Tax LGC

GENERAL PRINCIPLES OF
LOCAL GOVERNMENT TAXATION
Nature of Taxing Power
a. It is not inherent to the state
- Local Government Units do not possess the power to tax by nature, but may be
granted by either legislation or Constitution1
b. Taxing power shall be exercised only in the discretion or delegation by law or

Congress
- such power must be exercised within the limitation imposed by the LGC, such as:
1. Through a valid ordinance;

2. Common Limitations provided in Section 133;
3. Must not exceed the rates provided under the LGC, except in reference to their
authority to adjust the same under Sec. 191, once every five years2
c. It is not absolute provided that the taxing power of LGU is subject to limitations
imposed by the Congress
- Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments (Sec. 5 of Art. X and Sec. 129, LGC) 3
Source of Local Taxing Power - Declaration of Policy
(a) It is hereby declared the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals. Toward this end, the State shall
provide for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given
more powers, authority, responsibilities, and resources. The process of decentralization
shall proceed from the national government to the local government units.
(b) It is also the policy of the State to ensure the accountability of local
government units through the institution of effective mechanisms of recall, initiative and
referendum.
1
The 1987 Constitution of the Republic of the Philippines, Article X, Section3; and
Soriano, Manuel, and Laco, “The Tax Reviewer for CPAs, Lawyers, and Students of Tax (2021)”, p.690
2
Soriano, Manuel, and Laco, “The Tax Reviewer for CPAs, Lawyers, and Students of Tax (2021)”, p.690
3
The 1987 Constitution Of The Republic Of The Philippines, Article X, Section 5;
The Local Government Code Of The Philippines Book II, Local Taxation And Fiscal Matters, Title One, Chapter 1, Section 129, and
Ledesma (2016), “The Not-So-Inherent Power to Tax”, PWC Philippines
(c) It is likewise the policy of the State to require all national agencies and offices
to conduct periodic consultations with appropriate local government units,
non-governmental and people's organizations, and other concerned sectors of the
community before any project or program is implemented in their respective
jurisdictions.4
Note that the Local Government Units power to tax is recognized by the
Constitution provided that the collection of the taxes, fees, and charges adheres with the
guideline and limitation as the Congress may provide.5
Fundamental Principles
The following fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units:
(1) Taxation shall be uniform in each local government unit;
(2) Taxes, fees, charges and other impositions shall:
(a) be equitable and based as far as practicable on the taxpayer's ability to

pay;
(b) be levied and collected only for public purposes;
(c) not be adjust, excessive, oppressive, or confiscatory;
(d) not be contrary to law, public policy, national economic policy, or in
restraint of trade;
(3) The collection of local taxes, fees, charges and other impositions shall in no case be
let to any private person;
(4) The revenue collected pursuant to the provisions of this Code shall inure solely to
the benefit of, and be subject to disposition by, the local government unit levying the
tax, fee, charge or other imposition unless otherwise specifically provided herein; and,
(5) Each local government unit shall, as far as practicable, evolve a progressive
system of taxation.6
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and Barangays shall not extend to the levy of the following:
(32) Income tax, except when levied on banks and other financial institutions;
(33) Documentary stamp tax;
(34) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
4
The Local Government Code Of The Philippines Book I, General Provisions, Title One, Chapter 1, Section 2
5
Banggawan, “Income Taxation Laws Principles and Applications (2021)”, p. 12
6
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 1, Section 130
.
(35) Customs duties, registration fees vessels and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
(36) Taxes, fee and charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or
charges in any form whatsoever upon such goods or merchandise;
(37) Taxes, fees, or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(38) Taxes on business enterprises certified to by the Board of Investments as pioneer

or non-pioneer for a period of six (6) and (4) four years, respectively from the date of
registration;
(39) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
(40) Percentage or value added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(41) Taxes on the gross receipts of transaction contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land or
water, except as provided in this Code;
(42) Taxes on premium paid by way or reinsurance or retrocession;
(43) Taxes, fees or charges for the registration of motor vehicle and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
(44) Taxes, fees or charges on Philippine products actually exported, except as

otherwise provided herein;
(45) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises

and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered
Sixty Nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives
Code of the Philippines'' respectively; and
(46) Taxes, fees or charges, of any kind on the National Government, its agencies and
instrumentalities, and local government units. 7
SCOPE OF TAXING POWER
7
The Local Government Code Of The Philippines Book II, Local Taxation And Fiscal Matters, Title One, Chapter 1, Section 133.
. Soriano, Manuel, and Laco, “The Tax Reviewer for CPAs, Lawyers, and Students of Tax (2021)”, p.691 & 692
1. Authority to Create Local Government Units
- A local government unit may be created (Sec. 7), divided, merged (Sec.8),
abolished (Sec. 9), or its boundaries substantially altered either by law enacted
by Congress in the case of a province, city, municipality, or any other
political subdivision, or by ordinance passed by the Sangguniang
Panlalawigan or Sangguniang Panlungsod concerned in the case of a Barangay
located within its territorial jurisdiction, subject to such limitations and
requirements prescribed in this Code.8
- No province, city, municipality, or barangay may be created, divided, merged,

abolished, or its boundary substantially altered, except in accordance with the
criteria established in the local government code and subject to approval by a
majority of the votes cast in a plebiscite in the political units directly affected (Sec.
10).9
2. Territorial and Political Subdivisions
- The territorial and political subdivisions of the Republic of the Philippines are the
provinces, cities, municipalities, and barangays. There shall be autonomous
regions in Muslim Mindanao and the Cordilleras as hereinafter provided. It shall
enjoy local autonomy.10
General Provisions
Section 128. The provision herein shall govern the exercise by provinces, cities,
municipalities, and Barangays of their taxing and other revenue-raising powers.11
Section 129. Each local government unit shall exercise its power to create its
own sources of revenue and to levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges
shall accrue exclusively to the local government units.12
Specific Provisions on the Taxing and Other Revenue Raising Powers of Local
Government Units
Article One - Provinces
Section 134. Provinces may levy only on the following taxes, fees, and charges.13
8
The Local Government Code of The Philippines Book I, General Provisions, Title One, Chapter 2, Section 6, 7, 8, and 9.
9
The 1987 Constitution of The Republic of The Philippines, Article X, Section 10
10
The 1987 Constitution of The Republic of The Philippines, Article X, Section 1 and 2.
11 The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 1, Section 128.
12 The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 1, Section 129.
13 The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2, Article 1, Section 134.
Section 135. Transfer of real property ownership14
● Imposition:
(a) The province may impose a tax on the sale, donation, barter, or on
any other mode of transferring ownership or title of real property.
It shall be the duty of the seller, donor, transferor, executor or

administrator to pay the tax herein imposed within sixty (60) days from the
date of the execution of the deed or from the date of the decedent's death.
● Rate and Base:

At the rate of not more than fifty percent (50%) of one percent (1%) of
the total consideration involved in the acquisition of the property or of the
fair market value in case the monetary consideration involved in the transfer
is not substantial, whichever is higher.
● Exceptions:
The sale, transfer or other disposition of real property pursuant to
R.A. No. 6657 shall be exempt from this tax.
(b) For this purpose, the Register of Deeds of the province concerned shall,
before registering any deed, require the presentation of the evidence of payment
of this tax. The provincial assessor shall likewise make the same requirement before
canceling an old tax declaration and issuing a new one in place thereof. Notaries
public shall furnish the provincial treasures with a copy of any deed transferring
ownership or title to any real property within thirty (30) days from the date of
notarization.
Section 136. Business of printing and publication15
● Imposition:
The Province may impose a tax on the business of persons engaged in
the printing and/or publication of books, cards, posters, leaflets, handbills,
certificates, receipts, pamphlets, and other of similar nature,
● Rate and Base:

At a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year,
or any fraction thereof, as provided herein.
● Exceptions:
The receipts from the printing and/or publishing of books or other
reading materials prescribed by the Department of Education, Culture and
Sports as school texts or reference shall be exempt from the tax herein
imposed.
Section 137. Franchise tax16
● Imposition:
Notwithstanding any exemption granted by any law or other special laws,
the province may impose a tax on business enjoying a franchise.
● Rate and Base:

At a rate exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year,
or any fraction thereof, as provided herein.
Section 138. Sand, gravel and other quarry resources17
● Imposition:
The province may levy and collect not more than ten percent (10%) of
fair market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National
Internal Revenue Code, as amended, extracted from public lands or from the
beds of seas, lakes, rivers, streams, creeks, and other public waters within its
territorial jurisdiction.
The permit to extract sand, gravel and other quarry resources shall
be issued exclusively by the provincial governor, pursuant to the ordinance
of the Sangguniang Panlalawigan.
● Rate and Base:

The proceeds of the tax on sand, gravel and other quarry resources shall
be distributed as follows:
○ Province - Thirty percent (30%);
○ Component City or Municipality where the sand, gravel, and other
quarry resources are extracted - Thirty percent (30%); and
○ Barangay where the sand, gravel, and other quarry resources are
extracted - Forty percent (40%).
Section 139. Professional tax18
● Imposition:
(a) The province may levy an annual professional tax on each person
engaged in the exercise or practice of his profession requiring government
examination.
● Rate and Base:

At such an amount and reasonable classification as the Sangguniang
Panlalawigan may determine but shall in no case exceed Three hundred pesos
(P300.00).
(b) Every person legally authorized to practice his profession shall pay the
professional tax to the province where he practices his profession or where he maintains
his principal office in case he practices his profession in several places: Provided,
however, That such person who has paid the corresponding professional tax shall be
entitled to practice his profession in any part of the Philippines without being subjected to
any other national or local tax, license, or free for the practice of such profession.
Any individual or corporation employing a person subject to professional tax shall

require payment by that person of the tax on his profession before employment and
annually thereafter.
The professional tax shall be payable annually on or before the thirty first
(31st) day of January must, however, pay the full tax before engaging therein. A line of
profession does not become exempt even if conducted with some other profession for
which the tax has been paid. Professionals exclusively employed in the government shall
be exempt from the payment of this tax.
Any person subject to the professional tax shall write in deeds, receipts,
prescriptions, reports, books of account, plans and designs, surveys and maps, as the
case may be, the number of the official receipt issued to him.
Section 140. Amusement tax 19
● Imposition:
(a) The province may levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement.
● Rate and Base:
At a rate of not more than thirty percent (30%) of the gross receipts
from admission fees.
In the case of theaters or cinemas, the tax shall first be deducted and withheld by
their proprietors, lessees, or operators and paid to the provincial treasurer before the
gross receipts are divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films.
The holding of operas, concerts, dramas, recitals, painting and art exhibitions,
flower shows, musical programs, literary and oratorical presentations, except pop, rock,
or similar concerts shall be exempt from the payment of the tax herein imposed.
The Sangguniang Panlalawigan may prescribe the time, manner, terms and
conditions for the payment of tax. In case of fraud or failure to pay the tax, the
Sangguniang Panlalawigan may impose such surcharges, interests and penalties.
The proceeds from the amusement tax shall be shared equally by the province
and the municipality where such amusement places are located.
Section 141. Annual fixed tax per delivery truck or van of manufacturers or
producers and wholesalers of, or dealers in, certain products such as distilled
spirits and soft drinks20
● Imposition:
(a) The province may levy an annual fixed tax for every truck, van or
any vehicle used by manufacturers, producers, wholesalers, dealers or
retailers in the delivery or distribution of distilled spirits, fermented liquors,
soft drinks, cigars and cigarettes, and other products as may be determined
by the Sangguniang Panlalawigan, to sales outlets, consumers, whether directly
or indirectly, within the province
● Rate and Base:

In an amount not exceeding Five hundred pesos (P500.00).
● Exceptions:
The manufacturers, producers, wholesalers, dealers, and retailers
referred to in the immediately foregoing paragraph shall be exempt from the tax
on peddlers prescribed elsewhere in this Code. (Section 143. (g).)
Article Two. - Municipalities

Section 142. Municipalities may levy taxes, fees and charges not otherwise levied by
provinces.21
● Municipalities are authorized specifically to impose the following :
Section 143. Business taxes22
(a) A fixed annual tax ranging from a minimum of P165 to a maximum of 37.
50% of 1% based on the gross sales or receipts of the preceding year of
manufacturers, assemblers, re-packers, and processors of any article of
commerce, including brewers, distillers, rectifers anulcompounders of liquors,
distilled spirits, and wines;
(b) A fixed annual tax ranging from a minimum of P18 to a maximum of 50%
of 1% on the gross sales or receipts for the preceding calendar year of
wholesalers, distributor, or dealers of any article of commerce;
(c) A fixed annual tax on exporters, and on manufactured millers, producers,

wholesalers, distributors, dealers retailers of certain essential commodities (such
as rice and corn; agricultural, marine and freshwater products, whether in their original
state or not; cooking oil cooking gas; laundry soap, detergents and medicine; agricultural
implements and farm inputs; animal feeds; school supplies; and cement) at a fixed rate
not exceeding of the rates state in a and b above and d below respectively;
(d) A fixed annual tax of 1% or 2% of the gross sales of receipts for the
preceding calendar year on retailers, provided, however, that barangays have
exclusive power to levy taxes if the gross receipts of retailers do not exceed
P50,000 in the case of cities and P30,000 in the case of municipalities;
(e) A fixed annual tax ranging from a minimum of P27.50 to a maximum of

50% of 1% of gross receipts for the preceding calendar year of contractors and
various other independent contractors;
(f) A fixed annual tax at a rate not exceeding 50% of 1% on the gross receipts
for preceding calendar year of banks and other financial institutions, including
intermediaries, pawnshops, and stock markets, brokers and dealers insecurities and on
insurance premiums;
(g) A fixed annual tax not exceeding P50 on peddlers engaged in the sale of
any merchandise or article of commerce; and
(h) A tax on any business - provided, however, that in the case of any business
subject to excise, VAT or percentage tax under the NIRC, the rate of the tax shall
not exceed 2% of gross sales or receipts for the preceding calendar year.
2. Fees and charges :
Section 147. (a) Reasonable fees and charges on business and occupation or
calling, as well as on the practice of profession, except those reserved to the province
(Section 139.),23 commensurate with the cost of regulation, inspection and licensing;24
Section 148. (b) Reasonable fees for the sealing and licensing of weights and
measures;25
The Sangguniang bayan shall prescribe the necessary regulations for the
use of such weights and measures, subject to such guidelines as shall be
prescribed by the Department of Science and Technology. The Sanggunian
concerned shall, by appropriate ordinance, penalize fraudulent practices and
unlawful possession or use of instruments of weights and measures and
prescribe the criminal penalty therefore in accordance with the provisions of this
Code. Provided, however, That the Sanggunian concerned may authorize the
municipal treasurer to settle an offense not involving the commission of fraud
before a case therefore is filed in court, upon payment of a compromise penalty
of not less than Two hundred pesos (P200.00).
Section 149. (c) Fishery rentals, fees and charges, including the authority to grant
fishery privileges within municipal waters, as well as issue licenses for the operation of
fishing vessels of three tons or less.26
The Sangguniang Bayan may:
(1) Grant fishery privileges to erect fish corrals, oyster, mussels or other
aquatic beds or bangus fry areas, within a definite zone of the municipal waters,
as determined by it: Provided, however, That duly registered organizations and
cooperatives of marginal fishermen shall have the preferential right to such
fishery privileges: Provided, further, That the Sangguniang bayan may require a
public bidding in conformity with and pursuant to an ordinance for the grant of
such privileges: Provided, finally, That in the absence of such organizations and
cooperatives or their failure to exercise their preferential right, other parties may
participate in the public bidding in conformity with the above cited procedure.
(2) Grant the privilege to gather, take or catch bangus fry, prawn fry or
kawag-kawag or fry of other species and fish from the municipal waters by nets,
traps or other fishing gears to marginal fishermen free of any rental, fee, charge
or any other imposition whatsoever.
(3) Issue for the operation of fishing vessels of three (3) tons or less for
which purpose the Sangguniang bayan shall promulgate rules and regulations
regarding the issuances of such licenses to qualified applicants under existing
laws.
Article Three. - Cities

Cities have the broadest tax powers, embracing both specific and general tax
powers as provinces and municipalities may impose.27
● Imposition:
Cities are authorized specifically to impose taxes, fees and charges that
provinces and municipalities may levy.
● Rate and Base:

Section 151. At rates that may be above the maximum established
for provinces and municipalities but not exceeding 50% of such maximum
rates except the rates of professional and amusement taxes.28
The taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance
with the provisions of this local government code.
Article Four. - Barangays

Section 152. The barangays may levy, to the exclusion of the other local government
units, the following taxes, fees and charges which shall exclusively accrue to them:29
1. Imposition:
Taxes, on stores or retailers with fixed business establishment,
Rate and Base:

Gross sales or receipts for the preceding calendar year does not exceed
P50,000 in cities and P30,000 in municipalities, at a rate of not exceeding
one percent on such gross sales or receipts.
2. Service charges for services rendered in connection with the regulation of the use
of barangay-owned properties or services and facilities such as palay, copra or
tobacco leaf dryer and the like.
3. Barangay Clearance - No city or municipality may issue any license or permit for any
business or activity unless a clearance is first obtained from the Barangay where such
business or activity is located or conducted. For such clearance, the Sangguniang
Barangay may impose a reasonable fee. The application for clearance shall be acted
upon within seven (7) working days from the filing thereof. In the event that the
27
Chapter 18 of “Transfer and Business Taxation with Special Topics” Tabag, CPA, MBA, Garcia, CPA, MBA, et al., 2021 Local
Taxes, p. 757.
clearance is not issued within the said period, the city or municipality may issue the said
license or permit.
4. Reasonable fees and charges:

a. On commercial breeding of fighting cocks, cock fights and cockpits
b. On places of recreation which charge admission fees
c. On billboards, signboards,and outdoor advertisements
Article VI - COMMUNITY TAX
- It is a local tax imposed by cities or municipalities in accordance with Sections

156-164 of the Local Government Code (LGC)30
Persons Liable
- Provided in Section 157-158 there are two persons liable to Community Tax:
1. Individuals (Sec. 157)
Every inhabitant of the Philippines eighteen (18) years of age or over who has
been regularly employed on a wage or salary basis for at least thirty (30) consecutive
working days during any calendar year, or who is engaged in business or occupation, or
who owns real property with an aggregate assessed value of One thousand pesos
(P1,000.00) or more, or who is required by law to file an income tax return shall pay an
annual community tax.
Individuals shall pay an annual community tax of Five pesos (P5.00) and an
annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of
income regardless of whether from business, exercise of profession or from property
which in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon
the total property owned by them and the total gross receipts or earnings derived by
them.31
2. Juridical Persons (Sec 158)
Every corporation no matter how created or organized, whether domestic or

resident foreign, engaged in or doing business in the Philippines shall pay an annual
community tax.
Juridical persons shall pay an annual community tax of Five hundred pesos
(P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand
30
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.459
31
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.459; and
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2 Article VI, Section
157
pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the
Philippines owned by it during the preceding year based on the valuation used for the
payment of the real property tax under existing laws, found in the assessment rolls of the
city or municipality where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings
derived by it from its business in the Philippines during the preceding year - Two pesos
(P2.00). The dividends received by a corporation from another corporation however
shall, for the purpose of the additional tax, be considered as part of the gross receipts or
earnings of said corporation.32
Persons Exempt to Pay the Community Tax
- Under Section 159, the following are exempt from the community tax:
1. Diplomatic and consular representatives; and
2.Transient visitors when their stay in the Philippines does not exceed three (3)
months.33
Place of Payment
The community tax shall be paid in the:
1. Place of residence of the individual
2. In the place where the principal office of the juridical entity is located (Section 160)34
Time for Payment
● Penalties for Delinquency (Sec. 161)
(a) The community tax shall accrue on the first (1st) day of January of each
year which shall be paid not later than the last day of February of each year. If a
person reaches the age of eighteen (18) years or otherwise loses the benefit of
exemption on or before the last day of June, he shall be liable for the community tax on
the day he reaches such age or upon the day the exemption ends. However, if a person
reaches the age of eighteen (18) years or loses the benefit of exemption on or before the
last day of March, he shall have twenty (20) days to pay the community tax without
becoming delinquent.
Persons who come to reside in the Philippines or reach the age of eighteen (18)
years on or after the first (1st) day of July of any year, or who cease to belong to an
32
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.459; and
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2 Article VI, Section
158
33
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.460; and The Local Government Code of the
Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2 Article VI, Section 159
34
Soriano, Manuel, and Laco, “The Tax Reviewer for CPAs, Lawyers, and Students of Tax (2021)”, p. 709
exempt class on or after the same date, shall not be subject to the community tax for that
year.
(b) Corporations established and organized on or before the last day of June
shall be liable for the community tax for that year. But corporations established and
organized on or before the last day of March shall have twenty (20) days within which to
pay the community tax without becoming delinquent. Corporations established and
organized on or after the first day of July shall not be subject to the community tax for
that year.
If the tax is not paid within the time prescribed above, there shall be added to the
unpaid amount an interest of twenty-four percent (24%) per annum from the due date
until it is paid.35
Additional Note:
Local government taxation in the Philippines should be consistent with the Constitutional
limitations as stated in General Provisions on Local Government Taxation of Section 130 that
taxes, fees, charges and other impositions shall not be contrary to law, public policy, national
economic policy, or in restraint of trade.36
Provided as well in Article X, Section 5 of The 1987 Constitution of the Republic of the
Philippines that Local taxes may be imposed, as the Constitution grants, to each local
government unit, the power to create its own sources of revenues and to levy taxes, fees, and
charges which shall accrue to the local government.37
Therewith, the Constitutional limitation that regards the non-imprisonment for

non-payment of Poll Tax (Article III, Section 20)38 shall be followed. However, this will not extend
to the non-imprisonment for non-payment of additional community tax as it is an act of tax
evasion punishable by imprisonment.39
Community Tax Certificate
- A community tax certificate shall be issued to every person or corporation upon

payment of the community tax. A community tax certificate may also be issued to any person or
corporation not subject to the community tax upon payment of One peso (P=1.00) (Section 162)
Section 163: Presentation of Community Tax Certificate on Certain Occasions
(a) When an individual subject to the community tax acknowledges any document before
a notary public, takes the oath of office upon election or appointment to any position in the
government service; receives any license, certificate, or permit from any public authority; pays
any tax or fee; receives any money from any public fund; transacts other official business; or
receives any salary or wage from any person or corporation, it shall be the duty of any person,
35
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.460
36
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2 Article I, Section
130 (b)
37
BIR, “Guide to Philippine Tax Law Research”, VIII Local Government Tax Law
38
Soriano, Manuel, and Laco, “The Tax Reviewer for CPAs, Lawyers, and Students of Tax (2021)”, p. 34
39
Banggawan, “Income Taxation Laws and Principles Application (2021)”, p.10
officer, or corporation with whom such transaction is made or business done or from whom any
salary or wage is received to require such individual to exhibit the community tax certificate.
The presentation of a community tax certificate shall not be required in connection with
the registration of a voter.
(b) When, through its authorized officers, any corporation subject to the community tax
receives any license, certificate, or permit from any public authority, pays any tax or fee,
receives money from public funds, or transacts other official business, it shall be the duty of the
public official with whom such transaction is made or business done, to require such corporation
to exhibit the community tax certificate.
(c) The community tax certificate required in the two preceding paragraphs shall be the
one issued for the current year, except for the period from January until the fifteenth (15th) of
April each year, in which case, the certificate issued for the preceding year shall suffice.
Section 164: Printing of Community Tax Certificates and Distribution of Proceeds
(a) The Bureau of Internal Revenue shall cause the printing of community tax certificates
and distribute the same to the cities and municipalities through the city and municipal treasurers
in accordance with prescribed regulations. The proceeds of the tax shall accrue to the general
funds of the cities, municipalities and barangays except a portion thereof which shall accrue to
the general fund of the national government to cover the actual cost of printing and distribution
of the forms and other related expenses.
The city or municipal treasurer concerned shall remit to the national treasurer the said
share of the national government in the proceeds of the tax within ten (10) days after the end of
each quarter.
(b) The city or municipal treasurer shall deputize the barangay treasurer to collect the
community tax in their respective jurisdictions: Provided, however, That said barangay treasurer
shall be bonded in accordance with existing laws.
(c) The proceeds of the community tax actually and directly collected by the city or
municipal treasurer shall accrue entirely to the general fund of the city or municipality
concerned. However, proceeds of the community tax collected through the barangay treasurers
shall be apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality
concerned; and
(2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.40
TIME, MANNER, AND PLACE (SITUS) OF PAYMENT OF LOCAL BUSINESS TAX
Tax Period and Manner of Payment 41
40
Tabag and Garcia, “Transfer & Business Taxation with Special Topics(2019)”, p.461-462; and,
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2 Article VI,
Section 163-164
41
➔ Section 165 of the Local Government Code states that the tax period of all local taxes,
fees, and charges shall be collected in the calendar year.
➔ Such taxes, fees, and charges may be paid quarterly in installments unless otherwise
provided in this Code.
Accrual of Tax 42
➔ Section 166 of the Local Government Code states that all local taxes, fees, and charges
shall accrue on the first (1st) day of January of each year unless otherwise provided in
this Code.
➔ However, new taxes, fees, charges, or changes in the rates thereof, shall accrue on the
first (1st) day of the quarter following the effectiveness of the ordinance imposing such
new levies or rates.
Soriano, CPA, et al. (2021) explains accrual and payment of tax as follows: 43
Accrues every 1st of January and may be payable:
1. Annually - not later than January 20;

2. Quarterly - within 20 days of the first month of the quarter.
Time of Payment 44
➔ Section 167 of the Local Government Code states that all local taxes, fees, and charges
shall be paid within the first twenty (20) days of January or of each subsequent quarter,
as the case may be.
➔ The Sanggunian concerned may, for a justifiable reason or cause, extend the time of
payment of such taxes, fees, or charges without surcharges or penalties, but only for a
period not exceeding six (6) months.
Situs of Taxation 45
Principal Office: the head or main office of the business appearing in the pertinent
documents submitted to the Securities and Exchange Commission or the Department of Trade
and Industry, or other appropriate agencies.
Branch or Sales Office: a fixed place in a locality which conducts operations of the
business as an extension of the principal office.
Offices used only as display areas of the products where no stocks or items are stored
for sale, although orders for the products may be received thereat, are not branch or sales
offices.
42
43
In chapter 15 of “The Tax Reviewer For CPAs, lawyers, and students of tax” Soriano, CPA, et al., 2021 Local Government
Taxation, p. 707.
44
45
Taxation, p. 707.
A warehouse which accepts orders and/or issues sales invoices independent of a
branch with a sales office, shall be considered as a sales office.
Warehouse: buildings utilized for the storage of products for sale and from which goods
or merchandise are withdrawn for delivery to customers or dealers, or by persons acting on
behalf of the business. A warehouse that does not accept orders and/or issue sales invoices as
aforementioned shall not be considered a branch or sales office.
Plantation: a tract of agricultural land planted to trees or seedlings whether fruit bearing
or not, uniformly spaced or seeded by broadcast methods or normally arranged to allow highest
production. For purposes of this Article, inland fishing ground shall be considered as plantation.
Place of payment of business taxes
➔ Section 146 of the Local Government Code explains the manner of payment of Business
Taxes.
(a) The taxes imposed under Section 143 shall be payable for every separate or
distinct establishment or place where business subject to the tax is conducted and one
line of business does not become exempt by being conducted with some other business
for which such tax has been paid. The tax on a business must be paid by the person
conducting the same. 46
(b) In cases where a person conducts or operates two (2) or more of the
businesses mentioned in Section 143 of this Code which are subject to the same rate of
tax, the tax shall be computed on the combined total gross sales or receipts of the said
two (2) or more related businesses. 47
(c) In cases where a person conducts or operates two (2) or more businesses
mentioned in Section 143 of this Code which are subject to different rates of tax, the
gross sales or receipts of each business shall be separately reported for the purpose of
computing the tax due from each business. 48
Branch or Sales Office Rule 49
➔ Entities maintaining branches/sales outlets in places other than the head office,
shall record the sale in said branch/outlet and the tax thereon shall accrue and
shall be paid to the municipality where such branch/outlet is located.
46
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 2, Article II, Section
146 (A)
47
146 (B)
48
146 (C)
49
Taxation, p. 706
➔ If there is no such branch/outlet, the sales shall be recorded in the head office
and the tax due shall accrue and be paid to such city or municipality where the
head office is located.
Allocation Rule
Sales Allocation refers to all sales made in a locality where there is a branch or
sales office or warehouse shall be recorded in said branch or sales office or warehouse
and the tax shall be payable in the city or municipality where the same is located. 50
Sales Allocation: shall apply if the sales are recorded in the head office and the
plant/factory/plantation/project is located in a different municipality: 51
a. 30% of sales recorded in the head office shall be taxable in the

municipality/city where the same is located;
b. 70% of sales recorded in the head office shall be taxable in the

municipality/city where the factory/project office/plant/plantation is located.
In case the plantation is located in a different municipality from the factory/plant,

the said 70% shall be further divided as follows:
1. 60% where the factory is located;

2. 40% where the plantation is located.
In case there are two or more factories/project offices/plants/plantations, the 70% share
shall be distributed pro rata among the localities where the said establishments are
located.
Sales Made by Route Trucks, Vans, or Vehicles
➔ If sales are made through Route Trucks or Vans, the tax must be paid to the LGU where
the branch, sales office or warehouse is located.
➔ And in cases where it does not have a branch, sales office or, the tax must be paid to the
LGU where the branch or sales office from where the products are withdrawn for sale by
the vehicles. 52
Based on subparagraphs (1) and (2) above, LGUs where route trucks deliver
merchandise cannot impose any tax on said trucks except the annual fixed tax authorized to be
imposed by the province in Art. 231 53 of this Rule on every delivery truck or van or any motor
vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or
distribution of distilled spirits, fermented liquors, soft drinks, cigars or cigarettes and other
50
Situs of the tax - A study of its Implementation (Pursuant to Republic Act 7160, the Local Government Code of 1991), Flores, F.,
1991, Local Government Research and Consultancy Service, Article. 243, Section B
51
Taxation, p. 706.
52
Zones of regulation: Local tax situs in a nutshell. (n.d.). Grant Thornton Philippines.
https://www.grantthornton.com.ph/insights/articles-and-updates1/lets-talk-tax/zones-of-regulation-local-tax-situs-in-a-nutshell/
53
Situs of the tax - A study of its Implementation (Pursuant to Republic Act 7160, the Local Government Code of 1991), Flores, F.,
1991, Local Government Research and Consultancy Service, Article 231
products as may be determined by the sangguniang panlalawigan and by the city, pursuant to
Article 223 of this Rule. 54
TAX REMEDIES
Quick Notes of Tax Remedies of the Taxpayers and the Government
Remedies of the Taxpayers:
These are legal actions which a taxpayer can avail to seek relief from the undue or
oppressive effect of tax laws, or as a means to check possible excesses by revenue officers in
the performance of their duties.
Remedies before payment:
1. Administrative protest
2. Request for reconsideration
3. Request for reinvestigation
4. Judicial protest
Remedies after payment:
1. Claim for refund

2. Claim for tax credit
Remedies of the Government in Collecting Taxes:
These are courses of actions provided by or allowed in the law to implement the tax laws
or enforce tax collection.
1. Administrative remedies refer to government remedies at the administration level

through BIR
a. Distraint of personal property and Levy of real property

b. Enforcement of forfeiture
c. Enforcement of tax lien
d. Compromise
e. Civil penalties
2. Judicial remedies refer to remedies of the government to enforce through judicial action.
a. Ordinary civil action

b. Criminal action
Tax Assessment and Collection
54
Situs of the tax - A study of its Implementation (Pursuant to Republic Act 7160, the Local Government
Code of 1991), Flores, F., 1991, Local Government Research and Consultancy Service, Article 223
Tax Assessment is the official action of an officer authorized by law in ascertaining the amount
of tax due under the law from a taxpayer. This action necessarily involves:
a. The computation of the sum due

b. Giving notice to that effect to the taxpayer
c. The making, simultaneously with or sometime after giving the notice, of demand upon
him for the payment of the tax deficiency stated.
Tax Audit is the process of examining, going over, or scrutinizing the books and
records of the taxpayer to ascertain the correctness of the tax declared and paid by the
taxpayer. It can only be performed upon a “Letter of Authority” issued by the
commissioner of BIR or Regional Director.55
Letter of Authority (LOA) is an official document that empowers the Revenue

Officer to examine and scrutinize a taxpayer’s books of accounts and other accounting
records, in order to determine the taxpayer’s correct internal revenue tax liabilities.
Without such an authority, the assessment or examination is null.
The concept of LOA is therefore clear and unequivocal. Any tax assessment
issued without an LOA is a violation of taxpayers’ right to due process and is therefore
“inescapably void” (RMC 75-2018) The Supreme Court’s decision further provides that a
Letter of Notice (LN) is entirely different and serves a different purpose than LOA. Due
process demands that after an LN has served its purpose, the revenue officer should
have properly secured a LOA before proceeding with the further examination and
assessment of the taxpayer.
Delinquency is the state of a person upon whom the personal obligation to pay
the tax has been fixed by lawful assessment and thereafter fails to pay the tax within the
time limited by law.
What is a Pre-Assessment Notice (PAN)?
Pre-Assessment Notice is a written notice given to a taxpayer informing him of

the findings of the BIR officer/s relating to the deficiency in his tax return, indicating
therein the law and the facts on which the assessment is made and requiring the
taxpayer to respond within a given period, otherwise, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
It is a communication issued by the Regional Assessment Division, or any other

concerned BIR Office, informing a taxpayer who has been audited of the findings of the
Revenue Officer, following the review of these findings. If the taxpayer disagrees with the
findings stated in the PAN, he shall then have fifteen (15) days from his receipt of the
PAN to file a written reply contesting the proposed assessment.
When is PAN not required?
55
Tabag and Garcia, “Transfer & Business Taxation with Special Topics (2019)”, p. 389-390
A Final Letter of Demand (FLD) or Final Assessment Notice (FAN) shall be
issued outright under the following cited cases:
1. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the
taxpayer; or
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.56
Who has the Authority to issue PAN?
The following persons have the authority to issue PAN: The Commissioner of
Internal Revenue; Revenue Regional Directors; Assistant Commissioner - Large
Taxpayers Service; or Assistant Commissioner - Enforcement and Advocacy Service
● Taxpayers shall submit/file their responses to the PAN with the duly authorized
representative of the Commissioner who signed the PAN.
Prescriptive Periods for Assessment and Collection
The right of the government to assess and later on collect the tax is subject to
prescription as provided for under Section 203 of the Tax Code. Upon the lapse or
expiration of such a period, the government can no longer exercise such a right.
ASSESSMENT OF THE TAX LIABILITY
● Three (3) years — commences to run after the last day of the filing of the return. If
the return is filed before the due date, the prescriptive period runs only during the
due date. On the other hand, if the return was filed after the due date, it shall
commence after the return has been filed. If the return was amended substantially,
the period starts from the filing of the amended return.
● Ten (10) years — when no return was filed. The return was fraudulent with the
intent to evade the tax. It commences from the date of discovery.
COLLECTION OF THE TAX
● Five (5) years — from assessment

56
● Ten (10) years — without assessment, and in case of false or fraudulent returns
with intent to evade the tax.
● Criminal Liability Five (5) years — from the commission or discovery of the
violation, whichever is later.
Suspension of Prescriptive Periods
If before the expiration of the time prescribed for the assessment of the tax, both the
Commissioner and the taxpayer may agree in writing to suspend the running of the
prescriptive period within the period agreed upon. The waiver must be executed within the
3-year prescriptive period prescribed under Section 203, otherwise said waiver shall be
ineffectual.
It is likewise suspended:
a. When the Commissioner is prohibited in making an assessment or beginning of a

distraint or levy or a proceeding in court or 60 days thereafter (filing of criminal
action is not suspended).
b. When the taxpayer requests for a reinvestigation or reconsideration which was
granted by the Commissioner.
c. When the taxpayer cannot be located at the address as indicated in the return;
d. When the warrant of distraint or levy has been served and no property could be
located;
e. When the taxpayer is out of the Philippines.57
DUE PROCESS REQUIREMENT IN THE ISSUANCES OF A DEFICIENCY TAX ASSESSMENT
Mode of procedure in the issuance of the deficiency tax assessment:
● Preliminary Assessment Notice (PAN)/ Final Assessment Notice(FAN)
If after review and evaluation by the Commissioner or his duly authorized

representative, it is determined that there exists sufficient basis to assess the taxpayer
for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary
Assessment Notice (PAN) for the proposed assessment.
If the taxpayer fails to respond within 15 days from the date of receipt of the PAN
he shall be considered in default in which case, a Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) shall be issued calling for payment of the

taxpayer's deficiency tax liability, inclusive of the applicable penalties.
Submission of Protest Letter. If the taxpayer, within 15 days from the date of
receipt of the PAN, responds that he/it disagrees with the findings of deficiency tax or
taxes, an FLD/FAN shall be issued within 15 days from filing/submission of the
57
Tabag and Garcia, “Transfer & Business Taxation with Special Topics (2019)”, p. 392-394;
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 6, Sec. 194; and
National Internal Revenue code of 1997, Title VIII, Chapter I Remedies in general
taxpayer’s response, calling for payment of the taxpayer's deficiency tax liability,
inclusive of the applicable penalties.
● Formal Letter of Demand and Final Assessment Notice (FLD/FAN)
It shall be issued by the Commissioner or his duly authorized representative. The

FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules, and regulations, or jurisprudence on which the assessment is
based; otherwise, the assessment shall be void.
● Disputed Assessment
The taxpayer or its authorized representative or tax agent may

protest administratively against the aforesaid FLD/FAN within 30 days from the date of
receipt thereof. The taxpayer protesting an assessment may file a written request for
reconsideration or reinvestigation defined as follows:
○ Request for reconsideration — refers to a plea for re-evaluation of an

assessment on the basis of existing records without the need of additional
evidence. It may involve both a question of fact or of law or both.
○ Request for reinvestigation — refers to a plea for re-evaluation of an

assessment on the basis of newly discovered or additional evidence that
a taxpayer intends to present in the reinvestigation. It may involve both a
question of fact or of law or both.58
For requests for reinvestigation
1. The taxpayer shall submit all relevant supporting documents in support of

his protest within 60 days from the date of filing of his letter of protest,
otherwise, the assessment shall become final.
● The term “relevant supporting documents” refer to those documents necessary to

support the legal and factual bases in disputing a tax assessment as determined
by the taxpayer.
● Furthermore, the term “the assessment shall become final” shall mean the
taxpayer is barred from disputing the correctness of the issued assessment by
the introduction of newly discovered or additional evidence, and the FDDA shall
consequently be denied.
2. The 60-day period for the submission of all relevant supporting

documents shall not apply to requests for reconsideration.59
The taxpayer shall state in his protest:
58
59
The Local Government Code of the Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 6, Sec. 195
(i) the nature of protest whether reconsideration or reinvestigation, specifying
newly discovered or additional evidence he intends to present if it is a request for
reinvestigation,
(ii) date of the assessment notice, and
(iii) the applicable law, rules and regulations, or jurisprudence on which his
protest is based, otherwise, his protest shall be considered void and without force and
effect.
Several Issues in FLD/FAN
If there are several issues involved in the FLD/FAN but the taxpayer only disputes or
protests against the validity of some of the issues raised the assessment attributable to the
undisputed issue or issues shall become final, executory, and demandable; and the taxpayer
shall be required to pay the deficiency tax or taxes attributable thereto, in which case, a
collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax or
taxes, inclusive of the applicable surcharge and/or interest.
If there are several issues involved in the disputed assessment and the taxpayer fails to
state the facts, the applicable law, rules, and regulations, or jurisprudence in support of his
protest against some of the several issues on which the assessment is based, the same shall
be considered undisputed issue or issues, in which case, the assessment attributable thereto
shall become final, executory and demandable; and the taxpayer shall be required to pay the
deficiency tax or taxes attributable thereto and a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or
interest.60
Failure to File a Valid Protest61
If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from the
date of receipt thereof, the assessment shall become final, executory, and demandable. No
request for reconsideration or reinvestigation shall be granted on tax assessments that have
already become final, executory, and demandable.
If the protest is denied, in whole or in part, by the Commissioner’s duly authorized

representative
The Taxpayer may either:
1. Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from the date of receipt
of the said decision, or
2. Elevate his protest through a request for reconsideration to the Commissioner within
thirty (30) days from the date of receipt of the said decision. No request for
reinvestigation shall be allowed in administrative appeal and only issues raised in the
decision of the Commissioner’s duly authorized representative shall be entertained by
the Commissioner.
60
61
If the protest is not acted upon by the Commissioner’s duly authorized representative
If within 180 days counted from the date of filing of the protest in case of a
request for reconsideration; or from the date of submission by the taxpayer of the
required documents within 60 days from the date of filing of the protest in case of a
request for reinvestigation
The taxpayer may either:
1. Appeal to the CTA within 30 days after the expiration of the one hundred eighty
(180)-day period; or
2. Await the final decision of the Commissioner’s duly authorized representative on the
disputed assessment.
● If the protest or administrative appeal, as the case may be, is denied, in whole or
in part, by the Commissioner, the taxpayer may appeal to the CTA within 30 days from
the date of receipt of the said decision. Otherwise, the assessment shall become final,
executory, and demandable. A motion for reconsideration of the Commissioner’s denial
of the protest or administrative appeal, as the case may be, shall not toll the 30-day
period to appeal to the CTA.
● If the protest or administrative appeal is not acted upon by the Commissioner
Within 180 days counted from the date of filing of the protest the taxpayer may
either:
1. Appeal to the CTA within 30 days from after the expiration of the 180-day period;
2. Await the final decision of the Commissioner on the disputed assessment and
appeal such final decision to the CTA within 30 days after the receipt of a copy of
the such decision.
It must be emphasized, however, that in case of inaction on protested

assessment within the 180-day period the option of the taxpayer to either (1) or (2) are
mutually exclusive and the resort to one bars the application of the other.
1. File a petition for review with the CTA within 30 days after the expiration of the
180-day period; or
2. Await the final decision of the Commissioner or his duly authorized representative
on the disputed assessment and appeal such final decision to the CTA within 30
days after the receipt of a copy of the such decision.
Final Decision on a Disputed Assessment (FDDA)
The decision of the Commissioner or his duly authorized representative shall state the:
(i) facts, the applicable law, rules, and regulations, or jurisprudence on which
such decision is based, otherwise, the decision shall be void, and
(ii) that the same is his final decision.62
CLAIM FOR REFUND
Under Section 196 of the Local Government Code, states that Claim for Refund of Tax
Credit. - No case or proceeding shall be maintained in any court for the recovery of any tax, fee,
or charge erroneously or illegally collected until a written claim for refund or credit has been filed
with the local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the
date the taxpayer is entitled to a refund or credit.63
GROUNDS FOR FILING A CLAIM FOR TAX REFUND AND TAX CREDIT:
1. The tax has been erroneously or illegally assessed or collected. The term “erroneous or
illegal tax” is one levied without statutory authority. It also includes penalties collected
without authority.
● Illegally collected tax - there is a violation of certain provisions of law or statute.
● Erroneously collected tax - there is a law but there is a mistake in the

collection.
2. The tax has been excessively or in any manner wrongly collected.
3. The tax was paid by mistake (solutio indebiti). Under the principle of solutio indebiti, the
government has to restore the sums representing erroneous payment of taxes.
4. Failure to use excess income tax credits against quarterly income taxes for the next
taxable year.
REQUISITES FOR TAX REFUND OR CREDIT
1. Claim must be in writing
2. It must be filed with the COmmissioner within two (2) years after the payment of the tax
or penalty.
3. Show proof of payment.
COMMENCEMENT OF THE TWO (2) YEAR PERIOD
After filing the administrative claim for refund, the taxpayer must file a judicial claim for
refund, within 30 days from either (1) from the receipt of the denial by the Commissioner, or (2)
inaction by the Commissioner.64
62
63
64
REMEDIES OF THE GOVERNMENT
SECTION 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees, or,
and surcharges and interest resulting from delinquency shall be:
(a) By administrative action thru distraint of goods, chattels, or effects, and

other personal of whatever character, including stocks and other securities, debts,
credits, bank accounts, and interest in and rights to personal property, and by levy upon
real property and interest in or rights to real property.65
A. DISTRAINT OF PERSONAL PROPERTY AND LEVY OF REAL PROPERTY
Both remedies are summary in nature and either may be pursued at the
discretion of the authorities charged with the collection of tax independently or
simultaneously with civil and criminal action once the assessment becomes final and
demandable.
DISTRAINT OF PERSONAL PROPERTY
A remedy whereby the collection of tax is enforced on the goods, chattels, or

effects of the taxpayer including other personal property of whatever character including
stocks and other securities, debts, credits, banks accounts, and interest in and rights to
personal property. The property may be offered in a public safe, if taxes are not
voluntarily paid. Distraint may be actual or constructive.
Constructive Distraint - it is where the taxpayer is prohibited from disposing his

property.66 The government can place the taxpayer’s personal property under
constructive distraint when the property of a delinquent taxpayer is:
1. Retiring from business subject to tax
2. Intending to leave the philippines or to remove his property therefrom or to hide

or conceal his property
3. Intending to perform any act tending to obstruct the proceedings for collecting the
tax due or which may be due from him.
The constructive distraint shall be effected by requiring the taxpayer or any

person having possession or control of such property to sign a receipt covering the
property distrained and obligate himself to preserve the same intact and unaltered and
not to dispose of the same in any manner without the express authority of the
Commissioner.
Actual Distraint - it is where the possession of the property is transferred from

the taxpayer to the government.67 It’s resorted to upon the failure of the person owing
any delinquent tax or delinquent revenue to pay the same at the time required.
Procedures for Distraint:

65
66
Laco, Manuel, and Soriano, “ The tax reviewer 2021 edition”, p.94
67
Laco, Manuel, and Soriano, “The Tax Reviewer 2021 edition”, p. 94
1. Stocks and other securities shall be distrained by serving a copy of the warrant of
distraint upon the taxpayer and upon the president, manager, treasurer or other
responsible officers of the corporation, company, or association which issued the
stocks.
2. Debits and credits shall be distrained by leaving with the person owing the debts
or having in his possession or under his control such credits, or with his agent, a
copy of the warrant of distraint.
3. Bank accounts shall be garnished by serving a warrant of garnishment upon the
taxpayer and upon the president, manager, treasurer, or other responsible
officers of the bank.68
LEVY ON REAL PROPERTY
Levy refers to the seizure of real properties and interest on the rights of such properties
for the satisfaction of the tax due from the delinquent taxpayers. The property may be offered in
public sale if, after the seizure, the taxes are not voluntarily paid. It can be made before,
simultaneously, or after the distraint of personal property.
It is affected by writing upon a certificate prepared by the Commissioner or his duly

authorized representative showing the name of the taxpayer and the amount of the tax, fee, or
charge, and penalty due from him. Levy shall be affected by writing upon said certificate the
description of the property upon which levy is made. At the same time, written notice of the levy
shall be mailed to or served upon the assessor and the Registrar of Deeds of the province or
city where the property is located and upon the taxpayer.69
B. ENFORCEMENT OF FORFEITURE
Forfeiture is the divestiture of property without compensation, in consequence of

a default or offense. The forfeiture of chattels and removal of fixtures of any sort shall be
enforced by the seizure and sale, or destruction of the specific forfeited property. The
forfeiture of real property shall be enforced by a judgment of condemnation and sale in a
legal action or proceeding civil, or criminal, as the case may be.
C. ENFORCEMENT OF TAX LIEN
A tax lien is a legal claim or charge on property, whether real or personal,

established by law as a source of security for the payment of tax obligations. It is more
extensive in scope and is superior to all other claims or preferences.
When a taxpayer refuses or neglects to pay the tax, a lien accrues against all
properties and property rights of the taxpayer. However, such tax lien shall not be valid
against any mortgagee, purchaser, or judgment creditor until the notice of lien is filed
with the Register of Deeds.
68
Tabag and Garcia, “Transfer & Business Taxation with Special Topics (2019)”, p. 404-405 The Local Government Code of the
Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 4, Sec. 175
69
Tabag and Garcia, “Transfer & Business Taxation with Special Topics (2019)”, p. 407 and The Local Government Code of the
Philippines Book II, Local Taxation and Fiscal Matters, Title One, Chapter 4, Sec. 176
In seizure for the enforcement of tax lien, the residue, after deducting the tax liability
and expenses, will go to the taxpayer. In forfeiture, all the proceeds of the sale will go to
the coffers of the government.70
D. COMPROMISE
A compromise is a contract whereby the parties, by reciprocal concessions, avoid

litigation or put an end to one already commended. (Art. 2028, New Civil Code)
Grounds for compromise of civil liability:
1. When a reasonable doubt as to the validity of the claim against the taxpayer exists;
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed
tax.
The following matters may be subject to a compromise:
1. Delinquent Accounts;
2. Cases under administrative protest after the issuance of the final assessment notice to
the taxpayer which are still pending;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in court;
5. Criminal cases except those already filed in court or those involving tax fraud.
What Cases cannot be Compromised:
1. Withholding tax cases, in general;

2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or
his duly authorized representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment, and the taxpayer is agreeable to such
decision by signing the required agreement form for the purpose;
6. In general, (a) cases which have become final and executory (except where compromise
is requested on the ground of financial incapacity) and (b) estate tax cases (except
where compromise is requested on the ground of doubtful validity of the assessment).71
Amounts of Compromise Settlement:
The BIR has a schedule of compromise penalties for various violations of the Tax
Code. A compromise penalty may differ from the prescribed amounts as long it is
approved by the Commissioner, but shall not go below the following minimum amounts:
70
Tabag and Garcia, “Transfer & Business Taxation with Special Topics (2019)”, p. 407
71
Laco, Manuel, and Soriano, “The Tax Reviewer 2021 edition”, p. 99-100
(a) For cases of financial incapacity, a minimum compromise rate is equivalent
to 10% of the basic assessed tax.
(b) For other cases (doubtful validity), a minimum compromise rate is

equivalent to 40% of the basic assessed tax.
Approval of the Compromise:
The compromise shall be subject to the approval of the National Evaluation

Board which is composed of the Commissioner and 4 Deputy Commissioners. It shall be
necessary if:
(a) the basic tax involved exceeds P1,000,000, or
(b) the settlement offered is less than the prescribed minimum rates.
ABATEMENT
Abatement is the cancellation or withdrawal of an assessment made by the BIR. The BIR
is the one that only processes applications for abatement of surcharges, interest, and
compromise penalties.
Grounds of Abatement:
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration or collection costs involved do not justify the collection of the amount
due.
DELEGATION OF THE POWER TO ABATE AND COMPROMISE
The power to abate or compromise may be delegated by the Commissioner to

Regional Evaluation Board, in the following cases:
1. Assessments issued by the Regional Offices involving basic deficiency taxes of

P500,000;
2. Minor criminal violations
The Regional Evaluation Board shall be composed of the Regional Director as

Chairman, the Assistant Regional Director, the heads of the Legal Assessment and
Collection Divisions, and the Revenue District Officer having jurisdiction over the
taxpayer. (Sec. 7[c], Tax code)72
E. CIVIL PENALTIES
Surcharge is a civil penalty imposed by law as an addition to the deficiency tax

required to be paid.
1. 25% surcharge shall be imposed in case of:
72
Laco, Manuel, and Soriano, “The Tax Reviewer 2021 edition”, p. 100-103
a. Failure to file any return and pay the tax on time;
b. Filing a return with the proper internal revenue officer (wrong venue);
c. Failure to pay the deficiency tax within the time prescribed for its payment
in the notice of assessment;
d. Failure to pay in full or in part of the amount of the tax shown in any return
required to be filed, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment
2. 50% surcharge shall be imposed in case of:
a. Willful neglect to file the return within the time prescribed; or
b. A false or fraudulent return is willfully made 73
Sec. 174 (b) - By judicial action. Either of these remedies or all may be pursued concurrently
or at the discretion of the local government unit concerned.74
A. ORDINARY CIVIL ACTION
Civil action is resorted when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, or the decision of the Commissioner has
become final, executory and demandable. This occurs when:
● The tax is assessed and the taxpayer fails to file an administrative protest by
filing for a request for reconsideration or reinvestigation within 30 days from
receipt of the FAN.
● A protest against the assessment was filed by the taxpayer but the
Commissioner’s decision denying in whole or in pan was not appealed to the
CTA.
A proceeding in Court after the collection of the Tax may be begun without
assessment when fraudulent tax returns are involved (Adamson vs. CA). An assessment
of deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade income tax. A crime is complete when the violator has knowingly and willfully filed
a fraudulent return, with the intent to evade and defeat the tax.75
B. CRIMINAL ACTIONS
Criminal Action is resorted to, not only for collection of taxes but also for
enforcement of statutory penalties of all sorts. The judgment in the criminal case shall
not only impose the penalty but shall also order the payment of the taxes subject of the
criminal case. The criminal liability arises upon failure of the debtor to satisfy his civil
73
Laco, Manuel, and Soriano, “The Tax Reviewer 2021 edition”, p. 103
74
75
Dimaampao, “Tax principles and Remedies (2019)”
obligation to pay tax. Thus, the subsequent satisfaction of a tax liability will not operate
to extinguish the criminal liability.
The criminal complaint may proceed even without prior assessment or
computation of the tax. It must be stressed that a criminal complaint is instituted not to
demand payment but to penalize the taxpayer for violation of the tax code.76
NO INJUNCTION TO RESTRAIN TAX COLLECTION
An injunction is not available to restrain the collection of tax. No court shall have the
authority to grant an injunction to restrain the collection of any national internal revenue tax,
fee, or charge imposed under the NIRC, except when the decision of the Commissioner is
pending appeal before the Court of Tax Appeals, the said court may enjoin the collection of
taxes if such collection will jeopardize the interest of the government and/or the taxpayers.77
76
77

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GENERAL PRINCIPLES OF

LOCAL GOVERNMENT TAXATION

Nature of Taxing Power

a. It is not inherent to the state

b. Taxing power shall be exercised only in the discretion or delegation by law or

1. Through a valid ordinance;

Source of Local Taxing Power - Declaration of Policy

(1) Taxation shall be uniform in each local government unit;

(2) Taxes, fees, charges and other impositions shall:

(a) be equitable and based as far as practicable on the taxpayer's ability to

(33) Documentary stamp tax;

(38) Taxes on business enterprises certified to by the Board of Investments as pioneer

(42) Taxes on premium paid by way or reinsurance or retrocession;

(44) Taxes, fees or charges on Philippine products actually exported, except as

(45) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises

SCOPE OF TAXING POWER

- No province, city, municipality, or barangay may be created, divided, merged,

2. Territorial and Political Subdivisions

Article One - Provinces

It shall be the duty of the seller, donor, transferor, executor or

● Rate and Base:

Section 136. Business of printing and publication15

● Rate and Base:

Section 137. Franchise tax16

● Rate and Base:

Section 138. Sand, gravel and other quarry resources17

● Rate and Base:

Section 139. Professional tax18

● Rate and Base:

Any individual or corporation employing a person subject to professional tax shall

Section 140. Amusement tax 19

● Rate and Base:

● Rate and Base:

Article Two. - Municipalities

(c) A fixed annual tax on exporters, and on manufactured millers, producers,

(e) A fixed annual tax ranging from a minimum of P27.50 to a maximum of

2. Fees and charges :

The Sangguniang Bayan may:

Article Three. - Cities

● Rate and Base:

Article Four. - Barangays

Rate and Base:

4. Reasonable fees and charges:

Article VI - COMMUNITY TAX

- It is a local tax imposed by cities or municipalities in accordance with Sections

1. Individuals (Sec. 157)

2. Juridical Persons (Sec 158)

Every corporation no matter how created or organized, whether domestic or

Persons Exempt to Pay the Community Tax

1. Diplomatic and consular representatives; and

The community tax shall be paid in the:

1. Place of residence of the individual

Time for Payment

● Penalties for Delinquency (Sec. 161)

Therewith, the Constitutional limitation that regards the non-imprisonment for

Community Tax Certificate

- A community tax certificate shall be issued to every person or corporation upon

Section 163: Presentation of Community Tax Certificate on Certain Occasions

Section 164: Printing of Community Tax Certificates and Distribution of Proceeds

TIME, MANNER, AND PLACE (SITUS) OF PAYMENT OF LOCAL BUSINESS TAX

Tax Period and Manner of Payment 41

Accrues every 1st of January and may be payable: