THE NATIONAL INTERNAL REVENUE CODE

OF THE PHILIPPINES
[Tax Reform Act of 1997]
Republic Act No. 8424

AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,

AND FOR OTHER PURPOSES

SECTION 1. Short Title - This Act shall be cited as the "Tax Reform Act of 1997".
SEC. 2. State Policy. It is hereby declared the policy of the State to promote sustainable
economic growth through the rationalization of the Philippine internal revenue tax system,
including tax administration; to provide, as much as possible, an equitable relief to a greater
number of taxpayers in order to improve levels of disposable income and increase economic
activity; and to create a robust environment for business to enable firms to compete better in
the regional as well as the global market, at the same time that the State ensures that
Government is able to provide for the needs of those under its jurisdiction and care.
SEC. 3. Presidential Decree No. 1158, as amended by, among others, Presidential Decree
No. 1994 and Executive Order No. 273, otherwise known as the National Internal Revenue
Code, is hereby further amended.

TITLE I
ORGANIZATION AND FUNCTION OF
THE BUREAU OF INTERNAL REVENUE

SECTION 1. Title of the Code. - This Code shall be known as the National Internal Revenue Code of
1997.
SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal
Revenue shall be under the supervision and control of the Department of Finance and its
powers and duties shall comprehend the assessment and collection of all national internal
revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines
connected therewith, including the execution of judgments in all cases decided in its favor by
the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and
administer the supervisory and police powers conferred to it by this Code or other laws.
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue
shall have a chief to be known as Commissioner of Internal Revenue, hereinafter referred to as
the Commissioner and four (4) assistant chiefs to be known as Deputy Commissioners.
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. -
The power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance.

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

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine,

and Take Testimony of Persons. - In ascertaining the correctness of any return, or in making
a return when none has been made, or in determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in evaluating tax compliance, the
Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or
material to such inquiry;

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

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

(D) To take such testimony of the person concerned, under oath, as may be relevant or
material to such inquiry; and

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

The provisions of the foregoing paragraphs notwithstanding, nothing in this Section

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

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional

Requirements for Tax Administration and Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After a return has been
filed as required under the provisions of this Code, the Commissioner or his duly
authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however; That failure to file a return
shall not prevent the Commissioner from authorizing the examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to receive the same
shall not be withdrawn: Provided, That within three (3) years from the date of such
filing, the same may be modified, changed, or amended: Provided, further, That no
notice for audit or investigation of such return, statement or declaration has in the
meantime been actually served upon the taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other Documents. -
When a report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by laws or rules and
regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the proper tax on the best evidence
obtainable.
In case a person fails to file a required return or other document at the time prescribed
by law, or willfully or otherwise files a false or fraudulent return or other document, the
Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which shall be prima facie
correct and sufficient for all legal purposes.

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

Gross Sales and Receipts. - The Commissioner may, at any time during the taxable
year, order inventory-taking of goods of any taxpayer as a basis for determining his
internal revenue tax liabilities, or may place the business operations of any person,
natural or juridical, under observation or surveillance if there is reason to believe that
such person is not declaring his correct income, sales or receipts for internal revenue
tax purposes. The findings may be used as the basis for assessing the taxes for the
other months or quarters of the same or different taxable years and such assessment
shall be deemed prima facie correct.
When it is found that a person has failed to issue receipts and invoices in violation of
the requirements of Sections 113 and 237 of this Code, or when there is reason to
believe that the books of accounts or other records do not correctly reflect the
declarations made or to be made in a return required to be filed under the provisions of
this Code, the Commissioner, after taking into account the sales, receipts, income or
other taxable base of other persons engaged in similar businesses under similar
situations or circumstances or after considering other relevant information may
prescribe a minimum amount of such gross receipts, sales and taxable base, and such
amount so prescribed shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.

(D) Authority to Terminate Taxable Period. - When it shall come to the knowledge of
the Commissioner that a taxpayer is retiring from business subject to tax, or is
intending to leave the Philippines or to remove his property therefrom or to hide or
conceal his property, or is performing any act tending to obstruct the proceedings for
the collection of the tax for the past or current quarter or year or to render the same
totally or partly ineffective unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer terminated at any time and
shall send the taxpayer a notice of such decision, together with a request for the
immediate payment of the tax for the period so declared terminated and the tax for the
preceding year or quarter, or such portion thereof as may be unpaid, and said taxes
shall be due and payable immediately and shall be subject to all the penalties hereafter
prescribed, unless paid within the time fixed in the demand made by the
Commissioner.

(E) Authority of the Commissioner to Prescribe Real Property Values. - The

Commissioner is hereby authorized to divide the Philippines into different zones or
areas and shall, upon consultation with competent appraisers both from the private and
public sectors, determine the fair market value of real properties located in each zone
or area. For purposes of computing any internal revenue tax, the value of the property
 shall be, whichever is the higher of:

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

(2) the fair market value as shown in the schedule of values of the Provincial
and City Assessors.

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

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

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

(2) any taxpayer who has filed an application for compromise of his tax liability
under Sec. 204 (A) (2) of this Code by reason of financial incapacity to pay his
tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that
his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be
considered unless and until he waives in writing his privilege under Republic Act No. 1405 or under
other general or special laws, and such waiver shall constitute the authority of the Commissioner to
inquire into the bank deposits of the taxpayer.
(G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit
and register, based on their professional competence, integrity and moral fitness,
individuals and general professional partnerships and their representatives who prepare
and file tax returns, statements, reports, protests, and other papers with or who appear
before, the Bureau for taxpayers. Within one hundred twenty (120) days from January
1, 1998, the Commissioner shall create national and regional accreditation boards, the
members of which shall serve for three (3) years, and shall designate from among the
senior officials of the Bureau, one (1) chairman and two (2) members for each board,
subject to such rules and regulations as the Secretary of Finance shall promulgate upon
the recommendation of the Commissioner.
Individuals and general professional partnerships and their representatives who are
denied accreditation by the Commissioner and/or the national and regional
accreditation boards may appeal such denial to the Secretary of Finance, who shall
rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the
Secretary of Finance to rule on the Appeal within the prescribed period shall be
deemed as approval of the application for accreditation of the appellant.

(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary

Requirements. - The Commissioner may prescribe the manner of compliance with any
documentary or procedural requirement in connection with the submission or
preparation of financial statements accompanying the tax returns.
SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may
delegate the powers vested in him under the pertinent provisions of this Code to any or such
subordinate officials with the rank equivalent to a division chief or higher, subject to such
limitations and restrictions as may be imposed under rules and regulations to be promulgated
by the Secretary of finance, upon recommendation of the Commissioner: Provided, however,
That the following powers of the Commissioner shall not be delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any
 existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax
liability: Provided, however, That assessments issued by the regional offices involving
basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor
criminal violations, as may be determined by rules and regulations to be promulgated by
the Secretary of finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional
Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue
District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
SEC. 8. Duty of the Commissioner to Ensure the Provision and Distribution of forms,
Receipts, Certificates, and Appliances, and the Acknowledgment of Payment of Taxes.-
(A) Provision and Distribution to Proper Officials. - It shall be the duty of the
Commissioner, among other things, to prescribe, provide, and distribute to the proper
officials the requisite licenses internal revenue stamps, labels all other forms,
certificates, bonds, records, invoices, books, receipts, instruments, appliances and
apparatus used in administering the laws falling within the jurisdiction of the Bureau. For
this purpose, internal revenue stamps, strip stamps and labels shall be caused by the
Commissioner to be printed with adequate security features.
Internal revenue stamps, whether of a bar code or fusion design, shall be firmly and
conspicuously affixed on each pack of cigars and cigarettes subject to excise tax in the
manner and form as prescribed by the Commissioner, upon approval of the Secretary
of Finance.

(B) Receipts for Payment Made. - It shall be the duty of the Commissioner or his duly
authorized representative or an authorized agent bank to whom any payment of any
tax is made under the provision of this Code to acknowledge the payment of such tax,
expressing the amount paid and the particular account for which such payment was
made in a form and manner prescribed therefor by the Commissioner.
SEC. 9. Internal Revenue Districts. - With the approval of the Secretary of Finance, the
Commissioner shall divide the Philippines into such number of revenue districts as may form
time to time be required for administrative purposes. Each of these districts shall be under the
supervision of a Revenue District Officer.
SEC. 10. Revenue Regional Director. - Under rules and regulations, policies and standards
formulated by the Commissioner, with the approval of the Secretary of Finance, the Revenue
Regional director shall, within the region and district offices under his jurisdiction, among
others:
(a) Implement laws, policies, plans, programs, rules and regulations of the department
or agencies in the regional area;
(b) Administer and enforce internal revenue laws, and rules and regulations, including
the assessment and collection of all internal revenue taxes, charges and fees.
(c) Issue Letters of authority for the examination of taxpayers within the region;
(d) Provide economical, efficient and effective service to the people in the area;
(e) Coordinate with regional offices or other departments, bureaus and agencies in the
area;
(f) Coordinate with local government units in the area;
(g) Exercise control and supervision over the officers and employees within the region;
and
 (h) Perform such other functions as may be provided by law and as may be delegated
by the Commissioner.
SEC. 11. Duties of Revenue District Officers and Other Internal Revenue Officers. - It
shall be the duty of every Revenue District Officer or other internal revenue officers and
employees to ensure that all laws, and rules and regulations affecting national internal revenue
are faithfully executed and complied with, and to aid in the prevention, detection and
punishment of frauds of delinquencies in connection therewith.

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

SEC. 12. Agents and Deputies for Collection of National Internal Revenue Taxes. - The
following are hereby constituted agents of the Commissioner:
(a) The Commissioner of Customs and his subordinates with respect to the collection of
national internal revenue taxes on imported goods;
(b) The head of the appropriate government office and his subordinates with respect to
the collection of energy tax; and
(c) Banks duly accredited by the Commissioner with respect to receipt of payments
internal revenue taxes authorized to be made thru bank.
Any officer or employee of an authorized agent bank assigned to receive internal
revenue tax payments and transmit tax returns or documents to the Bureau of Internal
Revenue shall be subject to the same sanctions and penalties prescribed in Sections
269 and 270 of this Code.
SEC. 13. Authority of a Revenue Offices. - subject to the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a
Revenue Officer assigned to perform assessment functions in any district may, pursuant to a
Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the
jurisdiction of the district in order to collect the correct amount of tax, or to recommend the
assessment of any deficiency tax due in the same manner that the said acts could have been
performed by the Revenue Regional Director himself.
SEC. 14. Authority of Officers to Administer Oaths and Take Testimony. - The
Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue
Regional Directors, Assistant Revenue Regional Directors, Chiefs and Assistant Chiefs of
Divisions, Revenue District Officers, special deputies of the Commissioner, internal revenue
officers and any other employee of the Bureau thereunto especially deputized by the
Commissioner shall have the power to administer oaths and to take testimony in any official
matter or investigation conducted by them regarding matters within the jurisdiction of the
Bureau.
SEC. 15. Authority of Internal Revenue Officers to Make Arrests and Seizures. - The
Commissioner, the Deputy Commissioners, the Revenue Regional Directors, the Revenue
District Officers and other internal revenue officers shall have authority to make arrests and
seizures for the violation of any penal law, rule or regulation administered by the Bureau of
Internal Revenue. Any person so arrested shall be forthwith brought before a court, there to be
dealt with according to law.
SEC. 16. Assignment of Internal Revenue Officers Involved in Excise Tax Functions to
Establishments Where Articles subject to Excise Tax are Produced or Kept. - The
Commissioner shall employ, assign, or reassign internal revenue officers involved in excise tax
 functions, as often as the exigencies of the revenue service may require, to establishments or
places where articles subject to excise tax are produced or kept: Provided, That an internal
revenue officer assigned to any such establishment shall in no case stay in his assignment for
more than two (2) years, subject to rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.
SEC. 17. Assignment of Internal Revenue Officers and Other Employees to Other Duties.
- The Commissioner may, subject to the provisions of Section 16 and the laws on civil service,
as well as the rules and regulations to be prescribed by the Secretary of Finance upon the
recommendation of the Commissioner, assign or reassign internal revenue officers and
employees of the Bureau of Internal Revenue, without change in their official rank and salary,
to other or special duties connected with the enforcement or administration of the revenue laws
as the exigencies of the service may require: Provided, That internal revenue officers assigned
to perform assessment or collection function shall not remain in the same assignment for more
than three (3) years; Provided, further, That assignment of internal revenue officers and
employees of the Bureau to special duties shall not exceed one (1) year.
SEC. 18. Reports of Violation of Laws. - When an internal revenue officer discovers evidence
of a violation of this Code or of any law, rule or regulations administered by the Bureau of
Internal Revenue of such character as to warrant the institution of criminal proceedings, he
shall immediately report the facts to the Commissioner through his immediate superior, giving
the name and address of the offender and the names of the witnesses if possible: Provided,
That in urgent cases, the Revenue Regional director or Revenue District Officer, as the case
may be, may send the report to the corresponding prosecuting officer in the latter case, a copy
of his report shall be sent to the Commissioner.
SEC. 19. Contents of Commissioner's Annual Report. - The Annual Report of the
Commissioner shall contain detailed statements of the collections of the Bureau with
specifications of the sources of revenue by type of tax, by manner of payment, by revenue
region and by industry group and its disbursements by classes of expenditures.

In case the actual collection exceeds or falls short of target as set in the annual national budget
by fifteen percent (15%) or more, the Commissioner shall explain the reason for such excess or
shortfall.

SEC. 20. Submission of Report and Pertinent Information by the Commissioner.

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

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

SEC. 21. Sources of Revenue. - The following taxes, fees and charges are deemed to be national
internal revenue taxes:
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed and collected by the Bureau of
Internal Revenue.

TITLE II
TAX ON INCOME

CHAPTER I
DEFINITIONS

SEC. 22. Definitions - When used in this Title:

(A) The term "person" means an individual, a trust, estate or corporation.

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

(C) The term "domestic", when applied to a corporation, means created or organized in the
Philippines or under its laws.

(D) The term "foreign", when applied to a corporation, means a corporation which is not
domestic.

(E) The term "nonresident citizen" means:

(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner
the fact of his physical presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who
arrives in the Philippines at any time during the taxable year to reside permanently in
 the Philippines shall likewise be treated as a nonresident citizen for the taxable year in
which he arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving
the Philippines to reside permanently abroad or to return to and reside in the Philippines
as the case may be for purpose of this Section.
(F) The term "resident alien" means an individual whose residence is within the Philippines and
who is not a citizen thereof.
(G) The term "nonresident alien" means an individual whose residence is not within the
Philippines and who is not a citizen thereof.
(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or
business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in
trade or business within the Philippines.
(J) The term "fiduciary" means a guardian, trustee, executor, administrator, receiver,
conservator or any person acting in any fiduciary capacity for any person.
(K) The term "withholding agent" means any person required to deduct and withhold any tax
under the provisions of Section 57.
(L) The term "shares of stock" shall include shares of stock of a corporation, warrants and/or
options to purchase shares of stock, as well as units of participation in a partnership (except
general professional partnerships), joint stock companies, joint accounts, joint ventures taxable
as corporations, associations and recreation or amusement clubs (such as golf, polo or similar
clubs), and mutual fund certificates.
(M) The term "shareholder" shall include holders of a share/s of stock, warrant/s and/or option/s
to purchase shares of stock of a corporation, as well as a holder of a unit of participation in a
partnership (except general professional partnerships) in a joint stock company, a joint account,
a taxable joint venture, a member of an association, recreation or amusement club (such as
golf, polo or similar clubs) and a holder of a mutual fund certificate, a member in an
association, joint-stock company, or insurance company.
(N) The term "taxpayer" means any person subject to tax imposed by this Title.

(O) The terms "including" and "includes", when used in a definition contained in this Title, shall
not be deemed to exclude other things otherwise within the meaning of the term defined.

(P) The term "taxable year" means the calendar year, or the fiscal year ending during such
calendar year, upon the basis of which the net income is computed under this Title. 'Taxable
year' includes, in the case of a return made for a fractional part of a year under the provisions
of this Title or under rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the commissioner, the period for which such return is made.
(Q) The term "fiscal year" means an accounting period of twelve (12) months ending on the last
day of any month other than December.
(R) The terms "paid or incurred" and 'paid or accrued' shall be construed according to the
method of accounting upon the basis of which the net income is computed under this Title.
(S) The term "trade or business" includes the performance of the functions of a public office.
(T) The term "securities" means shares of stock in a corporation and rights to subscribe for or
to receive such shares. The term includes bonds, debentures, notes or certificates, or other
evidence or indebtedness, issued by any corporation, including those issued by a government
or political subdivision thereof, with interest coupons or in registered form.
(U) The term "dealer in securities" means a merchant of stocks or securities, whether an
individual, partnership or corporation, with an established place of business, regularly engaged
in the purchase of securities and the resale thereof to customers; that is, one who, as a
merchant, buys securities and re-sells them to customers with a view to the gains and profits
that may be derived therefrom.
(V) The term "bank" means every banking institution, as defined in Section 2 of Republic Act
No. 337, as amended, otherwise known as the General banking Act. A bank may either be a
commercial bank, a thrift bank, a development bank, a rural bank or specialized government
bank.
(W) The term "non-bank financial intermediary" means a financial intermediary, as defined in
Section 2(D)(C) of Republic Act No. 337, as amended, otherwise known as the General
Banking Act, authorized by the Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking
activities.
(X) The term "quasi-banking activities" means borrowing funds from twenty (20) or more
personal or corporate lenders at any one time, through the issuance, endorsement, or
acceptance of debt instruments of any kind other than deposits for the borrower's own account,
or through the issuance of certificates of assignment or similar instruments, with recourse, or of
repurchase agreements for purposes of relending or purchasing receivables and other similar
obligations: Provided, however, That commercial, industrial and other non-financial companies,
which borrow funds through any of these means for the limited purpose of financing their own
needs or the needs of their agents or dealers, shall not be considered as performing quasi-
banking functions.
(Y) The term "deposit substitutes" shall mean an alternative from of obtaining funds from the
public (the term 'public' means borrowing from twenty (20) or more individual or corporate
lenders at any one time) other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own needs or the needs of
their agent or dealer. These instruments may include, but need not be limited to bankers'
acceptances, promissory notes, repurchase agreements, including reverse repurchase
agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or participation and similar instruments with
recourse: Provided, however, That debt instruments issued for interbank call loans with
maturity of not more than five (5) days to cover deficiency in reserves against deposit liabilities,
including those between or among banks and quasi-banks, shall not be considered as deposit
substitute debt instruments.
(Z) The term "ordinary income" includes any gain from the sale or exchange of property which
is not a capital asset or property described in Section 39(A)(1). Any gain from the sale or
exchange of property which is treated or considered, under other provisions of this Title, as
'ordinary income' shall be treated as gain from the sale or exchange of property which is not a
capital asset as defined in Section 39(A)(1). The term 'ordinary loss' includes any loss from the
sale or exchange of property which is not a capital asset. Any loss from the sale or exchange of
property which is treated or considered, under other provisions of this Title, as 'ordinary loss'
shall be treated as loss from the sale or exchange of property which is not a capital asset.
(AA) The term "rank and file employees" shall mean all employees who are holding neither
managerial nor supervisory position as defined under existing provisions of the Labor Code of
the Philippines, as amended.
(BB) The term "mutual fund company" shall mean an open-end and close-end investment
company as defined under the Investment Company Act.
(CC) The term "trade, business or profession" shall not include performance of services by the
taxpayer as an employee.
(DD) The term "regional or area headquarters" shall mean a branch established in the
Philippines by multinational companies and which headquarters do not earn or derive income
 from the Philippines and which act as supervisory, communications and coordinating center for
their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.
(EE) The term "regional operating headquarters" shall mean a branch established in the
Philippines by multinational companies which are engaged in any of the following services:
general administration and planning; business planning and coordination; sourcing and
procurement of raw materials and components; corporate finance advisory services; marketing
control and sales promotion; training and personnel management; logistic services; research
and development services and product development; technical support and maintenance; data
processing and communications; and business development.

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

CHAPTER II
GENERAL PRINCIPLES
SEC. 23. General Principles of Income Taxation in the Philippines. - Except when
otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the
Philippines;
(C) An individual citizen of the Philippines who is working and deriving income from abroad as
an overseas contract worker is taxable only on income derived from sources within the
Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and without
the Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.

CHAPTER III
TAX ON INDIVIDUALS

SEC. 24. Income Tax Rates. -

(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines.

(1) An income tax is hereby imposed:

(a) On the taxable income defined in Section 31 of this Code, other than income
subject to tax under Subsections (B), (C) and (D) of this Section, derived for
each taxable year from all sources within and without the Philippines be every
individual citizen of the Philippines residing therein;
 (b) On the taxable income defined in Section 31 of this Code, other than income
subject to tax under Subsections (B), (C) and (D) of this Section, derived for
each taxable year from all sources within the Philippines by an individual citizen
of the Philippines who is residing outside of the Philippines including overseas
contract workers referred to in Subsection(C) of Section 23 hereof; and
(c) On the taxable income defined in Section 31 of this Code, other than income
subject to tax under Subsections (b), (C) and (D) of this Section, derived for
each taxable year from all sources within the Philippines by an individual alien
who is a resident of the Philippines.
The tax shall be computed in accordance with and at the rates established in
the following schedule:
Not over P10,000....5%
Over P10,000 but not over P30,000P500+10% of the
excess over P10,000
Over P30,000 but not over P70,000P2,500+15% of the
excess over P30,000
Over P70,000 but not over P140,000..P8,500+20% of the
excess over P70,000
Over P140,000 but not over P250,000P22,500+25% of the
excess over P140,000
Over P250,000 but not over P500,000P50,000+30% of the
excess over P250,000
Over P500,000 ..... P125,000+34% of the excess
over P500,000 in 1998.
Provided, That effective January 1, 1999, the top marginal rate shall be thirty-
three percent (33%) and effective January 1, 2000, the said rate shall be thirty-
two percent (32%).

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

(B) Rate of Tax on Certain Passive Income.

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

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

Three (3) years to less than (4) years - 12%; and
Less than three (3) years - 20%
(2) Cash and/or Property Dividends - A final tax at the following rates shall be imposed
upon the cash and/or property dividends actually or constructively received by an
individual from a domestic corporation or from a joint stock company, insurance or
mutual fund companies and regional operating headquarters of multinational
companies, or on the share of an individual in the distributable net income after tax of a
partnership (except a general professional partnership) of which he is a partner, or on
the share of an individual in the net income after tax of an association, a joint account,
or a joint venture or consortium taxable as a corporation of which he is a member or
co-venturer:

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

Eight percent (8%) beginning January 1, 1999; and
Ten percent (10% beginning January 1, 2000.
Provided, however, That the tax on dividends shall apply only on income earned on or
after January 1, 1998. Income forming part of retained earnings as of December 31,
1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to
this tax.

(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of
Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net
capital gains realized during the taxable year from the sale, barter, exchange or other disposition of
shares of stock in a domestic corporation, except shares sold, or disposed of through the stock
exchange.
Not over P100,000........ 5%
On any amount in excess of P100,000 10%

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

(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price or current fair market value as
determined in accordance with Section 6(E) of this Code, whichever is higher, is
hereby imposed upon capital gains presumed to have been realized from the sale,
exchange, or other disposition of real property located in the Philippines, classified as
capital assets, including pacto de retro sales and other forms of conditional sales, by
individuals, including estates and trusts: Provided, That the tax liability, if any, on gains
from sales or other dispositions of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations shall be
determined either under Section 24 (A) or under this Subsection, at the option of the
taxpayer.
(2) Exception. - The provisions of paragraph (1) of this Subsection to the contrary
 notwithstanding, capital gains presumed to have been realized from the sale or
disposition of their principal residence by natural persons, the proceeds of which is fully
utilized in acquiring or constructing a new principal residence within eighteen (18)
calendar months from the date of sale or disposition, shall be exempt from the capital
gains tax imposed under this Subsection: Provided, That the historical cost or adjusted
basis of the real property sold or disposed shall be carried over to the new principal
residence built or acquired: Provided, further, That the Commissioner shall have been
duly notified by the taxpayer within thirty (30) days from the date of sale or disposition
through a prescribed return of his intention to avail of the tax exemption herein
mentioned: Provided, still further, That the said tax exemption can only be availed of
once every ten (10) years: Provided, finally, that if there is no full utilization of the
proceeds of sale or disposition, the portion of the gain presumed to have been realized
from the sale or disposition shall be subject to capital gains tax. For this purpose, the
gross selling price or fair market value at the time of sale, whichever is higher, shall be
multiplied by a fraction which the unutilized amount bears to the gross selling price in
order to determine the taxable portion and the tax prescribed under paragraph (1) of
this Subsection shall be imposed thereon.

SEC. 25. Tax on Nonresident Alien Individual. -

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

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

Philippines shall be subject to an income tax in the same manner as an individual
citizen and a resident alien individual, on taxable income received from all sources
within the Philippines. A nonresident alien individual who shall come to the Philippines
and stay therein for an aggregate period of more than one hundred eighty (180) days
during any calendar year shall be deemed a 'nonresident alien doing business in the
Philippines'. Section 22 (G) of this Code notwithstanding.
(2) Cash and/or Property Dividends from a Domestic Corporation or Joint Stock
Company, or Insurance or Mutual Fund Company or Regional Operating Headquarters
or Multinational Company, or Share in the Distributable Net Income of a Partnership
(Except a General Professional Partnership), Joint Account, Joint Venture Taxable as
a Corporation or Association., Interests, Royalties, Prizes, and Other Winnings. - Cash
and/or property dividends from a domestic corporation, or from a joint stock company,
or from an insurance or mutual fund company or from a regional operating
headquarters of multinational company, or the share of a nonresident alien individual in
the distributable net income after tax of a partnership (except a general professional
partnership) of which he is a partner, or the share of a nonresident alien individual in
the net income after tax of an association, a joint account, or a joint venture taxable as
a corporation of which he is a member or a co-venturer; interests; royalties (in any
form); and prizes (except prizes amounting to Ten thousand pesos (P10,000) or less
which shall be subject to tax under Subsection (B)(1) of Section 24) and other winnings
(except Philippine Charity Sweepstakes and Lotto winnings); shall be subject to an
income tax of twenty percent (20%) on the total amount thereof: Provided, however,
that royalties on books as well as other literary works, and royalties on musical
compositions shall be subject to a final tax of ten percent (10%) on the total amount
thereof: Provided, further, That cinematographic films and similar works shall be
subject to the tax provided under Section 28 of this Code: Provided, furthermore, That
interest income from long-term deposit or investment in the form of savings, common
 or individual trust funds, deposit substitutes, investment management accounts and
other investments evidenced by certificates in such form prescribed by the Bangko
Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this
Subsection: Provided, finally, that should the holder of the certificate pre-terminate the
deposit or investment before the fifth (5th) year, a final tax shall be imposed on the
entire income and shall be deducted and withheld by the depository bank from the
proceeds of the long-term deposit or investment certificate based on the remaining
maturity thereof:
Four (4) years to less than five (5) years - 5%;
Three (3) years to less than four (4) years - 12%; and
Less than three (3) years - 20%.
(3) Capital Gains. - Capital gains realized from sale, barter or exchange of shares of
stock in domestic corporations not traded through the local stock exchange, and real
properties shall be subject to the tax prescribed under Subsections (C) and (D) of
Section 24.
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. - There
shall be levied, collected and paid for each taxable year upon the entire income received from all
sources within the Philippines by every nonresident alien individual not engaged in trade or business
within the Philippines as interest, cash and/or property dividends, rents, salaries, wages, premiums,
annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic
or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of such
income. Capital gains realized by a nonresident alien individual not engaged in trade or business in the
Philippines from the sale of shares of stock in any domestic corporation and real property shall be
subject to the income tax prescribed under Subsections (C) and (D) of Section 24.

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

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

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

Any income earned from all other sources within the Philippines by the alien employees referred to
under Subsections (C), (D) and (E) hereof shall be subject to the pertinent income tax, as the case
may be, imposed under this Code.

SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general professional
partnership as such shall not be subject to the income tax imposed under this Chapter. Persons
engaging in business as partners in a general professional partnership shall be liable for income tax
only in their separate and individual capacities.

For purposes of computing the distributive share of the partners, the net income of the partnership
shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or constructively received, in
the net income of the partnership.

CHAPTER IV
TAX ON CORPORATIONS

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

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

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

The reduced corporate income tax rates shall be applied on the amount computed by multiplying the
number of months covered by the new rates within the fiscal year by the taxable income of the
corporation for the period, divided by twelve.

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

(1) A tax effort ratio of twenty percent (20%) of Gross National Product (GNP);
(2) A ratio of forty percent (40%) of income tax collection to total tax revenues;
(3) A VAT tax effort of four percent (4%) of GNP; and
 (4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position
(CPSFP) to GNP.
The option to be taxed based on gross income shall be available only to firms whose ratio of cost of
sales to gross sales or receipts from all sources does not exceed fifty-five percent (55%).

The election of the gross income tax option by the corporation shall be irrevocable for three (3)
consecutive taxable years during which the corporation is qualified under the scheme.

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

For a trading or merchandising concern, "cost of goods" sold shall include the invoice cost of the
goods sold, plus import duties, freight in transporting the goods to the place where the goods are
actually sold, including insurance while the goods are in transit.

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

In the case of taxpayers engaged in the sale of service, 'gross income' means gross receipts less
sales returns, allowances and discounts.

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

(C) Government-owned or Controlled-Corporations, Agencies or Instrumentalities. - The provisions of

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

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

 (1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes and from Trust Funds and Similar Arrangements, and Royalties. - A final
tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest
on currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements received by domestic
corporations, and royalties, derived from sources within the Philippines: Provided,
however, That interest income derived by a domestic corporation from a depository
bank under the expanded foreign currency deposit system shall be subject to a final
income tax at the rate of seven and one-half percent (7 1/2%) of such interest income.
(2) Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange.
- A final tax at the rates prescribed below shall be imposed on net capital gains
realized during the taxable year from the sale, exchange or other disposition of shares
of stock in a domestic corporation except shares sold or disposed of through the stock
exchange:
Not over P100,000..... 5%
Amount in excess of P100,000.. 10%
(3) Tax on Income Derived under the Expanded Foreign Currency Deposit System. -
Income derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with local commercial banks, including
branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas
(BSP) to transact business with foreign currency depository system units and other
depository banks under the expanded foreign currency deposit system, including
interest income from foreign currency loans granted by such depository banks under
said expanded foreign currency deposit system to residents, shall be subject to a final
income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions
with depository banks under the expanded system shall be exempt from income tax.
(4) Intercorporate Dividends. - Dividends received by a domestic corporation from
another domestic corporation shall not be subject to tax.
(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or
Buildings. - A final tax of six percent (6%) is hereby imposed on the gain presumed to
have been realized on the sale, exchange or disposition of lands and/or buildings
which are not actually used in the business of a corporation and are treated as capital
assets, based on the gross selling price of fair market value as determined in
accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or
buildings.
(E) Minimum Corporate Income Tax on Domestic Corporations. -
(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%0 of the
gross income as of the end of the taxable year, as defined herein, is hereby imposed
on a corporation taxable under this Title, beginning on the fourth taxable year
immediately following the year in which such corporation commenced its business
operations, when the minimum income tax is greater than the tax computed under
Subsection (A) of this Section for the taxable year.
(2) Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate
income tax over the normal income tax as computed under Subsection (A) of this
Section shall be carried forward and credited against the normal income tax for the
three (3) immediately succeeding taxable years.
(3) Relief from the Minimum Corporate Income Tax Under Certain Conditions. - The
Secretary of Finance is hereby authorized to suspend the imposition of the minimum
corporate income tax on any corporation which suffers losses on account of prolonged
 labor dispute, or because of force majeure, or because of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of
the Commissioner, the necessary rules and regulation that shall define the terms and
conditions under which he may suspend the imposition of the minimum corporate
income tax in a meritorious case.
(4) Gross Income Defined. - For purposes of applying the minimum corporate income
tax provided under Subsection (E) hereof, the term 'gross income' shall mean gross
sales less sales returns, discounts and allowances and cost of goods sold. "Cost of
goods sold' shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
For a trading or merchandising concern, "cost of goods sold' shall include the invoice
cost of the goods sold, plus import duties, freight in transporting the goods to the place
where the goods are actually sold including insurance while the goods are in transit.
For a manufacturing concern, cost of "goods manufactured and sold" shall include all
costs of production of finished goods, such as raw materials used, direct labor and
manufacturing overhead, freight cost, insurance premiums and other costs incurred to
bring the raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, 'gross income' means gross
receipts less sales returns, allowances, discounts and cost of services. "Cost of
services" shall mean all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (A) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and (B)
cost of facilities directly utilized in providing the service such as depreciation or rental
of equipment used and cost of supplies: Provided, however, That in the case of banks,
"cost of services" shall include interest expense.
SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a corporation organized,

authorized, or existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be subject to an income tax equivalent to thirty-
five percent (35%) of the taxable income derived in the preceding taxable year from all
sources within the Philippines: Provided, That effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall
be thirty-three percent (33%), and effective January 1, 2000 and thereafter, the rate
shall be thirty-two percent (32%).
In the case of corporations adopting the fiscal-year accounting period, the taxable
income shall be computed without regard to the specific date when sales, purchases
and other transactions occur. Their income and expenses for the fiscal year shall be
deemed to have been earned and spent equally for each month of the period.
The reduced corporate income tax rates shall be applied on the amount computed by
multiplying the number of months covered by the new rates within the fiscal year by the
taxable income of the corporation for the period, divided by twelve.
Provided, however, That a resident foreign corporation shall be granted the option to
be taxed at fifteen percent (15%) on gross income under the same conditions, as
provided in Section 27 (A).
(2) Minimum Corporate Income Tax on Resident Foreign Corporations. - A minimum
corporate income tax of two percent (2%) of gross income, as prescribed under
Section 27 (E) of this Code, shall be imposed, under the same conditions, on a
resident foreign corporation taxable under paragraph (1) of this Subsection.
(3) International Carrier. - An international carrier doing business in the Philippines
shall pay a tax of two and one-half percent (2 1/2%) on its "Gross Philippine Billings" as
defined hereunder:
(a) International Air Carrier. - "Gross Philippine Billings" refers to the amount of
gross revenue derived from carriage of persons, excess baggage, cargo and
mail originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the ticket
or passage document: Provided, That tickets revalidated, exchanged and/or
indorsed to another international airline form part of the Gross Philippine
Billings if the passenger boards a plane in a port or point in the Philippines:
Provided, further, That for a flight which originates from the Philippines, but
transshipment of passenger takes place at any port outside the Philippines on
another airline, only the aliquot portion of the cost of the ticket corresponding to
the leg flown from the Philippines to the point of transshipment shall form part of
Gross Philippine Billings.
(b) International Shipping. - "Gross Philippine Billings" means gross revenue
whether for passenger, cargo or mail originating from the Philippines up to final
destination, regardless of the place of sale or payments of the passage or
freight documents.
(4) Offshore Banking Units. - The provisions of any law to the contrary notwithstanding,
income derived by offshore banking units authorized by the Bangko Sentral ng
Pilipinas (BSP) to transact business with offshore banking units, including any interest
income derived from foreign currency loans granted to residents, shall be subject to a
final income tax at the rate of ten percent (10%) of such income.
Any income of nonresidents, whether individuals or corporations, from transactions
with said offshore banking units shall be exempt from income tax.
(5) Tax on Branch Profits Remittances. - Any profit remitted by a branch to its head
office shall be subject to a tax of fifteen (15%) which shall be based on the total profits
applied or earmarked for remittance without any deduction for the tax component
thereof (except those activities which are registered with the Philippine Economic Zone
Authority). The tax shall be collected and paid in the same manner as provided in
Sections 57 and 58 of this Code: provided, that interests, dividends, rents, royalties,
including remuneration for technical services, salaries, wages premiums, annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits,
income and capital gains received by a foreign corporation during each taxable year
from all sources within the Philippines shall not be treated as branch profits unless the
same are effectively connected with the conduct of its trade or business in the
Philippines.
(6) Regional or Area Headquarters and Regional Operating Headquarters of
Multinational Companies. -
(a) Regional or area headquarters as defined in Section 22(DD) shall not be
subject to income tax.
(b) Regional operating headquarters as defined in Section 22(EE) shall pay a
tax of ten percent (10%) of their taxable income.
(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -
(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes, Trust Funds and Similar Arrangements and Royalties. - Interest
from any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements and royalties
 derived from sources within the Philippines shall be subject to a final income tax
at the rate of twenty percent (20%) of such interest: Provided, however, That
interest income derived by a resident foreign corporation from a depository
bank under the expanded foreign currency deposit system shall be subject to a
final income tax at the rate of seven and one-half percent (7 1/2%) of such
interest income.
(b) Income Derived under the Expanded Foreign Currency Deposit System. -
Income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with local commercial banks
including branches of foreign banks that may be authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit
system units, including interest income from foreign currency loans granted by
such depository banks under said expanded foreign currency deposit system to
residents, shall be subject to a final income tax at the rate of ten percent (10%)
of such income.
Any income of nonresidents, whether individuals or corporations, from
transactions with depository banks under the expanded system shall be exempt
from income tax.
(c) Capital Gains from Sale of Shares of Stock Not Traded in the Stock
Exchange. - A final tax at the rates prescribed below is hereby imposed upon
the net capital gains realized during the taxable year from the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation
except shares sold or disposed of through the stock exchange:
Not over P100,000...... 5%
On any amount in excess of P100,000. 10%
(d) Intercorporate Dividends. - Dividends received by a resident foreign
corporation from a domestic corporation liable to tax under this Code shall not
be subject to tax under this Title.
(B) Tax on Nonresident Foreign Corporation. -
(1) In General. - Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five
percent (35%) of the gross income received during each taxable year from all sources
within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits and income, and capital gains, except capital
gains subject to tax under subparagraphs (C) and (d): Provided, That effective 1, 1998,
the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the
rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter,
the rate shall be thirty-two percent (32%).
(2) Nonresident Cinematographic Film Owner, Lessor or Distributor. - A
cinematographic film owner, lessor, or distributor shall pay a tax of twenty-five percent
(25%) of its gross income from all sources within the Philippines.
(3) Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals. - A
nonresident owner or lessor of vessels shall be subject to a tax of four and one-half
percent (4 1/2%) of gross rentals, lease or charter fees from leases or charters to
Filipino citizens or corporations, as approved by the Maritime Industry Authority.
(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment. -
Rentals, charters and other fees derived by a nonresident lessor of aircraft,
machineries and other equipment shall be subject to a tax of seven and one-half
percent (7 1/2%) of gross rentals or fees.
 (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. -
(a) Interest on Foreign Loans. - A final withholding tax at the rate of twenty
percent (20%) is hereby imposed on the amount of interest on foreign loans
contracted on or after August 1, 1986;
(b) Intercorporate Dividends. - A final withholding tax at the rate of fifteen
percent (15%) is hereby imposed on the amount of cash and/or property
dividends received from a domestic corporation, which shall be collected and
paid as provided in Section 57 (A) of this Code, subject to the condition that the
country in which the nonresident foreign corporation is domiciled, shall allow a
credit against the tax due from the nonresident foreign corporation taxes
deemed to have been paid in the Philippines equivalent to twenty percent
(20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for
1999, and seventeen percent (17%) thereafter, which represents the difference
between the regular income tax of thirty-five percent (35%) in 1997, thirty-four
percent (34%) in 1998, and thirty-three percent (33%) in 1999, and thirty-two
percent (32%) thereafter on corporations and the fifteen percent (15%) tax on
dividends as provided in this subparagraph;
(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock
Exchange. - A final tax at the rates prescribed below is hereby imposed upon
the net capital gains realized during the taxable year from the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation,
except shares sold, or disposed of through the stock exchange:

Not over P100,000............5%

On any amount in excess of P100,000 10%

SEC. 29. Imposition of Improperly Accumulated Earnings Tax. -

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

(B) Tax on Corporations Subject to Improperly Accumulated Earnings Tax. -

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

(2) Exceptions. - The improperly accumulated earnings tax as provided for under this
Section shall not apply to:

(a) Publicly-held corporations;

(b) Banks and other nonbank financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. -
(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company or
investment company shall be prima facie evidence of a purpose to avoid the tax upon
 its shareholders or members.
(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the business
shall be determinative of the purpose to avoid the tax upon its shareholders or
members unless the corporation, by the clear preponderance of evidence, shall prove
to the contrary.
(D) Improperly Accumulated Taxable Income. - For purposes of this Section, the term 'improperly
accumulated taxable income' means taxable income' adjusted by:
(1) Income exempt from tax;
(2) Income excluded from gross income;
(3) Income subject to final tax; and
(4) The amount of net operating loss carry-over deducted;
And reduced by the sum of:
(1) Dividends actually or constructively paid; and
(2) Income tax paid for the taxable year.
Provided, however, That for corporations using the calendar year basis, the
accumulated earnings under tax shall not apply on improperly accumulated income as
of December 31, 1997. In the case of corporations adopting the fiscal year accounting
period, the improperly accumulated income not subject to this tax, shall be reckoned,
as of the end of the month comprising the twelve (12)-month period of fiscal year 1997-
1998.
(E) Reasonable Needs of the Business. - For purposes of this Section, the term 'reasonable needs of
the business' includes the reasonably anticipated needs of the business.

SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed
under this Title in respect to income received by them as such:

(A) Labor, agricultural or horticultural organization not organized principally for profit;

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

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

(D) Cemetery company owned and operated exclusively for the benefit of its members;

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

(F) Business league chamber of commerce, or board of trade, not organized for profit and no part of
the net income of which inures to the benefit of any private stock-holder, or individual;

(G) Civic league or organization not organized for profit but operated exclusively for the promotion of
social welfare;

(H) A nonstock and nonprofit educational institution;

(I) Government educational institution;

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

(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the
purpose of marketing the products of its members and turning back to them the proceeds of sales, less
the necessary selling expenses on the basis of the quantity of produce finished by them;

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

CHAPTER V
COMPUTATION OF TAXABLE INCOME

SEC. 31. Taxable Income Defined. - The term taxable income means the pertinent items of gross
income specified in this Code, less the deductions and/or personal and additional exemptions, if any,
authorized for such types of income by this Code or other special laws.

CHAPTER VI
COMPUTATION OF GROSS INCOME

SEC. 32. Gross Income. -

(A) General Definition. - Except when otherwise provided in this Title, gross income means all
income derived from whatever source, including (but not limited to) the following items:

(1) Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional
partnership.
(B) Exclusions from Gross Income. - The following items shall not be included in gross income and
shall be exempt from taxation under this title:
(1) Life Insurance. - The proceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if
such amounts are held by the insurer under an agreement to pay interest thereon, the
interest payments shall be included in gross income.
(2) Amount Received by Insured as Return of Premium. - The amount received by the
insured, as a return of premiums paid by him under life insurance, endowment, or
annuity contracts, either during the term or at the maturity of the term mentioned in the
contract or upon surrender of the contract.
(3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest,
devise, or descent: Provided, however, That income from such property, as well as gift,
bequest, devise or descent of income from any property, in cases of transfers of
divided interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. - amounts received, through Accident or
Health Insurance or under Workmen's Compensation Acts, as compensation for
personal injuries or sickness, plus the amounts of any damages received, whether by
suit or agreement, on account of such injuries or sickness.
(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.-
(a) Retirement benefits received under Republic Act No. 7641 and those
received by officials and employees of private firms, whether individual or
corporate, in accordance with a reasonable private benefit plan maintained by
the employer: Provided, That the retiring official or employee has been in the
service of the same employer for at least ten (10) years and is not less than fifty
(50) years of age at the time of his retirement: Provided, further, That the
benefits granted under this subparagraph shall be availed of by an official or
employee only once. For purposes of this Subsection, the term 'reasonable
private benefit plan' means a pension, gratuity, stock bonus or profit-sharing
plan maintained by an employer for the benefit of some or all of his officials or
employees, wherein contributions are made by such employer for the officials
or employees, or both, for the purpose of distributing to such officials and
employees the earnings and principal of the fund thus accumulated, and
wherein its is provided in said plan that at no time shall any part of the corpus or
income of the fund be used for, or be diverted to, any purpose other than for the
exclusive benefit of the said officials and employees.
(b) Any amount received by an official or employee or by his heirs from the
employer as a consequence of separation of such official or employee from the
service of the employer because of death sickness or other physical disability or
for any cause beyond the control of the said official or employee.
(c) The provisions of any existing law to the contrary notwithstanding, social
security benefits, retirement gratuities, pensions and other similar benefits
received by resident or nonresident citizens of the Philippines or aliens who
come to reside permanently in the Philippines from foreign government
agencies and other institutions, private or public.
(d) Payments of benefits due or to become due to any person residing in the
Philippines under the laws of the United States administered by the United
States Veterans Administration.
(e) Benefits received from or enjoyed under the Social Security System in
accordance with the provisions of Republic Act No. 8282.
 (f) Benefits received from the GSIS under Republic Act No. 8291, including
retirement gratuity received by government officials and employees.
(7) Miscellaneous Items. -
(a) Income Derived by Foreign Government. - Income derived from
investments in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on deposits in banks in the Philippines by (i) foreign
governments, (ii) financing institutions owned, controlled, or enjoying
refinancing from foreign governments, and (iii) international or regional financial
institutions established by foreign governments.
(b) Income Derived by the Government or its Political Subdivisions. - Income
derived from any public utility or from the exercise of any essential
governmental function accruing to the Government of the Philippines or to any
political subdivision thereof.
(c) Prizes and Awards. - Prizes and awards made primarily in recognition of
religious, charitable, scientific, educational, artistic, literary, or civic achievement
but only if:
(i) The recipient was selected without any action on his part to enter the
contest or proceeding; and
(ii) The recipient is not required to render substantial future services as
a condition to receiving the prize or award.
(d) Prizes and Awards in Sports Competition. - All prizes and awards granted
to athletes in local and international sports competitions and tournaments
whether held in the Philippines or abroad and sanctioned by their national
sports associations.
(e) 13th Month Pay and Other Benefits. - Gross benefits received by officials
and employees of public and private entities: Provided, however, That the total
exclusion under this subparagraph shall not exceed Thirty thousand pesos
(P30,000) which shall cover:
(i) Benefits received by officials and employees of the national and local
government pursuant to Republic Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential Decree No.
851, as amended by Memorandum Order No. 28, dated August 13,
1986;
(iii) Benefits received by officials and employees not covered by
Presidential decree No. 851, as amended by Memorandum Order No.
28, dated August 13, 1986; and
(iv) Other benefits such as productivity incentives and Christmas bonus:
Provided, further, That the ceiling of Thirty thousand pesos (P30,000)
may be increased through rules and regulations issued by the Secretary
of Finance, upon recommendation of the Commissioner, after
considering among others, the effect on the same of the inflation rate at
the end of the taxable year.
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and
Pag-ibig contributions, and union dues of individuals.
(g) Gains from the Sale of Bonds, Debentures or other Certificate of
Indebtedness. - Gains realized from the same or exchange or retirement of
bonds, debentures or other certificate of indebtedness with a maturity of more
than five (5) years.
(h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the
investor upon redemption of shares of stock in a mutual fund company as
 defined in Section 22 (BB) of this Code.
SEC. 33. Special Treatment of Fringe Benefit.-

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

(B) Fringe Benefit defined.- For purposes of this Section, the term "fringe benefit" means any good,
service or other benefit furnished or granted in cash or in kind by an employer to an individual
employee (except rank and file employees as defined herein) such as, but not limited to, the following:

(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar amounts
in excess of what the law allows.
(C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
(1) fringe benefits which are authorized and exempted from tax under special laws;
(2) Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
(3) Benefits given to the rank and file employees, whether granted under a collective
bargaining agreement or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the
Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the
provisions of this Section, taking into account the peculiar nature and special need of the trade,
business or profession of the employer.
 CHAPTER VII
ALLOWABLE DEDUCTIONS

SEC. 34. Deductions from Gross Income. - Except for taxpayers earning compensation income
arising from personal services rendered under an employer-employee relationship where no
deductions shall be allowed under this Section other than under subsection (M) hereof, in computing
taxable income subject to income tax under Sections 24 (A); 25 (A); 26; 27 (A), (B) and (C); and 28 (A)
(1), there shall be allowed the following deductions from gross income;

(A) Expenses. -

(1) Ordinary and Necessary Trade, Business or Professional Expenses.-

(a) In General. - There shall be allowed as deduction from gross income all the
ordinary and necessary expenses paid or incurred during the taxable year in
carrying on or which are directly attributable to, the development, management,
operation and/or conduct of the trade, business or exercise of a profession,
including:
(i) A reasonable allowance for salaries, wages, and other forms of
compensation for personal services actually rendered, including the
grossed-up monetary value of fringe benefit furnished or granted by the
employer to the employee: Provided, That the final tax imposed under
Section 33 hereof has been paid;
(ii) A reasonable allowance for travel expenses, here and abroad, while
away from home in the pursuit of trade, business or profession;
(iii) A reasonable allowance for rentals and/or other payments which are
required as a condition for the continued use or possession, for
purposes of the trade, business or profession, of property to which the
taxpayer has not taken or is not taking title or in which he has no equity
other than that of a lessee, user or possessor;
(iv) A reasonable allowance for entertainment, amusement and
recreation expenses during the taxable year, that are directly connected
to the development, management and operation of the trade, business
or profession of the taxpayer, or that are directly related to or in
furtherance of the conduct of his or its trade, business or exercise of a
profession not to exceed such ceilings as the Secretary of Finance may,
by rules and regulations prescribe, upon recommendation of the
Commissioner, taking into account the needs as well as the special
circumstances, nature and character of the industry, trade, business, or
profession of the taxpayer: Provided, That any expense incurred for
entertainment, amusement or recreation that is contrary to law, morals
public policy or public order shall in no case be allowed as a deduction.
(b) Substantiation Requirements. - No deduction from gross income shall be
allowed under Subsection (A) hereof unless the taxpayer shall substantiate with
sufficient evidence, such as official receipts or other adequate records: (i) the
amount of the expense being deducted, and (ii) the direct connection or relation
of the expense being deducted to the development, management, operation
and/or conduct of the trade, business or profession of the taxpayer.
(c) Bribes, Kickbacks and Other Similar Payments. - No deduction from gross
income shall be allowed under Subsection (A) hereof for any payment made,
 directly or indirectly, to an official or employee of the national government, or to
an official or employee of any local government unit, or to an official or
employee of a government-owned or -controlled corporation, or to an official or
employee or representative of a foreign government, or to a private corporation,
general professional partnership, or a similar entity, if the payment constitutes a
bribe or kickback.
(2) Expenses Allowable to Private Educational Institutions. - In addition to the
expenses allowable as deductions under this Chapter, a private educational institution,
referred to under Section 27 (B) of this Code, may at its option elect either: (a) to
deduct expenditures otherwise considered as capital outlays of depreciable assets
incurred during the taxable year for the expansion of school facilities or (b) to deduct
allowance for depreciation thereof under Subsection (F) hereof.
(B) Interest.-
(1) In General. - The amount of interest paid or incurred within a taxable year on
indebtedness in connection with the taxpayer's profession, trade or business shall be
allowed as deduction from gross income: Provided, however, That the taxpayer's
otherwise allowable deduction for interest expense shall be reduced by an amount
equal to the following percentages of the interest income subjected to final tax:
Forty-one percent (41%) beginning January 1, 1998;
Thirty-nine percent (39%) beginning January 1, 1999; and
Thirty-eight percent (38%) beginning January 1, 2000;
(2) Exceptions. - No deduction shall be allowed in respect of interest under the
succeeding subparagraphs:
(a) If within the taxable year an individual taxpayer reporting income on the
cash basis incurs an indebtedness on which an interest is paid in advance
through discount or otherwise: Provided, That such interest shall be allowed a a
deduction in the year the indebtedness is paid: Provided, further, That if the
indebtedness is payable in periodic amortizations, the amount of interest which
corresponds to the amount of the principal amortized or paid during the year
shall be allowed as deduction in such taxable year;
(b) If both the taxpayer and the person to whom the payment has been made or
is to be made are persons specified under Section 36 (B); or
(c)If the indebtedness is incurred to finance petroleum exploration.
(3) Optional Treatment of Interest Expense. - At the option of the taxpayer, interest
incurred to acquire property used in trade business or exercise of a profession may be
allowed as a deduction or treated as a capital expenditure.
(C) Taxes.-
(1) In General. - Taxes paid or incurred within the taxable year in connection with the
taxpayer's profession, trade or business, shall be allowed as deduction, except
(a) The income tax provided for under this Title;
(b) Income taxes imposed by authority of any foreign country; but this deduction
shall be allowed in the case of a taxpayer who does not signify in his return his
desire to have to any extent the benefits of paragraph (3) of this subsection
(relating to credits for taxes of foreign countries);
(c) Estate and donor's taxes; and
(d) Taxes assessed against local benefits of a kind tending to increase the
value of the property assessed.
Provided, That taxes allowed under this Subsection, when refunded or credited,
shall be included as part of gross income in the year of receipt to the extent of
the income tax benefit of said deduction.
(2) Limitations on Deductions. - In the case of a nonresident alien individual
engaged in trade or business in the Philippines and a resident foreign corporation, the
deductions for taxes provided in paragraph (1) of this Subsection (C) shall be allowed
only if and to the extent that they are connected with income from sources within the
Philippines.
(3) Credit Against Tax for Taxes of Foreign Countries. - If the taxpayer signifies in
his return his desire to have the benefits of this paragraph, the tax imposed by this Title
shall be credited with:
(a) Citizen and Domestic Corporation. - In the case of a citizen of the
Philippines and of a domestic corporation, the amount of income taxes paid or
incurred during the taxable year to any foreign country; and
(b) Partnerships and Estates. - In the case of any such individual who is a
member of a general professional partnership or a beneficiary of an estate or
trust, his proportionate share of such taxes of the general professional
partnership or the estate or trust paid or incurred during the taxable year to a
foreign country, if his distributive share of the income of such partnership or
trust is reported for taxation under this Title.
An alien individual and a foreign corporation shall not be allowed the credits
against the tax for the taxes of foreign countries allowed under this paragraph.
(4) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid or incurred to any
country shall not exceed the same proportion of the tax against which
such credit is taken, which the taxpayer's taxable income from sources
within such country under this Title bears to his entire taxable income for
the same taxable year; and
(b) The total amount of the credit shall not exceed the same proportion
of the tax against which such credit is taken, which the taxpayer's
taxable income from sources without the Philippines taxable under this
Title bears to his entire taxable income for the same taxable year.
(5) Adjustments on Payment of Incurred Taxes. - If accrued taxes when paid differ
from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in
whole or in part, the taxpayer shall notify the Commissioner; who shall redetermine the
amount of the tax for the year or years affected, and the amount of tax due upon such
redetermination, if any, shall be paid by the taxpayer upon notice and demand by the
Commissioner, or the amount of tax overpaid, if any, shall be credited or refunded to
the taxpayer. In the case of such a tax incurred but not paid, the Commissioner as a
condition precedent to the allowance of this credit may require the taxpayer to give a
bond with sureties satisfactory to and to be approved by the Commissioner in such
sum as he may require, conditioned upon the payment by the taxpayer of any amount
of tax found due upon any such redetermination. The bond herein prescribed shall
contain such further conditions as the Commissioner may require.
(6) Year in Which Credit Taken. - The credits provided for in Subsection (C)(3) of this
Section may, at the option of the taxpayer and irrespective of the method of accounting
employed in keeping his books, be taken in the year which the taxes of the foreign
country were incurred, subject, however, to the conditions prescribed in Subsection
(C)(5) of this Section. If the taxpayer elects to take such credits in the year in which the
taxes of the foreign country accrued, the credits for all subsequent years shall be taken
upon the same basis and no portion of any such taxes shall be allowed as a deduction
in the same or any succeeding year.
 (7) Proof of Credits. - The credits provided in Subsection (C)(3) hereof shall be
allowed only if the taxpayer establishes to the satisfaction of the Commissioner the
following:
(a) The total amount of income derived from sources without the Philippines;
(b) The amount of income derived from each country, the tax paid or incurred to
which is claimed as a credit under said paragraph, such amount to be
determined under rules and regulations prescribed by the Secretary of Finance;
and
(c) All other information necessary for the verification and computation of such
credits.
(D) Losses. -
(1) In General.- Losses actually sustained during the taxable year and not
compensated for by insurance or other forms of indemnity shall be allowed as
deductions:
(a) If incurred in trade, profession or business;
(b) Of property connected with the trade, business or profession, if the loss
arises from fires, storms, shipwreck, or other casualties, or from robbery, theft
or embezzlement.
The Secretary of Finance, upon recommendation of the Commissioner, is
hereby authorized to promulgate rules and regulations prescribing, among other
things, the time and manner by which the taxpayer shall submit a declaration of
loss sustained from casualty or from robbery, theft or embezzlement during the
taxable year: Provided, however, That the time limit to be so prescribed in the
rules and regulations shall not be less than thirty (30) days nor more than ninety
(90) days from the date of discovery of the casualty or robbery, theft or
embezzlement giving rise to the loss.
(c) No loss shall be allowed as a deduction under this Subsection if at the time
of the filing of the return, such loss has been claimed as a deduction for estate
tax purposes in the estate tax return.
(2) Proof of Loss. - In the case of a nonresident alien individual or foreign corporation,
the losses deductible shall be those actually sustained during the year incurred in
business, trade or exercise of a profession conducted within the Philippines, when
such losses are not compensated for by insurance or other forms of indemnity. The
Secretary of Finance, upon recommendation of the Commissioner, is hereby
authorized to promulgate rules and regulations prescribing, among other things, the
time and manner by which the taxpayer shall submit a declaration of loss sustained
from casualty or from robbery, theft or embezzlement during the taxable year:
Provided, That the time to be so prescribed in the rules and regulations shall not be
less than thirty (30) days nor more than ninety (90) days from the date of discovery of
the casualty or robbery, theft or embezzlement giving rise to the loss; and
(3) Net Operating Loss Carry-Over. - The net operating loss of the business or
enterprise for any taxable year immediately preceding the current taxable year, which
had not been previously offset as deduction from gross income shall be carried over as
a deduction from gross income for the next three (3) consecutive taxable years
immediately following the year of such loss: Provided, however, That any net loss
incurred in a taxable year during which the taxpayer was exempt from income tax shall
not be allowed as a deduction under this Subsection: Provided, further, That a net
operating loss carry-over shall be allowed only if there has been no substantial change
in the ownership of the business or enterprise in that -
(i) Not less than seventy-five percent (75%) in nominal value of outstanding
 issued shares., if the business is in the name of a corporation, is held by or on
behalf of the same persons; or
(ii) Not less than seventy-five percent (75%) of the paid up capital of the
corporation, if the business is in the name of a corporation, is held by or on
behalf of the same persons.
For purposes of this subsection, the term "not operating loss" shall mean the
excess of allowable deduction over gross income of the business in a taxable
year.
Provided, That for mines other than oil and gas wells, a net operating loss
without the benefit of incentives provided for under Executive Order No. 226, as
amended, otherwise known as the Omnibus Investments Code of 1987,
incurred in any of the first ten (10) years of operation may be carried over as a
deduction from taxable income for the next five (5) years immediately following
the year of such loss. The entire amount of the loss shall be carried over to the
first of the five (5) taxable years following the loss, and any portion of such loss
which exceeds, the taxable income of such first year shall be deducted in like
manner form the taxable income of the next remaining four (4) years.
(4) Capital Losses. -
(a) Limitation. - Loss from sales or Exchanges of capital assets shall be allowed
only to the extent provided in Section 39.
(b) Securities Becoming Worthless. - If securities as defined in Section 22 (T)
become worthless during the taxable year and are capital assets, the loss
resulting therefrom shall, for purposes of this Title, be considered as a loss from
the sale or exchange, on the last day of such taxable year, of capital assets.
(5) Losses From Wash Sales of Stock or Securities. - Losses from "wash sales" of
stock or securities as provided in Section 38.
(6) Wagering Losses. - Losses from wagering transactions shall b allowed only to the
extent of the gains from such transactions.
(7) Abandonment Losses. -
(a) In the event a contract area where petroleum operations are undertaken is
partially or wholly abandoned, all accumulated exploration and development
expenditures pertaining thereto shall be allowed as a deduction: Provided, That
accumulated expenditures incurred in that area prior to January 1, 1979 shall
be allowed as a deduction only from any income derived from the same
contract area. In all cases, notices of abandonment shall be filed with the
Commissioner.
(b) In case a producing well is subsequently abandoned, the unamortized costs
thereof, as well as the undepreciated costs of equipment directly used therein,
shall be allowed as a deduction in the year such well, equipment or facility is
abandoned by the contractor: Provided, That if such abandoned well is
reentered and production is resumed, or if such equipment or facility is restored
into service, the said costs shall be included as part of gross income in the year
of resumption or restoration and shall be amortized or depreciated, as the case
may be.
(E) Bad Debts. -
(1) In General. - Debts due to the taxpayer actually ascertained to be worthless and
charged off within the taxable year except those not connected with profession, trade
or business and those sustained in a transaction entered into between parties
mentioned under Section 36 (B) of this Code: Provided, That recovery of bad debts
previously allowed as deduction in the preceding years shall be included as part of the
 gross income in the year of recovery to the extent of the income tax benefit of said
deduction.
(2) Securities Becoming Worthless. - If securities, as defined in Section 22 (T), are
ascertained to be worthless and charged off within the taxable year and are capital
assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank or
trust company incorporated under the laws of the Philippines a substantial part of
whose business is the receipt of deposits, for the purpose of this Title, be considered
as a loss from the sale or exchange, on the last day of such taxable year, of capital
assets.
(F) Depreciation. -
(1) General Rule. - There shall be allowed as a depreciation deduction a reasonable
allowance for the exhaustion, wear and tear (including reasonable allowance for
obsolescence) of property used in the trade or business. In the case of property held
by one person for life with remainder to another person, the deduction shall be
computed as if the life tenant were the absolute owner of the property and shall be
allowed to the life tenant. In the case of property held in trust, the allowable deduction
shall be apportioned between the income beneficiaries and the trustees in accordance
with the pertinent provisions of the instrument creating the trust, or in the absence of
such provisions, on the basis of the trust income allowable to each.
(2) Use of Certain Methods and Rates. - The term "reasonable allowance" as used in
the preceding paragraph shall include, but not limited to, an allowance computed in
accordance with rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, under any of the following methods:
(a) The straight-line method;
(b) Declining-balance method, using a rate not exceeding twice the rate which
would have been used had the annual allowance been computed under the
method described in Subsection (F) (1);
(c) The sum-of-the-years-digit method; and
(d) any other method which may be prescribed by the Secretary of Finance
upon recommendation of the Commissioner.
(3) Agreement as to Useful Life on Which Depreciation Rate is Based. - Where
under rules and regulations prescribed by the Secretary of Finance upon
recommendation of the Commissioner, the taxpayer and the Commissioner have
entered into an agreement in writing specifically dealing with the useful life and rate of
depreciation of any property, the rate so agreed upon shall be binding on both the
taxpayer and the national Government in the absence of facts and circumstances not
taken into consideration during the adoption of such agreement. The responsibility of
establishing the existence of such facts and circumstances shall rest with the party
initiating the modification. Any change in the agreed rate and useful life of the
depreciable property as specified in the agreement shall not be effective for taxable
years prior to the taxable year in which notice in writing by certified mail or registered
mail is served by the party initiating such change to the other party to the agreement:
Provided, however, that where the taxpayer has adopted such useful life and
depreciation rate for any depreciable and claimed the depreciation expenses as
deduction from his gross income, without any written objection on the part of the
Commissioner or his duly authorized representatives, the aforesaid useful life and
depreciation rate so adopted by the taxpayer for the aforesaid depreciable asset shall
be considered binding for purposes of this Subsection.
(4) Depreciation of Properties Used in Petroleum Operations. - An allowance for
depreciation in respect of all properties directly related to production of petroleum
 initially placed in service in a taxable year shall be allowed under the straight-line or
declining-balance method of depreciation at the option of the service contractor.
However, if the service contractor initially elects the declining-balance method, it may
at any subsequent date, shift to the straight-line method.
The useful life of properties used in or related to production of petroleum shall be ten
(10) years of such shorter life as may be permitted by the Commissioner.
Properties not used directly in the production of petroleum shall be depreciated under
the straight-line method on the basis of an estimated useful life of five (5) years.
(5) Depreciation of Properties Used in Mining Operations. - an allowance for
depreciation in respect of all properties used in mining operations other than petroleum
operations, shall be computed as follows:
(a) At the normal rate of depreciation if the expected life is ten (10) years or
less; or
(b) Depreciated over any number of years between five (5) years and the
expected life if the latter is more than ten (10) years, and the depreciation
thereon allowed as deduction from taxable income: Provided, That the
contractor notifies the Commissioner at the beginning of the depreciation period
which depreciation rate allowed by this Section will be used.
(6) Depreciation Deductible by Nonresident Aliens Engaged in Trade or Business
or Resident Foreign Corporations. - In the case of a nonresident alien individual
engaged in trade or business or resident foreign corporation, a reasonable allowance
for the deterioration of Property arising out of its use or employment or its non-use in
the business trade or profession shall be permitted only when such property is located
in the Philippines.
(G) Depletion of Oil and Gas Wells and Mines. -
(1) In General. - In the case of oil and gas wells or mines, a reasonable allowance for
depletion or amortization computed in accordance with the cost-depletion method shall
be granted under rules and regulations to be prescribed by the Secretary of finance,
upon recommendation of the Commissioner. Provided, That when the allowance for
depletion shall equal the capital invested no further allowance shall be granted:
Provided, further, That after production in commercial quantities has commenced,
certain intangible exploration and development drilling costs: (a) shall be deductible in
the year incurred if such expenditures are incurred for non-producing wells and/or
mines, or (b) shall be deductible in full in the year paid or incurred or at the election of
the taxpayer, may be capitalized and amortized if such expenditures incurred are for
producing wells and/or mines in the same contract area.
"Intangible costs in petroleum operations" refers to any cost incurred in petroleum
operations which in itself has no salvage value and which is incidental to and
necessary for the drilling of wells and preparation of wells for the production of
petroleum: Provided, That said costs shall not pertain to the acquisition or
improvement of property of a character subject to the allowance for depreciation
except that the allowances for depreciation on such property shall be deductible under
this Subsection.
Any intangible exploration, drilling and development expenses allowed as a deduction
in computing taxable income during the year shall not be taken into consideration in
computing the adjusted cost basis for the purpose of computing allowable cost
depletion.
(2) Election to Deduct Exploration and Development Expenditures. - In computing
taxable income from mining operations, the taxpayer may at his option, deduct
exploration and development expenditures accumulated as cost or adjusted basis for
 cost depletion as of date of prospecting, as well as exploration and development
expenditures paid or incurred during the taxable year: Provided, That the amount
deductible for exploration and development expenditures shall not exceed twenty-five
percent (25%) of the net income from mining operations computed without the benefit
of any tax incentives under existing laws. The actual exploration and development
expenditures minus twenty-five percent (25%) of the net income from mining shall be
carried forward to the succeeding years until fully deducted.
The election by the taxpayer to deduct the exploration and development expenditures
is irrevocable and shall be binding in succeeding taxable years.
"Net income from mining operations", as used in this Subsection, shall mean gross
income from operations less "allowable deductions" which are necessary or related to
mining operations. "Allowable deductions" shall include mining, milling and marketing
expenses, and depreciation of properties directly used in the mining operations. This
paragraph shall not apply to expenditures for the acquisition or improvement of
property of a character which is subject to the allowance for depreciation.
In no case shall this paragraph apply with respect to amounts paid or incurred for the
exploration and development of oil and gas.
The term "exploration expenditures" means expenditures paid or incurred for the
purpose of ascertaining the existence, location, extent or quality of any deposit of ore
or other mineral, and paid or incurred before the beginning of the development stage of
the mine or deposit.
The term "development expenditures" means expenditures paid or incurred during the
development stage of the mine or other natural deposits. The development stage of a
mine or other natural deposit shall begin at the time when deposits of ore or other
minerals are shown to exist in sufficient commercial quantity and quality and shall end
upon commencement of actual commercial extraction.
(3) Depletion of Oil and Gas Wells and Mines Deductible by a Nonresident Alien
individual or Foreign Corporation. - In the case of a nonresident alien individual
engaged in trade or business in the Philippines or a resident foreign corporation,
allowance for depletion of oil and gas wells or mines under paragraph (1) of this
Subsection shall be authorized only in respect to oil and gas wells or mines located
within the Philippines.
(H) Charitable and Other Contributions. -
(1) In General. - Contributions or gifts actually paid or made within the taxable year to,
or for the use of the Government of the Philippines or any of its agencies or any
political subdivision thereof exclusively for public purposes, or to accredited domestic
corporation or associations organized and operated exclusively for religious, charitable,
scientific, youth and sports development, cultural or educational purposes or for the
rehabilitation of veterans, or to social welfare institutions, or to non-government
organizations, in accordance with rules and regulations promulgated by the Secretary
of finance, upon recommendation of the Commissioner, no part of the net income of
which inures to the benefit of any private stockholder or individual in an amount not in
excess of ten percent (10%) in the case of an individual, and five percent (%) in the
case of a corporation, of the taxpayer's taxable income derived from trade, business or
profession as computed without the benefit of this and the following subparagraphs.
(2) Contributions Deductible in Full. - Notwithstanding the provisions of the
preceding subparagraph, donations to the following institutions or entities shall be
deductible in full;
(a) Donations to the Government. - Donations to the Government of the
Philippines or to any of its agencies or political subdivisions, including fully-
owned government corporations, exclusively to finance, to provide for, or to be
used in undertaking priority activities in education, health, youth and sports
development, human settlements, science and culture, and in economic
development according to a National Priority Plan determined by the National
Economic and Development Authority (NEDA), In consultation with appropriate
government agencies, including its regional development councils and private
philantrophic persons and institutions: Provided, That any donation which is
made to the Government or to any of its agencies or political subdivisions not in
accordance with the said annual priority plan shall be subject to the limitations
prescribed in paragraph (1) of this Subsection;
(b) Donations to Certain Foreign Institutions or International Organizations. -
Donations to foreign institutions or international organizations which are fully
deductible in pursuance of or in compliance with agreements, treaties, or
commitments entered into by the Government of the Philippines and the foreign
institutions or international organizations or in pursuance of special laws;
(c) Donations to Accredited Nongovernment Organizations. - The term
"nongovernment organization" means a non profit domestic corporation:
(1) Organized and operated exclusively for scientific, research,
educational, character-building and youth and sports development,
health, social welfare, cultural or charitable purposes, or a combination
thereof, no part of the net income of which inures to the benefit of any
private individual;
(2) Which, not later than the 15th day of the third month after the close of
the accredited nongovernment organizations taxable year in which
contributions are received, makes utilization directly for the active
conduct of the activities constituting the purpose or function for which it
is organized and operated, unless an extended period is granted by the
Secretary of Finance in accordance with the rules and regulations to be
promulgated, upon recommendation of the Commissioner;
(3) The level of administrative expense of which shall, on an annual
basis, conform with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, but
in no case to exceed thirty percent (30%) of the total expenses; and
(4) The assets of which, in the even of dissolution, would be distributed
to another nonprofit domestic corporation organized for similar purpose
or purposes, or to the state for public purpose, or would be distributed
by a court to another organization to be used in such manner as in the
judgment of said court shall best accomplish the general purpose for
which the dissolved organization was organized.
Subject to such terms and conditions as may be prescribed by the
Secretary of Finance, the term "utilization" means:
(i) Any amount in cash or in kind (including administrative
expenses) paid or utilized to accomplish one or more purposes
for which the accredited nongovernment organization was
created or organized.
(ii) Any amount paid to acquire an asset used (or held for use)
directly in carrying out one or more purposes for which the
accredited nongovernment organization was created or
organized.
An amount set aside for a specific project which comes within one or
 more purposes of the accredited nongovernment organization may be
treated as a utilization, but only if at the time such amount is set aside,
the accredited nongovernment organization has established to the
satisfaction of the Commissioner that the amount will be paid for the
specific project within a period to be prescribed in rules and regulations
to be promulgated by the Secretary of Finance, upon recommendation
of the Commissioner, but not to exceed five (5) years, and the project is
one which can be better accomplished by setting aside such amount
than by immediate payment of funds.
(3) Valuation. - The amount of any charitable contribution of property other than
money shall be based on the acquisition cost of said property.
(4) Proof of Deductions. - Contributions or gifts shall be allowable as deductions only
if verified under the rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
(I) Research and Development.-
(1) In General. - a taxpayer may treat research or development expenditures which
are paid or incurred by him during the taxable year in connection with his trade,
business or profession as ordinary and necessary expenses which are not chargeable
to capital account. The expenditures so treated shall be allowed as deduction during
the taxable year when paid or incurred.
(2) Amortization of Certain Research and Development Expenditures. - At the
election of the taxpayer and in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner,
the following research and development expenditures may be treated as deferred
expenses:
(a) Paid or incurred by the taxpayer in connection with his trade, business or
profession;
(b) Not treated as expenses under paragraph 91) hereof; and
(c) Chargeable to capital account but not chargeable to property of a character
which is subject to depreciation or depletion.
In computing taxable income, such deferred expenses shall be allowed as
deduction ratably distributed over a period of not less than sixty (60) months as
may be elected by the taxpayer (beginning with the month in which the taxpayer
first realizes benefits from such expenditures).
The election provided by paragraph (2) hereof may be made for any taxable
year beginning after the effectivity of this Code, but only if made not later than
the time prescribed by law for filing the return for such taxable year. The
method so elected, and the period selected by the taxpayer, shall be adhered
to in computing taxable income for the taxable year for which the election is
made and for all subsequent taxable years unless with the approval of the
Commissioner, a change to a different method is authorized with respect to a
part or all of such expenditures. The election shall not apply to any expenditure
paid or incurred during any taxable year for which the taxpayer makes the
election.
(3) Limitations on Deduction. - This Subsection shall not apply to:
(a) Any expenditure for the acquisition or improvement of land, or for the
improvement of property to be used in connection with research and
development of a character which is subject to depreciation and depletion; and
(b) Any expenditure paid or incurred for the purpose of ascertaining the
existence, location, extent, or quality of any deposit of ore or other mineral,
 including oil or gas.
(J) Pension Trusts. - An employer establishing or maintaining a pension trust to provide for the
payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the
contributions to such trust during the taxable year to cover the pension liability accruing during the
year, allowed as a deduction under Subsection (A) (1) of this Section ) a reasonable amount
transferred or paid into such trust during the taxable year in excess of such contributions, but only if
such amount (1) has not theretofore been allowed as a deduction, and (2) is apportioned in equal parts
over a period of ten (10) consecutive years beginning with the year in which the transfer or payment is
made.

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

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

(M) Premium Payments on Health and/or Hospitalization Insurance of an Individual Taxpayer. -

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

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

SEC. 35. Allowance of Personal Exemption for Individual Taxpayer. -

(A) In General. - For purposes of determining the tax provided in Section 24 (A) of this Title, there
shall be allowed a basic personal exemption as follows:

For single individual or married individual judicially decreed as legally

separated with no qualified dependents P20,000
For Head of Family
P25,000
For each married individual
P32,000
In the case of married individuals where only one of the spouses is deriving gross income, only such
spouse shall be allowed the personal exemption.

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

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

The additional exemption for dependent shall be claimed by only one of the spouses in the case of
married individuals.

In the case of legally separated spouses, additional exemptions may be claimed only by the spouse
who has custody of the child or children: Provided, That the total amount of additional exemptions that
may be claimed by both shall not exceed the maximum additional exemptions herein allowed.

For purposes of this Subsection, a "dependent" means a legitimate, illegitimate or legally adopted child
chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one
(21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is
incapable of self-support because of mental or physical defect.

(C) Change of Status. - If the taxpayer marries or should have additional dependent(s) as defined
above during the taxable year, the taxpayer may claim the corresponding additional exemption, as the
case may be, in full for such year.

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

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

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

SEC. 36. Items Not Deductible.-

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

(1) Personal, living or family expenses;

(2) Any amount paid out for new buildings or for permanent improvements, or
betterments made to increase the value of any property or estate;
This Subsection shall not apply to intangible drilling and development costs incurred in
petroleum operations which are deductible under Subsection (G) (1) of Section 34 of
this Code.
(3) Any amount expended in restoring property or in making good the exhaustion
thereof for which an allowance is or has been made; or
(4) Premiums paid on any life insurance policy covering the life of any officer or
employee, or of any person financially interested in any trade or business carried on by
the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a
beneficiary under such policy.
(B) Losses from Sales or Exchanges of Property. - In computing net income, no deductions shall in
any case be allowed in respect of losses from sales or exchanges of property directly or indirectly -
(1) Between members of a family. For purposes of this paragraph, the family of an
individual shall include only his brothers and sisters (whether by the whole or half-
blood), spouse, ancestors, and lineal descendants; or
(2) Except in the case of distributions in liquidation, between an individual and
corporation more than fifty percent (50%) in value of the outstanding stock of which is
owned, directly or indirectly, by or for such individual; or
(3) Except in the case of distributions in liquidation, between two corporations more
than fifty percent (50%) in value of the outstanding stock of which is owned, directly or
indirectly, by or for the same individual if either one of such corporations, with respect
to the taxable year of the corporation preceding the date of the sale of exchange was
under the law applicable to such taxable year, a personal holding company or a foreign
personal holding company;
(4) Between the grantor and a fiduciary of any trust; or
(5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another
trust if the same person is a grantor with respect to each trust; or
(6) Between a fiduciary of a trust and beneficiary of such trust.
SEC. 37. Special Provisions Regarding Income and Deductions of Insurance Companies,
Whether Domestic or Foreign. -

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

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

(C) Mutual Marine Insurance Companies. - Mutual marine insurance companies shall include in their
return of gross income, gross premiums collected and received by them less amounts paid to
policyholders on account of premiums previously paid by them and interest paid upon those amounts
between the ascertainment and payment thereof.

(D) Assessment Insurance Companies.- Assessment insurance companies, whether domestic or

foreign, may deduct from their gross income the actual deposit of sums with the officers of the
Government of the Philippines pursuant to law, as additions to guarantee or reserve funds.

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

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

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

(C) If the amount of stock or securities acquired (or covered by the contract or option to acquire which)
resulted in the non-deductibility of the loss, shall be determined under rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner.

SEC. 39. Capital Gains and Losses. -

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

(1) Capital Assets. - The term "capital assets" means property held by the taxpayer
(whether or not connected with his trade or business), but does not include stock in
trade of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year, or property
held by the taxpayer primarily for sale to customers in the ordinary course of his trade
or business, or property used in the trade or business, of a character which is subject
to the allowance for depreciation provided in Subsection (F) of Section 34; or real
property used in trade or business of the taxpayer.
(2) Net Capital Gain. - The term "net capital gain" means the excess of the gains from
sales or exchanges of capital assets over the losses from such sales or exchanges.
 (3) Net Capital Loss. - The term "net capital loss" means the excess of the losses
from sales or exchanges of capital assets over the gains from such sales or
exchanges.
(B) Percentage Taken Into Account. - In the case of a taxpayer, other than a corporation, only the
following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall
be taken into account in computing net capital gain, net capital loss, and net income:
(1) One hundred percent (100%) if the capital asset has been held for not more than
twelve (12) months; and
(2) Fifty percent (50%) if the capital asset has been held for more than twelve (12)
months;
(C) Limitation on Capital Losses. - Losses from sales or exchanges of capital assets shall be
allowed only to the extent of the gains from such sales or exchanges. If a bank or trust company
incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of
deposits, sells any bond, debenture, note, or certificate or other evidence of indebtedness issued by
any corporation (including one issued by a government or political subdivision thereof), with interest
coupons or in registered form, any loss resulting from such sale shall not be subject to the foregoing
limitation and shall not be included in determining the applicability of such limitation to other losses.

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

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

(F) Gains or Losses From Short Sales, Etc. - For purposes of this Title -

(1) Gains or losses from short sales of property shall be considered as gains or losses
from sales or exchanges of capital assets; and
(2) Gains or losses attributable to the failure to exercise privileges or options to buy or
sell property shall be considered as capital gains or losses.
SEC. 40. Determination of Amount and Recognition of Gain or Loss. -

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

(B) Basis for Determining Gain or Loss from Sale or Disposition of Property. - The basis of
property shall be -

(1) The cost thereof in the case of property acquired on or after March 1, 1913, if such
property was acquired by purchase; or
(2) The fair market price or value as of the date of acquisition, if the same was
acquired by inheritance; or
(3) If the property was acquired by gift, the basis shall be the same as if it would be in
 the hands of the donor or the last preceding owner by whom it was not acquired by gift,
except that if such basis is greater than the fair market value of the property at the time
of the gift then, for the purpose of determining loss, the basis shall be such fair market
value; or
(4) If the property was acquired for less than an adequate consideration in money or
money's worth, the basis of such property is the amount paid by the transferee for the
property; or
(5) The basis as defined in paragraph (C)(5) of this Section, if the property was
acquired in a transaction where gain or loss is not recognized under paragraph (C)(2)
of this Section.
(C) Exchange of Property. -
(1) General Rule. - Except as herein provided, upon the sale or exchange or property,
the entire amount of the gain or loss, as the case may be, shall be recognized.
(2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger
or consolidation -
(a) A corporation, which is a party to a merger or consolidation, exchanges
property solely for stock in a corporation, which is a party to the merger or
consolidation; or
(b) A shareholder exchanges stock in a corporation, which is a party to the
merger or consolidation, solely for the stock of another corporation also a party
to the merger or consolidation; or
(c) A security holder of a corporation, which is a party to the merger or
consolidation, exchanges his securities in such corporation, solely for stock or
securities in such corporation, a party to the merger or consolidation.
No gain or loss shall also be recognized if property is transferred to a
corporation by a person in exchange for stock or unit of participation in such a
corporation of which as a result of such exchange said person, alone or
together with others, not exceeding four (4) persons, gains control of said
corporation: Provided, That stocks issued for services shall not be considered
as issued in return for property.
(3) Exchange Not Solely in Kind. -

(a) If, in connection with an exchange described in the above exceptions, an

individual, a shareholder, a security holder or a corporation receives not only
stock or securities permitted to be received without the recognition of gain or
loss, but also money and/or property, the gain, if any, but not the loss, shall be
recognized but in an amount not in excess of the sum of the money and fair
market value of such other property received: Provided, That as to the
shareholder, if the money and/or other property received has the effect of a
distribution of a taxable dividend, there shall be taxed as dividend to the
shareholder an amount of the gain recognized not in excess of his
proportionate share of the undistributed earnings and profits of the corporation;
the remainder, if any, of the gain recognized shall be treated as a capital gain.
(b) If, in connection with the exchange described in the above exceptions, the
transferor corporation receives not only stock permitted to be received without
the recognition of gain or loss but also money and/or other property, then (i) if
the corporation receiving such money and/or other property distributes it in
pursuance of the plan of merger or consolidation, no gain to the corporation
shall be recognized from the exchange, but (ii) if the corporation receiving such
other property and/or money does not distribute it in pursuance of the plan of
 merger or consolidation, the gain, if any, but not the loss to the corporation shall
be recognized but in an amount not in excess of the sum of such money and
the fair market value of such other property so received, which is not
distributed.
(4) Assumption of Liability. -
(a) If the taxpayer, in connection with the exchanges described in the foregoing
exceptions, receives stock or securities which would be permitted to be
received without the recognition of the gain if it were the sole consideration, and
as part of the consideration, another party to the exchange assumes a liability
of the taxpayer, or acquires from the taxpayer property, subject to a liability,
then such assumption or acquisition shall not be treated as money and/or other
property, and shall not prevent the exchange from being within the exceptions.
(b) If the amount of the liabilities assumed plus the amount of the liabilities to
which the property is subject exceed the total of the adjusted basis of the
property transferred pursuant to such exchange, then such excess shall be
considered as a gain from the sale or exchange of a capital asset or of property
which is not a capital asset, as the case may be.
(5) Basis -
(a) The basis of the stock or securities received by the transferor upon the
exchange specified in the above exception shall be the same as the basis of
the property, stock or securities exchanged, decreased by (1) the money
received, and (2) the fair market value of the other property received, and
increased by (a) the amount treated as dividend of the shareholder and (b) the
amount of any gain that was recognized on the exchange: Provided, That the
property received as "boot" shall have as basis its fair market value: Provided,
further, That if as part of the consideration to the transferor, the transferee of
property assumes a liability of the transferor or acquires form the latter property
subject to a liability, such assumption or acquisition (in the amount of the
liability) shall, for purposes of this paragraph, be treated as money received by
the transferor on the exchange: Provided, finally, That if the transferor receives
several kinds of stock or securities, the Commissioner is hereby authorized to
allocate the basis among the several classes of stocks or securities.
(b) The basis of the property transferred in the hands of the transferee shall be
the same as it would be in the hands of the transferor increased by the amount
of the gain recognized to the transferor on the transfer.
(6) Definitions. -

(a) The term "securities" means bonds and debentures but not "notes" of
whatever class or duration.
(b) The term "merger" or "consolidation", when used in this Section, shall be
understood to mean: (i) the ordinary merger or consolidation, or (ii) the
acquisition by one corporation of all or substantially all the properties of another
corporation solely for stock: Provided, That for a transaction to be regarded as
a merger or consolidation within the purview of this Section, it must be
undertaken for a bona fide business purpose and not solely for the purpose of
escaping the burden of taxation: Provided, further, That in determining whether
a bona fide business purpose exists, each and every step of the transaction
shall be considered and the whole transaction or series of transaction shall be
treated as a single unit: Provided, finally , That in determining whether the
property transferred constitutes a substantial portion of the property of the
 transferor, the term 'property' shall be taken to include the cash assets of the
transferor.
(c) The term "control", when used in this Section, shall mean ownership of
stocks in a corporation possessing at least fifty-one percent (51%) of the total
voting power of all classes of stocks entitled to vote.
(d) The Secretary of Finance, upon recommendation of the Commissioner, is
hereby authorized to issue rules and regulations for the purpose "substantially
all" and for the proper implementation of this Section.

SEC. 41. Inventories. - Whenever in the judgment of the Commissioner, the use of inventories is
necessary in order to determine clearly the income of any taxpayer, inventories shall be taken by such
taxpayer upon such basis as the Secretary of Finance, upon recommendation of the Commissioner,
may, by rules and regulations, prescribe as conforming as nearly as may be to the best accounting
practice in the trade or business and as most clearly reflecting the income.

If a taxpayer, after having complied with the terms and a conditions prescribed by the Commissioner,
uses a particular method of valuing its inventory for any taxable year, then such method shall be used
in all subsequent taxable years unless:

(i) with the approval of the Commissioner, a change to a different method is authorized;
or
(ii) the Commissioner finds that the nature of the stock on hand (e.g., its scarcity,
liquidity, marketability and price movements) is such that inventory gains should be
considered realized for tax purposes and, therefore, it is necessary to modify the
valuation method for purposes of ascertaining the income, profit, or loss in a more
realistic manner: Provided, however, That the Commissioner shall not exercise his
authority to require a change in inventory method more often than once every three (3)
years: Provided, further, That any change in an inventory valuation method must be
subject to approval by the Secretary of Finance.
SEC. 42. Income from Sources Within the Philippines.-

(A) Gross Income From Sources Within the Philippines. - The following items of gross income shall
be treated as gross income from sources within the Philippines:

(1) Interests. - Interests derived from sources within the Philippines, and interests on
bonds, notes or other interest-bearing obligation of residents, corporate or otherwise;

(2) Dividends. - The amount received as dividends:

(a) from a domestic corporation; and

(b) from a foreign corporation, unless less than fifty percent (50%) of the gross
income of such foreign corporation for the three-year period ending with the
close of its taxable year preceding the declaration of such dividends or for such
part of such period as the corporation has been in existence) was derived from
sources within the Philippines as determined under the provisions of this
Section; but only in an amount which bears the same ration to such dividends
as the gross income of the corporation for such period derived from sources
within the Philippines bears to its gross income from all sources.
(3) Services. - Compensation for labor or personal services performed in the
Philippines;
 (4) Rentals and Royalties. - Rentals and royalties from property located in the
Philippines or from any interest in such property, including rentals or royalties for -
(a) The use of or the right or privilege to use in the Philippines any copyright,
patent, design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
(b) The use of, or the right to use in the Philippines any industrial, commercial
or scientific equipment;
(c) The supply of scientific, technical, industrial or commercial knowledge or
information;
(d) The supply of any assistance that is ancillary and subsidiary to, and is
furnished as a means of enabling the application or enjoyment of, any such
property or right as is mentioned in paragraph (a), any such equipment as is
mentioned in paragraph (b) or any such knowledge or information as is
mentioned in paragraph (c);
(e) The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus purchased from such
nonresident person;
(f) Technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme; and
(g) The use of or the right to use:
(i) Motion picture films;
(ii) Films or video tapes for use in connection with television; and
(iii) Tapes for use in connection with radio broadcasting.
(5) Sale of Real Property. - Gains, profits and income from the sale of real property
located in the Philippines; and
(6) Sale of Personal Property. - Gains; profits and income from the sale of personal
property, as determined in Subsection (E) of this Section.

(B) Taxable Income From Sources Within the Philippines. -

(1) General Rule. - From the items of gross income specified in Subsection (A) of this
Section, there shall be deducted the expenses, losses and other deductions properly
allocated thereto and a ratable part of expenses, interests, losses and other deductions
effectively connected with the business or trade conducted exclusively within the
Philippines which cannot definitely be allocated to some items or class of gross
income: Provided, That such items of deductions shall be allowed only if fully
substantiated by all the information necessary for its calculation. The remainder, if any,
shall be treated in full as taxable income from sources within the Philippines.
(2) Exception. - No deductions for interest paid or incurred abroad shall be allowed
from the item of gross income specified in subsection (A) unless indebtedness was
actually incurred to provide funds for use in connection with the conduct or operation of
trade or business in the Philippines.

(C) Gross Income From Sources Without the Philippines. - The following items of gross income
shall be treated as income from sources without the Philippines:
(1) Interests other than those derived from sources within the Philippines as provided
in
paragraph (1) of Subsection (A) of this Section;
(2) Dividends other than those derived from sources within the Philippines as provided
 in paragraph (2) of Subsection (A) of this Section;
(3) Compensation for labor or personal services performed without the Philippines;
(4) Rentals or royalties from property located without the Philippines or from any
interest such property including rentals or royalties for the use of or for the privilege of
using wiithout the Philippines, patents, copyrights, secret processes and formulas,
goodwill, trademarks, trade brands, franchises and other like properties; and
(5) Gains, profits and income from the sale of real property located without the
Philippines.
(D) Taxable Income From Sources Without the Philippines. - From the items of gross income
specified in Subsection (C) of this Section there shall be deducted the expenses, losses, and other
deductions properly apportioned or allocated thereto and a ratable part of any expense, loss or other
deduction which cannot definitely be allocated to some items or classes of gross income. The
remainder, if any, shall be treated in full as taxable income from sources without the Philippines.

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

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

(F) Definitions. - As used in this Section the words "sale" or "sold" include "exchange" or
"exchanged"; and the word "produced" includes "created", "fabricated", "manufactured", "extracted",
"processed", "cured" or "aged".
 CHAPTER VIII
ACCOUNTING PERIODS
AND METHODS OF ACCOUNTING

SEC. 43. General Rule. - The taxable income shall be computed upon the basis of the taxpayer's
annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the
method of accounting regularly employed in keeping the books of such taxpayer, but if no such method
of accounting has been so employed, or if the method employed does not clearly reflect the income,
the computation shall be made in accordance with such method as in the opinion of the Commissioner
clearly reflects the income. If the taxpayer's annual accounting period is other than a fiscal year, as
defined in Section 22(Q), or if the taxpayer has no annual accounting period, or does not keep books,
or if the taxpayer is an individual, the taxable income shall be computed on the basis of the calendar
year.

SEC. 44. Period in which Items of Gross Income Included. - The amount of all items of gross
income shall be included in the gross income for the taxable year in which received by the taxpayer,
unless, under methods of accounting permitted under Section 43, any such amounts are to be properly
accounted for as of a different period. In the case of the death of a taxpayer, there shall be included in
computing taxable income for the taxable period in which falls the date of his death, amounts accrued
up to the date of his death if not otherwise properly includible in respect of such period or a prior
period.

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

SEC. 46. Change of Accounting Period. If a taxpayer, other than an individual, changes his
accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal
year to another, the net income shall, with the approval of the Commissioner, be computed on the
basis of such new accounting period, subject to the provisions of Section 47.

SEC. 47. Final or Adjustment Returns for a Period of Less than Twelve (12) Months. -

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

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

SEC. 48. Accounting for Long-Term Contracts. - Income from long-term contracts shall be reported
for tax purposes in the manner as provided in this Section. As used herein, the term 'long-term
contracts' means building, installation or construction contracts covering a period in excess of one (1)
year. Persons whose gross income is derived in whole or in part from such contracts shall report such
income upon the basis of percentage of completion. The return should be accompanied by a return
certificate of architects or engineers showing the percentage of completion during the taxable year of
the entire work performed under contract. There should be deducted from such gross income all
expenditures made during the taxable year on account of the contract, account being taken of the
material and supplies on hand at the beginning and end of the taxable period for use in connection
with the work under the contract but not yet so applied. If upon completion of a contract, it is found that
the taxable net income arising thereunder has not been clearly reflected for any year or years, the
Commissioner may permit or require an amended return.

SEC. 49. Installment Basis. -

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

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

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

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

SEC. 50. Allocation of Income and Deductions. - In the case of two or more organizations, trades or
businesses (whether or not incorporated and whether or not organized in the Philippines) owned or
controlled directly or indirectly by the same interests, the Commissioner is authorized to distribute,
apportion or allocate gross income or deductions between or among such organization, trade or
business, if he determined that such distribution, apportionment or allocation is necessary in order to
prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business.

CHAPTER IX
RETURNS AND PAYMENT OF TAX

SEC. 51. Individual Return. -

(A) Requirements. -

(1) Except as provided in paragraph (2) of this Subsection, the following individuals
are required to file an income tax return:
(a) Every Filipino citizen residing in the Philippines;
(b) Every Filipino citizen residing outside the Philippines, on his income from
sources within the Philippines;
(c) Every alien residing in the Philippines, on income derived from sources
within the Philippines; and
(d) Every nonresident alien engaged in trade or business or in the exercise of
profession in the Philippines.
(2) The following individuals shall not be required to file an income tax return;
(a) An individual whose gross income does not exceed his total personal and
additional exemptions for dependents under Section 35: Provided, That a
citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippine shall file an income tax return,
regardless of the amount of gross income;
(b) An individual with respect to pure compensation income, as defined in
Section 32 (A)(1), derived from sources within the Philippines, the income tax
on which has been correctly withheld under the provisions of Section 79 of this
Code: Provided, That an individual deriving compensation concurrently from
two or more employers at any time during the taxable year shall file an income
tax return: Provided, further, That an individual whose compensation income
derived from sources within the Philippines exceeds Sixty thousand pesos
(P60,000) shall also file an income tax return;
(c) An individual whose sole income has been subjected to final withholding tax
pursuant to Section 57(A) of this Code; and
(d) An individual who is exempt from income tax pursuant to the provisions of
this Code and other laws, general or special.
(3) The forgoing notwithstanding, any individual not required to file an income tax
return may nevertheless be required to file an information return pursuant to rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.
(4) The income tax return shall be filed in duplicate by the following persons:
(a) A resident citizen - on his income from all sources;
(b) A nonresident citizen - on his income derived from sources within the
Philippines;
(c) A resident alien - on his income derived from sources within the Philippines;
 and
(d) A nonresident alien engaged in trade or business in the Philippines - on his
income derived from sources within the Philippines.
(B) Where to File. - Except in cases where the Commissioner otherwise permits, the return shall be
filed with an authorized agent bank, Revenue District Officer, Collection Agent or duly authorized
Treasurer of the city or municipality in which such person has his legal residence or principal place of
business in the Philippines, or if there be no legal residence or place of business in the Philippines,
with the Office of the Commissioner.

(C) When to File. -

(1) The return of any individual specified above shall be filed on or before the fifteenth
(15th) day of April of each year covering income for the preceding taxable year.
(2) Individuals subject to tax on capital gains;
(a) From the sale or exchange of shares of stock not traded thru a local stock
exchange as prescribed under Section 24(c) shall file a return within thirty (30)
days after each transaction and a final consolidated return on or before April 15
of each year covering all stock transactions of the preceding taxable year; and
(b) From the sale or disposition of real property under Section 24(D) shall file a
return within thirty (30) days following each sale or other disposition.
(D) Husband and Wife. - Married individuals, whether citizens, resident or nonresident aliens, who do
not derive income purely from compensation, shall file a return for the taxable year to include the
income of both spouses, but where it is impracticable for the spouses to file one return, each spouse
may file a separate return of income but the returns so filed shall be consolidated by the Bureau for
purposes of verification for the taxable year.

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

(F) Persons Under Disability. - If the taxpayer is unable to make his own return, the return may be
made by his duly authorized agent or representative or by the guardian or other person charged with
the care of his person or property, the principal and his representative or guardian assuming the
responsibility of making the return and incurring penalties provided for erroneous, false or fraudulent
returns.

(G) Signature Presumed Correct. - The fact that an individual's name is signed to a filed return shall
be prima facie evidence for all purposes that the return was actually signed by him.

SEC. 52. Corporation Returns. -

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

(B) Taxable Year of Corporation. - A corporation may employ either calendar year or fiscal year as a
basis for filing its annual income tax return: Provided, That the corporation shall not change the
accounting period employed without prior approval from the Commissioner in accordance with the
provisions of Section 47 of this Code.

(C) Return of Corporation Contemplating Dissolution or Reorganization. - Every corporation

shall, within thirty (30) days after the adoption by the corporation of a resolution or plan for its
dissolution, or for the liquidation of the whole or any part of its capital stock, including a corporation
which has been notified of possible involuntary dissolution by the Securities and Exchange
Commission, or for its reorganization, render a correct return to the Commissioner, verified under oath,
setting forth the terms of such resolution or plan and such other information as the Secretary of
Finance, upon recommendation of the commissioner, shall, by rules and regulations, prescribe.

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

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

SEC. 53. Extension of Time to File Returns. - The Commissioner may, in meritorious cases, grant a
reasonable extension of time for filing returns of income (or final and adjustment returns in case of
corporations), subject to the provisions of Section 56 of this Code.

SEC. 54. Returns of Receivers, Trustees in Bankruptcy or Assignees. - In cases wherein

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

SEC. 55. Returns of General Professional Partnerships. - Every general professional partnership
shall file, in duplicate, a return of its income, except income exempt under Section 32 (B) of this Title,
setting forth the items of gross income and of deductions allowed by this Title, and the names,
Taxpayer Identification Numbers (TIN), addresses and shares of each of the partners.

SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporation. -

(A) Payment of Tax. -

(1) In General. - The total amount of tax imposed by this Title shall be paid by the
person subject thereto at the time the return is filed. In the case of tramp vessels, the
shipping agents and/or the husbanding agents, and in their absence, the captains
thereof are required to file the return herein provided and pay the tax due thereon
before their departure. Upon failure of the said agents or captains to file the return and
 pay the tax, the Bureau of Customs is hereby authorized to hold the vessel and
prevent its departure until proof of payment of the tax is presented or a sufficient bond
is filed to answer for the tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos
(P2,000), the taxpayer other than a corporation may elect to pay the tax in two (2)
equal installments in which case, the first installment shall be paid at the time the
return is filed and the second installment, on or before July 15 following the close of the
calendar year. If any installment is not paid on or before the date fixed for its payment,
the whole amount of the tax unpaid becomes due and payable, together with the
delinquency penalties.
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed
under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the
date the return prescribed therefor is filed by the person liable thereto: Provided, That if
the seller submits proof of his intention to avail himself of the benefit of exemption of
capital gains under existing special laws, no such payments shall be required :
Provided, further, That in case of failure to qualify for exemption under such special
laws and implementing rules and regulations, the tax due on the gains realized from
the original transaction shall immediately become due and payable, subject to the
penalties prescribed under applicable provisions of this Code: Provided, finally, That if
the seller, having paid the tax, submits such proof of intent within six (6) months from
the registration of the document transferring the real property, he shall be entitled to a
refund of such tax upon verification of his compliance with the requirements for such
exemption.
In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this
Code, the tax due from each installment payment shall be paid within (30) days from the receipt of
such payments.

No registration of any document transferring real property shall be effected by the Register of Deeds
unless the Commissioner or his duly authorized representative has certified that such transfer has
been reported, and the tax herein imposed, if any, has been paid.

(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the Commissioner shall
examine it and assess the correct amount of the tax. The tax or deficiency income tax so discovered
shall be paid upon notice and demand from the Commissioner.

As used in this Chapter, in respect of a tax imposed by this Title, the term "deficiency" means:

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

(2) If no amount is shown as the tax by the taxpayer upon this return, or if no return is
made by the taxpayer, then the amount by which the tax exceeds the amounts
previously assessed (or collected without assessment) as a deficiency; but such
amounts previously assessed or collected without assessment shall first be decreased
by the amounts previously abated, credited returned or otherwise repaid in respect of
such tax.
SEC. 57. Withholding of Tax at Source. -

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

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

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

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

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

The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for
the government until paid to the collecting officers.

The return for final withholding tax shall be filed and the payment made within twenty-five (25) days
from the close of each calendar quarter, while the return for creditable withholding taxes shall be filed
and the payment made not later than the last day of the month following the close of the quarter during
which withholding was made: Provided, That the Commissioner, with the approval of the Secretary of
Finance, may require these withholding agents to pay or deposit the taxes deducted or withheld at
more frequent intervals when necessary to protect the interest of the government.

(B) Statement of Income Payments Made and Taxes Withheld. - Every withholding agent required
to deduct and withhold taxes under Section 57 shall furnish each recipient, in respect to his or its
receipts during the calendar quarter or year, a written statement showing the income or other
payments made by the withholding agent during such quarter or year, and the amount of the tax
deducted and withheld therefrom, simultaneously upon payment at the request of the payee, but not
late than the twentieth (20th) day following the close of the quarter in the case of corporate payee, or
not later than March 1 of the following year in the case of individual payee for creditable withholding
taxes. For final withholding taxes, the statement should be given to the payee on or before January 31
of the succeeding year.

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

The Commissioner may, by rules and regulations, grant to any withholding agent a reasonable
extension of time to furnish and submit the return required in this Subsection.

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

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

(E) Registration with Register of Deeds. - No registration of any document transferring real property
shall be effected by the Register of Deeds unless the Commissioner or his duly authorized
representative has certified that such transfer has been reported, and the capital gains or creditable
withholding tax, if any, has been paid: Provided, however, That the information as may be required by
rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, shall be annotated by the Register of Deeds in the Transfer Certificate of Title or
Condominium Certificate of Title: Provided, further, That in cases of transfer of property to a
corporation, pursuant to a merger, consolidation or reorganization, and where the law allows deferred
recognition of income in accordance with Section 40, the information as may be required by rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner,
shall be annotated by the Register of Deeds at the back of the Transfer Certificate of Title or
Condominium Certificate of Title of the real property involved: Provided, finally, That any violation of
this provision by the Register of Deeds shall be subject to the penalties imposed under Section 269 of
this Code.

SEC. 59. Tax on Profits Collectible from Owner or Other Persons. - The tax imposed under this
Title upon gains, profits, and income not falling under the foregoing and not returned and paid by virtue
of the foregoing or as otherwise provided by law shall be assessed by personal return under rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
The intent and purpose of the Title is that all gains, profits and income of a taxable class, as defined in
this Title, shall be charged and assessed with the corresponding tax prescribed by this Title, and said
tax shall be paid by the owners of such gains, profits and income, or the proper person having the
receipt, custody, control or disposal of the same. For purposes of this Title, ownership of such gains,
profits and income or liability to pay the tax shall be determined as of the year for which a return is
required to be rendered.

CHAPTER X
ESTATES AND TRUSTS

SEC. 60. Imposition of Tax. -

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

(1) Income accumulated in trust for the benefit of unborn or unascertained person or
persons with contingent interests, and income accumulated or held for future
distribution under the terms of the will or trust;
(2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and
income collected by a guardian of an infant which is to be held or distributed as the
court may direct;
(3) Income received by estates of deceased persons during the period of
administration or settlement of the estate; and
(4) Income which, in the discretion of the fiduciary, may be either distributed to the
beneficiaries or accumulated.
(B) Exception. - The tax imposed by this Title shall not apply to employee's trust which forms part of a
pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his
employees (1) if contributions are made to the trust by such employer, or employees, or both for the
purpose of distributing to such employees the earnings and principal of the fund accumulated by the
trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time
prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the
corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other
than for the exclusive benefit of his employees: Provided, That any amount actually distributed to any
employee or distributee shall be taxable to him in the year in which so distributed to the extent that it
exceeds the amount contributed by such employee or distributee.

(C) Computation and Payment. -

(1) In General. - The tax shall be computed upon the taxable income of the estate or
trust and shall be paid by the fiduciary, except as provided in Section 63 (relating to
revocable trusts) and Section 64 (relating to income for the benefit of the grantor).
(2) Consolidation of Income of Two or More Trusts. - Where, in the case of two or more
trusts, the creator of the trust in each instance is the same person, and the beneficiary
in each instance is the same, the taxable income of all the trusts shall be consolidated
and the tax provided in this Section computed on such consolidated income, and such
proportion of said tax shall be assessed and collected from each trustee which the
taxable income of the trust administered by him bears to the consolidated income of
the several trusts.
SEC. 61. Taxable Income. - The taxable income of the estate or trust shall be computed in the same
manner and on the same basis as in the case of an individual, except that:
(A) There shall be allowed as a deduction in computing the taxable income of the estate or trust the
amount of the income of the estate or trust for the taxable year which is to be distributed currently by
the fiduciary to the beneficiaries, and the amount of the income collected by a guardian of an infant
which is to be held or distributed as the court may direct, but the amount so allowed as a deduction
shall be included in computing the taxable income of the beneficiaries, whether distributed to them or
not. Any amount allowed as a deduction under this Subsection shall not be allowed as a deduction
under Subsection (B) of this Section in the same or any succeeding taxable year.

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

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

SEC. 62. Exemption Allowed to Estates and Trusts. - For the purpose of the tax provided for in this
Title, there shall be allowed an exemption of Twenty thousand pesos (P20,000) from the income of the
estate or trust.

SEC. 63. Revocable Trusts. - Where at any time the power to revest in the grantor title to any part of
the corpus of the trust is vested (1) in the grantor either alone or in conjunction with any person not
having a substantial adverse interest in the disposition of such part of the corpus or the income
therefrom, or (2) in any person not having a substantial adverse interest in the disposition of such part
of the corpus or the income therefrom, the income of such part of the trust shall be included in
computing the taxable income of the grantor.

SEC. 64. Income for Benefit of Grantor.-

(A) Where any part of the income of a trust (1) is, or in the discretion of the grantor or of any person
not having a substantial adverse interest in the disposition of such part of the income may be held or
accumulated for future distribution to the grantor, or (2) may, or in the discretion of the grantor or of
any person not having a substantial adverse interest in the disposition of such part of the income, be
distributed to the grantor, or (3) is, or in the discretion of the grantor or of any person not having a
substantial adverse interest in the disposition of such part of the income may be applied to the
payment of premiums upon policies of insurance on the life of the grantor, such part of the income of
the trust shall be included in computing the taxable income of the grantor.

(B) As used in this Section, the term 'in the discretion of the grantor' means in the discretion of the
grantor, either alone or in conjunction with any person not having a substantial adverse interest in the
disposition of the part of the income in question.

SEC. 65. Fiduciary Returns. - Guardians, trustees, executors, administrators, receivers, conservators
and all persons or corporations, acting in any fiduciary capacity, shall render, in duplicate, a return of
the income of the person, trust or estate for whom or which they act, and be subject to all the
provisions of this Title, which apply to individuals in case such person, estate or trust has a gross
income of Twenty thousand pesos (P20,000) or over during the taxable year. Such fiduciary or person
filing the return for him or it, shall take oath that he has sufficient knowledge of the affairs of such
person, trust or estate to enable him to make such return and that the same is, to the best of his
knowledge and belief, true and correct, and be subject to all the provisions of this Title which apply to
individuals: Provided, That a return made by or for one or two or more joint fiduciaries filed in the
province where such fiduciaries reside; under such rules and regulations as the Secretary of Finance,
upon recommendation of the Commissioner, shall prescribe, shall be a sufficient compliance with the
requirements of this Section.

SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. - Trustees, executors,
administrators and other fiduciaries are indemnified against the claims or demands of every beneficiary
for all payments of taxes which they shall be required to make under the provisions of this Title, and
they shall have credit for the amount of such payments against the beneficiary or principal in any
accounting which they make as such trustees or other fiduciaries.

CHAPTER XI
OTHER INCOME TAX REQUIREMENTS

SEC. 67. Collection of Foreign Payments. - All persons, corporations, duly registered general co-
partnerships (companias colectivas) undertaking for profit or otherwise the collection of foreign
payments of interests or dividends by means of coupons, checks or bills of exchange shall obtain a
license from the Commissioner, and shall be subject to such rules and regulations enabling the
government to obtain the information required under this Title, as the Secretary of Finance, upon
recommendation of the Commissioner, shall prescribe.

SEC. 68. Information at Source as to Income Payments. - all persons, corporations or duly
registered co- partnerships (companias colectivas), in whatever capacity acting, including lessees or
mortgagors of real or personal property, trustees, acting in any trust capacity, executors,
administrators, receivers, conservators and employees making payment to another person,
corporation or duly registered general co-partnership (compania colectiva), of interests, rents, salaries,
wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or
determinable gains, profits and income, other than payment described in Section 69, in any taxable
year, or in the case of such payments made by the Government of the Philippines, the officers or
employees of the Government having information as to such payments and required to make returns in
regard thereto, are authorized and required to render a true and accurate return to the Commissioner,
under such rules and regulations, and in such form and manner as may be prescribed by the Secretary
of Finance, upon recommendation of the Commissioner, setting forth the amount of such gains, profits
and income and the name and address of the recipient of such payments: Provided, That such returns
shall be required, in the case of payments of interest upon bonds and mortgages or deeds of trust or
other similar obligations of corporations, and in the case of collections of items, not payable in the
Philippines, of interest upon the bonds of foreign countries and interest from the bonds and dividends
from the stock of foreign corporations by persons, corporations or duly registered general co-
partnerships (companias colectivas), undertaking as a matter of business or for profit or otherwise the
collection of foreign payments of such interests or dividends by means of coupons or bills of exchange.

SEC. 69. Return of Information of Brokers. - Every person, corporation or duly registered general
co-partnership (compania colectiva), doing business as a broker in any exchange or board or other
similar place of business, shall, when required by the Commissioner, render a correct return duly
verified under oath under such rules and regulations as the Secretary of Finance, upon
recommendation of the Commissioner, may prescribe, showing the names of customers for whom
such person, corporation or duly registered general co-partnership (compania colectiva) has
transacted any business, with such details as to the profits, losses or other information which the
Commissioner, may require as to each of such customers as will enable the Commissioner to
determine whether all income tax due on profits or gains of such customers has been paid.

SEC. 70. Returns of Foreign Corporations. -

(A) Requirements. - Under rules and regulations prescribed by the Secretary of

finance, upon the recommendation of the Commissioner, any attorney, accountant,
fiduciary, bank, trust company, financial institution or other person, who aids, assists,
counsels or advises in, o with respect to; the formation, organization or reorganization
of any foreign corporation, shall, within thirty (30) days thereafter, file with the
Commissioner a return.
(B) Form and Contents of Return. - Such return shall be in such form and shall set
forth; under oath, in respect of each such corporation, to the full extent of the
information within the possession or knowledge or under the control of the person
required to file the return, such information as the Secretary of Finance, upon
recommendation of the Commissioner, shall prescribe by rules and regulations as
necessary for carrying out the provisions of this Title. Nothing in this Section shall be
construed to require the divulging of privileged communications between attorney and
client.
SEC. 71. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers. - After
the assessment shall have been made, as provided in this Title, the returns, together with any
corrections thereof which may have been made by the Commissioner, shall be filed in the Office of the
Commissioner and shall constitute public records and be open to inspection as such upon the order of
the President of the Philippines, under rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.

The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists
containing the names and addresses of persons who have filed income tax returns.

SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns. - When an assessment is
made in case of any list, statement or return, which in the opinion of the Commissioner was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suit, unless it is proved that the said list, statement or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines.

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

(A) Definition of Dividends. - The term "dividends" when used in this Title means any
distribution made by a corporation to its shareholders out of its earnings or profits and
payable to its shareholders, whether in money or in other property.
Where a corporation distributes all of its assets in complete liquidation or dissolution,
the gain realized or loss sustained by the stockholder, whether individual or corporate,
is a taxable income or a deductible loss, as the case may be.
 (B) Stock Dividend. - A stock dividend representing the transfer of surplus to capital
account shall not be subject to tax. However, if a corporation cancels or redeems stock
issued as a dividend at such time and in such manner as to make the distribution and
cancellation or redemption, in whole or in part, essentially equivalent to the distribution
of a taxable dividend, the amount so distributed in redemption or cancellation of the
stock shall be considered as taxable income to the extent that it represents a
distribution of earnings or profits.
(C) Dividends Distributed are Deemed Made from Most Recently Accumulated
Profits. - Any distribution made to the shareholders or members of a corporation shall
be deemed to have been made form the most recently accumulated profits or surplus,
and shall constitute a part of the annual income of the distributee for the year in which
received.
(D) Net Income of a Partnership Deemed Constructively Received by Partners. -
The taxable income declared by a partnership for a taxable year which is subject to tax
under Section 27 (A) of this Code, after deducting the corporate income tax imposed
therein, shall be deemed to have been actually or constructively received by the
partners in the same taxable year and shall be taxed to them in their individual
capacity, whether actually distributed or not.

CHAPTER XII
QUARTERLY CORPORATE INCOME TAX, ANNUAL DECLARATION
AND QUARTERLY PAYMENTS OF INCOME TAXES

SEC. 74. Declaration of Income Tax for Individuals. -

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

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

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

SEC. 75. Declaration of Quarterly Corporate Income Tax. - Every corporation shall file in duplicate
a quarterly summary declaration of its gross income and deductions on a cumulative basis for the
preceding quarter or quarters upon which the income tax, as provided in Title II of this Code, shall be
levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously
paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from
the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year.

SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final
adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum
of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the
entire taxable income of that year, the corporation shall either:

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

(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid, the excess amount shown on its final adjustment return may be carried over and credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor.

SEC. 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. -

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

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

(C) Time of Payment of the Income Tax. - The income tax due on the corporate quarterly returns and
the final adjustment income tax returns computed in accordance with Sections 75 and 76 shall be paid
at the time the declaration or return is filed in a manner prescribed by the Commissioner.

CHAPTER XIII
WITHHOLDING ON WAGES
SEC. 78. Definitions. - As used in this Chapter:

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

(1) For agricultural labor paid entirely in products of the farm where the labor is
performed, or
(2) For domestic service in a private home, or
(3) For casual labor not in the course of the employer's trade or business, or
(4) For services by a citizen or resident of the Philippines for a foreign government or
an international organization.
If the remuneration paid by an employer to an employee for services performed during one-half (1/2) or
more of any payroll period of not more than thirty-one (31) consecutive days constitutes wages, all the
remuneration paid by such employer to such employee for such period shall be deemed to be wages;
but if the remuneration paid by an employer to an employee for services performed during more than
one -half (1/2) of any such payroll period does not constitute wages, then none of the remuneration
paid by such employer to such employee for such period shall be deemed to be wages.

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

(C) Employee. - The term 'employee' refers to any individual who is the recipient of wages and
includes an officer, employee or elected official of the Government of the Philippines or any political
subdivision, agency or instrumentality thereof. The term "employee" also includes an officer of a
corporation.

(D) Employer. - The term "employer" means the person for whom an individual performs or
performed any service, of whatever nature, as the employee of such person, except that:
(1) If the person for whom the individual performs or performed any service does not
have control of the payment of the wages for such services, the term "employer"
(except for the purpose of Subsection (A) means the person having control of the
payment of such wages; and
(2) In the case of a person paying wages on behalf of a nonresident alien individual,
foreign partnership or foreign corporation not engaged in trade or business within the
Philippines, the term "employer" (except for the purpose of Subsection (A) means such
person.
SEC. 79. Income Tax Collected at Source.-

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

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

(C) Refunds or Credits. -

(1) Employer. - When there has been an overpayment of tax under this Section,
refund or credit shall be made to the employer only to the extent that the amount of
such overpayment was not deducted and withheld hereunder by the employer.
(2) Employees. -The amount deducted and withheld under this Chapter during any
calendar year shall be allowed as a credit to the recipient of such income against the
tax imposed under Section 24(A) of this Title. Refunds and credits in cases of
excessive withholding shall be granted under rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.
Any excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited
within three (3) months from the fifteenth (15th) day of April. Refunds or credits made after such time
shall earn interest at the rate of six percent (6%) per annum, starting after the lapse of the three-month
period to the date the refund of credit is made.

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

(D) Personal Exemptions. -

(1) In General. - Unless otherwise provided by this Chapter, the personal and
additional exemptions applicable under this Chapter shall be determined in accordance
with the main provisions of this Title.
(2) Exemption Certificate. -
(a) When to File. - On or before the date of commencement of employment
with an employer, the employee shall furnish the employer with a signed
withholding exemption certificate relating to the personal and additional
exemptions to which he is entitled.
(b) Change of Status. - In case of change of status of an employee as a result
of which he would be entitled to a lesser or greater amount of exemption, the
employee shall, within ten (10) days from such change, file with the employer a
new withholding exemption certificate reflecting the change.
(c) Use of Certificates. - The certificates filed hereunder shall be used by the
employer in the determination of the amount of taxes to be withheld.
(d) Failure to Furnish Certificate. - Where an employee, in violation of this
Chapter, either fails or refuses to file a withholding exemption certificate, the
employer shall withhold the taxes prescribed under the schedule for zero
exemption of the withholding tax table determined pursuant to Subsection (A)
hereof.
(E) Withholding on Basis of Average Wages. - The Commissioner may, under rules and regulations
promulgated by the Secretary of Finance, authorize employers to:
(1) estimate the wages which will be paid to an employee in any quarter of the
 calendar year;
(2) determine the amount to be deducted and withheld upon each payment of wages
to such employee during such quarter as if the appropriate average of the wages so
estimated constituted the actual wages paid; and
(3) deduct and withhold upon any payment of wages to such employee during ;such
quarter such amount as may be required to be deducted and withheld during such
quarter without regard to this Subsection.
(F) Husband and Wife. - When a husband and wife each are recipients of wages, whether from the
same or from different employers, taxes to be withheld shall be determined on the following bases:
(1) The husband shall be deemed the head of the family and proper claimant of the
additional exemption in respect to any dependent children, unless he explicitly waives
his right in favor of his wife in the withholding exemption certificate.
(2) Taxes shall be withheld from the wages of the wife in accordance with the
schedule for zero exemption of the withholding tax table prescribed in Subsection
(D)(2)(d) hereof.
(G) Nonresident Aliens. - Wages paid to nonresident alien individuals engaged in trade or business
in the Philippines shall be subject to the provisions of this Chapter.

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

SEC. 80. Liability for Tax. -

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

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

(1) failure or refusal to file the withholding exemption certificate; or

(2) false and inaccurate information shall not be refunded to the employee but shall be
forfeited in favor of the Government.
SEC. 81. Filing of Return and Payment of Taxes Withheld. - Except as the Commissioner otherwise
permits, taxes deducted and withheld by the employer on wages of employees shall be covered by a
return and paid to an authorized agent bank; Collection Agent, or the duly authorized Treasurer of the
city or municipality where the employer has his legal residence or principal place of business, or in
case the employer is a corporation, where the principal office is located.

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

The taxes deducted and withheld by employers shall be held in a special fund in trust for the
Government until the same are paid to the said collecting officers.

SEC. 82. Return and Payment in Case of Government Employees. - If the employer is the
Government of the Philippines or any political subdivision, agency or instrumentality thereof, the return
of the amount deducted and withheld upon any wage shall be made by the officer or employee having
control of the payment of such wage, or by any officer or employee duly designated for the purpose.

SEC. 83. Statements and Returns. -

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

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

(C) Extension of time. - The Commissioner, under such rules and regulations as may be
promulgated by the Secretary of Finance, may grant to any employer a reasonable extension of time to
furnish and submit the statements and returns required under this Section.

TITLE III

CHAPTER I
ESTATE TAX

SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer
of the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether
resident or nonresident of the Philippines, a tax based on the value of such net estate, as computed in
accordance with the following schedule:

If the net estate is:

 OVER BUT NOT THE TAX PLUS OF THE
OVER SHALL BE EXCESS OVER

P 200,000 Exempt

P 200,000 550,000 0 5% P 200,000

500,000 2,000,000 P 15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000

5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 And Over 1,215,000 20% 10,000,000

SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a nonresident decedent who at the time of
his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated
in the Philippines shall be included in his taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;

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

(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in
money or money's worth) by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change through the exercise of a power (in
whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the
decedent acquired such power), t o alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be
considered to exist on the date of the decedent's death even though the exercise of the
power is subject to a precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a stated period after the
 exercise of the power, whether or not on or before the date of the decedent's death
notice has been given or the power has been exercised. In such cases, proper
adjustment shall be made representing the interests which would have been excluded
from the power if the decedent had lived, and for such purpose if the notice has not
been given or the power has not been exercised on or before the date of his
death, such notice shall be considered to have been given, or the power exercised, on
the date of his death.
(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his
death, or (3) by deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death (a) the possession
or enjoyment of, or the right to the income from, the property, or (b) the right, either alone or in
conjunction with any person, to designate the persons who shall possess or enjoy the property or the
income therefrom; except in case of a bona fide sale for an adequate and full consideration in money
or money's worth.

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

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

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

(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for
the purpose of this Chapter, be deemed a part of his or her gross estate.

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

(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident
of the Philippines, by deducting from the value of the gross estate -

(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts:

(a) For actual funeral expenses or in an amount equal to five percent (5%) of
the gross estate, whichever is lower, but in no case to exceed Two hundred
thousand pesos (P200,000);
(b) For judicial expenses of the testamentary or intestate proceedings;
 (c) For claims against the estate: Provided, That at the time the indebtedness
was incurred the debt instrument was duly notarized and, if the loan was
contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of
the proceeds of the loan;
(d) For claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and
(e) For unpaid mortgages upon, or any indebtedness in respect to, property
where the value of decedent's interest therein, undiminished by such mortgage
or indebtedness, is included in the value of the gross estate, but not including
any income tax upon income received after the death of the decedent, or
property taxes not accrued before his death, or any estate tax. The deduction
herein allowed in the case of claims against the estate, unpaid mortgages or
any indebtedness shall, when founded upon a promise or agreement, be limited
to the extent that they were contracted bona fide and for an adequate and full
consideration in money or money's worth. There shall also be deducted losses
incurred during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or embezzlement, when
such losses are not compensated for by insurance or otherwise, and if at the
time of the filing of the return such losses have not been claimed as a deduction
for the income tax purposes in an income tax return, and provided that such
losses were incurred not later than the last day for the payment of the estate tax
as prescribed in Subsection (A) of Section 91.
(2) Property Previously Taxed. - An amount equal to the value specified below of any
property forming a part of the gross estate situated in the Philippines of any person
who died within five (5) years prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death, where such property can be
identified as having been received by the decedent from the donor by gift, or from such
prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year
prior to the death of the decedent, or if the property was transferred to him by gift within
the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but
not more than two (2) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but
not more than three (3) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property
was transferred to him by gift within the same period prior to his death;
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years
but not more than five (5) years prior to the death of the decedent, or if the property
was transferred to him by gift within the same period prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed
under this Title was finally determined and paid by or on behalf of such donor, or the
estate of such prior decedent, as the case may be, and only in the amount finally
determined as the value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that the value of such
 property is included in the decedent's gross estate, and only if in determining the value
of the estate of the prior decedent, no deduction was allowable under paragraph (2) in
respect of the property or properties given in exchange therefor. Where a deduction
was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's
death, then the deduction allowable under said Subsection shall be reduced by the
amount so paid. Such deduction allowable shall be reduced by an amount which bears
the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of
this Subsection as the amount otherwise deductible under said paragraph (2) bears to
the value of the decedent's estate. Where the property referred to consists of two or
more items, the aggregate value of such items shall be used for the purpose of
computing the deduction.
(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises or
transfers to or for the use of the Government of the Republic of the Philippines, or any
political subdivision thereof, for exclusively public purposes.
(4) The Family Home. - An amount equivalent to the current fair market value of the
decedent's family home: Provided, however, That if the said current fair market value
exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As
a sine qua non condition for the exemption or deduction, said family home must have
been the decedent's family home as certified by the barangay captain of the locality.
(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).
(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1)
year prior to his death which shall be duly substantiated with receipts: Provided, That in
no case shall the deductible medical expenses exceed Five Hundred Thousand Pesos
(P500,000).
(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by
the heirs from the decedent - employee as a consequence of the death of the
decedent-employee in accordance with Republic Act No. 4917: Provided, That such
amount is included in the gross estate of the decedent.
(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of the
Philippines, by deducting from the value of that part of his gross estate which at the time of his death is
situated in the Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions
specified in paragraph (1) of Subsection (A) of this Section which the value of such part
bears to the value of his entire gross estate wherever situated;
(2) Property Previously Taxed. - An amount equal to the value specified below of any
property forming part of the gross estate situated in the Philippines of any person who
died within five (5) years prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death, where such property can be
identified as having been received by the decedent from the donor by gift, or from such
prior decedent by gift, bequest, devise or inheritance, or which can be identified as
having been acquired in exchange for property so received:
One hundred percent (100%) of the value if the prior decedent died within one (1) year
prior to the death of the decedent, or if the property was transferred to him by gift,
within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but
not more than two (2) years prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but
not more than three (3) years prior to the death of the decedent, or if the property was
 transferred to him by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property
was transferred to him by gift within the same period prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years
but not more than five (5) years prior to the death of the decedent, or if the property
was transferred to him by gift within the same period prior to his death.
These deductions shall be allowed only where a donor's tax, or estate tax imposed
under this Title is finally determined and paid by or on behalf of such donor, or the
estate of such prior decedent, as the case may be, and only in the amount finally
determined as the value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that the value of such
property is included in that part of the decedent's gross estate which at the time of his
death is situated in the Philippines; and only if, in determining the value of the net
estate of the prior decedent, no deduction is allowable under paragraph (2) of
Subsection (B) of this Section, in respect of the property or properties given in
exchange therefore. Where a deduction was allowed of any mortgage or other lien in
determining the donor's tax, or the estate tax of the prior decedent, which was paid in
whole or in part prior to the decedent's death, then the deduction allowable under said
paragraph shall be reduced by the amount so paid. Such deduction allowable shall be
reduced by an amount which bears the same ratio to the amounts allowed as
deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise
deductible under paragraph (2) bears to the value of that part of the decedent's gross
estate which at the time of his death is situated in the Philippines. Where the property
referred to consists of two (2) or more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or
transfers to or for the use of the Government of the Republic of the Philippines or any
political subdivision thereof, for exclusively public purposes.
(C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property shall, for
the purpose of this Section, be deducted from the net estate of the decedent.

(D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a
citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may
be, includes in the return required to be filed under Section 90 the value at the time of his death of that
part of the gross estate of the nonresident not situated in the Philippines.

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

(1) In General. - The tax imposed by this Title shall be credited with the amounts of any
estate tax imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which
the decedent's net estate situated within such country taxable under this Title
bears to his entire net estate; and
(b) The total amount of the credit shall not exceed the same proportion of the
tax against which such credit is taken, which the decedent's net estate situated
outside the Philippines taxable under this Title bears to his entire net estate.
SEC. 87. Exemption of Certain Acquisitions and Transmissions. - The following shall not be
taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which insures to the benefit of any individual:
Provided, however, That not more than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such institutions for administration
purposes.
SEC. 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is higher of:

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

(2) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors.
SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though
exempt from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the
executor, administrator or any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor or administrator, shall give a
written notice thereof to the Commissioner.

SEC. 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though
exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where the said estate consists of registered or registrable
property such as real property, motor vehicle, shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of
ownership thereof in the name of the transferee, the executor, or the administrator, or any of the legal
heirs, as the case may be, shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of his death, or in case of
a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in
the Philippines;
(2) The deductions allowed from gross estate in determining the estate as defined in
Section 86; and
(3) Such part of such information as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross value exceeding Two
million pesos (P2,000,000) shall be supported with a statement duly certified to by a
Certified Public Accountant containing the following:
 (a) Itemized assets of the decedent with their corresponding gross value at the
time of his death, or in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86; and
(c) The amount of tax due whether paid or still due and outstanding.
(B) Time for Filing. - For the purpose of determining the estate tax provided for in Section 84 of this
Code, the estate tax return required under the preceding Subsection (A) shall be filed within six (6)
months from the decedent's death.

A certified copy of the schedule of partition and the order of the court approving the same shall be
furnished the Commissioner within thirty (30) after the promulgation of such order.

(C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the return.

(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was
domiciled at the time of his death or if there be no legal residence in the Philippines, with the Office of
the Commissioner.

SEC. 91. Payment of Tax. -

(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is
filed by the executor, administrator or the heirs.

(B) Extension of Time. - When the Commissioner finds that the payment on the due date of the
estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he
may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case
the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. In
such case, the amount in respect of which the extension is granted shall be paid on or before the date
of the expiration of the period of the extension, and the running of the Statute of Limitations for
assessment as provided in Section 203 of this Code shall be suspended for the period of any such
extension.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations,
or fraud on the part of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary,
as the case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and
with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said
tax in accordance with the terms of the extension.

(C) Liability for Payment. - The estate tax imposed by Section 84 shall be paid by the executor or
administrator before delivery to any beneficiary of his distributive share of the estate. Such beneficiary
shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of such
portion of the estate tax as his distributive share bears to the value of the total net estate.

For the purpose of this Chapter, the term "executor" or "administrator" means the executor or
administrator of the decedent, or if there is no executor or administrator appointed, qualified, and
acting within the Philippines, then any person in actual or constructive possession of any property of
the decedent.

SEC. 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or
administrator makes a written application to the Commissioner for determination of the amount of the
estate tax and discharge from personal liability therefore, the Commissioner (as soon as possible, and
in any event within one (1) year after the making of such application, or if the application is made
before the return is filed, then within one (1) year after the return is filed, but not after the expiration of
the period prescribed for the assessment of the tax in Section 203 shall not notify the executor or
administrator of the amount of the tax. The executor or administrator, upon payment of the amount of
which he is notified, shall be discharged from personal liability for any deficiency in the tax thereafter
found to be due and shall be entitled to a receipt or writing showing such discharge.

SEC. 93. Definition of Deficiency. - As used in this Chapter, the term "deficiency" means:

(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the
executor, administrator or any of the heirs upon his return; but the amounts so shown on the return
shall first be increased by the amounts previously assessed (or collected without assessment) as a
deficiency and decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax; or

(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return,
or if no return is made by the executor, administrator, or any heir, then the amount by which the tax
exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such
amounts previously assessed or collected without assessment shall first be decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax.

SEC. 94. Payment Before Delivery by Executor or Administrator. - No judge shall authorize the
executor or judicial administrator to deliver a distributive share to any party interested in the estate
unless a certification from the Commissioner that the estate tax has been paid is shown.

SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the
Registry of Property any document transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance, unless a certification from
the Commissioner that the tax fixed in this Title and actually due thereon had been paid is show, and
they shall immediately notify the Commissioner, Regional Director, Revenue District Officer, or
Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of
the non payment of the tax discovered by them. Any lawyer, notary public, or any government officer
who, by reason of his official duties, intervenes in the preparation or acknowledgment of documents
regarding partition or disposal of donation inter vivos or mortis causa, legacy or inheritance, shall have
the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue
Collection Officer of the place where he may have his principal office, with copies of such documents
and any information whatsoever which may facilitate the collection of the aforementioned tax. Neither
shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his
creditor, unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is
shown; but he may pay the executor or judicial administrator without said certification if the credit is
included in the inventory of the estate of the deceased.

SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment
of the estate tax, new obligations of the decedent shall appear, and the persons interested shall have
satisfied them by order of the court, they shall have a right to the restitution of the proportional part of
the tax paid.

SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall
not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any share, obligation, bond or right by
way of gift inter vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have been paid is shown.

If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this Title have been paid: Provided,
however, That the administrator of the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000) without the said certification. For this purpose, all withdrawal slips shall contain a statement
to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint
depositors and such statement shall be under oath by the said depositors.

CHAPTER II
DONOR'S TAX

SEC. 98. Imposition of Tax. -

(A) There shall be levied, assessed, collected and paid upon the transfer by any
person, resident or nonresident, of the property by gift, a tax, computed as provided in
Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or personal, tangible or intangible.
SEC. 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts
made during the calendar year in accordance with the following schedule:
If the net gift is:

OVER BUT NOT OVER THE TAX SHALL PLUS OF THE

BE EXCESS OVER

P 100,000 Exempt
P 100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger, the
tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a
"stranger", is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of
relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended.

SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other than
real property referred to in Section 24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year.

SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the tax
provided for in this Chapter:

(A) In the Case of Gifts Made by a Resident. -

(1) Dowries or gifts made on account of marriage and before its celebration or within
one year thereafter by parents to each of their legitimate, recognized natural, or
adopted children to the extent of the first Ten thousand pesos (P10,000):
(2) Gifts made to or for the use of the National Government or any entity created by
any of its agencies which is not conducted for profit, or to any political subdivision of
the said Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization: Provided, however,
That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of the exemption, a 'non-profit educational
and/or charitable corporation, institution, accredited nongovernment organization, trust
or philanthropic organization and/or research institution or organization' is a school,
college or university and/or charitable corporation, accredited nongovernment
organization, trust or philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends, governed by
trustees who receive no compensation, and devoting all its income, whether students'
fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment
and promotion of the purposes enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines. -
(1) Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, foundation, trust or philanthropic
organization or research institution or organization: Provided, however,
 That not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this
Section shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax against
which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which the
donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair
market value thereof at the time of the gift shall be considered the amount of the gift. In
case of real property, the provisions of Section 88(B) shall apply to the valuation thereof.

SEC. 103. Filing of Return and Payment of Tax. -

(A) Requirements. - any individual who makes any transfer by gift (except those which,
under Section 101, are exempt from the tax provided for in this Chapter) shall, for the
purpose of the said tax, make a return under oath in duplicate. The return shall se forth:

(1) Each gift made during the calendar year which is to be included in
computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations
made pursuant to law.
(B) Time and Place of Filing and Payment. - The return of the donor required in this
Section shall be filed within thirty (30) days after the date the gift is made and the tax
due thereon shall be paid at the time of filing. Except in cases where the Commissioner
otherwise permits, the return shall be filed and the tax paid to an authorized agent bank,
the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of
the city or municipality where the donor was domiciled at the time of the transfer, or if
there be no legal residence in the Philippines, with the Office of the Commissioner. In
the case of gifts made by a nonresident, the return may be filed with the Philippine
Embassy or Consulate in the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.

SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts"
include real and personal property, whether tangible or intangible, or mixed, wherever
situated: Provided, however, That where the decedent or donor was a nonresident alien
at the time of his death or donation, as the case may be, his real and personal property
so transferred but which are situated outside the Philippines shall not be included as part
of his "gross estate" or "gross gift": Provided, further, That franchise which must be
exercised in the Philippines; shares, obligations or bonds issued by any corporation or
sociedad anonima organized or constituted in the Philippines in accordance with its
laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%)
of the business of which is located in the Philippines; shares, obligations or bonds issued
by any foreign corporation if such shares, obligations or bonds have acquired a business
situs in the Philippines; shares or rights in any partnership, business or industry
established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time of his death or the donor at
the time of the donation was a citizen and resident of a foreign country which at the time
of his death or donation did not impose a transfer tax of any character, in respect of
intangible personal property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the decedent or donor was a
citizen and resident at the time of his death or donation allows a similar exemption from
transfer or death taxes of every character or description in respect of intangible personal
property owned by citizens of the Philippines not residing in that foreign country.

The term "deficiency" means: (a) the amount by which tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon his return; but the amount so
shown on the return shall first be increased by the amount previously assessed (or
collected without assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax, or (b) if no
amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but
such amounts previously assessed, or collected without assessment, shall first be
decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax.

TITLE IV
VALUE-ADDED TAX

CHAPTER I
IMPOSITION OF TAX

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to
108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock, nonprofit
private organization (irrespective of the disposition of its net income and whether or not it
sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
course of trade or business.

SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

(1) The term "goods" or "properties" shall mean all tangible and
intangible objects which are capable of pecuniary estimation and shall
include:
(a) Real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes
and discs; and
(e) Radio, television, satellite transmission and cable television
time.
The term "gross selling price" means the total amount of money
or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of the
goods or properties, excluding the value-added tax. The excise
tax, if any, on such goods or properties shall form part of the
gross selling price.
(2) The following sales by VAT-registered persons shall be subject to
zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of
the goods so exported and paid for in acceptable foreign
currency or its equivalent in goods or services, and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the
said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
 (3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
and
(5) Those considered export sales under Executive Order
NO. 226, otherwise known as the Omnibus Investment
Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The phrase "foreign
currency denominated sale" means sale to a nonresident of
goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods
or properties originally intended for sale or for use in the course of
business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories
of taxable goods existing as of such retirement or cessation.
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax
imposed in Subsection (A) of this Section shall also apply to goods disposed of or
existing as of a certain date if under circumstances to be prescribed in rules and
regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, the status of a person as a VAT-registered person changes or is
terminated.

(D) Determination of the Tax. -

(1) The tax shall be computed by multiplying the total amount indicated
in the invoice by one-eleventh (1/11).
(2) Sales Returns, Allowances and Sales Discounts. - The value of
goods or properties sold and subsequently returned or for which
allowances were granted by a VAT-registered person may be deducted
from the gross sales or receipts for the quarter in which a refund is made
or a credit memorandum or refund is issued. Sales discount granted and
indicated in the invoice at the time of sale and the grant of which does
not depend upon the happening of a future event may be excluded from
the gross sales within the same quarter it was given.

(3) Authority of the Commissioner to Determine the Appropriate Tax

Base. - The Commissioner shall, by rules and regulations prescribed by
 the Secretary of Finance, determine the appropriate tax base in cases
where a transaction is deemed a sale, barter or exchange of goods or
properties under Subsection (B) hereof, or where the gross selling price
is unreasonably lower than the actual market value.

SEC. 107. Value-Added Tax on Importation of Goods. -

(A) In General. - There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) based on the total value used
by the Bureau of Customs in determining tariff and customs duties plus customs duties,
excise taxes, if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, If any.

(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax-free importation

of goods into the Philippines by persons, entities or agencies exempt from tax where
such goods are subsequently sold, transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers, transferees or recipients shall be considered
the importers thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the possessor thereof.

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.

The phrase "sale or exchange of services" means the performance of all kinds or
services in the Philippines for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or
real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating
places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire another domestic common carriers by land, air and
water relative to their transport of goods or cargoes; services of franchise grantees of
telephone and telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code; services of banks, non-bank
financial intermediaries and finance companies; and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright,
patent, design or model, plan secret formula or process, goodwill,
trademark, trade brand or other like property or right;
 (2) The lease of the use of, or the right to use of any industrial,
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge
or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any
such property, or right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person.
(6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place
where the contract of lease or licensing agreement was executed if the property is
leased or used in the Philippines.

The term "gross receipts" means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to zero percent
(0%) rate.

(1) Processing, manufacturing or repacking goods for other persons

doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero percent
(0%) rate;
(4) Services rendered to vessels engaged exclusively in international
shipping; and
(5) Services performed by subcontractors and/or contractors in
processing, converting, of manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of total annual production.
(C) Determination of the Tax. - The tax shall be computed by multiplying the total
amount indicated in the official receipt by one-eleventh (1/11).

SEC. 109. Exempt Transactions. - The following shall be exempt from the value-added
tax:

(a) Sale of nonfood agricultural products; marine and forest products in

their original state by the primary producer or the owner of the land
where the same are produced;
(b) Sale of cotton seeds in their original state; and copra;
(c) Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of or king generally used as, or
yielding or producing foods for human consumption; and breeding stock
and genetic materials therefor.
Products classified under this paragraph and paragraph (a) shall be
considered in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or stripping.
Polished and/or husked rice, corn grits, raw cane sugar and molasses,
and ordinary salt shall be considered in their original state;
(d) Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds, including ingredients, whether
locally produced or imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks, aquarium fish,
zoo animals and other animals generally considered as pets);
(e) Sale or importation of coal and natural gas, in whatever form or
state, and petroleum products (except lubricating oil, processed gas,
grease, wax and petrolatum) subject to excise tax imposed under Title
VI;
(f) Sale or importation of raw materials to be used by the buyer or
importer himself in the manufacture of petroleum products subject to
excise tax, except lubricating oil, processed gas, grease, wax and
petrolatum;
(g) Importation of passenger and/or cargo vessels of more than five
thousand tons (5,000) whether coastwise or ocean-going, including
engine and spare parts of said vessel to be used by the importer himself
as operator thereof;
(h) Importation of personal and household effects belonging to the
residents of the Philippines returning from abroad and nonresident
citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of
the Philippines;
(i) Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except any
vehicle, vessel, aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that such
persons are actually coming to settle in the Philippines and that the
change of residence is bona fide;
(j) Services subject to percentage tax under Title V;
(k) Services by agricultural contract growers and milling for others of
palay into rice, corn into grits and sugar cane into raw sugar;
(l) Medical, dental, hospital and veterinary services subject to the
provisions of Section 17 of Republic Act No. 7716, as amended:
(m) Educational services rendered by private educational institutions,
duly accredited by the Department of Education, Culture and Sports
(DECS) and the Commission on Higher Education (CHED), and those
rendered by government educational institutions;
(n) Sale by the artist himself of his works of art, literary works, musical
compositions and similar creations, or his services performed for the
production of such works;
(o) Services rendered by individuals pursuant to an employer-employee
relationship;
(p) Services rendered by regional or area headquarters established in
the Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries
or branches in the Asia-Pacific Region and do not earn or derive income
from the Philippines;
(q) Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws, except those
under Presidential Decree Nos. 66, 529 and 1590;
(r) Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well as sale of
their produce, whether in its original state or processed form, to non-
members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce;
(s) Sales by electric cooperatives duly registered with the Cooperative
Development authority or National Electrification Administration, relative
to the generation and distribution of electricity as well as their importation
of machineries and equipment, including spare parts, which shall be
directly used in the generation and distribution of electricity;
(t) Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered with the Cooperative Development Authority
whose lending operation is limited to their members;
(u) Sales by non-agricultural, non- electric and non-credit cooperatives
duly registered with the Cooperative Development Authority: Provided,
That the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15,000) and regardless of the aggregate
capital and net surplus ratably distributed among the members;
(v) Export sales by persons who are not VAT-registered;
(w) Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business or real property
utilized for low-cost and socialized housing as defined by Republic Act
No. 7279, otherwise known as the Urban Development and Housing Act
of 1992, and other related laws, house and lot and other residential
dwellings valued at One million pesos (P1,000,000) and below: Provided,
That not later than January 31st of the calendar year subsequent to the
 effectivity of this Act and each calendar year thereafter, the amount of
One million pesos (P1,000,000) shall be adjusted to its present value
using the Consumer Price Index, as published by the national Statistics
Office (NSO);
(x) Lease of a residential unit with a monthly rental not exceeding Eight
thousand pesos (P8,000); Provided, That not later than January 31st of
the calendar year subsequent to the effectivity of Republic Act No. 8241
and each calendar year thereafter, the amount of Eight thousand pesos
(P8,000) shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NS0);
(y) Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements; and
(z) Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the
gross annual sales and/or receipts do not exceed the amount of Five
hundred fifty thousand pesos (P550,000): Provided, That not later than
January 31st of the calendar year subsequent to the effectivity of
Republic Act No. 8241 and each calendar year thereafter, the amount of
Five hundred fifty thousand pesos (550,000) shall be adjusted to its
present value using the Consumer Price Index, as published by the
National Statistics Office (NSO).
The foregoing exemptions to the contrary notwithstanding, any person whose sale of
goods or properties or services which are otherwise not subject to VAT, but who issues
a VAT invoice or receipt therefor shall, in addition to his liability to other applicable
percentage tax, if any, be liable to the tax imposed in Section 106 or 108 without the
benefit of input tax credit, and such tax shall also be recognized as input tax credit to the
purchaser under Section 110, all of this Code.

SEC. 110. Tax Credits. -

(A) Creditable Input Tax. -

(1) Any input tax evidenced by a VAT invoice or official receipt issued in
accordance with Section 113 hereof on the following transactions shall
be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a
finished product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service;
or
(v) For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code,
except automobiles, aircraft and yachts.
(b) Purchase of services on which a value-added tax has been
actually paid.
(2) The input tax on domestic purchase of goods or properties shall be
creditable:
 (a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to
the release of the goods from the custody of the Bureau of
Customs.
However, in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser,
lessee or licensee upon payment of the compensation, rental,
royalty or fee.
(3) A VAT-registered person who is also engaged in transactions not
subject to the value-added tax shall be allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions
subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
The term "input tax" means the value-added tax due from or paid by a
VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services, including
lease or use of property, from a VAT-registered person. It shall also
include the transitional input tax determined in accordance with Section
111 of this Code.
The term "output tax" means the value-added tax due on the sale or
lease of taxable goods or properties or services by any person registered
or required to register under Section 236 of this Code.
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters. any input tax attributable to the purchase of capital goods or to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.

(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried
over from the preceding month or quarter and the input tax creditable to a VAT-
registered person during the taxable month or quarter shall be reduced by the amount of
claim for refund or tax credit for value-added tax and other adjustments, such as
purchase returns or allowances and input tax attributable to exempt sale.

The claim for tax credit referred to in the foregoing paragraph shall include not only
those filed with the Bureau of Internal Revenue but also those filed with other
government agencies, such as the Board of Investments the Bureau of Customs.

SEC. 111. Transitional/Presumptive Input Tax Credits. -

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax
or any person who elects to be a VAT-registered person shall, subject to the filing of an
inventory according to rules and regulations prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory
of goods, materials and supplies equivalent for eight percent (8%) of the value of such
inventory or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax.
(B) Presumptive Input Tax Credits. -

(1) Persons or firms engaged in the processing of sardines, mackerel

and milk, and in manufacturing refined sugar and cooking oil, shall be
allowed a presumptive input tax, creditable against the output tax,
equivalent to one and one-half percent (1 1/2%) of the gross value in
money of their purchases of primary agricultural products which are used
as inputs to their production.
As used in this Subsection, the term "processing" shall mean
pasteurization, canning and activities which through physical or chemical
process alter the exterior texture or form or inner substance of a product
in such manner as to prepare it for special use to which it could not have
been put in its original form or condition.
(2) Public works contractors shall be allowed a presumptive input tax
equivalent to one and one-half percent (1 1/2%) of the contract price with
respect to government contracts only in lieu of actual input taxes
therefrom.
SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales. - any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close of
the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against output
taxes. The application may be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was made.

(C) Cancellation of VAT Registration. - A person whose registration has been

cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Section 106(C) of this Code may, within two (2) years from the
date of cancellation, apply for the issuance of a tax credit certificate for any unused input
tax which may be used in payment of his other internal revenue taxes.

(D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In
proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of compete documents in support of the application filed in accordance with Subsections
(A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.-

(E) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds
under this paragraph shall be subject to post audit by the Commission on Audit.

CHAPTER II
COMPLIANCE REQUIREMENTS

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 237, the following
information shall be indicated in the invoice or receipt:

(1) A statement that the seller is a VAT-registered person, followed by

his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes the value-added
tax.
(B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all
persons subject to the value-added tax under Sections 106 and 108 shall, in addition to
the regular accounting records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of
Finance.

SEC. 114. Return and Payment of Value-Added Tax. -

(A) In General. - Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236,
shall file a return and pay the tax due thereon within twenty-five (25) days from the date
of cancellation of registration: Provided, That only one consolidated return shall be filed
by the taxpayer for his principal place of business or head office and all branches.

(B) Where to File the Return and Pay the Tax. - Except as the Commissioner
otherwise permits, the return shall be filed with and the tax paid to an authorized agent
bank, Revenue Collection Officer or duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where the taxpayer is registered or
required to register.

(C) Withholding of Creditable Value-Added Tax. - The Government or any of its

political subdivisions, instrumentalities or agencies, including government-owned or -
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are subject
to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold the value-added tax due at the rate of three percent (3%) of the gross payment
for the purchase of goods and six percent (6%) on gross receipts for services rendered
by contractors on every sale or installment payment which shall be creditable against the
value-added tax liability of the seller or contractor: Provided, however, That in the case
of government public works contractors, the withholding rate shall be eight and one-half
percent (8.5%): Provided, further, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a

Taxpayer. - The Commissioner or his authorized representative is hereby empowered to
suspend the business operations and temporarily close the business establishment of
any person for any of the following violations:

(a) In the case of a VAT-registered Person. -

(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under
Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent
(30%) or more of his correct taxable sales or receipts for the
taxable quarter.

(b) Failure of any Person to Register as Required under Section 236. -

The temporary closure of the establishment shall be for the duration of not less than five
(5) days and shall be lifted only upon compliance with whatever requirements prescribed
by the Commissioner in the closure order.

TITLE V
OTHER PERCENTAGE TAXES

SEC. 116. Tax on Persons Exempt From Value-Added Tax (VAT). - Any person
whose sales or receipts are exempt under Section 109(z) of this Code from the payment
of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to
three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives
shall be exempt from the three percent (3%)gross receipts tax herein imposed.
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for
rent or hire driven by the lessee, transportation contractors, including persons who
transport passengers for hire, and other domestic carriers by land, air or water, for the
transport of passengers, except owners of bancas and owner of animal-drawn two
wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent
(3%) of their quarterly gross receipts.

The gross receipts of common carriers derived from their incoming and outgoing freight
shall not be subjected to the local taxes imposed under Republic Act No. 7160,
otherwise known as the Local Government Code of 1991.

In computing the percentage tax provided in this Section, the following shall be
considered the minimum quarterly gross receipts in each particular case:

Jeepney for hire -

1. Manila and other cities P 2,400
2. Provincial 1,200

Public utility bus -

Not exceeding 30 passengers 3,600
Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200

Taxis -
1. Manila and other cities P 3,600
2. Provincial
2,400

Car for hire (with chauffer) 3,000

Car for hire (without chauffer) 1,800
SEC. 118. Percentage Tax on International Carriers. -

(A) International air carriers doing business in the Philippines shall pay a tax of three
percent (3%) of their quarterly gross receipts.

(B) International shipping carriers doing business in the Philippines shall pay a tax
equivalent to three percent (3%) of their quarterly gross receipts.

SEC. 119. Tax on Franchises. - Any provision of general or special law to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchises
on radio and/or television broadcasting companies whose annual gross receipts of the
preceding year does not exceed Ten million pesos (P10,000.00), subject to Section 236
of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of
two percent (2%) on the gross receipts derived from the business covered by the law
granting the franchise: Provided, however, That radio and television broadcasting
companies referred to in this Section shall have an option to be registered as a value-
added taxpayer and pay the tax due thereon: Provided, further, That once the option is
exercised, it shall not be revoked.
The grantee shall file the return with, and pay the tax due thereon to the Commissioner
or his duly authorized representative, in accordance with the provisions of Section 128 of
this Code, and the return shall be subject to audit by the Bureau of Internal Revenue,
any provision of any existing law to the contrary notwithstanding.

SEC. 120. Tax on Overseas Dispatch, Message or Conversation Originating from

the Philippines. -

(A) Persons Liable. - There shall be collected upon every overseas dispatch, message
or conversation transmitted from the Philippines by telephone, telegraph, telewriter
exchange, wireless and other communication equipment service, a tax of ten percent
(10%) on the amount paid for such services. The tax imposed in this Section shall be
payable by the person paying for the services rendered and shall be paid to the person
rendering the services who is required to collect and pay the tax within twenty (20) days
after the end of each quarter.

(B) Exemptions. - The tax imposed by this Section shall not apply to:

(1) Government. - Amounts paid for messages transmitted by the

Government of the Republic of the Philippines or any of its political
subdivisions or instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages transmitted by any
embassy and consular offices of a foreign government;
(3) International Organizations. - Amounts paid for messages transmitted
by a public international organization or any of its agencies based in the
Philippines enjoying privileges, exemptions and immunities which the
Government of the Philippines is committed to recognize pursuant to an
international agreement; and
(4) News Services. - Amounts paid for messages from any newspaper,
press association, radio or television newspaper, broadcasting agency,
or newstickers services, to any other newspaper, press association,
radio or television newspaper broadcasting agency, or newsticker
service or to a bona fide correspondent, which messages deal
exclusively with the collection of news items for, or the dissemination of
news item through, public press, radio or television broadcasting or a
newsticker service furnishing a general news service similar to that of the
public press.
SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries. - There shall be a
collected tax on gross receipts derived from sources within the Philippines by all banks
and non-bank financial intermediaries in accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as
well as income from financial leasing, on the basis of remaining
maturities of instruments from which such receipts are derived:
Short-term maturity (non in excess of two (2) years) 5%

Medium-term maturity (over two (2) years but

not exceeding four (4) years)
3%
 Long-term maturity -
(1) Over four (4) years but not exceeding seven (7) years 1%
(2) Over seven (7)
years 0%

(b) On
dividends 0%
(c) On royalties, rentals of property, real or personal, profits,
from exchange and all other items treated as gross income
under Section 32 of this
Code 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pretermination, then the maturity period shall be reckoned to end as of
the date of pretermination for purposes of classifying the transaction as short, medium or
long-term and the correct rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar banking activities.

SEC. 122. Tax on Finance Companies. - There shall be collected a tax of five percent
(5%) on the gross receipts derived by all finance companies, as well as by other financial
intermediaries not performing quasi-banking functions dong business in the Philippines,
from interest, discounts and all other items treated as gross income under this Code:
Provided, That interests, commissions and discounts from lending activities, as well as
income from financial leasing, shall be taxed on the basis of the remaining maturities of
the instruments from which such receipts are derived, in accordance with the following
schedule:

Short-term maturity (non in excess of two (2) years) 5%

Medium-term maturity (over two (2) years
but not exceeding four (4) years)
3%
Long-term maturity -
(1) Over four (4) years but not exceeding seven (7) 1%
(2) Over seven (7)
years 0%
Provided, however, That in case the maturity period is shortened thru pretermination,
then the maturity period shall be reckoned to end as of the date of pretermination for
purposes of classifying the transaction as short, medium or long-term and the correct
rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar financing activities.

SEC. 123. Tax on Life Insurance Premiums. - There shall be collected from every
person, company or corporation (except purely cooperative companies or associations)
doing life insurance business of any sort in the Philippines a tax of five percent (5%) of
the total premium collected, whether such premiums are paid in money, notes, credits or
any substitute for money; but premiums refunded within six (6) months after payment on
account of rejection of risk or returned for other reason to a person insured shall not be
included in the taxable receipts; nor shall any tax be paid upon reinsurance by a
company that has already paid the tax; nor upon doing business outside the Philippines
on account of any life insurance of the insured who is a nonresident, if any tax on such
premium is imposed by the foreign country where the branch is established nor upon
premiums collected or received on account of any reinsurance , if the insured, in case of
personal insurance, resides outside the Philippines, if any tax on such premiums is
imposed by the foreign country where the original insurance has been issued or
perfected; nor upon that portion of the premiums collected or received by the insurance
companies on variable contracts (as defined in section 232(2) of Presidential Decree No.
612), in excess of the amounts necessary to insure the lives of the variable contract
workers.

Cooperative companies or associations are such as are conducted by the members

thereof with the money collected from among themselves and solely for their own
protection and not for profit.

SEC. 124. Tax on Agents of Foreign Insurance Companies. - Every fire, marine or
miscellaneous insurance agent authorized under the Insurance Code to procure policies
of insurance as he may have previously been legally authorized to transact on risks
located in the Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That
the provision of this Section shall not apply to reinsurance: Provided, however, That the
provisions of this Section shall not affect the right of an owner of property to apply for
and obtain for himself policies in foreign companies in cases where said owner does not
make use of the services of any agent, company or corporation residing or doing
business in the Philippines. In all cases where owners of property obtain insurance
directly with foreign companies, it shall be the duty of said owners to report to the
Insurance Commissioner and to the Commissioner each case where insurance has
been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the
manner required by Section 123.

SEC. 125. Amusement Taxes. - There shall be collected from the proprietor, lessee or
operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional
basketball games, Jai-Alai and racetracks, a tax equivalent to:

(a) Eighteen percent (18%) in the case of cockpits;

(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided,
however, That boxing exhibitions wherein World or Oriental
Championships in any division is at stake shall be exempt from
amusement tax: Provided, further, That at least one of the contenders for
World or Oriental Championship is a citizen of the Philippines and said
exhibitions are promoted by a citizen/s of the Philippines or by a
corporation or association at least sixty percent (60%) of the capital of
which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games
as envisioned in Presidential Decree No. 871: Provided, however, That
the tax herein shall be in lieu of all other percentage taxes of whatever
nature and description; and
 (e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their
gross receipts, irrespective, of whether or not any amount is charged for
admission.
For the purpose of the amusement tax, the term "gross receipts" embraces all the
receipts of the proprietor, lessee or operator of the amusement place. Said gross
receipts also include income from television, radio and motion picture rights, if any. A
person or entity or association conducting any activity subject to the tax herein imposed
shall be similarly liable for said tax with respect to such portion of the receipts derived by
him or it.

The taxes imposed herein shall be payable at the end of each quarter and it shall be the
duty of the proprietor, lessee or operator concerned, as well as any party liable, within
twenty (20) days after the end of each quarter, to make a true and complete return of the
amount of the gross receipts derived during the preceding quarter and pay the tax due
thereon.

SEC. 126. Tax on Winnings. - Every person who wins in horse races shall pay a tax
equivalent to ten percent (10%) of his winnings or 'dividends', the tax to be based on the
actual amount paid to him for every winning ticket after deducting the cost of the ticket:
Provided, That in the case of winnings from double, forecast/quinella and trifecta bets,
the tax shall be four percent (4%). In the case of owners of winning race horses, the tax
shall be ten percent (10%) of the prizes.

The tax herein prescribed shall be deducted from the 'dividends' corresponding to each
winning ticket or the "prize" of each winning race horse owner and withheld by the
operator, manager or person in charge of the horse races before paying the dividends or
prizes to the persons entitled thereto.

The operator, manager or person in charge of horse races shall, within twenty (20) days
from the date the tax was deducted and withheld in accordance with the second
paragraph hereof, file a true and correct return with the Commissioner in the manner or
form to be prescribed by the Secretary of Finance, and pay within the same period the
total amount of tax so deducted and withheld.

SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded
Through the Local Stock Exchange or Through Initial Public Offering. -

(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded
Through the Local Stock Exchange. - There shall be levied, assessed and collected
on every sale, barter, exchange, or other disposition of shares of stock listed and traded
through the local stock exchange other than the sale by a dealer in securities, a tax at
the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in
money of the shares of stock sold, bartered, exchanged or otherwise disposed which
shall be paid by the seller or transferor.

(B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. -
There shall be levied, assessed and collected on every sale, barter, exchange or other
disposition through initial public offering of shares of stock in closely held corporations,
as defined herein, a tax at the rates provided hereunder based on the gross selling price
or gross value in money of the shares of stock sold, bartered, exchanged or otherwise
disposed in accordance with the proportion of shares of stock sold, bartered, exchanged
or otherwise disposed to the total outstanding shares of stock after the listing in the local
stock exchange:

Up to twenty-five percent (25%) 4%

Over twenty-five percent (25%) but not over thirty-three
and one third percent (33 1/3%) 2%
Over thirty-three and one third percent (33 1/3%) 1%
The tax herein imposed shall be paid by the issuing corporation in primary offering or by
the seller in secondary offering.

For purposes of this Section, the term "closely held corporation" means any corporation
at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent
(505) of the total combined voting power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than twenty (20) individuals.

For purposes of determining whether the corporation is a closely held corporation,

insofar as such determination is based on stock ownership, the following rules shall be
applied:

(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly

by or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by its shareholders, partners or
beneficiaries.
(2) Family and Partnership Ownerships. - An individual shall be
considered as owning the stock owned, directly or indirectly, by or for his
family, or by or for his partner. For purposes of the paragraph, the 'family
of an individual' includes only his brothers and sisters (whether by whole
or half-blood), spouse, ancestors and lineal descendants.
(3) Option. - If any person has an option acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option and each one of a series
of options shall be considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively
owned by reason of the application of paragraph (1) or (3) hereof shall,
for purposes of applying paragraph (1) or (2), be treated as actually
owned by such person; but stock constructively owned by the individual
by reason of the application of paragraph (2) hereof shall not be treated
as owned by him for purposes of again applying such paragraph in order
to make another the constructive owner of such stock.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(1) Return on Capital Gains Realized from Sale of Shares of Stock Listed
and Traded in the Local Stock Exchange. - It shall be the duty of every
stock broker who effected the sale subject to the tax imposed herein to
collect the tax and remit the same to the Bureau of Internal Revenue
within five (5) banking days from the date of collection thereof and to
submit on Mondays of each week to the secretary of the stock exchange,
of which he is a member, a true and complete return which shall contain
a declaration of all the transactions effected through him during the
 preceding week and of taxes collected by him and turned over to the
Bureau Of Internal Revenue.

(2) Return on Public Offerings of Share Stock. - In case of primary

offering, the corporate issuer shall file the return and pay the
corresponding tax within thirty (30) days from the date of listing of the
shares of stock in the local stock exchange. In the case of secondary
offering, the provision of Subsection (C)(1) of this Section shall apply as
to the time and manner of the payment of the tax.

(D) Common Provisions. - Any gain derived from the sale, barter, exchange or other
disposition of shares of stock under this Section shall be exempt from the tax imposed in
Sections 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code and from the regular
individual or corporate income tax. Tax paid under this Section shall not be deductible
for income tax purposes.

SEC. 128. Returns and Payment of Percentage Taxes. -

(A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax. -

(1) Persons Liable to Pay Percentage Taxes. - Every person subject to

the percentage taxes imposed under this Title shall file a quarterly return
of the amount of his gross sales, receipts or earnings and pay the tax
due thereon within twenty-five (25) days after the end of each taxable
quarter: Provided, That in the case of a person whose VAT registration is
cancelled and who becomes liable to the tax imposed in Section 116 of
this Code, the tax shall accrue from the date of cancellation and shall be
paid in accordance with the provisions of this Section.

(2) Person Retiring from Business. - Any person retiring from a business
subject to percentage tax shall notify the nearest internal revenue officer,
file his return and pay the tax due thereon within twenty (20) days after
closing his business.

(3) Exceptions. - The Commissioner may, by rules and regulations,

prescribe:

(a) The time for filing the return at intervals other than the time
prescribed in the preceding paragraphs for a particular class or
classes of taxpayers after considering such factors as volume of
sales, financial condition, adequate measures of security, and
such other relevant information required to be submitted under
the pertinent provisions of this Code; and

(b) The manner and time of payment of percentage taxes other

than as hereinabove prescribed, including a scheme of tax
prepayment.
 (4) Determination of Correct Sales or Receipts. - When it is found that a
person has failed to issue receipts or invoices, or when no return is filed,
or when there is reason to believe that the books of accounts or other
records do not correctly reflect the declarations made or to be made in a
return required to be filed under the provisions of this Code, the
Commissioner, after taking into account the sales, receipts or other
taxable base of other persons engaged in similar businesses under
similar situations or circumstances, or after considering other relevant
information may prescribe a minimum amount of such gross receipts,
sales and taxable base and such amount so prescribed shall be prima
facie correct for purposes of determining the internal revenue tax
liabilities of such person.
(B) Where to File. - Except as the Commissioner otherwise permits, every person liable
to the percentage tax under this Title may, at his option, file a separate return for each
branch or place of business, or a consolidated return for all branches or places of
business with the authorized agent bank, Revenue District Officer, Collection Agent or
duly authorized Treasurer of the city or municipality where said business or principal
place of business is located, as the case may be.

TITLE VI
EXCISE TAXES ON CERTAIN GOODS

CHAPTER I
GENERAL PROVISIONS

SEC. 129. Goods Subject to Excise Taxes. - Excise taxes apply to goods
manufactured or produced in the Philippines for domestic sales or consumption or for
any other disposition and to things imported. The excise tax imposed herein shall be in
addition to the value-added tax imposed under Title IV.

For purposes of this Title, excise taxes herein imposed and based on weight or volume
capacity or any other physical unit or measurement shall be referred to as "specific tax"
and an excise tax herein imposed and based on selling price or other specified value of
the good shall be referred to as "ad valorem tax".

SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of
Tax. -

(1) Persons Liable to File a Return. - Every person liable to pay excise
tax imposed under this Title shall file a separate return for each place of
production setting forth, among others, the description and quantity or
volume of products to be removed, the applicable tax base and the
amount of tax due thereon: Provided, however, That in the case of
indigenous petroleum, natural gas or liquefied natural gas, the excise tax
shall be paid by the first buyer, purchaser or transferee for local sale,
barter or transfer, while the excise tax on exported products shall be paid
by the owner, lessee, concessionaire or operator of the mining claim.
Should domestic products be removed from the place of production
without the payment of the tax, the owner or person having possession
thereof shall be liable for the tax due thereon.
(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise
specifically allowed, the return shall be filed and the excise tax paid by
the manufacturer or producer before removal of domestic products form
place of production: Provided, That the excise tax on locally
manufactured petroleum products and indigenous petroleum levied
under Sections 148 and 151(A)(4), respectively, of this Title shall be paid
within ten (10) days from the date of removal of such products for the
period from January 1, 1998 to June 30, 1998; within five (5) days from
the date of removal of such products for the period from July 1, 1998 to
December 31, 1998; and, before removal from the place of production of
such products from January 1, 1999 and thereafter: Provided, further,
That the excise tax on nonmetallic mineral or mineral products, or quarry
resources shall be due and payable upon removal of such products from
the locality where mined or extracted, but with respect to the excise tax
on locally produced or extracted metallic mineral or mineral products, the
person liable shall file a return and pay the tax within fifteen (15) days
after the end of the calendar quarter when such products were removed
subject to such conditions as may be prescribed by rules and regulations
to be promulgated by the Secretary of Finance, upon recommendation of
the Commissioner. For this purpose, the taxpayer shall file a bond in an
amount which approximates the amount of excise tax due on the
removals for the said quarter. The foregoing rules notwithstanding, for
imported mineral or mineral products, whether metallic or nonmetallic,
the excise tax due thereon shall be paid before their removal from
customs custody.

(3) Place of Filing of Return and Payment of the Tax. - Except as the
Commissioner otherwise permits, the return shall be filed with and the
tax paid to any authorized agent bank or Revenue Collection Officer, or
duly authorized City or Municipal Treasurer in the Philippines.

(4) Exceptions. - The Secretary of Finance, upon recommendation of the

Commissioner may, by rules and regulations, prescribe:

(a) The time for filing the return at intervals other than the time
prescribed in the preceding paragraphs for a particular class or
classes of taxpayers after considering factors such as volume of
removals, adequate measures of security and such other relevant
information required to be submitted under the pertinent
provisions of this Code; and
(b) The manner and time of payment of excise taxes other than
as herein prescribed, under a tax prepayment, advance deposit
or similar schemes. In the case of locally produced of extracted
minerals and mineral products or quarry resources where the
mine site or place of extraction is not the same as the place of
 processing or production, the return shall be filed with and the tax
paid to the Revenue District Office having jurisdiction over the
locality where the same are mined, extracted or quarried:
Provided, however, That for metallic minerals processed abroad,
the return shall be filed and the tax due thereon paid to the
Revenue District Office having jurisdiction over the locality where
the same are mined, extracted or quarried.
(B) Determination of Gross Selling Price of Goods Subject to Ad Valorem Tax. -
Unless otherwise provided, the price, excluding the value-added tax, at which the goods
are sold at wholesale in the place of production or through their sales agents to the
public shall constitute the gross selling price. If the manufacturer also sells or allows
such goods to be sold at wholesale in another establishment of which he is the owner or
in the profits of which he has an interest, the wholesale price in such establishment shall
constitute the gross selling price. Should such price be less than the cost of manufacture
plus expenses incurred until the goods are finally sold, then a proportionate margin of
profit, not less than ten percent (10%) of such manufacturing cost and expenses, shall
be added to constitute the gross selling price.

(C) Manufacturer's or Producer's Sworn Statement. - Every manufacturer or producer

of goods or products subject to excise taxes shall file with the Commissioner on the date
or dates designated by the latter, and as often as may be required, a sworn statement
showing, among other information, the different goods or products manufactured or
produced and their corresponding gross selling price or market value, together with the
cost of manufacture or production plus expenses incurred or to be incurred until the
goods or products are finally sold.

(D) Credit for Excise Tax on Goods Actually Exported. - When goods locally
produced or manufactured are removed and actually exported without returning to the
Philippines, whether so exported in their original state or as ingredients or parts of any
manufactured goods or products, any excise tax paid thereon shall be credited or
refunded upon submission of the proof of actual exportation and upon receipt of the
corresponding foreign exchange payment: Provided, That the excise tax on mineral
products, except coal and coke, imposed under Section 151 shall not be creditable or
refundable even if the mineral products are actually exported.

SEC. 131. Payment of Excise Taxes on Importer Articles. -

(A) Persons Liable. - Excise taxes on imported articles shall be paid by

the owner or importer to the Customs Officers, conformably with the
regulations of the Department of Finance and before the release of such
articles from the customs house, or by the person who is found in
possession of articles which are exempt from excise taxes other than
those legally entitled to exemption.
In the case of tax-free articles brought or imported into the Philippines by
persons, entitles, or agencies exempt from tax which are subsequently
sold, transferred or exchanged in the Philippines to non-exempt persons
or entitles, the purchasers or recipients shall be considered the importers
thereof, and shall be liable for the duty and internal revenue tax due on
such importation.
 The provision of any special or general law to the contrary
notwithstanding, the importation of cigars and cigarettes, distilled spirits
and wines into the Philippines, even if destined for tax and duty free
shops, shall be subject to all applicable taxes, duties, charges, including
excise taxes due thereon: Provided, however, That this shall not apply to
cigars and cigarettes, distilled spirits and wines brought directly into the
duly chartered or legislated freeports of the Subic Special Economic and
Freeport Zone, crated under Republic Act No. 7227; the Cagayan
Special Economic Zone and Freeport, created under Republic Act No.
7922; and the Zamboanga City Special Economic Zone, created under
Republic Act No. 7903, and are not transshipped to any other port in the
Philippines: Provided, further, That importations of cigars and cigarettes,
distilled spirits and wines by a government-owned and operated duty-
free shop, like the Duty-Free Philippines (DFP), shall be exempted from
all applicable taxes, duties, charges, including excise tax due thereon:
Provided, still further, That if such articles directly imported by a
government-owned and operated duty-free shop like the Duty-Free
Philippines, shall be labeled "tax and duty-free" and "not for resale":
Provided, still further, That is such articles brought into the duly chartered
or legislated freeports under Republic Acts No. 7227, 7922 and 7903 are
subsequently introduced into the Philippine customs territory, then such
articles shall, upon such introduction, be deemed imported into the
Philippines and shall be subject to all imposts and excise taxes provided
herein and other statutes: Provided, finally, That the removal and transfer
of tax and duty-free goods, products, machinery, equipment and other
similar articles, from one freeport to another freeport, shall not be
deemed an introduction into the Philippine customs territory.
Articles confiscated shall be disposed of in accordance with the rules and
regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner of Customs and Internal Revenue,
upon consultation with the Secretary of Tourism and the General
manager of the Philippine Tourism Authority.
The tax due on any such goods, products, machinery, equipment or
other similar articles shall constitute a lien on the article itself, and such
lien shall be superior to all other charges or liens, irrespective of the
possessor thereof.
(B) Rate and Basis of the Excise Tax on Imported Articles. - Unless otherwise
specified imported articles shall be subject to the same rates and basis of excise taxes
applicable to locally manufactured articles.

SEC. 132. Mode of Computing Contents of Cask or Package. - Every fractional part
of a proof liter equal to or greater than a half liter in a cask or package containing more
than one liter shall be taxed as a liter, and any smaller fractional part shall be exempt;
but any package of spirits, the total content of which are less than a proof liter, shall be
taxed as one liter.

CHAPTER II
EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN ARTICLES
SEC. 133. Removal of Wines and Distilled Spirits for Treatment of Tobacco Leaf. -
Upon issuance of a permit from the Commissioner and subject to the rules and
regulations prescribed by the Secretary of Finance, manufacturers of cigars and
cigarettes may withdraw from bond, free of excise local and imported wines and distilled
spirits in specific quantities and grades for use in the treatment of tobacco leaf to be
used in the manufacture of cigars and cigarettes; but such wines and distilled spirits
must first be suitably denatured.

SEC. 134. Domestic Denatured Alcohol. - Domestic alcohol of not less than one
hundred eighty degrees (180O) proof (ninety percent [90%] absolute alcohol) shall, when
suitably denatured and rendered unfit for oral intake, be exempt from the excise tax
prescribed in Section 141: Provided, however, That such denatured alcohol shall be
subject to tax under Section 106(A) of this Code: Provided, further, That if such alcohol
is to be used for automotive power, it shall be taxed under Section 148(d) of this Code:
Provided, finally, That any alcohol, previously rendered unfit for oral intake after
denaturing but subsequently rendered fit for oral intake after undergoing fermentation,
dilution, purification, mixture or any other similar process shall be taxed under Section
141 of this Code and such tax shall be paid by the person in possession of such
reprocessed spirits.

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities
or Agencies. - Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or
consumption outside the Philippines: Provided, That the petroleum
products sold to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and
other international agreements for their use or consumption: Provided,
however, That the country of said foreign international carrier or exempt
entities or agencies exempts from similar taxes petroleum products sold
to Philippine carriers, entities or agencies; and
(c) Entities which are by law exempt from direct and indirect taxes.
SEC. 136. Denaturation, Withdrawal and Use of Denatured Alcohol. - Any person
who produces, withdraws, sells, transports or knowingly uses, or is in possession of
denatured alcohol, or articles containing denatured alcohol in violation of laws or
regulations now or hereafter in force pertaining thereto shall be required to pay the
corresponding tax, in addition to the penalties provided for under Title X of this Code.

SEC. 137. Removal of Spirits Under Bond for Rectification.- Spirits requiring
rectification may be removed from the place of production to another establishment for
the purpose of rectification without prepayment of the excise tax: Provided, That the
distiller removing such spirits and the rectifier receiving them shall file with the
Commissioner their joint bond conditioned upon the payment by the rectifier of the
excise tax due on the rectified alcohol: Provided, further, That in cases where alcohol
has already been rectified either by original and continuous distillation or by redistillation,
no loss for rectification and handling shall be allowed and the rectifier thereof shall pay
the excise tax due on such losses: Provided, finally, That where a rectifier makes use of
spirits upon which the excise tax has not been paid, he shall be liable for the payment of
the tax otherwise due thereon.
SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. - Any brewer may
remove or transport from his brewery or other place of manufacture to a bonded
warehouse used by him exclusively for the storage or sale in bulk of fermented liquors of
his own manufacture, any quantity of such fermented liquors, not less than one thousand
(1,000) liters at one removal, without prepayment of the tax thereon under a permit
which shall be granted by the Commissioner. Such permit shall be affixed to every
package so removed and shall be cancelled or destroyed in such manner as the
Commissioner may prescribe. Thereafter, the manufacturer of such fermented liquors
shall pay the tax in the same manner and under the same penalty and liability as when
paid at the brewery.

SEC. 139. Removal of Damaged Liquors Free of Tax. - When any fermented liquor
has become sour or otherwise damaged so as to be unfit for use as such, brewers may
sell and after securing a special permit from the Commissioner, under such conditions
as may be prescribed in the rules and regulations prescribed by the Secretary of
Finance, remove the same without the payment of tax thereon in cask or other
packages, distinct from those ordinarily used for fermented liquors, each containing not
less than one hundred seventy-five (175) liters with a note of their contents permanently
affixed thereon.

SEC. 140. Removal of Tobacco Products Without Prepayment of Tax. - Products of

tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural
or industrial use, under such conditions as may be prescribed in the rules and
regulations prescribed by the Secretary of Finance. Stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems, or
midribs, and sweepings of tobacco may be sold in bulk as raw material by one
manufacturer directly to another without payment of the tax, under such conditions as
may be prescribed in the rules and regulations prescribed by the Secretary of Finance.

"Stemmed leaf tobacco", as herein used, means leaf tobacco which has had the stem or
midrib removed. The term does not include broken leaf tobacco.

CHAPTER III
EXCISE TAX ON ALCOHOL PRODUCTS

SEC. 141. Distilled Spirits. - On distilled spirits, there shall be collected, subject to the
provisions of Section 133 of this Code, excise taxes as follows:

(a) If produced from the sap of nipa, coconut, cassava, camote, or buri
palm or from the juice,syrup or sugar of the cane, provided such
materials are produced commercially in the country where they are
processed into distilled spirits, per proof liter, Eight pesos (P8.00):
Provided, That if produced in a pot still or other similar primary distilling
apparatus by a distiller producing not more than one hundred (100) liters
a day, containing not more than fifty percent (50%) of alcohol by volume,
per proof liter, Four pesos (P4.00);
(b) If produced from raw materials other than those enumerated in the
preceding paragraph, the tax shall be in accordance with the net retail
 price per bottle of seven hundred fifty milliliter (750 ml.) volume capacity
(excluding the excise tax and the value-added tax) as follows:
(1) Less than Two hundred and fifty pesos (P250) - Seventy-five
pesos (P75), per proof liter;
(2) Two hundred and fifty pesos (P250) up to Six hundred and
Seventy-Five pesos (P675) - One hundred and fifty pesos (P150),
per proof liter; and
(3) More than Six hundred and seventy-five pesos (P675) - Three
hundred pesos (P300), per proof liter.
(c) Medicinal preparations, flavoring extracts, and all other preparations,
except toilet preparations, of which, excluding water, distilled spirits for
the chief ingredient, shall be subject to the same tax as such chief
ingredient.
This tax shall be proportionally increased for any strength of the spirits taxed over proof
spirits, and the tax shall attach to this substance as soon as it is in existence as such,
whether it be subsequently separated as pure or impure spirits, or transformed into any
other substance either in the process of original production or by any subsequent
process.

"Spirits or distilled spirits" is the substance known as ethyl alcohol, ethanol or spirits of
wine, including all dilutions, purifications and mixtures thereof, from whatever source, by
whatever process produced, and shall include whisky, brandy, rum, gin and vodka, and
other similar products or mixtures.

"Proof spirits" is liquor containing one-half (1/2) of its volume of alcohol of a specific
gravity of seven thousand nine hundred and thirty-nine thousandths (0.7939) at fifteen
degrees centigrade (15O C). A "proof liter" means a liter of proof spirits.

The rates of tax imposed under this Section shall be increased by twelve percent (12%)
on January 1, 2000.

New brands shall be classified according to their current "net retail price".

For the above purpose, "net retail price" shall mean the price at which the distilled spirit
is sold on retail in ten (10) major supermarkets in Metro Manila, excluding the amount
intended to cover the applicable excise tax and the value-added tax as of October 1,
1996.

The classification of each brand of distilled spirits based on the average net retail price
as of October 1, 1996, as set forth in Annex "A", shall remain in force until revised by
Congress.

SEC. 142. Wines. - On wines, there shall be collected per liter of volume capacity, the
following taxes:

(a) Sparkling wines/champagnes regardless of proof, if the net retail

price per bottle (excluding the excise tax and value-added tax) is:
(1) Five hundred pesos (P500) or less - One hundred pesos
(P100); and
 (2) More than Five hundred pesos (P500) - Three hundred pesos
(P300).
(b) Still wines containing fourteen percent (14%) of alcohol by volume or
less, Twelve pesos (P12.00); and
(c) Still wines containing more than fourteen percent (14%) but not more
than twenty-five percent (25%) of alcohol by volume, Twenty-four pesos
(P24.00).
Fortified wines containing more than twenty-five percent of alcohol by volume shall be
taxed as distilled spirits. "Fortified wines" shall mean natural wines to which distilled
spirits are added to increase their alcoholic strength.

The rates of tax imposed under this Section shall be increased by twelve percent (12%)
on January 1, 2000.

New brands shall be classified according to their current net retail price.

For the above purpose, "net retail price" shall mean the price at which wine is sold on
retail in ten (10) major supermarkets in Metro Manila, excluding the amount intended to
cover the applicable excise tax and the value-added tax as of October 1, 1996.

The classification of each brand of wines based on its average net retail price as of
October 1, 1996, as set forth in Annex "B", shall remain in force until revised by
Congress.

SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise
tax on beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy
and similar domestic fermented liquors in accordance with the following schedule:

(a) If the net retail price (excluding the excise tax and value-added tax)
per liter of volume capacity is less than Fourteen pesos and fifty
centavos (P14.50), the tax shall be Six pesos and fifteen centavos
(P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added
tax) the per liter of volume capacity is Fourteen pesos and fifty centavos
(P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos
and fifteen centavos (P9.15) per liter;
(c) If the net retail price (excluding the excise tax and the value-added
tax) per liter of volume capacity is more than Twenty-two pesos (P22.00),
the tax shall be Twelve pesos and fifteen centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after the
effectivity of Republic Act No. 8240 shall be taxed under the highest classification of any
variant of that brand.

Fermented liquor which are brewed and sold at micro-breweries or small establishments
such as pubs and restaurants shall be subject to the rate in paragraph (c) hereof.

The excise tax from any brand of fermented liquor within the next three (3) years from
the effectivity of Republic Act No. 8240 shall not be lower than the tax which was due
from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall
be increased by twelve percent (12%) on January 1, 2000.

New brands shall be classified according to their current net retail price.

For the above purpose, "net retail price" shall mean the price at which the fermented
liquor is sold on retail in twenty (20) major supermarkets in Metro Manila (for brands of
fermented liquor marketed nationally) excluding the amount intended to cover the
applicable excise tax and the value-added tax. For brands which are marketed only
outside Metro Manila, the "net retail price" shall mean the price at the which the
fermented liquor is sold in five (5) major supermarkets in the region excluding the
amount intended to cover the applicable excise tax and the value-added tax.

The classification of each brand of fermented liquor based on its average net retail price
as of October 1, 1996, as set forth in Annex "C", shall remain in force until revised by
Congress.

"A variant of brand" shall refer to a brand on which a modifier is prefixed and/or suffixed
to the root name of the brand and/or a different brand which carries the same logo or
design of the existing brand.

Every brewer or importer of fermented liquor shall, within thirty (30) days from the
effectivity of R. A. No. 8240, and within the first five (5) days of every month thereafter,
submit to the Commissioner a sworn statement of the volume of sales for each particular
brand of fermented liquor sold at his establishment for the three-month period
immediately preceding.

Any brewer or importer who, in violation of this Section, knowingly misdeclares or

misrepresents in his or its sworn statement herein required any pertinent data or
information shall be penalized by a summary cancellation or withdrawal of his or its
permit to engage in business as brewer or importer of fermented liquor.

Any corporation, association or partnership liable for any of the acts or omissions in
violation of this Section shall be fined treble the amount of deficiency taxes, surcharge,
and interest which may be assessed pursuant to this Section.

Any person liable for any of the acts or omissions prohibited under this Section shall be
criminally liable and penalized under Section 254 of this Code. Any person who willfully
aids or abets in the commission of any such act or omission shall be criminally liable in
the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be deported immediately after
serving the sentence, without further proceedings for deportation.

CHAPTER IV
EXCISE TAX ON TOBACCO PRODUCTS
SEC. 144. Tobacco Products. - There shall be collected a tax of seventy-five centavos
(P0.75) on each kilogram of the following products of tobacco:

(a) Tobacco twisted by hand or reduced into a condition to be consumed

in any manner other than the ordinary mode of drying and curing;
(b) Tobacco prepared or partially prepared with or without the use of any
machine or instruments or without being pressed or sweetened; and
(c) Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco.
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco
resulting from the handling or stripping of whole leaf tobacco may be transferred,
disposed of, or otherwise sold, without prepayment of the excise tax herein provided for
under such conditions as may be prescribed in the rules and regulations promulgated by
the Secretary of Finance, upon recommendation of the Commissioner, if the same are to
be exported or to be used in the manufacture of other tobacco products on which the
excise tax will eventually be paid on the finished product.

On tobacco specially prepared for chewing so as to be unsuitable for use in any other
manner, on each kilogram, Sixty centavos (P0.60).

SEC. 145. Cigars and Cigarettes. -

(A) Cigars. - There shall be levied, assessed and collected on cigars a tax of One peso
(P1.00) per cigar.

(B) Cigarettes Packed by Hand. - There shall be levied, assessed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.

(C) Cigarettes Packed by Machine. - There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added
tax) is above Ten
pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per
pack;

(2) If the net retail price (excluding the excise tax and the value-added
tax) exceeds Six
pesos and fifty centavos (P6.50) but does not exceed Ten pesos
(P10.00) per pack,
the tax shall be Eight pesos (8.00) per pack;

(3) If the net retail price (excluding the excise tax and the value-added
tax) is Five pesos
(P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per
pack, the tax
shall be Five pesos (P5.00) per pack;
 (4) If the net retail price (excluding the excise tax and the value-added
tax is below Five
pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;

Variants of existing brands of cigarettes which are introduced in the domestic market
after the effectivity of R.A. No. 8240 shall be taxed under the highest classification of any
variant of that brand.

The excise tax from any brand of cigarettes within the next three (3) years from the
effectivity of R. A. No. 8240 shall not be lower than the tax, which is due from each
brand on October 1, 1996: Provided, however, That in cases where the excise tax rates
imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in an increase in
excise tax of more than seventy percent (70%); for a brand of cigarette, the increase
shall take effect in two tranches: fifty percent (50%) of the increase shall be effective in
1997 and one hundred percent (100%) of the increase shall be effective in 1998.

Duly registered or existing brands of cigarettes or new brands thereof packed by

machine shall only be packed in twenties.

The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4)
hereof, shall be increased by twelve percent (12%) on January 1, 2000.

New brands shall be classified according to their current net retail price.

For the above purpose, "net retail price" shall mean the price at which the cigarette is
sold on retail in twenty (20) major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax
and the value-added tax. For brands which are marketed only outside Metro Manila, the
"net retail price" shall mean the price at which the cigarette is sold in five (5) major
supermarkets in the region excluding the amount intended to cover the applicable excise
tax and the value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex "D", shall remain in force until revised by
Congress.

"Variant of a brand" shall refer to a brand on which a modifier is prefixed and/or suffixed
to the root name of the brand and/or a different brand which carries the same logo or
design of the existing brand.

Manufactures and importers of cigars and cigarettes shall, within thirty (30) days from
the effectivity of R. A. No. 8240 and within the first five (5) days of every month
thereafter submit to the Commissioner a sworn statement of the volume of sales for
each particular brand of cigars and/or cigarettes sold at his establishment for the three-
month period immediately preceding.

Any manufacturer or importer who, in violation of this Section, knowingly misdeclares or

misrepresents in his or its sworn statement herein required any pertinent data or
information shall, upon discovery, be penalized by a summary cancellation or withdrawal
of his or its permit to engage in business as manufacturer or importer of cigars or
cigarettes.

Any corporation, association or partnership liable for any of the acts or omissions in
violation of this Section shall be fined treble the amount of deficiency taxes, surcharges
and interest which may be assessed pursuant to this Section.

Any person liable for any of the acts or omissions prohibited under this Section shall be
criminally liable and penalized under Section 254 of this Code. Any person who willfully
aids or abets in the commission of any such act or omission shall be criminally liable in
the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be deported immediately after
serving the sentence without further proceedings for deportation.

SEC. 146. Inspection Fee. - For inspection made in accordance with this Chapter, there
shall be collected a fee of Fifty centavos (P0.50) for each thousand cigars or fraction
thereof; Ten centavos (P0.10) for each thousand cigarettes of fraction thereof; Two
centavos (P0.02) for each kilogram of leaf tobacco or fraction thereof; and Three
centavos (P0.03) for each kilogram or fraction thereof, of scrap and other manufactured
tobacco.

The inspection fee on leaf tobacco, scrap, cigars, cigarettes and other tobacco products
as defined in Section 147 of this Code shall be paid by the wholesaler, manufacturer,
producer, owner or operator of redrying plant, as the case may be, immediately before
removal there of from the establishment of the wholesaler, manufacturer, owner or
operator of the redrying plant. In case of imported leaf tobacco and products thereof, the
inspection fee shall be paid by the importer before removal from customs' custody.

Fifty percent (50%) of the tobacco inspection fee shall accrue to the Tobacco Inspection
Fund created by Section 12 of Act No. 2613, as amended by Act No. 3179, and fifty
percent (50%) shall accrue to the Cultural Center of the Philippines.

SEC. 147. Definition of Terms. - When used herein and in statements or official forms
prescribed hereunder, the following terms shall have the meaning indicated:

(a) "Cigars" mean all rolls of tobacco or any substitute thereof, wrapped
in leaf tobacco.
(b) "Cigarettes" mean all rolls of finely-cut leaf tobacco, or any substitute
therefor, wrapped in paper or in any other material.
(c) "Wholesale price" shall mean the amount of money or price paid for
cigars or cigarettes purchased for the purpose of resale, regardless of
quantity.
(d) "Retail price" shall mean the amount of money or price which an
ultimate consumer or end-user pays for cigars or cigarettes purchased.

CHAPTER V
EXCISE TAX ON PETROLEUM PRODUCTS
SEC. 148. Manufactured Oils and Other Fuels. - There shall be collected on refined
and manufactured mineral oils and motor fuels, the following excise taxes which shall
attach to the goods hereunder enumerated as soon as they are in existence as such:

(a) Lubricating oils and greases, including but not limited to, base stock
for lube oils and greases, high vacuum distillates, aromatic extracts, and
other similar preparations, and additives for lubricating oils and greases,
whether such additives are petroleum based or not, per liter and kilogram
respectively, of volume capacity or weight, Four pesos and fifty centavos
(P4.50): Provided, however, That the excise taxes paid on the purchased
feedstock (bunker) used in the manufacture of excisable articles and
forming part thereof shall be credited against the excise tax due
therefrom: Provided, further, That lubricating oils and greases produced
from base stocks and additives on which the excise tax has already been
paid shall no longer be subject to excise tax: Provided, finally, That
locally produced or imported oils previously taxed as such but are
subsequently reprocessed, rerefined or recycled shall likewise be subject
to the tax imposed under this Section.
(b) Processed gas, per liter of volume capacity, Five centavos (P0.05);
(c) Waxes and petrolatum, per kilogram, Three pesos and fifty centavos
(P3.50);
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, Five centavos (P0.05): Provided, That unless otherwise
provided by special laws, if the denatured alcohol is mixed with gasoline,
the excise tax on which has already been paid, only the alcohol content
shall be subject to the tax herein prescribed. For purposes of this
Subsection, the removal of denatured alcohol of not less than one
hundred eighty degrees (180o ) proof (ninety percent (90%) absolute
alcohol) shall be deemed to have been removed for motive power,
unless shown otherwise;
(e) Naphtha, regular gasoline and other similar products of distillation,
per liter of volume capacity, Four pesos and eighty centavos (P4.80):
Provided, however, That naphtha, when used as a raw material in the
production of petrochemical products or as replacement fuel for natural-
gas-fired-combined cycle power plant, in lieu of locally-extracted natural
gas during the non-availability thereof, subject to the rules and
regulations to be promulgated by the Secretary of Energy, in consultation
with the Secretary of Finance, per liter of volume capacity, Zero (P0.00):
Provided, further, That the by-product including fuel oil, diesel fuel,
kerosene, pyrolysis gasoline, liquefied petroleum gases and similar oils
having more or less the same generating power, which are produced in
the processing of naphtha into petrochemical products shall be subject to
the applicable excise tax specified in this Section, except when such by-
products are transferred to any of the local oil refineries through sale,
barter or exchange, for the purpose of further processing or blending into
finished products which are subject to excise tax under this Section;
(f) Leaded premium gasoline, per liter of volume capacity, Five pesos
and thirty-five centavos (P5.35); unleaded premium gasoline, per liter of
volume capacity, Four pesos and thirty-five centavos (P4.35);
(g) Aviation turbo jet fuel, per liter of volume capacity, Three pesos and
sixty-seven centavos (P3.67);
 (h) Kerosene, per liter of volume capacity, Sixty centavos (0.60):
Provided, That kerosene, when used as aviation fuel, shall be subject to
the same tax on aviation turbo jet fuel under the preceding paragraph
(g), such tax to be assessed on the user thereof;
(i) Diesel fuel oil, an on similar fuel oils having more or less the same
generating power, per liter of volume capacity, One peso and sixty-three
centavos (P1.63);
(j) Liquefied petroleum gas, per liter, Zero (P0.00): Provided, That
liquefied petroleum gas used for motive power shall be taxed at the
equivalent rate as the excise tax on diesel fuel oil;
(k) Asphalts, per kilogram, Fifty-six centavos (P0.56); and
(l) Bunker fuel oil, and on similar fuel oils having more or less the same
generating power, per liter of volume capacity, Thirty centavos (P0.30).

CHAPTER VI
EXCISE TAX ON MISCELLANEOUS ARTICLES

SEC. 149. Automobiles. - There shall be levied, assessed and collected an ad valorem
tax on automobiles based on the manufacturers or importers selling price, net of excise
and value-added tax, in accordance with the following schedule:

ENGINE DISPLACEMENT [in cc.]

GASOLINE DIESEL TAX RATE

Up to 1600 Up to 1800 15%
1601 to 2000 1801 to 2300 35%
2001 to 2700 2301 to 3000 50%
2701 or over 3001 to over 100%

Provided, That in the case of imported automobiles not for sale, the tax imposed herein
shall be based on the total value used by the Bureau of Customs in determining tariff
and customs duties, including customs duty and all other charges, plus ten percent
(10%) of the total thereof.

Automobiles acquired for use by persons or entities operating within the freeport zone
shall be exempt from excise tax: Provided, That utility vehicles of registered zone
enterprises, which are indispensable in the conduct and operations of their business,
such as delivery trucks and cargo vans with gross vehicle weight above three (3) metric
tons may be allowed unrestricted use outside the freeport zone: Provided, further, That
vehicles owned by tourist-oriented enterprises, such as tourist buses and cars with
yellow plates, color-coded, and utilized exclusively for the purpose of transporting
tourists in tourism-related activities, and service vehicles of freeport registered
enterprises and executives, such as company service cars and expatriates and
investors automobiles brought in the name of such enterprises, may be used outside the
freeport zone for such periods as may be prescribed by the Departments of Finance,
and Trade and Industry, the Bureau of Customs and the Freeport authorities concerned,
which in no case shall exceed fourteen (14) days per month.
In case such tourist buses and cars, service vehicles of registered freeport enterprises
and company service cars are used for more than an aggregate period of fourteen (14)
days per month outside of the freeport zone, the owner or importer shall pay the
corresponding customs duties, taxes and charges.

In the case of personally-owned vehicles of residents, including leaseholders of

residences inside the freeport zone, the use of such vehicles outside of the freeport zone
shall be deemed an introduction into the Philippine customs territory, and such
introduction shall be deemed an importation into the Philippines and shall subject such
vehicles to Customs duties taxes and charges, including excise tax due on such vehicle.

The Secretaries of Finance, and Trade and Industry, together with the Commissioner of
Customs and the administrators of the freeports concerned, shall promulgate rules and
regulations for the proper identification and control of said automobiles.

SEC. 150. Non-Essential Goods. - There shall be levied, assessed and collected a tax
equivalent to twenty percent (20%) based on the wholesale price or the value of
importation used by the Bureau of Customs in determining tariff and customs duties, net
of excise tax and value-added tax, of the following goods:

(a) All goods commonly or commercially known as jewelry, whether real

or imitation, pearls, precious and semi-precious stones and imitations
thereof; goods made of, or ornamented, mounted or fitted with, precious
metals or imitations thereof or ivory (not including surgical and dental
instruments, silver-plated wares, frames or mountings for spectacles or
eyeglasses, and dental gold or gold alloys and other precious metals
used in filling, mounting or fitting the teeth); opera glasses and
lorgnettes. The term "precious metals" shall include platinum, gold, silver
and other metals of similar or greater value. The term imitations thereof
shall include platings and alloys of such metals;
(b) Perfumes and toilet waters;
(c) Yachts and other vessels intended for pleasure or sports.

CHAPTER VII
EXCISE TAX ON MINERAL PRODUCTS

SEC. 151. Mineral Products. -

(A) Rates of Tax. - There shall be levied, assessed and collected on minerals, mineral
products and quarry resources, excise tax as follows:

(1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;
(2) On all nonmetallic minerals and quarry resources, a tax of two
percent (2%) based on
the actual market value of the gross output thereof at the time of
removal, in the case
of those locally extracted or produced; or the value used by the
Bureau of Customs in
determining tariff and customs duties, net of excise tax and value-
 added tax, in the case
of importation.

Notwithstanding the provision of paragraph (4) of Subsection (A) of

Section 151, locally extracted natural gas and liquefied natural gas shall
be taxed at the rate of two percent (2%);

(3) On all metallic minerals, a tax based on the actual market value of the
gross output thereof
at the time of removal, in the case of those locally extracted or
produced; or the value used
by the Bureau of Customs in determining tariff and customs duties,
net of excise tax and
value-added tax, in the case of importation, in accordance with the
following schedule:

(a) Copper and other metallic minerals;

(i) On the first three (3) years upon the effectivity of
Republic Act No. 7729,
one percent (1%);
(ii) On the fourth and the fifth years, one and a half
percent (1 %); and
(iii) On the sixth year and thereafter, two percent (2%);
(b) Gold and chromite, two percent (2%).
(4) On indigenous petroleum, a tax of three percent (3%) of the fair
international market price
thereof, on the first taxable sale, barter, exchange or such similar
transaction, such tax
to be paid by the buyer or purchaser before removal from the place of
production. The
phrase "first taxable sale, barter, exchange or similar transaction"
means the transfer
of indigenous petroleum in its original state to a first taxable
transferee. The fair
international market price shall be determined in consultation with an
appropriate
government agency.
For the purpose of this Subsection, "indigenous petroleum" shall include
locally-extracted mineral oil, hydrocarbon gas, bitumen, crude asphalt,
mineral gas and all other similar or naturally associated substances with
the exception of coal, peat, bituminous shale and/or stratified mineral
deposits.
(B) For Purposes of This Section, the Term:
(1) "Gross output" shall be interpreted as the actual market value of
minerals or mineral products or of bullion from each mine or mineral land
operated as a separate entity, without any deduction from mining, milling,
refining (including all expenses incurred to prepare the said minerals or
mineral products in a marketable state), as well as transporting,
handling, marketing or any other expenses: Provided, That if the
minerals or mineral products are sold or consigned abroad by the lessee
 or owner of the mine under C.I.F. terms, the actual cost of ocean freight
and insurance shall be deducted: Provided, however, That in the case of
mineral concentrate, not traded in commodity exchanges in the
Philippines or abroad, such as copper concentrate, the actual market
value shall be the world price quotations of the refined mineral products
content thereof prevailing in the said commodity exchanges, after
deducting the smelting, refining and other charges incurred in the
process of converting the mineral concentrates into refined metal traded
in those commodity exchanges.
(2) "Minerals" shall mean all naturally occurring inorganic substances
(found in nature) whether in solid, liquid, gaseous or any intermediate
state.
(3) "Mineral products" shall mean things produced and prepared in a marketable state by
simple treatment processes such as washing or drying, but without undergoing any
chemical change or process or manufacturing by the lessee, concessionaire or owner of
mineral lands.

(4) "Quarry resources" shall mean any common stone or other common mineral
substances as the Director of the Bureau of Mines and Geo-Sciences may declare to be
quarry resources such as, but not restricted to, marl, marble, granite, volcanic cinders,
basalt, tuff and rock phosphate: Provided, That they contain no metal or other valuable
minerals in economically workable quantities.

CHAPTER VIII
ADMINISTRATIVE PROVISIONS REGULATING BUSINESS
OR PERSONS DEALING IN ARTICLES SUBJECT TO EXCISE TAX

SEC. 152. Extent of Supervision Over Establishments Producing Taxable Output. -

The Bureau of Internal Revenue has authority to supervise establishments where
articles subject to excise tax are made or kept. The Secretary of Finance shall prescribe
rules and regulations as to the mode in which the process of production shall be
conducted insofar as may be necessary to secure a sanitary output and to safeguard the
revenue.

SEC. 153. Records to be Kept by Manufacturers; Assessment Based Thereon. -

Manufacturers of articles subject to excise tax shall keep such records as required by
rules and regulations recommended by the Commissioner and approved by the
Secretary of Finance, and such records, whether of raw materials received into the
factory or of articles produced therein, shall be deemed public and official documents for
all purposes.

The records of raw materials kept by such manufacturers may be used as evidence by
which to determine the amount of excise taxes due from them, and whenever the
amounts of raw material received into any factory exceeds the amount of manufactured
or partially manufactured products on hand and lawfully removed from the factory, plus
waste removed or destroyed, and a reasonable allowance for unavoidable loss in
manufacture, the Commissioner may assess and collect the tax due on the products
which should have been produced from the excess.
The excise tax due on the products as determined and assessed in accordance with this
Section shall be payable upon demand or within the period specified therein.

SEC. 154. Premises Subject to Approval by Commissioner. - No person shall

engage in business as a manufacturer of or dealer in articles subject to excise tax unless
the premises upon which the business is to conducted shall have been approved by the
Commissioner.

SEC. 155. Manufacturers to Provide Themselves with Counting or Metering

Devices to Determine Production. - Manufacturers of cigarettes, alcoholic products, oil
products and other articles subject to excise tax that can be similarly measured shall
provide themselves with such necessary number of suitable counting or metering
devices to determine as accurately as possible the volume, quantity or number of the
articles produced by them under rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.

This requirement shall be complied with before commencement of operations.

SEC. 156. Labels and Form of Packages. - All articles of domestic manufacture
subject to excise tax and all leaf tobacco shall be put up and prepared by the
manufacturer or producer, when removed for sale or consumption, in such packages
only and bearing such marks or brand as shall be prescribed in the rules and regulations
promulgated by the Secretary of Finance; and goods of similar character imported into
the Philippines shall likewise be packed and marked in such a manner as may be
required.

SEC. 157. Removal of Articles After the Payment of Tax. - When the tax has been
paid on articles or products subject to excise tax, the same shall not thereafter be stored
or permitted to remain in the distillery, distillery warehouse, bonded warehouse, or other
factory or place where produced. However, upon prior permit from the Commissioner, oil
refineries and/or companies may store or deposit tax-paid petroleum products and
commingle the same with its own manufactured products not yet subjected to excise tax.
Imported petroleum products may be allowed to be withdrawn from customs custody
without the prepayment of excise tax, which products may be commingled with the tax-
paid or bonded products of the importer himself after securing a prior permit from the
Commissioner: Provided, That withdrawals shall be taxed and accounted for on a "first-
in, first-out" basis.

SEC. 158. Storage of Goods in Internal-Revenue Bonded Warehouses. - An

internal-revenue bonded warehouse may be maintained in any port of entry for the
storing of imported or manufactured goods which are subject to excise tax. The taxes on
such goods shall be payable only upon removal from such warehouse and a reasonable
charge shall be made for their storage therein. The Commissioner, may, in his
discretion, exact a bond to secure the payment of the tax on any goods so stored.

SEC. 159. Proof of Exportation; Exporter's Bond. - Exporters of goods that would be
subject to excise tax, if sold or removed for consumption in the Philippines, shall submit
proof of exportation satisfactory to the Commissioner and, when the same is deemed
necessary, shall be required to give a bond prior to the removal of the goods for
shipment, conditioned upon the exportation of the same in good faith.
SEC. 160. Manufacturers' and Importers' Bond. - Manufacturers and importers of
articles subject to excise tax shall post a bond subject to the following conditions:

(A) Initial Bond. - In case of initial bond, the amount shall be equal to One Hundred
thousand pesos (P100,000): Provided, That if after six (6) months of operation, the
amount of initial bond is less than the amount of the total excise tax paid during the
period, the amount of the bond shall be adjusted to twice the tax actually paid for the
period.

(B) Bond for the Succeeding Years of Operation. - The bonds for the succeeding
years of operation shall be based on the actual total excise tax paid during the period the
year immediately preceding the year of operation.

Such bond shall be conditioned upon faithful compliance, during the time such business
is followed, with laws and rules and regulations relating to such business and for the
satisfaction of all fines and penalties imposed by this Code.

SEC. 161. Records to be Kept by Wholesale Dealers. - Wholesale dealers shall keep
records of their purchases and sales or deliveries of articles subject to excise tax, in
such form as shall be prescribed in the rules and regulations by the Secretary of
Finance. These records and the entire stock of goods subject to tax shall be subject at
all times to inspection of internal revenue officers.

SEC. 162. Records to be Kept by Dealers in Leaf Tobacco. - Dealers in leaf tobacco
shall keep records of the products sold or delivered by them to other persons in such
manner as may be prescribed in the rules and regulations by the Secretary of Finance,
such records to be at all times subject to inspection of internal revenue officers.

SEC. 163. Preservation of Invoices and Stamps. - All dealers whosoever shall
preserve, for the period prescribed in Section 235, all official invoices received by them
from other dealers or from manufacturers, together with the fractional parts of stamps
affixed thereto, if any, and upon demand, shall deliver or transmit the same to any
interval revenue officer.

SEC. 164. Information to be Given by Manufacturers, Importers, Indentors, and

Wholesalers of any Apparatus or Mechanical Contrivance Specially for the
Manufacture of Articles Subject to Excise Tax and Importers, Indentors,
Manufacturers or Sellers of Cigarette Paper in Bobbins, Cigarette Tipping Paper or
Cigarette Filter Tips. - Manufacturers, indentors, wholesalers and importers of any
apparatus or mechanical contrivance specially for the manufacture of articles subject to
tax shall, before any such apparatus or mechanical contrivance is removed from the
place of manufacture or from the customs house, give written information to the
Commissioner as to the nature and capacity of the same, the time when it is to be
removed, and the place for which it is destined, as well as the name of the person by
whom it is to be used; and such apparatus or mechanical contrivance shall not be set up
nor dismantled or transferred without a permit in writing from the Commissioner.

A written permit from the Commissioner for importing, manufacturing or selling of

cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter tips is
required before any person shall engage in the importation, manufacture or sale of the
said articles. No permit to sell said articles shall be granted unless the name and
address of the prospective buyer is first submitted to the Commissioner and approved by
him. Records, showing the stock of the said articles and the disposal thereof by sale of
persons with their respective addresses as approved by the Commissioner, shall be kept
by the seller, and records, showing stock of said articles and consumption thereof, shall
be kept by the buyer, subject to inspection by internal revenue officers.

SEC. 165. Establishment of Distillery Warehouse. - Every distiller, when so required

by the Commissioner, shall provide at his own expense a warehouse, and shall be
situated in and constitute a part of his distillery premises and to be used only for the
storage of distilled spirits of his own manufacture until the tax thereon shall have been
paid; but no dwelling house shall be used for such purpose. Such warehouse, when
approved by the Commissioner, is declared to be a bonded warehouse, and shall be
known as a distillery warehouse.

SEC. 166. Custody of Distillery or Distillery Warehouse. - Every distillery or distillery

warehouse shall be in the joint custody of the revenue inspector, if one is assigned
thereto, and of the proprietor thereof. It shall be kept securely locked, and shall at no
time be unlocked or opened or remain unlocked or opened unless in the presence of
such revenue inspector or other person who may be designated to act for him as
provided by law.

SEC. 167. Limitation on Quantity of Spirits Removed from Warehouse. - No distilled

spirits shall be removed from any distillery, distillery warehouse, or bonded warehouse in
quantities of less than fifteen (15) gauge liters at any one time, except bottled goods,
which may be removed by the case of not less than twelve (12) bottles.

SEC. 168. Denaturing Within Premises. - For purposes of this Title, the process of
denaturing alcohol shall be effected only within the distillery premises where the alcohol
to be denatured is produced in accordance with formulas duly approved by the Bureau
of Internal Revenue and only in the presence of duly designated representatives of said
Bureau.

SEC. 169. Recovery of Alcohol for Use in Arts and Industries. - Manufacturers
employing processes in which denatured alcohol used in arts and industries is
expressed or evaporated from the articles manufactured may, under rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, be permitted to recover the alcohol so used and restore it again to a
condition suitable solely for use in manufacturing processes.

SEC. 170. Requirements Governing Rectification and Compounding of Liquors. -

Persons engaged in the rectification or compounding of liquors shall, as to the mode of
conducting their business and supervision over the same, be subject to all the
requirements of law applicable to distilleries: Provided, That where a rectifier makes use
of spirits upon which the excise tax has been paid, no further tax shall be collected on
any rectified spirits produced exclusively therefrom: Provided, further, That compounders
in the manufacture of any intoxicating beverage whatever, shall not be allowed to make
use of spirits upon which the excise tax has not been previously paid.

SEC. 171. Authority of Internal Revenue Officer in Searching for Taxable Articles. -
Any internal revenue officer may, in the discharge of his official duties, enter any house,
building or place where articles subject to tax under this Title are produced or kept, or
are believed by him upon reasonable grounds to be produced or kept, so far as may be
necessary to examine, discover or seize the same.

He may also stop and search any vehicle or other means of transportation when upon
reasonable grounds he believes that the same carries any article on which the excise tax
has not been paid.

SEC. 172. Detention of Package Containing Taxable Articles. - Any revenue officer
may detain any package containing or supposed to contain articles subject to excise tax
when he has good reason to believe that the lawful tax has not been paid or that the
package has been or is being removed in violation of law, and every such package shall
be held by such officer in a safe place until it shall be determined whether the property
so detained is liable by law to be proceeded against for forfeiture; but such summary
detention shall not continue in any case longer than seven (7) days without due process
of law or intervention of the officer to whom such detention is to be reported.

TITLE VII
DOCUMENTARY STAMP TAX

SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and
Papers. - Upon documents, instruments, loan agreements and papers, and upon
acceptances, assignments, sales and transfers of the obligation, right or property
incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes
prescribed in the following Sections of this Title, by the person making, signing, issuing,
accepting, or transferring the same wherever the document is made, signed, issued,
accepted or transferred when the obligation or right arises from Philippine sources or the
property is situated in the Philippines, and the same time such act is done or transaction
had: Provided, That whenever one party to the taxable document enjoys exemption from
the tax herein imposed, the other party who is not exempt shall be the one directly liable
for the tax.

SEC. 174. Stamp Tax on Debentures and Certificates of Indebtedness. - On all

debentures and certificates of indebtedness issued by any association, company or
corporation, there shall be collected a documentary stamp tax of One peso and fifty
centavos (P1.50) on each Two hundred pesos (P200), or fractional part thereof, of the
face value of such documents.

SEC. 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue,
whether on organization, reorganization or for any lawful purpose, of shares of stock by
any association, company or corporation, there shall be collected a documentary stamp
tax of Two pesos (P2.00) on each Two hundred pesos (P200), or fractional part thereof,
of the par value, of such shares of stock: Provided, That in the case of the original issue
of shares of stock without par value the amount of the documentary stamp tax herein
prescribed shall be based upon the actual consideration for the issuance of such shares
of stock: Provided, further, That in the case of stock dividends, on the actual value
represented by each share.

SEC. 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales,

Deliveries or Transfer of Due-bills, Certificates of Obligation, or Shares of
Certificates of Stock. - On all sales, or agreements to sell, or memoranda of sale, or
deliveries, or transfer of due-bills, certificates of obligation, or shares of certificates of
stock in any association, company, or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or agreement, or memorandum or
other evidences of transfer or sale whether entitling the holder in any manner to the
benefit of such due-bills, certificates of obligation or stock, or to secure the future
payment of money, or for the future transfer of any due-bill, certificate of obligation or
stock, there shall be collected a documentary stamp tax of One peso and fifty centavos
(P1.50) on each Two hundred pesos (P200) or fractional part thereof, of the par value of
such due-bill, certificate of obligation or stock; Provided, That only one tax shall be
collected on each sale or transfer of stock or securities from one person to another,
regardless of whether or not a certificate of stock or obligation is issued, indorsed, or
delivered in pursuance of such sale or transfer: and, Provided, further, That in the case
of stock without par value the amount of documentary stamp tax herein prescribed shall
be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.

SEC. 177. Stamp Tax on Bonds, Debentures, Certificate of Stock or Indebtedness

Issued in Foreign Countries. - On all bonds, debentures, certificates of stock, or
certificates of indebtedness issued in any foreign country, there shall be collected from
the person selling or transferring the same in the Philippines, such as tax as is required
by law on similar instruments when issued, sold or transferred in the Philippines.

SEC. 178. Stamp Tax on Certificates of Profits or Interest in Property or

Accumulations. - On all certificates of profits, or any certificate or memorandum
showing interest in the property or accumulations of any association, company or
corporation, and on all transfers of such certificates or memoranda, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred
pesos (P200), or fractional part thereof, of the face value of such certificate or
memorandum.

SEC. 179. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit not Bearing
Interest, and Other Instruments. - On each bank check, draft, or certificate of deposit
not drawing interest, or order for the payment of any sum of money drawn upon or
issued by any bank, trust company, or any person or persons, companies or
corporations, at sight or on demand, there shall be collected a documentary stamp tax of
One peso and fifty centavos (P1.50).

SEC. 180. Stamp Tax on All Bonds, Loan Agreements, promissory Notes, Bills of
Exchange, Drafts, Instruments and Securities Issued by the Government or Any of
its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of Deposits
Bearing Interest and Others Not Payable on Sight or Demand. - On all bonds, loan
agreements, including those signed abroad, wherein the object of the contract is located
or used in the Philippines, bills of exchange (between points within the Philippines),
drafts, instruments and securities issued by the Government or any of its
instrumentalities, deposit substitute debt instruments, certificates of deposits drawing
interest, orders for the payment of any sum of money otherwise than at sight or on
demand, on all promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation, and on each renewal of any such note, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred
pesos (P200), or fractional part thereof, of the face value of any such agreement, bill of
exchange, draft, certificate of deposit, or note: Provided, That only one documentary
stamp tax shall be imposed on either loan agreement, or promissory notes issued to
secure such loan, whichever will yield a higher tax: Provided, however, That loan
agreements or promissory notes the aggregate of which does not exceed Two hundred
fifty thousand pesos (P250,000) executed by an individual for his purchase on
installment for his personal use or that of his family and not for business, resale, barter
or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the
payment of the documentary stamp tax provided under this Section.

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. - Upon
any acceptance or payment of any bill of exchange or order for the payment of money
purporting to be drawn in a foreign country but payable in the Philippines, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred
pesos (P200), or fractional part thereof, of the face value of any such bill of exchange, or
order, or the Philippine equivalent to such value, if expressed in foreign currency.

SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of Credit. - On all
foreign bills of exchange and letters of credit (including orders, by telegraph or
otherwise, for the payment of money issued by express or steamship companies or by
any person or persons) drawn in but payable out of the Philippines in a set of three (3) or
more according to the custom of merchants and bankers, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200),
or fractional part thereof, of the face value of any such bill of exchange or letter of credit,
or the Philippine equivalent of such face value, if expressed in foreign currency.

SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of insurance or
other instruments by whatever name the same may be called, whereby any insurance
shall be made or renewed upon any life or lives, there shall be collected a documentary
stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional
part thereof, of the amount insured by any such policy.

SEC. 184. Stamp Tax on Policies of Insurance Upon Property. - On all policies of
insurance or other instruments by whatever name the same may be called, by which
insurance shall be made or renewed upon property of any description, including rents or
profits, against peril by sea or on inland waters, or by fire or lightning, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos
(P4.00), or fractional part thereof, of the amount of premium charged: Provided,
however, That no documentary stamp tax shall be collected on reinsurance contracts or
on any instrument by which cession or acceptance of insurance risks under any
reinsurance agreement is effected or recorded.

SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies. - On all
policies of insurance or bonds or obligations of the nature of indemnity for loss, damage
or liability made or renewed by any person, association, company or corporation
transacting the business of accident, fidelity, employers liability, plate, glass, steam,
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or position, for the doing or
not doing of anything therein specified, and on all obligations guaranteeing the validity or
legality of any bond or other obligations issued by any province, city, municipality, or
other public body or organization, and on all obligations guaranteeing the title to any real
estate, or guaranteeing any mercantile credits, which may be made or renewed by any
such person, company or corporation, there shall be collected a documentary stamp tax
of Fifty centavos (P0.50) on each Four pesos (P4.00), or fractional part thereof, of the
premium charged.

SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. - On all policies
of annuities, or other instruments by whatever name the same may be called, whereby
an annuity may be made, transferred or redeemed, there shall be collected a
documentary stamp tax of One peso and fifty centavos (P1.50) on each Two hundred
pesos (P200) or fractional part thereof, of the capital of the annuity, or should this be
unknown, then on each Two hundred (P200) pesos, or fractional part thereof, of thirty-
three and one-third (33 1/3) times the annual income. On pre-need plans, the
documentary stamp tax shall be Fifty centavos (P0.50) on each Five hundred pesos
(P500), or fractional part thereof, of the value or amount of the plan.

SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for indemnifying any
person, firm or corporation who shall become bound or engaged as surety for the
payment of any sum of money or for the due execution or performance of the duties of
any office or position or to account for money received by virtue thereof, and on all other
bonds of any description, except such as may be required in legal proceedings, or are
otherwise provided for herein, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Four pesos (P4.00), or fractional part thereof, of the premium
charged.

SEC. 188. Stamp Tax on Certificates. - On each certificate of damages or otherwise,

and on every certificate or document issued by any customs officer, marine surveyor, or
other person acting as such, and on each certificate issued by a notary public, and on
each certificate of any description required by law or by rules or regulations of a public
office, or which is issued for the purpose of giving information, or establishing proof of a
fact, and not otherwise specified herein, there shall be collected a documentary stamp
tax of Fifteen pesos (P15.00).

SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse receipt for
property held in storage in a public or private warehouse or yard for any person other
than the proprietor of such warehouse or yard, there shall be collected a documentary
stamp tax of Fifteen pesos (P15.00): Provided, That no tax shall be collected on each
warehouse receipt issued to any one person in any one calendar month covering
property the value of which does not exceed Two hundred pesos (P200).

SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or Other Authorized
Numbers Games. - On each jai-alai, horse race ticket, lotto, or other authorized number
games, there shall be collected a documentary stamp tax of Ten centavos (P0.10):
Provided, That if the cost of the ticket exceeds One peso (P1.00), an additional tax of
Ten centavos (P0.10) on every One peso (P1.00, or fractional part thereof, shall be
collected.

SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On each set of bills of lading or
receipts (except charter party) for any goods, merchandise or effects shipped from one
port or place in the Philippines to another port or place in the Philippines (except on
ferries across rivers), or to any foreign port, there shall be collected documentary stamp
tax of One peso (P1.00), if the value of such goods exceeds One hundred pesos (P100)
and does not exceed One Thousand pesos (P1,000); Ten pesos (P10), if the value
exceeds One thousand pesos (P1,000): Provided, however, That freight tickets covering
goods, merchandise or effects carried as accompanied baggage of passengers on land
and water carriers primarily engaged in the transportation of passengers are hereby
exempt.

SEC. 192. Stamp Tax on Proxies. - On each proxy for voting at any election for officers
of any company or association, or for any other purpose, except proxies issued affecting
the affairs of associations or corporations organized for religious, charitable or literary
purposes, there shall be collected a documentary stamp tax of Fifteen pesos (P15.00).

SEC. 193. Stamp Tax on Powers of Attorney. - On each power of attorney to perform
any act whatsoever, except acts connected with the collection of claims due from or
accruing to the Government of the Republic of the Philippines, or the government of any
province, city or municipality, there shall be collected a documentary stamp tax of Five
pesos (P5.00).

SEC. 194. Stamp Tax on Leases and Other Hiring Agreements. - On each lease,
agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or
portions thereof, there shall be collected a documentary stamp tax of Three pesos
(P3.00) for the first Two thousand pesos (P2,000), or fractional part thereof, and an
additional One peso (P1.00) for every One Thousand pesos (P1,000) or fractional part
thereof, in excess of the first Two thousand pesos (P2,000) for each year of the term of
said contract or agreement.

SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. - On every
mortgage or pledge of lands, estate, or property, real or personal, heritable or movable,
whatsoever, where the same shall be made as a security for the payment of any definite
and certain sum of money lent at the time or previously due and owing of forborne to be
paid, being payable and on any conveyance of land, estate, or property whatsoever, in
trust or to be sold, or otherwise converted into money which shall be and intended only
as security, either by express stipulation or otherwise, there shall be collected a
documentary stamp tax at the following rates:

(a) When the amount secured does not exceed Five thousand pesos
(P5,000), Twenty pesos (P20.00).
(b) On each Five thousand pesos (P5,000), or fractional part thereof in
excess of Five thousand pesos (P5,000), an additional tax of Ten pesos
(P10.00).
On any mortgage, pledge, or deed of trust, where the same shall be made as a security
for the payment of a fluctuating account or future advances without fixed limit, the
documentary stamp tax on such mortgage, pledge or deed of trust shall be computed on
the amount actually loaned or given at the time of the execution of the mortgage, pledge
or deed of trust, additional documentary stamp tax shall be paid which shall be
computed on the basis of the amount advanced or loaned at the rates specified above:
Provided, however, That if the full amount of the loan or credit, granted under the
mortgage, pledge or deed of trust shall be computed on the amount actually loaned or
given at the time of the execution of the mortgage, pledge or deed of trust. However, if
subsequent advances are made on such mortgage, pledge or deed of trust, additional
documentary stamp tax shall be paid which shall be computed on the basis of the
amount advanced or loaned at the rates specified above: Provided, however, That if the
full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is
specified in such mortgage, pledge or deed of trust, the documentary stamp tax
prescribed in this Section shall be paid and computed on the full amount of the loan or
credit granted.

SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real Property. - On all
conveyances, deeds, instruments, or writings, other than grants, patents or original
certificates of adjudication issued by the Government, whereby any land, tenement, or
other realty sold shall be granted, assigned, transferred or otherwise conveyed to the
purchaser, or purchasers, or to any other person or persons designated by such
purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates
herein below prescribed, based on the consideration contracted to be paid for such
realty or on its fair market value determined in accordance with Section 6(E) of this
Code, whichever is higher: Provided, That when one of the contracting parties is the
Government the tax herein imposed shall be based on the actual consideration.
(a) When the consideration, or value received or contracted to be paid
for such realty after making proper allowance of any encumbrance, does
not exceed One thousand pesos (P1,000) fifteen pesos (P15.00).
(b) For each additional One thousand Pesos (P1,000), or fractional part
thereof in excess of One thousand pesos (P1,000) of such consideration
or value, Fifteen pesos (P15.00).
When it appears that the amount of the documentary stamp tax payable hereunder has
been reduced by an incorrect statement of the consideration in any conveyance, deed,
instrument or writing subject to such tax the Commissioner, provincial or city Treasurer,
or other revenue officer shall, from the assessment rolls or other reliable source of
information, assess the property of its true market value and collect the proper tax
thereon.

SEC. 197. Stamp Tax on Charter Parties and Similar Instruments. - On every charter
party, contract or agreement for the charter of any ship, vessel or steamer, or any letter
or memorandum or other writing between the captain, master or owner, or other person
acting as agent of any ship, vessel or steamer, and any other person or persons for or
relating to the charter of any such ship, vessel or steamer, and on any renewal or
transfer of such charter, contract, agreement, letter or memorandum, there shall be
collected a documentary stamp tax at the following rates:
(a) If the registered gross tonnage of the ship, vessel or steamer does
not exceed one thousand (1,000) tons, and the duration of the charter or
contract does not exceed six (6) months, Five hundred pesos (P500);
and for each month or fraction of a month in excess of six (6) months, an
additional tax of Fifty pesos (P50.00) shall be paid.
(b) If the registered gross tonnage exceeds one thousand (1,000) tons
and does not exceed ten thousand (10,000) tons, and the duration of the
charter or contract does not exceed six (6) months, One thousand pesos
(P1,000); and for each month or fraction of a month in excess of six (6)
months, an additional tax of One hundred pesos (P100) shall be paid.
(c) If the registered gross tonnage exceeds ten thousand (10,000) tons
and the duration of the charter or contract does not exceed six (6)
months, One thousand five hundred pesos (P1,500); and for each month
or fraction of a month in excess of six (6) months, an additional tax of
One hundred fifty pesos (P150) shall be paid.
SEC. 198. Stamp Tax on Assignments and Renewals of Certain Instruments. -
Upon each and every assignment or transfer of any mortgage, lease or policy of
insurance, or the renewal or continuance of any agreement, contract, charter, or any
evidence of obligation or indebtedness by altering or otherwise, there shall be levied,
collected and paid a documentary stamp tax, at the same rate as that imposed on the
original instrument.

SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of
Section 173 to the contrary notwithstanding, the following instruments, documents and
papers shall be exempt from the documentary stamp tax:
(a) Policies of insurance or annuities made or granted by a fraternal or
beneficiary society, order, association or cooperative company, operated
on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of
each member and not for profit.
(b) Certificates of oaths administered to any government official in his
official capacity or of acknowledgment by any government official in the
performance of his official duties, written appearance in any court by any
government official, in his official capacity; certificates of the
administration of oaths to any person as to the authenticity of any paper
required to be filed in court by any person or party thereto, whether the
proceedings be civil or criminal; papers and documents filed in courts by
or for the national, provincial, city or municipal governments; affidavits of
poor persons for the purpose of proving poverty; statements and other
compulsory information required of persons or corporations by the rules
and regulations of the national, provincial, city or municipal governments
exclusively for statistical purposes and which are wholly for the use of
the bureau or office in which they are filed, and not at the instance or for
the use or benefit of the person filing them; certified copies and other
certificates placed upon documents, instruments and papers for the
national, provincial, city, or municipal governments, made at the instance
and for the sole use of some other branch of the national, provincial, city
or municipal governments; and certificates of the assessed value of
lands, not exceeding Two hundred pesos (P200) in value assessed,
furnished by the provincial, city or municipal Treasurer to applicants for
registration of title to land.
SEC. 200. Payment of Documentary Stamp Tax. -

(A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any
person liable to pay documentary stamp tax upon any document subject to tax under
Title VII of this Code shall file a tax return and pay the tax in accordance with the rules
and regulations to be prescribed by the Secretary of Finance, upon recommendation of
the Commissioner.

(B) Time for Filing and Payment of the Tax. - Except as provided by rules and
regulations promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, the tax return prescribed in this Section shall be filed within ten (10) days
after the close of the month when the taxable document was made, signed, issued,
accepted, or transferred, and the tax thereon shall be paid at the same time the
aforesaid return is filed.
(C) Where to File. - Except in cases where the Commissioner otherwise permits, the
aforesaid tax return shall be filed with and the tax due shall be paid through the
authorized agent bank within the territorial jurisdiction of the Revenue District Office
which has jurisdiction over the residence or principal place of business of the taxpayer.
In places where there is no authorized agent bank, the return shall be filed with the
Revenue District Officer, collection agent, or duly authorized Treasurer of the city or
municipality in which the taxpayer has his legal residence or principal place of business.

(D) Exception. - In lieu of the foregoing provisions of this Section, the tax may be paid
either through purchase and actual affixture; or by imprinting the stamps through a
documentary stamp metering machine, on the taxable document, in the manner as may
be prescribed by rules and regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner.

SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document

or paper which is required by law to be stamped and which has been signed, issued,
accepted or transferred without being duly stamped, shall not be recorded, nor shall it or
any copy thereof or any record of transfer of the same be admitted or used in evidence
in any court until the requisite stamp or stamps are affixed thereto and cancelled.

TITLE VIII
REMEDIES

CHAPTER I
REMEDIES IN GENERAL

SEC. 202. Final Deed to Purchaser. - In case the taxpayer shall not redeem the
property as herein provided the Revenue District Officer shall, as grantor, execute a
deed conveying to the purchaser so much of the property as has been sold, free from all
liens of any kind whatsoever, and the deed shall succintly recite all the proceedings
upon which the validity of the sale depends.

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as

provided in Section 222, internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of
such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return was
filed. For purposes of this Section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day.

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or

Credit Taxes. - The Commissioner may -

(A) Compromise the Payment of any Internal Revenue Tax, when:

(1) A reasonable doubt as to the validity of the claim against the

taxpayer exists; or
 (2) The financial position of the taxpayer demonstrates a clear inability
to pay the assessed tax.

The compromise settlement of any tax liability shall be subject to the

following minimum amounts:

For cases of financial incapacity, a minimum compromise rate

equivalent to ten percent (10%) of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty
percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the
settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.

(B) Abate or Cancel a Tax Liability, when:

(1) The tax or any portion thereof appears to be unjustly or excessively

assessed; or
(2) The administration and collection costs involved do not justify the
collection of the
amount due.

All criminal violations may be compromised except: (a) those already

filed in court, or (b) those involving fraud.

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment
shall be considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is
directly liable. Any request for conversion into refund of unutilized tax credits may be
allowed, subject to the provisions of Section 230 of this Code: Provided, That the original
copy of the Tax Credit Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation: Provided, further, That in no
case shall a tax refund be given resulting from availment of incentives granted pursuant
to special laws for which no actual payment was made.

The Commissioner shall submit to the Chairmen of the Committee on Ways and Means
of both the Senate and House of Representatives, every six (6) months, a report on the
exercise of his powers under this Section, stating therein the following facts and
information, among others: names and addresses of taxpayers whose cases have been
the subject of abatement or compromise; amount involved; amount compromised or
abated; and reasons for the exercise of power: Provided, That the said report shall be
presented to the Oversight Committee in Congress that shall be constituted to determine
that said powers are reasonably exercised and that the government is not unduly
deprived of revenues.

CHAPTER II
CIVIL REMEDIES FOR COLLECTION OF TAXES

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for
the collection of internal revenue taxes, fees or charges, and any increment thereto
resulting from delinquency shall be:

(a) By distraint of goods, chattels, or effects, and other personal property

of whatever character, including stocks and other securities, debts,
credits, bank accounts and interest in and rights to personal property,
and by levy upon real property and interest in rights to real property; and

(b) By civil or criminal action.

Either of these remedies or both simultaneously may be pursued in the

discretion of the authorities charged with the collection of such taxes:
Provided, however, That the remedies of distraint and levy shall not be
availed of where the amount of tax involve is not more than One hundred
pesos (P100).

The judgment in the criminal case shall not only impose the penalty but
shall also order payment of the taxes subject of the criminal case as
finally decided by the Commissioner.

The Bureau of Internal Revenue shall advance the amounts needed to

defray costs of collection by means of civil or criminal action, including
the preservation or transportation of personal property distrained and the
advertisement and sale thereof, as well as of real property and
improvements thereon.

SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the

interest of the Government, the Commissioner may place under constructive distraint the
property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any
business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property or to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from him.

The constructive distraint of personal property shall be affected by requiring the taxpayer
or any person having possession or control of such property to sign a receipt covering
the property distrained and obligate himself to preserve the same intact and unaltered
and not to dispose of the same ;in any manner whatever, without the express authority
of the Commissioner.

In case the taxpayer or the person having the possession and control of the property
sought to be placed under constructive distraint refuses or fails to sign the receipt herein
referred to, the revenue officer effecting the constructive distraint shall proceed to
prepare a list of such property and, in the presence of two (2) witnessed, leave a copy
thereof in the premises where the property distrained is located, after which the said
property shall be deemed to have been placed under constructive distraint.

SEC. 207. Summary Remedies. -

(A) Distraint of Personal Property. - Upon the failure of the person owing any
delinquent tax or delinquent revenue to pay the same at the time required, the
Commissioner or his duly authorized representative, if the amount involved is in excess
of One million pesos (P1,000,000), or the Revenue District Officer, if the amount
involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods,
chattels or effects, and the personal property, including stocks and other securities,
debts, credits, bank accounts, and interests in and rights to personal property of such
persons ;in sufficient quantity to satisfy the tax, or charge, together with any increment
thereto incident to delinquency, and the expenses of the distraint and the cost of the
subsequent sale.

A report on the distraint shall, within ten (10) days from receipt of the warrant, be
submitted by the distraining officer to the Revenue District Officer, and to the Revenue
Regional Director: Provided, That the Commissioner or his duly authorized
representative shall, subject to rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, have the power to lift such order
of distraint: Provided, further, That a consolidated report by the Revenue Regional
Director may be required by the Commissioner as often as necessary.

(B) Levy on Real Property. - After the expiration of the time required to pay the
delinquent tax or delinquent revenue as prescribed in this Section, real property may be
levied upon, before simultaneously or after the distraint of personal property belonging to
the delinquent. To this end, any internal revenue officer designated by the Commissioner
or his duly authorized representative shall prepare a duly authenticated certificate
showing the name of the taxpayer and the amounts of the tax and penalty due from him.
Said certificate shall operate with the force of a legal execution throughout the
Philippines.

Levy shall be affected by writing upon said certificate a description of the property upon
which levy is made. At the same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds for the province or city where the property is located
and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or
the manager of the business in respect to which the liability arose, or if there be none, to
the occupant of the property in question.

In case the warrant of levy on real property is not issued before or simultaneously with
the warrant of distraint on personal property, and the personal property of the taxpayer is
not sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized
representative shall, within thirty (30) days after execution of the distraint, proceed with
the levy on the taxpayer's real property.

Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted
by the levying officer to the Commissioner or his duly authorized representative:
Provided, however, That a consolidated report by the Revenue Regional Director may
be required by the Commissioner as often as necessary: Provided, further, That the
Commissioner or his duly authorized representative, subject to rules and regulations
promulgated by the Secretary of Finance, upon recommendation of the Commissioner,
shall have the authority to lift warrants of levy issued in accordance with the provisions
hereof.

SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant
of distraint shall make or cause to be made an account of the goods, chattels, effects or
other personal property distrained, a copy of which, signed by himself, shall be left either
with the owner or person from whose possession such goods, chattels, or effects or
other personal property were taken, or at the dwelling or place of business of such
person and with someone of suitable age and discretion, to which list shall be added a
statement of the sum demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy of the warrant of
distraint upon the taxpayer and upon the president, manager, treasurer or other
responsible officer of the corporation, company or association, which issued the said
stocks or securities.

Debts and credits shall be distrained by leaving with the person owing the debts or
having in his possession or under his control such credits, or with his agent, a copy of
the warrant of distraint. The warrant of distraint shall be sufficient authority to the person
owning the debts or having in his possession or under his control any credits belonging
to the taxpayer to pay to the Commissioner the amount of such debts or credits.

Bank accounts shall be garnished by serving a warrant of garnishment upon the

taxpayer and upon the president, manager, treasurer or other responsible officer of the
bank. Upon receipt of the warrant of garnishment, the bank shall tun over to the
Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of
the Government.

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue
District Officer or his duly authorized representative, other than the officer referred to in
Section 208 of this Code shall, according to rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a
notification to be exhibited in not less than two (2) public places in the municipality or city
where the distraint is made, specifying; the time and place of sale and the articles
distrained. The time of sale shall not be less than twenty (20) days after notice. One
place for the posting of such notice shall be at the Office of the Mayor of the city or
municipality in which the property is distrained.

At the time and place fixed in such notice, the said revenue officer shall sell the goods,
chattels, or effects, or other personal property, including stocks and other securities so
distrained, at public auction, to the highest bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or stock exchanges.

In the case of Stocks and other securities, the officer making the sale shall execute a bill
of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation,
company or association which issued the stocks or other securities. Upon receipt of the
copy of the bill of sale, the corporation, company or association shall make the
corresponding entry in its books, transfer the stocks or other securities sold in the name
of the buyer, and issue, if required to do so, the corresponding certificates of stock or
other securities.

Any residue over and above what is required to pay the entire claim, including expenses,
shall be returned to the owner of the property sold. The expenses chargeable upon each
seizure and sale shall embrace only the actual expenses of seizure and preservation of
the property pending ;the sale, and no charge shall be imposed for the services of the
local internal revenue officer or his deputy.

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any
time prior to the consummation of the sale all proper charges are paid to the officer
conducting the sale, the goods or effects distrained shall be restored to the owner.

SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two (2) days after
the sale, the officer making the same shall make a report of his proceedings in writing to
the Commissioner and shall himself preserve a copy of such report as an official record.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid
for the property under distraint is not equal to the amount of the tax or is very much less
than the actual market value of the articles offered for sale, the Commissioner or his
deputy may purchase the same in behalf of the national Government for the amount of
taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his deputy, subject to the
rules and regulations prescribed by the Secretary of Finance, the net proceeds
therefrom shall be remitted to the National Treasury and accounted for as internal
revenue.

SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer
conducting the proceedings shall proceed to advertise the property or a usable portion
thereof as may be necessary to satisfy the claim and cost of sale; and such
advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by
posting a notice at the main entrance of the municipal building or city hall and in public
and conspicuous place in the barrio or district in which the real estate lies and ;by
publication once a week for three (3) weeks in a newspaper of general circulation in the
municipality or city where the property is located. The advertisement shall contain a
statement of the amount of taxes and penalties so due and the time and place of sale,
the name of the taxpayer against whom taxes are levied, and a short description of the
property to be sold. At any time before the day fixed for the sale, the taxpayer may
discontinue all proceedings by paying the taxes, penalties and interest. If he does not do
so, the sale shall proceed and shall be held either at the main entrance of the municipal
building or city hall, or on the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale shall specify.

Within five (5) days after the sale, a return by the distraining or levying officer of the
proceedings shall be entered upon the records of the Revenue Collection Officer, the
Revenue District officer and the Revenue Regional Director. The Revenue Collection
Officer, in consultation with the Revenue district Officer, shall then make out and deliver
to the purchaser a certificate from his records, showing the proceedings of the sale,
describing the property sold stating the name of the purchaser and setting out the exact
amount of all taxes, penalties and interest: Provided, however, That in case the
proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over
to the owner of the property.

The Revenue Collection Officer, upon approval by the Revenue District Officer may, out
of his collection, advance an amount sufficient to defray the costs of collection by means
of the summary remedies provided for in this Code, including ;the preservation or
transportation in case of personal property, and the advertisement and subsequent sale,
both in cases of personal and real property including improvements found on the latter.
In his monthly collection reports, such advances shall be reflected and supported by
receipts.

SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale,
the delinquent taxpayer, or any one for him, shall have the right of paying to the
Revenue District Officer the amount of the public taxes, penalties, and interest thereon
from the date of delinquency to the date of sale, together with interest on said purchase
price at the rate of fifteen percent (15%) per annum from the date of purchase to the
date of redemption, and such payment shall entitle the person paying to the delivery of
the certificate issued to the purchaser and a certificate from the said Revenue District
Officer that he has thus redeemed the property, and the Revenue District Officer shall
forthwith pay over to the purchaser the amount by which such property has thus been
redeemed, and said property thereafter shall be free form the lien of such taxes and
penalties.

The owner shall not, however, be deprived of the possession of the said property and
shall be entitled to the rents and other income thereof until the expiration of the time
allowed for its redemption.

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder
for real property exposed for sale as herein above provided or if the highest bid is for an
amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer
conducting the sale shall declare the property forfeited to the Government in satisfaction
of the claim in question and within two (2) days thereafter, shall make a return of his
proceedings and the forfeiture which shall be spread upon the records of his office. It
shall be the duty of the Register of Deeds concerned, upon registration with his office of
any such declaration of forfeiture, to transfer the title of the property forfeited to the
Government without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may
redeem said property by paying to the Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and penalties, together with interest thereon and the
costs of sale, but if the property be not thus redeemed, the forfeiture shall become
absolute.

SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have
charge of any real estate obtained by the Government of the Philippines in payment or
satisfaction of taxes, penalties or costs arising under this Code or in compromise or
adjustment of any claim therefore, and said Commissioner may, upon the giving of not
less than twenty (20) days notice, sell and dispose of the same of public auction or with
prior approval of the Secretary of Finance, dispose of the same at private sale. In either
case, the proceeds of the sale shall be deposited with the National Treasury, and an
accounting of the same shall rendered to the Chairman of the Commission on Audit.

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and
levy on realty may be repeated if necessary until the full amount due, including all
expenses, is collected.

SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall
have the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by this Code.

SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership,
joint-account (cuentas en participacion), association or insurance company liable to pay
an internal revenue tax, neglects or refuses to pay the same after demand, the amount
shall be a lien in favor of the Government of the Philippines from the time when the
assessment was made by the Commissioner until paid, with interests, penalties, and
costs that may accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: Provided, That this lien shall not be valid against any
mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of the province or city where the
property of the taxpayer is situated or located.

SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil
and criminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or other law enforced by the Bureau of Internal Revenue shall be
brought in the name of the Government of the Philippines and shall be conducted by
legal officers of the Bureau of Internal Revenue but no civil or criminal action for the
recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code
shall be filed in court without the approval of the Commissioner.

SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. - The remedy for
enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the
particular situation may require, subject to the approval of the Commissioner.

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon
 may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period
of limitation as prescribed in paragraph (a) hereof may be collected by
distraint or levy or by a proceeding in court within five (5) years following
the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove, may be collected
by distraint or levy or by a proceeding in court within the period agreed
upon in writing before the expiration of the five (5) -year period. The
period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed
upon.
(e) Provided, however, That nothing in the immediately preceding and
paragraph (a) hereof shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in accordance with the
provisions of any tax amnesty law or decree.
SEC. 223. Suspension of Running of Statute of Limitations. - The running of the
Statute of Limitations provided in Sections 203 and 222 on the making of assessment
and the beginning of distraint or levy a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or collected:
Provided, that, if the taxpayer informs the Commissioner of any change in address, the
running of the Statute of Limitations will not be suspended; when the warrant of distraint
or levy is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.

SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and
removable fixtures of any sort shall be enforced by the seizure and sale, or destruction,
of the specific forfeited property. The forfeiture of real property shall be enforced by a
judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as
the case may require.

SEC. 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and
removable fixtures shall be effected, so far as practicable, in the same manner and
under the same conditions as the public notice and the time and manner of sale as are
prescribed for sales of personal property distrained for the non-payment of taxes.

Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and
all apparatus used I or about the illicit production of such articles may, upon forfeiture, be
destroyed by order of the Commissioner, when the sale of the same for consumption or
use would be injurious to public health or prejudicial to the enforcement of the law.

All other articles subject to excise tax, which have been manufactured or removed in
violation of this Code, as well as dies for the printing or making of internal revenue
stamps and labels which are in imitation of or purport to be lawful stamps, or labels may,
upon forfeiture, be sold or destroyed in the discretion of the Commissioner.
Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

SEC. 226. Disposition of funds Recovered in Legal Proceedings or Obtained from

Forfeitures. - all judgments and monies recovered and received for taxes, costs,
forfeitures, fines and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and except as specially
provided, shall be accounted for and dealt with the same way.

SEC. 227. Satisfaction of Judgment Recovered Against any Internal Revenue

Officer. - When an action is brought against any Internal Revenue officer to recover
damages by reason of any act done in the performance of official duty, and the
Commissioner is notified of such action in time to make defense against the same,
through the Solicitor General, any judgment, damages or costs recovered in such action
shall be satisfied by the Commissioner, upon approval of the Secretary of Finance, or if
the same be paid by the person used shall be repaid or reimbursed to him.

No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person

who has acted negligently or in bad faith, or with willful oppression.

CHAPTER III
PROTESTING AN ASSESSMENT, REFUND, ETC.

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a preassessment notice shall not be
required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return;
or
(b) When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries and
spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer

shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding

shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, of any sum alleged to have
been excessively or in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously
paid.

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -

(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the
pertinent provisions of this Code, which shall remain unclaimed or uncashed within five
(5) years from the date the said warrant or check was mailed or delivered, shall be
forfeited in favor of the Government and the amount thereof shall revert to the general
fund.

(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the
pertinent provisions of this Code, which shall remain unutilized after five (5) years from
the date of issue, shall, unless revalidated, be considered invalid, and shall not be
allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount
covered by the certificate shall revert to the general fund.

(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit
certificate issued by the Commissioner or his duly authorized representative prior to
January 1, 1998, which remains unutilized or has a creditable balance as of said date,
shall be presented for revalidation with the Commissioner or his duly authorized
representative or on before June 30, 1998.
SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of personal
property under claim of forfeiture, the owner desiring to contest the validity of the
forfeiture may, at any time before sale or destruction of the property, bring an action
against the person seizing the property or having possession thereof to recover the
same, and upon giving proper bond, may enjoin the sale; or after the sale and within six
(6) months, he may bring an action to recover the net proceeds realized at the sale.

TITLE IX
COMPLIANCE REQUIREMENTS

CHAPTER I
KEEPING OF BOOKS OF ACCOUNTS AND RECORDS

SEC. 232. Keeping of Books of Accounts. -

(A) Corporations, Companies, Partnerships or Persons Required to Keep Books of

Accounts. - All corporations, companies, partnerships or persons required by law to pay
internal revenue taxes shall keep a journal and a ledger or their equivalents: Provided,
however, That those whose quarterly sales, earnings, receipts, or output do not exceed
Fifty thousand pesos (P50,000) shall keep and use simplified set of bookkeeping records
duly authorized by the Secretary of Finance where in all transactions and results of
operations are shown and from which all taxes due the Government may readily and
accurately be ascertained and determined any time of the year: Provided, further, That
corporations, companies, partnerships or persons whose gross quarterly sales,
earnings, receipts or output exceed One hundred fifty thousand pesos (P150,000) shall
have their books of accounts audited and examined yearly by independent Certified
Public Accountants and their income tax returns accompanied with a duly accomplished
Account Information Form (AIF) which shall contain, among others, information lifted
from certified balance sheets, profit and loss statements, schedules listing income-
producing properties and the corresponding income therefrom and other relevant
statements.

(B) Independent Certified Public Accountant Defined. - The term "Independent

Certified Public Accountant", as used in the preceding paragraph, means an accountant
who possesses the independence as defined in the rules and regulations of the Board of
Accountancy promulgated pursuant to Presidential Decree No. 692, otherwise known as
the Revised Accountancy Law.

SEC. 233. Subsidiary Books. - All corporations, companies, partnerships or persons

keeping the books of accounts mentioned in the preceding Section may, at their option,
keep subsidiary books as the needs of their business may require: Provided, That were
such subsidiaries are kept, they shall form part of the accounting system of the taxpayer
and shall be subject to the same rules and regulations as to their keeping, translation,
production and inspection as are applicable to the journal and the ledger.

SEC. 234. Language in which Books are to be Kept; Translation. - All such
corporations, companies, partnerships or persons shall keep the books or records
mentioned in Section 232 hereof in native language, English or Spanish: Provided,
however, That if in addition to said books or records the taxpayer keeps other books or
records in a language other than a native language, English or Spanish, he shall make a
true and complete translation of all the entries in suck other books or records into a
native language; English or Spanish, and the said translation must be made by the
bookkeeper, or such taxpayer, or in his absence, by his manager and must be certified
under oath as to its correctness by the said bookkeeper or manager, and shall form an
integral part of the aforesaid books of accounts. The keeping of such books or records in
any language other than a native language, English or Spanish, is hereby prohibited.

SEC. 235. Preservation of Books and Accounts and Other Accounting Records. -
All the books of accounts, including the subsidiary books and other accounting records
of corporations, partnerships, or persons, shall be preserved by them for a period
beginning from the last entry in each book until the last day prescribed by Section 203
within which the Commissioner is authorized to make an assessment. The said books
and records shall be subject to examination and inspection by internal revenue officers:
Provided, That for income tax purposes, such examination and inspection shall be made
only once in a taxable year, except in the following cases:

(a) Fraud, irregularity or mistakes, as determined by the Commissioner;

(b) The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax laws and regulations;
(d) Verification of capital gains tax liabilities; and
(e) In the exercise of the Commissioner's power under Section 5(B) to
obtain information from other persons in which case, another or separate
examination and inspection may be made. Examination and inspection of
books of accounts and other accounting records shall be done in the
taxpayer's office or place of business or in the office of the Bureau of
Internal Revenue. All corporations, partnerships or persons that retire
from business shall, within ten (10) days from the date of retirement or
within such period of time as may be allowed by the Commissioner in
special cases, submit their books of accounts, including the subsidiary
books and other accounting records to the Commissioner or any of his
deputies for examination, after which they shall be returned.
Corporations and partnerships contemplating dissolution must notify the
Commissioner and shall not be dissolved until cleared of any tax liability.
Any provision of existing general or special law to the contrary notwithstanding, the
books of accounts and other pertinent records of tax-exempt organizations or grantees
of tax incentives shall be subject to examination by the Bureau of Internal Revenue for
purposes of ascertaining compliance with the conditions under which they have been
granted tax exemptions or tax incentives, and their tax liability, if any.

CHAPTER II
ADMINISTRATIVE PROVISIONS

SEC. 236. Registration Requirements. -

(A) Requirements. - Every person subject to any internal revenue tax shall register
once with the appropriate Revenue District Officer:

(1) Within ten (10) days from date of employment, or

 (2) On or before the commencement of business,or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or declaration as required in this
Code.
The registration shall contain the taxpayer's name, style, place of residence, business
and such other information as may be required by the Commissioner in the form
prescribed therefor.

A person maintaining a head office, branch or facility shall register with the Revenue
District Officer having jurisdiction over the head office, brand or facility. For purposes of
this Section, the term "facility" may include but not be limited to sales outlets, places of
production, warehouses or storage places.

(B) Annual Registration Fee. - An annual registration fee in the amount of Five
hundred pesos (P500) for every separate or distinct establishment or place of business,
including facility types where sales transactions occur, shall be paid upon registration
and every year thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether locally or
abroad, and overseas workers are not liable to the registration fee herein imposed.

The registration fee shall be paid to an authorized agent bank located within the revenue
district, or to the Revenue Collection Officer, or duly authorized Treasurer of the city of
municipality where each place of business or branch is registered.

(C) Registration of Each Type of Internal Revenue Tax. - Every person who is
required to register with the Bureau of Internal Revenue under Subsection (A) hereof,
shall register each type of internal revenue tax for which he is obligated, shall file a
return and shall pay such taxes, and shall updates such registration of any changes in
accordance with Subsection (E) hereof.

(D) Transfer of Registration. - In case a registered person decides to transfer his place
of business or his head office or branches, it shall be his duty to update his registration
status by filing an application for registration information update in the form prescribed
therefor.

(E) Other Updates. - Any person registered in accordance with this Section shall,
whenever applicable, update his registration information with the Revenue District Office
where he is registered, specifying therein any change in type and other taxpayer details.

(F) Cancellation of Registration. - The registration of any person who ceases to be

liable to a tax type shall be cancelled upon filing with the Revenue District Office where
he is registered an application for registration information update in a form prescribed
therefor.

(G) Persons Commencing Business. - Any person, who expects to realize gross sales
or receipts subject to value-added tax in excess of the amount prescribed under Section
109(z) of this Code for the next 12-month period from the commencement of the
business, shall register with the Revenue District Office which has jurisdiction over the
head office or branch and shall pay the annual registration fee prescribed in Subsection
(B) hereof.
(H) Persons Becoming Liable to the Value-added Tax. - Any person, whose gross
sales or receipts in any 12-month period exceeds the amount prescribed under
Subsection 109(z) of this Code for exemption from the value-added tax shall register in
accordance with Subsection (A) hereof, and shall pay the annual registration fee
prescribed within ten (10) days after the end of the last month of that period, and shall be
liable to the value-added tax commencing from the first day of the month following his
registration.

(I) Optional Registration of Exempt Person. - Any person whose transactions are
exempt from value-added tax under Section 109(z) of this Code; or any person whose
transactions are exempt from the value-added tax under Section 109(a), (b), (c), and (d)
of this Code, who opts to register as a VAT taxpayer with respect to his export sales
only, may update his registration information in accordance with Subsection (E) hereof,
not later than ten (10) days before the beginning of the taxable quarter and shall pay the
annual registration fee prescribed in Subsection (B) hereof.

In any case, the Commissioner may, for administrative reasons, deny any application for
registration including updates prescribed under Subsection (E) hereof.

For purposes of Title IV of this Code, any person who has registered value-added tax as
a tax type in accordance with the provisions of Subsection (C) hereof shall be referred to
as VAT-registered person who shall be assigned only one Taxpayer Identification
Number.

(J) Supplying of Taxpayer Identification Number (TIN). - Any person required under
the authority of this Code to make, render or file a return, statement or other document
shall be supplied with or assigned a Taxpayer Identification Number (TIN) which he shall
indicate in such return, statement or document filed with the Bureau of Internal Revenue
for his proper identification for tax purposes, and which he shall indicate in certain
documents, such as, but not limited to the following:

(1) Sugar quedans, refined sugar release order or similar instruments;

(2) Domestic bills of lading;
(3) Documents to be registered with the Register of Deeds of Assessor's
Office;
(4) Registration certificate of transportation equipment by land, sea or air;
(5) Documents to be registered with the Securities and Exchange
Commission;
(6) Building construction permits;
(7) Application for loan with banks, financial institutions, or other financial
intermediaries;
(8) Application for mayor's permit;
(9) Application for business license with the Department of Trade &
Industry; and
(10) Such other documents which may hereafter be required under rules
and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
In cases where a registered taxpayer dies, the administrator or executor shall register
the estate of the decedent in accordance with Subsection (A) hereof and a new
Taxpayer Identification Number (TIN) shall be supplied in accordance with the provisions
of this Section.

In the case of a nonresident decedent, the executor or administrator of the estate shall
register the estate with the Revenue District Office where he is registered: Provided,
however, That in case such executor or administrator is not registered, registration of the
estate shall be made with the Taxpayer Identification Number (TIN) supplied by the
Revenue District Office having jurisdiction over his legal residence.

Only one Taxpayer identification Number (TIN) shall be assigned to a taxpayer. Any
person who shall secure more than one Taxpayer Identification Number shall be
criminally liable under the provision of Section 275 on 'Violation of Other Provisions of
this Code or Regulations in General'.

SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons

subject to an internal revenue tax shall, for each sale or transfer of merchandise or for
services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered
receipts or sales or commercial invoices, prepared at least in duplicate, showing the date
of transaction, quantity, unit cost and description of merchandise or nature of service:
Provided, however, That in the case of sales, receipts or transfers in the amount of One
hundred pesos (P100.00) or more, or regardless of the amount, where the sale or
transfer is made by a person liable to value-added tax to another person also liable to
value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which shall
show the name, business style, if any, and address of the purchaser, customer or client:
Provided, further, That where the purchaser is a VAT-registered person, in addition to
the information herein required, the invoice or receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser.

The original of each receipt or invoice shall be issued to the purchaser, customer or
client at the time the transaction is effected, who, if engaged in business or in the
exercise of profession, shall keep and preserve the same in his place of business for a
period of three (3) years from the close of the taxable year in which such invoice or
receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in
his place of business, for a like period.

The Commissioner may, in meritorious cases, exempt any person subject to internal
revenue tax from compliance with the provisions of this Section.

SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who
are engaged in business shall secure from the Bureau of Internal Revenue an authority
to print receipts or sales or commercial invoices before a printer can print the same.

No authority to print receipts or sales or commercial invoices shall be granted unless the
receipts or invoices to be printed are serially numbered and shall show, among other
things, the name, business style, Taxpayer Identification Number (TIN) and business
address of the person or entity to use the same, and such other information that may be
required by rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
All persons who print receipt or sales or commercial invoices shall maintain a
logbook/register of taxpayers who availed of their printing services. The logbook/register
shall contain the following information:

(1) Names, Taxpayer Identification Numbers of the persons or entities for

whom the receipts
or sales or commercial invoices were printed; and
(2) Number of booklets, number of sets per booklet, number of copies
per set and the
serial numbers of the receipts or invoices in each booklet.
SEC. 239. Sign to be Exhibited by Distiller, Rectifier, Compounder, Repacker and
Wholesale Liquor Dealer. - Every person engaged in distilling or rectifying spirits,
compounding liquors, repacking wines or distilled spirits, and every wholesale liquor
dealer shall keep conspicuously on the outside of his place of business a sign exhibiting,
in letters not less than six centimeters (6 cms.) high, his name or firm style, with the
words "Registered Distiller", "Rectifier of Spirits", "Compounder of Liquors", "Repacker of
Wines or Distilled Spirits", or "Wholesale Liquor Dealer", as the case may be, and his
assessment number.

SEC. 240. Sign to be Exhibited by Manufacturer of Products of Tobacco. - Every

manufacturer of cigars, cigarettes or tobacco, and every wholesale dealer in leaf tobacco
or manufactured products of tobacco shall place and keep on outside of the building
wherein his business is carried on, so that it can be distinctly seen, a sign stating his full
name and business in letters not less than six centimeters (6 cms.) high and also giving
his assessment number.

SEC. 241. Exhibition of Certificate of Payment at Place of Business. - The certificate

or receipts showing payment of taxes issued to a person engaged in a business subject
to an annual registration fee shall be kept conspicuously exhibited in plain view in or at
the place where the business is conducted; and in case of a peddler or other persons
not having a fixed place of business, shall be kept in the possession of the holder
thereof, subject to production upon demand of any internal revenue officer.

SEC. 242. Continuation of Business of Deceased Person. - When any individual who
has paid the annual registration fee dies, and the same business is continued by the
person or persons interested in his estate, no additional payment shall be required for
the residue of the term which the tax was paid: Provided, however, That the person or
persons interested in the estate should, within thirty (30) days from the death of the
decedent, submit to the Bureau of Internal Revenue or the regional or revenue District
Office inventories of goods or stocks had at the time of such death.
The requirement under this Section shall also be applicable in the case of transfer of
ownership or change of name of the business establishment.

SEC. 243. Removal of Business to Other Location. - Any business for which the
annual registration fee has been paid may, subject to the rules and regulations
prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be
removed and continued in any other place without the payment of additional tax during
the term for which the payment was made.

CHAPTER III
RULES AND REGULATIONS
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations.
- The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code.

SEC. 245. Specific Provisions to be Contained in Rules and Regulations. - The

rules and regulations of the Bureau of Internal Revenue shall, among other thins, contain
provisions specifying, prescribing or defining:

(a) The time and manner in which Revenue Regional Director shall
canvass their respective Revenue Regions for the purpose of
discovering persons and property liable to national internal revenue
taxes, and the manner in which their lists and records of taxable persons
and taxable objects shall be made and kept;
(b) The forms of labels, brands or marks to be required on goods subject
to an excise tax, and the manner in which the labelling, branding or
marking shall be effected;
(c) The conditions under which and the manner in which goods intended
for export, which if not exported would be subject to an excise tax, shall
be labelled, branded or marked;
(d) The conditions to be observed by revenue officers respecting the
institutions and conduct of legal actions and proceedings;
(e) The conditions under which goods intended for storage in bonded
warehouses shall be conveyed thither, their manner of storage and the
method of keeping the entries and records in connection therewith, also
the books to be kept by Revenue Inspectors and the reports to be made
by them in connection with their supervision of such houses;
(f) The conditions under which denatured alcohol may be removed and
dealt in, the character and quantity of the denaturing material to be used,
the manner in which the process of denaturing shall be effected, so as to
render the alcohol suitably denatured and unfit for oral intake, the bonds
to be given, the books and records to be kept, the entries to be made
therein, the reports to be made to the Commissioner, and the signs to be
displayed in the business or by the person for whom such denaturing is
done or by whom, such alcohol is dealt in;
(g) The manner in which revenue shall be collected and paid, the
instrument, document or object to which revenue stamps shall be affixed,
the mode of cancellation of the same, the manner in which the proper
books, records, invoices and other papers shall be kept and entries
therein made by the person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up and returned after
serving their purposes;
(h) The conditions to be observed by revenue officers respecting the
enforcement of Title III imposing a tax on estate of a decedent, and other
transfers mortis causa, as well as on gifts and such other rules and
regulations which the Commissioner may consider suitable for the
enforcement of the said Title III;
(i) The manner in which tax returns, information and reports shall be
prepared and reported and the tax collected and paid, as well as the
 conditions under which evidence of payment shall be furnished the
taxpayer, and the preparation and publication of tax statistics;
(j) The manner in which internal revenue taxes, such as income tax,
including withholding tax, estate and donor's taxes, value-added tax,
other percentage taxes, excise taxes and documentary stamp taxes shall
be paid through the collection officers of the Bureau of Internal Revenue
or through duly authorized agent banks which are hereby deputized to
receive payments of such taxes and the returns, papers and statements
that may be filed by the taxpayers in connection with the payment of the
tax: Provided, however, That notwithstanding the other provisions of this
Code prescribing the place of filing of returns and payment of taxes, the
Commissioner may, by rules and regulations, require that the tax returns,
papers and statements that may be filed by the taxpayers in connection
with the payment of the tax. Provided, however, That notwithstanding the
other provisions of this Code prescribing the place of filing of returns and
payment of taxes, the Commissioner may, by rules and regulations
require that the tax returns, papers and statements and taxes of large
taxpayers be filed and paid, respectively, through collection officers or
through duly authorized agent banks: Provided, further, That the
Commissioner can exercise this power within six (6) years from the
approval of Republic Act No. 7646 or the completion of its
comprehensive computerization program, whichever comes earlier:
Provided, finally, That separate venues for the Luzon, Visayas and
Mindanao areas may be designated for the filing of tax returns and
payment of taxes by said large taxpayers.
For the purpose of this Section, "large taxpayer" means a taxpayer who satisfies any of
the following criteria;

(1) Value-Added Tax (VAT). - Business establishment with VAT paid or payable of at
least One hundred thousand pesos (P100,000) for any quarter of the preceding taxable
year;

(2) Excise Tax. - Business establishment with excise tax paid or payable of at least One
million pesos (P1,000,000) for the preceding taxable year;

(3) Corporate Income Tax. - Business establishment with annual income tax paid or
payable of at least One million pesos (P1,000,000) for the preceding taxable year; and

(4) Withholding Tax. - Business establishment with withholding tax payment or

remittance of at least One million pesos (P1,000,000) for the preceding taxable year.

Provided, however, That the Secretary of Finance, upon recommendation of the

Commissioner, may modify or add to the above criteria for determining a large taxpayer
after considering such factors as inflation, volume of business, wage and employment
levels, and similar economic factors.

The penalties prescribed under Section 248 of this Code shall be imposed on any
violation of the rules and regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, prescribing the place of filing of returns and
payments of taxes by large taxpayers.
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of
any of the rules and regulations promulgated in accordance with the preceding Sections
or any of the rulings or circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts

from his return or any document required of him by the Bureau of Internal
Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based; or
(c) Where the taxpayer acted in bad faith.

TITLE X
STATUTORY OFFENSES AND PENALTIES

CHAPTER I
ADDITIONS TO TAX

SEC. 247. General Provisions. -

(a) The additions to the tax or deficiency tax prescribed in this Chapter
shall apply to all taxes, fees and charges imposed in this Code. The
Amount so added to the tax shall be collected at the same time, in the
same manner and as part of the tax.
(b) If the withholding agent is the Government or any of its agencies,
political subdivisions or instrumentalities, or a government-owned or
controlled corporation, the employee thereof responsible for the
withholding and remittance of the tax shall be personally liable for the
additions to the tax prescribed herein.
(c) the term "person", as used in this Chapter, includes an officer or
employee of a corporation who as such officer, employee or member is
under a duty to perform the act in respect of which the violation occurs.
SEC. 248. Civil Penalties. -
(A) There shall be imposed, in addition to the tax required to be paid, a
penalty equivalent to twenty-five percent (25%) of the amount due, in the
following cases:
(1) Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a
return with an internal revenue officer other than those with whom
the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on
any return required to be filed under the provisions of this Code
 or rules and regulations, or the full amount of tax due for which no
return is required to be filed, on or before the date prescribed for
its payment.
(B) In case of willful neglect to file the return within the period prescribed
by this Code or by rules and regulations, or in case a false or fraudulent
return is willfully made, the penalty to be imposed shall be fifty percent
(50%) of the tax or of the deficiency tax, in case, any payment has been
made on the basis of such return before the discovery of the falsity or
fraud: Provided, That a substantial underdeclaration of taxable sales,
receipts or income, or a substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules and regulations to
be promulgated by the Secretary of Finance, shall constitute prima facie
evidence of a false or fraudulent return: Provided, further, That failure to
report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an
amount exceeding (30%) of actual deductions, shall render the taxpayer
liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.
SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for payment until the
amount is fully paid.

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this
Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest
shall be assessed and collected from the date prescribed for its payment until the full
payment thereof.

(C) Delinquency Interest. - In case of failure to pay:

(1) The amount of the tax due on any return to be filed, or

(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which
interest shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified
and elects to pay the tax on installment under the provisions of this Code, but fails to pay
the tax or any installment hereof, or any part of such amount or installment on or before
the date prescribed for its payment, or where the Commissioner has authorized an
extension of time within which to pay a tax or a deficiency tax or any part thereof, there
shall be assessed and collected interest at the rate hereinabove prescribed on the tax or
deficiency tax or any part thereof unpaid from the date of notice and demand until it is
paid.

SEC. 250. Failure to File Certain Information Returns. - In the case of each failure to
file an information return, statement or list, or keep any record, or supply any information
required by this Code or by the Commissioner on the date prescribed therefor, unless it
is shown that such failure is due to reasonable cause and not to willful neglect, there
shall, upon notice and demand by the Commissioner, be paid by the person failing to
file, keep or supply the same, One thousand pesos (1,000) for each failure: Provided,
however, That the aggregate amount to be imposed for all such failures during a
calendar year shall not exceed Twenty-five thousand pesos (P25,000).

SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. - Any person
required to withhold, account for, and remit any tax imposed by this Code or who willfully
fails to withhold such tax, or account for and remit such tax, or aids or abets in any
manner to evade any such tax or the payment thereof, shall, in addition to other
penalties provided for under this Chapter, be liable upon conviction to a penalty equal to
the total amount of the tax not withheld, or not accounted for and remitted.

SEC. 252. Failure of a Withholding Agent to refund Excess Withholding Tax. - Any
employer/withholding agent who fails or refuses to refund excess withholding tax shall, in
addition to the penalties provided in this Title, be liable to a penalty to the total amount of
refunds which was not refunded to the employee resulting from any excess of the
amount withheld over the tax actually due on their return.

CHAPTER II
CRIMES, OTHER OFFENSES AND FORFEITURES

SEC. 253. General Provisions. -

(a) Any person convicted of a crime penalized by this Code shall, in

addition to being liable for the payment of the tax, be subject to the
penalties imposed herein: Provided, That payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for
violation of any provision of this Code or in any action for the forfeiture of
untaxed articles.
(b) Any person who willfully aids or abets in the commission of a crime
penalized herein or who causes the commission of any such offense by
another shall be liable in the same manner as the principal.
(c) If the offender is not a citizen of the Philippines, he shall be deported
immediately after serving the sentence without further proceedings for
deportation. If he is a public officer or employee, the maximum penalty
prescribed for the offense shall be imposed and, in addition, he shall be
dismissed from the public service and perpetually disqualified from
holding any public office, to vote and to participate in any election. If the
offender is a Certified Public Accountant, his certificate as a Certified
Public Accountant shall, upon conviction, be automatically revoked or
cancelled.
(d) In the case of associations, partnerships or corporations, the penalty
shall be imposed on the partner, president, general manager, branch
manager, treasurer, officer-in-charge, and the employees responsible for
the violation.
(e) The fines to be imposed for any violation of the provisions of this
Code shall not be lower than the fines imposed herein or twice the
 amount of taxes, interest and surcharges due from the taxpayer,
whichever is higher.
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any
manner to evade or defeat any tax imposed under this Code or the payment thereof
shall, in addition to other penalties provided by law, upon conviction thereof, be punished
by a fine not less than Thirty thousand (P30,000) but not more than One hunderd
thousand pesos (P100,000) and suffer imprisonment of not less than two (2) years but
not more than four (4) years: Provided, That the conviction or acquittal obtained under
this Section shall not be a bar to the filing of a civil suit for the collection of taxes.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay
Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on
Compensation. - Any person required under this Code or by rules and regulations
promulgated thereunder to pay any tax make a return, keep any record, or supply
correct the accurate information, who willfully fails to pay such tax, make such return,
keep such record, or supply correct and accurate information, or withhold or remit taxes
withheld, or refund excess taxes withheld on compensation, at the time or times required
by law or rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000)
and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact
filed a return or statement, or actually files a return or statement and subsequently
withdraws the same return or statement after securing the official receiving seal or stamp
of receipt of internal revenue office wherein the same was actually filed shall, upon
conviction therefor, be punished by a fine of not less than Ten thousand pesos
(P10,000) but not more than Twenty thousand pesos (P20,000) and suffer imprisonment
of not less than one (1) year but not more than three (3) years.

SEC. 256. Penal Liability of Corporations. - Any corporation, association or general

co-partnership liable for any of the acts or omissions penalized under this Code, in
addition to the penalties imposed herein upon the responsible corporate officers,
partners, or employees shall, upon conviction for each act or omission, be punished by a
fine of not less than Fifty thousand pesos (P50,000) but not more than One hundred
thousand pesos (P100,000).

SEC. 257. Penal Liability for Making False Entries, Records or Reports, or Using
Falsified or Fake Accountable Forms. -

(A) Any financial officer or independent Certified Public Accountant engaged to examine
and audit books of accounts of taxpayers under Section 232 (A) and any person under
his direction who:

(1) Willfully falsifies any report or statement bearing on any examination

or audit, or renders a report, including exhibits, statements, schedules or
other forms of accountancy work which has not been verified by him
personally or under his supervision or by a member of his firm or by a
member of his staff in accordance with sound auditing practices; or
 (2) Certifies financial statements of a business enterprise containing an
essential misstatement of facts or omission in respect of the
transactions, taxable income, deduction and exemption of his client; or
(B) Any person who:
(1) Not being an independent Certified Public Accountant according to
Section 232(B) or a financial officer, examines and audits books of
accounts of taxpayers; or
(2) Offers to sign and certify financial statements without audit; or

(3) Offers any taxpayer the use of accounting bookkeeping records for
internal revenue purposes not in conformity with the requirements
prescribed in this Code or rules and regulations promulgated thereunder;
or

(4) Knowingly makes any false entry or enters any false or fictitious
name in the books of accounts or record mentioned in the preceding
paragraphs; or

(5) Keeps two (2) or more sets of such records or books of accounts; or

(6) In any way commits an act or omission, in violation of the provisions

of this Section; or

(7) Fails to keep the books of accounts or records mentioned in Section

232 in a native language, English or Spanish, or to make a true and
complete translation as required in Section 234 of this Code, or whose
books of accounts or records kept in a native language, English or
Spanish, and found to be at material variance with books or records kept
by him in another language; or

(8) Willfully attempts in any manner to evade or defeat any tax imposed
under this Code, or knowingly uses fake or falsified revenue official
receipts, Letters of Authority, certificates authorizing registration, Tax
Credit Certificates, Tax Debit Memoranda and other accountable forms
shall, upon conviction for each act or omission, be punished by a fine not
less than Fifty thousand pesos (P50,000) but not more than One
hundred pesos (P100,000) and suffer imprisonment of not less than two
(2) years but not more than six (6) years.

If the offender is a Certified Public Accountant, his certificate as a Certified Public

Accountant shall be automatically revoked or cancelled upon conviction.

In the case of foreigners, conviction under this Code shall result in his immediate
deportation after serving sentence, without further proceedings for deportation.

SEC. 258. Unlawful Pursuit of Business. - Any person who carries on any business for
which an annual registration fee is imposed without paying the tax as required by law
shall, upon conviction for each act or omission, be punished by a fine of not less than
Five thousand pesos (P5,000) but not more than Twenty thousand pesos (P20,000) and
suffer imprisonment of not less than six (6) months but not more than two (2) years:
Provided, That in the case of a person engaged in the business of distilling, rectifying,
repacking, compounding or manufacturing any article subject to excise tax, he shall,
upon conviction for each act or omission, be punished by a fine of not less than Thirty
thousand pesos (P30,000) but not more than Fifty thousand pesos (P50,000) and suffer
imprisonment of not less than two (2) years but not more than four (4) years.

SEC. 259. Illegal Collection of Foreign Payments. - Any person who knowingly
undertakes the collection of foreign payments as provided under Section 67 of this Code
without having obtained a license therefor, or without complying with its implementing
rules and regulations, shall, upon conviction for each act or omission, be punished by a
fine of not less than Twenty thousand pesos (P20,000) but not more than Fifty thousand
pesos (P50,000) and suffer imprisonment of not less than one (1) year but not more than
two (2) years.

SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins or Rolls, Etc. - It

shall be unlawful for any person to have in his possession cigarette paper in bobbins or
rolls, cigarette tipping paper or cigarette filter tips, without the corresponding authority
therefor issued by the Commissioner. Any person, importer, manufacturer of cigar and
cigarettes, who has been found guilty under this Section, shall, upon conviction for each
act or omission, be punished by a fine of not less than Twenty thousand pesos
(P20,000) but not more than One hundred thousand pesos (P1000,000) and suffer
imprisonment for a term of not less than six (6) years and one (1) day but not more than
twelve (12) years.

SEC. 261. Unlawful Use of Denatured Alcohol. - Any person who for the purpose of
manufacturing any beverage, uses denatured alcohol or alcohol specially denatured to
be used for motive power or withdrawn under bond for industrial uses or alcohol
knowingly misrepresented to be denatured to be unfit for oral intake or who knowingly
sells or offers for sale any beverage made in whole or in part from such alcohol or who
uses such alcohol for the manufacture of liquid medicinal preparations taken internally,
or knowingly sells or offers for sale such preparations containing as an ingredient such
alcohol, shall upon conviction for each act or omission be punished by a fine of not less
than Twenty thousand pesos (P20,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment for a term of not less than six (6) years and one (1)
day but not more than twelve (12) years.

Any person who shall unlawfully recover or attempt to recover by distillation or other
process any denatured alcohol or who knowingly sells or offers for sale, conceals or
otherwise disposes of alcohol so recovered or redistilled shall be subject to the same
penalties imposed under this Section.

SEC. 262. Shipment or Removal of Liquor or Tobacco Products under False Name
or Brand or as an Imitation of any Existing or Otherwise Known Product Name or
Brand. - Any person who ships, transports or removes spirituous, compounded or
fermented liquors, wines or any manufactured products of tobacco under any other than
the proper name or brand known to the trade as designating the kind and quality of the
contents of the cask, bottle or package containing the same or as an imitation of any
existing or otherwise known product name or brand or causes such act to be done, shall,
upon conviction for each act or omission, be punished by a fine of not less than Twenty
thousand pesos (P20,000) but not more than One hundred thousand pesos (P1000,000)
and suffer imprisonment of not less than six (6) years and one (1) day but not more than
twelve (12) years.

SEC. 263. Unlawful Possession or Removal of Articles Subject to Excise Tax

without Payment of the Tax. - Any person who owns and/or is found in possession of
imported articles subject to excise tax, the tax on which has not been paid in accordance
with law, or any person who owns and/or is found in possession of imported tax-exempt
articles other than those to whom they are legally issued shall be punished by:

(a) A fine of not less than One thousand pesos (P1,000) nor more than
Two thousand pesos (P2,000) and suffer imprisonment of not less than
sixty (60) days but not more than one hundred (100) days, if the
appraised value, to be determined in the manner prescribed in the Tariff
and Customs Code, including duties and taxes, of the articles does not
exceed One thousand pesos (P1,000).
(b) A fine of not less than Ten thousand pesos (P10,000) but not more
than Twenty thousand pesos (P20,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years, if the appraised
value, to be determined in the manner prescribed in the Tariff and
Customs Code, including duties and taxes, of the articles exceeds One
thousand pesos (P1,000) but does not exceed Fifty thousand pesos
(P50,000);
(c) A fine of not less than Thirty thousand pesos (P30,000) but not more
than Sixty thousand pesos (P60,000) and suffer imprisonment of not less
than four (4) years but not more than six (6) years, if the appraised value,
to be determined in the manner prescribed in the Tariff and Customs
Code, including duties and taxes of the articles is more than Fifty
thousand pesos (P50,000) but does not exceed One hundred fifty
thousand pesos (P150,000); or
(d) A fine of not less than Fifty thousand pesos (P50,000) but not more
than One hundred thousand pesos (P100,000) and suffer imprisonment
of not less than ten (10) years but not more than twelve (12) years, if the
appraised value, to be determined in the manner prescribed in the Tariff
and Customs Code, including duties and taxes, of the articles exceeds
One hundred fifty thousand pesos (P150,000).
Any person who is found in possession of locally manufactured articles subject to excise
tax, the tax on which has not been paid in accordance with law, or any person who is
found in possession of such articles which are exempt from excise tax other than those
to whom the same is lawfully issued shall be punished with a fine of not less than (10)
times the amount of excise tax due on the articles found but not less than Five hundred
pesos (P500) and suffer imprisonment of not less than two (2) years but not more than
four (4) years.

Any manufacturer, owner or person in charge of any article subject to excise tax who
removes or allows or causes the unlawful removal of any such articles from the place of
production or bonded warehouse, upon which the excise tax has not been paid at the
time and in the manner required, and any person who knowingly aids or abets in the
removal of such articles as aforesaid, or conceals the same after illegal removal shall,
for the first offense, be punished with a fine of not less than ten (10) times the amount of
excise tax due on the articles but not less than One thousand pesos (P1,000) and suffer
imprisonment of not less than one (1) year but not more than two (2) years.
The mere unexplained possession of articles subject to excise tax, the tax on which has
not been paid in accordance with law, shall be punishable under this Section.

Sec. 264. Failure or refusal to Issue Receipts or Sales or Commercial Invoices,

Violations related to the Printing of such Receipts or Invoices and Other
Violations. -

(a) Any person who, being required under Section 237 to issue receipts or sales or
commercial invoices, fails or refuses to issue such receipts of invoices, issues receipts
or invoices that do not truly reflect and/or contain all the information required to be
shown therein, or uses multiple or double receipts or invoices, shall, upon conviction for
each act or omission, be punished by a fine of not less than One thousand pesos
(P1,000) but not more than Fifty thousand pesos (P50,000) and suffer imprisonment of
not less than two (2) years but not more than four (4) years.

(b) Any person who commits any of the acts enumerated hereunder shall be penalized in
the same manner and to the same extent as provided for in this Section:

(1) Printing of receipts or sales or commercial invoices without authority

from the Bureau of Internal Revenue; or
(2) Printing of double or multiple sets of invoices or receipts; or
(3) Printing of unnumbered receipts or sales or commercial invoices, not
bearing the name, business style, Taxpayer Identification Number, and
business address of the person or entity.
SEC. 265. Offenses Relating to Stamps. - Any person who commits any of the acts
enumerated hereunder shall, upon conviction thereof, be punished by a fine of not less
than Twenty thousand pesos (P20,000) but not more than Fifty thousand pesos
(P50,000) and suffer imprisonment of not less than four (4) years but not more than eight
(8) years:
(a) making, importing, selling, using or possessing without express
authority from the Commissioner, any die for printing or making stamps,
labels, tags or playing cards;
(b) Erasing the cancellation marks of any stamp previously used, or
altering the written figures or letters or cancellation marks on internal
revenue stamps;
(c) Possessing false, counterfeit, restored or altered stamps, labels or
tags or causing the commission of any such offense by another;
(d) Selling or offering for sale any box or package containing articles
subject to excise tax with false, spurious or counterfeit stamps or labels
or selling from any such fraudulent box, package or container as
aforementioned; or
(e) Giving away or accepting from another, or selling, buying or using
containers on which the stamps are not completely destroyed.
Sec. 266. Failure to Obey Summons. - Any person who, being duly summoned to
appear to testify, or to appear and produce books of accounts, records, memoranda or
other papers, or to furnish information as required under the pertinent provisions of this
Code, neglects to appear or to produce such books of accounts, records, memoranda or
other papers, or to furnish such information, shall, upon conviction, be punished by a fine
of not less than Five thousand pesos (P5,000) but not more than ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more than two
(2) years.

SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and other
statement required under this Code, shall, in lieu of an oath, contain a written statement
that they are made under the penalties of perjury. Any person who willfully files a
declaration, return or statement containing information which is not true and correct as to
every material matter shall, upon conviction, be subject to the penalties prescribed for
perjury under the Revised Penal Code.

SEC. 268. Other Crimes and Offenses. -

(A) Misdeclaration or Misrepresentation of Manufacturers Subject to Excise Tax. -

Any manufacturer who, in violation of the provisions of Title VI of this Code, misdeclares
in the sworn statement required therein or in the sales invoice, any pertinent data or
information shall be punished by a summary cancellation or withdrawal of the permit to
engage in business as a manufacturer of articles subject to excise tax.

(B) Forfeiture of Property Used in Unlicensed Business or Dies Used for Printing
False Stamps, Etc. - All chattels, machinery, and removable fixtures of any sort used in
the unlicensed production of articles subject to excise tax shall be forfeited. Dies and
other equipment used for the printing or making of any internal revenue stamp, label or
tag which is in imitation of or purports to be a lawful stamp, label or tag shall also be
forfeited.

(C) Forfeiture of Goods Illegally Stored or Removed. - Unless otherwise specifically

authorized by the Commissioner, all articles subject to excise tax should not be stored or
allowed to remain in the distillery warehouse, bonded warehouse or other place where
made, after the tax thereon has been paid; otherwise, all such articles shall be forfeited.
Articles withdrawn from any such place or from customs custody or imported into the
country without the payment of the required tax shall likewise be forfeited.

CHAPTER III
PENALTIES IMPOSED ON PUBLIC OFFICERS

SEC. 269. Violations Committed by Government Enforcement Officers. - Every

official, agent, or employee of the Bureau of Internal Revenue or any other agency of the
Government charged with the enforcement of the provisions of this Code, who is guilty of
any of the offenses herein below specified shall, upon conviction for each act or
omission, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not
more than One hundred thousand pesos (P100,000) and suffer imprisonment of not less
than ten (10) years but not more than fifteen (15) years and shall likewise suffer an
additional penalty of perpetual disqualification to hold public office, to vote, and to
participate in any public election:

(a) Extortion or willful oppression through the use of his office or willful
oppression and harassment of a taxpayer who refused, declined, turned
down or rejected any of his offers specified in paragraph (d) hereof;
 (b) Knowingly demanding or receiving any fee, other or greater sums that
are authorized by law or receiving any fee, compensation or reward,
except as by law prescribed, for the performance of any duty;
(c) Willfully neglecting to give receipts, as by law required, for any sum
collected in the performance of duty or willfully neglecting to perform any
other duties enjoined by law;
(d) Offering or undertaking to accomplish, file or submit a report or
assessment on a taxpayer without the appropriate examination of the
books of accounts or tax liability, or offering or undertaking to submit a
report or assessment less than the amount due the Government for any
consideration or compensation, or conspiring or colluding with another or
others to defraud the revenues or otherwise violate the provisions of this
Code;
(e) Neglecting or by design permitting the violation of the law by any
other person;
(f) Making or signing any false entry or entries in any book, or making or
signing any false certificate or return;

(g) Allowing or conspiring or colluding with another to allow the

unauthorized retrieval, withdrawal or recall of any return, statement or
declaration after the same has been officially received by the Bureau of
Internal Revenue;

(h) Having knowledge or information of any violation of this Code or of

any fraud committed on the revenues collectible by the Bureau of
Internal Revenue, failure to report such knowledge or information to their
superior officer, or failure to report as otherwise required by law; and

(i) Without the authority of law, demanding or accepting or attempting to

collect, directly or indirectly, as payment or otherwise any sum of money
or other thing of value for the compromise, adjustment or settlement of
any charge or complaint for any violation or alleged violation of this
Code.
Provided, That the provisions of the foregoing paragraph notwithstanding, any internal
revenue officer for which a prima facie case of grave misconduct has been established
shall, after due notice and hearing of the administrative case and subject to Civil Service
Laws, be dismissed from the revenue service: Provided, further, That the term "grave
misconduct", as defined in Civil Service Law, shall include the issuance of fake letters of
authority and receipts, forgery of signature, usurpation of authority and habitual issuance
of unreasonable assessments.

SEC. 270. Unlawful Divulgence of Trade Secrets. - Except as provided in Section 71

of this Code and Section 26 of Republic Act No. 6388, any officer or employee of the
Bureau of Internal Revenue who divulges to any person or makes known in any other
manner than may be provided by law information regarding the business, income or
estate of any taxpayer, the secrets, operation, style or work, or apparatus of any
manufacturer or producer, or confidential information regarding the business of any
taxpayer, knowledge of which was acquired by him in the discharge of his official duties,
shall upon conviction for each act or omission, be punished by a fine of not less than
Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos
(P100,000), or suffer imprisonment of not less than two (2) years but not more than five
(5) years, or both.

SEC. 271. Unlawful Interest of Revenue Law Enforcers in Business. - Any internal
revenue officer who is or shall become interested, directly or indirectly, in the
manufacture, sale or importation of any article subject to excise tax under Title VI of this
Code or in the manufacture or repair or sale, of any die for printing, or making of stamps,
or labels shall upon conviction for each act or omission, be punished by a fine of not less
than Five thousand pesos (P5,000) but not more than Ten thousand pesos (P10,000), or
suffer imprisonment of not less than two (2) years and one (1) day but not more than
four (4) years, or both.

SEC. 272. Violation of Withholding Tax Provision. - Every officer or employee of the
Government of the Republic of the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government-owned or controlled
corporations, including the Bangko Sentral ng Pilipinas (BSP), who, under the provisions
of this Code or rules and regulations promulgated thereunder, is charged with the duty to
deduct and withhold any internal revenue tax and to remit the same in accordance with
the provisions of this Code and other laws is guilty of any offense herein below specified
shall, upon conviction for each act or omission be punished by a fine of not less than
Five thousand pesos (P5,000) but not more than Fifty thousand pesos (P50,000) or
suffer imprisonment of not less than six (6) months and one (1) day but not more than
two (2) years, or both:
(a) Failing or causing the failure to deduct and withhold any internal
revenue tax under any of the withholding tax laws and implementing
rules and regulations;
(b) Failing or causing the failure to remit taxes deducted and withheld
within the time prescribed by law, and implementing rules and
regulations; and
(c) Failing or causing the failure to file return or statement within the time
prescribed, or rendering or furnishing a false or fraudulent return or
statement required under the withholding tax laws and rules and
regulations.
SEC. 273. Penalty for Failure to Issue and Execute Warrant. - Any official who fails to
issue or execute the warrant of distraint or levy within thirty (30) days after the expiration
of the time prescribed in Section 207 or who is found guilty of abusing the exercise
thereof by competent authority shall be automatically dismissed from the service after
due notice and hearing.

CHAPTER IV
OTHER PENAL PROVISIONS

SEC. 274. Penalty for Second and Subsequent Offenses. - In the case of
reincidence, the maximum of the penalty prescribed for the offense shall be imposed.

SEC. 275. Violation of Other Provisions of this Code or Rules and Regulations in
General. - Any person who violates any provision of this Code or any rule or regulation
promulgated by the Department of Finance, for which no specific penalty is provided by
law, shall, upon conviction for each act or omission, be punished by a fine of not more
than One thousand pesos (P1,000) or suffer imprisonment of not more than six (6)
months, or both.

SEC. 276. Penalty for Selling, Transferring, Encumbering or in Any Way Disposing
of Property Placed Under Constructive Distraint. - Any taxpayer, whose property has
been placed under constructive distraint, who sells, transfers, encumbers or in any way
disposes of said property, or any part thereof, without the knowledge and consent of the
Commissioner, shall, upon conviction for each act or omission, be punished by a fine of
not less than twice the value of the property so sold, encumbered or disposed of but not
less than Five Thousand pesos (P5,000), or suffer imprisonment of not less than two (2)
years and one (1) day but not more than four (4) years, of both.

SEC. 277. Failure to Surrender Property Placed Under Distraint and Levy. - Any
person having in his possession or under his control any property or rights to property,
upon which a warrant of constructive distraint, or actual distraint and levy has been
issued shall, upon demand by the Commissioner or any of his deputies executing such
warrant, surrender such property or right to property to the Commissioner or any of his
deputies, unless such property or right is, at the time of such demand, subject to an
attachment or execution under any judicial process. Any person who fails or refuses to
surrender any of such property or right shall be liable in his own person and estate to the
Government in a sum equal to the value of the property or rights not so surrendered but
not exceeding the amount of the taxes (including penalties and interest) for the collection
of which such warrant had been issued, together with cost and interest if any, from the
date of such warrant. In addition, such person shall, upon conviction for each act or
omission, be punished by a fine of not less than Five thousand pesos (P5,000), or suffer
imprisonment of not less than six (6) months and one (1) day but not more than two (2)
years, or both.

SEC. 278. Procuring Unlawful Divulgence of Trade Secrets. - Any person who
causes or procures an officer or employee of the Bureau of Internal Revenue to divulge
any confidential information regarding the business, income or inheritance of any
taxpayer, knowledge of which was acquired by him in the discharge of his official duties,
and which it is unlawful for him to reveal, and any person who publishes or prints in any
manner whatever, not provided by law, any income, profit, loss or expenditure appearing
in any income tax return, shall be punished by a fine of not more than Two thousand
pesos (P2,000), or suffer imprisonment of not less than six (6) months nor more than five
(5) years, or both.

SEC. 279. Confiscation and Forfeiture of the Proceeds or Instruments of Crime. -

In addition to the penalty Imposed for the violation of the provisions of Title X of this
Code, the same shall carry with it the confiscation and forfeiture in favor of the
government of the proceeds of the crime or value of the goods, and the instruments or
tools with which the crime was committed: Provided, however, That if in the course of
the proceedings, it is established that the instruments or tools used in the illicit act
belong to a third person, the same shall be confiscated and forfeited after due notice and
hearing in a separate proceeding in favor of the Government if such third person leased,
let, chartered or otherwise entrusted the same to the offender: Provided, further, That in
case the lessee subleased, or the borrower, charterer, or trustee allowed the use of the
instruments or tools to the offender, such instruments or tools shall, likewise, be
confiscated and forfeited: Provided, finally, That property of common carriers shall not be
subject to forfeiture when used in the transaction of their business as such common
carrier, unless the owner or operator of said common carrier was, at the time of the
illegal act, a consenting party or privy thereto, without prejudice to the owner's right of
recovery against the offender in a civil or criminal action. Articles which are not subject of
lawful commerce shall be destroyed.

SEC. 280. Subsidiary Penalty. - If the person convicted for violation of any of the
provisions of this Code has no property with which to meet the fine imposed upon him by
the court, or is unable to pay such fine, he shall be subject to a subsidiary personal
liability at the rate of one (1) day for each Eight pesos and fifty centavos (P8.50) subject
to the rules established in Article 39 of the Revised Penal Code.

SEC. 281. Prescription for Violations of any Provision of this Code. - All violations
of any provision of this Code shall prescribe after Five (5) years.

Prescription shall begin to run from the day of the commission of the violation of the law,
and if the same be not known at the time, from the discovery thereof and the institution
of judicial proceedings for its investigation and punishment.

The prescription shall be interrupted when proceedings are instituted against the guilty
persons and shall begin to run again if the proceedings are dismissed for reasons not
constituting jeopardy.

The term of prescription shall not run when the offender is absent from the Philippines.

SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of

Violations of the National Internal Revenue Code and in the Discovery and Seizure
of Smuggled Goods. -

(A) For Violations of the National Internal Revenue Code. - Any person, except an
internal revenue official or employee, or other public official or employee, or his relative
within the sixth degree of consanguinity, who voluntarily gives definite and sworn
information, not yet in the possession of the Bureau of Internal Revenue, leading to the
discovery of frauds upon the internal revenue laws or violations of any of the provisions
thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the
conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be
rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees
recovered and/or fine or penalty imposed and collected or One Million Pesos
(P1,000,000) per case, whichever is lower. The same amount of reward shall also be
given to an informer where the offender has offered to compromise the violation of law
committed by him and his offer has been accepted by the Commissioner and collected
from the offender: Provided, That should no revenue, surcharges or fees be actually
recovered or collected, such person shall not be entitled to a reward: Provided, further,
That the information mentioned herein shall not refer to a case already pending or
previously investigated or examined by the Commissioner or any of his deputies, agents
or examiners, or the Secretary of Finance or any of his deputies or agents: Provided,
finally, That the reward provided herein shall be paid under rules and regulations issued
by the Secretary of Finance, upon recommendation of the Commissioner.

(B) For Discovery and Seizure of Smuggled Goods. - To encourage the public to
extend full cooperation in eradicating smuggling, a cash reward equivalent to ten percent
(10%) of the fair market value of the smuggled and confiscated goods or One Million
Pesos (P1,000,000) per case, whichever is lower, shall be given to persons instrumental
in the discovery and seizure of such smuggled goods.

The cash rewards of informers shall be subject to income tax, collected as a final
withholding tax, at a rate of ten percent (10%).

The provisions of the foregoing Subsections notwithstanding, all public officials, whether
incumbent or retired, who acquired the information in the course of the performance of
their duties during their incumbency, are prohibited from claiming informer's reward.

TITLE XI
ALLOTMENT OF INTERNAL REVENUE

CHAPTER I
DISPOSITION AND ALLOTMENT OF NATIONAL INTERNAL REVENUE IN
GENERAL

SEC. 283. Disposition of National Internal Revenue. - National Internal revenue

collected and not applied as herein above provided or otherwise specially disposed of by
law shall accrue to the National Treasury and shall be available for the general purposes
of the Government, with the exception of the amounts set apart by way of allotment as
provided for under Republic Act No. 7160, otherwise known as the Local Government
Code of 1991.

In addition to the internal revenue allotment as provided for in the preceding paragraph,
fifty percent (50%) of the national taxes collected under Sections 106, 108 and 116 of
this Code in excess of the increase in collections for the immediately preceding year
shall be distributed as follows:

(a) Twenty percent (20%) shall accrue to the city or municipality where
such taxes are collected and shall be allocated in accordance with
Section 150 of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991; and
(b) Eighty percent (80%) shall accrue to the National Government.
SEC. 284. Allotment for the Commission on Audit. - One-half of one percent (1/2 of
1%) of the collections from the national internal revenue taxes not otherwise accruing to
special accounts in the general fund of the national government shall accrue to the
Commission on Audit as a fee for auditing services rendered to local government units,
excluding maintenance, equipment, and other operating expenses as provided for in
Section 21 of Presidential Decree No. 898.

The Secretary of Finance is hereby authorized to deduct from the monthly internal
revenue tax collections an amount equivalent to the percentage as herein fixed, and to
remit the same directly to the Commission on Audit under such rules and regulations as
may be promulgated by the Secretary of Finance and the Chairman of the Commission
on Audit.

SEC. 285. Allotment for the Bureau of Internal Revenue. - An amount equivalent to
five percent (5%) of the excess of actual collections of national internal revenue taxes
over the collection goal shall accrue to the special fund of the Bureau of Internal
Revenue and shall be treated as receipts automatically appropriated. Said amount shall
be utilized as incentive bonus for revenue personnel, purchase of necessary equipment
and facilities for the improvement of tax administration, as approved by the
Commissioner: Provided, That the President may, upon recommendation of the
Commissioner, direct that the excess be credited to a Special Account in the National
Treasury to be held in the reserve available for distribution as incentive bonus in the
subsequent years.

The Secretary of Finance is hereby authorized to transfer from the Treasury an amount
equivalent to the percentage as herein fixed and to remit the same directly to the Bureau
of Internal Revenue under such rules and regulations as may be promulgated by the
Secretary of Finance.

CHAPTER II
SPECIAL DISPOSITION OF CERTAIN NATIONAL INTERNAL REVENUE TAXES

SEC. 286. Disposition of Proceeds of insurance Premium Tax. - Twenty-five percent

(25%) of the premium tax collected under Section 123 of this Code shall accrue to the
Insurance Fund as contemplated in Section 418 of Presidential Decree No. 612 which
shall be used for the purpose of defraying the expenses of the Insurance Commission.
The Commissioner shall turn over and deliver the said Insurance Fund to the Insurance
Commissioner as soon as the collection is made.

SEC. 287. Shares of Local Government Units in the Proceeds from the
Development and Utilization of the National Wealth. - Local Government units shall
have an equitable share in the proceeds derived from the utilization and development of
the national wealth, within their respective areas, including sharing the same with the
inhabitants by way of direct benefits.

(A) Amount of Share of Local Government Units. - Local government units shall, in
addition to the internal revenue allotment, have a share of forty percent (40%) of the
gross collection derived by the national government from the preceding fiscal year from
excise taxes on mineral products, royalties, and such other taxes, fees or charges,
including related surcharges, interests or fines, and from its share in any co-production,
joint venture or production sharing agreement in the utilization and development of the
national wealth within their territorial jurisdiction.

(B) Share of the Local Governments from Any Government Agency or

Government-Owned or Controlled Corporation. - Local Government Units shall have
a share, based on the preceding fiscal year, from the proceeds derived by any
government agency or government-owned or controlled corporation engaged in the
utilization and development of the national wealth based on the following formula,
whichever will produce a higher share for the local government unit:

(1) One percent (1%) of the gross sales or receipts of the preceding
calendar year, or
(2) Forty percent (40%) of the excise taxes on mineral products,
royalties, and such other taxes, fees or charges, including related
 surcharges, interests or fines the government agency or government-
owned or -controlled corporations would have paid if it were not
otherwise exempt.
(C) Allocation of Shares. - The share in the preceding Section shall be distributed in
the following manner:
(1) Where the natural resources are located in the province:
(a) Province - twenty percent (20%)
(b) Component city/municipality - forty-five percent (45%); and
(c) Barangay - thirty-five percent (35%)
Provided, however, That where the natural resources are located in two (2) or more
cities, the allocation of shares shall be based on the formula on population and land area
as specified in subsection (C)(1) hereof.
(2) Where the natural resources are located in a highly urbanized or
independent component city:
(a) City - sixty - five percent (65%); and
(b) Barangay - thirty - five percent (35%)
Provided, however, That where the natural resources are located in two (2) or more
cities, the allocation of shares shall be based on the formula on population and land area
as specified in subsection (c)(1) hereof.

SEC. 288. Disposition of Incremental Revenues. -

(A) Incremental Revenues from Republic Act No. 7660. - The incremental revenues
from the increase in the documentary stamp taxes under R.A. No. 7660 shall be set
aside for the following purposes:

(1) In 1994 and 1995, twenty five percent (25%) thereof respectively,
shall accrue to the Unified Home-Lending Program under Executive
Order No. 90 particularly for mass socialized housing program to be
allocated as follows: fifty percent (50%) for mass-socialized housing;
thirty percent (30%) for the community mortgage program; and twenty
percent (20%) for land banking and development to be administered by
the National Housing Authority: Provided, That no more than one percent
(1%) of the respective allocations hereof shall be used for administrative
expenses;
(2) In 1996, twenty five percent (25%) thereof to be utilized for the
National Health Insurance Program that hereafter may be mandated by
law;
(3) In 1994 and every year thereafter, twenty five percent (25%) thereof
shall accrue to a Special Education Fund to be Administered by the
Department of Education, Culture and Sports for the construction and
repair of school facilities, training or teachers, and procurement or
production of instructional materials and teaching aids; and
(4) In 1994 and every year thereafter, fifty percent (50%) thereof shall
accrue to a Special Infrastructure Fund for the Construction and repair of
roads, bridges, dams and irrigation, seaports and hydroelectric and other
indigenous power projects: however, That for the years 1994 and 1995,
thirty percent (30%), and for the years 1996, 1997 and 1998, twenty
percent (20%), of this fund shall be allocated for depressed provinces as
declared by the President as of the time of the effectivity of R. A. No.
 7660: Provided, further, That availments under this fund shall be
determined by the President on the basis of equity.
Provided, finally, That in paragraphs (2), (3), and (4) of this Section, not more one
percent (1%) of the allocated funds thereof shall be used for administrative expenses by
the implementing agencies.

(B) Incremental Revenues from Republic Act No. 8240. - Fifteen percent (15%) of the
incremental revenue collected from the excise tax on tobacco products under R. A. No.
8240 shall be allocated and divided among the provinces producing burley and native
tobacco in accordance with the volume of tobacco leaf production. The fund shall be
exclusively utilized for programs in pursuit of the following objectives:

(1) Cooperative projects that will enhance better quality of agricultural

products and increase income and productivity of farmers;
(2) Livelihood projects, particularly the development of alternative
farming system to enhance farmer's income; and
(3) Agro-industrial projects that will enable tobacco farmers to be
involved in the management and subsequent ownership of projects, such
as post-harvest and secondary processing like cigarette manufacturing
and by-product utilization.
The Department of Budget and Management, in consultation with the Oversight
Committee created under said R.A. No. 8240, shall issue the corresponding rules and
regulations governing the allocation and disbursement of this fund.

SEC. 289. Special Financial Support to Beneficiary Provinces Producing Virginia

Tobacco. - The financial support given by the National Government for the beneficiary
provinces shall be constituted and collected from the proceeds of fifteen percent (15%)
of the excise taxes on locally manufactured Virginia-type of cigarettes.

The funds allotted shall be divided among the beneficiary provinces pro-rata according
to the volume of Virginia tobacco production.

Production producing Virginia tobacco shall be the beneficiary provinces under Republic
Act No. 7171. Provided, however, that to qualify as beneficiary under R. A. No. 7171, a
province must have an average annual production of Virginia leaf tobacco in an amount
not less than one million kilos: Provided, further, that the Department of Budget and
Management (DBM) shall each year determine the beneficiary provinces and their
computed share of the funds under R. A. No. 7171, referring to the National Tobacco
Administration (NTA) records of tobacco acceptances, at the tobacco trading centers for
the immediate past year.

The Secretary of Budget and Management is hereby directed to retain annually the said
funds equivalent to fifteen percent (15%) of excise taxes on locally manufactured
Virginia type cigarettes to be remitted to the beneficiary provinces qualified under R. A.
No. 7171.

The provision of existing laws to the contrary notwithstanding, the fifteen percent (15%)
share from government revenues mentioned in R. A. No. 7171 and due to the Virginia
tobacco-producing provinces shall be directly remitted to the provinces concerned.
Provided, That this Section shall be implemented in accordance with the guidelines of
Memorandum Circular No. 61-A dated November 28, 1993, which amended
Memorandum Circular No. 61, entitled "Prescribing Guidelines for Implementing
Republic Act No. 7171", dated January 1, 1992.

Provided, further, That in addition to the local government units mentioned in the above
circular, the concerned officials in the province shall be consulted as regards the
identification of projects to be financed.

TITLE XII
OVERSIGHT COMMITTEE

SEC. 290. Congressional Oversight Committee. -

A Congressional Oversight Committee, hereinafter referred to as the Committee, is

hereby constituted in accordance with the provisions of this Code. The Committee shall
be composed of the Chairmen of the Committee on Ways and Means of the Senate and
House Representatives and four (4) additional members from each house, to be
designated by the Speaker of the House of Representatives and the Senate President,
respectively.

The Committee shall, among others, in aid of legislation:

(1) Monitor and ensure the proper implementation of Republic Act No.
8240;
(2) Determine that the power of the Commissioner to compromise and
abate is reasonably exercised;
(3) Review the collection performance of the Bureau of Internal Revenue;
and
(4) Review the implementation of the programs of the Bureau of Internal
Revenue.
In furtherance of the hereinabove cited objectives, the Committee is empowered to
require of the Bureau of Internal Revenue, submission of all pertinent information,
including but not limited to: industry audits; collection performance data; status report on
criminal actions initiated against persons; and submission of taxpayer returns: Provided,
however, That any return or return information which can be associated with, or
otherwise identify, directly or indirectly, a particular taxpayer shall be furnished the
Committee only when sitting in Executive Session unless such taxpayer otherwise
consents in writing to such disclosure.

TITLE XIII
REPEALING PROVISIONS

SEC. 291. In General. - All laws, decrees, executive orders, rules and regulations or
parts thereof which are contrary to or inconsistent with this Code are hereby repealed,
amended or modified accordingly.

TITLE XIV
FINAL PROVISIONS
SEC. 292. Separability Clause. - If any clause, sentence, paragraph or part of this
Code shall be adjudged by any Court of competent jurisdiction to be invalid, such
judgment shall not affect, impair or invalidate the remainder of said Code, but shall be
confined in its operation to the clause, sentence, paragraph or part thereof directly
involved in the controversy.

SEC. 4. The Secretary of Finance shall, upon recommendation of the Commissioner of

Internal Revenue, promulgate and publish the necessary rules and regulations for the
effective implementation of this Act.

SEC. 5. Transitory Provisions. - Deferment of the Effectivity of the Imposition of VAT

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

SEC. 6. Separability Clause. - If any provision of this Act is subsequently declared

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

SEC. 7. Repealing Clauses. -

(A) The provision of Section 17 of Republic Act No. 7906, otherwise known as the "Thrift
Banks Act of 1995" shall continue to be in force and effect only until December 31, 1999.

Effective January 1, 2000, all thrift banks, whether in operation as of that date or
thereafter, shall no longer enjoy tax exemption as provided under Section 17 of R. A. No.
7906, thereby subjecting all thrift banks to taxes, fees and charges in the same manner
and at the same rate as banks and other financial intermediaries.

(B) The provisions of the National Internal Revenue Code, as amended, and all other
laws, including charters of government-owned or controlled corporations, decrees,
orders, or regulations or parts thereof, that are inconsistent with this Act are hereby
repealed or amended accordingly.

SEC. 8. Effectivity. - This Act shall take effect on January 1, 1998.