of the credits allowed under this
Commissioner. income tax imposed therein, shall be deemed to have been Title against the said tax.
The Commissioner may, in each year, cause to be prepared actually or constructively received by the partners in the If, during the current taxable year, the taxpayer reasonable
and published in any newspaper the lists containing the same taxable year and shall be taxed to them in their expects to pay a bigger income tax, he shall file an amended
names and addresses of persons who have filed income tax individual capacity, whether actually distributed or not. declaration during any interval of installment payment
returns. cralaw dates. cralaw
SEC. 72. Suit to Recover Tax Based on False or Fraudulent CHAPTER XII SEC. 75. Declaration of Quarterly Corporate Income Tax. -
Returns.chanrobles virtual law library - When an assessment QUARTERLY CORPORATE INCOME TAX, ANNUAL Every corporation shall file in duplicate a quarterly
is made in case of any list, statement or return, which in the DECLARATION summary declaration of its gross income and deductions on a
opinion of the Commissioner was false or fraudulent or AND QUARTERLY PAYMENTS OF INCOME TAXES cumulative basis for the preceding quarter or quarters upon
contained any understatement or undervaluation, no tax SEC. 74. Declaration of Income Tax for Individuals. - which the income tax, as provided in Title II of this Code,
collected under such assessment shall be recovered by any (A) In General.chanrobles virtual law library - Except as shall be levied, collected and paid.
suit, unless it is proved that the said list, statement or return otherwise provided in this Section, every individual subject The tax so computed shall be decreased by the amount of tax
was not false nor fraudulent and did not contain any to income tax under Sections 24 and 25(A) of this Title, who previously paid or assessed during the preceding quarters
understatement or undervaluation; but this provision shall is receiving self-employment income, whether it constitutes and shall be paid not later than sixty (60) days from the close
not apply to statements or returns made or to be made in the sole source of his income or in combination with salaries, of each of the first three (3) quarters of the taxable year,
good faith regarding annual depreciation of oil or gas wells wages and other fixed or determinable income, shall make whether calendar or fiscal year. cralaw
and mines. cralaw and file a declaration of his estimated income for the current SEC. 76. Final Adjustment Return. chanrobles virtual law
SEC. 73. Distribution of dividends or Assets by taxable year on or before April 15 of the same taxable year. library - Every corporation liable to tax under Section 27
Corporations. - In general, self-employment income consists of the earnings shall file a final adjustment return covering the total taxable
(A) Definition of Dividends. chanrobles virtual law library - derived by the individual from the practice of profession or income for the preceding calendar or fiscal year.
The term "dividends" when used in this Title means any conduct of trade or business carried on by him as a sole If the sum of the quarterly tax payments made during the
distribution made by a corporation to its shareholders out of proprietor or by a partnership of which he is a member. said taxable year is not equal to the total tax due on the
its earnings or profits and payable to its shareholders, Nonresident Filipino citizens, with respect to income from entire taxable income of that year, the corporation shall
whether in money or in other property. without the Philippines, and nonresident aliens not engaged either:
Where a corporation distributes all of its assets in complete in trade or business in the Philippines, are not required to (A) Pay the balance of tax still due; or
liquidation or dissolution, the gain realized or loss sustained render a declaration of estimated income tax. (B) Carry-over the excess credit; or
by the stockholder, whether individual or corporate, is a The declaration shall contain such pertinent information as (C) Be credited or refunded with the excess amount paid, as
taxable income or a deductible loss, as the case may be. the Secretary of Finance, upon recommendation of the the case may be.
(B) Stock Dividend. - A stock dividend representing the Commissioner, may, by rules and regulations prescribe. In case the corporation is entitled to a tax credit or refund of
transfer of surplus to capital account shall not be subject to An individual may make amendments of a declaration filed the excess estimated quarterly income taxes paid, the excess
tax. during the taxable year under the rules and regulations amount shown on its final adjustment return may be carried
However, if a corporation cancels or redeems stock issued as prescribed by the Secretary of Finance, upon over and credited against the estimated quarterly income tax
a dividend at such time and in such manner as to make the recommendation of the Commissioner. cralaw liabilities for the taxable quarters of the succeeding taxable
distribution and cancellation or redemption, in whole or in (B) Return and Payment of Estimated Income Tax by years.
part, essentially equivalent to the distribution of a taxable Individuals. - The amount of estimated income as defined in Once the option to carry-over and apply the excess quarterly
dividend, the amount so distributed in redemption or Subsection (C) with respect to which a declaration is income tax against income tax due for the taxable quarters
cancellation of the stock shall be considered as taxable required under Subsection (A) shall be paid in four (4) of the succeeding taxable years has been made, such option
income to the extent that it represents a distribution of installments. shall be considered irrevocable for that taxable period and
earnings or profits. The first installment shall be paid at the time of the no application for cash refund or issuance of a tax credit
(C) Dividends Distributed are Deemed Made from Most declaration and the second and third shall be paid on August certificate shall be allowed therefor.
Recently Accumulated Profits. - Any distribution made to the 15 and November 15 of the current year, respectively. SEC. 77. Place and Time of Filing and Payment of Quarterly
shareholders or members of a corporation shall be deemed The fourth installment shall be paid on or before April 15 of Corporate Income Tax. -
to have been made form the most recently accumulated the following calendar year when the final adjusted income (A) Place of Filing.- Except as the Commissioner other wise
profits or surplus, and shall constitute a part of the annual tax return is due to be filed. cralaw permits, the quarterly income tax declaration required in
income of the distributee for the year in which received. (C) Definition of Estimated Tax. - In the case of an Section 75 and the final adjustment return required in
(D) Net Income of a Partnership Deemed Constructively individual, the term "estimated tax" means the amount Section 76 shall be filed with the authorized agent banks or

27
Revenue District Officer or Collection Agent or duly weekly, biweekly, semi-monthly, monthly, quarterly, semi- credit to the recipient of such income against the tax imposed
authorized Treasurer of the city or municipality having annual, or annual period. under Section 24(A) of this Title.
jurisdiction over the location of the principal office of the (C) Employee. - The term 'employee' refers to any individual Refunds and credits in cases of excessive withholding shall be
corporation filing the return or place where its main books who is the recipient of wages and includes an officer, granted under rules and regulations promulgated by the
of accounts and other data from which the return is employee or elected official of the Government of the Secretary of Finance, upon recommendation of the
prepared are kept. cralaw Philippines or any political subdivision, agency or Commissioner.
(B) Time of Filing the Income Tax Return. - The corporate instrumentality thereof. Any excess of the taxes withheld over the tax due from the
quarterly declaration shall be filed within sixty (60) days The term "employee" also includes an officer of a taxpayer shall be returned or credited within three (3)
following the close of each of the first three (3) quarters of corporation. months from the fifteenth (15th) day of April.
the taxable year. (D) Employer. - The term "employer" means the person for Refunds or credits made after such time shall earn interest at
The final adjustment return shall be filed on or before the whom an individual performs or performed any service, of the rate of six percent (6%) per annum, starting after the
fifteenth (15th) day of April, or on or before the fifteenth whatever nature, as the employee of such person, except lapse of the three-month period to the date the refund of
(15th) day of the fourth (4th) month following the close of that: (1) If the person for whom the individual performs or credit is made.
the fiscal year, as the case may be. performed any service does not have control of the payment Refunds shall be made upon warrants drawn by the
(C) Time of Payment of the Income Tax. chanrobles virtual of the wages for such services, the term "employer" (except Commissioner or by his duly authorized representative
law library - The income tax due on the corporate quarterly for the purpose of Subsection (A) means the person having without the necessity of counter-signature by the Chairman,
returns and the final adjustment income tax returns control of the payment of such wages; and(2) In the case of a Commission on Audit or the latter's duly authorized
computed in accordance with Sections 75 and 76 shall be person paying wages on behalf of a nonresident alien representative as an exception to the requirement prescribed
paid at the time the declaration or return is filed in a manner individual, foreign partnership or foreign corporation not by Section 49, Chapter 8, Subtitle B, Title 1 of Book V of
prescribed by the Commissioner. engaged in trade or business within the Philippines, the term Executive Order No. 292, otherwise known as the
CHAPTER XIII "employer" (except for the purpose of Subsection (A) means Administrative Code of 1987.
WITHHOLDING ON WAGES such person. (D) Personal Exemptions. -
SEC. 78. Definitions. - As used in this Chapter: SEC. 79. Income Tax Collected at Source. - (1) In General. - Unless otherwise provided by this Chapter,
(A) Wages. - The term 'wages' means all remuneration (other (A) Requirement of Withholding. - Every employer making the personal and additional exemptions applicable under this
than fees paid to a public official) for services performed by payment of wages shall deduct and withhold upon such Chapter shall be determined in accordance with the main
an employee for his employer, including the cash value of all wages a tax determined in accordance with the rules and provisions of this Title.
remuneration paid in any medium other than cash, except regulations to be prescribed by the Secretary of Finance, (2) Exemption Certificate. - (a) When to File. - On or before
that such term shall not include remuneration paid:. upon recommendation of the Commissioner: Provided, the date of commencement of employment with an employer,
(1) For agricultural labor paid entirely in products of the however, That no withholding of a tax shall be required the employee shall furnish the employer with a signed
farm where the labor is performed, or(2) For domestic where the total compensation income of an individual does withholding exemption certificate relating to the personal
service in a private home, or(3) For casual labor not in the not exceed the statutory minimum wage, or five thousand and additional exemptions to which he is entitled.
course of the employer's trade or business, or(4) For services pesos (P5,000.00) per month, whichever is higher. (b) Change of Status. - In case of change of status of an
by a citizen or resident of the Philippines for a foreign (B) Tax Paid by Recipient. - If the employer, in violation of employee as a result of which he would be entitled to a lesser
government or an international organization. the provisions of this Chapter, fails to deduct and withhold or greater amount of exemption, the employee shall, within
If the remuneration paid by an employer to an employee for the tax as required under this Chapter, and thereafter the tax ten (10) days from such change, file with the employer a new
services performed during one-half (1/2) or more of any against which such tax may be credited is paid, the tax so withholding exemption certificate reflecting the change.
payroll period of not more than thirty-one (31) consecutive required to be deducted and withheld shall not be collected (c) Use of Certificates. - The certificates filed hereunder shall
days constitutes wages, all the remuneration paid by such from the employer; but this Subsection shall in no case be used by the employer in the determination of the amount
employer to such employee for such period shall be deemed relieve the employer from liability for any penalty or of taxes to be withheld.
to be wages; but if the remuneration paid by an employer to addition to the tax otherwise applicable in respect of such (d) Failure to Furnish Certificate. - Where an employee, in
an employee for services performed during more than one - failure to deduct and withhold. violation of this Chapter, either fails or refuses to file a
half (1/2) of any such payroll period does not constitute (C) Refunds or Credits. - withholding exemption certificate, the employer shall
wages, then none of the remuneration paid by such employer (1) Employer. - When there has been an overpayment of tax withhold the taxes prescribed under the schedule for zero
to such employee for such period shall be deemed to be under this Section, refund or credit shall be made to the exemption of the withholding tax table determined pursuant
wages. employer only to the extent that the amount of such to Subsection (A) hereof.
(B) Payroll Period. - The term 'payroll period' means a overpayment was not deducted and withheld hereunder by (E) Withholding on Basis of Average Wages. - The
period for which payment of wages is ordinarily made to the the employer. Commissioner may, under rules and regulations
employee by his employer, and the term "miscellaneous (2) Employees. -The amount deducted and withheld under promulgated by the Secretary of Finance, authorize
payroll period" means a payroll period other than, a daily, this Chapter during any calendar year shall be allowed as a employers to: (1) estimate the wages which will be paid to an

28
employee in any quarter of the calendar year;(2) determine On the other hand, excess taxes withheld made by the Commissioner, may, by rules and regulation, prescribe.
the amount to be deducted and withheld upon each payment employer due to: cralaw
of wages to such employee during such quarter as if the (1) failure or refusal to file the withholding exemption (B) Annual Information Returns. - Every employer required
appropriate average of the wages so estimated constituted certificate; or (2) false and inaccurate information shall not to deduct and withhold the taxes in respect of the wages of
the actual wages paid; and(3) deduct and withhold upon any be refunded to the employee but shall be forfeited in favor of his employees shall, on or before January thirty-first (31st)
payment of wages to such employee during ;such quarter the Government. of the succeeding year, submit to the Commissioner an
such amount as may be required to be deducted and SEC. 81. Filing of Return and Payment of Taxes Withheld. - annual information return containing a list of employees, the
withheld during such quarter without regard to this Except as the Commissioner otherwise permits, taxes total amount of compensation income of each employee, the
Subsection. deducted and withheld by the employer on wages of total amount of taxes withheld therefrom during the year,
(F) Husband and Wife. - When a husband and wife each are employees shall be covered by a return and paid to an accompanied by copies of the statement referred to in the
recipients of wages, whether from the same or from different authorized agent bank; Collection Agent, or the duly preceding paragraph, and such other information as may be
employers, taxes to be withheld shall be determined on the authorized Treasurer of the city or municipality where the deemed necessary.
following bases: (1) The husband shall be deemed the head of employer has his legal residence or principal place of This return, if made and filed in accordance with rules and
the family and proper claimant of the additional exemption business, or in case the employer is a corporation, where the regulations promulgated by the Secretary of Finance, upon
in respect to any dependent children, unless he explicitly principal office is located. recommendation of the Commissioner, shall be sufficient
waives his right in favor of his wife in the withholding The return shall be filed and the payment made within compliance with the requirements of Section 68 of this Title
exemption certificate. twenty-five (25) days from the close of each calendar in respect of such wages. cralaw
(2) Taxes shall be withheld from the wages of the wife in quarter: Provided, however, That the Commissioner may, (C) Extension of time. - The Commissioner, under such rules
accordance with the schedule for zero exemption of the with the approval of the Secretary of Finance, require the and regulations as may be promulgated by the Secretary of
withholding tax table prescribed in Subsection (D)(2)(d) employers to pay or deposit the taxes deducted and withheld Finance, may grant to any employer a reasonable extension
hereof. at more frequent intervals, in cases where such requirement of time to furnish and submit the statements and returns
(G) Nonresident Aliens. - Wages paid to nonresident alien is deemed necessary to protect the interest of the required under this Section.
individuals engaged in trade or business in the Philippines Government. cralaw TITLE III
shall be subject to the provisions of this Chapter. The taxes deducted and withheld by employers shall be held
(H) Year-End Adjustment. - On or before the end of the in a special fund in trust for the Government until the same CHAPTER I
calendar year but prior to the payment of the compensation are paid to the said collecting officers. cralaw ESTATE TAX
for the last payroll period, the employer shall determine the SEC. 82. Return and Payment in Case of Government SEC. 84. Rates of Estate Tax. - There shall be levied,
tax due from each employee on taxable compensation income Employees. - If the employer is the Government of the assessed, collected and paid upon the transfer of the net
for the entire taxable year in accordance with Section 24(A). Philippines or any political subdivision, agency or estate as determined in accordance with Sections 85 and 86
The difference between the tax due from the employee for instrumentality thereof, the return of the amount deducted of every decedent, whether resident or nonresident of the
the entire year and the sum of taxes withheld from January and withheld upon any wage shall be made by the officer or Philippines, a tax based on the value of such net estate, as
to November shall either be withheld from his salary in employee having control of the payment of such wage, or by computed in accordance with the following schedule:
December of the current calendar year or refunded to the any officer or employee duly designated for the purpose. If the net estate is:chanroblesvirtuallawlibrary
employee not later than January 25 of the succeeding year. cralaw OVER
SEC. 80. Liability for Tax. - SEC. 83. Statements and Returns. - BUT NOT OVER
(A) Employer. - The employer shall be liable for the (A) Requirements. - Every employer required to deduct and THE TAX SHALL BE
withholding and remittance of the correct amount of tax withhold a tax shall furnish to each such employee in respect PLUS
required to be deducted and withheld under this Chapter. of his employment during the calendar year, on or before OF THE EXCESS OVER
If the employer fails to withhold and remit the correct January thirty-first (31st) of the succeeding year, or if his P 200,000 Exempt
amount of tax as required to be withheld under the provision employment is terminated before the close of such calendar P 200,000
of this Chapter, such tax shall be collected from the employer year, on the same day of which the last payment of wages is 550,000
together with the penalties or additions to the tax otherwise made, a written statement confirming the wages paid by the 0
applicable in respect to such failure to withhold and remit. employer to such employee during the calendar year, and the 5%
(B) Employee. - Where an employee fails or refuses to file the amount of tax deducted and withheld under this Chapter in P 200,000
withholding exemption certificate or willfully supplies false respect of such wages. 500,000
or inaccurate information thereunder, the tax otherwise The statement required to be furnished by this Section in 2,000,000
required to be withheld by the employer shall be collected respect of any wage shall contain such other information, P 15,000
from him including penalties or additions to the tax from the and shall be furnished at such other time and in such form as 8%
due date of remittance until the date of payment. the Secretary of Finance, upon the recommendation of the 500,000

29
2,000,000 decedent acquired such power), t o alter, amend, revoke, or and described in Subsections (B), (C) and (D) of this Section
5,000,000 terminate, or where any such power is relinquished in is made, created, exercised or relinquished for a
135,000 contemplation of the decedent's death. consideration in money or money's worth, but is not a bona
11% (2) For the purpose of this Subsection, the power to alter, fide sale for an adequate and full consideration in money or
2,000,000 amend or revoke shall be considered to exist on the date of money's worth, there shall be included in the gross estate
5,000,000 the decedent's death even though the exercise of the power is only the excess of the fair market value, at the time of death,
10,000,000 subject to a precedent giving of notice or even though the of the property otherwise to be included on account of such
465,000 alteration, amendment or revocation takes effect only on the transaction, over the value of the consideration received
15% expiration of a stated period after the exercise of the power, therefor by the decedent.
5,000,000 whether or not on or before the date of the decedent's death (H) Capital of the Surviving Spouse. - The capital of the
10,000,000 notice has been given or the power has been exercised. surviving spouse of a decedent shall not, for the purpose of
And Over In such cases, proper adjustment shall be made representing this Chapter, be deemed a part of his or her gross estate.
1,215,000 the interests which would have been excluded from the SEC. 86. Computation of Net Estate. - For the purpose of the
20% power if the decedent had lived, and for such purpose if the tax imposed in this Chapter, the value of the net estate shall
10,000,000 notice has not been given or the power has not been be determined:
exercised on or before the date of his
SEC. 85. Gross Estate. - the value of the gross estate of the death, such notice shall be considered to have been given, or (A) Deductions Allowed to the Estate of Citizen or a
decedent shall be determined by including the value at the the power exercised, on the date of his death. Resident. - In the case of a citizen or resident of the
time of his death of all property, real or personal, tangible or (D) Property Passing Under General Power of Appointment. Philippines, by deducting from the value of the gross estate -.
intangible, wherever situated: Provided, however, that in the - To the extent of any property passing under a general (1) Expenses, Losses, Indebtedness, and taxes. - Such
case of a nonresident decedent who at the time of his death power of appointment exercised by the decedent: (1) by will, amounts: (a) For actual funeral expenses or in an amount
was not a citizen of the Philippines, only that part of the or (2) by deed executed in contemplation of, or intended to equal to five percent (5%) of the gross estate, whichever is
entire gross estate which is situated in the Philippines shall take effect in possession or enjoyment at, or after his death, lower, but in no case to exceed Two hundred thousand pesos
be included in his taxable estate. or (3) by deed under which he has retained for his life or any (P200,000); (b) For judicial expenses of the testamentary or
(A) Decedent's Interest. - To the extent of the interest therein period not ascertainable without reference to his death or for intestate proceedings; (c) For claims against the estate:
of the decedent at the time of his death; any period which does not in fact end before his death (a) the Provided, That at the time the indebtedness was incurred the
possession or enjoyment of, or the right to the income from, debt instrument was duly notarized and, if the loan was
(B) Transfer in Contemplation of Death. - To the extent of the property, or (b) the right, either alone or in conjunction contracted within three (3) years before the death of the
any interest therein of which the decedent has at any time with any person, to designate the persons who shall possess decedent, the administrator or executor shall submit a
made a transfer, by trust or otherwise, in contemplation of or or enjoy the property or the income therefrom; except in statement showing the disposition of the proceeds of the
intended to take effect in possession or enjoyment at or after case of a bona fide sale for an adequate and full loan; (d) For claims of the deceased against insolvent persons
death, or of which he has at any time made a transfer, by consideration in money or money's worth. where the value of decedent's interest therein is included in
trust or otherwise, under which he has retained for his life or (E) Proceeds of Life Insurance. - To the extent of the amount the value of the gross estate; and (e) For unpaid mortgages
for any period which does not in fact end before his death (1) receivable by the estate of the deceased, his executor, or upon, or any indebtedness in respect to, property where the
the possession or enjoyment of, or the right to the income administrator, as insurance under policies taken out by the value of decedent's interest therein, undiminished by such
from the property, or (2) the right, either alone or in decedent upon his own life, irrespective of whether or not the mortgage or indebtedness, is included in the value of the
conjunction with any person, to designate the person who insured retained the power of revocation, or to the extent of gross estate, but not including any income tax upon income
shall possess or enjoy the property or the income therefrom; the amount receivable by any beneficiary designated in the received after the death of the decedent, or property taxes
except in case of a bonafide sale for an adequate and full policy of insurance, except when it is expressly stipulated not accrued before his death, or any estate tax.
consideration in money or money's worth. that the designation of the beneficiary is irrevocable. The deduction herein allowed in the case of claims against
(C) Revocable Transfer. - (1) To the extent of any interest (F) Prior Interests. - Except as otherwise specifically the estate, unpaid mortgages or any indebtedness shall, when
therein, of which the decedent has at any time made a provided therein, Subsections (B), (C) and (E) of this Section founded upon a promise or agreement, be limited to the
transfer (except in case of a bona fide sale for an adequate shall apply to the transfers, trusts, estates, interests, rights, extent that they were contracted bona fide and for an
and full consideration in money or money's worth) by trust powers and relinquishment of powers, as severally adequate and full consideration in money or money's worth.
or otherwise, where the enjoyment thereof was subject at the enumerated and described therein, whether made, created, There shall also be deducted losses incurred during the
date of his death to any change through the exercise of a arising, existing, exercised or relinquished before or after the settlement of the estate arising from fires, storms, shipwreck,
power (in whatever capacity exerciseable) by the decedent effectivity of this Code. or other casualties, or from robbery, theft or embezzlement,
alone or by the decedent in conjunction with any other (G) Transfers of Insufficient Consideration. - If any one of when such losses are not compensated for by insurance or
person (without regard to when or from what source the the transfers, trusts, interests, rights or powers enumerated otherwise, and if at the time of the filing of the return such

30
losses have not been claimed as a deduction for the income prior decedent, which was paid in whole or in part prior to where such property can be identified as having been
tax purposes in an income tax return, and provided that such the decedent's death, then the deduction allowable under received by the decedent from the donor by gift, or from
losses were incurred not later than the last day for the said Subsection shall be reduced by the amount so paid. such prior decedent by gift, bequest, devise or inheritance, or
payment of the estate tax as prescribed in Subsection (A) of Such deduction allowable shall be reduced by an amount which can be identified as having been acquired in exchange
Section 91. which bears the same ratio to the amounts allowed as for property so received:One hundred percent (100%) of the
(2) Property Previously Taxed. - An amount equal to the deductions under paragraphs (1) and (3) of this Subsection value if the prior decedent died within one (1) year prior to
value specified below of any property forming a part of the as the amount otherwise deductible under said paragraph (2) the death of the decedent, or if the property was transferred
gross estate situated in the Philippines of any person who bears to the value of the decedent's estate. to him by gift, within the same period prior to his
died within five (5) years prior to the death of the decedent, Where the property referred to consists of two or more death;Eighty percent (80%) of the value, if the prior
or transferred to the decedent by gift within five (5) years items, the aggregate value of such items shall be used for the decedent died more than one (1) year but not more than two
prior to his death, where such property can be identified as purpose of computing the deduction. (2) years prior to the death of the decedent, or if the property
having been received by the decedent from the donor by gift, (3) Transfers for Public Use. - The amount of all the was transferred to him by gift within the same period prior
or from such prior decedent by gift, bequest, devise or bequests, legacies, devises or transfers to or for the use of the to his death;Sixty percent (60%) of the value, if the prior
inheritance, or which can be identified as having been Government of the Republic of the Philippines, or any decedent died more than two (2) years but not more than
acquired in exchange for property so received:One hundred political subdivision thereof, for exclusively public purposes. three (3) years prior to the death of the decedent, or if the
percent (100%) of the value, if the prior decedent died within (4) The Family Home. - An amount equivalent to the current property was transferred to him by gift within the same
one (1) year prior to the death of the decedent, or if the fair market value of the decedent's family home: Provided, period prior to his death;Forty percent (40%) of the value, if
property was transferred to him by gift within the same however, That if the said current fair market value exceeds the prior decedent died more than three (3) years but not
period prior to his death;Eighty percent (80%) of the value, One million pesos (P1,000,000), the excess shall be subject to more than four (4) years prior to the death of the decedent,
if the prior decedent died more than one (1) year but not estate tax. or if the property was transferred to him by gift within the
more than two (2) years prior to the death of the decedent, or As a sine qua non condition for the exemption or deduction, same period prior to his death; andTwenty percent (20%) of
if the property was transferred to him by gift within the said family home must have been the decedent's family home the value, if the prior decedent died more than four (4) years
same period prior to his death;Sixty percent (60%) of the as certified by the barangay captain of the locality. but not more than five (5) years prior to the death of the
value, if the prior decedent died more than two (2) years but (5) Standard Deduction. - An amount equivalent to One decedent, or if the property was transferred to him by gift
not more than three (3) years prior to the death of the million pesos (P1,000,000). within the same period prior to his death.These deductions
decedent, or if the property was transferred to him by gift (6) Medical Expenses. - Medical Expenses incurred by the shall be allowed only where a donor's tax, or estate tax
within the same period prior to his death;Forty percent decedent within one (1) year prior to his death which shall be imposed under this Title is finally determined and paid by or
(40%) of the value, if the prior decedent died more than duly substantiated with receipts: Provided, That in no case on behalf of such donor, or the estate of such prior decedent,
three (3) years but not more than four (4) years prior to the shall the deductible medical expenses exceed Five Hundred as the case may be, and only in the amount finally
death of the decedent, or if the property was transferred to Thousand Pesos (P500,000). determined as the value of such property in determining the
him by gift within the same period prior to his death;Twenty (7) Amount Received by Heirs Under Republic Act No. 4917. value of the gift, or the gross estate of such prior decedent,
percent (20%) of the value, if the prior decedent died more - Any amount received by the heirs from the decedent - and only to the extent that the value of such property is
than four (4) years but not more than five (5) years prior to employee as a consequence of the death of the decedent- included in that part of the decedent's gross estate which at
the death of the decedent, or if the property was transferred employee in accordance with Republic Act No. 4917: the time of his death is situated in the Philippines; and only
to him by gift within the same period prior to his Provided, That such amount is included in the gross estate of if, in determining the value of the net estate of the prior
death;These deductions shall be allowed only where a the decedent. decedent, no deduction is allowable under paragraph (2) of
donor's tax or estate tax imposed under this Title was finally (B) Deductions Allowed to Nonresident Estates. - In the case Subsection (B) of this Section, in respect of the property or
determined and paid by or on behalf of such donor, or the of a nonresident not a citizen of the Philippines, by deducting properties given in exchange therefore.
estate of such prior decedent, as the case may be, and only in from the value of that part of his gross estate which at the Where a deduction was allowed of any mortgage or other
the amount finally determined as the value of such property time of his death is situated in the Philippines: (1) Expenses, lien in determining the donor's tax, or the estate tax of the
in determining the value of the gift, or the gross estate of Losses, Indebtedness and Taxes. - That proportion of the prior decedent, which was paid in whole or in part prior to
such prior decedent, and only to the extent that the value of deductions specified in paragraph (1) of Subsection (A) of the decedent's death, then the deduction allowable under
such property is included in the decedent's gross estate, and this Section which the value of such part bears to the value of said paragraph shall be reduced by the amount so paid.
only if in determining the value of the estate of the prior his entire gross estate wherever situated;(2) Property Such deduction allowable shall be reduced by an amount
decedent, no deduction was allowable under paragraph (2) in Previously Taxed. - An amount equal to the value specified which bears the same ratio to the amounts allowed as
respect of the property or properties given in exchange below of any property forming part of the gross estate deductions under paragraphs (1) and (3) of this Subsection
therefor. situated in the Philippines of any person who died within five as the amount otherwise deductible under paragraph (2)
Where a deduction was allowed of any mortgage or other (5) years prior to the death of the decedent, or transferred to bears to the value of that part of the decedent's gross estate
lien in determining the donor's tax, or the estate tax of the the decedent by gift within five (5) years prior to his death, which at the time of his death is situated in the Philippines.

31
Where the property referred to consists of two (2) or more SEC. 88. Determination of the Value of the Estate. - following: (a) Itemized assets of the decedent with their
items, the aggregate value of such items shall be used for the (A) Usufruct. - To determine the value of the right of corresponding gross value at the time of his death, or in the
purpose of computing the deduction. usufruct, use or habitation, as well as that of annuity, there case of a nonresident, not a citizen of the Philippines, of that
(3) Transfers for Public Use. - The amount of all bequests, shall be taken into account the probable life of the part of his gross estate situated in the Philippines; (b)
legacies, devises or transfers to or for the use of the beneficiary in accordance with the latest Basic Standard Itemized deductions from gross estate allowed in Section 86;
Government of the Republic of the Philippines or any Mortality Table, to be approved by the Secretary of Finance, and (c) The amount of tax due whether paid or still due and
political subdivision thereof, for exclusively public purposes. upon recommendation of the Insurance Commissioner. outstanding.
(C) Share in the Conjugal Property. - the net share of the cralaw (B) Time for Filing. - For the purpose of determining the
surviving spouse in the conjugal partnership property as (B) Properties. - The estate shall be appraised at its fair estate tax provided for in Section 84 of this Code, the estate
diminished by the obligations properly chargeable to such market value as of the time of death. tax return required under the preceding Subsection (A) shall
property shall, for the purpose of this Section, be deducted However, the appraised value of real property as of the time be filed within six (6) months from the decedent's death.
from the net estate of the decedent. of death shall be, whichever is higher of: A certified copy of the schedule of partition and the order of
(D) Miscellaneous Provisions. - No deduction shall be (1) The fair market value as determined by the the court approving the same shall be furnished the
allowed in the case of a nonresident not a citizen of the Commissioner, or Commissioner within thirty (30) after the promulgation of
Philippines, unless the executor, administrator, or anyone of (2) The fair market value as shown in the schedule of values such order.
the heirs, as the case may be, includes in the return required fixed by the Provincial and City Assessors. (C) Extension of Time. - The Commissioner shall have
to be filed under Section 90 the value at the time of his death SEC. 89. Notice of Death to be Filed. - In all cases of authority to grant, in meritorious cases, a reasonable
of that part of the gross estate of the nonresident not situated transfers subject to tax, or where, though exempt from tax, extension not exceeding thirty (30) days for filing the return.
in the Philippines. the gross value of the estate exceeds Twenty thousand pesos (D) Place of Filing. - Except in cases where the
(E) Tax Credit for Estate Taxes paid to a Foreign Country. - (P20,000), the executor, administrator or any of the legal Commissioner otherwise permits, the return required under
(1) In General. - The tax imposed by this Title shall be heirs, as the case may be, within two (2) months after the Subsection (A) shall be filed with an authorized agent bank,
credited with the amounts of any estate tax imposed by the decedent's death, or within a like period after qualifying as or Revenue District Officer, Collection Officer, or duly
authority of a foreign country. such executor or administrator, shall give a written notice authorized Treasurer of the city or municipality in which the
(2) Limitations on Credit. - The amount of the credit taken thereof to the Commissioner. decedent was domiciled at the time of his death or if there be
under this Section shall be subject to each of the following SEC. 90. Estate Tax Returns. - no legal residence in the Philippines, with the Office of the
limitations: (a) The amount of the credit in respect to the tax Commissioner.
paid to any country shall not exceed the same proportion of (A) Requirements. - In all cases of transfers subject to the SEC. 91. Payment of Tax. -
the tax against which such credit is taken, which the tax imposed herein, or where, though exempt from tax, the
decedent's net estate situated within such country taxable gross value of the estate exceeds Two hundred thousand (A) Time of Payment. - The estate tax imposed by Section 84
under this Title bears to his entire net estate; and (b) The pesos (P200,000), or regardless of the gross value of the shall be paid at the time the return is filed by the executor,
total amount of the credit shall not exceed the same estate, where the said estate consists of registered or administrator or the heirs.
proportion of the tax against which such credit is taken, registrable property such as real property, motor vehicle, (B) Extension of Time. - When the Commissioner finds that
which the decedent's net estate situated outside the shares of stock or other similar property for which a the payment on the due date of the estate tax or of any part
Philippines taxable under this Title bears to his entire net clearance from the Bureau of Internal Revenue is required thereof would impose undue hardship upon the estate or any
estate. as a condition precedent for the transfer of ownership of the heirs, he may extend the time for payment of such tax
SEC. 87. Exemption of Certain Acquisitions and thereof in the name of the transferee, the executor, or the or any part thereof not to exceed five (5) years, in case the
Transmissions. - The following shall not be taxed: (A) The administrator, or any of the legal heirs, as the case may be, estate is settled through the courts, or two (2) years in case
merger of usufruct in the owner of the naked title;(B) The shall file a return under oath in duplicate, setting forth: (1) the estate is settled extrajudicially.
transmission or delivery of the inheritance or legacy by the The value of the gross estate of the decedent at the time of his In such case, the amount in respect of which the extension is
fiduciary heir or legatee to the fideicommissary;(C) The death, or in case of a nonresident, not a citizen of the granted shall be paid on or before the date of the expiration
transmission from the first heir, legatee or donee in favor of Philippines, of that part of his gross estate situated in the of the period of the extension, and the running of the Statute
another beneficiary, in accordance with the desire of the Philippines;(2) The deductions allowed from gross estate in of Limitations for assessment as provided in Section 203 of
predecessor; and(D) All bequests, devises, legacies or determining the estate as defined in Section 86; and(3) Such this Code shall be suspended for the period of any such
transfers to social welfare, cultural and charitable part of such information as may at the time be ascertainable extension. cralaw
institutions, no part of the net income of which insures to the and such supplemental data as may be necessary to establish Where the taxes are assessed by reason of negligence,
benefit of any individual: Provided, however, That not more the correct taxes. Provided, however, That estate tax returns intentional disregard of rules and regulations, or fraud on
than thirty percent (30%) of the said bequests, devises, showing a gross value exceeding Two million pesos the part of the taxpayer, no extension will be granted by the
legacies or transfers shall be used by such institutions for (P2,000,000) shall be supported with a statement duly Commissioner. cralaw
administration purposes. certified to by a Certified Public Accountant containing the If an extension is granted, the Commissioner may require the

32
executor, or administrator, or beneficiary, as the case may be, then the amount by which the tax exceeds the amounts anonima, partnership, business, or industry organized or
to furnish a bond in such amount, not exceeding double the previously assessed (or collected without assessment) as a established in the Philippines any share, obligation, bond or
amount of the tax and with such sureties as the deficiency; but such amounts previously assessed or collected right by way of gift inter vivos or mortis causa, legacy or
Commissioner deems necessary, conditioned upon the without assessment shall first be decreased by the amounts inheritance, unless a certification from the Commissioner
payment of the said tax in accordance with the terms of the previously abated, refunded or otherwise repaid in respect of that the taxes fixed in this Title and due thereon have been
extension. such tax. cralaw paid is shownIf a bank has knowledge of the death of a
(C) Liability for Payment.- The estate tax imposed by Section SEC. 94. Payment Before Delivery by Executor or person, who maintained a bank deposit account alone, or
84 shall be paid by the executor or administrator before Administrator. - No judge shall authorize the executor or jointly with another, it shall not allow any withdrawal from
delivery to any beneficiary of his distributive share of the judicial administrator to deliver a distributive share to any the said deposit account, unless the Commissioner has
estate. party interested in the estate unless a certification from the certified that the taxes imposed thereon by this Title have
Such beneficiary shall to the extent of his distributive share Commissioner that the estate tax has been paid is shown. been paid: Provided, however, That the administrator of the
of the estate, be subsidiarily liable for the payment of such cralaw estate or any one (1) of the heirs of the decedent may, upon
portion of the estate tax as his distributive share bears to the SEC. 95. Duties of Certain Officers and Debtors. - Registers authorization by the Commissioner, withdraw an amount not
value of the total net estate. cralaw of Deeds shall not register in the Registry of Property any exceeding Twenty thousand pesos (P20,000) without the said
For the purpose of this Chapter, the term "executor" or document transferring real property or real rights therein or certification.
"administrator" means the executor or administrator of the any chattel mortgage, by way of gifts inter vivos or mortis For this purpose, all withdrawal slips shall contain a
decedent, or if there is no executor or administrator causa, legacy or inheritance, unless a certification from the statement to the effect that all of the joint depositors are still
appointed, qualified, and acting within the Philippines, then Commissioner that the tax fixed in this Title and actually due living at the time of withdrawal by any one of the joint
any person in actual or constructive possession of any thereon had been paid is show, and they shall immediately depositors and such statement shall be under oath by the
property of the decedent. cralaw notify the Commissioner, Regional Director, Revenue District said depositors.
SEC. 92. Discharge of Executor or Administrator from Officer, or Revenue Collection Officer or Treasurer of the CHAPTER II
Personal Liability. - If the executor or administrator makes a city or municipality where their offices are located, of the DONOR'S TAX
written application to the Commissioner for determination non payment of the tax discovered by them.
of the amount of the estate tax and discharge from personal Any lawyer, notary public, or any government officer who, SEC. 98. Imposition of Tax. - (A) There shall be levied,
liability therefore, the Commissioner (as soon as possible, by reason of his official duties, intervenes in the preparation assessed, collected and paid upon the transfer by any person,
and in any event within one (1) year after the making of such or acknowledgment of documents regarding partition or resident or nonresident, of the property by gift, a tax,
application, or if the application is made before the return is disposal of donation inter vivos or mortis causa, legacy or computed as provided in Section 99.
filed, then within one (1) year after the return is filed, but not inheritance, shall have the duty of furnishing the (B) The tax shall apply whether the transfer is in trust or
after the expiration of the period prescribed for the Commissioner, Regional Director, Revenue District Officer otherwise, whether the gift is direct or indirect, and whether
assessment of the tax in Section 203 shall not notify the or Revenue Collection Officer of the place where he may the property is real or personal, tangible or intangible.
executor or administrator of the amount of the tax. have his principal office, with copies of such documents and SEC. 99. Rates of Tax Payable by Donor. -
The executor or administrator, upon payment of the amount any information whatsoever which may facilitate the
of which he is notified, shall be discharged from personal collection of the aforementioned tax. (A) In General. - The tax for each calendar year shall be
liability for any deficiency in the tax thereafter found to be Neither shall a debtor of the deceased pay his debts to the computed on the basis of the total net gifts made during the
due and shall be entitled to a receipt or writing showing such heirs, legatee, executor or administrator of his creditor, calendar year in accordance with the following schedule: If
discharge. cralaw unless the certification of the Commissioner that the tax the net gift is:
SEC. 93. Definition of Deficiency. - As used in this Chapter, fixed in this Chapter had been paid is shown; but he may OVER
the term "deficiency" means: pay the executor or judicial administrator without said BUT NOT OVER
(a) The amount by which the tax imposed by this Chapter certification if the credit is included in the inventory of the THE TAX SHALL BE
exceeds the amount shown as the tax by the executor, estate of the deceased. cralaw PLUS
administrator or any of the heirs upon his return; but the SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding OF THE EXCESS OVER
amounts so shown on the return shall first be increased by Obligations. - If after the payment of the estate tax, new P 100,000
the amounts previously assessed (or collected without obligations of the decedent shall appear, and the persons Exempt
assessment) as a deficiency and decreased by the amount interested shall have satisfied them by order of the court, P 100,000
previously abated, refunded or otherwise repaid in respect of they shall have a right to the restitution of the proportional 200,000
such tax; or part of the tax paid. cralaw 0
(b) If no amount is shown as the tax by the executor, SEC. 97. Payment of Tax Antecedent to the Transfer of 2%
administrator or any of the heirs upon his return, or if no Shares, Bonds or Rights.- There shall not be transferred to P100,000
return is made by the executor, administrator, or any heir, any new owner in the books of any corporation, sociedad 200,000

33
500,000 or donations shall be exempt from the tax provided for in foreign country.
2,000 this Chapter: (2) Limitations on Credit. - The amount of the credit taken
4% under this Section shall be subject to each of the following
200,000 (A) In the Case of Gifts Made by a Resident.- limitations:
500,000 (1) Dowries or gifts made on account of marriage and before (a) The amount of the credit in respect to the tax paid to any
1,000,000 its celebration or within one year thereafter by parents to country shall not exceed the same proportion of the tax
14,000 each of their legitimate, recognized natural, or adopted against which such credit is taken, which the net gifts
6% children to the extent of the first Ten thousand pesos situated within such country taxable under this Title bears to
500,000 (P10,000): his entire net gifts; and
1,000,000 (2) Gifts made to or for the use of the National Government (b) The total amount of the credit shall not exceed the same
3,000,000 or any entity created by any of its agencies which is not proportion of the tax against which such credit is taken,
44,000 conducted for profit, or to any political subdivision of the which the donor's net gifts situated outside the Philippines
8% said Government; and taxable under this title bears to his entire net gifts.
1,000,000 (3) Gifts in favor of an educational and/or charitable, SEC. 102. Valuation of Gifts Made in Property. - If the gift is
3,000,000 religious, cultural or social welfare corporation, institution, made in property, the fair market value thereof at the time of
5,000,000 accredited nongovernment organization, trust or the gift shall be considered the amount of the gift.
204,000 philanthropic organization or research institution or In case of real property, the provisions of Section 88(B) shall
10% organization: Provided, however, That not more than thirty apply to the valuation thereof.
3,000,000 percent (30%) of said gifts shall be used by such donee for SEC. 103. Filing of Return and Payment of Tax. -
5,000,000 administration purposes. (A) Requirements.- any individual who makes any transfer
10,000,000 For the purpose of the exemption, a 'non-profit educational by gift (except those which, under Section 101, are exempt
404,000 and/or charitable corporation, institution, accredited from the tax provided for in this Chapter) shall, for the
12% nongovernment organization, trust or philanthropic purpose of the said tax, make a return under oath in
5,000,000 organization and/or research institution or organization' is a duplicate.
10,000,000 school, college or university and/or charitable corporation, The return shall se forth:
1,004,000 accredited nongovernment organization, trust or (1) Each gift made during the calendar year which is to be
15% philanthropic organization and/or research institution or included in computing net gifts;
10,000,000 organization, incorporated as a nonstock entity, paying no (2) The deductions claimed and allowable;
(B) Tax Payable by Donor if Donee is a Stranger. - When the dividends, governed by trustees who receive no (3) Any previous net gifts made during the same calendar
donee or beneficiary is stranger, the tax payable by the donor compensation, and devoting all its income, whether students' year;
shall be thirty percent (30%) of the net gifts. fees or gifts, donation, subsidies or other forms of (4) The name of the donee; and
For the purpose of this tax, a "stranger", is a person who is philanthropy, to the accomplishment and promotion of the (5) Such further information as may be required by rules
not a: (1) Brother, sister (whether by whole or half-blood), purposes enumerated in its Articles of Incorporation. and regulations made pursuant to law.
spouse, ancestor and lineal descendant; or (2) Relative by (B) In the Case of Gifts Made by a Nonresident Not a Citizen (B) Time and Place of Filing and Payment. - The return of
consanguinity in the collateral line within the fourth degree of the Philippines. - (1) Gifts made to or for the use of the the donor required in this Section shall be filed within thirty
of relationship. National Government or any entity created by any of its (30) days after the date the gift is made and the tax due
(C) Any contribution in cash or in kind to any candidate, agencies which is not conducted for profit, or to any political thereon shall be paid at the time of filing.
political party or coalition of parties for campaign purposes subdivision of the said Government. Except in cases where the Commissioner otherwise permits,
shall be governed by the Election Code, as amended. (2) Gifts in favor of an educational and/or charitable, the return shall be filed and the tax paid to an authorized
SEC. 100. Transfer for Less Than Adequate and Full religious, cultural or social welfare corporation, institution, agent bank, the Revenue District Officer, Revenue Collection
Consideration. - Where property, other than real property foundation, trust or philanthropic organization or research Officer or duly authorized Treasurer of the city or
referred to in Section 24(D), is transferred for less than an institution or organization: Provided, however, That not municipality where the donor was domiciled at the time of
adequate and full consideration in money or money's worth, more than thirty percent (30%) of said gifts shall be used by the transfer, or if there be no legal residence in the
then the amount by which the fair market value of the such donee for administration purposes. Philippines, with the Office of the Commissioner.
property exceeded the value of the consideration shall, for (C) Tax Credit for Donor's Taxes Paid to a Foreign Country. In the case of gifts made by a nonresident, the return may be
the purpose of the tax imposed by this Chapter, be deemed a - (1) In General. - The tax imposed by this Title upon a donor filed with the Philippine Embassy or Consulate in the
gift, and shall be included in computing the amount of gifts who was a citizen or a resident at the time of donation shall country where he is domiciled at the time of the transfer, or
made during the calendar year. be credited with the amount of any donor's tax of any directly with the Office of the Commissioner.
SEC. 101. Exemption of Certain Gifts. - The following gifts character and description imposed by the authority of a SEC. 104. Definitions. - For purposes of this Title, the terms

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"gross estate" and "gifts" include real and personal part of the gross selling price.
property, whether tangible or intangible, or mixed, wherever SEC. 105. Persons Liable. - Any person who, in the course of (2) The following sales by VAT-registered persons shall be
situated: Provided, however, That where the decedent or trade or business, sells barters, exchanges, leases goods or subject to zero percent (0%) rate:
donor was a nonresident alien at the time of his death or properties, renders services, and any person who imports (a) Export Sales. - The term "export sales" means:
donation, as the case may be, his real and personal property goods shall be subject to the value-added tax (VAT) imposed (1) The sale and actual shipment of goods from the
so transferred but which are situated outside the Philippines in Sections 106 to 108 of this Code. Philippines to a foreign country, irrespective of any shipping
shall not be included as part of his "gross estate" or "gross The value-added tax is an indirect tax and the amount of tax arrangement that may be agreed upon which may influence
gift": Provided, further, That franchise which must be may be shifted or passed on to the buyer, transferee or lessee or determine the transfer of ownership of the goods so
exercised in the Philippines; shares, obligations or bonds of the goods, properties or services. exported and paid for in acceptable foreign currency or its
issued by any corporation or sociedad anonima organized or This rule shall likewise apply to existing contracts of sale or equivalent in goods or services, and accounted for in
constituted in the Philippines in accordance with its laws; lease of goods, properties or services at the time of the accordance with the rules and regulations of the Bangko
shares, obligations or bonds by any foreign corporation effectivity of Republic Act No. 7716. cralaw Sentral ng Pilipinas (BSP);
eighty-five percent (85%) of the business of which is located The phrase "in the course of trade or business" means the (2) Sale of raw materials or packaging materials to a
in the Philippines; shares, obligations or bonds issued by any regular conduct or pursuit of a commercial or an economic nonresident buyer for delivery to a resident local export-
foreign corporation if such shares, obligations or bonds have activity, including transactions incidental thereto, by any oriented enterprise to be used in manufacturing, processing,
acquired a business situs in the Philippines; shares or rights person regardless of whether or not the person engaged packing or repacking in the Philippines of the said buyer's
in any partnership, business or industry established in the therein is a nonstock, nonprofit private organization goods and paid for in acceptable foreign currency and
Philippines, shall be considered as situated in the (irrespective of the disposition of its net income and whether accounted for in accordance with the rules and regulations of
Philippines: Provided, still further, that no tax shall be or not it sells exclusively to members or their guests), or the Bangko Sentral ng Pilipinas (BSP);
collected under this Title in respect of intangible personal government entity. cralaw (3) Sale of raw materials or packaging materials to export-
property: (a) if the decedent at the time of his death or the The rule of regularity, to the contrary notwithstanding, oriented enterprise whose export sales exceed seventy
donor at the time of the donation was a citizen and resident services as defined in this Code rendered in the Philippines percent (70%) of total annual production;
of a foreign country which at the time of his death or by nonresident foreign persons shall be considered as being (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
donation did not impose a transfer tax of any character, in course of trade or business. cralaw and
respect of intangible personal property of citizens of the SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (5) Those considered export sales under Executive Order No.
Philippines not residing in that foreign country, or (b) if the (A) Rate and Base of Tax. - There shall be levied, assessed 226, otherwise known as the Omnibus Investment Code of
laws of the foreign country of which the decedent or donor and collected on every sale, barter or exchange of goods or 1987, and other special laws.
was a citizen and resident at the time of his death or properties, value-added tax equivalent to ten percent (10%) (b) Foreign Currency Denominated Sale. - The phrase
donation allows a similar exemption from transfer or death of the gross selling price or gross value in money of the goods "foreign currency denominated sale" means sale to a
taxes of every character or description in respect of or properties sold, bartered or exchanged, such tax to be nonresident of goods, except those mentioned in Sections 149
intangible personal property owned by citizens of the paid by the seller or transferor. and 150, assembled or manufactured in the Philippines for
Philippines not residing in that foreign country. (1) The term "goods" or "properties" shall mean all tangible delivery to a resident in the Philippines, paid for in
The term "deficiency" means: (a) the amount by which tax and intangible objects which are capable of pecuniary acceptable foreign currency and accounted for in accordance
imposed by this Chapter exceeds the amount shown as the estimation and shall include: (a) Real properties held with the rules and regulations of the Bangko Sentral ng
tax by the donor upon his return; but the amount so shown primarily for sale to customers or held for lease in the Pilipinas (BSP).
on the return shall first be increased by the amount ordinary course of trade or business; (b) The right or the (c) Sales to persons or entities whose exemption under
previously assessed (or collected without assessment) as a privilege to use patent, copyright, design or model, plan, special laws or international agreements to which the
deficiency, and decreased by the amounts previously abated, secret formula or process, goodwill, trademark, trade brand Philippines is a signatory effectively subjects such sales to
refunded or otherwise repaid in respect of such tax, or (b) if or other like property or right; (c) The right or the privilege zero rate.
no amount is shown as the tax by the donor, then the amount to use in the Philippines of any industrial, commercial or (B) Transactions Deemed Sale. - The following transactions
by which the tax exceeds the amounts previously assessed, scientific equipment; (d) The right or the privilege to use shall be deemed sale: (1) Transfer, use or consumption not in
(or collected without assessment) as a deficiency, but such motion picture films, tapes and discs; and (e) Radio, the course of business of goods or properties originally
amounts previously assessed, or collected without television, satellite transmission and cable television time. intended for sale or for use in the course of business;(2)
assessment, shall first be decreased by the amount previously The term "gross selling price" means the total amount of Distribution or transfer to: (a) Shareholders or investors as
abated, refunded or otherwise repaid in respect of such tax. money or its equivalent which the purchaser pays or is share in the profits of the VAT-registered persons; or (b)
TITLE IV obligated to pay to the seller in consideration of the sale, Creditors in payment of debt; (3) Consignment of goods if
VALUE-ADDED TAX barter or exchange of the goods or properties, excluding the actual sale is not made within sixty (60) days following the
CHAPTER I value-added tax. date such goods were consigned; and(4) Retirement from or
IMPOSITION OF TAX The excise tax, if any, on such goods or properties shall form cessation of business, with respect to inventories of taxable

35
goods existing as of such retirement or cessation. revenue tax on such importation. as a means of enabling the application or enjoyment of any
(C) Changes in or Cessation of Status of a VAT-registered The tax due on such importation shall constitute a lien on the such property, or right as is mentioned in subparagraph (2)
Person. - The tax imposed in Subsection (A) of this Section goods superior to all charges or liens on the goods, or any such knowledge or information as is mentioned in
shall also apply to goods disposed of or existing as of a irrespective of the possessor thereof. subparagraph (3);(5) The supply of services by a nonresident
certain date if under circumstances to be prescribed in rules SEC. 108. Value-added Tax on Sale of Services and Use or person or his employee in connection with the use of
and regulations to be promulgated by the Secretary of Lease of Properties. - property or rights belonging to, or the installation or
Finance, upon recommendation of the Commissioner, the operation of any brand, machinery or other apparatus
status of a person as a VAT-registered person changes or is (A) Rate and Base of Tax. - There shall be levied, assessed purchased from such nonresident person.
terminated. and collected, a value-added tax equivalent to ten percent (6) The supply of technical advice, assistance or services
(D) Determination of the Tax. - (1) The tax shall be computed (10%) of gross receipts derived from the sale or exchange of rendered in connection with technical management or
by multiplying the total amount indicated in the invoice by services, including the use or lease of properties. administration of any scientific, industrial or commercial
one-eleventh (1/11). The phrase "sale or exchange of services" means the undertaking, venture, project or scheme;(7) The lease of
(2) Sales Returns, Allowances and Sales Discounts. - The performance of all kinds or services in the Philippines for motion picture films, films, tapes and discs; and(8) The lease
value of goods or properties sold and subsequently returned others for a fee, remuneration or consideration, including or the use of or the right to use radio, television, satellite
or for which allowances were granted by a VAT-registered those performed or rendered by construction and service transmission and cable television time.
person may be deducted from the gross sales or receipts for contractors; stock, real estate, commercial, customs and Lease of properties shall be subject to the tax herein imposed
the quarter in which a refund is made or a credit immigration brokers; lessors of property, whether personal irrespective of the place where the contract of lease or
memorandum or refund is issued. or real; warehousing services; lessors or distributors of licensing agreement was executed if the property is leased or
Sales discount granted and indicated in the invoice at the cinematographic films; persons engaged in milling used in the Philippines.
time of sale and the grant of which does not depend upon the processing, manufacturing or repacking goods for others; The term "gross receipts" means the total amount of money
happening of a future event may be excluded from the gross proprietors, operators or keepers of hotels, motels, or its equivalent representing the contract price,
sales within the same quarter it was given. resthouses, pension houses, inns, resorts; proprietors or compensation, service fee, rental or royalty, including the
(3) Authority of the Commissioner to Determine the operators of restaurants, refreshment parlors, cafes and amount charged for materials supplied with the services and
Appropriate Tax Base. - The Commissioner shall, by rules other eating places, including clubs and caterers; dealers in deposits and advanced payments actually or constructively
and regulations prescribed by the Secretary of Finance, securities; lending investors; transportation contractors on received during the taxable quarter for the services
determine the appropriate tax base in cases where a their transport of goods or cargoes, including persons who performed or to be performed for another person, excluding
transaction is deemed a sale, barter or exchange of goods or transport goods or cargoes for hire another domestic value-added tax.
properties under Subsection (B) hereof, or where the gross common carriers by land, air and water relative to their (B) Transactions Subject to Zero Percent (0%) Rate.- The
selling price is unreasonably lower than the actual market transport of goods or cargoes; services of franchise grantees following services performed in the Philippines by VAT-
value. of telephone and telegraph, radio and television broadcasting registered persons shall be subject to zero percent (0%) rate.
SEC. 107. Value-Added Tax on Importation of Goods. - and all other franchise grantees except those under Section (1) Processing, manufacturing or repacking goods for other
119 of this Code; services of banks, non-bank financial persons doing business outside the Philippines which goods
(A) In General. - There shall be levied, assessed and collected intermediaries and finance companies; and non-life are subsequently exported, where the services are paid for in
on every importation of goods a value-added tax equivalent insurance companies (except their crop insurances), acceptable foreign currency and accounted for in accordance
to ten percent (10%) based on the total value used by the including surety, fidelity, indemnity and bonding companies; with the rules and regulations of the Bangko Sentral ng
Bureau of Customs in determining tariff and customs duties and similar services regardless of whether or not the Pilipinas (BSP);(2) Services other than those mentioned in
plus customs duties, excise taxes, if any, and other charges, performance thereof calls for the exercise or use of the the preceding paragraph, the consideration for which is paid
such tax to be paid by the importer prior to the release of physical or mental faculties. for in acceptable foreign currency and accounted for in
such goods from customs custody: Provided, That where the The phrase 'sale or exchange of services' shall likewise accordance with the rules and regulations of the Bangko
customs duties are determined on the basis of the quantity or include: Sentral ng Pilipinas (BSP);(3) Services rendered to persons
volume of the goods, the value-added tax shall be based on (1) The lease or the use of or the right or privilege to use any or entities whose exemption under special laws or
the landed cost plus excise taxes, If any. copyright, patent, design or model, plan secret formula or international agreements to which the Philippines is a
(B) Transfer of Goods by Tax-Exempt Persons. - In the case process, goodwill, trademark, trade brand or other like signatory effectively subjects the supply of such services to
of tax-free importation of goods into the Philippines by property or right; zero percent (0%) rate;(4) Services rendered to vessels
persons, entities or agencies exempt from tax where such (2) The lease of the use of, or the right to use of any engaged exclusively in international shipping; and(5)
goods are subsequently sold, transferred or exchanged in the industrial, commercial or scientific equipment; Services performed by subcontractors and/or contractors in
Philippines to non-exempt persons or entities, the (3) The supply of scientific, technical, industrial or processing, converting, of manufacturing goods for an
purchasers, transferees or recipients shall be considered the commercial knowledge or information;(4) The supply of any enterprise whose export sales exceed seventy percent (70%)
importers thereof, who shall be liable for any internal assistance that is ancillary and subsidiary to and is furnished of total annual production.

36
(C) Determination of the Tax. - The tax shall be computed by settle in the Philippines, for their own use and not for sale, Development Authority whose lending operation is limited to
multiplying the total amount indicated in the official receipt barter or exchange, accompanying such persons, or arriving their members;
by one-eleventh (1/11). within ninety (90) days before or after their arrival, upon the (u) Sales by non-agricultural, non- electric and non-credit
SEC. 109. Exempt Transactions. - The following shall be production of evidence satisfactory to the Commissioner, cooperatives duly registered with the Cooperative
exempt from the value-added tax: that such persons are actually coming to settle in the Development Authority: Provided, That the share capital
(a) Sale of nonfood agricultural products; marine and forest Philippines and that the change of residence is bona fide; contribution of each member does not exceed Fifteen
products in their original state by the primary producer or (j) Services subject to percentage tax under Title V; thousand pesos (P15,000) and regardless of the aggregate
the owner of the land where the same are produced; (k) Services by agricultural contract growers and milling for capital and net surplus ratably distributed among the
(b) Sale of cotton seeds in their original state; and copra; others of palay into rice, corn into grits and sugar cane into members;
(c) Sale or importation of agricultural and marine food raw sugar; (v) Export sales by persons who are not VAT-registered;
products in their original state, livestock and poultry of or (l) Medical, dental, hospital and veterinary services subject (w) Sale of real properties not primarily held for sale to
king generally used as, or yielding or producing foods for to the provisions of Section 17 of Republic Act No. 7716, as customers or held for lease in the ordinary course of trade or
human consumption; and breeding stock and genetic amended; business or real property utilized for low-cost and socialized
materials therefor.Products classified under this paragraph (m) Educational services rendered by private educational housing as defined by Republic Act No. 7279, otherwise
and paragraph (a) shall be considered in their original state institutions, duly accredited by the Department of known as the Urban Development and Housing Act of 1992,
even if they have undergone the simple processes of Education, Culture and Sports (DECS) and the Commission and other related laws, house and lot and other residential
preparation or preservation for the market, such as freezing, on Higher Education (CHED), and those rendered by dwellings valued at One million pesos (P1,000,000) and
drying, salting, broiling, roasting, smoking or government educational institutions; below: Provided, That not later than January 31st of the
stripping.Polished and/or husked rice, corn grits, raw cane (n) Sale by the artist himself of his works of art, literary calendar year subsequent to the effectivity of this Act and
sugar and molasses, and ordinary salt shall be considered in works, musical compositions and similar creations, or his each calendar year thereafter, the amount of One million
their original state; services performed for the production of such works; pesos (P1,000,000) shall be adjusted to its present value using
(d) Sale or importation of fertilizers; seeds, seedlings and (o) Services rendered by individuals pursuant to an the Consumer Price Index, as published by the national
fingerlings; fish, prawn, livestock and poultry feeds, employer-employee relationship; Statistics Office (NSO);
including ingredients, whether locally produced or imported, (p) Services rendered by regional or area headquarters (x) Lease of a residential unit with a monthly rental not
used in the manufacture of finished feeds (except specialty established in the Philippines by multinational corporations exceeding Eight thousand pesos (P8,000); Provided, That not
feeds for race horses, fighting cocks, aquarium fish, zoo which act as supervisory, communications and coordinating later than January 31st of the calendar year subsequent to
animals and other animals generally considered as pets); centers for their affiliates, subsidiaries or branches in the the effectivity of Republic Act No. 8241 and each calendar
(e) Sale or importation of coal and natural gas, in whatever Asia-Pacific Region and do not earn or derive income from year thereafter, the amount of Eight thousand pesos (P8,000)
form or state, and petroleum products (except lubricating the Philippines; shall be adjusted to its present value using the Consumer
oil, processed gas, grease, wax and petrolatum) subject to (q) Transactions which are exempt under international Price Index as published by the National Statistics Office
excise tax imposed under Title VI; agreements to which the Philippines is a signatory or under (NS0);
(f) Sale or importation of raw materials to be used by the special laws, except those under Presidential Decree Nos. 66, (y) Sale, importation, printing or publication of books and
buyer or importer himself in the manufacture of petroleum 529 and 1590; any newspaper, magazine review or bulletin which appears
products subject to excise tax, except lubricating oil, (r) Sales by agricultural cooperatives duly registered with at regular intervals with fixed prices for subscription and
processed gas, grease, wax and petrolatum; the Cooperative Development Authority to their members as sale and which is not devoted principally to the publication
(g) Importation of passenger and/or cargo vessels of more well as sale of their produce, whether in its original state or of paid advertisements; and
than five thousand tons (5,000) whether coastwise or ocean- processed form, to non-members; their importation of direct (z) Sale or lease of goods or properties or the performance of
going, including engine and spare parts of said vessel to be farm inputs, machineries and equipment, including spare services other than the transactions mentioned in the
used by the importer himself as operator thereof; parts thereof, to be used directly and exclusively in the preceding paragraphs, the gross annual sales and/or receipts
(h) Importation of personal and household effects belonging production and/or processing of their produce; do not exceed the amount of Five hundred fifty thousand
to the residents of the Philippines returning from abroad and (s) Sales by electric cooperatives duly registered with the pesos (P550,000): Provided, That not later than January 31st
nonresident citizens coming to resettle in the Philippines: Cooperative Development authority or National of the calendar year subsequent to the effectivity of Republic
Provided, That such goods are exempt from customs duties Electrification Administration, relative to the generation and Act No. 8241 and each calendar year thereafter, the amount
under the Tariff and Customs Code of the Philippines; distribution of electricity as well as their importation of of Five hundred fifty thousand pesos (550,000) shall be
(i) Importation of professional instruments and implements, machineries and equipment, including spare parts, which adjusted to its present value using the Consumer Price
wearing apparel, domestic animals, and personal household shall be directly used in the generation and distribution of Index, as published by the National Statistics Office (NSO).
effects (except any vehicle, vessel, aircraft, machinery other electricity; The foregoing exemptions to the contrary notwithstanding,
goods for use in the manufacture and merchandise of any (t) Gross receipts from lending activities by credit or multi- any person whose sale of goods or properties or services
kind in commercial quantity) belonging to persons coming to purpose cooperatives duly registered with the Cooperative which are otherwise not subject to VAT, but who issues a

37
VAT invoice or receipt therefor shall, in addition to his Code. input tax equivalent to one and one-half percent (1 1/2%) of
liability to other applicable percentage tax, if any, be liable to (B) Excess Output or Input Tax.- If at the end of any taxable the contract price with respect to government contracts only
the tax imposed in Section 106 or 108 without the benefit of quarter the output tax exceeds the input tax, the excess shall in lieu of actual input taxes therefrom.
input tax credit, and such tax shall also be recognized as be paid by the VAT-registered person. SEC. 112. Refunds or Tax Credits of Input Tax. -
input tax credit to the purchaser under Section 110, all of If the input tax exceeds the output tax, the excess shall be (A) Zero-Rated or Effectively Zero-Rated Sales.- any VAT-
this Code. carried over to the succeeding quarter or quarters. registered person, whose sales are zero-rated or effectively
SEC. 110. Tax Credits. - any input tax attributable to the purchase of capital goods or zero-rated may, within two (2) years after the close of the
to zero-rated sales by a VAT-registered person may at his taxable quarter when the sales were made, apply for the
(A) Creditable Input Tax. - (1) Any input tax evidenced by a option be refunded or credited against other internal revenue issuance of a tax credit certificate or refund of creditable
VAT invoice or official receipt issued in accordance with taxes, subject to the provisions of Section 112. input tax due or paid attributable to such sales, except
Section 113 hereof on the following transactions shall be (C) Determination of Creditable Input Tax.- The sum of the transitional input tax, to the extent that such input tax has
creditable against the output tax: (a) Purchase or excess input tax carried over from the preceding month or not been applied against output tax: Provided, however, That
importation of goods: quarter and the input tax creditable to a VAT-registered in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(i) For sale; or person during the taxable month or quarter shall be reduced (2) and (B) and Section 108 (B)(1) and (2), the acceptable
(ii) For conversion into or intended to form part of a finished by the amount of claim for refund or tax credit for value- foreign currency exchange proceeds thereof had been duly
product for sale including packaging materials; or added tax and other adjustments, such as purchase returns accounted for in accordance with the rules and regulations of
(iii) For use as supplies in the course of business; or or allowances and input tax attributable to exempt sale. the Bangko Sentral ng Pilipinas (BSP): Provided, further,
(iv) For use as materials supplied in the sale of service; or cralaw That where the taxpayer is engaged in zero-rated or
(v) For use in trade or business for which deduction for The claim for tax credit referred to in the foregoing effectively zero-rated sale and also in taxable or exempt sale
depreciation or amortization is allowed under this Code, paragraph shall include not only those filed with the Bureau of goods of properties or services, and the amount of
except automobiles, aircraft and yachts. of Internal Revenue but also those filed with other creditable input tax due or paid cannot be directly and
(b) Purchase of services on which a value-added tax has been government agencies, such as the Board of Investments the entirely attributed to any one of the transactions, it shall be
actually paid. Bureau of Customs. allocated proportionately on the basis of the volume of sales.
(2) The input tax on domestic purchase of goods or SEC. 111. Transitional/Presumptive Input Tax Credits. - cralaw
properties shall be creditable: (a) To the purchaser upon (A) Transitional Input Tax Credits.- A person who becomes (B) Capital Goods.- A VAT-registered person may apply for
consummation of sale and on importation of goods or liable to value-added tax or any person who elects to be a the issuance of a tax credit certificate or refund of input
properties; and (b) To the importer upon payment of the VAT-registered person shall, subject to the filing of an taxes paid on capital goods imported or locally purchased, to
value-added tax prior to the release of the goods from the inventory according to rules and regulations prescribed by the extent that such input taxes have not been applied
custody of the Bureau of Customs. the Secretary of finance, upon recommendation of the against output taxes.
However, in the case of purchase of services, lease or use of Commissioner, be allowed input tax on his beginning The application may be made only within two (2) years after
properties, the input tax shall be creditable to the purchaser, inventory of goods, materials and supplies equivalent for the close of the taxable quarter when the importation or
lessee or licensee upon payment of the compensation, rental, eight percent (8%) of the value of such inventory or the purchase was made.
royalty or fee. actual value-added tax paid on such goods, materials and (C) Cancellation of VAT Registration. - A person whose
(3) A VAT-registered person who is also engaged in supplies, whichever is higher, which shall be creditable registration has been cancelled due to retirement from or
transactions not subject to the value-added tax shall be against the output tax. cralaw cessation of business, or due to changes in or cessation of
allowed tax credit as follows: (a) Total input tax which can be (B) Presumptive Input Tax Credits. - status under Section 106(C) of this Code may, within two (2)
directly attributed to transactions subject to value-added (1) Persons or firms engaged in the processing of sardines, years from the date of cancellation, apply for the issuance of
tax; and (b) A ratable portion of any input tax which cannot mackerel and milk, and in manufacturing refined sugar and a tax credit certificate for any unused input tax which may
be directly attributed to either activity. cooking oil, shall be allowed a presumptive input tax, be used in payment of his other internal revenue taxes.
The term "input tax" means the value-added tax due from creditable against the output tax, equivalent to one and one- (D) Period Within Which Refund or Tax Credit of Input
or paid by a VAT-registered person in the course of his trade half percent (1 1/2%) of the gross value in money of their Taxes Shall be Made. - In proper cases, the Commissioner
or business on importation of goods or local purchase of purchases of primary agricultural products which are used shall grant a refund or issue the tax credit certificate for
goods or services, including lease or use of property, from a as inputs to their production.As used in this Subsection, the creditable input taxes within one hundred twenty (120) days
VAT-registered person. term "processing" shall mean pasteurization, canning and from the date of submission of compete documents in
It shall also include the transitional input tax determined in activities which through physical or chemical process alter support of the application filed in accordance with
accordance with Section 111 of this Code.The term "output the exterior texture or form or inner substance of a product Subsections (A) and (B) hereof.
tax" means the value-added tax due on the sale or lease of in such manner as to prepare it for special use to which it In case of full or partial denial of the claim for tax refund or
taxable goods or properties or services by any person could not have been put in its original form or condition. tax credit, or the failure on the part of the Commissioner to
registered or required to register under Section 236 of this (2) Public works contractors shall be allowed a presumptive act on the application within the period prescribed above,

38
the taxpayer affected may, within thirty (30) days from the principal place of business or head office and all branches. shall be for the duration of not less than five (5) days and
receipt of the decision denying the claim or after the cralaw shall be lifted only upon compliance with whatever
expiration of the one hundred twenty day-period, appeal the (B) Where to File the Return and Pay the Tax. - Except as requirements prescribed by the Commissioner in the closure
decision or the unacted claim with the Court of Tax Appeals. the Commissioner otherwise permits, the return shall be order.
filed with and the tax paid to an authorized agent bank,
(E) Manner of Giving Refund. - Refunds shall be made upon Revenue Collection Officer or duly authorized city or TITLE V
warrants drawn by the Commissioner or by his duly municipal Treasurer in the Philippines located within the OTHER PERCENTAGE TAXES
authorized representative without the necessity of being revenue district where the taxpayer is registered or required SEC. 116. Tax on Persons Exempt From Value-Added Tax
countersigned by the Chairman, Commission on audit, the to register. cralaw (VAT). - Any person whose sales or receipts are exempt
provisions of the Administrative Code of 1987 to the (C) Withholding of Creditable Value-Added Tax. - The under Section 109(z) of this Code from the payment of value-
contrary notwithstanding: Provided, That refunds under this Government or any of its political subdivisions, added tax and who is not a VAT-registered person shall pay a
paragraph shall be subject to post audit by the Commission instrumentalities or agencies, including government-owned tax equivalent to three percent (3%) of his gross quarterly
on Audit. or -controlled corporations (GOCCs) shall, before making sales or receipts: Provided, That cooperatives shall be
CHAPTER II payment on account of each purchase of goods from sellers exempt from the three percent (3%)gross receipts tax herein
COMPLIANCE REQUIREMENTS and services rendered by contractors which are subject to imposed.
the value-added tax imposed in Sections 106 and 108 of this SEC. 117. Percentage Tax on Domestic Carriers and Keepers
SEC. 113. Invoicing and Accounting Requirements for VAT- Code, deduct and withhold the value-added tax due at the of Garages. - Cars for rent or hire driven by the lessee,
Registered Persons. - rate of three percent (3%) of the gross payment for the transportation contractors, including persons who transport
(A) Invoicing Requirements. - A VAT-registered person shall, purchase of goods and six percent (6%) on gross receipts for passengers for hire, and other domestic carriers by land, air
for every sale, issue an invoice or receipt. services rendered by contractors on every sale or installment or water, for the transport of passengers, except owners of
In addition to the information required under Section 237, payment which shall be creditable against the value-added bancas and owner of animal-drawn two wheeled vehicle, and
the following information shall be indicated in the invoice or tax liability of the seller or contractor: Provided, however, keepers of garages shall pay a tax equivalent to three percent
receipt: That in the case of government public works contractors, the (3%) of their quarterly gross receipts. cralaw
(1) A statement that the seller is a VAT-registered person, withholding rate shall be eight and one-half percent (8.5%): The gross receipts of common carriers derived from their
followed by his taxpayer's identification number (TIN); Provided, further, That the payment for lease or use of incoming and outgoing freight shall not be subjected to the
and(2) The total amount which the purchaser pays or is properties or property rights to nonresident owners shall be local taxes imposed under Republic Act No. 7160, otherwise
obligated to pay to the seller with the indication that such subject to ten percent (10%) withholding tax at the time of known as the Local Government Code of 1991. cralaw
amount includes the value-added tax. payment. In computing the percentage tax provided in this Section, the
(B) Accounting Requirements. - Notwithstanding the For this purpose, the payor or person in control of the following shall be considered the minimum quarterly gross
provisions of Section 233, all persons subject to the value- payment shall be considered as the withholding agent. receipts in each particular case:
added tax under Sections 106 and 108 shall, in addition to cralaw Jeepney for hire -
the regular accounting records required, maintain a The value-added tax withheld under this Section shall be 1. Manila and other cities P 2,400
subsidiary sales journal and subsidiary purchase journal on remitted within ten (10) days following the end of the month 2. Provincial 1,200
which the daily sales and purchases are recorded. the withholding was made. cralaw Public utility bus -
The subsidiary journals shall contain such information as SEC. 115. Power of the Commissioner to Suspend the Not exceeding 30 passengers 3,600
may be required by the Secretary of Finance. Business Operations of a Taxpayer. - The Commissioner or Exceeding 30 but not exceeding 50 passengers 6,000
SEC. 114. Return and Payment of Value-Added Tax. - his authorized representative is hereby empowered to Exceeding 50 passengers 7,200
(A) In General. - Every person liable to pay the value-added suspend the business operations and temporarily close the Taxis -
tax imposed under this Title shall file a quarterly return of business establishment of any person for any of the following 1. Manila and other cities P 3,600
the amount of his gross sales or receipts within twenty-five violations: 2. Provincial 2,400
(25) days following the close of each taxable quarter (a) In the case of a VAT-registered Person. - Car for hire (with chauffer) 3,000
prescribed for each taxpayer: Provided, however, That VAT- (1) Failure to issue receipts or invoices; Car for hire (without chauffer) 1,800
registered persons shall pay the value-added tax on a (2) Failure to file a value-added tax return as required under SEC. 118. Percentage Tax on International Carriers. -
monthly basis. cralaw Section 114; or (A) International air carriers doing business in the
Any person, whose registration has been cancelled in (3) Understatement of taxable sales or receipts by thirty Philippines shall pay a tax of three percent (3%) of their
accordance with Section 236, shall file a return and pay the percent (30%) or more of his correct taxable sales or receipts quarterly gross receipts. cralaw
tax due thereon within twenty-five (25) days from the date of for the taxable quarter. (B) International shipping carriers doing business in the
cancellation of registration: Provided, That only one (b) Failure of any Person to Register as Required under Philippines shall pay a tax equivalent to three percent (3%)
consolidated return shall be filed by the taxpayer for his Section 236. - The temporary closure of the establishment of their quarterly gross receipts. cralaw

39
SEC. 119. Tax on Franchises. - Any provision of general or association, radio or television newspaper broadcasting (1) Over four (4) years but not exceeding seven (7) 1%
special law to the contrary notwithstanding, there shall be agency, or newsticker service or to a bona fide (2) Over seven (7) years 0%
levied, assessed and collected in respect to all franchises on correspondent, which messages deal exclusively with the Provided, however, That in case the maturity period is
radio and/or television broadcasting companies whose collection of news items for, or the dissemination of news shortened thru pretermination, then the maturity period
annual gross receipts of the preceding year does not exceed item through, public press, radio or television broadcasting shall be reckoned to end as of the date of pretermination for
Ten million pesos (P10,000.00), subject to Section 236 of this or a newsticker service furnishing a general news service purposes of classifying the transaction as short, medium or
Code, a tax of three percent (3%) and on electric, gas and similar to that of the public press. long-term and the correct rate of tax shall be applied
water utilities, a tax of two percent (2%) on the gross SEC. 121. Tax on Banks and Non-Bank Financial accordingly.
receipts derived from the business covered by the law Intermediaries. - There shall be a collected tax on gross Nothing in this Code shall preclude the Commissioner from
granting the franchise: Provided, however, That radio and receipts derived from sources within the Philippines by all imposing the same tax herein provided on persons
television broadcasting companies referred to in this Section banks and non-bank financial intermediaries in accordance performing similar financing activities. cralaw
shall have an option to be registered as a value-added with the following schedule: SEC. 123. Tax on Life Insurance Premiums. - There shall be
taxpayer and pay the tax due thereon: Provided, further, (a) On interest, commissions and discounts from lending collected from every person, company or corporation (except
That once the option is exercised, it shall not be revoked. activities as well as income from financial leasing, on the purely cooperative companies or associations) doing life
cralaw basis of remaining maturities of instruments from which insurance business of any sort in the Philippines a tax of five
The grantee shall file the return with, and pay the tax due such receipts are derived: percent (5%) of the total premium collected, whether such
thereon to the Commissioner or his duly authorized Short-term maturity (non in excess of two (2) years) 5% premiums are paid in money, notes, credits or any substitute
representative, in accordance with the provisions of Section Medium-term maturity (over two (2) years but not exceeding for money; but premiums refunded within six (6) months
128 of this Code, and the return shall be subject to audit by four (4) years) 3% after payment on account of rejection of risk or returned for
the Bureau of Internal Revenue, any provision of any Long-term maturity - other reason to a person insured shall not be included in the
existing law to the contrary notwithstanding. cralaw (1) Over four (4) years but not exceeding seven (7) years 1% taxable receipts; nor shall any tax be paid upon reinsurance
SEC. 120. Tax on Overseas Dispatch, Message or (2) Over seven (7) years 0%. by a company that has already paid the tax; nor upon doing
Conversation Originating from the Philippines. - (b) On dividends 0% business outside the Philippines on account of any life
(A) Persons Liable. - There shall be collected upon every (c) On royalties, rentals of property, real or personal, profits, insurance of the insured who is a nonresident, if any tax on
overseas dispatch, message or conversation transmitted from from exchange and all other items treated as gross income such premium is imposed by the foreign country where the
the Philippines by telephone, telegraph, telewriter exchange, under Section 32 of this Code 5%. branch is established nor upon premiums collected or
wireless and other communication equipment service, a tax Provided, however, That in case the maturity period referred received on account of any reinsurance , if the insured, in
of ten percent (10%) on the amount paid for such services. to in paragraph (a) is shortened thru pretermination, then case of personal insurance, resides outside the Philippines, if
The tax imposed in this Section shall be payable by the the maturity period shall be reckoned to end as of the date of any tax on such premiums is imposed by the foreign country
person paying for the services rendered and shall be paid to pretermination for purposes of classifying the transaction as where the original insurance has been issued or perfected;
the person rendering the services who is required to collect short, medium or long-term and the correct rate of tax shall nor upon that portion of the premiums collected or received
and pay the tax within twenty (20) days after the end of each be applied accordingly. by the insurance companies on variable contracts (as defined
quarter. cralaw Nothing in this Code shall preclude the Commissioner from in section 232(2) of Presidential Decree No. 612), in excess of
(B) Exemptions. - The tax imposed by this Section shall not imposing the same tax herein provided on persons the amounts necessary to insure the lives of the variable
apply to: performing similar banking activities. cralaw contract workers. cralaw
(1) Government. - Amounts paid for messages transmitted by SEC. 122. Tax on Finance Companies. - There shall be Cooperative companies or associations are such as are
the Government of the Republic of the Philippines or any of collected a tax of five percent (5%) on the gross receipts conducted by the members thereof with the money collected
its political subdivisions or instrumentalities; (2) Diplomatic derived by all finance companies, as well as by other from among themselves and solely for their own protection
Services. - Amounts paid for messages transmitted by any financial intermediaries not performing quasi-banking and not for profit. cralaw
embassy and consular offices of a foreign government; (3) functions dong business in the Philippines, from interest, SEC. 124. Tax on Agents of Foreign Insurance Companies. -
International Organizations. - Amounts paid for messages discounts and all other items treated as gross income under Every fire, marine or miscellaneous insurance agent
transmitted by a public international organization or any of this Code: Provided, That interests, commissions and authorized under the Insurance Code to procure policies of
its agencies based in the Philippines enjoying privileges, discounts from lending activities, as well as income from insurance as he may have previously been legally authorized
exemptions and immunities which the Government of the financial leasing, shall be taxed on the basis of the remaining to transact on risks located in the Philippines for companies
Philippines is committed to recognize pursuant to an maturities of the instruments from which such receipts are not authorized to transact business in the Philippines shall
international agreement; and (4) News Services. - Amounts derived, in accordance with the following schedule: pay a tax equal to twice the tax imposed in Section 123:
paid for messages from any newspaper, press association, Short-term maturity (non in excess of two (2) years) 5% Provided, That the provision of this Section shall not apply
radio or television newspaper, broadcasting agency, or Medium-term maturity (over two (2) years but not exceeding to reinsurance: Provided, however, That the provisions of
newstickers services, to any other newspaper, press four (4) years) 3% Long-term maturity - this Section shall not affect the right of an owner of property

40
to apply for and obtain for himself policies in foreign SEC. 126. Tax on Winnings. - Every person who wins in Over thirty-three and one third percent (33 1/3%) 1%
companies in cases where said owner does not make use of horse races shall pay a tax equivalent to ten percent (10%) of The tax herein imposed shall be paid by the issuing
the services of any agent, company or corporation residing his winnings or 'dividends', the tax to be based on the actual corporation in primary offering or by the seller in secondary
or doing business in the Philippines. amount paid to him for every winning ticket after deducting offering.
In all cases where owners of property obtain insurance the cost of the ticket: Provided, That in the case of winnings For purposes of this Section, the term "closely held
directly with foreign companies, it shall be the duty of said from double, forecast/quinella and trifecta bets, the tax shall corporation" means any corporation at least fifty percent
owners to report to the Insurance Commissioner and to the be four percent (4%). (50%) in value of outstanding capital stock or at least fifty
Commissioner each case where insurance has been so In the case of owners of winning race horses, the tax shall be percent (505) of the total combined voting power of all
effected, and shall pay the tax of five percent (5%) on ten percent (10%) of the prizes. cralaw classes of stock entitled to vote is owned directly or indirectly
premiums paid, in the manner required by Section 123. The tax herein prescribed shall be deducted from the by or for not more than twenty (20) individuals. cralaw
cralaw 'dividends' corresponding to each winning ticket or the For purposes of determining whether the corporation is a
SEC. 125. Amusement Taxes. - There shall be collected from "prize" of each winning race horse owner and withheld by closely held corporation, insofar as such determination is
the proprietor, lessee or operator of cockpits, cabarets, night the operator, manager or person in charge of the horse races based on stock ownership, the following rules shall be
or day clubs, boxing exhibitions, professional basketball before paying the dividends or prizes to the persons entitled applied:
games, Jai-Alai and racetracks, a tax equivalent to: thereto. cralaw (1) Stock Not Owned by Individuals. - Stock owned directly
(a) Eighteen percent (18%) in the case of cockpits;(b) The operator, manager or person in charge of horse races or indirectly by or for a corporation, partnership, estate or
Eighteen percent (18%) in the case of cabarets, night or day shall, within twenty (20) days from the date the tax was trust shall be considered as being owned proportionately by
clubs;(c) Ten percent (10%) in the case of boxing exhibitions: deducted and withheld in accordance with the second its shareholders, partners or beneficiaries.
Provided, however, That boxing exhibitions wherein World paragraph hereof, file a true and correct return with the (2) Family and Partnership Ownerships. - An individual
or Oriental Championships in any division is at stake shall Commissioner in the manner or form to be prescribed by the shall be considered as owning the stock owned, directly or
be exempt from amusement tax: Provided, further, That at Secretary of Finance, and pay within the same period the indirectly, by or for his family, or by or for his partner.
least one of the contenders for World or Oriental total amount of tax so deducted and withheld. cralaw For purposes of the paragraph, the 'family of an individual'
Championship is a citizen of the Philippines and said SEC. 127. Tax on Sale, Barter or Exchange of Shares of includes only his brothers and sisters (whether by whole or
exhibitions are promoted by a citizen/s of the Philippines or Stock Listed and Traded Through the Local Stock Exchange half-blood), spouse, ancestors and lineal descendants.
by a corporation or association at least sixty percent (60%) or Through Initial Public Offering. - (3) Option. - If any person has an option acquire stock, such
of the capital of which is owned by such citizens;(d) Fifteen (A) Tax on Sale, Barter or Exchange of Shares of Stock stock shall be considered as owned by such person.
percent (15%) in the case of professional basketball games as Listed and Traded Through the Local Stock Exchange. - For purposes of this paragraph, an option to acquire such an
envisioned in Presidential Decree No. 871: Provided, There shall be levied, assessed and collected on every sale, option and each one of a series of options shall be considered
however, That the tax herein shall be in lieu of all other barter, exchange, or other disposition of shares of stock listed as an option to acquire such stock.
percentage taxes of whatever nature and description; and(e) and traded through the local stock exchange other than the (4) Constructive Ownership as Actual Ownership. - Stock
Thirty percent (30%) in the case of Jai-Alai and racetracks sale by a dealer in securities, a tax at the rate of one-half of constructively owned by reason of the application of
of their gross receipts, irrespective, of whether or not any one percent (1/2 of 1%) of the gross selling price or gross paragraph (1) or (3) hereof shall, for purposes of applying
amount is charged for admission. value in money of the shares of stock sold, bartered, paragraph (1) or (2), be treated as actually owned by such
For the purpose of the amusement tax, the term "gross exchanged or otherwise disposed which shall be paid by the person; but stock constructively owned by the individual by
receipts" embraces all the receipts of the proprietor, lessee or seller or transferor. cralaw reason of the application of paragraph (2) hereof shall not be
operator of the amusement place. (B) Tax on Shares of Stock Sold or Exchanged Through treated as owned by him for purposes of again applying such
Said gross receipts also include income from television, radio Initial Public Offering. - There shall be levied, assessed and paragraph in order to make another the constructive owner
and motion picture rights, if any. collected on every sale, barter, exchange or other disposition of such stock.
A person or entity or association conducting any activity through initial public offering of shares of stock in closely (C) Return on Capital Gains Realized from Sale of Shares of
subject to the tax herein imposed shall be similarly liable for held corporations, as defined herein, a tax at the rates Stocks. - (1) Return on Capital Gains Realized from Sale of
said tax with respect to such portion of the receipts derived provided hereunder based on the gross selling price or gross Shares of Stock Listed and Traded in the Local Stock
by him or it. value in money of the shares of stock sold, bartered, Exchange. - It shall be the duty of every stock broker who
The taxes imposed herein shall be payable at the end of each exchanged or otherwise disposed in accordance with the effected the sale subject to the tax imposed herein to collect
quarter and it shall be the duty of the proprietor, lessee or proportion of shares of stock sold, bartered, exchanged or the tax and remit the same to the Bureau of Internal
operator concerned, as well as any party liable, within otherwise disposed to the total outstanding shares of stock Revenue within five (5) banking days from the date of
twenty (20) days after the end of each quarter, to make a true after the listing in the local stock exchange: collection thereof and to submit on Mondays of each week to
and complete return of the amount of the gross receipts Up to twenty-five percent (25%)& 4% the secretary of the stock exchange, of which he is a member,
derived during the preceding quarter and pay the tax due Over twenty-five percent (25%) but not over thirty-three a true and complete return which shall contain a declaration
thereon. cralaw and one third percent (33 1/3%) 2% of all the transactions effected through him during the

41
preceding week and of taxes collected by him and turned that the books of accounts or other records do not correctly the excise tax shall be paid by the first buyer, purchaser or
over to the Bureau Of Internal Revenue. reflect the declarations made or to be made in a return transferee for local sale, barter or transfer, while the excise
(2) Return on Public Offerings of Share Stock. - In case of required to be filed under the provisions of this Code, the tax on exported products shall be paid by the owner, lessee,
primary offering, the corporate issuer shall file the return Commissioner, after taking into account the sales, receipts or concessionaire or operator of the mining claim.Should
and pay the corresponding tax within thirty (30) days from other taxable base of other persons engaged in similar domestic products be removed from the place of production
the date of listing of the shares of stock in the local stock businesses under similar situations or circumstances, or after without the payment of the tax, the owner or person having
exchange. considering other relevant information may prescribe a possession thereof shall be liable for the tax due thereon.
In the case of secondary offering, the provision of Subsection minimum amount of such gross receipts, sales and taxable (2) Time for Filing of Return and Payment of the Tax. -
(C)(1) of this Section shall apply as to the time and manner base and such amount so prescribed shall be prima facie Unless otherwise specifically allowed, the return shall be
of the payment of the tax. correct for purposes of determining the internal revenue tax filed and the excise tax paid by the manufacturer or
(D) Common Provisions. - Any gain derived from the sale, liabilities of such person. producer before removal of domestic products form place of
barter, exchange or other disposition of shares of stock under (B) Where to File. - Except as the Commissioner otherwise production: Provided, That the excise tax on locally
this Section shall be exempt from the tax imposed in Sections permits, every person liable to the percentage tax under this manufactured petroleum products and indigenous petroleum
24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code and Title may, at his option, file a separate return for each levied under Sections 148 and 151(A)(4), respectively, of this
from the regular individual or corporate income tax. branch or place of business, or a consolidated return for all Title shall be paid within ten (10) days from the date of
Tax paid under this Section shall not be deductible for branches or places of business with the authorized agent removal of such products for the period from January 1,
income tax purposes. bank, Revenue District Officer, Collection Agent or duly 1998 to June 30, 1998; within five (5) days from the date of
SEC. 128. Returns and Payment of Percentage Taxes. - (A) authorized Treasurer of the city or municipality where said removal of such products for the period from July 1, 1998 to
Returns of Gross Sales, Receipts or Earnings and Payment of business or principal place of business is located, as the case December 31, 1998; and, before removal from the place of
Tax. - may be. production of such products from January 1, 1999 and
(1) Persons Liable to Pay Percentage Taxes. - Every person thereafter: Provided, further, That the excise tax on
subject to the percentage taxes imposed under this Title shall TITLE VI nonmetallic mineral or mineral products, or quarry
file a quarterly return of the amount of his gross sales, EXCISE TAXES ON CERTAIN GOODS resources shall be due and payable upon removal of such
receipts or earnings and pay the tax due thereon within CHAPTER I products from the locality where mined or extracted, but
twenty-five (25) days after the end of each taxable quarter: GENERAL PROVISIONS with respect to the excise tax on locally produced or
Provided, That in the case of a person whose VAT extracted metallic mineral or mineral products, the person
registration is cancelled and who becomes liable to the tax SEC. 129. Goods Subject to Excise Taxes. - Excise taxes liable shall file a return and pay the tax within fifteen (15)
imposed in Section 116 of this Code, the tax shall accrue apply to goods manufactured or produced in the Philippines days after the end of the calendar quarter when such
from the date of cancellation and shall be paid in accordance for domestic sales or consumption or for any other products were removed subject to such conditions as may be
with the provisions of this Section. disposition and to things imported. prescribed by rules and regulations to be promulgated by the
(2) Person Retiring from Business. - Any person retiring The excise tax imposed herein shall be in addition to the Secretary of Finance, upon recommendation of the
from a business subject to percentage tax shall notify the value-added tax imposed under Title IV. Commissioner.
nearest internal revenue officer, file his return and pay the For purposes of this Title, excise taxes herein imposed and For this purpose, the taxpayer shall file a bond in an amount
tax due thereon within twenty (20) days after closing his based on weight or volume capacity or any other physical which approximates the amount of excise tax due on the
business. unit or measurement shall be referred to as "specific tax" removals for the said quarter.
(3) Exceptions. - The Commissioner may, by rules and and an excise tax herein imposed and based on selling price The foregoing rules notwithstanding, for imported mineral
regulations, prescribe: or other specified value of the good shall be referred to as or mineral products, whether metallic or nonmetallic, the
(a) The time for filing the return at intervals other than the "ad valorem tax". excise tax due thereon shall be paid before their removal
time prescribed in the preceding paragraphs for a particular SEC. 130. Filing of Return and Payment of Excise Tax on from customs custody.
class or classes of taxpayers after considering such factors as Domestic Products. - (3) Place of Filing of Return and Payment of the Tax. -
volume of sales, financial condition, adequate measures of (A) Persons Liable to File a Return, Filing of Return on Except as the Commissioner otherwise permits, the return
security, and such other relevant information required to be Removal and Payment of Tax. - shall be filed with and the tax paid to any authorized agent
submitted under the pertinent provisions of this Code; and (1) Persons Liable to File a Return. - Every person liable to bank or Revenue Collection Officer, or duly authorized City
(b) The manner and time of payment of percentage taxes pay excise tax imposed under this Title shall file a separate or Municipal Treasurer in the Philippines.
other than as hereinabove prescribed, including a scheme of return for each place of production setting forth, among (4) Exceptions. - The Secretary of Finance, upon
tax prepayment. others, the description and quantity or volume of products to recommendation of the Commissioner may, by rules and
(4) Determination of Correct Sales or Receipts. - When it is be removed, the applicable tax base and the amount of tax regulations, prescribe:
found that a person has failed to issue receipts or invoices, or due thereon: Provided, however, That in the case of (a) The time for filing the return at intervals other than the
when no return is filed, or when there is reason to believe indigenous petroleum, natural gas or liquefied natural gas, time prescribed in the preceding paragraphs for a particular

42
class or classes of taxpayers after considering factors such as receipt of the corresponding foreign exchange payment: machinery, equipment and other similar articles, from one
volume of removals, adequate measures of security and such Provided, That the excise tax on mineral products, except freeport to another freeport, shall not be deemed an
other relevant information required to be submitted under coal and coke, imposed under Section 151 shall not be introduction into the Philippine customs territory.Articles
the pertinent provisions of this Code; and (b) The manner creditable or refundable even if the mineral products are confiscated shall be disposed of in accordance with the rules
and time of payment of excise taxes other than as herein actually exported. cralaw and regulations to be promulgated by the Secretary of
prescribed, under a tax prepayment, advance deposit or SEC. 131. Payment of Excise Taxes on Importer Articles. - Finance, upon recommendation of the Commissioner of
similar schemes. (A) Persons Liable.- Excise taxes on imported articles shall Customs and Internal Revenue, upon consultation with the
In the case of locally produced of extracted minerals and be paid by the owner or importer to the Customs Officers, Secretary of Tourism and the General manager of the
mineral products or quarry resources where the mine site or conformably with the regulations of the Department of Philippine Tourism Authority.The tax due on any such
place of extraction is not the same as the place of processing Finance and before the release of such articles from the goods, products, machinery, equipment or other similar
or production, the return shall be filed with and the tax paid customs house, or by the person who is found in possession articles shall constitute a lien on the article itself, and such
to the Revenue District Office having jurisdiction over the of articles which are exempt from excise taxes other than lien shall be superior to all other charges or liens,
locality where the same are mined, extracted or quarried: those legally entitled to exemption.In the case of tax-free irrespective of the possessor thereof.
Provided, however, That for metallic minerals processed articles brought or imported into the Philippines by persons, (B) Rate and Basis of the Excise Tax on Imported Articles.-
abroad, the return shall be filed and the tax due thereon paid entitles, or agencies exempt from tax which are subsequently Unless otherwise specified imported articles shall be subject
to the Revenue District Office having jurisdiction over the sold, transferred or exchanged in the Philippines to non- to the same rates and basis of excise taxes applicable to
locality where the same are mined, extracted or quarried. exempt persons or entitles, the purchasers or recipients shall locally manufactured articles.
(B) Determination of Gross Selling Price of Goods Subject to be considered the importers thereof, and shall be liable for SEC. 132. Mode of Computing Contents of Cask or Package.
Ad Valorem Tax. - Unless otherwise provided, the price, the duty and internal revenue tax due on such - Every fractional part of a proof liter equal to or greater
excluding the value-added tax, at which the goods are sold at importation.The provision of any special or general law to than a half liter in a cask or package containing more than
wholesale in the place of production or through their sales the contrary notwithstanding, the importation of cigars and one liter shall be taxed as a liter, and any smaller fractional
agents to the public shall constitute the gross selling price. cigarettes, distilled spirits and wines into the Philippines, part shall be exempt; but any package of spirits, the total
If the manufacturer also sells or allows such goods to be sold even if destined for tax and duty free shops, shall be subject content of which are less than a proof liter, shall be taxed as
at wholesale in another establishment of which he is the to all applicable taxes, duties, charges, including excise taxes one liter.
owner or in the profits of which he has an interest, the due thereon: Provided, however, That this shall not apply to CHAPTER II
wholesale price in such establishment shall constitute the cigars and cigarettes, distilled spirits and wines brought EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL
gross selling price. directly into the duly chartered or legislated freeports of the OF CERTAIN ARTICLES
Should such price be less than the cost of manufacture plus Subic Special Economic and Freeport Zone, crated under
expenses incurred until the goods are finally sold, then a Republic Act No. 7227; the Cagayan Special Economic Zone SEC. 133. Removal of Wines and Distilled Spirits for
proportionate margin of profit, not less than ten percent and Freeport, created under Republic Act No. 7922; and the Treatment of Tobacco Leaf. - Upon issuance of a permit from
(10%) of such manufacturing cost and expenses, shall be Zamboanga City Special Economic Zone, created under the Commissioner and subject to the rules and regulations
added to constitute the gross selling price. Republic Act No. 7903, and are not transshipped to any other prescribed by the Secretary of Finance, manufacturers of
(C) Manufacturer's or Producer's Sworn Statement. - Every port in the Philippines: Provided, further, That importations cigars and cigarettes may withdraw from bond, free of excise
manufacturer or producer of goods or products subject to of cigars and cigarettes, distilled spirits and wines by a local and imported wines and distilled spirits in specific
excise taxes shall file with the Commissioner on the date or government-owned and operated duty-free shop, like the quantities and grades for use in the treatment of tobacco leaf
dates designated by the latter, and as often as may be Duty-Free Philippines (DFP), shall be exempted from all to be used in the manufacture of cigars and cigarettes; but
required, a sworn statement showing, among other applicable taxes, duties, charges, including excise tax due such wines and distilled spirits must first be suitably
information, the different goods or products manufactured thereon: Provided, still further, That if such articles directly denatured.
or produced and their corresponding gross selling price or imported by a government-owned and operated duty-free SEC. 134. Domestic Denatured Alcohol. - Domestic alcohol of
market value, together with the cost of manufacture or shop like the Duty-Free Philippines, shall be labeled "tax not less than one hundred eighty degrees (180O) proof
production plus expenses incurred or to be incurred until the and duty-free" and "not for resale": Provided, still further, (ninety percent [90%] absolute alcohol) shall, when suitably
goods or products are finally sold. cralaw That is such articles brought into the duly chartered or denatured and rendered unfit for oral intake, be exempt
(D) Credit for Excise Tax on Goods Actually Exported.- legislated freeports under Republic Acts No. 7227, 7922 and from the excise tax prescribed in Section 141: Provided,
When goods locally produced or manufactured are removed 7903 are subsequently introduced into the Philippine however, That such denatured alcohol shall be subject to tax
and actually exported without returning to the Philippines, customs territory, then such articles shall, upon such under Section 106(A) of this Code: Provided, further, That if
whether so exported in their original state or as ingredients introduction, be deemed imported into the Philippines and such alcohol is to be used for automotive power, it shall be
or parts of any manufactured goods or products, any excise shall be subject to all imposts and excise taxes provided taxed under Section 148(d) of this Code: Provided, finally,
tax paid thereon shall be credited or refunded upon herein and other statutes: Provided, finally, That the removal That any alcohol, previously rendered unfit for oral intake
submission of the proof of actual exportation and upon and transfer of tax and duty-free goods, products, after denaturing but subsequently rendered fit for oral

43
intake after undergoing fermentation, dilution, purification, brewery or other place of manufacture to a bonded (a) If produced from the sap of nipa, coconut, cassava,
mixture or any other similar process shall be taxed under warehouse used by him exclusively for the storage or sale in camote, or buri palm or from the juice,syrup or sugar of the
Section 141 of this Code and such tax shall be paid by the bulk of fermented liquors of his own manufacture, any cane, provided such materials are produced commercially in
person in possession of such reprocessed spirits. quantity of such fermented liquors, not less than one the country where they are processed into distilled spirits,
SEC. 135. Petroleum Products Sold to International Carriers thousand (1,000) liters at one removal, without prepayment per proof liter, Eight pesos (P8.00): Provided, That if
and Exempt Entities or Agencies. - Petroleum products sold of the tax thereon under a permit which shall be granted by produced in a pot still or other similar primary distilling
to the following are exempt from excise tax: (a) International the Commissioner. apparatus by a distiller producing not more than one
carriers of Philippine or foreign registry on their use or Such permit shall be affixed to every package so removed hundred (100) liters a day, containing not more than fifty
consumption outside the Philippines: Provided, That the and shall be cancelled or destroyed in such manner as the percent (50%) of alcohol by volume, per proof liter, Four
petroleum products sold to these international carriers shall Commissioner may prescribe. pesos (P4.00);
be stored in a bonded storage tank and may be disposed of Thereafter, the manufacturer of such fermented liquors shall (b) If produced from raw materials other than those
only in accordance with the rules and regulations to be pay the tax in the same manner and under the same penalty enumerated in the preceding paragraph, the tax shall be in
prescribed by the Secretary of Finance, upon and liability as when paid at the brewery. accordance with the net retail price per bottle of seven
recommendation of the Commissioner; (b) Exempt entities hundred fifty milliliter (750 ml.) volume capacity (excluding
or agencies covered by tax treaties, conventions and other SEC. 139. Removal of Damaged Liquors Free of Tax. - When the excise tax and the value-added tax) as follows:
international agreements for their use or consumption: any fermented liquor has become sour or otherwise damaged (1) Less than Two hundred and fifty pesos (P250) - Seventy-
Provided, however, That the country of said foreign so as to be unfit for use as such, brewers may sell and after five pesos (P75), per proof liter;
international carrier or exempt entities or agencies exempts securing a special permit from the Commissioner, under (2) Two hundred and fifty pesos (P250) up to Six hundred
from similar taxes petroleum products sold to Philippine such conditions as may be prescribed in the rules and and Seventy-Five pesos (P675) - One hundred and fifty pesos
carriers, entities or agencies; and (c) Entities which are by regulations prescribed by the Secretary of Finance, remove (P150), per proof liter; and
law exempt from direct and indirect taxes. the same without the payment of tax thereon in cask or other (3) More than Six hundred and seventy-five pesos (P675) -
SEC. 136. Denaturation, Withdrawal and Use of Denatured packages, distinct from those ordinarily used for fermented Three hundred pesos (P300), per proof liter.
Alcohol. - Any person who produces, withdraws, sells, liquors, each containing not less than one hundred seventy- (c) Medicinal preparations, flavoring extracts, and all other
transports or knowingly uses, or is in possession of five (175) liters with a note of their contents permanently preparations, except toilet preparations, of which, excluding
denatured alcohol, or articles containing denatured alcohol affixed thereon. water, distilled spirits for the chief ingredient, shall be
in violation of laws or regulations now or hereafter in force subject to the same tax as such chief ingredient.
pertaining thereto shall be required to pay the corresponding SEC. 140. Removal of Tobacco Products Without This tax shall be proportionally increased for any strength of
tax, in addition to the penalties provided for under Title X of Prepayment of Tax. - Products of tobacco entirely unfit for the spirits taxed over proof spirits, and the tax shall attach to
this Code. chewing or smoking may be removed free of tax for this substance as soon as it is in existence as such, whether it
agricultural or industrial use, under such conditions as may be subsequently separated as pure or impure spirits, or
SEC. 137. Removal of Spirits Under Bond for Rectification. - be prescribed in the rules and regulations prescribed by the transformed into any other substance either in the process of
Spirits requiring rectification may be removed from the Secretary of Finance. original production or by any subsequent process"Spirits or
place of production to another establishment for the purpose Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut distilled spirits" is the substance known as ethyl alcohol,
of rectification without prepayment of the excise tax: chewing tobacco, scraps, cuttings, clippings, stems, or ethanol or spirits of wine, including all dilutions,
Provided, That the distiller removing such spirits and the midribs, and sweepings of tobacco may be sold in bulk as purifications and mixtures thereof, from whatever source, by
rectifier receiving them shall file with the Commissioner raw material by one manufacturer directly to another whatever process produced, and shall include whisky,
their joint bond conditioned upon the payment by the without payment of the tax, under such conditions as may be brandy, rum, gin and vodka, and other similar products or
rectifier of the excise tax due on the rectified alcohol: prescribed in the rules and regulations prescribed by the mixtures.
Provided, further, That in cases where alcohol has already Secretary of Finance. cralaw"Proof spirits" is liquor containing one-half (1/2) of its
been rectified either by original and continuous distillation volume of alcohol of a specific gravity of seven thousand nine
or by redistillation, no loss for rectification and handling "Stemmed leaf tobacco", as herein used, means leaf tobacco hundred and thirty-nine thousandths (0.7939) at fifteen
shall be allowed and the rectifier thereof shall pay the excise which has had the stem or midrib removed. degrees centigrade (15O C).
tax due on such losses: Provided, finally, That where a The term does not include broken leaf tobacco. A "proof liter" means a liter of proof spirits. cralaw
rectifier makes use of spirits upon which the excise tax has The rates of tax imposed under this Section shall be
not been paid, he shall be liable for the payment of the tax CHAPTER III increased by twelve percent (12%) on January 1, 2000.
otherwise due thereon. EXCISE TAX ON ALCOHOL PRODUCTS cralaw
SEC. 141. Distilled Spirits. - On distilled spirits, there shall New brands shall be classified according to their current
SEC. 138. Removal of Fermented Liquors to Bonded be collected, subject to the provisions of Section 133 of this "net retail price".
Warehouse. - Any brewer may remove or transport from his Code, excise taxes as follows: For the above purpose, "net retail price" shall mean the

44
price at which the distilled spirit is sold on retail in ten (10) value-added tax) the per liter of volume capacity is Fourteen his establishment for the three-month period immediately
major supermarkets in Metro Manila, excluding the amount pesos and fifty centavos (P14.50) up to Twenty-two pesos preceding. cralaw
intended to cover the applicable excise tax and the value- (P22.00), the tax shall be Nine pesos and fifteen centavos Any brewer or importer who, in violation of this Section,
added tax as of October 1, 1996. cralaw (P9.15) per liter; knowingly misdeclares or misrepresents in his or its sworn
The classification of each brand of distilled spirits based on (c) If the net retail price (excluding the excise tax and the statement herein required any pertinent data or information
the average net retail price as of October 1, 1996, as set forth value-added tax) per liter of volume capacity is more than shall be penalized by a summary cancellation or withdrawal
in Annex "A", shall remain in force until revised by Twenty-two pesos (P22.00), the tax shall be Twelve pesos and of his or its permit to engage in business as brewer or
Congress. fifteen centavos (P12.15) per liter. importer of fermented liquor. cralaw
SEC. 142. Wines. - On wines, there shall be collected per liter Variants of existing brands which are introduced in the Any corporation, association or partnership liable for any of
of volume capacity, the following taxes: domestic market after the effectivity of Republic Act No. the acts or omissions in violation of this Section shall be fined
(a) Sparkling wines/champagnes regardless of proof, if the 8240 shall be taxed under the highest classification of any treble the amount of deficiency taxes, surcharge, and interest
net retail price per bottle (excluding the excise tax and value- variant of that brand. which may be assessed pursuant to this Section. cralaw
added tax) is: Fermented liquor which are brewed and sold at micro- Any person liable for any of the acts or omissions prohibited
(1) Five hundred pesos (P500) or less - One hundred pesos breweries or small establishments such as pubs and under this Section shall be criminally liable and penalized
(P100); and restaurants shall be subject to the rate in paragraph (c) under Section 254 of this Code.
(2) More than Five hundred pesos (P500) - Three hundred hereof. cralaw Any person who willfully aids or abets in the commission of
pesos (P300). The excise tax from any brand of fermented liquor within any such act or omission shall be criminally liable in the
(b) Still wines containing fourteen percent (14%) of alcohol the next three (3) years from the effectivity of Republic Act same manner as the principal.
by volume or less, Twelve pesos (P12.00); and No. 8240 shall not be lower than the tax which was due from If the offender is not a citizen of the Philippines, he shall be
(c) Still wines containing more than fourteen percent (14%) each brand on October 1, 1996. cralaw deported immediately after serving the sentence, without
but not more than twenty-five percent (25%) of alcohol by The rates of excise tax on fermented liquor under further proceedings for deportation.
volume, Twenty-four pesos (P24.00). paragraphs (a), (b) and (c) hereof shall be increased by CHAPTER IV
Fortified wines containing more than twenty-five percent of twelve percent (12%) on January 1, 2000. cralaw EXCISE TAX ON TOBACCO PRODUCTS
alcohol by volume shall be taxed as distilled spirits. New brands shall be classified according to their current net SEC. 144. Tobacco Products. - There shall be collected a tax
"Fortified wines" shall mean natural wines to which distilled retail price. cralaw of seventy-five centavos (P0.75) on each kilogram of the
spirits are added to increase their alcoholic strength. For the above purpose, "net retail price" shall mean the following products of tobacco:
The rates of tax imposed under this Section shall be price at which the fermented liquor is sold on retail in twenty (a) Tobacco twisted by hand or reduced into a condition to be
increased by twelve percent (12%) on January 1, 2000. (20) major supermarkets in Metro Manila (for brands of consumed in any manner other than the ordinary mode of
cralaw fermented liquor marketed nationally) excluding the amount drying and curing;
New brands shall be classified according to their current net intended to cover the applicable excise tax and the value- (b) Tobacco prepared or partially prepared with or without
retail price. cralaw added tax. the use of any machine or instruments or without being
For the above purpose, "net retail price" shall mean the For brands which are marketed only outside Metro Manila, pressed or sweetened; and
price at which wine is sold on retail in ten (10) major the "net retail price" shall mean the price at the which the (c) Fine-cut shorts and refuse, scraps, clippings, cuttings,
supermarkets in Metro Manila, excluding the amount fermented liquor is sold in five (5) major supermarkets in the stems and sweepings of tobacco.
intended to cover the applicable excise tax and the value- region excluding the amount intended to cover the applicable Fine-cut shorts and refuse, scraps, clippings, cuttings, stems
added tax as of October 1, 1996. cralaw excise tax and the value-added tax. cralaw and sweepings of tobacco resulting from the handling or
The classification of each brand of wines based on its The classification of each brand of fermented liquor based stripping of whole leaf tobacco may be transferred, disposed
average net retail price as of October 1, 1996, as set forth in on its average net retail price as of October 1, 1996, as set of, or otherwise sold, without prepayment of the excise tax
Annex "B", shall remain in force until revised by Congress. forth in Annex "C", shall remain in force until revised by herein provided for under such conditions as may be
SEC. 143. Fermented Liquor. - There shall be levied, Congress. prescribed in the rules and regulations promulgated by the
assessed and collected an excise tax on beer, lager beer, ale, cralaw"A variant of brand" shall refer to a brand on which Secretary of Finance, upon recommendation of the
porter and other fermented liquors except tuba, basi, tapuy a modifier is prefixed and/or suffixed to the root name of the Commissioner, if the same are to be exported or to be used in
and similar domestic fermented liquors in accordance with brand and/or a different brand which carries the same logo the manufacture of other tobacco products on which the
the following schedule: or design of the existing brand. cralaw excise tax will eventually be paid on the finished product.
(a) If the net retail price (excluding the excise tax and value- Every brewer or importer of fermented liquor shall, within On tobacco specially prepared for chewing so as to be
added tax) per liter of volume capacity is less than Fourteen thirty (30) days from the effectivity of R. A. No. 8240, and unsuitable for use in any other manner, on each kilogram,
pesos and fifty centavos (P14.50), the tax shall be Six pesos within the first five (5) days of every month thereafter, Sixty centavos (P0.60).
and fifteen centavos (P6.15) per liter; submit to the Commissioner a sworn statement of the volume SEC. 145. Cigars and Cigarettes. -
(b) If the net retail price (excluding the excise tax and the of sales for each particular brand of fermented liquor sold at (A) Cigars.- There shall be levied, assessed and collected on

45
cigars a tax of One peso (P1.00) per cigar. cralaw added tax. and other tobacco products as defined in Section 147 of this
(B) Cigarettes Packed by Hand.- There shall be levied, For brands which are marketed only outside Metro Manila, Code shall be paid by the wholesaler, manufacturer,
assessed and collected on cigarettes packed by hand a tax of the "net retail price" shall mean the price at which the producer, owner or operator of redrying plant, as the case
Forty centavos (P0.40) per pack. cralaw cigarette is sold in five (5) major supermarkets in the region may be, immediately before removal there of from the
(C) Cigarettes Packed by Machine. - There shall be levied, excluding the amount intended to cover the applicable excise establishment of the wholesaler, manufacturer, owner or
assessed and collected on cigarettes packed by machine a tax tax and the value-added tax. cralaw operator of the redrying plant.
at the rates prescribed below: The classification of each brand of cigarettes based on its In case of imported leaf tobacco and products thereof, the
(1) If the net retail price (excluding the excise tax and the average net retail price as of October 1, 1996, as set forth in inspection fee shall be paid by the importer before removal
value-added tax) is above Ten pesos (P10.00) per pack, the Annex "D", shall remain in force until revised by Congress. from customs' custody. cralaw
tax shall be Twelve pesos (P12.00) per pack; cralaw"Variant of a brand" shall refer to a brand on which a Fifty percent (50%) of the tobacco inspection fee shall accrue
(2) If the net retail price (excluding the excise tax and the modifier is prefixed and/or suffixed to the root name of the to the Tobacco Inspection Fund created by Section 12 of Act
value-added tax) exceeds Six pesos and fifty centavos (P6.50) brand and/or a different brand which carries the same logo No. 2613, as amended by Act No. 3179, and fifty percent
but does not exceed Ten pesos (P10.00) per pack, the tax shall or design of the existing brand. cralaw (50%) shall accrue to the Cultural Center of the Philippines.
be Eight pesos (8.00) per pack; Manufactures and importers of cigars and cigarettes shall, SEC. 147. Definition of Terms. - When used herein and in
(3) If the net retail price (excluding the excise tax and the within thirty (30) days from the effectivity of R. A. No. 8240 statements or official forms prescribed hereunder, the
value-added tax) is Five pesos (P5.00) but does not exceed and within the first five (5) days of every month thereafter following terms shall have the meaning indicated:
Six pesos and fifty centavos (P6.50) per pack, the tax shall be submit to the Commissioner a sworn statement of the volume (a) "Cigars" mean all rolls of tobacco or any substitute
Five pesos (P5.00) per pack; of sales for each particular brand of cigars and/or cigarettes thereof, wrapped in leaf tobacco.
(4) If the net retail price (excluding the excise tax and the sold at his establishment for the three-month period (b) "Cigarettes" mean all rolls of finely-cut leaf tobacco, or
value-added tax is below Five pesos (P5.00) per pack, the tax immediately preceding. cralaw any substitute therefor, wrapped in paper or in any other
shall be One peso (P1.00) per pack; Any manufacturer or importer who, in violation of this material.
Variants of existing brands of cigarettes which are Section, knowingly misdeclares or misrepresents in his or its (c) "Wholesale price" shall mean the amount of money or
introduced in the domestic market after the effectivity of sworn statement herein required any pertinent data or price paid for cigars or cigarettes purchased for the purpose
R.A. No. 8240 shall be taxed under the highest classification information shall, upon discovery, be penalized by a of resale, regardless of quantity.
of any variant of that brand. summary cancellation or withdrawal of his or its permit to (d) "Retail price" shall mean the amount of money or price
The excise tax from any brand of cigarettes within the next engage in business as manufacturer or importer of cigars or which an ultimate consumer or end-user pays for cigars or
three (3) years from the effectivity of R. A. No. 8240 shall not cigarettes. cralaw cigarettes purchased.
be lower than the tax, which is due from each brand on Any corporation, association or partnership liable for any of CHAPTER V
October 1, 1996: Provided, however, That in cases where the the acts or omissions in violation of this Section shall be fined EXCISE TAX ON PETROLEUM PRODUCTS
excise tax rates imposed in paragraphs (1), (2), (3) and (4) treble the amount of deficiency taxes, surcharges and interest SEC. 148. Manufactured Oils and Other Fuels. - There shall
hereinabove will result in an increase in excise tax of more which may be assessed pursuant to this Section. cralaw be collected on refined and manufactured mineral oils and
than seventy percent (70%); for a brand of cigarette, the Any person liable for any of the acts or omissions prohibited motor fuels, the following excise taxes which shall attach to
increase shall take effect in two tranches: fifty percent (50%) under this Section shall be criminally liable and penalized the goods hereunder enumerated as soon as they are in
of the increase shall be effective in 1997 and one hundred under Section 254 of this Code. existence as such:
percent (100%) of the increase shall be effective in 1998. Any person who willfully aids or abets in the commission of (a) Lubricating oils and greases, including but not limited to,
cralaw any such act or omission shall be criminally liable in the base stock for lube oils and greases, high vacuum distillates,
Duly registered or existing brands of cigarettes or new same manner as the principal. cralaw aromatic extracts, and other similar preparations, and
brands thereof packed by machine shall only be packed in If the offender is not a citizen of the Philippines, he shall be additives for lubricating oils and greases, whether such
twenties. cralaw deported immediately after serving the sentence without additives are petroleum based or not, per liter and kilogram
The rates of excise tax on cigars and cigarettes under further proceedings for deportation. respectively, of volume capacity or weight, Four pesos and
paragraphs (1), (2), (3) and (4) hereof, shall be increased by SEC. 146. Inspection Fee. - For inspection made in fifty centavos (P4.50): Provided, however, That the excise
twelve percent (12%) on January 1, 2000. cralaw accordance with this Chapter, there shall be collected a fee of taxes paid on the purchased feedstock (bunker) used in the
New brands shall be classified according to their current net Fifty centavos (P0.50) for each thousand cigars or fraction manufacture of excisable articles and forming part thereof
retail price. cralaw thereof; Ten centavos (P0.10) for each thousand cigarettes of shall be credited against the excise tax due therefrom:
For the above purpose, "net retail price" shall mean the fraction thereof; Two centavos (P0.02) for each kilogram of Provided, further, That lubricating oils and greases
price at which the cigarette is sold on retail in twenty (20) leaf tobacco or fraction thereof; and Three centavos (P0.03) produced from base stocks and additives on which the excise
major supermarkets in Metro Manila (for brands of for each kilogram or fraction thereof, of scrap and other tax has already been paid shall no longer be subject to excise
cigarettes marketed nationally), excluding the amount manufactured tobacco. cralaw tax: Provided, finally, That locally produced or imported oils
intended to cover the applicable excise tax and the value- The inspection fee on leaf tobacco, scrap, cigars, cigarettes previously taxed as such but are subsequently reprocessed,

46
rerefined or recycled shall likewise be subject to the tax used for motive power shall be taxed at the equivalent rate as shall exceed fourteen (14) days per month. cralaw
imposed under this Section. the excise tax on diesel fuel oil;(k) Asphalts, per kilogram, In case such tourist buses and cars, service vehicles of
(b) Processed gas, per liter of volume capacity, Five centavos Fifty-six centavos (P0.56); and(l) Bunker fuel oil, and on registered freeport enterprises and company service cars are
(P0.05);(c) Waxes and petrolatum, per kilogram, Three pesos similar fuel oils having more or less the same generating used for more than an aggregate period of fourteen (14) days
and fifty centavos (P3.50);(d) On denatured alcohol to be power, per liter of volume capacity, Thirty centavos (P0.30). per month outside of the freeport zone, the owner or
used for motive power, per liter of volume capacity, Five CHAPTER VI importer shall pay the corresponding customs duties, taxes
centavos (P0.05): Provided, That unless otherwise provided EXCISE TAX ON MISCELLANEOUS ARTICLES and charges. cralaw
by special laws, if the denatured alcohol is mixed with In the case of personally-owned vehicles of residents,
gasoline, the excise tax on which has already been paid, only SEC. 149. Automobiles. - There shall be levied, assessed and including leaseholders of residences inside the freeport zone,
the alcohol content shall be subject to the tax herein collected an ad valorem tax on automobiles based on the the use of such vehicles outside of the freeport zone shall be
prescribed. manufacturers or importers selling price, net of excise and deemed an introduction into the Philippine customs
For purposes of this Subsection, the removal of denatured value-added tax, in accordance with the following schedule: territory, and such introduction shall be deemed an
alcohol of not less than one hundred eighty degrees (180o ) ENGINE DISPLACEMENT [in cc.] importation into the Philippines and shall subject such
proof (ninety percent (90%) absolute alcohol) shall be GASOLINE DIESEL TAX RATE vehicles to Customs duties taxes and charges, including
deemed to have been removed for motive power, unless Up to 1600 excise tax due on such vehicle. cralaw
shown otherwise;(e) Naphtha, regular gasoline and other Up to 1800 The Secretaries of Finance, and Trade and Industry, together
similar products of distillation, per liter of volume capacity, 15% with the Commissioner of Customs and the administrators of
Four pesos and eighty centavos (P4.80): Provided, however, 1601 to 2000 the freeports concerned, shall promulgate rules and
That naphtha, when used as a raw material in the 1801 to 2300 regulations for the proper identification and control of said
production of petrochemical products or as replacement fuel 35% automobiles. cralaw
for natural-gas-fired-combined cycle power plant, in lieu of 2001 to 2700 SEC. 150. Non-Essential Goods. - There shall be levied,
locally-extracted natural gas during the non-availability 2301 to 3000 assessed and collected a tax equivalent to twenty percent
thereof, subject to the rules and regulations to be 50% (20%) based on the wholesale price or the value of
promulgated by the Secretary of Energy, in consultation with 2701 or over importation used by the Bureau of Customs in determining
the Secretary of Finance, per liter of volume capacity, Zero 3001 to over tariff and customs duties, net of excise tax and value-added
(P0.00): Provided, further, That the by-product including 100% tax, of the following goods:
fuel oil, diesel fuel, kerosene, pyrolysis gasoline, liquefied Provided, That in the case of imported automobiles not for (a) All goods commonly or commercially known as jewelry,
petroleum gases and similar oils having more or less the sale, the tax imposed herein shall be based on the total value whether real or imitation, pearls, precious and semi-precious
same generating power, which are produced in the used by the Bureau of Customs in determining tariff and stones and imitations thereof; goods made of, or ornamented,
processing of naphtha into petrochemical products shall be customs duties, including customs duty and all other mounted or fitted with, precious metals or imitations thereof
subject to the applicable excise tax specified in this Section, charges, plus ten percent (10%) of the total thereof. or ivory (not including surgical and dental instruments,
except when such by-products are transferred to any of the Automobiles acquired for use by persons or entities silver-plated wares, frames or mountings for spectacles or
local oil refineries through sale, barter or exchange, for the operating within the freeport zone shall be exempt from eyeglasses, and dental gold or gold alloys and other precious
purpose of further processing or blending into finished excise tax: Provided, That utility vehicles of registered zone metals used in filling, mounting or fitting the teeth); opera
products which are subject to excise tax under this enterprises, which are indispensable in the conduct and glasses and lorgnettes.
Section;(f) Leaded premium gasoline, per liter of volume operations of their business, such as delivery trucks and The term "precious metals" shall include platinum, gold,
capacity, Five pesos and thirty-five centavos (P5.35); cargo vans with gross vehicle weight above three (3) metric silver and other metals of similar or greater value.
unleaded premium gasoline, per liter of volume capacity, tons may be allowed unrestricted use outside the freeport The term imitations thereof shall include platings and alloys
Four pesos and thirty-five centavos (P4.35);(g) Aviation zone: Provided, further, That vehicles owned by tourist- of such metals;
turbo jet fuel, per liter of volume capacity, Three pesos and oriented enterprises, such as tourist buses and cars with (b) Perfumes and toilet waters;
sixty-seven centavos (P3.67);(h) Kerosene, per liter of volume yellow plates, color-coded, and utilized exclusively for the (c) Yachts and other vessels intended for pleasure or sports.
capacity, Sixty centavos (0.60): Provided, That kerosene, purpose of transporting tourists in tourism-related activities, CHAPTER VII
when used as aviation fuel, shall be subject to the same tax and service vehicles of freeport registered enterprises and EXCISE TAX ON MINERAL PRODUCTS
on aviation turbo jet fuel under the preceding paragraph (g), executives, such as company service cars and expatriates
such tax to be assessed on the user thereof;(i) Diesel fuel oil, and investors automobiles brought in the name of such SEC. 151. Mineral Products. -
an on similar fuel oils having more or less the same enterprises, may be used outside the freeport zone for such (A) Rates of Tax. - There shall be levied, assessed and
generating power, per liter of volume capacity, One peso and periods as may be prescribed by the Departments of collected on minerals, mineral products and quarry
sixty-three centavos (P1.63);(j) Liquefied petroleum gas, per Finance, and Trade and Industry, the Bureau of Customs resources, excise tax as follows:
liter, Zero (P0.00): Provided, That liquefied petroleum gas and the Freeport authorities concerned, which in no case (1) On coal and coke, a tax of Ten pesos (P10.00) per metric

47
ton;(2) On all nonmetallic minerals and quarry resources, a terms, the actual cost of ocean freight and insurance shall be of excise taxes due from them, and whenever the amounts of
tax of two percent (2%) based on the actual market value of deducted: Provided, however, That in the case of mineral raw material received into any factory exceeds the amount of
the gross output thereof at the time of removal, in the case of concentrate, not traded in commodity exchanges in the manufactured or partially manufactured products on hand
those locally extracted or produced; or the value used by the Philippines or abroad, such as copper concentrate, the actual and lawfully removed from the factory, plus waste removed
Bureau of Customs in determining tariff and customs duties, market value shall be the world price quotations of the or destroyed, and a reasonable allowance for unavoidable
net of excise tax and value-added tax, in the case of refined mineral products content thereof prevailing in the loss in manufacture, the Commissioner may assess and
importation. said commodity exchanges, after deducting the smelting, collect the tax due on the products which should have been
Notwithstanding the provision of paragraph (4) of refining and other charges incurred in the process of produced from the excess. cralaw
Subsection (A) of Section 151, locally extracted natural gas converting the mineral concentrates into refined metal The excise tax due on the products as determined and
and liquefied natural gas shall be taxed at the rate of two traded in those commodity exchanges. assessed in accordance with this Section shall be payable
percent (2%); (2) "Minerals" shall mean all naturally occurring inorganic upon demand or within the period specified therein.
(3) On all metallic minerals, a tax based on the actual market substances (found in nature) whether in solid, liquid, gaseous SEC. 154. Premises Subject to Approval by Commissioner. -
value of the gross output thereof at the time of removal, in or any intermediate state. No person shall engage in business as a manufacturer of or
the case of those locally extracted or produced; or the value (3) "Mineral products" shall mean things produced and dealer in articles subject to excise tax unless the premises
used by the Bureau of Customs in determining tariff and prepared in a marketable state by simple treatment upon which the business is to conducted shall have been
customs duties, net of excise tax and value-added tax, in the processes such as washing or drying, but without undergoing approved by the Commissioner.
case of importation, in accordance with the following any chemical change or process or manufacturing by the SEC. 155. Manufacturers to Provide Themselves with
schedule: lessee, concessionaire or owner of mineral lands. Counting or Metering Devices to Determine Production. -
(a) Copper and other metallic minerals; (i) On the first three (4) "Quarry resources" shall mean any common stone or Manufacturers of cigarettes, alcoholic products, oil products
(3) years upon the effectivity of Republic Act No. 7729, other common mineral substances as the Director of the and other articles subject to excise tax that can be similarly
one percent (1%); (ii) On the fourth and the fifth years, one Bureau of Mines and Geo-Sciences may declare to be quarry measured shall provide themselves with such necessary
and a half percent (1 %); and (iii) On the sixth year and resources such as, but not restricted to, marl, marble, number of suitable counting or metering devices to
thereafter, two percent (2%); (b) Gold and chromite, two granite, volcanic cinders, basalt, tuff and rock phosphate: determine as accurately as possible the volume, quantity or
percent (2%). Provided, That they contain no metal or other valuable number of the articles produced by them under rules and
(4) On indigenous petroleum, a tax of three percent (3%) of minerals in economically workable quantities. regulations promulgated by the Secretary of Finance, upon
the fair international market price thereof, on the first recommendation of the Commissioner. cralaw
taxable sale, barter, exchange or such similar transaction, CHAPTER VIII This requirement shall be complied with before
such tax to be paid by the buyer or purchaser before removal ADMINISTRATIVE PROVISIONS REGULATING commencement of operations.
from the place of production. BUSINESS SEC. 156. Labels and Form of Packages. - All articles of
The phrase "first taxable sale, barter, exchange or similar OR PERSONS DEALING IN ARTICLES SUBJECT TO domestic manufacture subject to excise tax and all leaf
transaction" means the transfer of indigenous petroleum in EXCISE TAX tobacco shall be put up and prepared by the manufacturer or
its original state to a first taxable transferee. SEC. 152. Extent of Supervision Over Establishments producer, when removed for sale or consumption, in such
The fair international market price shall be determined in Producing Taxable Output. - The Bureau of Internal packages only and bearing such marks or brand as shall be
consultation with an appropriate government agency.For the Revenue has authority to supervise establishments where prescribed in the rules and regulations promulgated by the
purpose of this Subsection, "indigenous petroleum" shall articles subject to excise tax are made or kept. Secretary of Finance; and goods of similar character
include locally-extracted mineral oil, hydrocarbon gas, The Secretary of Finance shall prescribe rules and imported into the Philippines shall likewise be packed and
bitumen, crude asphalt, mineral gas and all other similar or regulations as to the mode in which the process of production marked in such a manner as may be required. cralaw
naturally associated substances with the exception of coal, shall be conducted insofar as may be necessary to secure a SEC. 157. Removal of Articles After the Payment of Tax. -
peat, bituminous shale and/or stratified mineral deposits. sanitary output and to safeguard the revenue. When the tax has been paid on articles or products subject to
(B) For Purposes of This Section, the Term: (1) "Gross SEC. 153. Records to be Kept by Manufacturers; Assessment excise tax, the same shall not thereafter be stored or
output" shall be interpreted as the actual market value of Based Thereon.- Manufacturers of articles subject to excise permitted to remain in the distillery, distillery warehouse,
minerals or mineral products or of bullion from each mine or tax shall keep such records as required by rules and bonded warehouse, or other factory or place where
mineral land operated as a separate entity, without any regulations recommended by the Commissioner and produced.
deduction from mining, milling, refining (including all approved by the Secretary of Finance, and such records, However, upon prior permit from the Commissioner, oil
expenses incurred to prepare the said minerals or mineral whether of raw materials received into the factory or of refineries and/or companies may store or deposit tax-paid
products in a marketable state), as well as transporting, articles produced therein, shall be deemed public and official petroleum products and commingle the same with its own
handling, marketing or any other expenses: Provided, That if documents for all purposes. cralaw manufactured products not yet subjected to excise tax.
the minerals or mineral products are sold or consigned The records of raw materials kept by such manufacturers Imported petroleum products may be allowed to be
abroad by the lessee or owner of the mine under C.I.F. may be used as evidence by which to determine the amount withdrawn from customs custody without the prepayment of

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excise tax, which products may be commingled with the tax- Dealers in leaf tobacco shall keep records of the products manufacture until the tax thereon shall have been paid; but
paid or bonded products of the importer himself after sold or delivered by them to other persons in such manner as no dwelling house shall be used for such purpose.
securing a prior permit from the Commissioner: Provided, may be prescribed in the rules and regulations by the Such warehouse, when approved by the Commissioner, is
That withdrawals shall be taxed and accounted for on a Secretary of Finance, such records to be at all times subject declared to be a bonded warehouse, and shall be known as a
"first-in, first-out" basis. to inspection of internal revenue officers. distillery warehouse.
SEC. 158. Storage of Goods in Internal-Revenue Bonded SEC. 163. Preservation of Invoices and Stamps. - All dealers SEC. 166. Custody of Distillery or Distillery Warehouse. -
Warehouses. - An internal-revenue bonded warehouse may whosoever shall preserve, for the period prescribed in Every distillery or distillery warehouse shall be in the joint
be maintained in any port of entry for the storing of Section 235, all official invoices received by them from other custody of the revenue inspector, if one is assigned thereto,
imported or manufactured goods which are subject to excise dealers or from manufacturers, together with the fractional and of the proprietor thereof.
tax. parts of stamps affixed thereto, if any, and upon demand, It shall be kept securely locked, and shall at no time be
The taxes on such goods shall be payable only upon removal shall deliver or transmit the same to any interval revenue unlocked or opened or remain unlocked or opened unless in
from such warehouse and a reasonable charge shall be made officer. the presence of such revenue inspector or other person who
for their storage therein. SEC. 164. Information to be Given by Manufacturers, may be designated to act for him as provided by law.
The Commissioner, may, in his discretion, exact a bond to Importers, Indentors, and Wholesalers of any Apparatus or SEC. 167. Limitation on Quantity of Spirits Removed from
secure the payment of the tax on any goods so stored. Mechanical Contrivance Specially for the Manufacture of Warehouse. - No distilled spirits shall be removed from any
SEC. 159. Proof of Exportation; Exporter's Bond. - Articles Subject to Excise Tax and Importers, Indentors, distillery, distillery warehouse, or bonded warehouse in
Exporters of goods that would be subject to excise tax, if sold Manufacturers or Sellers of Cigarette Paper in Bobbins, quantities of less than fifteen (15) gauge liters at any one
or removed for consumption in the Philippines, shall submit Cigarette Tipping Paper or Cigarette Filter Tips. - time, except bottled goods, which may be removed by the
proof of exportation satisfactory to the Commissioner and, Manufacturers, indentors, wholesalers and importers of any case of not less than twelve (12) bottles.
when the same is deemed necessary, shall be required to give apparatus or mechanical contrivance specially for the SEC. 168. Denaturing Within Premises. - For purposes of
a bond prior to the removal of the goods for shipment, manufacture of articles subject to tax shall, before any such this Title, the process of denaturing alcohol shall be effected
conditioned upon the exportation of the same in good faith. apparatus or mechanical contrivance is removed from the only within the distillery premises where the alcohol to be
SEC. 160. Manufacturers' and Importers' Bond. - place of manufacture or from the customs house, give denatured is produced in accordance with formulas duly
Manufacturers and importers of articles subject to excise tax written information to the Commissioner as to the nature approved by the Bureau of Internal Revenue and only in the
shall post a bond subject to the following conditions: and capacity of the same, the time when it is to be removed, presence of duly designated representatives of said Bureau.
(A) Initial Bond. - In case of initial bond, the amount shall be and the place for which it is destined, as well as the name of SEC. 169. Recovery of Alcohol for Use in Arts and
equal to One Hundred thousand pesos (P100,000): Provided, the person by whom it is to be used; and such apparatus or Industries. - Manufacturers employing processes in which
That if after six (6) months of operation, the amount of mechanical contrivance shall not be set up nor dismantled or denatured alcohol used in arts and industries is expressed or
initial bond is less than the amount of the total excise tax transferred without a permit in writing from the evaporated from the articles manufactured may, under rules
paid during the period, the amount of the bond shall be Commissioner. cralaw and regulations to be prescribed by the Secretary of Finance,
adjusted to twice the tax actually paid for the period. cralaw A written permit from the Commissioner for importing, upon recommendation of the Commissioner, be permitted to
(B) Bond for the Succeeding Years of Operation. - The bonds manufacturing or selling of cigarette paper in bobbins or recover the alcohol so used and restore it again to a condition
for the succeeding years of operation shall be based on the rolls, cigarette tipping paper or cigarette filter tips is suitable solely for use in manufacturing processes.
actual total excise tax paid during the period the year required before any person shall engage in the importation, SEC. 170. Requirements Governing Rectification and
immediately preceding the year of operation. cralaw manufacture or sale of the said articles. Compounding of Liquors. - Persons engaged in the
Such bond shall be conditioned upon faithful compliance, No permit to sell said articles shall be granted unless the rectification or compounding of liquors shall, as to the mode
during the time such business is followed, with laws and name and address of the prospective buyer is first submitted of conducting their business and supervision over the same,
rules and regulations relating to such business and for the to the Commissioner and approved by him. be subject to all the requirements of law applicable to
satisfaction of all fines and penalties imposed by this Code. Records, showing the stock of the said articles and the distilleries: Provided, That where a rectifier makes use of
cralaw disposal thereof by sale of persons with their respective spirits upon which the excise tax has been paid, no further
SEC. 161. Records to be Kept by Wholesale Dealers. - addresses as approved by the Commissioner, shall be kept by tax shall be collected on any rectified spirits produced
Wholesale dealers shall keep records of their purchases and the seller, and records, showing stock of said articles and exclusively therefrom: Provided, further, That compounders
sales or deliveries of articles subject to excise tax, in such consumption thereof, shall be kept by the buyer, subject to in the manufacture of any intoxicating beverage whatever,
form as shall be prescribed in the rules and regulations by inspection by internal revenue officers. shall not be allowed to make use of spirits upon which the
the Secretary of Finance. SEC. 165. Establishment of Distillery Warehouse. - Every excise tax has not been previously paid.
These records and the entire stock of goods subject to tax distiller, when so required by the Commissioner, shall SEC. 171. Authority of Internal Revenue Officer in
shall be subject at all times to inspection of internal revenue provide at his own expense a warehouse, and shall be Searching for Taxable Articles. - Any internal revenue officer
officers. situated in and constitute a part of his distillery premises and may, in the discharge of his official duties, enter any house,
SEC. 162. Records to be Kept by Dealers in Leaf Tobacco. - to be used only for the storage of distilled spirits of his own building or place where articles subject to tax under this

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Title are produced or kept, or are believed by him upon collected a documentary stamp tax of Two pesos (P2.00) on tax of Fifty centavos (P0.50) on each Two hundred pesos
reasonable grounds to be produced or kept, so far as may be each Two hundred pesos (P200), or fractional part thereof, of (P200), or fractional part thereof, of the face value of such
necessary to examine, discover or seize the same. the par value, of such shares of stock: Provided, That in the certificate or memorandum.
He may also stop and search any vehicle or other means of case of the original issue of shares of stock without par value SEC. 179. Stamp Tax on Bank Checks, Drafts, Certificates of
transportation when upon reasonable grounds he believes the amount of the documentary stamp tax herein prescribed Deposit not Bearing Interest, and Other Instruments. - On
that the same carries any article on which the excise tax has shall be based upon the actual consideration for the issuance each bank check, draft, or certificate of deposit not drawing
not been paid. of such shares of stock: Provided, further, That in the case of interest, or order for the payment of any sum of money
SEC. 172. Detention of Package Containing Taxable stock dividends, on the actual value represented by each drawn upon or issued by any bank, trust company, or any
Articles.- Any revenue officer may detain any package share. person or persons, companies or corporations, at sight or on
containing or supposed to contain articles subject to excise SEC. 176. Stamp Tax on Sales, Agreements to Sell, demand, there shall be collected a documentary stamp tax of
tax when he has good reason to believe that the lawful tax Memoranda of Sales, Deliveries or Transfer of Due-bills, One peso and fifty centavos (P1.50).
has not been paid or that the package has been or is being Certificates of Obligation, or Shares of Certificates of Stock. SEC. 180. Stamp Tax on All Bonds, Loan Agreements,
removed in violation of law, and every such package shall be - On all sales, or agreements to sell, or memoranda of sale, or promissory Notes, Bills of Exchange, Drafts, Instruments
held by such officer in a safe place until it shall be deliveries, or transfer of due-bills, certificates of obligation, and Securities Issued by the Government or Any of its
determined whether the property so detained is liable by law or shares of certificates of stock in any association, company, Instrumentalities, Deposit Substitute Debt Instruments,
to be proceeded against for forfeiture; but such summary or corporation, or transfer of such securities by assignment Certificates of Deposits Bearing Interest and Others Not
detention shall not continue in any case longer than seven (7) in blank, or by delivery, or by any paper or agreement, or Payable on Sight or Demand. - On all bonds, loan
days without due process of law or intervention of the officer memorandum or other evidences of transfer or sale whether agreements, including those signed abroad, wherein the
to whom such detention is to be reported. entitling the holder in any manner to the benefit of such due- object of the contract is located or used in the Philippines,
TITLE VII bills, certificates of obligation or stock, or to secure the bills of exchange (between points within the Philippines),
DOCUMENTARY STAMP TAX future payment of money, or for the future transfer of any drafts, instruments and securities issued by the Government
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, due-bill, certificate of obligation or stock, there shall be or any of its instrumentalities, deposit substitute debt
Instruments and Papers. - Upon documents, instruments, collected a documentary stamp tax of One peso and fifty instruments, certificates of deposits drawing interest, orders
loan agreements and papers, and upon acceptances, centavos (P1.50) on each Two hundred pesos (P200) or for the payment of any sum of money otherwise than at sight
assignments, sales and transfers of the obligation, right or fractional part thereof, of the par value of such due-bill, or on demand, on all promissory notes, whether negotiable
property incident thereto, there shall be levied, collected and certificate of obligation or stock; Provided, That only one tax or non-negotiable, except bank notes issued for circulation,
paid for, and in respect of the transaction so had or shall be collected on each sale or transfer of stock or and on each renewal of any such note, there shall be collected
accomplished, the corresponding documentary stamp taxes securities from one person to another, regardless of whether a documentary stamp tax of Thirty centavos (P0.30) on each
prescribed in the following Sections of this Title, by the or not a certificate of stock or obligation is issued, indorsed, Two hundred pesos (P200), or fractional part thereof, of the
person making, signing, issuing, accepting, or transferring or delivered in pursuance of such sale or transfer: and, face value of any such agreement, bill of exchange, draft,
the same wherever the document is made, signed, issued, Provided, further, That in the case of stock without par value certificate of deposit, or note: Provided, That only one
accepted or transferred when the obligation or right arises the amount of documentary stamp tax herein prescribed documentary stamp tax shall be imposed on either loan
from Philippine sources or the property is situated in the shall be equivalent to twenty-five percent (25%) of the agreement, or promissory notes issued to secure such loan,
Philippines, and the same time such act is done or documentary stamp tax paid upon the original issue of said whichever will yield a higher tax: Provided, however, That
transaction had: Provided, That whenever one party to the stock. loan agreements or promissory notes the aggregate of which
taxable document enjoys exemption from the tax herein SEC. 177. Stamp Tax on Bonds, Debentures, Certificate of does not exceed Two hundred fifty thousand pesos
imposed, the other party who is not exempt shall be the one Stock or Indebtedness Issued in Foreign Countries. - On all (P250,000) executed by an individual for his purchase on
directly liable for the tax. bonds, debentures, certificates of stock, or certificates of installment for his personal use or that of his family and not
SEC. 174. Stamp Tax on Debentures and Certificates of indebtedness issued in any foreign country, there shall be for business, resale, barter or hire of a house, lot, motor
Indebtedness. - On all debentures and certificates of collected from the person selling or transferring the same in vehicle, appliance or furniture shall be exempt from the
indebtedness issued by any association, company or the Philippines, such as tax as is required by law on similar payment of the documentary stamp tax provided under this
corporation, there shall be collected a documentary stamp instruments when issued, sold or transferred in the Section.
tax of One peso and fifty centavos (P1.50) on each Two Philippines. SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange
hundred pesos (P200), or fractional part thereof, of the face SEC. 178. Stamp Tax on Certificates of Profits or Interest in and Others. - Upon any acceptance or payment of any bill of
value of such documents. Property or Accumulations. - On all certificates of profits, or exchange or order for the payment of money purporting to
SEC. 175. Stamp Tax on Original Issue of Shares of Stock. - any certificate or memorandum showing interest in the be drawn in a foreign country but payable in the Philippines,
On every original issue, whether on organization, property or accumulations of any association, company or there shall be collected a documentary stamp tax of Thirty
reorganization or for any lawful purpose, of shares of stock corporation, and on all transfers of such certificates or centavos (P0.30) on each Two hundred pesos (P200), or
by any association, company or corporation, there shall be memoranda, there shall be collected a documentary stamp fractional part thereof, of the face value of any such bill of

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exchange, or order, or the Philippine equivalent to such guaranteeing any mercantile credits, which may be made or or Other Authorized Numbers Games. - On each jai-alai,
value, if expressed in foreign currency. renewed by any such person, company or corporation, there horse race ticket, lotto, or other authorized number games,
SEC. 182. Stamp Tax on Foreign Bills of Exchange and shall be collected a documentary stamp tax of Fifty centavos there shall be collected a documentary stamp tax of Ten
Letters of Credit. - On all foreign bills of exchange and (P0.50) on each Four pesos (P4.00), or fractional part centavos (P0.10): Provided, That if the cost of the ticket
letters of credit (including orders, by telegraph or otherwise, thereof, of the premium charged. exceeds One peso (P1.00), an additional tax of Ten centavos
for the payment of money issued by express or steamship SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need (P0.10) on every One peso (P1.00, or fractional part thereof,
companies or by any person or persons) drawn in but Plans. - On all policies of annuities, or other instruments by shall be collected.
payable out of the Philippines in a set of three (3) or more whatever name the same may be called, whereby an annuity SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On
according to the custom of merchants and bankers, there may be made, transferred or redeemed, there shall be each set of bills of lading or receipts (except charter party)
shall be collected a documentary stamp tax of Thirty collected a documentary stamp tax of One peso and fifty for any goods, merchandise or effects shipped from one port
centavos (P0.30) on each Two hundred pesos (P200), or centavos (P1.50) on each Two hundred pesos (P200) or or place in the Philippines to another port or place in the
fractional part thereof, of the face value of any such bill of fractional part thereof, of the capital of the annuity, or Philippines (except on ferries across rivers), or to any foreign
exchange or letter of credit, or the Philippine equivalent of should this be unknown, then on each Two hundred (P200) port, there shall be collected documentary stamp tax of One
such face value, if expressed in foreign currency. pesos, or fractional part thereof, of thirty-three and one- peso (P1.00), if the value of such goods exceeds One hundred
SEC. 183. Stamp Tax on Life Insurance Policies. - On all third (33 1/3) times the annual income. pesos (P100) and does not exceed One Thousand pesos
policies of insurance or other instruments by whatever name On pre-need plans, the documentary stamp tax shall be Fifty (P1,000); Ten pesos (P10), if the value exceeds One thousand
the same may be called, whereby any insurance shall be centavos (P0.50) on each Five hundred pesos (P500), or pesos (P1,000): Provided, however, That freight tickets
made or renewed upon any life or lives, there shall be fractional part thereof, of the value or amount of the plan. covering goods, merchandise or effects carried as
collected a documentary stamp tax of Fifty centavos (P0.50) SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for accompanied baggage of passengers on land and water
on each Two hundred pesos (P200), or fractional part indemnifying any person, firm or corporation who shall carriers primarily engaged in the transportation of
thereof, of the amount insured by any such policy. become bound or engaged as surety for the payment of any passengers are hereby exempt.
SEC. 184. Stamp Tax on Policies of Insurance Upon sum of money or for the due execution or performance of the SEC. 192. Stamp Tax on Proxies. - On each proxy for voting
Property. - On all policies of insurance or other instruments duties of any office or position or to account for money at any election for officers of any company or association, or
by whatever name the same may be called, by which received by virtue thereof, and on all other bonds of any for any other purpose, except proxies issued affecting the
insurance shall be made or renewed upon property of any description, except such as may be required in legal affairs of associations or corporations organized for
description, including rents or profits, against peril by sea or proceedings, or are otherwise provided for herein, there shall religious, charitable or literary purposes, there shall be
on inland waters, or by fire or lightning, there shall be be collected a documentary stamp tax of Thirty centavos collected a documentary stamp tax of Fifteen pesos (P15.00).
collected a documentary stamp tax of Fifty centavos (P0.50) (P0.30) on each Four pesos (P4.00), or fractional part SEC. 193. Stamp Tax on Powers of Attorney. - On each
on each Four pesos (P4.00), or fractional part thereof, of the thereof, of the premium charged. power of attorney to perform any act whatsoever, except acts
amount of premium charged: Provided, however, That no SEC. 188. Stamp Tax on Certificates. - On each certificate of connected with the collection of claims due from or accruing
documentary stamp tax shall be collected on reinsurance damages or otherwise, and on every certificate or document to the Government of the Republic of the Philippines, or the
contracts or on any instrument by which cession or issued by any customs officer, marine surveyor, or other government of any province, city or municipality, there shall
acceptance of insurance risks under any reinsurance person acting as such, and on each certificate issued by a be collected a documentary stamp tax of Five pesos (P5.00).
agreement is effected or recorded. notary public, and on each certificate of any description SEC. 194. Stamp Tax on Leases and Other Hiring
SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance required by law or by rules or regulations of a public office, Agreements. - On each lease, agreement, memorandum, or
Policies. - On all policies of insurance or bonds or obligations or which is issued for the purpose of giving information, or contract for hire, use or rent of any lands or tenements, or
of the nature of indemnity for loss, damage or liability made establishing proof of a fact, and not otherwise specified portions thereof, there shall be collected a documentary
or renewed by any person, association, company or herein, there shall be collected a documentary stamp tax of stamp tax of Three pesos (P3.00) for the first Two thousand
corporation transacting the business of accident, fidelity, Fifteen pesos (P15.00). pesos (P2,000), or fractional part thereof, and an additional
employers liability, plate, glass, steam, boiler, burglar, SEC. 189. Stamp Tax on Warehouse Receipts. - On each One peso (P1.00) for every One Thousand pesos (P1,000) or
elevator, automatic sprinkler, or other branch of insurance warehouse receipt for property held in storage in a public or fractional part thereof, in excess of the first Two thousand
(except life, marine, inland, and fire insurance), and all private warehouse or yard for any person other than the pesos (P2,000) for each year of the term of said contract or
bonds, undertakings, or recognizances, conditioned for the proprietor of such warehouse or yard, there shall be agreement.
performance of the duties of any office or position, for the collected a documentary stamp tax of Fifteen pesos (P15.00): SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of
doing or not doing of anything therein specified, and on all Provided, That no tax shall be collected on each warehouse Trust. - On every mortgage or pledge of lands, estate, or
obligations guaranteeing the validity or legality of any bond receipt issued to any one person in any one calendar month property, real or personal, heritable or movable, whatsoever,
or other obligations issued by any province, city, covering property the value of which does not exceed Two where the same shall be made as a security for the payment
municipality, or other public body or organization, and on hundred pesos (P200). of any definite and certain sum of money lent at the time or
all obligations guaranteeing the title to any real estate, or SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto previously due and owing of forborne to be paid, being

51
payable and on any conveyance of land, estate, or property to be paid for such realty after making proper allowance of documentary stamp tax, at the same rate as that imposed on
whatsoever, in trust or to be sold, or otherwise converted into any encumbrance, does not exceed One thousand pesos the original instrument.
money which shall be and intended only as security, either by (P1,000) fifteen pesos (P15.00). SEC. 199. Documents and Papers Not Subject to Stamp Tax.
express stipulation or otherwise, there shall be collected a (b) For each additional One thousand Pesos (P1,000), or - The provisions of Section 173 to the contrary
documentary stamp tax at the following rates: fractional part thereof in excess of One thousand pesos notwithstanding, the following instruments, documents and
(a) When the amount secured does not exceed Five thousand (P1,000) of such consideration or value, Fifteen pesos papers shall be exempt from the documentary stamp tax: (a)
pesos (P5,000), Twenty pesos (P20.00). (P15.00). Policies of insurance or annuities made or granted by a
(b) On each Five thousand pesos (P5,000), or fractional part When it appears that the amount of the documentary stamp fraternal or beneficiary society, order, association or
thereof in excess of Five thousand pesos (P5,000), an tax payable hereunder has been reduced by an incorrect cooperative company, operated on the lodge system or local
additional tax of Ten pesos (P10.00). statement of the consideration in any conveyance, deed, cooperation plan and organized and conducted solely by the
On any mortgage, pledge, or deed of trust, where the same instrument or writing subject to such tax the Commissioner, members thereof for the exclusive benefit of each member
shall be made as a security for the payment of a fluctuating provincial or city Treasurer, or other revenue officer shall, and not for profit.
account or future advances without fixed limit, the from the assessment rolls or other reliable source of (b) Certificates of oaths administered to any government
documentary stamp tax on such mortgage, pledge or deed of information, assess the property of its true market value and official in his official capacity or of acknowledgment by any
trust shall be computed on the amount actually loaned or collect the proper tax thereon. government official in the performance of his official duties,
given at the time of the execution of the mortgage, pledge or SEC. 197. Stamp Tax on Charter Parties and Similar written appearance in any court by any government official,
deed of trust, additional documentary stamp tax shall be Instruments. - On every charter party, contract or in his official capacity; certificates of the administration of
paid which shall be computed on the basis of the amount agreement for the charter of any ship, vessel or steamer, or oaths to any person as to the authenticity of any paper
advanced or loaned at the rates specified above: Provided, any letter or memorandum or other writing between the required to be filed in court by any person or party thereto,
however, That if the full amount of the loan or credit, captain, master or owner, or other person acting as agent of whether the proceedings be civil or criminal; papers and
granted under the mortgage, pledge or deed of trust shall be any ship, vessel or steamer, and any other person or persons documents filed in courts by or for the national, provincial,
computed on the amount actually loaned or given at the time for or relating to the charter of any such ship, vessel or city or municipal governments; affidavits of poor persons for
of the execution of the mortgage, pledge or deed of trust. steamer, and on any renewal or transfer of such charter, the purpose of proving poverty; statements and other
However, if subsequent advances are made on such contract, agreement, letter or memorandum, there shall be compulsory information required of persons or corporations
mortgage, pledge or deed of trust, additional documentary collected a documentary stamp tax at the following rates: (a) by the rules and regulations of the national, provincial, city
stamp tax shall be paid which shall be computed on the basis If the registered gross tonnage of the ship, vessel or steamer or municipal governments exclusively for statistical purposes
of the amount advanced or loaned at the rates specified does not exceed one thousand (1,000) tons, and the duration and which are wholly for the use of the bureau or office in
above: Provided, however, That if the full amount of the loan of the charter or contract does not exceed six (6) months, which they are filed, and not at the instance or for the use or
or credit, granted under the mortgage, pledge or deed of Five hundred pesos (P500); and for each month or fraction benefit of the person filing them; certified copies and other
trust is specified in such mortgage, pledge or deed of trust, of a month in excess of six (6) months, an additional tax of certificates placed upon documents, instruments and papers
the documentary stamp tax prescribed in this Section shall Fifty pesos (P50.00) shall be paid. for the national, provincial, city, or municipal governments,
be paid and computed on the full amount of the loan or (b) If the registered gross tonnage exceeds one thousand made at the instance and for the sole use of some other
credit granted. (1,000) tons and does not exceed ten thousand (10,000) tons, branch of the national, provincial, city or municipal
SEC. 196. Stamp tax on Deeds of Sale and Conveyances of and the duration of the charter or contract does not exceed governments; and certificates of the assessed value of lands,
Real Property. - On all conveyances, deeds, instruments, or six (6) months, One thousand pesos (P1,000); and for each not exceeding Two hundred pesos (P200) in value assessed,
writings, other than grants, patents or original certificates of month or fraction of a month in excess of six (6) months, an furnished by the provincial, city or municipal Treasurer to
adjudication issued by the Government, whereby any land, additional tax of One hundred pesos (P100) shall be paid. applicants for registration of title to land.
tenement, or other realty sold shall be granted, assigned, (c) If the registered gross tonnage exceeds ten thousand SEC. 200. Payment of Documentary Stamp Tax. -
transferred or otherwise conveyed to the purchaser, or (10,000) tons and the duration of the charter or contract does (A) In General.- The provisions of Presidential Decree No.
purchasers, or to any other person or persons designated by not exceed six (6) months, One thousand five hundred pesos 1045 notwithstanding, any person liable to pay documentary
such purchaser or purchasers, there shall be collected a (P1,500); and for each month or fraction of a month in excess stamp tax upon any document subject to tax under Title VII
documentary stamp tax, at the rates herein below of six (6) months, an additional tax of One hundred fifty of this Code shall file a tax return and pay the tax in
prescribed, based on the consideration contracted to be paid pesos (P150) shall be paid. accordance with the rules and regulations to be prescribed
for such realty or on its fair market value determined in SEC. 198. Stamp Tax on Assignments and Renewals of by the Secretary of Finance, upon recommendation of the
accordance with Section 6(E) of this Code, whichever is Certain Instruments. - Upon each and every assignment or Commissioner. cralaw
higher: Provided, That when one of the contracting parties is transfer of any mortgage, lease or policy of insurance, or the (B) Time for Filing and Payment of the Tax.- Except as
the Government the tax herein imposed shall be based on the renewal or continuance of any agreement, contract, charter, provided by rules and regulations promulgated by the
actual consideration. or any evidence of obligation or indebtedness by altering or Secretary of Finance, upon recommendation of the
(a) When the consideration, or value received or contracted otherwise, there shall be levied, collected and paid a Commissioner, the tax return prescribed in this Section shall

52
be filed within ten (10) days after the close of the month beyond the period prescribed by law, the three (3)-year Any request for conversion into refund of unutilized tax
when the taxable document was made, signed, issued, period shall be counted from the day the return was filed. credits may be allowed, subject to the provisions of Section
accepted, or transferred, and the tax thereon shall be paid at For purposes of this Section, a return filed before the last 230 of this Code: Provided, That the original copy of the Tax
the same time the aforesaid return is filed. cralaw day prescribed by law for the filing thereof shall be Credit Certificate showing a creditable balance is
(C) Where to File.- Except in cases where the Commissioner considered as filed on such last day. surrendered to the appropriate revenue officer for
otherwise permits, the aforesaid tax return shall be filed with SEC. 204. Authority of the Commissioner to Compromise, verification and cancellation: Provided, further, That in no
and the tax due shall be paid through the authorized agent Abate and Refund or Credit Taxes. - The Commissioner may case shall a tax refund be given resulting from availment of
bank within the territorial jurisdiction of the Revenue - incentives granted pursuant to special laws for which no
District Office which has jurisdiction over the residence or (A) Compromise the Payment of any Internal Revenue Tax, actual payment was made.
principal place of business of the taxpayer. when: The Commissioner shall submit to the Chairmen of the
In places where there is no authorized agent bank, the return (1) A reasonable doubt as to the validity of the claim against Committee on Ways and Means of both the Senate and
shall be filed with the Revenue District Officer, collection the taxpayer exists; or(2) The financial position of the House of Representatives, every six (6) months, a report on
agent, or duly authorized Treasurer of the city or taxpayer demonstrates a clear inability to pay the assessed the exercise of his powers under this Section, stating therein
municipality in which the taxpayer has his legal residence or tax. the following facts and information, among others: names
principal place of business. The compromise settlement of any tax liability shall be and addresses of taxpayers whose cases have been the
(D) Exception.- In lieu of the foregoing provisions of this subject to the following minimum amounts: subject of abatement or compromise; amount involved;
Section, the tax may be paid either through purchase and For cases of financial incapacity, a minimum compromise amount compromised or abated; and reasons for the exercise
actual affixture; or by imprinting the stamps through a rate equivalent to ten percent (10%) of the basic assessed of power: Provided, That the said report shall be presented
documentary stamp metering machine, on the taxable tax; and to the Oversight Committee in Congress that shall be
document, in the manner as may be prescribed by rules and For other cases, a minimum compromise rate equivalent to constituted to determine that said powers are reasonably
regulations to be promulgated by the Secretary of Finance, forty percent (40%) of the basic assessed tax. exercised and that the government is not unduly deprived of
upon recommendation of the Commissioner. Where the basic tax involved exceeds One million pesos revenues.
SEC. 201. Effect of Failure to Stamp Taxable Document. - An (P1,000.000) or where the settlement offered is less than the CHAPTER II
instrument, document or paper which is required by law to prescribed minimum rates, the compromise shall be subject CIVIL REMEDIES FOR COLLECTION OF TAXES
be stamped and which has been signed, issued, accepted or to the approval of the Evaluation Board which shall be SEC. 205. Remedies for the Collection of Delinquent Taxes. -
transferred without being duly stamped, shall not be composed of the Commissioner and the four (4) Deputy The civil remedies for the collection of internal revenue
recorded, nor shall it or any copy thereof or any record of Commissioners. taxes, fees or charges, and any increment thereto resulting
transfer of the same be admitted or used in evidence in any (B) Abate or Cancel a Tax Liability, when: from delinquency shall be:
court until the requisite stamp or stamps are affixed thereto (1) The tax or any portion thereof appears to be unjustly or (a) By distraint of goods, chattels, or effects, and other
and cancelled. excessively assessed; or(2) The administration and collection personal property of whatever character, including stocks
TITLE VIII costs involved do not justify the collection of the amount due. and other securities, debts, credits, bank accounts and
REMEDIES All criminal violations may be compromised except: (a) those interest in and rights to personal property, and by levy upon
already filed in court, or (b) those involving fraud. real property and interest in rights to real property; and
CHAPTER I (C) Credit or refund taxes erroneously or illegally received (b) By civil or criminal action.
REMEDIES IN GENERAL or penalties imposed without authority, refund the value of Either of these remedies or both simultaneously may be
SEC. 202. Final Deed to Purchaser.- In case the taxpayer internal revenue stamps when they are returned in good pursued in the discretion of the authorities charged with the
shall not redeem the property as herein provided the condition by the purchaser, and, in his discretion, redeem or collection of such taxes: Provided, however, That the
Revenue District Officer shall, as grantor, execute a deed change unused stamps that have been rendered unfit for use remedies of distraint and levy shall not be availed of where
conveying to the purchaser so much of the property as has and refund their value upon proof of destruction. the amount of tax involve is not more than One hundred
been sold, free from all liens of any kind whatsoever, and the No credit or refund of taxes or penalties shall be allowed pesos (P100).
deed shall succintly recite all the proceedings upon which the unless the taxpayer files in writing with the Commissioner a The judgment in the criminal case shall not only impose the
validity of the sale depends. claim for credit or refund within two (2) years after the penalty but shall also order payment of the taxes subject of
SEC. 203. Period of Limitation Upon Assessment and payment of the tax or penalty: Provided, however, That a the criminal case as finally decided by the Commissioner.
Collection. - Except as provided in Section 222, internal return filed showing an overpayment shall be considered as a The Bureau of Internal Revenue shall advance the amounts
revenue taxes shall be assessed within three (3) years after written claim for credit or refund. needed to defray costs of collection by means of civil or
the last day prescribed by law for the filing of the return, A Tax Credit Certificate validly issued under the provisions criminal action, including the preservation or transportation
and no proceeding in court without assessment for the of this Code may be applied against any internal revenue tax, of personal property distrained and the advertisement and
collection of such taxes shall be begun after the expiration of excluding withholding taxes, for which the taxpayer is sale thereof, as well as of real property and improvements
such period: Provided, That in a case where a return is filed directly liable. thereon.

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SEC. 206. Constructive Distraint of the Property of a be required by the Commissioner as often as necessary. and discretion, to which list shall be added a statement of the
Taxpayer. - To safeguard the interest of the Government, the cralaw sum demanded and note of the time and place of sale. cralaw
Commissioner may place under constructive distraint the (B) Levy on Real Property.- After the expiration of the time Stocks and other securities shall be distrained by serving a
property of a delinquent taxpayer or any taxpayer who, in required to pay the delinquent tax or delinquent revenue as copy of the warrant of distraint upon the taxpayer and upon
his opinion, is retiring from any business subject to tax, or is prescribed in this Section, real property may be levied upon, the president, manager, treasurer or other responsible officer
intending to leave the Philippines or to remove his property before simultaneously or after the distraint of personal of the corporation, company or association, which issued the
therefrom or to hide or conceal his property or to perform property belonging to the delinquent. said stocks or securities. cralaw
any act tending to obstruct the proceedings for collecting the To this end, any internal revenue officer designated by the Debts and credits shall be distrained by leaving with the
tax due or which may be due from him. Commissioner or his duly authorized representative shall person owing the debts or having in his possession or under
The constructive distraint of personal property shall be prepare a duly authenticated certificate showing the name of his control such credits, or with his agent, a copy of the
affected by requiring the taxpayer or any person having the taxpayer and the amounts of the tax and penalty due warrant of distraint.
possession or control of such property to sign a receipt from him. The warrant of distraint shall be sufficient authority to the
covering the property distrained and obligate himself to Said certificate shall operate with the force of a legal person owning the debts or having in his possession or under
preserve the same intact and unaltered and not to dispose of execution throughout the Philippines. cralaw his control any credits belonging to the taxpayer to pay to
the same ;in any manner whatever, without the express Levy shall be affected by writing upon said certificate a the Commissioner the amount of such debts or credits.
authority of the Commissioner. cralaw description of the property upon which levy is made. cralaw
In case the taxpayer or the person having the possession and At the same time, written notice of the levy shall be mailed to Bank accounts shall be garnished by serving a warrant of
control of the property sought to be placed under or served upon the Register of Deeds for the province or city garnishment upon the taxpayer and upon the president,
constructive distraint refuses or fails to sign the receipt where the property is located and upon the delinquent manager, treasurer or other responsible officer of the bank.
herein referred to, the revenue officer effecting the taxpayer, or if he be absent from the Philippines, to his agent Upon receipt of the warrant of garnishment, the bank shall
constructive distraint shall proceed to prepare a list of such or the manager of the business in respect to which the tun over to the Commissioner so much of the bank accounts
property and, in the presence of two (2) witnessed, leave a liability arose, or if there be none, to the occupant of the as may be sufficient to satisfy the claim of the Government.
copy thereof in the premises where the property distrained is property in question. cralaw SEC. 209. Sale of Property Distrained and Disposition of
located, after which the said property shall be deemed to In case the warrant of levy on real property is not issued Proceeds. - The Revenue District Officer or his duly
have been placed under constructive distraint. before or simultaneously with the warrant of distraint on authorized representative, other than the officer referred to
SEC. 207. Summary Remedies. - personal property, and the personal property of the taxpayer in Section 208 of this Code shall, according to rules and
(A) Distraint of Personal Property. - Upon the failure of the is not sufficient to satisfy his tax delinquency, the regulations prescribed by the Secretary of Finance, upon
person owing any delinquent tax or delinquent revenue to Commissioner or his duly authorized representative shall, recommendation of the Commissioner, forthwith cause a
pay the same at the time required, the Commissioner or his within thirty (30) days after execution of the distraint, notification to be exhibited in not less than two (2) public
duly authorized representative, if the amount involved is in proceed with the levy on the taxpayer's real property. cralaw places in the municipality or city where the distraint is made,
excess of One million pesos (P1,000,000), or the Revenue Within ten (10) days after receipt of the warrant, a report on specifying; the time and place of sale and the articles
District Officer, if the amount involved is One million pesos any levy shall be submitted by the levying officer to the distrained.
(P1,000,000) or less, shall seize and distraint any goods, Commissioner or his duly authorized representative: The time of sale shall not be less than twenty (20) days after
chattels or effects, and the personal property, including Provided, however, That a consolidated report by the notice.
stocks and other securities, debts, credits, bank accounts, Revenue Regional Director may be required by the One place for the posting of such notice shall be at the Office
and interests in and rights to personal property of such Commissioner as often as necessary: Provided, further, That of the Mayor of the city or municipality in which the
persons ;in sufficient quantity to satisfy the tax, or charge, the Commissioner or his duly authorized representative, property is distrained. cralaw
together with any increment thereto incident to delinquency, subject to rules and regulations promulgated by the At the time and place fixed in such notice, the said revenue
and the expenses of the distraint and the cost of the Secretary of Finance, upon recommendation of the officer shall sell the goods, chattels, or effects, or other
subsequent sale. cralaw Commissioner, shall have the authority to lift warrants of personal property, including stocks and other securities so
A report on the distraint shall, within ten (10) days from levy issued in accordance with the provisions hereof. distrained, at public auction, to the highest bidder for cash,
receipt of the warrant, be submitted by the distraining SEC. 208. Procedure for Distraint and Garnishment. - The or with the approval of the Commissioner, through duly
officer to the Revenue District Officer, and to the Revenue officer serving the warrant of distraint shall make or cause licensed commodity or stock exchanges. cralaw
Regional Director: Provided, That the Commissioner or his to be made an account of the goods, chattels, effects or other In the case of Stocks and other securities, the officer making
duly authorized representative shall, subject to rules and personal property distrained, a copy of which, signed by the sale shall execute a bill of sale which he shall deliver to
regulations promulgated by the Secretary of Finance, upon himself, shall be left either with the owner or person from the buyer, and a copy thereof furnished the corporation,
recommendation of the Commissioner, have the power to lift whose possession such goods, chattels, or effects or other company or association which issued the stocks or other
such order of distraint: Provided, further, That a personal property were taken, or at the dwelling or place of securities.
consolidated report by the Revenue Regional Director may business of such person and with someone of suitable age Upon receipt of the copy of the bill of sale, the corporation,

54
company or association shall make the corresponding entry short description of the property to be sold. of the said property and shall be entitled to the rents and
in its books, transfer the stocks or other securities sold in the At any time before the day fixed for the sale, the taxpayer other income thereof until the expiration of the time allowed
name of the buyer, and issue, if required to do so, the may discontinue all proceedings by paying the taxes, for its redemption.
corresponding certificates of stock or other securities. cralaw penalties and interest. SEC. 215. Forfeiture to Government for Want of Bidder. - In
Any residue over and above what is required to pay the If he does not do so, the sale shall proceed and shall be held case there is no bidder for real property exposed for sale as
entire claim, including expenses, shall be returned to the either at the main entrance of the municipal building or city herein above provided or if the highest bid is for an amount
owner of the property sold. hall, or on the premises to be sold, as the officer conducting insufficient to pay the taxes, penalties and costs, the Internal
The expenses chargeable upon each seizure and sale shall the proceedings shall determine and as the notice of sale Revenue Officer conducting the sale shall declare the
embrace only the actual expenses of seizure and preservation shall specify. cralaw property forfeited to the Government in satisfaction of the
of the property pending ;the sale, and no charge shall be Within five (5) days after the sale, a return by the distraining claim in question and within two (2) days thereafter, shall
imposed for the services of the local internal revenue officer or levying officer of the proceedings shall be entered upon make a return of his proceedings and the forfeiture which
or his deputy. the records of the Revenue Collection Officer, the Revenue shall be spread upon the records of his office.
SEC. 210. Release of Distrained Property Upon Payment District officer and the Revenue Regional Director. It shall be the duty of the Register of Deeds concerned, upon
Prior to Sale. - If at any time prior to the consummation of The Revenue Collection Officer, in consultation with the registration with his office of any such declaration of
the sale all proper charges are paid to the officer conducting Revenue district Officer, shall then make out and deliver to forfeiture, to transfer the title of the property forfeited to the
the sale, the goods or effects distrained shall be restored to the purchaser a certificate from his records, showing the Government without the necessity of an order from a
the owner. proceedings of the sale, describing the property sold stating competent court. cralaw
SEC. 211. Report of Sale to Bureau of Internal Revenue. - the name of the purchaser and setting out the exact amount Within one (1) year from the date of such forfeiture, the
Within two (2) days after the sale, the officer making the of all taxes, penalties and interest: Provided, however, That taxpayer, or any one for him may redeem said property by
same shall make a report of his proceedings in writing to the in case the proceeds of the sale exceeds the claim and cost of paying to the Commissioner or the latter's Revenue
Commissioner and shall himself preserve a copy of such sale, the excess shall be turned over to the owner of the Collection Officer the full amount of the taxes and penalties,
report as an official record. property. cralaw together with interest thereon and the costs of sale, but if the
SEC. 212. Purchase by Government at Sale Upon Distraint. - The Revenue Collection Officer, upon approval by the property be not thus redeemed, the forfeiture shall become
When the amount bid for the property under distraint is not Revenue District Officer may, out of his collection, advance absolute.
equal to the amount of the tax or is very much less than the an amount sufficient to defray the costs of collection by SEC. 216. Resale of Real Estate Taken for Taxes. - The
actual market value of the articles offered for sale, the means of the summary remedies provided for in this Code, Commissioner shall have charge of any real estate obtained
Commissioner or his deputy may purchase the same in including ;the preservation or transportation in case of by the Government of the Philippines in payment or
behalf of the national Government for the amount of taxes, personal property, and the advertisement and subsequent satisfaction of taxes, penalties or costs arising under this
penalties and costs due thereon. cralaw sale, both in cases of personal and real property including Code or in compromise or adjustment of any claim therefore,
Property so purchased may be resold by the Commissioner improvements found on the latter. and said Commissioner may, upon the giving of not less than
or his deputy, subject to the rules and regulations prescribed In his monthly collection reports, such advances shall be twenty (20) days notice, sell and dispose of the same of public
by the Secretary of Finance, the net proceeds therefrom shall reflected and supported by receipts. auction or with prior approval of the Secretary of Finance,
be remitted to the National Treasury and accounted for as SEC. 214. Redemption of Property Sold. - Within one (1) dispose of the same at private sale.
internal revenue. year from the date of sale, the delinquent taxpayer, or any In either case, the proceeds of the sale shall be deposited with
SEC. 213. Advertisement and Sale. - Within twenty (20) days one for him, shall have the right of paying to the Revenue the National Treasury, and an accounting of the same shall
after levy, the officer conducting the proceedings shall District Officer the amount of the public taxes, penalties, and rendered to the Chairman of the Commission on Audit.
proceed to advertise the property or a usable portion thereof interest thereon from the date of delinquency to the date of SEC. 217. Further Distraint or Levy. - The remedy by
as may be necessary to satisfy the claim and cost of sale; and sale, together with interest on said purchase price at the rate distraint of personal property and levy on realty may be
such advertisement shall cover a period of a least thirty (30) of fifteen percent (15%) per annum from the date of repeated if necessary until the full amount due, including all
days. purchase to the date of redemption, and such payment shall expenses, is collected.
It shall be effectuated by posting a notice at the main entitle the person paying to the delivery of the certificate SEC. 218. Injunction not Available to Restrain Collection of
entrance of the municipal building or city hall and in public issued to the purchaser and a certificate from the said Tax. - No court shall have the authority to grant an
and conspicuous place in the barrio or district in which the Revenue District Officer that he has thus redeemed the injunction to restrain the collection of any national internal
real estate lies and ;by publication once a week for three (3) property, and the Revenue District Officer shall forthwith revenue tax, fee or charge imposed by this Code.
weeks in a newspaper of general circulation in the pay over to the purchaser the amount by which such SEC. 219. Nature and Extent of Tax Lien. - If any person,
municipality or city where the property is located. property has thus been redeemed, and said property corporation, partnership, joint-account (cuentas en
The advertisement shall contain a statement of the amount of thereafter shall be free form the lien of such taxes and participacion), association or insurance company liable to
taxes and penalties so due and the time and place of sale, the penalties. cralaw pay an internal revenue tax, neglects or refuses to pay the
name of the taxpayer against whom taxes are levied, and a The owner shall not, however, be deprived of the possession same after demand, the amount shall be a lien in favor of the

55
Government of the Philippines from the time when the (d) Any internal revenue tax, which has been assessed within the sale of the same for consumption or use would be
assessment was made by the Commissioner until paid, with the period agreed upon as provided in paragraph (b) injurious to public health or prejudicial to the enforcement
interests, penalties, and costs that may accrue in addition hereinabove, may be collected by distraint or levy or by a of the law. cralaw
thereto upon all property and rights to property belonging to proceeding in court within the period agreed upon in writing All other articles subject to excise tax, which have been
the taxpayer: Provided, That this lien shall not be valid before the expiration of the five (5) -year period. manufactured or removed in violation of this Code, as well
against any mortgagee purchaser or judgment creditor until The period so agreed upon may be extended by subsequent as dies for the printing or making of internal revenue stamps
notice of such lien shall be filed by the Commissioner in the written agreements made before the expiration of the period and labels which are in imitation of or purport to be lawful
office of the Register of Deeds of the province or city where previously agreed upon. stamps, or labels may, upon forfeiture, be sold or destroyed
the property of the taxpayer is situated or located. (e) Provided, however, That nothing in the immediately in the discretion of the Commissioner. cralaw
SEC. 220. Form and Mode of Proceeding in Actions Arising preceding and paragraph (a) hereof shall be construed to Forfeited property shall not be destroyed until at least
under this Code. - Civil and criminal actions and authorize the examination and investigation or inquiry into twenty (20) days after seizure.
proceedings instituted in behalf of the Government under the any tax return filed in accordance with the provisions of any SEC. 226. Disposition of funds Recovered in Legal
authority of this Code or other law enforced by the Bureau tax amnesty law or decree. Proceedings or Obtained from Forfeitures. - all judgments
of Internal Revenue shall be brought in the name of the SEC. 223. Suspension of Running of Statute of Limitations. - and monies recovered and received for taxes, costs,
Government of the Philippines and shall be conducted by The running of the Statute of Limitations provided in forfeitures, fines and penalties shall be paid to the
legal officers of the Bureau of Internal Revenue but no civil Sections 203 and 222 on the making of assessment and the Commissioner or his authorized deputies as the taxes
or criminal action for the recovery of taxes or the beginning of distraint or levy a proceeding in court for themselves are required to be paid, and except as specially
enforcement of any fine, penalty or forfeiture under this collection, in respect of any deficiency, shall be suspended for provided, shall be accounted for and dealt with the same
Code shall be filed in court without the approval of the the period during which the Commissioner is prohibited way.
Commissioner. from making the assessment or beginning distraint or levy or SEC. 227. Satisfaction of Judgment Recovered Against any
SEC. 221. Remedy for Enforcement of Statutory Penal a proceeding in court and for sixty (60) days thereafter; Internal Revenue Officer. - When an action is brought
Provisions. - The remedy for enforcement of statutory when the taxpayer requests for a reinvestigation which is against any Internal Revenue officer to recover damages by
penalties of all sorts shall be by criminal or civil action, as granted by the Commissioner; when the taxpayer cannot be reason of any act done in the performance of official duty,
the particular situation may require, subject to the approval located in the address given by him in the return filed upon and the Commissioner is notified of such action in time to
of the Commissioner. which a tax is being assessed or collected: Provided, that, if make defense against the same, through the Solicitor
SEC. 222. Exceptions as to Period of Limitation of the taxpayer informs the Commissioner of any change in General, any judgment, damages or costs recovered in such
Assessment and Collection of Taxes. - address, the running of the Statute of Limitations will not be action shall be satisfied by the Commissioner, upon approval
(a) In the case of a false or fraudulent return with intent to suspended; when the warrant of distraint or levy is duly of the Secretary of Finance, or if the same be paid by the
evade tax or of failure to file a return, the tax may be served upon the taxpayer, his authorized representative, or a person used shall be repaid or reimbursed to him.
assessed, or a proceeding in court for the collection of such member of his household with sufficient discretion, and no No such judgment, damages, or costs shall be paid or
tax may be filed without assessment, at any time within ten property could be located; and when the taxpayer is out of reimbursed in behalf of a person who has acted negligently
(10) years after the discovery of the falsity, fraud or the Philippines. or in bad faith, or with willful oppression.
omission: Provided, That in a fraud assessment which has SEC. 224. Remedy for Enforcement of Forfeitures. - The CHAPTER III
become final and executory, the fact of fraud shall be forfeiture of chattels and removable fixtures of any sort shall PROTESTING AN ASSESSMENT, REFUND, ETC.
judicially taken cognizance of in the civil or criminal action be enforced by the seizure and sale, or destruction, of the chanrobles virtual law library
for the collection thereof. specific forfeited property. SEC. 228. Protesting of Assessment. - When the
(b) If before the expiration of the time prescribed in Section The forfeiture of real property shall be enforced by a Commissioner or his duly authorized representative finds
203 for the assessment of the tax, both the Commissioner and judgment of condemnation and sale in a legal action or that proper taxes should be assessed, he shall first notify the
the taxpayer have agreed in writing to its assessment after proceeding, civil or criminal, as the case may require. taxpayer of his findings: Provided, however, That a
such time, the tax may be assessed within the period agreed SEC. 225. When Property to be Sold or Destroyed. - Sales of preassessment notice shall not be required in the following
upon. forfeited chattels and removable fixtures shall be effected, so cases:
The period so agreed upon may be extended by subsequent far as practicable, in the same manner and under the same (a) When the finding for any deficiency tax is the result of
written agreement made before the expiration of the period conditions as the public notice and the time and manner of mathematical error in the computation of the tax as
previously agreed upon. sale as are prescribed for sales of personal property appearing on the face of the return; or(b) When a
(c) Any internal revenue tax which has been assessed within distrained for the non-payment of taxes. discrepancy has been determined between the tax withheld
the period of limitation as prescribed in paragraph (a) hereof Distilled spirits, liquors, cigars, cigarettes, other and the amount actually remitted by the withholding agent;
may be collected by distraint or levy or by a proceeding in manufactured products of tobacco, and all apparatus used I or(c) When a taxpayer who opted to claim a refund or tax
court within five (5) years following the assessment of the or about the illicit production of such articles may, upon credit of excess creditable withholding tax for a taxable
tax. forfeiture, be destroyed by order of the Commissioner, when period was determined to have carried over and

56
automatically applied the same amount claimed against the Commissioner may, even without a written claim therefor, may readily and accurately be ascertained and determined
estimated tax liabilities for the taxable quarter or quarters of refund or credit any tax, where on the face of the return any time of the year: Provided, further, That corporations,
the succeeding taxable year; or(d) When the excise tax due upon which payment was made, such payment appears companies, partnerships or persons whose gross quarterly
on exciseable articles has not been paid; or(e) When the clearly to have been erroneously paid. sales, earnings, receipts or output exceed One hundred fifty
article locally purchased or imported by an exempt person, SEC. 230. Forfeiture of Cash Refund and of Tax Credit. - thousand pesos (P150,000) shall have their books of accounts
such as, but not limited to, vehicles, capital equipment, (A) Forfeiture of Refund.- A refund check or warrant issued audited and examined yearly by independent Certified
machineries and spare parts, has been sold, traded or in accordance with the pertinent provisions of this Code, Public Accountants and their income tax returns
transferred to non-exempt persons. which shall remain unclaimed or uncashed within five (5) accompanied with a duly accomplished Account Information
The taxpayers shall be informed in writing of the law and years from the date the said warrant or check was mailed or Form (AIF) which shall contain, among others, information
the facts on which the assessment is made; otherwise, the delivered, shall be forfeited in favor of the Government and lifted from certified balance sheets, profit and loss
assessment shall be void. the amount thereof shall revert to the general fund. cralaw statements, schedules listing income-producing properties
Within a period to be prescribed by implementing rules and (B) Forfeiture of Tax Credit. - A tax credit certificate issued and the corresponding income therefrom and other relevant
regulations, the taxpayer shall be required to respond to said in accordance with the pertinent provisions of this Code, statements. cralaw
notice. which shall remain unutilized after five (5) years from the (B) Independent Certified Public Accountant Defined. - The
If the taxpayer fails to respond, the Commissioner or his date of issue, shall, unless revalidated, be considered invalid, term "Independent Certified Public Accountant", as used in
duly authorized representative shall issue an assessment and shall not be allowed as payment for internal revenue tax the preceding paragraph, means an accountant who
based on his findings. cralaw liabilities of the taxpayer, and the amount covered by the possesses the independence as defined in the rules and
Such assessment may be protested administratively by filing certificate shall revert to the general fund. regulations of the Board of Accountancy promulgated
a request for reconsideration or reinvestigation within thirty (C) Transitory Provision. - For purposes of the preceding pursuant to Presidential Decree No. 692, otherwise known as
(30) days from receipt of the assessment in such form and Subsection, a tax credit certificate issued by the the Revised Accountancy Law.
manner as may be prescribed by implementing rules and Commissioner or his duly authorized representative prior to SEC. 233. Subsidiary Books. - All corporations, companies,
regulations. cralaw January 1, 1998, which remains unutilized or has a partnerships or persons keeping the books of accounts
Within sixty (60) days from filing of the protest, all relevant creditable balance as of said date, shall be presented for mentioned in the preceding Section may, at their option,
supporting documents shall have been submitted; otherwise, revalidation with the Commissioner or his duly authorized keep subsidiary books as the needs of their business may
the assessment shall become final. cralaw representative or on before June 30, 1998. require: Provided, That were such subsidiaries are kept, they
If the protest is denied in whole or in part, or is not acted SEC. 231. Action to Contest Forfeiture of Chattel. - In case shall form part of the accounting system of the taxpayer and
upon within one hundred eighty (180) days from submission of the seizure of personal property under claim of forfeiture, shall be subject to the same rules and regulations as to their
of documents, the taxpayer adversely affected by the decision the owner desiring to contest the validity of the forfeiture keeping, translation, production and inspection as are
or inaction may appeal to the Court of Tax Appeals within may, at any time before sale or destruction of the property, applicable to the journal and the ledger.
thirty (30) days from receipt of the said decision, or from the bring an action against the person seizing the property or SEC. 234. Language in which Books are to be Kept;
lapse of one hundred eighty (180)-day period; otherwise, the having possession thereof to recover the same, and upon Translation. - All such corporations, companies, partnerships
decision shall become final, executory and demandable. giving proper bond, may enjoin the sale; or after the sale and or persons shall keep the books or records mentioned in
SEC. 229. Recovery of Tax Erroneously or Illegally within six (6) months, he may bring an action to recover the Section 232 hereof in native language, English or Spanish:
Collected. - no suit or proceeding shall be maintained in any net proceeds realized at the sale. Provided, however, That if in addition to said books or
court for the recovery of any national internal revenue tax TITLE IX records the taxpayer keeps other books or records in a
hereafter alleged to have been erroneously or illegally COMPLIANCE REQUIREMENTS language other than a native language, English or Spanish,
assessed or collected, or of any penalty claimed to have been CHAPTER I he shall make a true and complete translation of all the
collected without authority, of any sum alleged to have been KEEPING OF BOOKS OF ACCOUNTS AND RECORDS entries in suck other books or records into a native language;
excessively or in any manner wrongfully collected without SEC. 232. Keeping of Books of Accounts. - English or Spanish, and the said translation must be made
authority, or of any sum alleged to have been excessively or (A) Corporations, Companies, Partnerships or Persons by the bookkeeper, or such taxpayer, or in his absence, by his
in any manner wrongfully collected, until a claim for refund Required to Keep Books of Accounts. - All corporations, manager and must be certified under oath as to its
or credit has been duly filed with the Commissioner; but companies, partnerships or persons required by law to pay correctness by the said bookkeeper or manager, and shall
such suit or proceeding may be maintained, whether or not internal revenue taxes shall keep a journal and a ledger or form an integral part of the aforesaid books of accounts.
such tax, penalty, or sum has been paid under protest or their equivalents: Provided, however, That those whose The keeping of such books or records in any language other
duress. cralaw quarterly sales, earnings, receipts, or output do not exceed than a native language, English or Spanish, is hereby
In any case, no such suit or proceeding shall be filed after the Fifty thousand pesos (P50,000) shall keep and use simplified prohibited.
expiration of two (2) years from the date of payment of the set of bookkeeping records duly authorized by the Secretary SEC. 235. Preservation of Books and Accounts and Other
tax or penalty regardless of any supervening cause that may of Finance where in all transactions and results of operations Accounting Records. - All the books of accounts, including
arise after payment: Provided, however, That the are shown and from which all taxes due the Government the subsidiary books and other accounting records of

57
corporations, partnerships, or persons, shall be preserved by required in this Code. added tax in excess of the amount prescribed under Section
them for a period beginning from the last entry in each book The registration shall contain the taxpayer's name, style, 109(z) of this Code for the next 12-month period from the
until the last day prescribed by Section 203 within which the place of residence, business and such other information as commencement of the business, shall register with the
Commissioner is authorized to make an assessment. may be required by the Commissioner in the form Revenue District Office which has jurisdiction over the head
The said books and records shall be subject to examination prescribed therefor. office or branch and shall pay the annual registration fee
and inspection by internal revenue officers: Provided, That A person maintaining a head office, branch or facility shall prescribed in Subsection (B) hereof. cralaw
for income tax purposes, such examination and inspection register with the Revenue District Officer having jurisdiction (H) Persons Becoming Liable to the Value-added Tax. - Any
shall be made only once in a taxable year, except in the over the head office, brand or facility. person, whose gross sales or receipts in any 12-month period
following cases: For purposes of this Section, the term "facility" may include exceeds the amount prescribed under Subsection 109(z) of
(a) Fraud, irregularity or mistakes, as determined by the but not be limited to sales outlets, places of production, this Code for exemption from the value-added tax shall
Commissioner;(b) The taxpayer requests reinvestigation;(c) warehouses or storage places. cralaw register in accordance with Subsection (A) hereof, and shall
Verification of compliance with withholding tax laws and (B) Annual Registration Fee. - An annual registration fee in pay the annual registration fee prescribed within ten (10)
regulations;(d) Verification of capital gains tax liabilities; the amount of Five hundred pesos (P500) for every separate days after the end of the last month of that period, and shall
and(e) In the exercise of the Commissioner's power under or distinct establishment or place of business, including be liable to the value-added tax commencing from the first
Section 5(B) to obtain information from other persons in facility types where sales transactions occur, shall be paid day of the month following his registration. cralaw
which case, another or separate examination and inspection upon registration and every year thereafter on or before the (I) Optional Registration of Exempt Person. - Any person
may be made. last day of January: Provided, however, That cooperatives, whose transactions are exempt from value-added tax under
Examination and inspection of books of accounts and other individuals earning purely compensation income, whether Section 109(z) of this Code; or any person whose
accounting records shall be done in the taxpayer's office or locally or abroad, and overseas workers are not liable to the transactions are exempt from the value-added tax under
place of business or in the office of the Bureau of Internal registration fee herein imposed. cralaw Section 109(a), (b), (c), and (d) of this Code, who opts to
Revenue. The registration fee shall be paid to an authorized agent register as a VAT taxpayer with respect to his export sales
All corporations, partnerships or persons that retire from bank located within the revenue district, or to the Revenue only, may update his registration information in accordance
business shall, within ten (10) days from the date of Collection Officer, or duly authorized Treasurer of the city of with Subsection (E) hereof, not later than ten (10) days
retirement or within such period of time as may be allowed municipality where each place of business or branch is before the beginning of the taxable quarter and shall pay the
by the Commissioner in special cases, submit their books of registered. cralaw annual registration fee prescribed in Subsection (B) hereof.
accounts, including the subsidiary books and other (C) Registration of Each Type of Internal Revenue Tax. - cralaw
accounting records to the Commissioner or any of his Every person who is required to register with the Bureau of In any case, the Commissioner may, for administrative
deputies for examination, after which they shall be returned. Internal Revenue under Subsection (A) hereof, shall register reasons, deny any application for registration including
Corporations and partnerships contemplating dissolution each type of internal revenue tax for which he is obligated, updates prescribed under Subsection (E) hereof. cralaw
must notify the Commissioner and shall not be dissolved shall file a return and shall pay such taxes, and shall updates For purposes of Title IV of this Code, any person who has
until cleared of any tax liability. such registration of any changes in accordance with registered value-added tax as a tax type in accordance with
Any provision of existing general or special law to the Subsection (E) hereof. cralaw the provisions of Subsection (C) hereof shall be referred to as
contrary notwithstanding, the books of accounts and other (D) Transfer of Registration. - In case a registered person VAT-registered person who shall be assigned only one
pertinent records of tax-exempt organizations or grantees of decides to transfer his place of business or his head office or Taxpayer Identification Number. cralaw
tax incentives shall be subject to examination by the Bureau branches, it shall be his duty to update his registration status (J) Supplying of Taxpayer Identification Number (TIN). -
of Internal Revenue for purposes of ascertaining compliance by filing an application for registration information update Any person required under the authority of this Code to
with the conditions under which they have been granted tax in the form prescribed therefor. cralaw make, render or file a return, statement or other document
exemptions or tax incentives, and their tax liability, if any. (E) Other Updates. - Any person registered in accordance shall be supplied with or assigned a Taxpayer Identification
with this Section shall, whenever applicable, update his Number (TIN) which he shall indicate in such return,
CHAPTER II registration information with the Revenue District Office statement or document filed with the Bureau of Internal
ADMINISTRATIVE PROVISIONS where he is registered, specifying therein any change in type Revenue for his proper identification for tax purposes, and
SEC. 236. Registration Requirements. - and other taxpayer details. cralaw which he shall indicate in certain documents, such as, but not
(A) Requirements. - Every person subject to any internal (F) Cancellation of Registration. - The registration of any limited to the following:
revenue tax shall register once with the appropriate Revenue person who ceases to be liable to a tax type shall be cancelled (1) Sugar quedans, refined sugar release order or similar
District Officer: upon filing with the Revenue District Office where he is instruments;(2) Domestic bills of lading;(3) Documents to be
(1) Within ten (10) days from date of employment, or registered an application for registration information update registered with the Register of Deeds of Assessor's Office;(4)
(2) On or before the commencement of business,or in a form prescribed therefor. cralaw Registration certificate of transportation equipment by land,
(3) Before payment of any tax due, or (G) Persons Commencing Business. - Any person, who sea or air;(5) Documents to be registered with the Securities
(4) Upon filing of a return, statement or declaration as expects to realize gross sales or receipts subject to value- and Exchange Commission;(6) Building construction

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permits;(7) Application for loan with banks, financial effected, who, if engaged in business or in the exercise of business in letters not less than six centimeters (6 cms.) high
institutions, or other financial intermediaries;(8) Application profession, shall keep and preserve the same in his place of and also giving his assessment number.
for mayor's permit;(9) Application for business license with business for a period of three (3) years from the close of the SEC. 241. Exhibition of Certificate of Payment at Place of
the Department of Trade & Industry; and(10) Such other taxable year in which such invoice or receipt was issued, Business. - The certificate or receipts showing payment of
documents which may hereafter be required under rules and while the duplicate shall be kept and preserved by the issuer, taxes issued to a person engaged in a business subject to an
regulations to be promulgated by the Secretary of Finance, also in his place of business, for a like period. cralaw annual registration fee shall be kept conspicuously exhibited
upon recommendation of the Commissioner. The Commissioner may, in meritorious cases, exempt any in plain view in or at the place where the business is
In cases where a registered taxpayer dies, the administrator person subject to internal revenue tax from compliance with conducted; and in case of a peddler or other persons not
or executor shall register the estate of the decedent in the provisions of this Section. having a fixed place of business, shall be kept in the
accordance with Subsection (A) hereof and a new Taxpayer SEC. 238. Printing of Receipts or Sales or Commercial possession of the holder thereof, subject to production upon
Identification Number (TIN) shall be supplied in accordance Invoices. - All persons who are engaged in business shall demand of any internal revenue officer.
with the provisions of this Section. secure from the Bureau of Internal Revenue an authority to SEC. 242. Continuation of Business of Deceased Person. -
In the case of a nonresident decedent, the executor or print receipts or sales or commercial invoices before a When any individual who has paid the annual registration
administrator of the estate shall register the estate with the printer can print the same. cralaw fee dies, and the same business is continued by the person or
Revenue District Office where he is registered: Provided, No authority to print receipts or sales or commercial invoices persons interested in his estate, no additional payment shall
however, That in case such executor or administrator is not shall be granted unless the receipts or invoices to be printed be required for the residue of the term which the tax was
registered, registration of the estate shall be made with the are serially numbered and shall show, among other things, paid: Provided, however, That the person or persons
Taxpayer Identification Number (TIN) supplied by the the name, business style, Taxpayer Identification Number interested in the estate should, within thirty (30) days from
Revenue District Office having jurisdiction over his legal (TIN) and business address of the person or entity to use the the death of the decedent, submit to the Bureau of Internal
residence. cralaw same, and such other information that may be required by Revenue or the regional or revenue District Office
Only one Taxpayer identification Number (TIN) shall be rules and regulations to be promulgated by the Secretary of inventories of goods or stocks had at the time of such death.
assigned to a taxpayer. Finance, upon recommendation of the Commissioner. cralaw The requirement under this Section shall also be applicable
Any person who shall secure more than one Taxpayer All persons who print receipt or sales or commercial invoices in the case of transfer of ownership or change of name of the
Identification Number shall be criminally liable under the shall maintain a logbook/register of taxpayers who availed of business establishment.
provision of Section 275 on 'Violation of Other Provisions of their printing services. SEC. 243. Removal of Business to Other Location. - Any
this Code or Regulations in General'. The logbook/register shall contain the following information: business for which the annual registration fee has been paid
SEC. 237. Issuance of Receipts or Sales or Commercial (1) Names, Taxpayer Identification Numbers of the persons may, subject to the rules and regulations prescribed by the
Invoices. -All persons subject to an internal revenue tax or entities for whom the receipts or sales or commercial Secretary of Finance, upon recommendation of the
shall, for each sale or transfer of merchandise or for services invoices were printed; and Commissioner, be removed and continued in any other place
rendered valued at Twenty-five pesos (P25.00) or more, issue (2) Number of booklets, number of sets per booklet, number without the payment of additional tax during the term for
duly registered receipts or sales or commercial invoices, of copies per set and the serial numbers of the receipts or which the payment was made.
prepared at least in duplicate, showing the date of invoices in each booklet. CHAPTER III
transaction, quantity, unit cost and description of SEC. 239. Sign to be Exhibited by Distiller, Rectifier, RULES AND REGULATIONS
merchandise or nature of service: Provided, however, That in Compounder, Repacker and Wholesale Liquor Dealer. - SEC. 244. Authority of Secretary of Finance to Promulgate
the case of sales, receipts or transfers in the amount of One Every person engaged in distilling or rectifying spirits, Rules and Regulations. - The Secretary of Finance, upon
hundred pesos (P100.00) or more, or regardless of the compounding liquors, repacking wines or distilled spirits, recommendation of the Commissioner, shall promulgate all
amount, where the sale or transfer is made by a person liable and every wholesale liquor dealer shall keep conspicuously needful rules and regulations for the effective enforcement of
to value-added tax to another person also liable to value- on the outside of his place of business a sign exhibiting, in the provisions of this Code.
added tax; or where the receipt is issued to cover payment letters not less than six centimeters (6 cms.) high, his name or SEC. 245. Specific Provisions to be Contained in Rules and
made as rentals, commissions, compensations or fees, firm style, with the words "Registered Distiller", "Rectifier Regulations. - The rules and regulations of the Bureau of
receipts or invoices shall be issued which shall show the of Spirits", "Compounder of Liquors", "Repacker of Wines Internal Revenue shall, among other thins, contain
name, business style, if any, and address of the purchaser, or Distilled Spirits", or "Wholesale Liquor Dealer", as the provisions specifying, prescribing or defining:
customer or client: Provided, further, That where the case may be, and his assessment number. (a) The time and manner in which Revenue Regional
purchaser is a VAT-registered person, in addition to the SEC. 240. Sign to be Exhibited by Manufacturer of Products Director shall canvass their respective Revenue Regions for
information herein required, the invoice or receipt shall of Tobacco. - Everymanufacturer of cigars, cigarettes or the purpose of discovering persons and property liable to
further show the Taxpayer Identification Number (TIN) of tobacco, and every wholesale dealer in leaf tobacco or national internal revenue taxes, and the manner in which
the purchaser. cralaw manufactured products of tobacco shall place and keep on their lists and records of taxable persons and taxable objects
The original of each receipt or invoice shall be issued to the outside of the building wherein his business is carried on, so shall be made and kept;(b) The forms of labels, brands or
purchaser, customer or client at the time the transaction is that it can be distinctly seen, a sign stating his full name and marks to be required on goods subject to an excise tax, and

59
the manner in which the labelling, branding or marking shall prescribing the place of filing of returns and payment of the taxpayers, except in the following cases:
be effected;(c) The conditions under which and the manner taxes, the Commissioner may, by rules and regulations, (a) Where the taxpayer deliberately misstates or omits
in which goods intended for export, which if not exported require that the tax returns, papers and statements that may material facts from his return or any document required of
would be subject to an excise tax, shall be labelled, branded be filed by the taxpayers in connection with the payment of him by the Bureau of Internal Revenue;(b) Where the facts
or marked;(d) The conditions to be observed by revenue the tax. Provided, however, That notwithstanding the other subsequently gathered by the Bureau of Internal Revenue
officers respecting the institutions and conduct of legal provisions of this Code prescribing the place of filing of are materially different from the facts on which the ruling is
actions and proceedings;(e) The conditions under which returns and payment of taxes, the Commissioner may, by based; or(c) Where the taxpayer acted in bad faith.
goods intended for storage in bonded warehouses shall be rules and regulations require that the tax returns, papers TITLE X
conveyed thither, their manner of storage and the method of and statements and taxes of large taxpayers be filed and STATUTORY OFFENSES AND PENALTIES
keeping the entries and records in connection therewith, also paid, respectively, through collection officers or through duly
the books to be kept by Revenue Inspectors and the reports authorized agent banks: Provided, further, That the CHAPTER I
to be made by them in connection with their supervision of Commissioner can exercise this power within six (6) years ADDITIONS TO TAX
such houses;(f) The conditions under which denatured from the approval of Republic Act No. 7646 or the SEC. 247. General Provisions. -
alcohol may be removed and dealt in, the character and completion of its comprehensive computerization program, (a) The additions to the tax or deficiency tax prescribed in
quantity of the denaturing material to be used, the manner whichever comes earlier: Provided, finally, That separate this Chapter shall apply to all taxes, fees and charges
in which the process of denaturing shall be effected, so as to venues for the Luzon, Visayas and Mindanao areas may be imposed in this Code.
render the alcohol suitably denatured and unfit for oral designated for the filing of tax returns and payment of taxes The Amount so added to the tax shall be collected at the
intake, the bonds to be given, the books and records to be by said large taxpayers. same time, in the same manner and as part of the tax.
kept, the entries to be made therein, the reports to be made For the purpose of this Section, "large taxpayer" means a (b) If the withholding agent is the Government or any of its
to the Commissioner, and the signs to be displayed in the taxpayer who satisfies any of the following criteria; agencies, political subdivisions or instrumentalities, or a
business or by the person for whom such denaturing is done (1) Value-Added Tax (VAT). - Business establishment with government-owned or controlled corporation, the employee
or by whom, such alcohol is dealt in;(g) The manner in which VAT paid or payable of at least One hundred thousand pesos thereof responsible for the withholding and remittance of the
revenue shall be collected and paid, the instrument, (P100,000) for any quarter of the preceding taxable year; tax shall be personally liable for the additions to the tax
document or object to which revenue stamps shall be affixed, (2) Excise Tax. - Business establishment with excise tax paid prescribed herein.
the mode of cancellation of the same, the manner in which or payable of at least One million pesos (P1,000,000) for the (c) the term "person", as used in this Chapter, includes an
the proper books, records, invoices and other papers shall be preceding taxable year; officer or employee of a corporation who as such officer,
kept and entries therein made by the person subject to the (3) Corporate Income Tax. - Business establishment with employee or member is under a duty to perform the act in
tax, as well as the manner in which licenses and stamps shall annual income tax paid or payable of at least One million respect of which the violation occurs.
be gathered up and returned after serving their purposes;(h) pesos (P1,000,000) for the preceding taxable year; and SEC. 248. Civil Penalties. - (A) There shall be imposed, in
The conditions to be observed by revenue officers respecting (4) Withholding Tax. - Business establishment with addition to the tax required to be paid, a penalty equivalent
the enforcement of Title III imposing a tax on estate of a withholding tax payment or remittance of at least One to twenty-five percent (25%) of the amount due, in the
decedent, and other transfers mortis causa, as well as on gifts million pesos (P1,000,000) for the preceding taxable year. following cases: (1) Failure to file any return and pay the tax
and such other rules and regulations which the cralawProvided, however, That the Secretary of Finance, due thereon as required under the provisions of this Code or
Commissioner may consider suitable for the enforcement of upon recommendation of the Commissioner, may modify or rules and regulations on the date prescribed; or (2) Unless
the said Title III;(i) The manner in which tax returns, add to the above criteria for determining a large taxpayer otherwise authorized by the Commissioner, filing a return
information and reports shall be prepared and reported and after considering such factors as inflation, volume of with an internal revenue officer other than those with whom
the tax collected and paid, as well as the conditions under business, wage and employment levels, and similar economic the return is required to be filed; or (3) Failure to pay the
which evidence of payment shall be furnished the taxpayer, factors. cralaw deficiency tax within the time prescribed for its payment in
and the preparation and publication of tax statistics;(j) The The penalties prescribed under Section 248 of this Code shall the notice of assessment; or (4) Failure to pay the full or part
manner in which internal revenue taxes, such as income tax, be imposed on any violation of the rules and regulations of the amount of tax shown on any return required to be
including withholding tax, estate and donor's taxes, value- issued by the Secretary of Finance, upon recommendation of filed under the provisions of this Code or rules and
added tax, other percentage taxes, excise taxes and the Commissioner, prescribing the place of filing of returns regulations, or the full amount of tax due for which no
documentary stamp taxes shall be paid through the and payments of taxes by large taxpayers. return is required to be filed, on or before the date
collection officers of the Bureau of Internal Revenue or SEC. 246. Non-Retroactivity of Rulings. - Any revocation, prescribed for its payment.
through duly authorized agent banks which are hereby modification or reversal of any of the rules and regulations (B) In case of willful neglect to file the return within the
deputized to receive payments of such taxes and the returns, promulgated in accordance with the preceding Sections or period prescribed by this Code or by rules and regulations,
papers and statements that may be filed by the taxpayers in any of the rulings or circulars promulgated by the or in case a false or fraudulent return is willfully made, the
connection with the payment of the tax: Provided, however, Commissioner shall not be given retroactive application if penalty to be imposed shall be fifty percent (50%) of the tax
That notwithstanding the other provisions of this Code the revocation, modification or reversal will be prejudicial to or of the deficiency tax, in case, any payment has been made

60
on the basis of such return before the discovery of the falsity information required by this Code or by the Commissioner certificate as a Certified Public Accountant shall, upon
or fraud: Provided, That a substantial underdeclaration of on the date prescribed therefor, unless it is shown that such conviction, be automatically revoked or cancelled.
taxable sales, receipts or income, or a substantial failure is due to reasonable cause and not to willful neglect, (d) In the case of associations, partnerships or corporations,
overstatement of deductions, as determined by the there shall, upon notice and demand by the Commissioner, the penalty shall be imposed on the partner, president,
Commissioner pursuant to the rules and regulations to be be paid by the person failing to file, keep or supply the same, general manager, branch manager, treasurer, officer-in-
promulgated by the Secretary of Finance, shall constitute One thousand pesos (1,000) for each failure: Provided, charge, and the employees responsible for the violation.
prima facie evidence of a false or fraudulent return: however, That the aggregate amount to be imposed for all (e) The fines to be imposed for any violation of the provisions
Provided, further, That failure to report sales, receipts or such failures during a calendar year shall not exceed Twenty- of this Code shall not be lower than the fines imposed herein
income in an amount exceeding thirty percent (30%) of that five thousand pesos (P25,000). or twice the amount of taxes, interest and surcharges due
declared per return, and a claim of deductions in an amount SEC. 251. Failure of a Withholding Agent to Collect and from the taxpayer, whichever is higher.
exceeding (30%) of actual deductions, shall render the Remit Tax. - Any person required to withhold, account for, SEC. 254. Attempt to Evade or Defeat Tax. - Any person who
taxpayer liable for substantial underdeclaration of sales, and remit any tax imposed by this Code or who willfully fails willfully attempts in any manner to evade or defeat any tax
receipts or income or for overstatement of deductions, as to withhold such tax, or account for and remit such tax, or imposed under this Code or the payment thereof shall, in
mentioned herein. aids or abets in any manner to evade any such tax or the addition to other penalties provided by law, upon conviction
SEC. 249. Interest. - payment thereof, shall, in addition to other penalties thereof, be punished by a fine not less than Thirty thousand
(A) In General. - There shall be assessed and collected on any provided for under this Chapter, be liable upon conviction to (P30,000) but not more than One hunderd thousand pesos
unpaid amount of tax, interest at the rate of twenty percent a penalty equal to the total amount of the tax not withheld, (P100,000) and suffer imprisonment of not less than two (2)
(20%) per annum, or such higher rate as may be prescribed or not accounted for and remitted. years but not more than four (4) years: Provided, That the
by rules and regulations, from the date prescribed for SEC. 252. Failure of a Withholding Agent to refund Excess conviction or acquittal obtained under this Section shall not
payment until the amount is fully paid. cralaw Withholding Tax. - Any employer/withholding agent who be a bar to the filing of a civil suit for the collection of taxes.
(B) Deficiency Interest. - Any deficiency in the tax due, as the fails or refuses to refund excess withholding tax shall, in SEC. 255. Failure to File Return, Supply Correct and
term is defined in this Code, shall be subject to the interest addition to the penalties provided in this Title, be liable to a Accurate Information, Pay Tax Withhold and Remit Tax and
prescribed in Subsection (A) hereof, which interest shall be penalty to the total amount of refunds which was not Refund Excess Taxes Withheld on Compensation. - Any
assessed and collected from the date prescribed for its refunded to the employee resulting from any excess of the person required under this Code or by rules and regulations
payment until the full payment thereof. cralaw amount withheld over the tax actually due on their return. promulgated thereunder to pay any tax make a return, keep
(C) Delinquency Interest. - In case of failure to pay: any record, or supply correct the accurate information, who
(1) The amount of the tax due on any return to be filed, or CHAPTER II willfully fails to pay such tax, make such return, keep such
(2) The amount of the tax due for which no return is CRIMES, OTHER OFFENSES AND FORFEITURES record, or supply correct and accurate information, or
required, or SEC. 253. General Provisions. - withhold or remit taxes withheld, or refund excess taxes
(3) A deficiency tax, or any surcharge or interest thereon on (a) Any person convicted of a crime penalized by this Code withheld on compensation, at the time or times required by
the due date appearing in the notice and demand of the shall, in addition to being liable for the payment of the tax, law or rules and regulations shall, in addition to other
Commissioner, there shall be assessed and collected on the be subject to the penalties imposed herein: Provided, That penalties provided by law, upon conviction thereof, be
unpaid amount, interest at the rate prescribed in Subsection payment of the tax due after apprehension shall not punished by a fine of not less than Ten thousand pesos
(A) hereof until the amount is fully paid, which interest shall constitute a valid defense in any prosecution for violation of (P10,000) and suffer imprisonment of not less than one (1)
form part of the tax. any provision of this Code or in any action for the forfeiture year but not more than ten (10) years.
(D) Interest on Extended Payment. - If any person required of untaxed articles. Any person who attempts to make it appear for any reason
to pay the tax is qualified and elects to pay the tax on (b) Any person who willfully aids or abets in the commission that he or another has in fact filed a return or statement, or
installment under the provisions of this Code, but fails to pay of a crime penalized herein or who causes the commission of actually files a return or statement and subsequently
the tax or any installment hereof, or any part of such amount any such offense by another shall be liable in the same withdraws the same return or statement after securing the
or installment on or before the date prescribed for its manner as the principal. official receiving seal or stamp of receipt of internal revenue
payment, or where the Commissioner has authorized an (c) If the offender is not a citizen of the Philippines, he shall office wherein the same was actually filed shall, upon
extension of time within which to pay a tax or a deficiency be deported immediately after serving the sentence without conviction therefor, be punished by a fine of not less than Ten
tax or any part thereof, there shall be assessed and collected further proceedings for deportation. thousand pesos (P10,000) but not more than Twenty
interest at the rate hereinabove prescribed on the tax or If he is a public officer or employee, the maximum penalty thousand pesos (P20,000) and suffer imprisonment of not less
deficiency tax or any part thereof unpaid from the date of prescribed for the offense shall be imposed and, in addition, than one (1) year but not more than three (3) years.
notice and demand until it is paid. he shall be dismissed from the public service and perpetually SEC. 256. Penal Liability of Corporations. - Any
SEC. 250. Failure to File Certain Information Returns. - In disqualified from holding any public office, to vote and to corporation, association or general co-partnership liable for
the case of each failure to file an information return, participate in any election. any of the acts or omissions penalized under this Code, in
statement or list, or keep any record, or supply any If the offender is a Certified Public Accountant, his addition to the penalties imposed herein upon the responsible

61
corporate officers, partners, or employees shall, upon upon conviction for each act or omission, be punished by a SEC. 261. Unlawful Use of Denatured Alcohol. - Any person
conviction for each act or omission, be punished by a fine of fine not less than Fifty thousand pesos (P50,000) but not who for the purpose of manufacturing any beverage, uses
not less than Fifty thousand pesos (P50,000) but not more more than One hundred pesos (P100,000) and suffer denatured alcohol or alcohol specially denatured to be used
than One hundred thousand pesos (P100,000). imprisonment of not less than two (2) years but not more for motive power or withdrawn under bond for industrial
SEC. 257. Penal Liability for Making False Entries, Records than six (6) years. uses or alcohol knowingly misrepresented to be denatured to
or Reports, or Using Falsified or Fake Accountable Forms. - If the offender is a Certified Public Accountant, his be unfit for oral intake or who knowingly sells or offers for
(A) Any financial officer or independent Certified Public certificate as a Certified Public Accountant shall be sale any beverage made in whole or in part from such
Accountant engaged to examine and audit books of accounts automatically revoked or cancelled upon conviction. alcohol or who uses such alcohol for the manufacture of
of taxpayers under Section 232 (A) and any person under his In the case of foreigners, conviction under this Code shall liquid medicinal preparations taken internally, or knowingly
direction who: result in his immediate deportation after serving sentence, sells or offers for sale such preparations containing as an
(1) Willfully falsifies any report or statement bearing on any without further proceedings for deportation. ingredient such alcohol, shall upon conviction for each act or
examination or audit, or renders a report, including exhibits, SEC. 258. Unlawful Pursuit of Business. - Any person who omission be punished by a fine of not less than Twenty
statements, schedules or other forms of accountancy work carries on any business for which an annual registration fee thousand pesos (P20,000) but not more than One hundred
which has not been verified by him personally or under his is imposed without paying the tax as required by law shall, thousand pesos (P100,000) and suffer imprisonment for a
supervision or by a member of his firm or by a member of upon conviction for each act or omission, be punished by a term of not less than six (6) years and one (1) day but not
his staff in accordance with sound auditing practices; or fine of not less than Five thousand pesos (P5,000) but not more than twelve (12) years. cralaw
(2) Certifies financial statements of a business enterprise more than Twenty thousand pesos (P20,000) and suffer Any person who shall unlawfully recover or attempt to
containing an essential misstatement of facts or omission in imprisonment of not less than six (6) months but not more recover by distillation or other process any denatured
respect of the transactions, taxable income, deduction and than two (2) years: Provided, That in the case of a person alcohol or who knowingly sells or offers for sale, conceals or
exemption of his client; or engaged in the business of distilling, rectifying, repacking, otherwise disposes of alcohol so recovered or redistilled shall
(B) Any person who: compounding or manufacturing any article subject to excise be subject to the same penalties imposed under this Section.
(1) Not being an independent Certified Public Accountant tax, he shall, upon conviction for each act or omission, be SEC. 262. Shipment or Removal of Liquor or Tobacco
according to Section 232(B) or a financial officer, examines punished by a fine of not less than Thirty thousand pesos Products under False Name or Brand or as an Imitation of
and audits books of accounts of taxpayers; or (P30,000) but not more than Fifty thousand pesos (P50,000) any Existing or Otherwise Known Product Name or Brand. -
(2) Offers to sign and certify financial statements without and suffer imprisonment of not less than two (2) years but Any person who ships, transports or removes spirituous,
audit; or not more than four (4) years. compounded or fermented liquors, wines or any
(3) Offers any taxpayer the use of accounting bookkeeping SEC. 259. Illegal Collection of Foreign Payments. - Any manufactured products of tobacco under any other than the
records for internal revenue purposes not in conformity with person who knowingly undertakes the collection of foreign proper name or brand known to the trade as designating the
the requirements prescribed in this Code or rules and payments as provided under Section 67 of this Code without kind and quality of the contents of the cask, bottle or
regulations promulgated thereunder; or having obtained a license therefor, or without complying package containing the same or as an imitation of any
(4) Knowingly makes any false entry or enters any false or with its implementing rules and regulations, shall, upon existing or otherwise known product name or brand or
fictitious name in the books of accounts or record mentioned conviction for each act or omission, be punished by a fine of causes such act to be done, shall, upon conviction for each
in the preceding paragraphs; or not less than Twenty thousand pesos (P20,000) but not more act or omission, be punished by a fine of not less than Twenty
(5) Keeps two (2) or more sets of such records or books of than Fifty thousand pesos (P50,000) and suffer thousand pesos (P20,000) but not more than One hundred
accounts; or imprisonment of not less than one (1) year but not more than thousand pesos (P1000,000) and suffer imprisonment of not
(6) In any way commits an act or omission, in violation of the two (2) years. less than six (6) years and one (1) day but not more than
provisions of this Section; or SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins twelve (12) years.
(7) Fails to keep the books of accounts or records mentioned or Rolls, Etc. - It shall be unlawful for any person to have in SEC. 263. Unlawful Possession or Removal of Articles
in Section 232 in a native language, English or Spanish, or to his possession cigarette paper in bobbins or rolls, cigarette Subject to Excise Tax without Payment of the Tax. - Any
make a true and complete translation as required in Section tipping paper or cigarette filter tips, without the person who owns and/or is found in possession of imported
234 of this Code, or whose books of accounts or records kept corresponding authority therefor issued by the articles subject to excise tax, the tax on which has not been
in a native language, English or Spanish, and found to be at Commissioner. paid in accordance with law, or any person who owns and/or
material variance with books or records kept by him in Any person, importer, manufacturer of cigar and cigarettes, is found in possession of imported tax-exempt articles other
another language; or who has been found guilty under this Section, shall, upon than those to whom they are legally issued shall be punished
(8) Willfully attempts in any manner to evade or defeat any conviction for each act or omission, be punished by a fine of by:
tax imposed under this Code, or knowingly uses fake or not less than Twenty thousand pesos (P20,000) but not more (a) A fine of not less than One thousand pesos (P1,000) nor
falsified revenue official receipts, Letters of Authority, than One hundred thousand pesos (P1000,000) and suffer more than Two thousand pesos (P2,000) and suffer
certificates authorizing registration, Tax Credit Certificates, imprisonment for a term of not less than six (6) years and imprisonment of not less than sixty (60) days but not more
Tax Debit Memoranda and other accountable forms shall, one (1) day but not more than twelve (12) years. than one hundred (100) days, if the appraised value, to be

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determined in the manner prescribed in the Tariff and law, shall be punishable under this Section. papers, or to furnish information as required under the
Customs Code, including duties and taxes, of the articles Sec. 264. Failure or refusal to Issue Receipts or Sales or pertinent provisions of this Code, neglects to appear or to
does not exceed One thousand pesos (P1,000). Commercial Invoices, Violations related to the Printing of produce such books of accounts, records, memoranda or
(b) A fine of not less than Ten thousand pesos (P10,000) but such Receipts or Invoices and Other Violations. - other papers, or to furnish such information, shall, upon
not more than Twenty thousand pesos (P20,000) and suffer (a) Any person who, being required under Section 237 to conviction, be punished by a fine of not less than Five
imprisonment of not less than two (2) years but not more issue receipts or sales or commercial invoices, fails or refuses thousand pesos (P5,000) but not more than ten thousand
than four (4) years, if the appraised value, to be determined to issue such receipts of invoices, issues receipts or invoices pesos (P10,000) and suffer imprisonment of not less than one
in the manner prescribed in the Tariff and Customs Code, that do not truly reflect and/or contain all the information (1) year but not more than two (2) years.
including duties and taxes, of the articles exceeds One required to be shown therein, or uses multiple or double SEC. 267. Declaration under Penalties of Perjury. - Any
thousand pesos (P1,000) but does not exceed Fifty thousand receipts or invoices, shall, upon conviction for each act or declaration, return and other statement required under this
pesos (P50,000);(c) A fine of not less than Thirty thousand omission, be punished by a fine of not less than One Code, shall, in lieu of an oath, contain a written statement
pesos (P30,000) but not more than Sixty thousand pesos thousand pesos (P1,000) but not more than Fifty thousand that they are made under the penalties of perjury.
(P60,000) and suffer imprisonment of not less than four (4) pesos (P50,000) and suffer imprisonment of not less than two Any person who willfully files a declaration, return or
years but not more than six (6) years, if the appraised value, (2) years but not more than four (4) years. cralaw statement containing information which is not true and
to be determined in the manner prescribed in the Tariff and (b) Any person who commits any of the acts enumerated correct as to every material matter shall, upon conviction, be
Customs Code, including duties and taxes of the articles is hereunder shall be penalized in the same manner and to the subject to the penalties prescribed for perjury under the
more than Fifty thousand pesos (P50,000) but does not same extent as provided for in this Section: Revised Penal Code.
exceed One hundred fifty thousand pesos (P150,000); or(d) A (1) Printing of receipts or sales or commercial invoices SEC. 268. Other Crimes and Offenses. -
fine of not less than Fifty thousand pesos (P50,000) but not without authority from the Bureau of Internal Revenue; or (A) Misdeclaration or Misrepresentation of Manufacturers
more than One hundred thousand pesos (P100,000) and (2) Printing of double or multiple sets of invoices or receipts; Subject to Excise Tax.- Any manufacturer who, in violation
suffer imprisonment of not less than ten (10) years but not or of the provisions of Title VI of this Code, misdeclares in the
more than twelve (12) years, if the appraised value, to be (3) Printing of unnumbered receipts or sales or commercial sworn statement required therein or in the sales invoice, any
determined in the manner prescribed in the Tariff and invoices, not bearing the name, business style, Taxpayer pertinent data or information shall be punished by a
Customs Code, including duties and taxes, of the articles Identification Number, and business address of the person or summary cancellation or withdrawal of the permit to engage
exceeds One hundred fifty thousand pesos (P150,000). entity. in business as a manufacturer of articles subject to excise
Any person who is found in possession of locally SEC. 265. Offenses Relating to Stamps. - Any person who tax. cralaw
manufactured articles subject to excise tax, the tax on which commits any of the acts enumerated hereunder shall, upon (B) Forfeiture of Property Used in Unlicensed Business or
has not been paid in accordance with law, or any person who conviction thereof, be punished by a fine of not less than Dies Used for Printing False Stamps, Etc.- All chattels,
is found in possession of such articles which are exempt from Twenty thousand pesos (P20,000) but not more than Fifty machinery, and removable fixtures of any sort used in the
excise tax other than those to whom the same is lawfully thousand pesos (P50,000) and suffer imprisonment of not less unlicensed production of articles subject to excise tax shall
issued shall be punished with a fine of not less than (10) than four (4) years but not more than eight (8) years: (a) be forfeited.
times the amount of excise tax due on the articles found but making, importing, selling, using or possessing without Dies and other equipment used for the printing or making of
not less than Five hundred pesos (P500) and suffer express authority from the Commissioner, any die for any internal revenue stamp, label or tag which is in imitation
imprisonment of not less than two (2) years but not more printing or making stamps, labels, tags or playing cards;(b) of or purports to be a lawful stamp, label or tag shall also be
than four (4) years. Erasing the cancellation marks of any stamp previously forfeited. cralaw
Any manufacturer, owner or person in charge of any article used, or altering the written figures or letters or cancellation (C) Forfeiture of Goods Illegally Stored or Removed. -
subject to excise tax who removes or allows or causes the marks on internal revenue stamps;(c) Possessing false, Unless otherwise specifically authorized by the
unlawful removal of any such articles from the place of counterfeit, restored or altered stamps, labels or tags or Commissioner, all articles subject to excise tax should not be
production or bonded warehouse, upon which the excise tax causing the commission of any such offense by another;(d) stored or allowed to remain in the distillery warehouse,
has not been paid at the time and in the manner required, Selling or offering for sale any box or package containing bonded warehouse or other place where made, after the tax
and any person who knowingly aids or abets in the removal articles subject to excise tax with false, spurious or thereon has been paid; otherwise, all such articles shall be
of such articles as aforesaid, or conceals the same after illegal counterfeit stamps or labels or selling from any such forfeited.
removal shall, for the first offense, be punished with a fine of fraudulent box, package or container as aforementioned; Articles withdrawn from any such place or from customs
not less than ten (10) times the amount of excise tax due on or(e) Giving away or accepting from another, or selling, custody or imported into the country without the payment of
the articles but not less than One thousand pesos (P1,000) buying or using containers on which the stamps are not the required tax shall likewise be forfeited.
and suffer imprisonment of not less than one (1) year but not completely destroyed.
more than two (2) years. cralaw Sec. 266. Failure to Obey Summons. - Any person who, being CHAPTER III
The mere unexplained possession of articles subject to excise duly summoned to appear to testify, or to appear and PENALTIES IMPOSED ON PUBLIC OFFICERS
tax, the tax on which has not been paid in accordance with produce books of accounts, records, memoranda or other SEC. 269. Violations Committed by Government

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Enforcement Officers. - Every official, agent, or employee of prima facie case of grave misconduct has been established months and one (1) day but not more than two (2) years, or
the Bureau of Internal Revenue or any other agency of the shall, after due notice and hearing of the administrative case both: (a) Failing or causing the failure to deduct and
Government charged with the enforcement of the provisions and subject to Civil Service Laws, be dismissed from the withhold any internal revenue tax under any of the
of this Code, who is guilty of any of the offenses herein below revenue service: Provided, further, That the term "grave withholding tax laws and implementing rules and
specified shall, upon conviction for each act or omission, be misconduct", as defined in Civil Service Law, shall include regulations;(b) Failing or causing the failure to remit taxes
punished by a fine of not less than Fifty thousand pesos the issuance of fake letters of authority and receipts, forgery deducted and withheld within the time prescribed by law,
(P50,000) but not more than One hundred thousand pesos of signature, usurpation of authority and habitual issuance and implementing rules and regulations; and(c) Failing or
(P100,000) and suffer imprisonment of not less than ten (10) of unreasonable assessments. causing the failure to file return or statement within the time
years but not more than fifteen (15) years and shall likewise SEC. 270. Unlawful Divulgence of Trade Secrets. - Except as prescribed, or rendering or furnishing a false or fraudulent
suffer an additional penalty of perpetual disqualification to provided in Section 71 of this Code and Section 26 of return or statement required under the withholding tax laws
hold public office, to vote, and to participate in any public Republic Act No. 6388, any officer or employee of the Bureau and rules and regulations.
election: of Internal Revenue who divulges to any person or makes SEC. 273. Penalty for Failure to Issue and Execute Warrant.
(a) Extortion or willful oppression through the use of his known in any other manner than may be provided by law - Any official who fails to issue or execute the warrant of
office or willful oppression and harassment of a taxpayer information regarding the business, income or estate of any distraint or levy within thirty (30) days after the expiration
who refused, declined, turned down or rejected any of his taxpayer, the secrets, operation, style or work, or apparatus of the time prescribed in Section 207 or who is found guilty
offers specified in paragraph (d) hereof;(b) Knowingly of any manufacturer or producer, or confidential of abusing the exercise thereof by competent authority shall
demanding or receiving any fee, other or greater sums that information regarding the business of any taxpayer, be automatically dismissed from the service after due notice
are authorized by law or receiving any fee, compensation or knowledge of which was acquired by him in the discharge of and hearing.
reward, except as by law prescribed, for the performance of his official duties, shall upon conviction for each act or CHAPTER IV
any duty;(c) Willfully neglecting to give receipts, as by law omission, be punished by a fine of not less than Fifty OTHER PENAL PROVISIONS
required, for any sum collected in the performance of duty thousand pesos (P50,000) but not more than One hundred SEC. 274. Penalty for Second and Subsequent Offenses. - In
or willfully neglecting to perform any other duties enjoined thousand pesos (P100,000), or suffer imprisonment of not the case of reincidence, the maximum of the penalty
by law;(d) Offering or undertaking to accomplish, file or less than two (2) years but not more than five (5) years, or prescribed for the offense shall be imposed.
submit a report or assessment on a taxpayer without the both. SEC. 275. Violation of Other Provisions of this Code or Rules
appropriate examination of the books of accounts or tax SEC. 271. Unlawful Interest of Revenue Law Enforcers in and Regulations in General. - Any person who violates any
liability, or offering or undertaking to submit a report or Business. - Any internal revenue officer who is or shall provision of this Code or any rule or regulation promulgated
assessment less than the amount due the Government for any become interested, directly or indirectly, in the manufacture, by the Department of Finance, for which no specific penalty
consideration or compensation, or conspiring or colluding sale or importation of any article subject to excise tax under is provided by law, shall, upon conviction for each act or
with another or others to defraud the revenues or otherwise Title VI of this Code or in the manufacture or repair or sale, omission, be punished by a fine of not more than One
violate the provisions of this Code;(e) Neglecting or by design of any die for printing, or making of stamps, or labels shall thousand pesos (P1,000) or suffer imprisonment of not more
permitting the violation of the law by any other person;(f) upon conviction for each act or omission, be punished by a than six (6) months, or both.
Making or signing any false entry or entries in any book, or fine of not less than Five thousand pesos (P5,000) but not SEC. 276. Penalty for Selling, Transferring, Encumbering or
making or signing any false certificate or return; more than Ten thousand pesos (P10,000), or suffer in Any Way Disposing of Property Placed Under
(g) Allowing or conspiring or colluding with another to allow imprisonment of not less than two (2) years and one (1) day Constructive Distraint. - Any taxpayer, whose property has
the unauthorized retrieval, withdrawal or recall of any but not more than four (4) years, or both. been placed under constructive distraint, who sells,
return, statement or declaration after the same has been SEC. 272. Violation of Withholding Tax Provision. - Every transfers, encumbers or in any way disposes of said property,
officially received by the Bureau of Internal Revenue; officer or employee of the Government of the Republic of the or any part thereof, without the knowledge and consent of
(h) Having knowledge or information of any violation of this Philippines or any of its agencies and instrumentalities, its the Commissioner, shall, upon conviction for each act or
Code or of any fraud committed on the revenues collectible political subdivisions, as well as government-owned or omission, be punished by a fine of not less than twice the
by the Bureau of Internal Revenue, failure to report such controlled corporations, including the Bangko Sentral ng value of the property so sold, encumbered or disposed of but
knowledge or information to their superior officer, or failure Pilipinas (BSP), who, under the provisions of this Code or not less than Five Thousand pesos (P5,000), or suffer
to report as otherwise required by law; and. rules and regulations promulgated thereunder, is charged imprisonment of not less than two (2) years and one (1) day
(i) Without the authority of law, demanding or accepting or with the duty to deduct and withhold any internal revenue but not more than four (4) years, of both.
attempting to collect, directly or indirectly, as payment or tax and to remit the same in accordance with the provisions SEC. 277. Failure to Surrender Property Placed Under
otherwise any sum of money or other thing of value for the of this Code and other laws is guilty of any offense herein Distraint and Levy. - Any person having in his possession or
compromise, adjustment or settlement of any charge or below specified shall, upon conviction for each act or under his control any property or rights to property, upon
complaint for any violation or alleged violation of this Code. omission be punished by a fine of not less than Five thousand which a warrant of constructive distraint, or actual distraint
Provided, That the provisions of the foregoing paragraph pesos (P5,000) but not more than Fifty thousand pesos and levy has been issued shall, upon demand by the
notwithstanding, any internal revenue officer for which a (P50,000) or suffer imprisonment of not less than six (6) Commissioner or any of his deputies executing such warrant,

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surrender such property or right to property to the thereto, without prejudice to the owner's right of recovery information mentioned herein shall not refer to a case
Commissioner or any of his deputies, unless such property or against the offender in a civil or criminal action. already pending or previously investigated or examined by
right is, at the time of such demand, subject to an Articles which are not subject of lawful commerce shall be the Commissioner or any of his deputies, agents or
attachment or execution under any judicial process. destroyed. examiners, or the Secretary of Finance or any of his deputies
Any person who fails or refuses to surrender any of such SEC. 280. Subsidiary Penalty. - If the person convicted for or agents: Provided, finally, That the reward provided herein
property or right shall be liable in his own person and estate violation of any of the provisions of this Code has no shall be paid under rules and regulations issued by the
to the Government in a sum equal to the value of the property with which to meet the fine imposed upon him by Secretary of Finance, upon recommendation of the
property or rights not so surrendered but not exceeding the the court, or is unable to pay such fine, he shall be subject to Commissioner. cralaw
amount of the taxes (including penalties and interest) for the a subsidiary personal liability at the rate of one (1) day for (B) For Discovery and Seizure of Smuggled Goods. - To
collection of which such warrant had been issued, together each Eight pesos and fifty centavos (P8.50) subject to the encourage the public to extend full cooperation in
with cost and interest if any, from the date of such warrant. rules established in Article 39 of the Revised Penal Code. eradicating smuggling, a cash reward equivalent to ten
In addition, such person shall, upon conviction for each act SEC. 281. Prescription for Violations of any Provision of this percent (10%) of the fair market value of the smuggled and
or omission, be punished by a fine of not less than Five Code. - All violations of any provision of this Code shall confiscated goods or One Million Pesos (P1,000,000) per
thousand pesos (P5,000), or suffer imprisonment of not less prescribe after Five (5) years. cralaw case, whichever is lower, shall be given to persons
than six (6) months and one (1) day but not more than two Prescription shall begin to run from the day of the instrumental in the discovery and seizure of such smuggled
(2) years, or both. commission of the violation of the law, and if the same be not goods. cralaw
SEC. 278. Procuring Unlawful Divulgence of Trade Secrets. - known at the time, from the discovery thereof and the The cash rewards of informers shall be subject to income
Any person who causes or procures an officer or employee of institution of judicial proceedings for its investigation and tax, collected as a final withholding tax, at a rate of ten
the Bureau of Internal Revenue to divulge any confidential punishment. cralaw percent (10%).
information regarding the business, income or inheritance of The prescription shall be interrupted when proceedings are The provisions of the foregoing Subsections notwithstanding,
any taxpayer, knowledge of which was acquired by him in instituted against the guilty persons and shall begin to run all public officials, whether incumbent or retired, who
the discharge of his official duties, and which it is unlawful again if the proceedings are dismissed for reasons not acquired the information in the course of the performance of
for him to reveal, and any person who publishes or prints in constituting jeopardy. cralaw their duties during their incumbency, are prohibited from
any manner whatever, not provided by law, any income, The term of prescription shall not run when the offender is claiming informer's reward.
profit, loss or expenditure appearing in any income tax absent from the Philippines. TITLE XI
return, shall be punished by a fine of not more than Two SEC. 282. Informer's Reward to Persons Instrumental in the ALLOTMENT OF INTERNAL REVENUE
thousand pesos (P2,000), or suffer imprisonment of not less Discovery of Violations of the National Internal Revenue CHAPTER I
than six (6) months nor more than five (5) years, or both. Code and in the Discovery and Seizure of Smuggled Goods. - DISPOSITION AND ALLOTMENT OF NATIONAL
SEC. 279. Confiscation and Forfeiture of the Proceeds or (A) For Violations of the National Internal Revenue Code. - INTERNAL REVENUE IN GENERAL
Instruments of Crime. - In addition to the penalty Imposed Any person, except an internal revenue official or employee, SEC. 283. Disposition of National Internal Revenue. -
for the violation of the provisions of Title X of this Code, the or other public official or employee, or his relative within the National Internal revenue collected and not applied as herein
same shall carry with it the confiscation and forfeiture in sixth degree of consanguinity, who voluntarily gives definite above provided or otherwise specially disposed of by law
favor of the government of the proceeds of the crime or value and sworn information, not yet in the possession of the shall accrue to the National Treasury and shall be available
of the goods, and the instruments or tools with which the Bureau of Internal Revenue, leading to the discovery of for the general purposes of the Government, with the
crime was committed: Provided, however, That if in the frauds upon the internal revenue laws or violations of any of exception of the amounts set apart by way of allotment as
course of the proceedings, it is established that the the provisions thereof, thereby resulting in the recovery of provided for under Republic Act No. 7160, otherwise known
instruments or tools used in the illicit act belong to a third revenues, surcharges and fees and/or the conviction of the as the Local Government Code of 1991. cralaw
person, the same shall be confiscated and forfeited after due guilty party and/or the imposition of any of the fine or In addition to the internal revenue allotment as provided for
notice and hearing in a separate proceeding in favor of the penalty, shall be rewarded in a sum equivalent to ten percent in the preceding paragraph, fifty percent (50%) of the
Government if such third person leased, let, chartered or (10%) of the revenues, surcharges or fees recovered and/or national taxes collected under Sections 106, 108 and 116 of
otherwise entrusted the same to the offender: Provided, fine or penalty imposed and collected or One Million Pesos this Code in excess of the increase in collections for the
further, That in case the lessee subleased, or the borrower, (P1,000,000) per case, whichever is lower. immediately preceding year shall be distributed as follows:
charterer, or trustee allowed the use of the instruments or The same amount of reward shall also be given to an (a) Twenty percent (20%) shall accrue to the city or
tools to the offender, such instruments or tools shall, likewise, informer where the offender has offered to compromise the municipality where such taxes are collected and shall be
be confiscated and forfeited: Provided, finally, That property violation of law committed by him and his offer has been allocated in accordance with Section 150 of Republic Act No.
of common carriers shall not be subject to forfeiture when accepted by the Commissioner and collected from the 7160, otherwise known as the Local Government Code of
used in the transaction of their business as such common offender: Provided, That should no revenue, surcharges or 1991; and(b) Eighty percent (80%) shall accrue to the
carrier, unless the owner or operator of said common carrier fees be actually recovered or collected, such person shall not National Government.
was, at the time of the illegal act, a consenting party or privy be entitled to a reward: Provided, further, That the SEC. 284. Allotment for the Commission on Audit. - One-

65
half of one percent (1/2 of 1%) of the collections from the share in the proceeds derived from the utilization and Incremental Revenues from Republic Act No. 7660. - The
national internal revenue taxes not otherwise accruing to development of the national wealth, within their respective incremental revenues from the increase in the documentary
special accounts in the general fund of the national areas, including sharing the same with the inhabitants by stamp taxes under R.A. No. 7660 shall be set aside for the
government shall accrue to the Commission on Audit as a fee way of direct benefits. cralaw following purposes:
for auditing services rendered to local government units, (A) Amount of Share of Local Government Units. - Local (1) In 1994 and 1995, twenty five percent (25%) thereof
excluding maintenance, equipment, and other operating government units shall, in addition to the internal revenue respectively, shall accrue to the Unified Home-Lending
expenses as provided for in Section 21 of Presidential Decree allotment, have a share of forty percent (40%) of the gross Program under Executive Order No. 90 particularly for
No. 898. collection derived by the national government from the mass socialized housing program to be allocated as follows:
The Secretary of Finance is hereby authorized to deduct preceding fiscal year from excise taxes on mineral products, fifty percent (50%) for mass-socialized housing; thirty
from the monthly internal revenue tax collections an amount royalties, and such other taxes, fees or charges, including percent (30%) for the community mortgage program; and
equivalent to the percentage as herein fixed, and to remit the related surcharges, interests or fines, and from its share in twenty percent (20%) for land banking and development to
same directly to the Commission on Audit under such rules any co-production, joint venture or production sharing be administered by the National Housing Authority:
and regulations as may be promulgated by the Secretary of agreement in the utilization and development of the national Provided, That no more than one percent (1%) of the
Finance and the Chairman of the Commission on Audit. wealth within their territorial jurisdiction. cralaw respective allocations hereof shall be used for administrative
SEC. 285. Allotment for the Bureau of Internal Revenue. - (B) Share of the Local Governments from Any Government expenses;(2) In 1996, twenty five percent (25%) thereof to be
An amount equivalent to five percent (5%) of the excess of Agency or Government-Owned or Controlled Corporation. - utilized for the National Health Insurance Program that
actual collections of national internal revenue taxes over the Local Government Units shall have a share, based on the hereafter may be mandated by law;(3) In 1994 and every
collection goal shall accrue to the special fund of the Bureau preceding fiscal year, from the proceeds derived by any year thereafter, twenty five percent (25%) thereof shall
of Internal Revenue and shall be treated as receipts government agency or government-owned or controlled accrue to a Special Education Fund to be Administered by
automatically appropriated. corporation engaged in the utilization and development of the Department of Education, Culture and Sports for the
Said amount shall be utilized as incentive bonus for revenue the national wealth based on the following formula, construction and repair of school facilities, training or
personnel, purchase of necessary equipment and facilities for whichever will produce a higher share for the local teachers, and procurement or production of instructional
the improvement of tax administration, as approved by the government unit: materials and teaching aids; and(4) In 1994 and every year
Commissioner: Provided, That the President may, upon (1) One percent (1%) of the gross sales or receipts of the thereafter, fifty percent (50%) thereof shall accrue to a
recommendation of the Commissioner, direct that the excess preceding calendar year, or(2) Forty percent (40%) of the Special Infrastructure Fund for the Construction and repair
be credited to a Special Account in the National Treasury to excise taxes on mineral products, royalties, and such other of roads, bridges, dams and irrigation, seaports and
be held in the reserve available for distribution as incentive taxes, fees or charges, including related surcharges, interests hydroelectric and other indigenous power projects: however,
bonus in the subsequent years. or fines the government agency or government-owned or - That for the years 1994 and 1995, thirty percent (30%), and
The Secretary of Finance is hereby authorized to transfer controlled corporations would have paid if it were not for the years 1996, 1997 and 1998, twenty percent (20%), of
from the Treasury an amount equivalent to the percentage as otherwise exempt. this fund shall be allocated for depressed provinces as
herein fixed and to remit the same directly to the Bureau of (C) Allocation of Shares. - The share in the preceding Section declared by the President as of the time of the effectivity of
Internal Revenue under such rules and regulations as may shall be distributed in the following manner: (1) Where the R. A. No. 7660: Provided, further, That availments under this
be promulgated by the Secretary of Finance. natural resources are located in the province: (a) Province - fund shall be determined by the President on the basis of
CHAPTER II twenty percent (20%) (b) Component city/municipality - equityProvided, finally, That in paragraphs (2), (3), and (4)
SPECIAL DISPOSITION OF CERTAIN NATIONAL forty-five percent (45%); and (c) Barangay - thirty-five of this Section, not more one percent (1%) of the allocated
INTERNAL REVENUE TAXES percent (35%) funds thereof shall be used for administrative expenses by
SEC. 286. Disposition of Proceeds of insurance Premium Provided, however, That where the natural resources are the implementing agencies.
Tax. - Twenty-five percent (25%) of the premium tax located in two (2) or more cities, the allocation of shares shall (B) Incremental Revenues from Republic Act No. 8240. -
collected under Section 123 of this Code shall accrue to the be based on the formula on population and land area as Fifteen percent (15%) of the incremental revenue collected
Insurance Fund as contemplated in Section 418 of specified in subsection (C)(1) hereof. from the excise tax on tobacco products under R. A. No. 8240
Presidential Decree No. 612 which shall be used for the (2) Where the natural resources are located in a highly shall be allocated and divided among the provinces
purpose of defraying the expenses of the Insurance urbanized or independent component city: (a) City - sixty - producing burley and native tobacco in accordance with the
Commission. five percent (65%); and (b) Barangay - thirty - five percent volume of tobacco leaf production.
The Commissioner shall turn over and deliver the said (35%) The fund shall be exclusively utilized for programs in pursuit
Insurance Fund to the Insurance Commissioner as soon as Provided, however, That where the natural resources are of the following objectives:
the collection is made. located in two (2) or more cities, the allocation of shares shall (1) Cooperative projects that will enhance better quality of
SEC. 287. Shares of Local Government Units in the Proceeds be based on the formula on population and land area as agricultural products and increase income and productivity
from the Development and Utilization of the National specified in subsection (c)(1) hereof. of farmers;(2) Livelihood projects, particularly the
Wealth. - Local Government units shall have an equitable SEC. 288. Disposition of Incremental Revenues. - (A) development of alternative farming system to enhance

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farmer's income; and(3) Agro-industrial projects that will identification of projects to be financed. SEC. 4. The Secretary of Finance shall, upon
enable tobacco farmers to be involved in the management TITLE XII recommendation of the Commissioner of Internal Revenue,
and subsequent ownership of projects, such as post-harvest OVERSIGHT COMMITTEE promulgate and publish the necessary rules and regulations
and secondary processing like cigarette manufacturing and for the effective implementation of this Act.
by-product utilization. SEC. 290. Congressional Oversight Committee. - A SEC. 5. Transitory Provisions. - Deferment of the Effectivity
The Department of Budget and Management, in consultation Congressional Oversight Committee, hereinafter referred to of the Imposition of VAT on Certain Services. - The
with the Oversight Committee created under said R.A. No. as the Committee, is hereby constituted in accordance with effectivity of the imposition of the value-added tax on
8240, shall issue the corresponding rules and regulations the provisions of this Code. services as prescribed in Section 17(a) and (b) of Republic
governing the allocation and disbursement of this fund. The Committee shall be composed of the Chairmen of the Act No. 7616, as amended by Republic Act 8241, is hereby
SEC. 289. Special Financial Support to Beneficiary Committee on Ways and Means of the Senate and House further deferred until December 31, 1999, unless Congress
Provinces Producing Virginia Tobacco. - The financial Representatives and four (4) additional members from each deems otherwise: Provided, That the said services shall
support given by the National Government for the house, to be designated by the Speaker of the House of continue to pay the applicable tax prescribed under the
beneficiary provinces shall be constituted and collected from Representatives and the Senate President, respectively. present provisions of the National Internal Revenue Code, as
the proceeds of fifteen percent (15%) of the excise taxes on cralaw amended.
locally manufactured Virginia-type of cigarettes. The Committee shall, among others, in aid of legislation: SEC. 6. Separability Clause. - If any provision of this Act is
The funds allotted shall be divided among the beneficiary (1) Monitor and ensure the proper implementation of subsequently declared unconstitutional, the validity of the
provinces pro-rata according to the volume of Virginia Republic Act No. 8240;(2) Determine that the power of the remaining provisions hereof shall remain in full force and
tobacco production. cralaw Commissioner to compromise and abate is reasonably effect.
Production producing Virginia tobacco shall be the exercised;(3) Review the collection performance of the SEC. 7. Repealing Clauses. - (A) The provision of Section 17
beneficiary provinces under Republic Act No. 7171. Bureau of Internal Revenue; and(4) Review the of Republic Act No. 7906, otherwise known as the "Thrift
Provided, however, that to qualify as beneficiary under R. A. implementation of the programs of the Bureau of Internal Banks Act of 1995" shall continue to be in force and effect
No. 7171, a province must have an average annual Revenue. only until December 31, 1999. cralaw
production of Virginia leaf tobacco in an amount not less In furtherance of the hereinabove cited objectives, the Effective January 1, 2000, all thrift banks, whether in
than one million kilos: Provided, further, that the Committee is empowered to require of the Bureau of operation as of that date or thereafter, shall no longer enjoy
Department of Budget and Management (DBM) shall each Internal Revenue, submission of all pertinent information, tax exemption as provided under Section 17 of R. A. No.
year determine the beneficiary provinces and their computed including but not limited to: industry audits; collection 7906, thereby subjecting all thrift banks to taxes, fees and
share of the funds under R. A. No. 7171, referring to the performance data; status report on criminal actions initiated charges in the same manner and at the same rate as banks
National Tobacco Administration (NTA) records of tobacco against persons; and submission of taxpayer returns: and other financial intermediaries.
acceptances, at the tobacco trading centers for the immediate Provided, however, That any return or return information (B) The provisions of the National Internal Revenue Code, as
past year. cralaw which can be associated with, or otherwise identify, directly amended, and all other laws, including charters of
The Secretary of Budget and Management is hereby directed or indirectly, a particular taxpayer shall be furnished the government-owned or controlled corporations, decrees,
to retain annually the said funds equivalent to fifteen percent Committee only when sitting in Executive Session unless orders, or regulations or parts thereof, that are inconsistent
(15%) of excise taxes on locally manufactured Virginia type such taxpayer otherwise consents in writing to such with this Act are hereby repealed or amended accordingly.
cigarettes to be remitted to the beneficiary provinces disclosure. SEC. 8. Effectivity. - This Act shall take effect on January 1,
qualified under R. A. No. 7171. cralaw TITLE XIII 1998.
The provision of existing laws to the contrary REPEALING PROVISIONS
notwithstanding, the fifteen percent (15%) share from SEC. 291. In General. - All laws, decrees, executive orders,
government revenues mentioned in R. A. No. 7171 and due to rules and regulations or parts thereof which are contrary to
the Virginia tobacco-producing provinces shall be directly or inconsistent with this Code are hereby repealed, amended
remitted to the provinces concerned. or modified accordingly.
cralawProvided, That this Section shall be implemented in TITLE XIV
accordance with the guidelines of Memorandum Circular FINAL PROVISIONS
No. 61-A dated November 28, 1993, which amended SEC. 292. Separability Clause. - If any clause, sentence,
Memorandum Circular No. 61, entitled "Prescribing paragraph or part of this Code shall be adjudged by any
Guidelines for Implementing Republic Act No. 7171", dated Court of competent jurisdiction to be invalid, such judgment
January 1, 1992. shall not affect, impair or invalidate the remainder of said
Provided, further, That in addition to the local government Code, but shall be confined in its operation to the clause,
units mentioned in the above circular, the concerned officials sentence, paragraph or part thereof directly involved in the
in the province shall be consulted as regards the controversy.

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