AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE

WHEREAS, in the light of the experience of the Bureau of
Internal Revenue in enforcing, the provisions of the National Internal Revenue
Code, it is necessary to make further amendments in order to strengthen the
enforcement powers of the said Bureau;

WHEREAS, it is necessary to simplify compliance procedures
and make it easy for taxpayers to comply with revenue laws;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Republic of the Philippines, by virtue of the powers vested in me by the
Constitution do hereby decree and order:

SEC. 1. The phrase “Secretary of Finance” appearing in any
section of the National Internal Revenue Code is hereby amended to read as
“Minister of Finance.”

SEC. 2. Section 7 of the National Internal Revenue Code is
hereby amended to read as follows:

“(a) From Government Officers or Agencies. — When it comes to the
knowledge of the Commissioner of Internal Revenue that certain offices of the
.National and local governments such as the Office of the Register of Deeds, the
Securities Exchange Commission, the Philippine Patent Office, those of mayors
and treasurers, the Government Service Insurance System, the Social Security
System, the Philippine Medical Care Commission and others, possess valuable
information for discovery of potential taxpayers, the Commissioner or his
deputies shall obtain that information upon proper request from the offices
concerned. It shall be the duty of those offices to furnish the desired
information within thirty days from receipt of the request of the Commissioner
of Internal Revenue or his deputies.

(b) From other persons. — For the purpose of ascertaining the
correctness of any return, making a return where none has been made, determining
the liability of any person for any Internal Revenue Tax or collecting, any such
liability the Commissioner is authorized:

“(1) To examine any books, papers, records, or other data which may be
relevant or material to such inquiry.”

“(2) To summon any person having possession, custody, or care of books of
accounts containing entries, or of any information relating to the tax liability
of any person to appear before the Commissioner of his authorized representative
at a time and place named in the summons and to produce such books, papers,
records, or other data, and to give to such testimony; and

“(3) To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry.

“Any person who neglects or refuse to obey such summons, or to produce books,
papers, records or other data, or to give testimony, as required, shall be
liable to the penalties prescribed by Section 337 hereof;

SEC. 3. Section 16 of the National Internal Revenue Code is
hereby amended to read as follows:

“SEC. 16. Power of Commissioner of Internal Revenue to
make assessnents. — (a) FAILURE TO SUBMIT REQUIRED REPORTS, STATEMENTS,
ETC. 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 law or
regulation, or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the
proper tax on the best evidence obtainable.

“(b) AUTHORITY TO CONDUCT SURVEILLANCE. — The Commissioner of
Internal Revenue may place the business operations of any person, natural or
juridical, under observation or surveillance for a period of two months to be
determined under regulations to be prescribed by the MINISTER of Finance if
there are reasons to believe that such person is not declaring his correct
income and receipts for internal revenue tax purposes. The findings for this
period may be used as a basis for assessing the taxes for the other months of
the same or different taxable years and such assessment shall be considered
prima facie correct.

“(c) AUTHORITY TO TERMINATE TAXABLE PERIOD. — When it shall come to
the knowledge of the Commissioner of Internal Revenue that a taxpayer is
retiring from the business subject to taxation, or intends to leave the
Philippines, or remove his property therefrom, or hide or conceal his property,
or perform an act tending to obstruct the proceedings for collecting the tax for
the past or current quarter or year or render the same totally or partly
ineffective unless such proceedings are begun immediately, the Commissioner of
Internal Revenue 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 tax 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 tine fixed in the request of the Commissioner of Internal
Revenue.

“(d) Protesting of Assessments. — When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed on the best
evident obtainable in accordance with subsection (a) hereof, he shall first
notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner shall issue an
assessment based on his findings.

Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed
by implementing regulations within thirty (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the person, association or
corporation adversely affected by the decesion on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision;
otherwise, the decision shall become final, executory and demandable.

SEC. 4. Section 24 (b) (2) of the National Internal Revenue
Code is hereby amended to read as follows:

“(2) Residenr corporations. — (a) In general. —A
corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable
as provided in subsection (a) of this section upon the total net income
derived in the preceding taxable year from all sources within the Philippines:
Provided, however, That international carriers shall pay a tax of two
and one-half percent 2½%) on their gross Philippine billings: “Gross Philippine
Billings” include gross revenue realized from uplifts anywhere in the world by
any international carrier doing business in the Philippines of passage documents
sold therein, whether for passenger, excess baggage or mail, provided
the cargo or mail originates from the Philippines. The gross revenue realized
from the said cargo or mail include the gross freight charge up to final
destination. Gross revenue from chartered flights originating from the
Philippines shall likewise form part of “Gross Philippine Billings” regardless
of the place of sale or payment of the passage documents. For purposes of
determining the taxability of revenues from chartered flights, the term
“originating from the Philippines” shall include flight of passengers who stay
in the Philippines from more than forty-eight (48) hours prior to
embarkation.

“(b) Tax on branch profits remittances. — Any profit remitted abroad
by a branch office to its mother company shall be subject to a tax ox fifteen
percent (15%) (Except those registered with the Export Processing Zone
Authority); Provided, that, any profit remitted by a branch office to
its mother company authorized to engage in petroleum operations in the
Philippines shall be subject to tax at seven and one-half per cent (7.5%); and
provided, further that fixed or determinable annual periodical
gains, profits, and income or certain gains described in Section 24 (b) (1) or
53 (b) (2) of this code shall not be considered as branch profits unless the
same are effectively connected with the conduct of a trade or business in the
Philippines by foreign corporation.”

SEC. 5. Section 26 of the National Internal Revenue Code is
hereby amended to read as follows:

SEC. 26. Tax liability of members of general
professional partnerships. — Persons exercising a common profession in
general partnership shall be liable for income tax only in their individual
capacity, and the share in the NET profits of the general professional
partnership to which any taxable partner would be entitled, whether distributed
or otherwise, shall be returned for taxation and the tax paid in accordance with
the provisions of this Title.

“(b) In determining his distributive share in the net income of the
partnership, each partner —

“(1) Shall take into account separately his distributive share of the
partnership’s income, gain, loss deduction, or credit to the extent
provided by the pertinent provisions or this code, and

“(2) Shall be deemed to have elected the itemized deductions, unless he
declares his distributive share of the gross income undiminished by his share of
the deductions,”

SEC. 6. Section 30 (c) of the National Internal Revenue Code
is hereby amended by adding new subparagraphs (f) and (g) to read as
follows:

(f) Taxes paid on articles imported by the taxpayer where such importation is
not connected with this trade or business.

(g) Excess electric energy consumption tax imposed by Batas Pambansa Blg.
36.”

SEC. 7. Section 35 (c) (2) of the National Internal Revenue
Code is hereby amended to read as follows:

“(2) Exception. — No gain or loss shall be recognized if in
pursuance of a plan of merger or consolidation, exchanges property solely for
stock in a corporation which is (a) a corporation which is a party to the merger
or consolidation, (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 merger or consolidation exchanges
his securities in such corporation solely for stock or securities in another
corporation, a party to the merger or consolidation. No gain or loss shall be
recognized if property is transferred to a corporation by a person in exchange
for stock in such a corporation of which as a result of such exchange said
person, alone or together with others, not exceeding four persons, gains control
of said corporation: Provided, That stocks issued for services shall
not be considered as issued in return for property.”

SEC. 8. Section 45 (c) of the National Internal Revenue Code
is hereby amended to read as follows:

When to file. — The return of the following individuals shall be
filed on or before the eighteenth day of March of each year, covering income of
the preceding taxable year:

(a) Residents of the Philippines, whether citizen or aliens whose income have
been derived solely from salaries, wages, interests, dividends, allowances,
commissions, bonuses, fees, pensions, or any combination thereof.

“(b) The return of all other individuals not mentioned above, including
non-resident citizens shall be filed on or before the fifteenth day of April of
each year covering income of the preceding taxable year.”

SECTION 9. Section. 46 (b) of the National Internal Revenue
Code is hereby amended to read, as follows:

“(b) fiscal year of corporations. — Every corporation (other than
partnerships, no matter how created or organized) may designate the last day of
any month in the year as the day of the closing of its fiscal year, and shall be
entitled to have the tax payable by it computed upon the basis of the net income
ascertained as herein provided for the year ending on the day so
designated in the year preceding the date of assessment instead of upon the
basis of the net income for the calendar year preceding the date of assessment;
and it shall give notice of the day it has thus designated as the closing of its
fiscal year to the Commissioner of Internal Revenue at any time not less than
thirty days prior to the fifteenth day of April of the year in which its return
would be filed if made upon, the basis of the calendar year.”

SEC. 10. Paragraphs (a) (1) and (a) (2), (d) and (e) of
Section 51 of the National Internal Revenue Code are hereby amended to read as
follows:

“SEC. 51.Payment and assessment of income tax. —
(a) payment of tax. — (1) In general. — The total amount of
tax imposed by this Title shall be paid at the time the return is filed. Such
tax shall be paid by the person subject thereto.

If the return is filed after the time prescribed by law (including cases in
which an extension of tine for filing the return has been granted under section
forty-seven of this Code), there shall be paid at the time of such filing the
tax or installment which would have been payable on or before such time if the
return had been filed within the time prescribed by law, and the remaining
installment shall be paid at the time at which, and in the amount in which, it
would have been payable if the return had been so filed, subject to the payment
of interest of twenty per centum per annum from the original due date.

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 heroin 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 payment. — When the tax due is in the excess of two
thousand pesos, the taxpayer other than a corporation taxable under section
twenty-four, self- employed individuals who may be required to pay estimated
income tax under Chapter X, and the withholding agents required to deduct and
withhold the tax under Sections 53 and 54, all of this Title, may elect to pay
the tax in two 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
the eighteenth day of July following the close of the calendar year. If any
installment if 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.”

“(d) Interest on deficiency. — Interest upon the amount determined
as a deficiency shall be assessed at the same time as the deficiency and shall
be paid upon notice and demand from the Commissioner and shall be collected as
part of the tax at the rate of twenty per centum per annum from the date
prescribed for the payment of the tax, (or, if the tax is paid in installment
from the date prescribed for the payment of the first installment) to the date
the deficiency is assessed; Provided, That the maximum amount that may
be collected as interest on the deficiency shall in no case exceed the amount
corresponding to a period of three years, the present provisions regarding
prescription to the contrary notwithstanding.”

“(e) Additions to the tax in case of nonpayment. — (1) Tax shown
on the return. — Where the amount determined by the taxpayer as the tax
imposed by this Title or any installment thereof, or any part of such amount or
installment, is not paid on or before the date prescribed for its payment, there
shall be collected as a part of the tax, interest upon such unpaid amount at the
rate of twenty per centum per annum from the date prescribed for its payment
until it is paid: Provided, That the maximum amount that may be
collected as interest on deficiency shall in no case exceed, the amount
corresponding to a period of three years, the present provisions regarding
prescription to the contrary notwithstanding.”

(2) Deficiency. — Where a deficiency, or any interest assessed in
connection therewith under paragraph (d) of this section, or any addition to the
taxes provided for in Section seventy-two of this Code is not paid in
full within thirty days from the date of notice and demand from the Commissioner
of Internal Revenue, there shall be collected upon the unpaid amount as part of
the tax, interest at the rate of twenty per centum per annum from the date of
such notice and demand until it is paid: Provided, That the maximum
amount that may be collected as interest on deficiency shall in no case exceed
the amount corresponding to a period of three years, the present provisions
regarding prescription to the contrary notwithstanding.”

“(3) Surcharge.— If any amount of tax shown on the return is not
paid in full on or before the date prescribe for its payment under paragraph (a)
of this Section, or any amount of deficiency, and any interest assessed in
connection therewith, is not paid in full within the period prescribed in the
assessment notice and demand required under paragraph (b) of this Section, there
shall be collected in addition to the interest prescribed herein and in
paragraph, (d) above and as part of the tax a surcharge of ten per centum of the
amount of tax unpaid.”

SEC. 11. Paragraph (c) of Section 53 of the National
Internal Revenue Code is hereby amended to read, as follows:

“(c) Resident individuals and corporations. — Dividends received by
individuals residing in the Philippines from a domestic corporation, as well as
royalties (except payments of any kind to mining claim – owners or lessees of
mining rights pursuant to any kind of agreement) received by such individuals
and domestic and/or resident foreign corporation from any person whether natural
or juridical shall be subject to withholding tax at source at the rate of 10%
thereof. A tax shall be withheld by the payer-corporation and/or person and paid
in the same manner and subject to the same conditions as provided in
Section 54 of the National Internal Revenue Code: Provided, however,
That the tax withheld under this subparagraph shall be credited against the
income tax liability of the recipient-taxpayer for the taxable
year.”

SEC. 12. Paragraph (b) of Section 54 of the National
Internal Revenue Code is hereby amended to read as follows:

(b) Penalties for failure to render returns for rendering false or
fraudulent returns for non-payment of taxes withheld. — The surcharges
prescribed in Section seventy-three of this Title in cases of failure to render
returns, for filing false or fraudulent returns and for failure to pay tax shall
apply to failure to file returns or pay the tax required under this Section. In
case the taxes deducted and withheld are not paid within the time prescribed,
there shall be added to the amount of the unpaid tax a surcharge of twenty-five
per centum plus interest at the rate of twenty per centum per annum from the
date the same became due until paid. If the employer is the government or any of
its agencies political subdivisions or instrumentalities or is a government
owned or controlled corporation, the employee thereof responsible for the
withholding and remittance of the tax shall be personally liable for the
surcharge imposed herein.”

SEC. 13. Section 83 of the National Internal Revenue Code is
hereby amended by adding a new paragraph to read as follows:

“(d) Net income of a partnership deemed constructively received by
partners. — The net income declared by a partnership for a taxable year
which is subject to tax under Section 24 (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 then in their individual capacity, whether actually distributed or
not.”

SEC 14. Chapter X of Title II of the National Internal
Revenue Code is hereby amended as follows:

“CHAPTER X. — QUARTERLY CORPORATE INCOME TAX
ANNUAL
DECLARATION AND QUARTERLY PAYMENTS OF INCOME TAXES.

SEC. 84. DECLARATION OF INCOME TAX TO
INDIVIDUALS.

“(a) IN GENERAL. Except as otherwise provided in this
Section, every individual subject to income tax under Sections 21 and 22 (a) of
this title, 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 filed a declaration of this estimated income
for current taxable year on or before April 15 of the same taxable year. In
general, self-employment income consist 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. Non-resident Filipino citizens, with respect to income from without the
Philippines, and non-resident 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 Minister of
Finance may be forms and/or regulations prescribed. An individual may make
amendments of a declaration filed during the taxable year under the regulations
prescribed by the Minister of finance.

“(b) Return .and payment of estimated income tax by individuals. —
The amount of estimated tax (as defined in paragraph (c) with respect to which a
declaration is required under paragraph (a) shall be paid in four installment.
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 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 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 reasonably expect to pay
a bigger income tax, he shall file an amended declaration during any interval of
installment payment dates.”

“SEC. 85. Declaration of Corporation Quarterly 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. 86. Final Adjustment Return. — Every
corporation liable to tax under Section 24 shall file a final adjustment return
covering the total net 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 net income or that year the
corporation shall either:

“(a) Pay the excess tax still due; or

“(b) Be refunded the excess amount paid, as the case may be

“In case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final adjustment
return may be credited, against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable year.”

“SEC. 87. (a) Place of Filing. — The quarterly
income tax declaration required in Section 85 and the final adjustment return
required in Section 86 shall be filed with the Revenue District Officer, or the
Collection Agent or duly authorized treasurer of the 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 quarters of the taxable year. The final adjustment
return shall be filed on or before the 15th day of April or on or before the
15th day of the 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 income tax returns computed in
accordance with Sections 85 and 66 shall be paid at the tine the declaration or
return is filed in a manner prescribed by the Commissioner of Internal
Revenue.”

SEC. 88. Civil Penalties (a) Individuals. — (1)
Addition to the tax. — In the case of underpayment of Estimated tax,
there shall be added to the tax an amount of the underpayment (determined under
subsection (b) (2) for the period of the underpayment (determined under
subsection (b) (3).

“(2) Amount of Underpayment. — For purposes of subsection (b) (1),
the amount of the underpayment shall be the excess of —

1. The amount of the installment which would be required to be paid if the
   estimated tax were equal to 80% of the tax shown on the return for the taxable
   year or, if no return was filed, 80% of the tax for such year, over,
2. (B) The amount if any, of the installment paid on or before the last day
   prescribed for such payment.

“(3) For purposes of applying subsections (a) (1) and (a) (2) —

“(A) The estimated tax shall be computed without any reduction for the amount
which the individual estimates as his credit for taxes withheld at source on
wages, dividened and interest, and

“(B) The amount of the creditable taxes for the taxable year shall be deemed
a payment of estimated tax, and. an equal part of such amount shall be deemed on
each installment date for such taxable year, unless all amounts were actually
withhold, in which case the amounts so withheld, shall be deemed payments of
estimated tax on the dates which such amounts were actually
withheld.

“(4) Period of Underpayment. — The period of underpayment shall run
from the date the installment was required to be paid to whichever of the
following: dates is the earlier.

“(A) The 15th day of March following the close of the taxable year.

“(B) With respect to any portion of the underpayment, the date on which such
portion is paid. For purposes of this paragraph, a payment of estimated tax on
any installment date shall be considered a payment of any previous underpayment
only to the extent that such payment exceeds the amount of the installment
determined under subsection (2) (A) for such installment date.

“(b) Corporations. — (1) deficiency, defined. — As used,
and in respect of the tax referred to in Section 85, the term “Deficiency”
means:

“(i) The amount by which eighty per centum of the tax referred to in Section
85 exceeds the amount shown by the taxpayer as the tax on its quarterly return,
including tax credit allowable;

“(ii) If no amount is shown by the taxpayer as tax on it’s return, or if no
return is filed by the taxpayer, and the taxpayer has tax credit allowable
against such tax; or

“(iii) If no amount is shown by the taxpayer as tax on its return, and the
taxpayer has no tax credit allowable, eight per centum of the estimated tax
referred to in Section

“(2) (i) Interest. — Interest upon the amount determined as a
deficiency shall be assessed at the same time as a deficiency; and shall be paid
upon notice and demand from the Commissioner of Internal Revenue; and shall be
collected as part of the tax at the rate of twenty per centum per annum from the
date prescribed for the payment of the tax to the date the deficiency is
assessed: Provided, That the maximum amount that nay be collected as
interest on deficiency shall in no case exceed the amount corresponding to a
period not later than, the fifteenth day of April or the fifteenth day of the
fourth month following; the close of the taxable year: Provided, further,
That no interest on deficiency quarterly income tax shall be assessed at
any time after assessment of the annual income tax due for the taxable year.

“(ii) Addition to estimated tax in case of non payment — (1) Tax
shown on the quarterly return. — Where the amount shown by the taxpayer as
tax on its quarterly return or part of such amount, is not paid on or before the
date prescribed for its payment, these shall be collected, as part of the tax
interest upon such unpaid amount at the rate of twenty per centum per annum from
the date prescribed for its payment until it is paid but not later than the
fifteenth day of April or the fifteenth day of the fourth month following the
close of the taxable year.

“(2) Deficiency. — Where the deficiency, or interest on deficiency,
assessed under subsection (a) of this Section, or part thereof, is not paid in
full within thirty days from the date of receipt by the taxpayer of the notice
and demand from the Commissioner of Internal Revenue, there shall be collected
upon such unpaid amount, as part of the tax, interest at the rate of twenty per
cen tum per annum from the date of receipt by the taxpayer of such notice and
demand until it is paid not later than the fifteenth day of April or the
fifteenth day of the fourth month following the close of the taxable year.

“SEC. 89. Declaration under penalties of perjury. —
(1) The declaration and return required under this Chapter shall, in lieu of an
oath, contain a written declaration that they are made under the penalties of
perjury.

“(2) Any person who willfully files a declaration or return 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. 15. The provisions of Sections 84 and 88 (a) of the
National Internal Revenue Code as amended by this Act, shall take effect only
upon promulgation of implementing rules and regulations by the Minister of
Finance. The other provisions of the Act shall take effect upon approval
hereof.

SEC. 16. Section 100 of the National Internal Revenue
Code-is hereby amended to read as follows:

“(b) Transfer in contemplation of death. — To the estent 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 his death, or of which he has at any time made a transfer,
by trust of otherwise, under which he has retained for his life or for any
period which does not ascertainable without reference to his death or for any
period which does not in fact and 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 conjuction with any person, to designate the person who shall
possess or enjoy 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.”

SEC 17. Section 101 (d) of the National Internal Revenue
Code is hereby emended to read as follows:

“(d) Miscellaneous provisions. — No deduction shall be allowed in
the case of a non-resident 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 105 the value at the time of his death
of that part of the gross estate of the nonresident not situated in the
Philippines,”

SEC. 18. Section 105 (d) of the National Internal Revenue
Code is hereby amended to read as follows:

“(d) Place of filing. — Except in cases where the Commissioner
permits, the return required under subsection (a) shall be filed with the
Revenue District Officer, Collection Agent or duly Authorized Treasurer of the
municipality in which the decedent was domiciled at the time of his death or if
there be no legal residence in the Philippines, then with the Office of the
Commissioner of Internal Revenue.”

SEC 19. Section 113 (c) of the National Internal Revenue
Code is hereby amended to read as follows:

“(c) Surcharge. — If any amount of tax included in the notice and
demand from the Commissioner of Internal Revenue shown on the Return is not paid
in full on or before the date prescribed for its payment under paragraph (a) of
this section, or any amount of deficiency, or any interest assessed in
connection therewith is not paid in full within the period prescribed in the
assessment notice and demand required under paragraph (b) of this Section, there
shall be collected in addition to the interest prescribed herein and in Sections
111 and 112 and as part of the tax surcharge of ten per centum of the unpaid
amount.”

SEC. 20. Section 114 of the National Internal Revenue Code
is hereby amended to read as follows:

“SEC. 114. Ad Valorem Penalties. — (a) Failure
to file return, etc. — The Commissioner shall add to the tax twenty-five
per centum (25%) of its amount:

“(i) In case of any failure to make and file return within the time
prescribed by law or by the Commissioner except that when a return is
voluntarily and without notice from the Commissioner filed after such time, and
it is shown that the failure to file it was due to a reasonable cause, no such
addition shall be made to the tax:

“(ii) In case, the return is filed with a person other than that mentioned in
Section 105 (d) of this Code.

“(b) False or Fraudulent Return. — In case a false or fraudulent
return is made, the Commissioner of Internal Revenue shall add to the tax or to
the deficiency tax, in case any payment has been made the basis of such return
before the discovery of the falsity or fraud, a surcharge of fifty per centum of
its amount shall be added to the tax.”

SEC. 21. The second paragraph of Section 118 of the National
Internal Revenue Code is hereby amended to read as follows:

“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 of the heirs of
the decedent may upon authorization by the Commissioner of Internal Revenue,
withdraw an amount not exceeding P10,000 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.”

SEC 22. Section 125(b) of the National Internal Revenue Code
is hereby amended to read as follows:

“(b) Time and place of filing. — The return of the donor required in
this section shall be filed within thirty days after the date the gift is made
and, except in cases where the Commissioner permits the return shall be filed
with the Revenue District Officer, Collection Agent or duly authorized Treasurer
of the municipality in which the donor was domiciled, at the time of the
transfer or if there be no legal residence in the Philippines, then with the
Office of the Commissioner of Internal Revenue.”

SEC. 23. Section 131 of the National Internal Revenue Code
is hereby amended to read as follows:

“SEC. 131. Ad valorem penalties. (a) Failure to return,
etc. — The Commissioner shall add to the tax twenty five per centum (25%)
of each amount:

1. In case of any failure to make and file a return within the time prescribed
   by law or by the Commissioner except that when a return is voluntarily and
   without notice from the Commissioner filed after such time, and it is shown that
   the failure to file it was due to a reasonable cause and not to willful neglect
   no such addition shall be made to the tax;
2. In case the return is filed with a person other than that mentioned in
   Section 125(b) of this Code.

(b) In case a false or fraudulent return is made, the Commissioner of
Internal Revenue shall add to the tax or to the deficiency tax, in case any
payment has been made on the basis of such return before the discovery of the
falsity or fraud, a surcharge of fifty per centum of its amount shall be added
to the tax.

SEC. 24. Section 158-A of the National Internal Revenue Code
is hereby amended to read as follows:

“SEC. 158-A. — Flexibility Clause. (a) In
general. — In the interest of the national economy and general welfare, and
subject to the limitations herein prescribed, the President upon the
recommendation of the Minister of Finance and. the National Economic and
Development Authority, is hereby empowered to revise the rates of specific taxes
and whenever necessary, readjust the statutory maximum wholesale and retail
prices of cigars and cigarettes, respectively.

“The foregoing authority may be exercised by the President if any of the
following conditions exist:

“(1) Where, in the interest of economic development, it is necessary to
redirect expenditure or consumption patterns;

“(2) Whenever by reason of fluctuation of currency values and/or inflation or
deflation, the existing taxable base and rates levels are no longer realistic or
consistent with current price levels;

“(3) When it is necessary to counter adverse action on the part of another
country.

(b) Specific limitations on the exercise of authority granted.

“(1) Theexisting rates of specific taxes and the maximum wholesale and retail
prices of cigars and cigarettes, respectively, may be increased by not more than
50% or decrease by not more than 10%.

“(2) Before any recommendation is submitted to the President by the Minister
of Finance and the National Economic and Development Authority pursuant to the
provisions of this section, a public hearing shall whenever practicable be held
and interested parties afforded a reasonable opportunity to be
heard.”

SEC. 25. Section 181 of the National Internal Revenue Code
is hereby amended to read, as follows:

“SEC. 181. Unlawful use of denatured alcohol. — Any
person who, for the purpose of manufacturing any beverage uses denatured alcohol
or alcohol withdrawn under bond for industrial uses or alcohol 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 on conviction be fined not less than ten thousand
pesos and imprisoned for not less than five years. If the violator is an alien,
he shall be liable, for deportation.

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

“Any internal revenue officer may destroy any emptied container upon which an
internal-revenue stamp or official taxpaid label is found still
undestroyed.”

SEC. 26. Section 186 of the National Internal Revenue Code
is hereby amended to read as follows:

SEC. 186. Shipment or removal of liquor or tobacco
products under false name or brand or as limitation of any existing trade name
or brand. — Any person who ships, transports or removes spiritous,
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 cash or package containing the same,
or as an imitation of any existing trade name or brand, or causes such act be
done, shall on conviction be subject to a fine of not less than ten thousand
pesos and imprisonment of not less than five years; and in addition, the article
or articles so transported or removed shall be forfeited. If the violator is an
alien, he shall be liable for deportation.”

SEC. 27. Section 190 of the National Internal Revenue Code
is hereby amended to read as follows:

“SEC. 190. Time for, payment of fixed taxes. — All
fixed taxes shall be payable annually, on or before the last day of the first
month of the taxable year adopted by the taxpayer for income tax purposes. Any
person first beginning a business must pay the tax before engaging therein.

“If the privilege tax is not paid within the time specified, the amount of
the tax shall be increased by twenty-five per centum, the increment to be part
of the tax.

SEC. 28. The first paragraph of Section 192(2) of the
National Internal Revenue Code is hereby amended to read as follows:

“(2) Person not subject to percentage tax. — Every person who is not
required to pay the percentage tax prescribed under this Title shall pay for
each taxable year in which the person shall engage in business a fixed annual
tax based upon his gross annual sales during the preceding taxable year, as
follows”

SEC. 29. Paragraphs (a), (b) and (d) of Section 193 of the
National Internal Revenue Code is hereby amended to read as follows:

“SEC. 193. Payment of percentage taxes. — In General
— (1) Declaration and payment of quarterly gross sales, receipts,
etc. — Unless otherwise specifically provided, it shall be the
duty of every person conducting a business on which a percentage tax is imposed
under this Title, to make a quarterly declaration on a cumulative basis of the
amount of his, her or its gross sales, receipts or earnings or gross value of
output actually removed from the factory or mill warehouse, the tax so computed
shall be decreased by the amount of tax previously paid or assessed and by the
sun of the tax credits against the tax allowed under this title for the
preceding and current quarter and shall be paid not later than twenty days of
each calendar or fiscal quarter as the case may be: Provided, That any
person retiring from a business subject to the percentage tax shall notify the
nearest internal revenue officer, file his return or declaration and pay the tax
due thereon within 20 days after closing his business.

For purposes of this section, sales on consignment shall considered actually
sold on the day of sale or sixty days after the date consigned, whichever is
earlier, of twenty per centum per annum, The amount so added to any tax shall be
collected at the same time and in the same manner and as part of the tax has
been paid before the discovery of the falsity or fraud, in which case, the
amount so added shall be collected in the same manner as the tax.”

“(b) Sales tax on imported articles. — When the articles are
imported, the percentage taxes established in Sections 194, 195, 196, 197, 198,
199 and 201 of this Code shall be paid in advance by the importer, in accordance
with the regulations promulgated by the Minister of Finance and prior to the
release of such articles from customs custody, based on the home consumption
value or price (excluding internal excise taxes) thereof, plus ten (10) per cent
of such home consumption value or price, including postage, commission, customs
duty and all similar charges, except freight and insurance, TO BE DECLARED IN AN
IMPORTER’S RETURN, plus one hundred per centum of such total value in the case
of articles enumerated in Sections 194 and 195; fifty per centum in the case of
articles under Sections 196 and 197; and twenty five per centum in the case of
articles under Sections 198, 199 and 201. The tax imposed in this section shall
not apply to articles to be used by the importer himself in the manufacture or
preparation of articles subject to specific tax; Provided, however,
that where the National Economic and Development Authority certifies to the
availability of local raw materials of sufficient quantity, comparable quality
and price to meet the needs of manufacturers subject to specific tax the
importation of such raw materials shall be subject to the tax herein
imposed.

“(d) Value-Added Tax. — The provision of this Title to the contrary
notwithstanding , when public interest so requires, the President, upon
recommendation of the Ministry of Finance, may subject the second sale of any
article taxable under this Title to a value-added tax at rates not exceeding
twenty per cent (20%) based on either the:

1. gross selling price or gross value of any of the article sold, bartered,
exchanged or transferred, but the amount of tax credits (tax credit method);
or

2. the gross selling price or gross value of any of the articles sold,
bartered , exchanged or transferred; less the cost of raw materials (cost
deduction method).”

(2) Final annual percentage tax return. — On or before the
twentieth” day of February following the close of the taxable year, ever person
liable to tax under this section shall file a final percentage tax return
covering the total gross sales, receipts or earnings or gross value of output
for the preceding calendar or fiscal year. If the sun of the quarterly
percentage tax payments made and the tax credit allowed under this title during
the taxable year arc not equal to the total tax due on the entire gross sales,
receipts or earnings or gross value of output for that year, the taxpayer shall
either:

(a) pay the excess tax still due; or
(b) credit to the extent allowable
under this Title, the amount of excess tax credits shown on its final adjustment
return against the quarterly percentage tax liabilities for the taxable quarters
of the succeeding taxable year.”

(3) Where to file. — Except in cases where the Commissioner
otherwise permits, the percentage tax return required to be filed in the
preceding paragraph shall be filed with the Revenue District Officer, collection
agent, or duly authorized treasurer of the municipality in which such person has
his legal residence or principal place of business in the Philippines.

(4) Ad Valorem Penalties. — (i.) Failure to file and pay the
tax. — If the percentage tax return is filed with a person other than that
mentioned in the preceding subparagraph, or if the percentage tax on any
business is not paid within the time specified above, the amount of the tax
shall be increased by twenty-five per centum, the increment to be a part of the
tax and the entire unpaid amount shall be subject to the interest at the rate of
twenty per centum per annum.

“(ii) Willful neglect to file, or false or fraudulent return. In case of
willful neglect to file the return within the period prescribed herein, or in
case a false or fraudulent return is willfully made, there shall be added to the
tax or to the deficiency tax in case any payment has been made on the basis of
such return before the discovery of the falsity or fraud, a surcharge of fifty
per centum of its amount and the entire unpaid amount shall be subject to
interest at the rate.

SEC. 30. Section 292 of the National Internal Revenue Code
is hereby amended by adding thereto a new paragraph to read as follows:

“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.”

SEC. 31. Section 324 of the National Internal Revenue Code
is hereby amended to read as follows:

“SEC. 324. Preservation of books of accounts, and other
accounting records. — All books of accounts including the subsidiary book’s, 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 318 within which the Commissioner is
authorized to make an assessment. The said books and records shall be subject to
examination and inspection only once in a taxable year by internal revenue
officers, except in the following cases:

1. Fraud, irregularity or mistakes as determined by the Commissioner;
2. The taxpayer requests reinvestigation;
3. Verification ox compliance withholding tax laws and regulations; and
4. Verification of capital gains tax.
5. in which case, another or separate examination and inspection may be made.
   Examination and inspection of books of account and other accounting record 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 days from the date of retirement or with
   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.

SEC. 32. Section 330 of the National Internal Revenue Code
is hereby amended to read as follows:

SECTION 330. Statutory offenses of officials and
employees. — (a) Those charged within the enforcement of the provisions of
this Code. 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 delinquency hereinbelow specified,
or who falls within any of the classes hereinbelow indicated, shall be punished
with a fine of not less than five thousand pesos nor more than fifty thousand
pesos and imprisonment for not less than one year nor more than ten years:

1. Those guilty of extortion or willful oppression under color of law.
2. Those who knowingly demand other or greater sums than are authorized by law
   or received any fees, compensation or reward, except as by law prescribed, for
   the performance of any duty.
3. Those who willfully neglect to give receipts, as by law required, for any
   sums collected in the performance of duty or who willfully neglect to perform,
   any other duties enjoined by law.
4. Those who conspire or collude with another or others to defraud the revenues
   or otherwise violate the law.
5. Those who willfully make opportunity for any person to defraud the revenues,
   or who do or omit to do any act with intent to enable any other person to
   defraud the revenues.
6. Those who negligently or designedly permit the violation of the law by any
   other person.
7. Those who make or sign any false entry or entries in .any books, or make or
   sign any false certificate or return in any case where the law requires the
   making by them of such entry, certificates or return.
8. Those who, having knowledge or information of violation of this Code or of
   any fraud committed on the revenues collectible by the Bureau of Internal
   Revenue, fail to report such knowledge or information to their superior officer
   or to report as otherwise required by law.
9. Those who, without the authority of law, demand or accept or attempt to
   collect, directly or indirectly; as payment; 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 law.

(b) Withholding agents under the provisions of this Code or Regulations
promulgated thereunder. — 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 who, under the provisions of this Code or regulations promulgated
thereunder, is charged with the duty to deduct and withhold any interval revenue
tax and to remit the same in accordance with the provisions of this Code and
other laws is guilty of any delinquency hereinbelow specified shall be punished
by a fine of not less than five thousand pesos (P5,000) and imprisonment of not
less than one year nor more than two years.

1. Those who fail or cause the failure to deduct and withhold any internal
   revenue tax under any of the withholding tax laws and implementing regulations,
2. Those who fail or cause the failure to remit taxes deducted and withheld,
   within the time prescribed by law and implementing regulations,
3. Those who fail or cause the failure to file return or statement within the
   time prescribed, or render or furnish a false or fraudulent return or statement
   required under the withholding tax laws and regulations.

SEC. 33. Effectivity. — This Decree shall take
effect upon approval, except; that the Minister of Finance upon recommendation
of the Commissioner of Internal Revenue shall promulgate rules and regulations
to implement the transitional effectivity of Section 27, Section 28 and Section
29 of this Act.

Done in the City ox Manila, this 1st day of August, in the year of Our Lord,
nineteen hundred and eighty.

			(Sgd.) FERDINAND E. MARCOS President of the Philippines
	By the President:
	(Sgd.) JOAQUIN T. VENUB, JR.
		Presidential Assistant