Amending Certain Sections Of The National Internal Revenue Code

Presidential Decree No. 1773

Summary of Presidential Decree No. 1773

Amendments to the National Internal Revenue Code:

Power of the Commissioner of Internal Revenue to Obtain Information (Section 1):
- Authorizes the Commissioner to obtain information from government offices and officers for discovering potential taxpayers. (Section 7)
- Empowers the Commissioner to examine books, papers, records, summon persons, and take testimony for tax purposes. (Section 7)

Power of the Commissioner to Make Assessments (Section 2):
- Allows the Commissioner to assess taxes based on best evidence if required reports are not filed or are false, incomplete, or erroneous. (Section 16)
- Authorizes the Commissioner to conduct surveillance on business operations for up to 2 months to assess taxes. (Section 16)
- Allows the Commissioner to terminate a taxpayer's taxable period and demand immediate payment if the taxpayer intends to retire, leave the Philippines, or perform acts that may hinder tax collection. (Section 16)

Personal and Additional Exemptions (Section 3):
- Increases the personal exemption for single individuals to P3,000. (Section 23(a))
- Increases the personal exemption for married individuals or heads of family to P6,000 or P4,500, respectively. (Section 23(b))
- Increases the additional exemption for dependents to P2,000 per dependent, up to 4 dependents, with an additional P1,000 for each child who qualified as a dependent before January 1, 1980. (Section 23(c))
- Allows the President to adjust personal and additional exemptions every 3 years based on factors like inflation and minimum wages. (Section 23(e))

Tax on Branch Profits Remittances (Section 5):
- Imposes a 15% tax on profits remitted abroad by branches to their head offices, except for those registered with the Export Processing Zone Authority. (Section 24(b)(2)(ii))
- Imposes a 7.5% tax on profits remitted by branches engaged in petroleum operations in the Philippines. (Section 24(b)(2)(ii))

Corporate Development Tax (Section 6):
- Imposes an additional 10% tax on the taxable net income of closely-held corporations, defined as corporations where at least 50% of the stock or voting power is owned by not more than 5 persons. (Section 24(e))
- Excludes banks, non-bank financial intermediaries, and corporations authorized by the Central Bank to hold shares of banks, unless certain conditions are met. (Section 24(e))

Tax on Offshore Banking Units and Expanded Foreign Currency Deposits System (Section 7):
- Exempts income derived by offshore banking units from foreign currency transactions with non-residents, other offshore banking units, and authorized local banks, except for specified net income subject to regular income tax. (Section 24(f)(1))
- Imposes a 10% final withholding tax on interest income from foreign currency loans granted to residents by offshore banking units. (Section 24(f)(1))
- Exempts income of non-residents from transactions with offshore banking units. (Section 24(f)(1))
- Provides similar exemptions and tax treatment for income derived by depository banks under the expanded foreign currency deposit system. (Section 24(f)(2))

Optional Standard Deduction (Section 9):
- Allows individuals, except non-resident aliens, to elect a standard deduction not exceeding 10% of their gross income instead of itemized deductions. (Section 30(k))
- Authorizes the Minister of Finance to prescribe limitations or ceilings for itemized deductions for tax audit purposes. (Section 30)

Exchange of Property (Section 12):
- Provides rules and exceptions for recognizing or not recognizing gains or losses in the exchange of property, including mergers, consolidations, and acquisitions of control. (Section 35(c))
- Defines terms like "securities", "merger", "consolidation", and "control" for the purposes of the exchange of property provisions. (Section 35(c)(6))

Filing of Income Tax Returns (Section 13):
- Requires residents deriving income solely from salaries, wages, interests, dividends, etc. to file their income tax returns on or before March 18. (Section 45(c)(1))
- Requires all other individuals to file their income tax returns on or before April 15. (Section 45(c)(2))
- Requires separate returns for net capital gains from the sale of real property within 30 days of each sale. (Section 45(c))

Penalties for Failure to Withhold and Remit Taxes (Section 14):
- Imposes a 25% surcharge and 20% interest per annum on unpaid taxes required to be withheld and remitted. (Section 54(b))
- Holds government employees responsible for withholding and remitting taxes personally liable for surcharges and interest. (Section 54(b))

Penalties for Failure to File Returns and Pay Taxes (Sections 15-17):
- Imposes penalties and surcharges for failure to file returns, filing false or fraudulent returns, and failure to pay taxes withheld or deducted. (Sections 72, 73, 96, 97)

Estate Tax Provisions (Sections 18-22):
- Requires estate tax returns to be filed within 9 months of the decedent's death or 21 months if judicial proceedings are instituted. (Section 105(b))
- Requires payment of estate tax at the time the return is filed. (Section 107(a))
- Imposes interest on extended payments and deficiencies of estate tax. (Sections 111, 112)
- Imposes additions to the tax, including interest and surcharges, for non-payment of estate tax. (Section 113)

Gift Tax Provisions (Sections 23-28):
- Establishes tax rates for gifts, including higher rates for gifts to strangers. (Section 121)
- Defines transfers for less than adequate consideration as gifts for tax purposes. (Section 122)
- Requires payment of gift tax at the time the return is filed. (Section 126(a))
- Imposes interest on extended payments and deficiencies of gift tax. (Sections 128, 129)
- Imposes additions to the tax, including interest and surcharges, for non-payment of gift tax. (Section 130)

Percentage Tax Provisions (Section 30):
- Requires quarterly declarations and payments of percentage taxes on gross sales, receipts, earnings, or output. (Section 193(a))
- Requires a final annual percentage tax return and payment or credit of excess tax. (Section 193(a)(1)(ii))
- Imposes penalties for failure to file and pay percentage taxes, including surcharges and interest. (Section 193(a)(3))
- Provides rules for payment of percentage taxes on imported articles. (Section 193(b))
- Authorizes the President to subject second sales to a value-added tax not exceeding 50% of the gross selling price or value. (Section 193(c))

Flexibility Clause (Section 30):
- Empowers the President, upon recommendation of the Minister of Finance, to make adjustments to internal revenue taxes, including revising rates, changing classification of articles, and revising taxable bases, subject to certain conditions and limitations. (Section 290-B)

Authority of the Commissioner to Compromise, Abate, and Refund/Credit Taxes (Section 32):
- Allows the Commissioner to compromise tax payments in cases of reasonable doubt or the taxpayer's inability to pay. (Section 295(1))
- Allows the Commissioner to abate or cancel tax liabilities that appear unjustly or excessively assessed or where collection costs do not justify collection. (Section 295(2))
- Allows the Commissioner to credit or refund erroneously or illegally received taxes, penalties, and unused stamps, subject to a 2-year claim period. (Section 295(3))

Protesting of Assessment (Section 33):
- Requires the Commissioner to notify the taxpayer of findings before issuing an assessment. (Section 319-A)
- Allows the taxpayer to protest the assessment administratively within a prescribed period. (Section 319-A)
- Allows the taxpayer to appeal a denied protest to the Court of Tax Appeals within 30 days. (Section 319-A)

Preservation of Books of Accounts (Section 34):
- Requires corporations, partnerships, and persons to preserve books of accounts and other records until the last day prescribed for assessment by the Commissioner. (Section 324)
- Allows examination and inspection of books and records once per taxable year, except in cases of fraud, reinvestigation, verification of compliance, or exercise of the Commissioner's powers. (Section 324)
- Subjects tax-exempt organizations' books and records to examination by the Bureau of Internal Revenue. (Section 324)

Informer's Reward (Section 35):
- Provides a 15% reward to informers who voluntarily provide information leading to the discovery of tax frauds, violations, recoveries, convictions, fines, or penalties, subject to certain conditions. (Section 331(1))
- Provides a 15% reward to persons instrumental in the discovery and seizure of smuggled goods. (Section 331(2))

Transitional Provisions (Section 36):
- Provides transition rules for corporations using fiscal years to pay the fixed tax prescribed in Section 192. (Section 36(1))
- Requires partnerships using fiscal years to file a fractional return for less than 12 months ending December 31, 1980, and individual partners to file separate returns covering their distributive shares. (Section 36(2))

Repealing Clause (Section 36):
- Repeals or amends certain laws, rules, and regulations inconsistent with the provisions of this Decree.

Effectivity (Section 37):
- The Decree takes effect upon approval, except Sections 3 and 9 relating to personal and additional exemptions and the optional standard deduction, which take effect for the taxable year 1980.