National Internal Revenue Code

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  THENATIONAL INTERNAL REVENUE CODEOF THE PHILIPPINES[Tax Reform Act of 1997]Republic Act No. 8424 AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSESSECTION 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 topromote sustainable economic growth through the rationalization of thePhilippine internal revenue tax system, including tax administration; toprovide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increaseeconomic activity; and to create a robust environment for business to enablefirms to compete better in the regional as well as the global market, at thesame time that the State ensures that Government is able to provide for theneeds 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 knownas the National Internal Revenue Code, is hereby further amended. TITLE IORGANIZATION AND FUNCTION OFTHE BUREAU OF INTERNAL REVENUESECTION 1. Title of the Code . - This Code shall be known as the National InternalRevenue 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 controlof the Department of Finance and its powers and duties shall comprehendthe assessment and collection of all national internal revenue taxes, fees, andcharges, and the enforcement of all forfeitures, penalties, and finesconnected therewith, including the execution of judgments in all casesdecided in its favor by the Court of Tax Appeals and the ordinary courts. TheBureau shall give effect to and administer the supervisory and police powersconferred to it by this Code or other laws. SEC. 3. Chief Officials of the Bureau of Internal Revenue . - TheBureau of Internal Revenue shall have a chief to be known as Commissionerof 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 andother tax laws shall be under the exclusive and srcinal jurisdiction of theCommissioner, 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 mattersarising under this Code or other laws or portions thereof administered by theBureau of Internal Revenue is vested in the Commissioner, subject to theexclusive 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 . - Inascertaining the correctness of any return, or in making a return when nonehas been made, or in determining the liability of any person for any internalrevenue tax, or in collecting any such liability, or in evaluating taxcompliance, the Commissioner is authorized:(A) To examine any book, paper, record, or other data which may berelevant or material tosuch inquiry;(B) To obtain on a regular basis from any person other than theperson whose internal revenue tax liability is subject to audit orinvestigation, or from any office or officer of the national and localgovernments, government agencies and instrumentalities, includingthe Bangko Sentral ng Pilipinas and government-owned or-controlled corporations, any information such as, but not limitedto, costs and volume of production, receipts or sales and grossincomes of taxpayers, and the names, addresses, and financialstatements of corporations, mutual fund companies, insurancecompanies, regional operating headquarters of multinationalcompanies, joint accounts, associations, joint ventures of consortiaand 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 havingpossession, custody, or care of the books of accounts and otheraccounting records containing entries relating to the business of theperson liable for tax, or any other person, to appear beforethe Commissioner or his duly authorized representative at a timeand 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, asmay be relevant ormaterial to such inquiry; and(E) To cause revenue officers and employees to make a canvassfrom time to time of anyrevenue district or region and inquire afterand concerning all persons therein who may beliable to pay any internal revenue tax, and all persons owning or having thecare, management or possession of any object with respect to whicha tax is imposed.The provisions of the foregoing paragraphs notwithstanding,nothing in this Section shall be construed as granting theCommissioner the authority to inquire into bank deposits otherthan 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. - Aftera return has been filed asrequired under the provisions of this Code,the Commissioner or his duly authorizedrepresentative may authorize the examination of any taxpayer and the assessment of   the correct amount of tax:  Provided, however; That failure to file areturn shall not prevent the Commissioner from authorizing theexamination of any taxpayer. Any return, statement of declaration filed in any office authorized toreceive the same shall not be withdrawn:  Provided, That  withinthree (3) years from the date of such filing, the same may bemodified, changed, or amended:  Provided, further, That no noticefor audit or investigation of such return, statement or declarationhas 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 theassessment of any national internal revenue tax shall not beforthcoming within the time fixed by laws or rules and regulationsor when there is reason to believe that any such report is false,incomplete or erroneous, the Commissioner shall assess the propertax on the best evidence obtainable.In case a person fails to file a required return or other document atthe time prescribed by law, or willfully or otherwise files a false orfraudulent return or other document, the Commissioner shall makeor amend the return from his own knowledge and from suchinformation as he can obtain through testimony or otherwise, whichshall be prima facie correct and sufficient for all legal purposes.(C)  Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive GrossSales and Receipts. - TheCommissioner may, at any time during the taxable year,orderinventory-taking of goods of any taxpayer as a basis fordetermining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, underobservation or surveillance if there is reason to believe that suchperson is not declaring his correct income, sales or receipts forinternal revenue tax purposes. The findings may be used as the basisfor assessing the taxes for the other months or quarters of the sameor different taxable years and such assessment shall bedeemed  prima facie correct. When it is found that a person has failed to issue receipts andinvoices 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 declarationsmade or to be made in a return required to be filed under theprovisions of this Code, the Commissioner, after taking into accountthe sales, receipts, income or other taxable base of other personsengaged in similar businesses under similar situations orcircumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales andtaxable base, and such amount so prescribed shall be prima faciecorrect for purposes of determining the internal revenue taxliabilities of such person.(D)  Authority to Terminate Taxable Period. - When it shall come tothe knowledge of theCommissioner that a taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or toremove his property therefrom or to hide or conceal his property, oris performing any act tending to obstruct the proceedings for thecollection of the tax for the past or current quarter or year or torender the same totally or partly ineffective unless such proceedingsare begun immediately, the Commissioner shall declare the taxperiod of such taxpayer terminated at any time and shall sendthe taxpayer a notice of such decision, together with a request forthe immediate payment of the tax for the period so declaredterminated and the tax for the preceding year or quarter, or suchportion thereof as may be unpaid, and said taxes shall be dueand payable immediately and shall be subject to all the penaltieshereafter prescribed, unless paid within the time fixed in thedemand made by the Commissioner.(E)  Authority of the Commissioner to Prescribe Real PropertyValues. - The Commissioner ishereby authorized to divide thePhilippines into different zones or areas and shall, uponconsultation with competent appraisers both from the private and publicsectors, determine the fair market value of real properties located ineach zone or area. For purposes of computing any internal revenuetax, the value of the property shall be, whichever is the higher of:(1) the fair market value as determined by theCommissioner, or(2) the fair market value as shown in the schedule of  values of the Provincial and CityAssessors.(F) Authority of the Commissioner to inquire into Bank Deposit  Accounts. - Notwithstandingany contrary provision of Republic ActNo. 1405 and other general or special laws, theCommissioner ishereby 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 forcompromise of his tax liability underSec. 204 (A) (2) of this Code by reason of financial incapacity to pay his taxliability.In case a taxpayer files an application to compromise the payment of his tax liabilitieson his claim that his financial position demonstrates a clear inability to pay the taxassessed, his application shall not be considered unless and until he waives in writinghis privilege under Republic Act No. 1405 or under other general or special laws, andsuch 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. - TheCommissioner shall accredit andregister, based on theirprofessional competence, integrity and moral fitness,individuals and general professional partnerships and theirrepresentatives 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) daysfrom January 1, 1998, the Commissioner shall create national andregional accreditation boards, the members of which shall serve forthree (3) years, and shall designate from among the senior  officials of the Bureau, one (1) chairman and two (2) members foreach board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of theCommissioner.Individuals and general professional partnerships and theirrepresentatives who are denied accreditation by the Commissionerand/or the national and regional accreditation boards may appealsuch denial to the Secretary of Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of theSecretary of Finance to rule on the Appeal within the prescribedperiod shall be deemed as approval of the application foraccreditation of the appellant.(H) Authority of the Commissioner to Prescribe Additional  Procedural or DocumentaryRequirements. - The Commissionermay prescribe the manner of compliance with anydocumentary orprocedural requirement in connection with the submission orpreparation of financial statements accompanying the tax returns. SEC. 7.  Authority of the Commissioner to Delegate Power  . - TheCommissioner may delegate the powers vested in him under the pertinentprovisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations andrestrictions as may be imposed under rules and regulations to bepromulgated by the Secretary of finance, upon recommendation of theCommissioner:  Provided, however  , That the following powers of theCommissioner shall not be delegated:(a) The power to recommend the promulgation of rules andregulations by the Secretary ofFinance;(b) The power to issue rulings of first impression or to reverse,revoke or modify any existingruling of the Bureau;(c) The power to compromise or abate, under Sec. 204 (A) and (B)of this Code, any taxliability:  Provided, however, That assessmentsissued by the regional offices involving basic deficiency taxes of Fivehundred thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to bepromulgated 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 becomposed of the Regional Director as Chairman, the AssistantRegional Director, the heads of the Legal, Assessment andCollection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and(d) The power to assign or reassign internal revenue officers toestablishments where articlessubject to excise tax are produced orkept. 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 theduty of the Commissioner, among other things, to prescribe,provide, and distribute to the proper officials the requisite licensesinternal revenue stamps, labels all other forms, certificates, bonds,records, invoices, books, receipts, instruments, appliances andapparatus used in administering the laws falling withinthe jurisdiction of the Bureau. For this purpose, internal revenuestamps, strip stamps and labels shall be caused by theCommissioner 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 andcigarettes 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 theCommissioner or his dulyauthorized representative or an authorizedagent bank to whom any payment of any tax is made under theprovision of this Code to acknowledge the payment of such tax,expressing the amount paid and the particular account for whichsuch payment was made in a form and manner prescribed therefor by the Commissioner. SEC. 9.  Internal Revenue Districts . - With the approval of theSecretary of Finance, the Commissioner shall divide the Philippines intosuch number of revenue districts as may form time to time be required foradministrative purposes. Each of these districts shall be under thesupervision 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 theregion and district offices under his jurisdiction, among others:(a) Implement laws, policies, plans, programs, rules and regulationsof the department oragencies in the regional area;(b) Administer and enforce internal revenue laws, and rules andregulations, including theassessment and collection of all internalrevenue 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 peoplein the area;(e) Coordinate with regional offices or other departments, bureausand agencies in the area;(f) Coordinate with local government units in the area;(g) Exercise control and supervision over the officers andemployees within the region; and(h) Perform such other functions as may be provided by law and asmay 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 orother internal revenue officers and employees to ensure that all laws, andrules and regulations affecting national internal revenue are faithfully executed and complied with, and to aid in the prevention, detection andpunishment of frauds of delinquencies in connection therewith.It shall be the duty of every Revenue District Officer to examine theefficiency of all officers and employees of the Bureau of Internal Revenueunder his supervision, and to report in writing to the Commissioner, throughthe Regional Director, any neglect of duty, incompetency, delinquency, or  malfeasance in office of any internal revenue officer of which he may obtainknowledge, with a statement of all the facts and any evidence sustaining eachcase. SEC. 12.  Agents and Deputies for Collection of National Internal  Revenue Taxes . - The following are hereby constituted agents of theCommissioner:(a) The Commissioner of Customs and his subordinates withrespect to the collection ofnational internal revenue taxes onimported goods;(b) The head of the appropriate government office and hissubordinates with respect to thecollection of energy tax; and(c) Banks duly accredited by the Commissioner with respect toreceipt of payments internalrevenue taxes authorized to be madethru bank. Any officer or employee of an authorized agent bank assigned toreceive internal revenue tax payments and transmit tax returns ordocuments to the Bureau of Internal Revenue shall be subject to thesame sanctions and penalties prescribed in Sections 269 and 270 of this Code. SEC. 13.  Authority of a Revenue Offices . - subject to the rules andregulations to be prescribed by the Secretary of Finance, uponrecommendation of the Commissioner, a Revenue Officer assigned toperform 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 samemanner that the said acts could have been performed by the RevenueRegional Director himself. SEC. 14.  Authority of Officers to Administer Oaths and TakeTestimony . - The Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue Regional Directors, Assistant RevenueRegional Directors, Chiefs and Assistant Chiefs of Divisions, RevenueDistrict Officers, special deputies of the Commissioner, internal revenueofficers and any other employee of the Bureau thereunto especially deputized by the Commissioner shall have the power to administer oaths and to taketestimony in any official matter or investigation conducted by themregarding matters within the jurisdiction of the Bureau. SEC. 15.  Authority of Internal Revenue Officers to Make Arrestsand Seizures . - The Commissioner, the Deputy Commissioners, theRevenue Regional Directors, the Revenue District Officers and other internalrevenue 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 acourt, 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, toestablishments or places where articles subject to excise tax are produced orkept: Provided  , That an internal revenue officer assigned to any suchestablishment 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 theprovisions of Section 16 and the laws on civil service, as well as the rules andregulations to be prescribed by the Secretary of Finance upon therecommendation of the Commissioner, assign or reassign internal revenueofficers and employees of the Bureau of Internal Revenue, without change intheir official rank and salary, to other or special duties connected with theenforcement or administration of the revenue laws as the exigencies of theservice may require:  Provided, That internal revenue officers assigned toperform assessment or collection function shall not remain in the sameassignment for more than three (3) years; Provided, further  , Thatassignment of internal revenue officers and employees of the Bureau tospecial duties shall not exceed one (1) year. SEC. 18.  Reports of Violation of Laws . - When an internal revenueofficer discovers evidence of a violation of this Code or of any law, rule orregulations administered by the Bureau of Internal Revenue of suchcharacter as to warrant the institution of criminal proceedings, he shallimmediately report the facts to the Commissioner through his immediatesuperior, giving the name and address of the offender and the names of the witnesses if possible: Provided, That in urgent cases, the Revenue Regionaldirector or Revenue District Officer, as the case may be, may send the reportto the corresponding prosecuting officer in the latter case, a copy of hisreport shall be sent to the Commissioner. SEC. 19. Contents of Commissioner's Annual Report  . - The AnnualReport of the Commissioner shall contain detailed statements of thecollections of the Bureau with specifications of the sources of revenue by typeof tax, by manner of payment, by revenue region and by industry group andits disbursements by classes of expenditures.In case the actual collection exceeds or falls short of target as set in theannual national budget by fifteen percent (15%) or more, the Commissionershall explain the reason for such excess or shortfall. SEC. 20.  Submission of Report and Pertinent Information by theCommissioner  . (A)  Submission of Pertinent Information to Congress . - Theprovision of Section 270 of thisCode to the contrary notwithstanding, the Commissioner shall, upon request of Congressand in aid of legislation, furnish its appropriate Committeepertinent information including but not limited to: industry audits,collection performance data, status reports in criminal actionsinitiated against persons and taxpayer's returns:  Provided,however, That any return or return information which can beassociated with, or otherwise identify, directly or indirectly, aparticular taxpayer shall be furnished the appropriate Committee of Congress only when sitting in Executive Session Unless suchtaxpayer otherwise consents in writing to such disclosure.(B)  Report to Oversight Committee . - The Commissioner shall, withreference to Section 204of this Code, submit to the OversightCommittee referred to in Section 290 hereof, through the Chairmenof the Committee on Ways and Means of the Senate and House of 
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