Below is a comprehensive discussion of the Philippine legal framework surrounding tax exemption for religious organizations. This overview includes constitutional provisions, statutory laws, regulations, and jurisprudence that define the extent of and limitations on the tax-exempt status of such organizations.

1. Constitutional Basis

1.1. Article VI, Section 28(3) of the 1987 Philippine Constitution

"Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation."

This constitutional provision explicitly provides for tax exemption of:

Charitable institutions
Churches, parsonages/convents, and mosques
Non-profit cemeteries
Lands, buildings, and improvements used actually, directly, and exclusively for religious, charitable, or educational purposes

Hence, religious organizations and their properties used exclusively for religious activities enjoy exemption from real property tax, as well as certain other taxes. This principle protects the free exercise of religion by ensuring that churches and mosques (and similar institutions) are free from the burden of taxation in connection with their religious use.

2. Statutory Basis

2.1. Local Government Code of 1991 (Republic Act No. 7160)

Section 234(b) provides that properties actually, directly, and exclusively used for religious purposes are exempt from the real property tax imposed by local government units.
The phrase “actually, directly, and exclusively used” is strictly construed: if a portion of the property is used for activities not strictly related to religious use (e.g., commercial leases, fundraising unrelated to religious practice), those sections may be subject to taxation.

2.2. National Internal Revenue Code (NIRC), as amended

While the constitutional provision primarily addresses real property tax, certain provisions of the NIRC also reflect exemptions for organizations with religious or charitable objectives:

Section 30(E) of the NIRC covers non-stock, non-profit educational, charitable, religious, and similar organizations. It provides income tax exemption for such organizations, provided no part of their net income or assets inures to the benefit of any private individual or shareholder.
This exemption applies only to income from activities that are substantially related to their religious or charitable purpose. Income from unrelated business or commercial activities can be taxable.

2.3. Other Pertinent Laws and Bureau of Internal Revenue (BIR) Issuances

BIR Revenue Memorandum Circulars (RMC) occasionally clarify how religious and charitable organizations can claim and maintain their tax exemptions. These issuances often remind organizations of the documentary requirements (e.g., Certificate of Tax Exemption, annual information returns) to maintain compliance.
BIR Form 1901 / 1903 registration: Even if exempt, religious organizations still need to register with the BIR and secure a Certificate of Tax Exemption. Non-registration may lead to penalties or disqualification from the exemption.

3. Scope of Exemption

3.1. Real Property Tax Exemption

As spelled out by the Constitution and the Local Government Code, land, buildings, and improvements that are used exclusively for religious worship, religious instruction, or the administrative functions of the religious organization (e.g., a parish office, convent, mosque caretaker area) are generally exempt from local real property taxes.

Key Points/Limitations:

Exclusivity – The property must be used exclusively for religious purposes. If any portion of that property is leased or used for commercial purposes, that portion can lose its tax-exempt status.
Actual Use – The tax exemption follows the actual use of the property. If it is idle or used for other activities, local governments may impose taxes on that portion not being used for religious ends.

3.2. Income Tax Exemption

Religious organizations or institutions recognized as non-stock, non-profit under Section 30 of the NIRC enjoy exemption from income tax for income derived in pursuit of their religious objectives. For instance, donations or offerings from churchgoers are not taxed as income, provided they are used for religious or charitable activities.

Key Points/Limitations:

Related Activities Only – If the institution earns income from unrelated business activities, those earnings can be subject to corporate income tax or other applicable taxes.
Documentation – The institution must secure a BIR ruling or certificate confirming its exempt status and must comply with documentary requirements, such as keeping financial statements that reflect strictly segregated income sources.

3.3. Donor’s Tax and Other Taxes

Donor’s Tax: Donations to religious organizations duly recognized as non-stock, non-profit under Section 30 of the NIRC can be exempt from donor’s tax, provided that the donation is used for religious or charitable purposes. Donors usually need a Certificate of Tax Exemption (or at least documentation proving the donee’s exempt status) to claim donor’s tax exemption.
VAT or Percentage Tax: If the organization sells religious items or other goods, the question of whether such sales are exempt from VAT or Percentage Tax depends on whether the revenues are a regular commercial activity or incidental to its religious functions. Certain sales of religious articles might be considered non-taxable if the proceeds are used for religious activities, but clarity through BIR rulings is often needed.

4. Requirements for Maintaining Tax-Exempt Status

Registration and Certification
- Register with the BIR (usually using BIR Form 1903) and secure a Certificate of Tax Exemption.
- Present incorporation documents (for example, Articles of Incorporation or Bylaws) if the religious institution is also organized as a non-stock, non-profit corporation under the Corporation Code of the Philippines (now Revised Corporation Code).
Annual Filing of Required Returns
- Even if exempt from income tax, the organization might be required to file an annual information return (BIR Form 1702-EX for non-stock, non-profit organizations).
- Failure to file may result in penalties and potential revocation of the exemption.
Maintenance of Records
- Must maintain records that clearly demonstrate that no part of the net income inures to the benefit of private individuals.
- Keep documents that show all income and expenses, proving the income is used for the authorized exempt purpose.
Exclusive Use of Property
- For real property tax exemption, ensure that the property is used only for religious purposes. Portions of church or mosque property used for commercial activities (e.g., renting out portions of the property) would not qualify for exemption on that specific portion.

5. Jurisprudence and Administrative Interpretation

5.1. Strict Interpretation of Tax Exemptions

The Supreme Court of the Philippines has consistently held that tax exemptions are construed strictissimi juris (very strictly) against the taxpayer and liberally in favor of the taxing authority. As a result, the burden is on the religious organization to prove that its operations and property fall squarely within the parameters of the exemption.

5.2. Case Law Examples

Lung Center of the Philippines v. Quezon City (G.R. No. 144104, June 29, 2004): While not a purely religious institution, this case clarified the principle that if part of the property of a tax-exempt institution is leased to private entities or used for commercial purposes, that portion of the property loses its tax exemption.
Bishop of Nueva Segovia v. Provincial Board and Province of Abra v. Hercilla are often cited as authority for interpreting “exclusively used” for religious or charitable purposes. Though some are older cases decided under previous constitutions, the guiding principle remains consistent.

In sum, the courts require that the institution strictly prove that the property or income in question is used exclusively for its religious purposes to avail of any tax exemption.

6. Practical Considerations and Common Pitfalls

Partial Commercial Use
- Leasing out church premises or maintaining a store or cafeteria: The religious organization typically must pay taxes on revenues from these activities unless the income is merely incidental and used strictly for religious or charitable ends. Detailed documentation is crucial to show how the income is used.
Failure to File
- Many religious organizations assume that being “exempt” means they need not file any returns. In reality, non-compliance with annual returns and record-keeping can lead to penalties or possible revocation of exemption.
Donation Misuse
- Funds donated for religious work but used for private benefit (e.g., for personal enrichment) can endanger an organization’s tax-exempt status. The BIR or local government can investigate if evidence arises that organizational funds have been diverted for non-religious, profit-generating activities.
Certification and Accreditation
- Some religious entities presume they are automatically exempt without going through formal registration and accreditation processes. While the Constitution grants the exemption in principle, administrative agencies (particularly the BIR and local government units) require formalities to confirm that exemption.

7. Key Takeaways

Constitutional Guarantee: The Constitution provides a strong basis for tax exemption of religious institutions, particularly for properties devoted exclusively to religious use.
Local Government Code and Real Property Tax: Properties actually, directly, and exclusively used for religious worship or religious purposes are exempt from real property tax.
National Internal Revenue Code: Religious organizations with non-stock, non-profit status and used for religious or charitable purposes can be exempt from income tax on donations or offerings, but business income may be taxable.
Strict Application: Philippine jurisprudence requires strict compliance with the exemption’s conditions. Churches, mosques, and other religious entities must be transparent, file required returns, and keep thorough records.
Segmented Treatment of Property: Any commercial or unrelated use of property under a religious institution’s name may be taxed separately.
Documentation Is Key: An updated Certificate of Tax Exemption, correct and timely filings, and clearly maintained books of account are critical to maintaining the exempt status.

8. Conclusion

Tax exemption for religious organizations in the Philippines is constitutionally enshrined and further reinforced by statutes and case law. The core principle is that lands, buildings, and improvements actually, directly, and exclusively used for religious purposes—and income strictly related to these religious activities—are protected from taxation. However, this privilege comes with responsibilities: compliance with registration, documentation, reporting requirements, and a strict devotion of resources to religious ends. Non-compliance or any significant commercial activity can undermine or negate the exemption. Ultimately, these rules aim to balance the constitutional right to free exercise of religion with the government’s interest in a fair and just taxation system.