Income Taxation Guide

Income Taxation
and
Income Tax
atty. cleo d. sabado-andrada, cpa, mba,llm

WHAT IS AN INCOME?
Income means ALL WEALTH that flows into the hands of the
taxpayer other than as a mere return of capital.
It includes the forms of income specifically described as

gains derived from the sale or other disposition of
capital.

INCOME
All wealth that flows into the hand of the taxpayer, except a mere return
of capital.
“HONORARIA” no matter how

negligible the amount, IS WEALTH
that flows into the hands of a
Barangay Official, Hence,
SUBJECT TO INCOME TAX and to
withholding tax on compensation.-bir
ruling 11/4/2011
SOURCES OF INCOME
Source of income is any property, activity or service

that produced the income.
PROPERTY (Capital)
LABOR (Service)
SALE (Exchange of capital asset
and activity) ECAA

SOURCES OF INCOME
INCOME DERIVED FROM WHATEVER SOURCE FORMS
PART OF THE TAXPAYER’S INCOME.
Earnings, lawfully or unlawfully, acquired without

the consensual recognition, express or implied, of an
obligation to repay AND without restriction as to their
disposition are TAXABLE, even though it may still be
claimed that he is not entitled to retain the money or
even though he may still be adjudged to restore its
equivalent.
Gp-Rr-NeLT
1. There must be GAIN or PROFIT, whether in cash

or its equivalent
There should be an earnings in EXCESS of the capital

invested or in EXCESS of the amount invested.
A RECOVERY OF AMOUNT INVESTED
IS NOT AN INCOME
2. The gain must be REALIZED or RECEIVED
that income must be credited to

RECEIPT includes the taxpayer without any
constructive receipt substantial limitation or
condition upon which payment
is to be made.

3. The gain MUST NOT BE EXCLUDED BY LAW or
TREATY from taxation.
There are some EXCLUSIONS FROM GROSS INCOME,

(as provided for by the NIRC, other tax laws and treaty)
so, not all income is required to be included in computing
the taxable income.

How does “Income” differ from “capital”? Explain.
1995 BAR Examination

VERSUS
the original investment or

income is the fund used in order to
fruit of capital generate earnings which
is called income
income is the service

of wealth is a wealth,

INHERITANCE is not considered an
INCOME because the capital is just
transferred in the process of succession,
and it remains as the same capital as it
was in the hands of transferor.
THEREFORE: NOT SUBJECT TO INCOME

TAX . HOWEVER, IT IS SUBJECT OT
TRANSFER TAX.

A taxpayer could prove that the
increase in his wealth is not an income,
but mere return of capital by….
presenting his present his

audited financial statements as
proof.

WAY BY WHICH THE BIR DETERMINES
INCOME OF THE TAXPAYER IF NO
RELIABLE ACCOUNTING RECORDS
By THE use of net-worth method
(capital maintenance approach) of
determining income.
Rule of thumb:
increase in taxpayer’s net worth other
than return of capital is income.
VERSUS
refers to the all funds accruing to

earnings of the treasury of the
individuals, government derived
partnership, from tax, donation,
corporation or grants and any other
estate and trust source,
whether or not
subject to tax.

TAXES are considered GOVERNMENT REVENUE
Revenue pertains to all funds accruing

to the treasury of the government,
taxes are just a part of
government revenue.

VERSUS
Magkano kinita mo? Magkano binayad sayo?
refers to the are considered cash

amount after collected over a
excluding capital business period.
invested, cost of
goods sold and Receipts may include
other deductions capital as well as its
allowed by law. earnings

INCOME MAY BE EARNED
FROM
PARTLY WITHIN and PARTLY WITHOUT THE PHILIPPINES

TAXABLE

TAXABLE ONLY WHEN THE
TAXPAYER IS:
A Resident Filipino Citizen or a

Domestic Corporation
PARTLY WITHIN and PARTLY WITHOUT THE PHILIPPINES
General Rule: Exception:

only INCOME when the taxpayer is
WITHIN is taxable in a resident Filipino citizen or
the Philippines a Domestic corporation,
(Filipino citizen or a domestic
corporation whose income is derived
WITHIN and WITHOUT is subject to
tax

Sources and Taxability of Income
Income Taxpayers
Sources of Income: RC/ DC NRC/ Aliens/ FC
Earned:
Within Taxable Taxable
Without Taxable Non taxable
Partly within and without Taxable Partly taxable
RC – Resident Citizens FC-Foreign Corporations

DC – Domestic Corporations NRC – Nonresident Citizens

What is an INCOME TAX?
It is a TAX on INCOME,
whether gross or net.
Income Tax is an imposition by the

government wherein the test of faculty
is:
INCOME

NATURE OF TAXATION
In the Philippines, the INCOME TAX in the NIRC is:

NDGAE
National Tax Imposed by the National Government

demanded from the person whom

Direct Tax the law intends to impose it, and
cannot be shifted by the taxpayer to
some other person
levied for the general purpose of the

General Tax government.

Ad Valorem levied on value or amount of the

Tax income of the taxpayer.
A burden not laid directly upon

Excise Tax persons and properties.
It is neither a poll tax nor property

tax
PURPOSES OF INCOME TAX
INCOME TAX has been increasingly relied

upon by the Government
To provide a large amount of revenue
To remove inequalities in the distribution of income

and wealth which are deterrents to social progress
(Income Tax is levied at progressive rates.)

Basic INCOME TAX LAW
Title II of Republic Act No. 8424, the Tax
Reform Act of 1997 otherwise known as the
National Internal Revenue Code of 1997.
The law has undergone a lot of amendments and
the latest amendment being the provisions of
Republic Act 9504 “An Act Amending Sections 22, 24,
34, 35, 51 and 79 of RA 8424, as amended relative to
the Withholding of Income Tax on Compensation
and other Concerns specifically PERSONAL and
ADDITIONAL EXEMPTIONS.
Basic INCOME TAX LAW
Republic Act No. 10963
THE Tax reform for acceleration and

inclusion

What are the basic features of the present income
tax system?

SALIENT FEATURES OF THE PRESENT INCOME TAX
SYSTEM IN THE PHILIPPINES— (R.A. 8424, the NIRC)
SGGN-FPCC-
S
NET INCOME TAXATION

(Sec.34 and 35 of the NIRC)
[it allows DEDUCTION and grants
EXEMPTION
GROSS INCOME TAXATION
Sec. 25 par b,c,d,e of the NIRC
Sec. 28B 1,2,3,4 of the NIRC
(granted under exceptional cases and Global System of
does not allow exemption and Taxation
deduction)
PAY AS YOU FILE SYSTEM

(Sec. 56A1, of the NIRC)
(Sec. 77 par. C)
Creditable
Withholding Tax
atty. cleo d. sabado-andrada, cpa, mba

Substituted Filing of Income Tax

(Revenue Regulation No. 30-2002)
TAX RATES
Sec. 24, NIRC-Individual Tax Rates
Sec. 27, NIRC-Corporate Tax Rates

INCOME TAX SYSTEMS
F Provides for different tax rules

E and tax treatment
A
SCHEDULAR T
SYSTEM U Classifies or categorizes income
R
E Employed in imposing tax on
S INDIVIDUAL taxpayers

INCOME TAX SYSTEMS
F It views indifferently the tax base

E
A It treats in common all the
GLOBAL T categories of taxable income of
SYSTEM U taxpayers and imposes a uniform
R tax rate
E
S It does not classify or
categorize income of corporate
taxpayers

Distinguish “schedular treatment from global
treatment as used in income taxation.

INCOME TAX SYSTEMS
GLOBAL SCHEDULARS
-versus-
SYSTEM YSTEM
As to TAX TREATMENT
Provides for UNIFORM Provides for DIFFERENT

tax rules or tax treatment tax rules or tax treatment
As to CATEGORIZATION/CLASSIFICATION of INCOME
DOES NOT CLASSIFY/ CLASSIFIES OR

CATEGORIZE INCOME CATEGORIZE S INCOME

INCOME TAX SYSTEMS
GLOBAL SCHEDULARS
-versus-
SYSTEM YSTEM
As to TAX RATE
UNIFORM IN character.
30% uniform corporate Impose different tax rates
rate effective taxable
year 2009.
As to APPLICABILITY under the TAX CODE/NIRC
Applies to CORPORATE Applies to INDIVIDUAL
INCOME TAXATION INCOME TAXATION
INCOME TAX SYSTEMS
GROSS INCOME NET INCOME
TAXATION ADVANTAGES TAXATION
Total everything Minus deduction
Eradicates/minimizes graft Just & Favorable System

and corruption
Minimizes fraud in claiming
Simplifies the computation of tax
deductions
Simple rules to be understood Provides equitable relief—level of

by the ordinary citizen disposable income will improve and
economic activity will increase
More revenues to the Common More revenues to the

government Advantage government
INCOME TAX SYSTEMS
DISADVANTAGES
TAXATION TAXATION
Can no longer claim business Vulnerable to graft corruption

legitimate expenses
Susceptible of fraudulent Provides complicated rules

manipulation of the Gross which an ordinary citizen finds
Income it difficult to understand
Result to Tax Evasion Common Tax Evasion-result of

Disadvantage graft and corruption

INCOME TAX SYSTEMS
-versus-
TAXATION TAXATION
AS TO TAX BASE
GROSS INCOME TAXABLE INCOME OR NET INCOME
All items of Gross Income

less allowable deductions and
exemptions authorized by law
(Sec. 31 of the NIRC)
What is meant by taxable income? LADEAL
All items of Gross Income less allowable deductions and

exemptions authorized by law (Sec. 31 of the NIRC)

INCOME TAX SYSTEMS
-versus-
TAXATION TAXATION
AS TO claimed for DEDUCTIONS or EXEMPTIONS
Allows NO deduction Allows deduction

Grants NO exemption Grants exemption
AS TO APPLICABILITY
Applies to two (2) kinds of Applies to the following– RC,

taxpayers—NRA-NETB NRC, NRA-ETB, RA, DC,
and NRFC RFC
From what sources of income are the following
persons/corporations taxable by the Philippine Government?
1.Citizen of the Philippines residing therein; Wi Wo
2. Non-resident citizen; Wi
3. An individual citizen of the Philippines who is working and

deriving income from abroad as an overseas contract
worker; Win
4. An alien individual, wheter a resident or not of the

Philippines; Wi
5. A domestic corporation. WiWo

INCOME TAX SYSTEMS
All the possible criteria or
basis are included
COMPREHENSIVE
INCOME TAX R- residence of the taxpayers
SITUS RA and NRA ETB
(Sec. 23 of P- place where income is derived
NRA NETB and NRFC
NIRC) N- nationality or residency of the
taxpayers
RC and DC
(because can be taxed on income
within and without)
INCOME TAX SYSTEMS
PAY AS YOU FILE SYSTEM

(Sec. 56A1, of the NIRC)
(Sec. 77 par. C)
“pay your income tax when you file your

income tax return”

INCOME TAX SYSTEMS
The withholding agent

(source of income) is
obligated to withhold on
Creditable certain items of income
Withholding
Tax System This tax withheld may be
credited against the income
tax due by the taxpayer.
Example of income subject to creditable withholding

system---Compensation Income

INCOME TAX SYSTEMS
Final Withholding
Tax
[Sec. 32A (4)(6)(7)(9)
Term used is “PASSIVE INCOME”

Income is received without any effort or action from the taxpayer

INCOME TAX SYSTEMS
The withholding agent is

Final obligated to withheld.
Withholding
Tax Recipient of such income will
[Sec. 32A no longer be required to
(4)(6)(7)(9) report such income, because
the amount withheld constitute
as a FINAL SETTLEMENT of
the tax liability of that
particular income
INCOME TAX SYSTEMS
Interests
Final Royalties
Withholding
Tax Dividends received by
[Sec. 32A individual taxpayer and Non
(4)(6)(7)(9) resident foreign corporation
Prizes amounting to more

than P10,000.00

What is meant by income subject to “final tax”?
Give at least 2 examples of income of resident
individuals that is subject to final tax?
DRIP

INCOME TAX SYSTEMS

As per Revenue Regulation No. 30-2002,
Taxpayer is NO LONGER REQUIRED TO

FILE INCOME TAX RETURN
provided the following requisites are
present:
INCOME TAX SYSTEMS
REQUISITES:
1. Must be a pure compensation earner. No

other source of income
2. Must have only one employer
3. The tax withheld must be equal to tax due on

tax payable.
INCOME TAX SYSTEMS

Employer must file an INFORMATION TAX RETURN
The BIR Form 1604 serves as e Tax Return

INCOME TAX SYSTEMS
TAX RATES
Sec. 24, NIRC-Individual Tax Rates
Sec. 27, NIRC-Corporate Tax Rates
Progressive Income Tax Rate 0% to 35%
Uniform Corporate Income Tax Rate

30% effective January 1, 2009
Republic Act No. 10963
THE Tax reform for acceleration and
inclusion

ANNUAL TAXABLE TAX RATES
INCOME TRAIN LAW (Sec. 5 of RA 10963)
1 C
Not over P10,000 5% ANNUAL TAXABLE (January 1, 2018 – (January 1, 2023 –
INCOME December 31, 2022) Onwards)
9 O P10,000-30,000
Over P500 + 10% of excess
over P10,000
9 D Not over P250,000 0% 0%
Over P30,000- P2,500 + 15% of excess
7 E
70,000 over P30,000
Over P250,000 but 20% of the excess 15% of the excess
P8,500 + 20% of excess not over P400,000 over P250,000 over P250%
Over P70,000- over P70,000
T 140,000
P22,500 + 25% of Over P400,000 but P30,000 + 25% of the P22,500 + 20% of the
A excess over P140,000 not over P800,000 excess over P400,000 excess over P400,000
Over P140,000-
X 250,000 P50,000 + 30% of
Over P800,000 but P130,000 + 30% of P102,500 + 25% of
excess over P250,000
not over P2,000,000 the excess over the excess over
Over P250,000- P125,000 + 32% of the P800,000 P800,000
500,000 excess over P500,000
Over P2,000,000 but P490,000 + 32% of P402,500 + 30% of
not over P8,000,000 the excess over the excess over
Over P500,000 P2,000,000 P2,000,000
Over P8,000,000 P2,410,000 + 35% of P2,202,500 + 35% of
the excess over the excess over
P8,000,000 P8,000,000
What is “Gross Income” for purposes of the
Income Tax?
Question N. 1 (1) 1995 BAR Examination

1. Prepare 1/4 sheet of yellow paper.
2. Write your name.
3. Write your answer to the 1st

question on the front portion of your
paper.
4. Write your answers to the 2nd and

3rd questions at the back portion of
your paper. Write only the letter of
your choice.
1…2…3…4…5…
6…7…8…9…10…
1. One of the salient features of the Philippine
Income Tax System is the Substituted Filing of
Income Tax Return which means that the
Taxpayer is no longer required to file Income Tax
Return (ITR) as long as the requisites provided
for by law are present.
a. What are the requisites required by law?

Enumerate. (6 points).
b. Assuming that requisites are present, is there any
the obligation on the part of the employer to the
Bureau of Internal Revenue? (yes or no)
Explain briefly. (4 points)
2. Net Income Taxation applies to the
following, except:
a.RFC
b.DC
c.NRA-NETB
d.NRA-ETB
(2 points)
3. A foreign individual who have stayed in the
Philippines for more than 183 days but less
than one year is considered a
a.Non Resident Alien not doing business in

the Philippines
b.Non Resident Alien doing business in the
Philippines.
c. Resident Alien
d.Resident Alien doing business in the
Philippines.
(2 points)
What is “Gross Income” for purposes of the
Income Tax?
means by a ALL INCOME taxpayer whether but not limited to
LEGAL derived FROM during WHATEVER or the following
ILLEGAL, items • Compensation paid including wages, for but
services not in :
Question N. 1 (1) 1995 BAR Examination

DEFINITION OF GROSS INCOME
Gross Income means ALL INCOME derived during

a taxable year by a taxpayer FROM WHATEVER
SOURCE, whether LEGAL or ILLEGAL, including
but not limited to the following items: CGGIR-RDAPP-P
•Compensation for services in whatever form

paid including but not limited to fees, salaries,
wages, commissions and similar items;
DEFINITION OF GROSS INCOME
•Gross income derived from the conduct of trade or
business or trade or business or the exercise of
profession;
•Gains derived from dealings in property;
•Interests;
•Rents;
•Royalties;
•Dividends;
•Annuities;
•Prizes and winnings;
•Pensions; and
•PARTNER’S DISTRIBUTIVE SHARE from the net
income of the General Professional Partnership.
GROSS Normal Tax
[Sec. 32A
INCOME (1)(2)(3)(5)(8)
(Sec. 32A) (10)(11)]
1. Compensation Income
2. Gross Income from Business &
Profession
3.Gains from dealings in property
4. Rents
5. Annuities
6. Pensions
7. Partner’s Distributive Share
from Net Income of General
Professional Partnership
Final
GROSS Withholding
INCOME Tax
[Sec. 32A
(Sec. 32A) (4)(6)(7)(9)
Interests
Royalties
Dividends received by
individual taxpayer and Non
resident foreign corporation
Prizes amounting to more

than P10,000.00
Summary Application
NORMAL TAX vs. FINAL TAX
Subject to
NORMAL TAX
NO Report in the year-
Is taxable end Income Tax
income Return (ITR)
subject to
final tax? No need to report
YES in the year-end ITR

Summary Application
NORMAL TAX vs. FINAL TAX
Subject to
NORMAL TAX Subject to
Report in the year- Progressive Rate
end Income Tax 0% to 35%
Return (ITR)
Subject to
FINAL TAX Subject to
No need to report in Final Tax Rate
the year-end ITR

Summary Application
FINAL TAX
Income subject to final tax is an income wherein the
tax is fully collected through the withholding tax
system. The payor of the income withholds the tax
and remits it to the government as a final settlement
of the income tax due on said income. THIS IS TO
ENSURE THE COLLECTION OF INCOME TAX ON
SAID INCOME.
The recipient of the income is no longer required to

include the item of income subjected to ‘final Tax” as
part of his gross income in his income tax returns.
What DO YOU THINK is the reason why cash
dividends, when received by a resident citizen or
alien from a domestic corporation , are taxed only
at the final tax of 10% and not the progressive
tax rate schedule under Sec. 24(A) of the NIRC?
Ensure the collection of
2001 BAR Examination income tax on that income

Implementing the Income Tax Provisions of Republic
Act No. 10963, Otherwise Known as the "Tax
Reform for Acceleration and Inclusion (TRAIN)" Act
dated January 25, 2018,
published in Manila Bulletin on

February 22, 2018.
effectivity of the Implementation of the TRAIN

provisions and tax rates starts
January 1, 2018.
COMPENSATION INCOME Sec. 32A (1)
Any remuneration for services performed
by an employee for his employer under an
employee-employer relationship, UNLESS
specifically EXCLUDED by the Tax Code.
Sec 2 (a) BIR RR No. 8-2018
Compensation Income Earners – individuals

whose source of income is purely derived from
an employer-employee relationship.
Sec 2 (b) BIR RR No. 8-2018

EXISTENCE OF EMPLOYER-EMPLOYEE RELATIONSHIP
when the person for whom services are

rendered(EMPLOYER) has the right to control and
direct the individual who performs the services
(EMPLOYEE), not only as to the result in
accomplishing the work but also as to the details and
means by which that result is accomplished.
Sec 2 (e) BIR RR No. 8-2018

Section 2
c. Employee – an individual performing services under an employer-
employee relationship. The term covers all employees, including
officers and employees, whether elected or appointed, of the
Government of the Philippines, or any political subdivision thereof or
any agency or instrumentality.
d. Employer – any person for whom an individual performs or

performed any service, of whatever nature, under an employer-
employee relationship. It is not necessary that services be continuing
at the time the wages are paid in order that the status employer may
exist. Thus, for purposes of withholding, a person for whom
an individual has performed past services and from whom he
is still receiving compensation is an “employer”.
TWO TAX IMPLICATIONS
As to the EMPLOYER As to the EMPLOYEE

IT IS AN EXPENSE
(necessary and ordinary IT IS AN INCOME
but can only claim the (either compensation or
reasonable fair value of other income.)
the services rendered.)

COMPUTATION OF TAXABLE INCOME
D
Gross Compensation Income xxxxxxx
Less: Deductions
E
Premium Payments on Health and/or
L Insurance [Sec. 34 (M)]
Hospitalization xxxxxxx
Balance
E
Less : Personal Exemptions xxxxxxx
T Exemptions
Additional xxxxxxx xxxxxxx
E
Taxable Income xxxxxxx
D
Individuals Earning Purely Compensation
Income
Taxable income for compensation earners is the

gross compensation income less nontaxable
income/benefits such as but not limited to the
Thirteenth (13th) month pay and other benefits
(subject to limitations, see Section 6(G)(e) of these Regulations), de
minimis benefits, and employee’s share in the SSS,
GSIS, PHIC, Pag-ibig contributions and union dues.
TOTAL EXCLUSION P90,000.00

Less: Deductions
Nontaxable Income Benefits xxxxxxx
Mandatory Contributions xxxxxxx
Balance
Taxable Income xxxxxx

Section 2
o. Taxable Income – refers to the pertinent

items of gross income specified in the
Code, less deductions, if any, authorized
for such types of income by the Code or
other special laws.
lndividuals earning purely compensation income
shall be taxed based on the income tax rates
prescribed by the TRAIN Act
lndividuals earning purely compensation income
shall be taxed based on the income tax rates
prescribed by the TRAIN Act

Less: Deductions
Nontaxable Income Benefits xxxxxxx
Mandatory Contributions xxxxxxx
Balance
Taxable Income xxxxxx

Monthly Compensation Income 95,000;
13th Month Pay 95,000; Christmas Bonus 5,000; PBB 50,000; Other
Benefits 25,000;
Rice Allowance 3,000; Clothing Allowance 7,000; Laundry 500
Contributions to Pag-ibig/SSS/Union Dues 11,000
Minimum wage earners shall be
exempt from the payment of income
tax based on their statutory minimum
wage rates. HONH
The holiday pay, overtime pay, night

shift differential pay and hazard pay
received by such earner are likewise
exempt.
Mr. X, a minimum wage earner, works for 123 Co. Mr. X is
not engaged in business nor has any other source of income
other than his employment. For 2018, Mr. X earned a total
compensation income of P135,000.00.
The taxpayer contributed to the SSS, Philhealth, and HDMF
amounting to P5,000.00 and has received 13th month pay of
P11,000.00. His income tax liability will be computed as
follows:
Mr. X, a minimum wage earner, works for 123 Co. Mr. X is not
engaged in business nor has any other source of income other than
his employment. For 2018, Mr. X earned a total compensation
income of P135,000.00. Aside from his basic wage, additional pay of
P140,000.00 which consists of the overtime pay (P80,000.00), night
shift differential (P30,000.00), hazard pay (P15,000.00) and holiday
pay (P15,000.00).
The taxpayer contributed to the SSS, Philhealth, and HDMF
amounting to P5,000.00 and has received 13th month pay of
P11,000.00. His income tax liability will be computed as follows:
Mr. X, a minimum wage earner, works for 123 Co. Mr. X is not engaged in
business nor has any other source of income other than his employment.
For 2018, Mr. X earned a total compensation income of P135,000.00. Aside
from his basic wage, additional pay of P140,000.00 which consists of the
overtime pay (P80,000.00), night shift differential (P30,000.00), hazard pay
(P15,000.00) and holiday pay (P15,000.00).
The taxpayer contributed to the SSS, Philhealth, and HDMF amounting to
P5,000.00 and has received 13th month pay of P11,000.00. His income tax
liability will be computed as follows:
Any by remuneration an employee for for services his
employeeemployer specifically Sec 2 performed employer
Reminder: relationship, under an UNLESS EXCLUDED
NO BUSINESS and PERSONAL EXPENSES are

allowed as deductions from GROSS COMPENSATION
INCOME
RULE on Compensation Income applies only to RC,

RA, NRC and NRA-ETB.
It DOES NOT apply to NRA-NETB, DC, RFC, NRFC,

ESTATE, TRUSTS. (Reason: Compensation presupposes
personal service)

Reminder:
Husband and wife shall compute their individual income tax
separately based on their respective taxable income; if any
income cannot be definitely attributed to or identified as
income exclusively earned or realized by either of the
spouses, the same shall be divided equally between the
spouses for the purpose of determining their respective
taxable income.

FORMS OF COMPENSATION INCOME
The name by which the remuneration for services is
designated is immaterial. Thus, salaries, wages, emoluments
and honoraria, allowances, commissions (e.g.transportation,
representation, entertainment and the like); fees including
director's fees, if the director is, at the same time, an
employee of the employer/corporation; taxable bonuses and
fringe benefits, except those which are subject to the fringe
benefits tax under Sec. 33 of the Code and the allowable "de
minimis" benefits; taxable pensions and retirement pay; and
other income of a similar nature constitute compensation
income.

1. Basic Salary or Wage 6. Overtime Pay
2. Honoraria 7. Profit Sharing
3. Commission 8. Awards for Special Services
4. Fees 9. Beneficial Payments
5. Hazard Pay or Emergency Pay


10. Fixed or Variable Allowances When not considered as
Examples: COMPENSATION
Transportation
If the reimbursements and/or
Representation advances is necessary and
ordinary expenses incurred
Other Allowances by the employee in the pursuit
such as cost of of employer’s business.
living allowance

10. Fixed or Variable Allowances When not considered as
COMPENSATION
Examples:
Transportation If employee is required to

account/liquidate for the
Representation transportation and
representation expenses.
Other Allowances The excess of actual expenses
such as cost of over advances made is
living allowance considered taxable income if not
returned to the employer
11. Tips and Gratuities
Tips or gratuities :
-paid directly to an employee
-by a customer of the employer which are
-not accounted for by the employee to the employer
-are considered taxable income, but not subject to
withholding tax.

12. Thirteenth (13th) Month Pay and other benefits
General RULE:
If total amount is NOT TAXABLE
P90,000 or less
Except:
Amount in excess
of P90,000
TAXABLE

13. Vacation and Sick Leave
When
TAXABLE ?

13. Vacation and Sick Leave
Monetized value of unutilized vacation
When NOT leave credits of ten (10) days or less
TAXABLE ? which were paid to private employees.
Monetized value of leave credits of
government employees during the year
Terminal Leave Payments received
by Government Employees and
Money value of
Private Employees or their heirs upon
accumulated vacation
and sick leaves death of the employees

14. Retirement Pay

lump sum payment received by an employee
who has served a company for a considerable
period of time and has decided to withdraw from
work into privacy.
Generally, TAXABLE

14. Retirement Pay

NOT TAXABLE, in the following instances
A. SSS or GSIS retirement pays
B. Retirement Pay due to OLD AGE, provided

the following requisites are met:

14. Retirement Pay
B. Retirement Pay due to OLD AGE
Requisites:
1.Private retirement plan maintained by the
employer approved by the BIR for the exclusive
benefit of all the employee.
2.Retiring official or employee who has rendered at
least 10 years of service;
3.At least 50 years of age at the time of retirement
and availed of retirement for the first time.
Under what conditions are retirement benefits
received by officials and employees of private
firms are excluded from gross income and
exempt from taxation ?
SSS/GSIS -
Old age

To start a business of his own, Mr. Mario de
Guzman opted for an early retirement from a
private company after ten (10) years of service.
Pursuant to the company’s benefit plan, he was
paid his retirement benefit plan which was
subjected to withholding tax. Is the employer
correct in withholding the tax?
2000 BAR Examination Yes, not yet 50

15. PENSION
allowance paid regularly to a person on his
retirement or to his dependents on his death, in
consideration of past services, meritorious work,
age, loss, or injury.
Generally, TAXABLE

15. PENSION
A. When the LAW provides.
B. When BIR approves a pension plan of a

private company, provided the following
requisites are met:
15. PENSION
B. BIR approves PENSION PLAN
Requisites:

Maribel Santos, a retired public school teacher,
relies on her pension from the GSIS and the
Interest Income from a Time Deposit of
P500,000.00 with ABC Ban. Is Ms. Santos liable
to pay any tax on her Income?


16. Separation Pay
TAXABLE, if voluntarily availed of.


16. Separation Pay
Any payment made by an employer to an

employee on account of dismissal constitutes
compensation regardless of whether the
employer is legally bound by contract, statute,
or otherwise, to make such payment.

OTHER FORMS OF COMPENSATION INCOME
COMPENSATION
IN KIND


INSURANCE PREMIUMS PAID BY THE EMPLOYER
If the BENEFICIARY designated :

EMPLOYEE can claim as a
1. Family, Executor, or
COMPENSATION INCOME
administrator, heirs IF…..the employee is RANK
and FILE. If the employee is a
manager or supervisor, such
insurance premiums paid by the
EMPLOYER can claim
employer will be treated as
as an EXPENSE Fringe Benefit (Sec. 33n (B)
(10)

INSURANCE PREMIUMS PAID BY THE EMPLOYER
If the BENEFICIARY designated :

EMPLOYEE cannot claim as
2. EMPLOYER COMPENSATION INCOME.
EMPLOYER cannot
claim as an EXPENSE


CANCELLATION/CONDONATION
OR FORGIVENESS OF DEBT
TAXABLE Compensation Income
CAN BE:
TAXABLE Donation
TAXABLE Capital Transaction


TAXABLE Compensation Income
CREDITOR DEBTOR CONSIDERATION
Employer Employee
Deductible as Compensation Service

EXPENSE Income Rendered/Performed

TAXABLE Donation

Employer/Other Employee/Other
Person Person
(DONEE, neither
(DONOR, so subject subject to donees
To Donor’s Tax) Tax-Excluded from No Consideration
Gross Income

TAXABLE Capital Transaction
Corporation Stockholder
Expense-Reduction in Indirect Dividend-

Capital subject to Final Tax Indirect Dividend

SHARES OF STOCK RECEIVED AS
COMPENSATION
BASIS of VALUATION:
Fair Market Value of the shares of stock

at the time the service is rendered


STOCK OPTION
PRIVILEGE GRANTED TO KEY MPLOYEES OF A
CORPORATION TO AVAIL OF THE CORPORATION’S
SHARE IN THE FUTURE FOR A CERTAIN PRICE.
MARKET OPTION Compensation

PRICE PRICE Income
P5 multiplied by the
P20 P15 number of shares
granted

INCOME TAX PAID BY THE EMPLOYER
BASIS of VALUATION:
AMOUNT OF TAX PAID


LIVING QUARTERS/LODGING and
MEALS
If living quarters The RENTAL VALUE of

are furnished to the the living quarters
employee SHOULD BE REPORTED
IN ADDITION TO AS INCOME
cash salary
TAXABLE

MEALS
If living quarters are
NOT PART OF
furnished to the
COMPENSATION
employee
INCOME
FOR THE EXCLUSIVE
BENEFIT OF THE
EMPLOYER NOT TAXABLE
CONVENIENCE OF THE EMPLOYER’S RULE


MEALS
If living quarters are The RENTAL VALUE of the

living quarters SHOULD BE
furnished to the
REPORTED AS INCOME to
employee the extent of the reasonable
NOT FOR THE EXCLUSIVE needs of the employee.
BENEFIT OF THE
EMPLOYER The EXCESS as expense of
the employer.

MEALS
General Rule for MEALS and LODGING:
Other forms of
compensation
--TAXABLE

MEALS
EXCLUDED as
General Rule Compensation
for MEALS EXCEPTIONS: Income-NOT
and LODGING: TAXABLE
If Ifthe
furnished
employee within the business
accepts the lodging
aspremises
conditionofofthe
hisemployer
employment in
Other forms of
order to perform his duties properly.
compensation --
TAXABLE

FRINGE BENEFIT GRANTED to
RANK and FILE EMPLOYEES
Definition of Fringe Benefit Section 33(B)

of the NIRC
So, FRINGE BENEFIT granted by
the EMPLOYER to the RANK and
FILE EMPLOYEE are TAXABLE
as COMPENSATION INCOME
subject to Normal Tax Rate

FRINGE BENEFIT GRANTED to
RANK and FILE EMPLOYEES
BUT , CONVENIENCE OF THE

REMEMBER EMPLOYER’S RULE
NOT PART OF
COMPENSATION INCOME
NOT TAXABLE
FRINGE BENEFIT GRANTED TO MANAGERIAL
and SUPERVISORY EMPLOYEES
SM
-PL
Section 33(B)
of the NIRC
RATIONALE of GRANTING FRINGE BENEFITS

INCENTIVE TO ENCOURAGE
EMPLOYEES’ PRODUCTIVITY AND
LOYALTY TO EMPLOYER
LDEM
Managerial Employees
– is one who is vested with powers or
prerogatives to lay down and execute
management policies and/or to hire,
transfer, suspend,lay-off, recall,
discharge, assign or discipline
employees.

Section 33(A)
of the NIRC
Fringe Benefit granted by the employer to

managerial and supervisory employees are
taxable with final fringe benefit tax of
32% now, (RA10963) 35%

Section 33(A)
of the NIRC
Tax Base of Fringe
Benefits is based on the
GROSSED-UP
Monetary Value
MONETARY VALUE of Fringe Benefit
(GMV) granted by the GMV
employer to its 68%
managerial and
supervisory employees now, RA 10963 65%
BUT AGAIN,
CONVENIENCE OF THE
REMEMBER EMPLOYER’S RULE
NOT PART OF
FRINGE BENEFIT
NOT TAXABLE
Section 33(B)(1)
of the NIRC
Housing Fringe Benefit

Housing Unit situated in the
business premises of the employer
NON
TAXABLE Military Housing Unit
(Armed Forces of the Philippines
HOUSING
FRINGE Temporary housing unit, 3 months
BENEFIT or less staying in the premises of the
business of the employer
adjacent thereto, if it is within 50

meters parameter from the business
perimeter of the employer.
FRINGE BENEFIT GRANTED TO MANAGERIAL and
SUPERVISORY EMPLOYEES
Section 33(B)(2)
of the NIRC
Expense Account
Representation and Transportation Allowance (RATA)
fixed in amounts and received by the employees is part
of compensation income and NOT taxable fringe benefit.
Section 33(B)(3)
of the NIRC
Vehicle of any kind

Section 33(B)(4)
of the NIRC
Household personnel,
such as maid, driver and others

Section 33(B)(5)
of the NIRC
Interest on loan at less than market rate

to the extent of the difference between
the market rate and actual rate granted.
The benchmark interest rate of 12% shall remain in
effect until revised by a subsequent regulation.
Section 33(B)(6)
of the NIRC
Membership fees, dues and other

expenses borne by the employer for
the employee in social and athletic
clubs and similar organizations.
Section 33(B)(7)
of the NIRC
Expenses for foreign travel
Expenses for the purpose of attending

business meetings and conventions
shall not be treated as taxable fringe
benefits.
Section 33(B)(8)
of the NIRC
Holiday and vacation

expenses

Section 33(B)(9)
of the NIRC
Educational Assistance to the

employee or his dependents

Section 33(B)(10)
of the NIRC
Life or health insurance and other non-life
insurance premiums or similar amounts in excess
of what the law allows.
Except contributions made by employer to SSS,
GSIS and similar contributions arising from provisions
of any other existing law and premiums for the group
insurance of employees paid by the employer.

A “fringe benefit “ is defined as being any good,
service or other benefit furnished or granted in
cash or in kind by an employer to an individual
employee. Would it be the employer or the
employee who is legally required to pay an
income tax on it?

The EMPLOYER is the one liable for the payment

of Fringe Benefit Tax (FBT). The EMPLOYEE
(manager and supervisor) received it net of tax.
The Fringe Benefit Tax (FBT) is a final tax on the

employee’s (manager and supervisor) income to be
withheld by the employer.
The withholding and remittance of FBT shall be

made on a quarterly basis. Section 57(A) and 58 of
the NIRC.
Section 33(A)
of the NIRC
Fringe Benefit granted by the employer to

managerial and supervisory employees are
taxable with final fringe benefit tax of
32% now, (RA10963) 35%
Section 33(A)
of the NIRC
Tax Base of Fringe
Benefits is based on the
GROSSED-UP Monetary Value
MONETARY VALUE GMV of Fringe Benefit
(GMV) granted by the
employer to its managerial 68%
and supervisory
employees now, RA 10963 65%
D. Co. paid fringe What is the amount of FBT?

benefits to its rank-and
–file and managerial
employees, as follows: Monetary Value of FB P272,000.00
Divided by
To rank and file Gross-Up Divisor 65%
employees Gross-Up
P200,000.00 Monetary Value P418,461.53
To managerial Multiplied by FBT rate 35%
employees
P272,000.00 Fringe Benefit Tax P146,461.53
Total P472,000.00
ABC Corp. purchased What is the amount of FBT?

a residential property
and transferred the
Monetary Value of FB P6,000,000.00
same in the name of
Divided by
its Chairman of the
Gross-Up Divisor 65%
Board as a fringe
Gross-Up
benefit. The property
Monetary Value P9,230,769.23
has a fair market value
Multiplied by FBT rate 35%
of P6,000,000.00 and
a zonal value of
Fringe Benefit Tax P3,230,769.23
P5,000,000.00.
San Miguel
Corporation spent a What is the amount of FBT?
four day free
vacation in El Nido, Monetary Value of FB
Palawan to all of its (P2,000,000.00 x 20%) P400,000.00
employees of which Divided by
80% are rank-and- Gross-Up Divisor 65%
file employees. Total Gross-Up
expenses incurred Monetary Value P615,384.61
by the company for Multiplied by FBT rate 35%
the said vacation
amounted to Fringe Benefit Tax P215,384.61
P2,000,000.00
X was hired by Y to watch over V’s fishponds with
a salary of P10,000.00. To enable him to perform
his duties well, he was also provided a small hut,
which he could use as his residence in in the
middle of the fishponds. Is the fair market value
of the use of the small hut by X a “fringe benefit”
that is subject to the 32% tax imposed by Section
33 of the NIRC? Explain your answer.

Tax Accounting for the Fringe Benefit Furnished to the
Employee and the Fringe Benefit Tax thereon
As general rule, the amount of taxable fringe benefit

and the fringe benefits tax shall constitute allowable
deduction from gross income or employer.
The FBT is not an additional tax on the

employer. He can claim the fringe benefit and
the FBT as a deductible expense from his gross
income.
FRINGE BENEFIT TAX on SPECIAL ALIENS
RECIPIENT OF rates applicable shall

FRINGE BENEFITS be the rates imposed
to individual citizen
1) Nonresident alien and a resident alien
individual (engaged in individual . Only
trade or business in income within the
the ) Philippines shall be
subject to the
aforesaid income tax
rates

RECIPIENT OF
FRINGE BENEFITS
1) Nonresident alien 25% FBT on

individual (not the GMV of the
engaged in trade or FB
business in the )

RECIPIENT OF
FRINGE BENEFITS
2) a. Alien individual employed by regional or area

headquarters of a multi-national company or by
regional operating headquarters of a multinational
company;
b. Alien individual employed by an offshore
banking unit of a foreign bank established in the
Philippines;
15% FBT on the GMV of the FB

RECIPIENT OF
FRINGE BENEFITS
15% FBT on the GMV of the FB
3.Alien individual employed by a foreign service contractor or

by a foreign service subcontractor engaged in petroleum
operations in the ;
4.)Any of their Filipino individual employees who are employed
and occupying the same position as those occupied or head
by the alien employees.

The preferential rates of 15% income tax

rate prescribed shall not be applicable if the
Regional or Area Headquarters and
Regional Operating Headquarters of
Multinational companies with the Securities
and Exchange Commission after January 1,
2018

DIRECT VETO OF THE PRESIDENT
“…the overriding consideration is the

promotion of fairness of the tax system for
individuals performing similar work. Given
the significant reduction in the personal
income tax, the employees of these firms
should follow the regular tax rates
applicable to other individual taxpayers.”

DIRECT VETO OF THE PRESIDENT
NOTE: ALL employees of

RHQs/ROHQs/OBUs and Petroleum Service
Conractors and Subcontrators shall be
subject to regular income tax rate under
Section 24 (A)(2)(a) of the Tax Code, as
amended, without prejudice to the
application of preferential tax rates under
existing international tax treaties.
ANNUAL TAXABLE INCOME (January 1, 2018 – (January 1, 2023 –
December 31, 2022) Onwards)
Not over P250,000 0% 0%
Over P250,000 but not 20% of the excess over 15% of the excess over
over P400,000 P250,000 P250%
Over P400,000 but not P30,000 + 25% of the P22,500 + 20% of the
over P800,000 excess over P400,000 excess over P400,000
over P2,000,000 excess over P800,000 excess over P800,000
Over P2,000,000 but not P490,000 + 32% of the P402,500 + 30% of the
over P8,000,000 excess over P2,000,000 excess over P2,000,000
Over P8,000,000 P2,410,000 + 35% of the P2,202,500 + 35% of the

excess over P8,000,000 excess over P8,000,000

FRINGE BENEFIT NOT TAXABLE
(only not subject to FBT, but can be subjected to other
kind of tax like income tax.)
Section 33(C)
of the NIRC
Fringe Benefits granted to rank and file employees

Contributions of the employer for the benefit
of the employee to retirement and
hospitalization and insurance plans
(only not subject to FBT, but can be subjected to other
kind of tax like income tax.)
De Minimis Benefits
Benefits granted by the employer to its employee
that relatively of small value and given for the
purpose of promoting C- ONTENTMENT,
H- EALTH,
E- FFICIENCY AND
G-OODWIL
The TAX EXEMPT De Minimis Benefits
1. Monetized value of unused Vacation and

Sick Leaves of government officials and
employees
(10 days not anymore applicable – BIR Ruling 93-34.)
Revenue Regulation No. 5-2011 3/16 2011
Monetized value of unused Vacation Leaves,

not exceeding 10 days, of private
employees
2. P125.00 monthly cash medical benefit given

to the dependents of employees.
P2,000.00
3. P1,500.00 Monthly Rice Subsidy or

allowance or 1 sack of rice per month
amounting to not more than P1,500.00.
4.
4.P4,000.00
Uniformper annum
and Clothing
Clothing Allowance
Allowance
not exceeding P5,000 per annum
P6,000.00
Revenue Regulation No. 8-2012

5. P300.00 monthly laundry allowance

6.6.ACTUAL MEDICAL
P10,000.00 ASSISTANCE:
yearly medical e.g.
benefits medical
granted
allowance to cover medical healthcare needs,
to officers/employees.
annual medical/executive check-up, maternity
assistance, and routine consultations, not
exceeding P10,000.00
7. P10,000.00 employees achievement award.

It might not be in cash.
8. P 5,000.00 Christmas gift or anniversary

gift.

9.
9. Daily
Daily meal
meal allowance
allowance for overtime work,
for overtime work
and night/graveyard
not exceedingshift , not of the
25% exceeding
basic
25% ofminimum
the basicwage.minimum wage on a
per region basis..

10. Benefits received by an employee by

virtue of a CBA and Prodcutivity Incentive
Schemes provided that the total monetary
value received from both CBA and PIS
combined do not exceed P10,000.00 per
employee per taxable year.
10. Flowers, fruits, books, or similar items
D E L E T E D
given to employees under special
circumstances. e.g., on account of
illness, marriage, birth of baby, etc.

tax treatment of de minimis benefits
that exceeds the prescribed ceiling
•The excesses should be considered
as part of the other benefits to be
added to 13th month pay and
bonuses, and the excess over
P82,000 (now, 90,000 RA 10963)
shall become taxable.

tax treatment of de minimis benefits that exceeds the prescribed
ceiling
• 13th month pay 75,000.00
• Christmas Bonus 20,000.00
• Clothing Allowance 7,000.00-excess 2,000.00
• Rice Allowance 2,000.00-excess 500.00
• 13th month 75,000

• Christmas bonus 20,000
• Excess of clothing allowance 2,000
• Excess of Rice Allowance 500
• TOTAL 97,500
The P7,500 excess is TAXABLE

tax rules may apply to all income received by an employee
INCOME TAX IMPLICATIONS

Salaries and Wages (Basic Compensation) Income Tax Rate
De Minimis Benefits Exempt

Excess of De Minimis Benefits (Add with
13th Month Pay and Bonuses=90,000) Exempt
Benefits and Bonuses in Excess of P90,000:

Rank-And-File Employee
Managerial and Supervisory Income Tax Rate
Fringe Benefit Tax Rate
All Other Benefits Income Tax Rate


D
Less: Deductions
E Payments on Health and/or
Premium
L
Hospitalization Insurance [Sec. 34 (M)] xxxxxxx
Balance E
T Exemptions
Less : Personal xxxxxxx
E Exemptions
Additional xxxxxxx xxxxxxx
D

COMPENSATION INCOME RA 10964

Less: Deductions
Mandatory Deductions xxxxxxx
13th month pay and other benefits
(maximum of 90,000) xxxxxxx

ANNUAL TAXABLE INCOME (January 1, 2018 – (January 1, 2023 –
December 31, 2022) Onwards)
Not over P250,000 0% 0%
Over P250,000 but not 20% of the excess over 15% of the excess over
over P400,000 P250,000 P250%
over P800,000 excess over P400,000 excess over P400,000
over P2,000,000 excess over P800,000 excess over P800,000
Over P2,000,000 but not P490,000 + 32% of the P402,500 + 30% of the
over P8,000,000 excess over P2,000,000 excess over P2,000,000
Over P8,000,000 P2,410,000 + 35% of the P2,202,500 + 35% of the

excess over P8,000,000 excess over P8,000,000

Gross Income from BUSINESS TRADE/
PROFESSIONAL INCOME Sec. 32A (2)
MANUFACTURING BUSINESS
MECHANDISING or TRADING
SERVICING
FARMING; and
LONG TERM CONTRACT.

Gross Sales Pxxxx

Less: Sales Returns & AllowancesPxxxx
Sales Discounts Pxxxx Pxxxx
Net Sales Pxxxx

Less: Cost of Goods Sold/
Cost of Sales/Services Pxxxx
Gross Profit Pxxxx

FOR INDIVIDUAL TAXPAYER
Gross Income Pxxxx
Less: Allowable Deductions Pxxxx
(Itemized or Optional=40%)
Taxable Income Pxxxx

FOR CORPORATE TAXPAYER
Gross Income Pxxxx
Less: Allowable Deductions Pxxxx
(Itemized or Optional=40%)
Taxable Income Pxxxx
Note: For NRFC 30% Final Tax based on GROSS INCOME

Section 74
of the NIRC
Self Employment Income consists of income

derived from the conduct of trade or
business, or from the exercise of profession.

Self-employed – a sole proprietor or an

independent contractor who reports income earned
from self-employment. He/She controls who he/she
works for, how the work is done and when it is done.
It includes professionals whose income is derived
purely from the practice of profession and not under
an employer – employee relationship

Professional – Person formally certified by a professional body

belonging to a specific profession by virtue of having completed a
required course of studies and/or practice, whose competence can
usually be measured against an established set of standards. It
also refers to a person who engages in some art or sport for
money, as a means of livelihood, rather than as a hobby. It
includes but is not limited to professional entertainers, professional
athletes, directors, producers, insurance agents, insurance
adjusters, management and technical consultants, bookkeeping
agents, and other recipients of professional, promotional and talent
fees.
Gross Sales – refers to the total of all sale transactions
reported in a period, without any deduction. However, for
purposes of these regulations, the following shall be allowed
as deductions:
1. Sales returns and allowances for which a proper credit or
refund was made during the month or quarter to the buyer
for sales previously recorded as taxable sales.
1. Discounts determined and granted at the time of sale,

which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in the
books of accounts. Sales discount indicated in the invoice
at the time of sale, the grant of which is not dependent
upon the happening of a future event, may be excluded
from the gross sales within the same month/quarter it was
given.
Gross Receipts – refers to the total amount of
money or its equivalent representing the contract
price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied
with the services, and deposits and advance
payments actually or constructively received during
the taxable period for the services performed or to be
performed for another person. In the case of VAT
taxpayer, this shall exclude the VAT component.
SELF-EMPLOYED AND PROFESSIONAL TAXPAYERS
GROSS SALES AND RECEIPTS
BELOW P3 MILLION
• HAVE THE OPTION OF USING THE TRAIN’S
NEW TAX TABLE OR GOING FOR AN 8% FLAT
RATE ON GROSS SALES AND RECEIPTS
GROSS SALES AND RECEIPTS
P250,000 AND BELOW
• WILL BE EXEMPT FROM INCOME TAX
Unless the taxpayer signifies in the 1st
Quarter Return of the taxable year the
intention to elect the 8% income tax, the
taxpayer shall be considered as having
availed of the graduated rates under Section
24(A) of the Tax Code, as amended, and such
election shall be irrevocable.
SELF-EMPLOYED AND
PROFESSIONAL TAXPAYERS
Illustration:
Ms. EBQ operates a convenience store while she
offers bookkeeping services to her clients. In
2018, her gross sales amounted to P800,000.00,
in addition to her receipts from bookkeeping
services of ₱300,000.00. She already signified
her intention to be taxed at 8% income tax rate
in her 1st quarter return.
Her income tax liability for the year will be computed as
follows:
Gross Sales – Convenience Store ₱ 800,000.00
Gross Receipts – Bookkeeping
300,000.00
Total Sales/Receipts
₱ 1,100,000.00
Less: Amount allowed as deduction
250,000.00
under Sec. 24(A)(2)(b)
Taxable Income ₱ 850,000.00
Tax Due:
8% of P850,000.00 ₱ 68,000.00
The total of gross sales and gross receipts is
below the VAT threshold of ₱3,000,000.00.
Income tax imposed herein is based on the total

of gross sales and gross receipts.
Income tax payment is in lieu of the graduated

income tax rates under subsection (A) hereof
and percentage tax due, by express provision of
law.
SELF-EMPLOYED AND
PROFESSIONAL TAXPAYERS
Illustration:
Ms. EBQ above, failed to signify her intention to
be taxed at 8% income tax rate on gross sales in
her 1st Quarter Income Tax Return, and she
incurred cost of sales and operating expenses
amounting to ₱600,000.00 and ₱200,000.00,
respectively, or a total of ₱800,000.00.
Gross Sales/Receipts ₱ 1,100,000.00
Less: Cost of Sales 600,000.00
Gross Income ₱ 500,000.00
Less: Operating Expenses 200,000.00
Taxable Income ₱ 300,000.00
Tax Due:
On excess (P300,000 -P250,000) x 20% P 10,000.00
• Aside from income tax, Ms. EBQ is

likewise liable to pay business tax.
MIXED INCOME EARNERS
INCOME FROM COMPENSATION
• TRAIN’S NEW TAX TABLE
ALL INCOME FROM BUSINESS OR
PRACTICE OF PROFESSION
BELOW P3 MILLION
• HAVE THE OPTION OF USING THE TRAIN’S

NEW TAX TABLE OR GOING FOR AN 8% FLAT
RATE ON GROSS SALES AND RECEIPTS
DEADLINES FOR THE FILING OF
INCOME TAX RETURN
First Quarter - May 15 of the current year
Second Quarter - August 15 of the current year
Third Quarter - November 15 of the current year
Annual ITR - April 15 of the following year

GAINS DERIVED from
DEALINGS IN PROPERTY Sec. 32A (3)
Disposal through SALE or EXCHANGE of

ASSETS
ORDINARY Capital
ASSETS assets

GAINS DERIVED from
Gains and Losses from Dealing in property
Value of property disposed

Value received
of arising from the
by the taxpayer
sale/exchange of assets
GAINS and LOSSES from

DEALINGS OF
PROPERTY
Distinguish a “capital asset” from an
“ordinary asset”?

GAINS DERIVED from
What is a Capital Asset?
Section 39(A)(1)
of the NIRC
Property held by the taxpayer whether or not

connected with his trade or business.

GAINS DERIVED from
Section 39(A)(1)
What is an Ordinary Asset? of the NIRC
Stock in trade of the taxpayer or other property in kind

included in the inventory at the close of taxable year. S
Property for sale in the ordinary course of business O
Depreciable Properties used in the trade or business U

Real property used in the trade or business R
GAINS DERIVED from
NET CAPITAL GAIN NET CAPITAL LOSS
Section 39(A)(2)(3)
of the NIRC
ORDINARY GAIN ORDINARY LOSS

GAINS DERIVED from
FOR CAPITAL ASSETS:

THREE (3) SPECIFIC RULES
HOLDING PERIOD
Section 39(B)of the NIRC
RULE
Section 39(C)of the NIRC CAPITAL LOSS

LIMITATION RULE
NET CAPITAL LOSS
Section 39(D)of the NIRC CARRY OVER
atty. cleo d. sabado-andrada, cpa, mba NCLCO
GAINS DERIVED from
HOLDING PERIOD RULE (HPR)

Section 39(B) of the NIRC
Corporate Taxpayer HPR, not applicable
So, always 100% taxable on their Capital Gain
Individual Taxpayer HPR, APPLICABLE

Refer to reportable percentages of capital gain or loss
Section 39(B)(1)(2)
100% prop held less than 12 mos
50% peop held more than 12 mos

GAINS DERIVED from
HOLDING PERIOD RULE (HPR)

Reportable percentages of capital gain or loss
Section 39(B)(1)(2)
Capital Assets has been Capital Assets has been

held for NOT MORE held for MORE THAN 12
THAN 12 months months (above 12 months)
(12 months below)
50%
100%
GAINS DERIVED from
CAPITAL LOSS LIMITATION RULE
Section 39(C) of the NIRC
APPLIES TO BOTH CORPORATION

and INDIVIDUAL,
Except :
TRUST CORPORATIONS and BANKS

GAINS DERIVED from
RULES
Net Capital Gain is added to ordinary gain BUT Net
Capital Loss (Excess of Capital Loss over Capital Gain) is
NOT DEDUCTIBLE from ordinary gain
Capital Loss deductible to the extent of Capital Gain,

can not be deductible from Ordinary Gain
Net Ordinary loss is DEDUCTIBLE from Net Capital Gain

What is the rationale for the rule
prohibiting the deduction of capital losses
from ordinary gains?

It is to insure that only costs or expenses incurred in earning the income shall be deductible for
income tax purposes consonant with the requirement of the law that only necessary expenses are
allowed as deductions from gross income. The term "NECESSARY EXPENSES" presupposes that in
order to be allowed as deduction, the expense must be business connected, which is not the case
insofar as capital losses are concerned. This is also the reason why all non-business connected
expenses like personal, living and family expenses, are not allowed as deduction from gross income
(Section 36(A)(1) of the 1997 Tax Code).

GAINS DERIVED from
RATIONALE
Net Capital Gain is added To preserve Section 34(A)(1) of

to ordinary gain BUT Net the NIRC that only ORDINARY
Capital Loss is NOT
DEDUCTIBLE from
and NECESSARY EXPENSES
ordinary gain will be allowed to be deducted
from the Gross Income.
Capital Loss deductible to Capital Loss is not a business
the extent of Capital Gain, connected expense, not ordinary
can not be deductible
from Ordinary Gain
expense.
GAINS DERIVED from
RATIONALE
Net Ordinary loss There was no

is deductible from
prohibition provided by
Net Capital Gain
LAW.

GAINS DERIVED from
NET CAPITAL LOSS CARRY OVER (NCLCO)
Section 39(D) of the NIRC
NOT THE same as
Applies only to Individual Taxpayer and

NEVER to a Corporate Taxpayer.
NET OPERATING LOSS CARRY OVER (NOLCO

Section 34(D)(3) of the NIRC
APPLICABLE TO BOTH INDIVIDUAL and

CORPORATE TAXPAYERS
State with reasons the tax treatment
of the following in the preparation of
annual income tax returns: Income
realized from sale of (i) capital
assets; and (ii) ordinary assets?
i. Income realized from sale of capital assets is subject to the FINAL withholding tax at
source and therefore excluded from the Income Tax Return (Sec. 24[C] and [D], NIRC);
(ii) Income realized from sale of ordinary assets is part of Gross Income, included in the
Income Tax Return. (Sec. 32[A][3], NIRC)

GAINS DERIVED from
FOR CAPITAL ASSETS: Income from CA is Final WT
THREE (3) SPECIFIC RULES

HOLDING PERIOD
Section 39(B)of the NIRC
RULE
Section 39(C)of the NIRC CAPITAL LOSS

LIMITATION RULE
NET CAPITAL LOSS
Section 39(D)of the NIRC CARRY OVER
atty. cleo d. sabado-andrada, cpa, mba NCLCO
Seraf, married, had the following data on
income and losses:
2015 2016
Ordinary business income P48,900 P85,700
Short term capital gain 15,895 -
Short term capital losses 18,960 -
Long-term capital gain 45,790
Mrs. Pamaran gave birth to twins, the first one was

born 11:00 P.M of December 31, 2015 and the
second came out at 12:15 A.M of January 1, 2016.

Ordinary Business Income 48,900
Short Term Capital Gain 15,895

Short Term Capital Losses 18,960
Excess of Capital Loss over

Capital Gain 3,065
Long Term Capital Gain is

45,790 but report only 50% 22,895
Excess of Capital Loss over from

previous can be carried over
(net capital loss carry over) ( 3,065)
However, assume that the taxpayer is now a
CORPORATION. If ever applicable, apply
the three (3) specific rules in dealing the
capital assets of a corporation: Holding
Period Rule (short term/long term capital
gain), Capital loss Limitation Rule and the
Net capital Loss Carry Over.

Seraf, married, had the following data on
income and losses:
2015 2016
Ordinary business income P48,900 P85,700
Short term capital gain 15,895 -
Short term capital losses 18,960 -
Long-term capital gain 45,790
Mrs. Pamaran gave birth to twins, the first one was

born 11:00 P.M of December 31, 2015 and the
second came out at 12:15 A.M of January 1, 2016.

Short Term Capital Gain 15,895

Short Term Capital Losses 18,960
Excess of Capital Loss over

Capital Gain 3,065
Long Term Capital Gain 45,790
net capital loss carry over-NOT APPLICABLE

Holding period rule -NOT APPLICABLE
GAINS DERIVED from
CAPITAL TRANSACTIONS NOT GOVERNED
BY THE THREE (3) SPECIFIC RULES
HOLDING PERIOD RULE

NET CAPITAL LOSS CARRY OVER
(NCLCO)
MEANING, SAID CAPITAL TRANSACTIONS
ARE SUBJECT TO SPECIAL RULES
GAINS DERIVED from
A. SALE OF REAL Section 24(D)(1) of the NIRC.

PROPERTY Rule:
CLASSIFIED AS CAPITAL GAINS TAX
CAPITAL ASSETS equivalent to Six (6%) Percent
WHICH IS NOT based on GROSS PRICE or
USED IN TRADE ZONAL VALUE whichever is
OR BUSINESS HIGHER.
SUGGESTED ANSWER:
No. The 6% capital gains tax on sale of a real property held as capital asset is imposed on the income presumed to have been realized from the sale which is
the fair market value or selling price thereof, whichever is higher. (Section 24(D), NIRC). Actual gain is not required for the imposition of the tax but it is the
gain by fiction of law which is taxable.
Rene, a doctor by profession, sold in the year 2000

a parcel of land which he bought as a form of
investment in 1990 for P1,000,000.00. The land was
sold to Beth, his colleague, at a time when the real
estate prices had gone down and so the land was
sold only for P800,000.00 which was then the fair
market value of the land. He used the proceeds to
finance his trip to the United States. He claims that
he should not be made to pay 6% final tax because
he did not have any actual gain on the sale. Is his
contention correct? Why?
GAINS DERIVED from
CAPITAL TRANSACTIONS NOT GOVERNED BY
THE THREE (3) SPECIFIC RULES
If in the transaction, you

Section 24(D)(1) of the NIRC. incurred a loss, capital loss,
Rule: are you liable to pay the 6%
CAPITAL GAINS TAX Capital Gains Tax?
equivalent to Six (6%) Percent Actual gain is not
required for the
based on GROSS PRICE or imposition of the tax but
it is the gain by fiction of
ZONAL VALUE whichever is law which is taxable
HIGHER. YES, based on the

DOCTRINE of
PRESUMPTIVE GAIN
GAINS DERIVED from
Section 24(D)(2) of the NIRC.
Exemption to the Rule:
TAX AVOIDANCE CONDITIONS THAT MUST

CONCUR IN ORDER THAT THE SIX (6%)
PERCENT CAPITAL GAINS TAX
WILL NOT BE PAID.
GAINS DERIVED from
CAPITAL TRANSACTIONS NOT GOVERNED BY THE THREE

(3) SPECIFIC RULES
TAX AVOIDANCE CONDITIONS THAT MUST CONCUR IN

ORDER THAT THE SIX (6%) PERCENT CAPITAL GAINS
TAX WILL NOT BE PAID.
1. Proceeds of sale must be used to purchase/construct new

principal residence
2. Complying with the 18 months period from the sale or

disposition, the purchase or construction must be done.
GAINS DERIVED from
CAPITAL TRANSACTIONS NOT GOVERNED BY THE THREE

(3) SPECIFIC RULES
TAX AVOIDANCE CONDITIONS THAT MUST CONCUR IN

ORDER THAT THE SIX (6%) PERCENT CAPITAL GAINS
TAX WILL NOT BE PAID.
3. 30 days notice from sale or disposition-inform the Bureau of

Internal Revenue about the sale.
4. 10 year limitation- can be availed of once every ten years.

Capital Gain on Real State
Transaction
Option of individual transferring
Real Properties to government
owned or controlled corporations
- Normal income tax

- CGT of 6%

Capital Gain on Real State
Transaction
Tax Treatment on the Sale, Transfer
or Exchange of Real Property
Revenue Regulation 8-98

REVENUE REGULATIONS NO. 8-98 issued
September 2, 1998 amends pertinent portions of
Revenue Regulations Nos. 11-96 and 2-98
relative to the tax treatment of the sale, transfer
or exchange of real property. Specifically, the
Capital Gains Tax (CGT) Return will be filed
by the seller within 30 days following each
sale or disposition of real property. Payment
of the CGT will be made to an Authorized Agent
Bank (AAB) located within the Revenue District
Office (RDO) having jurisdiction over the place
where the property being transferred is located.

REVENUE REGULATIONS NO. 8-
98 “continuation…
Creditable withholding taxes, on the other hand,

deducted and withheld by the withholding
agent/buyer on the sale, transfer or exchange or
real property classified as ordinary asset will be
paid by the withholding agent/buyer upon filing of
the return with the AAB located within the RDO
having jurisdiction over the place where the
property being transferred is located. Payment will
have to be done within 10 days following the end of the
month in which the transaction occurred, provided,
however, that taxes withheld in December will be filed
on or before January 25 of the following year.
Ordinary Assets EXPANDED WT
. . . . this only applies to the sale of
real estate which are ordinary assets
of the seller.
Thus, when the real estate sold is a

capital asset to the seller, his income
from the sale of real estate will be subject
to capital gains tax, and no creditable
withholding tax shall be imposed on the
transaction.
the withholding agent/buyer is required to

withhold a creditable withholding tax based
on the higher of the following:
a) gross selling price/total amount of

consideration, or
b) the fair market value determined in
accordance with Section 6(E) of the Code.

A. Upon the following values of real property

where the seller /transferor is habitually engaged
in the real estate business as per proof of
registration with the HLURB or the HUDCC or
other satisfactory evidence (for example, he/it
consummated during the preceding year at least
six taxable real estate transactions, regardless of
amount):

5-2-2 |||||| 1.5-3-5
a)With a selling price of Five Hundred Fifty Thousand

1.5%
Pesos (P500.000.00) or less
b)With a selling price of more than Five Hundred Thousand
(P500,000.00) Pesos but not more than Two Million Pesos 3.0%
(2,000,000.00)
c)With a selling price of more than Two Million Pesos
5.0%
(2,000,000.00)
Section 2.57.2 (J) of Revenue Regulations (RR) No. 2-98, as

amended by RR No. 6-2001

B.
Where the seller/transferor is not habitually
engaged in the real estate business (but the 6.0%
real estate sold is an ordinary asset)


C.
Where the seller/transferor is exempt from creditable
withholding tax in accordance with Section 2.57.5 of
Revenue Regulations No. 2-98 [When the seller is exempt
from income taxes. As earlier noted, the creditable taxes Exempt
withheld serve as advance payment of income taxes.
So when a seller is tax-exempt, it follows that no tax
should be withheld from his income.]


Please note that the sale of foreclosed
properties by banks is subject to creditable
withholding tax of 6% because banks are not
considered as habitually engaged in the real
estate business, and properties acquired by
banks through foreclosure sales are
considered as ordinary assets pursuant to
Revenue Regulations No. 7-2003.

Pedro Manalo, a Filipino citizen residing in Makati
City, owns a vacation house and lot in San
Francisco, California, U.S.A., which he acquired in
2000 for P15 million. On January 10, 2006 he sold
said real property to Juan Mayaman, another
Filipino citizen residing in Quezon City, for P20
million. On February 9, 2006 Manalo filed the capital
gains tax return and paid P1.2 million representing
6% capital gain tax. Since Manalo did not derive any
ordinary income, no income tax return was filed by
him for 2006.
Question XI 2008 BAR Examination
After the tax audit conducted in 2007, the BIR officer
assessed Manalo for deficiency income tax
computed as follows: P5 million (20M-
15M)x35%=P1.75 million, without the capital gains
tax paid being being allowed as tax credit. Manalo
consulted a real estate broker who said that the
P1.2 million capital gains tax should be credited
from P1.75 million deficiency income tax.

a. Is the BIR officer’s tax assessment correct?
Explain. The BIR officer correctly disallowed the credit of the final tax of P1.2 million against
the net income tax, which is subject to deductions. However, the assessment of 35%
is incorrectly imposed. The correct rate is based on the 5-32% tax scale which is
applicable to individuals (Sec.24[D1] and Sec. 42[A5] NIRC).
a. If you were hired by Manalo as his tax

consultant, what advice would you give him to
protect his interest? Explain.
I would advise him to demand the application of the 5-32% tax
scale instead of the fixed rate of 35% which applies only to
domestic corporations (Sec. 24[D1] NIRC).

GAINS DERIVED from
Sections 24(C), 25(3) [Tax on
B. SALE OF Individual] and Sections 27(D)(2),
SHARES OF 28(7)(c) [Tax on Corporations] of the
STOCK NOT NIRC. Rule:
LISTED and 1. Capital Gains not more than
TRADED THRU 15%
P100,000.00-----5% (final tax rate)
2. Any amount exceeding
LOCAL STOCK
EXCHANGE. RA10963
P100,000.00 is subject to 10%.
atty. cleo d. sabado-andrada, cpa, mba(final tax rate)
GAINS DERIVED from
IF LISTED and TRADED thru STOCK EXCHANGE
Final Tax Rate on the net capital gains is

Final Tax Rate on the net capital gains is
½6/10
of 1% (.005) ofofthe
of 1%(.006) theGross SellingPrice.
Gross Selling Price.

GAINS DERIVED from
SALE/EXCHANGE OF PROPERTY
GENERAL RULE:
ENTIRE AMOUNT OF GAIN or LOSS, as the

case may be SHALL BE RECOGNIZED.

GAINS DERIVED from

Section 40(C) of the NIRC SALE/EXCHANGE OF PROPERTY
EXEMPTIONS:
No Gain, No Loss Recognized
(gain not taxable, loss not deductible)
With regard to merger and consolidation

(Section 40(C)(2)a,b,c
EXEMPTIONS:
No GAIN, No LOSS Recognized (Gain not
taxable, Loss not deductible
With regard to merger and consolidation
(Section 40(C)(2)a,b,c
Exchange of property for TRANSACTIONS

stock SOLELY IN KIND
Exchange of stock for stock NO CASH IS GIVEN,
THEREFORE, TAX
Exchange of securities for EXEMPT
stock or securities
TRANSACTIONS NO CASH IS GIVEN,

SOLELY IN KIND THEREFORE, TAX
EXEMPT
IF CASH IS GIVEN AS AN
ADDITIONAL
TRANSACTIONS CONSIDERATION FOR
NOT SOLELY IN THE TRANSACTION,
KIND GAIN is
RECOGNIZED BUT
LOSS is NOT
DEDUCTIBLE.
1. TRANSACTIONS GAIN is RECOGNIZED

NOT SOLELY IN BUT LOSS is NOT
KIND DEDUCTIBLE.
OTHER TRANSACTIONS WHEREIN THE

GAIN IS RECOGNIZED AND LOSS IS NOT DEDUCTIBLE
2. Illegal Transactions
3. Transactions between Related Taxpayers. Section 36(B), NIRC
Strangers, Section 99(B) of the NIRC

OTHER TRANSACTIONS WHEREIN THE
GAIN IS RECOGNIZED AND LOSS IS NOT DEDUCTIBLE
4. Wash Sale, Section 38 of the NIRC

A sale or disposition of stock or securities, by a
seller who is not a dealer in securities or shares or
stocks, where substantially identical securities are
acquired or purchased within a 61 day period,
beginning 30 days before the sale and ending 30
days after the sale.
Even if sold by a dealer in securities if the

transaction was not made in the ordinary course of
the business of such dealer, there is WASH SALE.

GAINS DERIVED from
SPECIAL RULES in DETERMINING ACQUISITION
COST for the PURPOSE OF COMPUTING GAIN OR
LOSS IN THE EXCHANGE OF PROPERTY
VR - VD = G/L
If the property was
acquired by BASIS:
purchase on or Acquisition Cost
after March 1, 1913,
Date of the FIRST Income
Tax Law in the Philippines
If the property was acquired by BASIS:
purchase on or after March 1, 1913, Acquisition Cost
Land costing P1,000 on What is the gain/loss on exchange?

March 1, 1913 was
EXCHANGE for a cow
Fair market value
with a cost of
of the Cow P 58,000.00
P30,000.00.
Less: Acquisition
Cost of land P 1,000.00
Fair Market Values of the
properties at the time of
Gain on
exchange are:
exchange P 57,000.00
Land P 150,000.00
Cow P 58,000.00
GAINS DERIVED from
BASIS:
If the property was Fair Market Value
acquired by
inheritance
at the date of
acquisition/date
inherited
If the property was BASIS:
acquired by inheritance Fair Market Value at the
date of acquisition/date
inherited
What is the gain/loss on exchange?
Car inherited was sold for
P 100,000.
Sales Price P 100,000.00
Less: FMV when
Fair Market Value of the
inherited P150,000.00
car when inherited
P 150,000.00
Loss on
Fair Market Value of the
exchange P 50,000.00
car when sold
P 90,000.00

GAINS DERIVED from
BASIS:
The same as it would be
If the property was in the hands of the donor,
acquired as a gift or the Fair Market Value
at the time when the gift
was made, whichever is
LOWER.
BASIS:
If the property was The same as it would be in the
acquired as a gift hands of the donor, or the Fair
Market Value at the time when the
gift was made, whichever is
LOWER.
Donee received a ring as What is the gain/loss on exchange?
a gift. Donor acquired for
P10,000.00.
Sales Price P 15,000.00
Fair Market Value when Less: Cost of SaleP 8,000.00
given by the donor
P 8,000.00 Gain on Sale P 7,000.00
Donee sold the ring to
another person.
P15,000.00
GAINS DERIVED from
If the property was

acquired for BASIS:
less than full and The amount paid by the
adequate transferee.
consideration

If the property was acquired BASIS:
for less than full and The amount paid by the
adequate consideration transferee.
A, sold a car costing What is the gain/loss on exchange?

P500,000.00 for only
P200,000.00 to B. Sales Price to C P 290,000.00
B, sold the same to Less: Amount
C for P290,000.00 paid by the
transferee-B P 200,000.00
Gain on Sale P 90,000.00

In January 1970, Juan Gonzales bought one
hectare of agricultural land in Laguna for
P100,000.00. This property has a current fair market
value of P10 million in view of the construction of a
concrete road traversing the property. Juan
Gonzales agreed to exchange his agricultural lot in
Laguna for a one-half hectare residential property
located in Batangas, with a fair market value of P10
million, owned by Alpha Corporation, a domestic
corporation engaged in the purchase and sale of
real property. Alpha Corporationacquired property in
2007 for P9 million.
Question I 2008 BAR Examination
Questions:
a. What is the nature of real properties exchanged

for tax purposes- capital asset or ordinary asset?
Explain.
b. Is Juan Gonzales subject to income tax on the
exchange of property? If so, what is the tax
based and rate? Explain. CGT = 6%
Or fair market value
VR-VD = G/L
c. Is Alpha Corporation subject to income tax on

the exchange of property? If so, what is the tax
base and rate? Explain. Based net income
Rate 35% sec27a
Question I 2008 BAR Examination

INTEREST INCOME Sec. 32A (4)
earning derived from depositing or lending

of money, goods, or credits. Unless
exempted by law, interest income received
by the taxpayer, whether or not usurious, is
subject to income tax.

TAX EXEMPT INTEREST INCOME
1. Section 32(B)(7)(a) (under Exclusions)
INCOME DERIVED from investments in the

Philippines in loans, stocks, bonds or other
domestic securities, or from INTEREST ON
DEPOSITS in the banks in the Philippines by
FOREIGN GOVERNMENT

Section 22(FF), NIRC Long term deposit or

investment certificate
INTEREST INCOME on
2. Sections 24 (B)(1) & LONG TERM INVESTMENTS
Sections 25 (A)(2) 5 years or more.
But if pre-terminated before 5th year,

INTEREST entire interest income will be subject
INCOME on to final tax based on remaining
LONG TERM maturity:
INVESTMENTS -4 years to less than 5 years – 5%
5 years or 20%
-3 years to less than 4 years – 12%
more. -2 years to less than 3 years – 20% RA
10963

3. Section 24 (B)(1) and Section 25 (A)(2) of the NIRC
INTEREST INCOME on bank deposits under the
expanded foreign currency deposit if the interest
income is received by a NON RESIDENT INDIVIDUAL
(NRC & NRA)
But if received by a Final Tax Rate of 7.5%

RESIDENT INDIVIDUAL 15%
But if received by a
CORPORATE TAXPAYER RA 10963
Final Tax Rate of 7.5%
Section 27(D)(1) and
Section 28(A)(7)(a)
3. Section 24 (B)(1) and Section 25 (A)(2) of the NIRC
INTEREST INCOME on bank deposits under the
expanded foreign currency deposit if the interest
income is received by a NON RESIDENT INDIVIDUAL
(NRC & NRA)
How About an
Overseas
Filipino Worker?
Tax Treatment of Income Earnings

and Money Remittances of an
overseas contract worker (OCW) or
Overseas Filipino Worker (OFW)

Tax Treatment of Income Earnings and Money Remittances of an
overseas contract worker
15% (OCW) or Overseas Filipino Worker (OFW)
RA
Exemption from 10963
7.5% Final Tax on Interest Income from a
depository bank under the expanded foreign currency
deposit system upon presentation of proof of non-
residency such as OEC (overseas exit clearance) or
seaman’s book. However, if the account is jointly in the
name of the overseas contract worker or a Filipino seaman,
and an individual (spouse or dependent) who is living in the
Philippines, 50% on the interest income from such bank
deposit shall be subject to a final withholding tax of 7.5%.
15%
atty. cleo d. sabado-andrada, cpa, mba RA 10963
In 2007, spouses Renato and Judy Garcia opened a
peso and dollar deposits at the Philippine Branch of
the Hongkong Bank in Manila. Renato is an
overseas worker in HongKong while Judy lives and
works in Manila. During the year, the bank paid
interest income of P10,000.00 on the peso deposit
and US$1,000.00 on the dollar deposit. The bank
withheld final income tax equivalent to 20% of the
entire interest income and remitted the same to the
BIR.
Question XV 2008 BAR Examination
a. Are the interest incomes on the bank deposits of
spouses Renato and Judy Garcia subject to
income tax? Yes bec joint account and joint deposit
20% peso
Dollar 15% with respect toshare of judy because husband is
exempt
b. Is the bank correct in withholding the 20% final

tax on the entire interest income? Explain.
No because peso account is taxable
Other is halfwith respect to resident citizen

Coop are
TAX EXEMPT INTEREST INCOME exempted
The dispositive portion of the decision on the case of

DUMAGUETE CATHEDRAL CREDIT COOPERATIVE vs.
COMMISSIONER OF INTERNAL REVENUE, (G.R. No.
182722, January 22, 2010) is quoted as follows:
“WHEREFORE, the Petition is hereby GRANTED. The
assailed December 18, 2007 Decision of the Court of Tax
Appeals and the April 11, 2008 Resolution are REVERSED
and SET ASIDE. Accordingly, the assessment for
deficiency withholding taxes on interest from the savings
and time deposits of petitioner’s members for the taxable
years l999 and 2000 as well as the delinquency interest of
20% per annum are hereby CANCELLED..”
PHILIPPINE SUPREME COURT UPHOLDS TAX

EXEMPTION OF COOPERATIVES
Every cooperative in the country owes it to DUMAGUETE
CATHEDRAL CREDIT COOPERATIVE (DCCCO) for being
instrumental in bringing to the Supreme Court the issue of
whether cooperatives and cooperative members are
exempted from paying taxes on the interests earned in
their deposits with their cooperatives.
The Supreme Court ruled in favor of cooperatives and their

members—exempting them from paying the 20% final
withholding taxes on their deposits’ interests.
COMPREHENSIVE AGRARIAN REFORM LAW OF

1988 .
REPUBLIC ACT NO. 6657
5. Interest received by landlord paid by

tenant on the price of land under a tenant
purchaser agreement as part of CARP.

COMPREHENSIVE AGRARIAN REFORM LAW OF 1988 .
Do landowners pay taxes for transactions
involving transfer of ownership?
No. Transfer of ownership transactions under

RA 6657 are exempted from taxes arising from
capital gains and from payment of registration
fees and all other taxes and fees for the transfer

COMPREHENSIVE AGRARIAN REFORM LAW OF 1988 .
SEC. 66. Exemptions from Taxes and Fees of Land
Transfers. - Transactions under this Act involving a transfer
of ownership, whether form natural or juridical persons, shall
be exempted form taxes arising from capital gains. These
transactions shall also be exempted from the payment of
registration fees, and all other taxes and fees for the
conveyance or transfer thereof: Provided, That all
arrearages in real property taxes, without penalty or interest,
shall be deductible from the compensation to which the
owner may be entitled
FINAL TAX RATES on INTEREST INCOME

Interest on any
currency bank
deposit, yield or
other monetary 20%
benefits from For RC,NRC, RA and NRAETB
deposit Sections 24 (B)(1) &
substitute, trust Sections 25 (A)(2)
fund and similar
arrangement;

15%
Interest under 7.5%
RA 10963
the expanded For RC and RA

foreign currency
deposit system EXEMPT
For NRC and NRAETB
Sections 24 (B)(1) &
Sections 25 (A)(2)

Interest on long EXEMPT
term deposit or
For RC, NRC, RA and NRAETB
investment in
bank But is pre-terminated before 5th year,

(maturity-5 years entire interest income will be subject to

final tax based on remaining maturity:
or more)
- 4 years to less than 5 years – 5%
20%
- 3 years to less than 4 years – 12%
- 2 years to less than 3 years – 20% RA

10963

Interest on any
currency bank
deposit, yield or
20%
other monetary
benefits from For DC and RFC
deposit Section 27(D)(1)
substitute, trust Section 28(7)(a)
fund and similar
arrangement;

15%
Interest under 7.5%
RA 10963
the expanded For DC and RFC
foreign currency Section 27(D)(1)
deposit system Section 28(7)(a)


Interest on 20%
foreign loans
For NRFC (Section28(B)(5)(a)
Interest on foreign 10%

currency loans
granted by
For DC and RFC
depository banks to (Section28(A)(7)(b)
RFC (Section 27(D)(3)last par.
INTEREST INCOME subject to the NORMAL TAX RATE

5%to
5% to35%
32% (individual) & 30% (corporation)
(to be reported in the Annual ITR)
If the INTEREST INCOME is earned in the

normal conduct of business like from lending
money, goods or credits from one person to
another without any withholding tax made.

State with reasons the tax treatment of the following
in the preparation of annual income tax returns:
Interest deposits with: (i) BPI Family Bank, and (ii)
local offshore banking unit of a foreign bank.

RENTAL INCOME Sec. 32A (5)
What is Rental Income?
Earnings derived from leasing real estate as well

as personal property.
It also includes ALL other obligations assumed

to be paid by the lessee to the third party in
behalf of the lessor.

Subject to Normal/Regular Tax Rate
BASIS: Gross receipts for the year,

EARNED or UNEARNED.

Income from Leasehold Improvements
When Lessee built permanent improvements (in the

nature of building) on the LEASED Property which will
become the property of the Lessor upon the
expiration of the lease.
What would be the tax treatment?
There are two (2) methods are recognized in reporting

such additional Rent Income.

There are two (2) methods are recognized in reporting such
additional Rent Income from Leasehold Improvements
1. Outright Method
Report as Income with the fair market value after the
construction in that taxable year.
2. Spread-Out Method
Spread out over the life of the lease using the
depreciated value of the property/book value of the
property.

1. Outright Method
construction in that taxable year. •(Sec. 49, Rev. Reg. No. 2)
Mr. X leases its lot to Mrs. Y for a term of 3 years with

an annual rental of P50,000. As of January of the first
year, Mrs. Y completed the construction of an
improvement on the lot with a value of P1,500,000 with
an estimated life of 5 years.
The leasehold contract stipulates that the
improvement will belong to Mr. X after the term of
the lease.
By using outright method, Baguio Improvement should report its income from rent in the year when the improvement was completed as follows:

1. Outright Method
construction in that taxable year. •(Sec. 49, Rev. Reg. No. 2)
Value of building P1,500,000
Add: Annual rental per agreement 50,000
Total lease income to be reported P1,550,000


property. •(Sec. 49, Rev. Reg. No. 2)
Mr. X leases its lot to Mrs. Y for a term of 3 years with an
annual rental of P50,000. As of January of the first year,
Mrs. Y completed the construction of an improvement on
the lot with a value of P1,500,000 with an estimated life
of 5 years.
The leasehold contract stipulates that the
improvement will belong to Mr. X after the term of the
lease.
property. •(Sec. 49, Rev. Reg. No. 2)
Cost of the building P1,500,000
Less: Accumulated depreciation at the end of the
lease (P1,500,000/5 years) 3 years 900,000
Book value of improvement at the end of the lease P 600,000
Divide by the term of the lease (in years) 3

Annual income on leasehold improvement P 200,000
Add: Annual rental 50,000
Total lease income to be reported P 250,000
Outright Method Year 1 Year 2 Year 3 Total

Improvement 1,500,000 - 0 - - 0 - 1,500,000
income
Depreciation ( 300,000) ( 300,000) ( 300,000) ( 900,000)
expense
Net income from 1,200,000 ( 300,000) (300,000) 600,000
improvement
Spread-Out
Method
Net income from
improvement
(1,500,000 – 200,000 200,000 200,000 600,000
900,000)/3
ROYALTIES Sec. 32A (6)

FOR INDIVIDUAL TAXPAYERS
always subject to final tax
Royalty from books,

10%
literary works and For RC, NRC,RA,NRAETB
musical compositions
Sections 24 (B)(1) &
Sections 25 (A)(2)
Royalties other than
books, literary works,
20%
and musical
compositions For RC, NRC, RA, NRAETB
FOR INDIVIDUAL TAXPAYERS
Royalties other than 20%

books, literary works, and For RC, NRC, RA, NRAETB
musical compositions
includes those which are derived from natural

resources or products such as coal, gas, oil, copper,
silver, gold, and other similar products.
FOR CORPORATE TAXPAYERS
20%
ROYALTIES
For DC, and RFC,
Sections 27 (D)(1) &

Sections 28(A)(7)(a)

DIVIDEND INCOME Sec. 32A (7)
earnings derived from the distribution made by a

corporation out of its earnings or profits and
payable to its stockholders, whether in money
(cash dividend) or in other property (property
dividend)
Note: the different provisions of the NIRC

imposing a tax on dividend income only includes
within its purview cash and property dividends
making stock dividends exempt from income tax.
TAX EXEMPT DIVIDEND INCOME
Dividends received by:
Another Domestic Corporation
from a Domestic Corporation

(inter corporate dividends)
Section 27(D)4
RESIDENT FOREIGN CORPORATION
from Domestic Corporation
Section 28(A)(7)(d)

PURE LIQUIDATING
DIVIDEND
Reason why Liquidating Dividend is NOT TAXABLE
Return of stockholders investment. It arises

from the distribution of assets by a
corporation to its stockholders upon corporate
dissolution. (Section 73(A) NIRC.
CONFLICTING ISSUES on
LIQUIDATING DIVIDEND
“xxx upon surrender by the
SECTION 8
stockholder of its shares in
of BIR
exchange for cash and/or property
Revenue
distributed by the corporation upon
Regulation
its dissolution and liquidation, the
No. 06-08,
stockholder shall recognize either
April 22, 2008
capital gain or loss. xxx” (as capital
gains)
Wise & Co., “xxx the amount distributed in the

Inc. vs. liquidation of the corporation shall
Collector of be treated as payments in
Internal exchange for shares, and any gain
Revenue or profit realized thereby shall be
(78 Phil. 655) taxed to the distributee as other
gains or profit. xxx” (as normal tax)

“Where a corporation distributes all
2nd of its assets in complete liquidation
paragraph of or dissolution, the gain realized or
Section loss sustained by the stockholder,
73(A) of the whether individual or corporate, is a
NIRC. taxable income or a deductible loss,
as the case may be.” (as normal
tax)
“there was no discussion to guide taxpayers
on how to treat liquidating dividends. In so
doing, the BIR put in limbo anew the tax
treatment of liquidating dividends and added
yet another legal thorn to an already
complicated, time-consuming and costly
dissolution process.”
DIVIDENDS
received from a
COOPERATIVE
(R.A. 6938)

STOCK DIVIDEND
Section 73(B)
Reason why Stock Dividend is NOT TAXABLE
There is no flow of wealth so no realized gain.

It is just a transfer of surplus account to the
capital account.
STOCK DIVIDEND Section 73(B)
INSTANCES where STOCK

DIVIDEND is SUBJECT TO TAX
A.
When there is a change in the
stockholder interest in the net equity of
the corporation

INSTANCES where STOCK DIVIDEND is SUBJECT TO TAX
A.
When there is a change in the stockholder interest in the net equity of the
corporation
The role of the corporations management is to increase the
value of the firm to its stockholders. It will include what form of
profit should be returned to the shareholders in the form of
dividends.
Shareholders equity changes due to three (3) things:
Net income or losses
Payment of dividends
Share issuance or repurchase
B.
When it is received by a usufructuary
Stock dividends cannot be issued to a person who is
not a stockholder in payment for services rendered.
Stock dividends can be issued only to stockholders and
not to strangers or non-stockholders.
C.
When Board of Directors declared Stock
Dividend not in accordance with the
Corporation Code of the Philippines.
Example: Declaration of Stock Dividend out of the
Outstanding Capital Stock
D.
Redemption or cancellation of the Stock
dividend distributed to the extent that it
represents a distribution of earnings or
profits. Section 73(B) NIRC
INSTANCES where STOCK DIVIDEND is SUBJECT TO TAX
D.
Redemption or cancellation of the Stock dividend distributed.
REASON: resorting to devious means to circumvent the

law and evade the tax. Corporate earnings
would be distributed under the guise of its initial
capitalization by declaring the stock dividends
previously issued and later redeem said
atty. cleo d. dividends by payingcpa,
sabado-andrada, cashmba
to the stockholder.

E.
When it is in the nature of
DISGUISED DIVIDEND
Example: Payment of services rendered will be
paid by stocks.
Disguised dividends in income taxation? Give an example.
Non Resident Foreign
Corporation
Payment of
(Principal)
Income for the
Services rendered
Render
But these Services
payments are
Domestic Corporation
disproportionately
(Subsidiary)
larger than the
actual value of the
services rendered
FINAL TAX RATES on DIVIDEND INCOME
Resident Citizen (RC) 10%

Non Resident Citizen (NRC) Section 24 (B)2
Resident Alien (RA) of the NIRC
From a Domestic
Corporation
Dividends received
by:
NON Resident Alien-
Engaged in Trade or 20%
Business (NRA-ETB) Section 25 (A)2
of the NIRC
From a Domestic
Corporation
NON Resident Alien-Not 25%

Engaged in Trade or Section 25 (B)
Business (NRA-NETB) of the NIRC
From Domestic
Corporation
Dividends received by: 15%

Section 28
NON Resident Foreign (B)(5)(b)
Corporation (NRFC) of the NIRC
From Domestic If without

Corporation reciprocity
30%
R.A 9337
15% If without reciprocity
Dividends Section 28 (B)(5)(b) 30%
received by: of the NIRC
Cash and property dividends received from a domestic
corporation by a non-resident foreign corporation are
NON subject to final withholding tax of 35%. The 35%
Resident rate for dividends paid to a non-resident foreign
Foreign corporation may be reduced to 15% subject to the
Corporation conditions that the country in which the non-
(NRFC) resident foreign corporation is domiciled allows a
credit against the tax due from the non-resident
foreign corporation, taxes deemed to have been
From paid in the Philippines equivalent to 20%, which
Domestic represents the difference between the regular tax
Corporation on corporations and the reduced tax on dividends.
15% If without reciprocity
Dividends Section 28 (B)(5)(b) 30%
received by: of the NIRC
NON Provided, that effective January 1,

Resident 2009, the credit against the tax due
Foreign shall be equivalent to 15%, which
Corporation represents the difference between
(NRFC)
the regular income tax of 30% and
From the 15% tax on dividends
Domestic (As amended by R.A. No. 9337)
Corporation
On January 3, 1998, X, a Filipino citizen residing in
the Philippines, puchased 100 shares in the capital
stock of Y Corporation, a domestic company. On
January 3, 2000, Y Corporation declared , out of the
profits of the company earned after January 1,
1998, a 100% stock dividends on all stockholders of
record as of December 31, 1999 as a result of which
X holding in Y Corporation became 200 shares. Are
the stock dividends received by X subject to income
tax? Explain. 8%

DIVIDEND INCOME subject to the
NORMAL CORPORATE TAX RATE (30%)
Section 42(A)(2)(b)
Dividend received by a domestic corporation given by or
received from a FOREIGN CORPORATION from
income derived from sources within.
The Philippine Income should be at least 50% of
the World Income of said foreign corporation for the
three year period ending with the close of its taxable
year preceeding the declaration of such dividend.
NORMAL CORPORATE TAX RATE (30%)
Section 42(A)(2)(b)
Dividends received by a resident foreign
corporation from domestic corporation are not
subject to tax. (TAX-EXEMPT DIVIDEND)
Dividends received by a domestic
corporation from a foreign corporation are
subject to corporate tax.
INDIVIDUAL TAX RATE OF 5% 5%TOto 32%
35%
Section 24(B)(2)
Dividends received by a partner in a

general professional partnership.

State with reasons the tax treatment of the following
in the preparation of annual income tax returns:
Dividends received by a domestic corporation from
(i) another domestic corporation; and (ii) a foreign
corporation;

ANNUITIES Sec. 32A (8)
subject to regular tax/normal tax

installment payments received for life
insurance sold by insurance companies.
Annuity payment represents Annuity payment represents
INTEREST RETURN of PREMIUM
TAXABLE NOT TAXABLE

PRIZES AND WINNINGS Sec. 32A (9)
a reward for a a reward for an

contest or a event that
competition. depends by
In other words, a prize chance.
is a remuneration of For example,
an effort reflecting winnings from
ones superiority, like gambling, lottery
prize money of a or raffle ticket.
boxing contest.
Prizes amounting to Subject to FINAL TAX

more than
P10,000.00
20%
Prizes P10,000.00 Subject to

or less NORMAL TAX
to be included in the
Income Tax Return

Jose Miranda, a young artist and designer, received
a prize of P100,000.00 for winning on-the-spot
peace poster contest sponsored by a local Lions
Club. Shall the reward be included in the gross
income of the recipient for tax purposes?

WINNINGS Always Subject to

regardless of FINAL TAX of
any amount 20%
But if received outside the Philippines,

it is subject to NORMAL TAX
Section 24(B)(1)
Winnings from LOTTO and PCSO are

EXEMPT FROM TAX
Section 24(B)(1)
Is the prize of One Million Pesos awarded by the
Reader’s Digest subject to withholding final tax?
Who is responsible for withholding the tax?
What are the liabilities for failure to withhold such

tax?

PENSIONS Sec. 32A (10)
allowance paid regularly to a person on

his retirement or to his dependents on his
death, in consideration of past services,
meritorious work, age, loss, or injury.
Generally, TAXABLE

A. When the LAW provides.
B. When BIR approves a pension plan of a

private company, provided the following
requisites are met:

BIR approves PENSION PLAN
Requisites:


PARTNER’S DISTRIBUTIVE SHARE FROM THE
NET INCOME OF THE
GENERAL PROFESSIONAL PARTNERSHIP
Sec. 32A (11)
subject to regular/normal tax
BUT, if the partner’s share is from a business

partnership or general partnership in trade
Such partner’s share is SUBJECT TO FINAL TAX

OTHER SOURCES OF INCOME
BAD DEBTS RECOVERY
Requisites for the deductibility of Bad Debts Expense
C –charged off or written off against the books of the taxpayer

U – the amount written off must be uncollectible in the near
future, no slim chance of recovery collecting such an amount.
B – it must arise from business trade/profession
A – ascertain to be worthless
N – not arising from transactions between related taxpayers

BAD DEBTS RECOVERY
Shall be included in the Gross Income in the

year of recovery to the extent of the tax benefit
of said deduction.
It is taxable because the taxpayer received tax

benefit through the reduction of its income in the
preceeding year. . .
So, upon recovery of bad debts, it is a taxable

gain

TAX REFUND/CREDIT
General Rule:
Refunds from taxes paid are TAXABLE
Exception:
Refunds of taxes paid in Estate or Donor’s Tax,

Philippine Income Tax, Stock Transaction Tax
and VAT (claimed as an input)

TAX REFUND/CREDIT
It shall be included as part of gross income in

the year of receipt to the extent of the
income tax benefit of the said deduction.

TAX REFUND/CREDIT
states that: if a taxpayer deducted
an item on his income tax return and
PRINCIPLE
enjoyed a tax benefit (reduction of
OF TAX
his tax liability) and in the
BENEFIT
subsequent year recovers all or part
RULE WILL
of that item, he will recognize
APPLY
gross income in the year the
deducted item is recovered.

BAD DEBTS RECOVERY
TAX REFUND/CREDIT
PRINCIPLE OF
TAX Also known as
BENEFIT RECAPTURE
RULE WILL RULE
APPLY

BAD DEBTS RECOVERY
What is meant by the “tax benefit rule”?

INCOME FROM WHATEVER SOURCE
ILLEGALLY OBTAINED INCOME is TAXABLE

Examples
Gambling
Ransom Money from Kidnapping
Extortion
Smuggling
Embezzlement.
What is Business?
Business OR in the course of trade or

business means. . .
the regular conduct or pursuit of a commercial or

economic activity, including transactions
incidental thereto, by any person or
government entity
business taxes
Business taxes are excise taxes imposed on onerous
transfers of goods, property or services done in the
normal course of business.
These are sometimes referred to as transaction taxes.
These are also taxes on production/importation of

“sin” products.
Requisites of business to be subjected to
business tax:
1. The activity should be a commercial or economic
activity, but with exceptions like:
(not an economic activity, but there is a business tax)
A commercial or economic activity is

an activity where the purpose is
PROFIT or INCOME.

business tax:
1. The activity should be a commercial or economic
activity, but with exceptions like:
(not an economic activity,
but there is a business tax)
A. An importation of goods for personal use is subject to

the value-added-tax. VAT is a business tax.
B. An overseas communication, even if not related to
business, is subject to the percentage tax called
Overseas Communications Tax. Percentage tax
is a business tax.
business tax:
2. There should be regularity in the activity, but

with exceptions like:
(not a regular activity, but there is business tax)
A regular activity is an activity involving

more than one isolated transaction. It
requires repetition and continuity of
action.

business tax:
2. There should be regularity in the activity, but

with exceptions like:
(not a regular activity,
but there is business tax)
A. Services rendered in the Philippines by non-

resident foreign persons shall be considered
as being rendered in the course of trade or
business;
B. Isolated transactions may be subjected to VAT or
percentage tax.
THREE (3) MAJOR BUSINESS TAXES
IN THE NATIONAL INTERNAL REVENUE CODE
Value-Added Tax
Percentage Tax or
General Consumption Tax
Excise Tax

TO DIFFERENTIATE….
E-pi
VP-t
Excise tax is on the production or
importation of “sin” products,
while
Value Added Tax (VAT) and/or Other
Percentage Taxes (OPT) are on the
transfer of goods or services in the
conduct of business.
Value-Added Tax
A value-added tax is an indirect tax

imposed on the gross selling price or
gross receipt derived from sale, barter
or exchange of goods, properties and
services, or the lease of goods and
properties in the course of trade or
business, and on importations
(Sec. 105 to 108).
BAR QUESTION/S
State whether the following transactions are:
a. VAT Exempt
b. VAT at 10% (now 12%)
c. Subject to VAT at 0%?
1998 BAR Exam

BAR QUESTION/S
State whether the following transactions are: a) VAT Exempt ; b) VAT at
10%; (now 12%) c) Subject to VAT at 0%?
1. Sale of fresh vegetables by Aling Ining at the Pamilihang

Bayan ng Trece Martirez.
2. Services rendered by Jake’s Construction Company, a
contractor to the World Health Organization in the
renovation of its offices in Manila.
3. Sale of tractors and other agricultural implements by
Bungkal Incorporated to local farmers.
4. Sale of RTW by Cely’s Boutique, a Filipino Dress designer,
in her dress shop and other outlets.
5. Fees for lodging paid by students to Bahay-Bahayan
Dormitory, a private entity operating a student dormitory
(monhtly fee P1,500)
1998 BAR Exam
BUSINESSES THAT ARE EXEMPTED
FROM VAT OR PERCENTAGE TAXES
(regardless of annual gross sales or receipts)
As provided for by Section 109 of the NIRC
A. Sale or importation of AGRICULTURAL and MARINE

FOOD products in their ORIGINAL STATE, livestock and
poultry of a kind generally used as, or yielding or
producing foods for human consumption; and breeding
stock and genetic materials therefore;
Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes or
preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, and ordinary salt and
copra shall be considered in their original state.
B. Sale or importation of fertilizers, seeds, seedlings

and fingerlings, fish, prawn, livestock and poultry
feeds, including ingredients, whether locally
produced or imported, used in the manufacture of
finished feeds, except: specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets.

C. Importation of personal and household effects

belonging to the residents of the Philippines returning
from abroad and non resident citizens coming to
resettle in the Philippines; provided that such goods
are exempt from customs duties under the Tariff and
Customs Code of the Philippines;

D. Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household
effects (except any vehicle, vessel, aircraft, machinery, other
goods for use in the manufacture and merchandise of any kind
of commercial quantity) belonging to persons coming to settle in
the Philippines, for their own use and not for sale, barter,
exchange, accompanying such persons, or arriving within ninety
(90) days before or after their arrival, upon production of
evidence of satisfactory to the Commissioner, that such persons
are actually coming to settle in the Philippines, and that the
change of residence is bona fide.

Section 109 of the NIRC (D)
NIRC NIRC TRAIN
Provision
Section 109 The following transactions, among The following are the changes
VAT- others, are exempt from value-added on VAT-exempt transactions:
exempt tax: (D) Importation of professional
Transaction (D) Importation of professional instruments and implements,
s instruments and implements, tools of trade, occupation or
wearing apparel, domestic animals, employment, wearing apparel,
and personal household effects domestic animals, and personal
(except any vehicle, vessel, aircraft, and household effects
machinery other goods for use in the belonging to persons coming to
manufacture and merchandise of any settle in the Philippines or
kind in commercial quantity) Filipinos or their families and
belonging to persons coming to descendants who are now
settle in the Philippines, for their own residents or citizens of other
use and not for sale, barter or countries, such parties
exchange, accompanying such hereinafter referred to as
persons, or arriving within ninety (90) overseas Filipinos, in quantities
days before or after their arrival, and of the class suitable to the
profession, rank or position of
the persons importing said
items,
NIRC Provision NIRC TRAIN
Section 109 upon the production of for their own use and not for
VAT-exempt evidence satisfactory to barter or sale, accompanying
transactions the Commissioner, that such persons, or arriving within a
such persons are reasonable time: Provided, That
actually coming to settle the Bureau of Customs may, upon
in the Philippines and the production of satisfactory
that the change of evidence that such persons are
residence is bona fide. actually coming to settle in the
Philippines and that the goods are
brought from their former place of
abode, exempt such goods from
payment of duties and taxes:
Section 109 Provided, further, That

VAT-exempt vehicles, vessels, aircrafts,
Transactions machineries and other similar
goods for use in
manufacture, shall not fall
within this classification and
shall therefore be subject to
duties, taxes and other
charges.
E. Services subject to percentage tax under Title V;.
F. Services by agricultural contract growers and

milling for others of palay into rice, corn into grits
and sugar cane into sugar.

G. Medical, dental, hospital and veterinary services,

except those rendered by professionals;
H. Educational services rendered by private

educational institutions, duly accredited by the
DepEd, CHED, TESDA and those rendered by
government educational institutions;

I. Services rendered by individuals pursuant to an
employer-employee relationship;
J. Services rendered by regional or area headquarters

established in the Philippines by multinational
corporations which act as supervisory,
communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the
Philippines;
K. Transactions which are exempt under international

agreements to which the Philippines is a signatory or
under special laws, except those under Presidential
Decree No. 529;

L. Sales by agricultural cooperatives duly registered with

the Cooperative Development Authority to their
members as well as sale of their products, whether in its
original state or processed form, to non members; their
importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or
processing of their produce;

M. Gross receipts from lending activities by credit

or multi-purpose cooperatives duly registered with
the Cooperative Development Authority whose
lending operation is limited to their members;

N. Sales of non-agricultural non electric and non-credit

cooperatives duly registered with the Cooperative
Development Authority: Provided, that the share
capital contribution of each member does not exceed
P15,000 and regardless of the aggregate capital and
net surplus ratably distributed among the members;
Export sales by persons who are not VAT registered;
O. Export sales by persons who are not VAT registered;
P. Sale of real property not primarily held for sale to

customers or held for lease in the ordinary course of
trade or business or real property utilized for low-cost
and socialized housing as defined by R.A. 7279,
otherwise known as the Urban Development and
Housing Act of 1992, and other related laws, residential
lot valued at P 1,919,500.00 and below, house and lot and
other residential dwellings valued at P3,199,200.00
Section 109 of the NIRC (P)
NIRC NIRC TRAIN
Provision
Section 109 Sale of real properties Sale of real properties not primarily held for
VAT- not primarily held for sale to customers or held for lease in the
exempt sale to customers or ordinary course of trade or business or real
Transaction held for lease in the property utilized for low-cost and socialized
s ordinary course of housing, residential lot valued at
trade or business or P1,500,000.00 and below; house and lot,
real property utilized for and other residential dwellings valued at
low-cost and socialized P2,500,000.00 and below.
housing, residential lot
valued at Beginning January 1, 2021:
P1,919,500.00 and  The VAT exemption shall not anymore
below; house and lot, apply to:
and other residential - Sale of low-cast housing
dwellings valued at - Sale of residential lot
P3,199,200.00 and  The threshold selling price amount for
below. sale of house and lot, and other
residential dwellings shall be
P2,000,000.00
Section 109 of the NIRC (P)
Section 109 Every 3 years, the Every 3 years, the threshold amount
VAT-exempt threshold amount shall shall be adjusted to its present value
Transactions be adjusted to its using the Consumer Price Index, as
present value using the published by the Philippine Statistics
Consumer Price Index, Authority (PSA).
as published by the
National Statistics Office.
Section 109 (Q) Lease of a (Q) Lease of a residential unit with a
VAT-exempt residential unit with a monthly rental not exceeding
Transactions monthly rental not P15,000.00.
exceeding P12,800.00.
(U) Importation of fuel, (U) Additional provision:

goods and supplies by
persons engaged in Xxx Provided, That the fuel, goods,
international shipping or and supplies shall be used for
air transport operations. international shipping or air transport
operations.
A s provided for by Section 109 of the NIRC
Q. Lease of residential unit with a monthly rental not

exceeding P12,800
R. Sale, importation, printing or publication of books

and any newspaper, magazine, review or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements;

Section 109 of the NIRC (Q)
as published by the

operations.
rule on the gross receipts from rent of
residential units
P15,000
• If the monthly rental does not exceed P12,800 per unit
per month, regardless of the aggregate annual rentals,
the lessor shall be exempt from VAT.
P15,000
• If the monthly rental exceeds P12,800 per month per
unit but the aggregate annual rentals do not exceed
P1,919,500, the lessor is exempt from VAT. The lessor,
however, is subject to percentage tax.
VAT Threshold NOW P3,000,000
P15,000
• If the monthly rental exceeds P12,800 per month per
unit and the aggregate annual rentals exceed
P1,919,500 the lessor is subject to 12% VAT.
(BIR Rulings No. 144-2006, March 17, 2006 AND RR 16-2011)
S. Sale, importation or lease of passenger or cargo

vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international
transport operations;
T. Importation of fuel, goods and supplies by persons

engaged in international shipping or air transport
operations;
U. Services of banks, non bank financial intermediaries

performing quasi-judicial functions, and other non-bank
financial intermediaries;
Section 109 of the NIRC (Q)
as published by the

operations.
V. Sale or lease of goods or properties or the
performance of services other than the transactions in
the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P1,919,500.00-
(EXEMPT from VAT but subject to 3% percentage
tax.)
RA 10963
VAT THRESHOLD: P3,000,000.00
Section 109 of the NIRC (Additional VAT-EXEMPT Transactions)
Section 109 Additional exempt transactions:

VAT-exempt
Transactions (W) Sale or lease of goods and
services to senior citizens and person
with disabilities.
(X) Transfer of property in merger or

consolidation [under Section 40(C)(2)
of the NIRC/tax-free exchange].
(Y) Association dues, membership

fees, and other assessments and
charges collected by homeowners
associations and condominium
corporations.
Section 109 of the NIRC (Additional VAT-EXEMPT Transactions)
Section 109 (Z) Sale of gold to the BSP.

VAT-exempt
Transactions (AA) Sale of drugs and medicines
prescribed for diabetes, high
cholesterol, and hypertension
beginning January 1, 2019.
Now (BB) Sale or lease of goods or

properties or the performance of
services other than the transactions
mentioned in the preceding
paragraphs, the gross annual sales
and/or receipts do not exceed the
amount of P3,000,000.
BAR QUESTION/S
State whether the following transactions are:
a. VAT Exempt
b. VAT at 10% (now 12%)
c. Subject to VAT at 0%?
1998 BAR Exam

BAR QUESTION/S
State whether the following transactions are: a) VAT Exempt ; b) VAT at
10% (now 12%) ; c) Subject to VAT at 0%?
1. Sale of fresh vegetables by Aling Ining at the Pamilihang

Bayan ng Trece Martirez.
2. Services rendered by Jake’s Construction Company, a
contractor to the World Health Organization in the
renovation of its offices in Manila.
3. Sale of tractors and other agricultural implements by
Bungkal Incorporated to local farmers.
4. Sale of RTW by Cely’s Boutique, a Filipino Dress designer,
in her dress shop and other outlets.
5. Fees for lodging paid by students to Bahay-Bahayan
Dormitory, a private entity operating a student dormitory
(monhtly fee P1,500)
1998 BAR Exam
RULES IN BUSINESS TAXES
Businesses NOT expressly mentioned in

letter A to U (per RA 10963 now includes
W,X,Y,Z and AA) of Section 109 of NIRC which
have gross sales not exceeding One Million Five
Hundred Thousand Pesos (P1,919,500.00) shall be:
(P 3,000,000.00)
- exempt from the value added tax, BUT. . . . . .
- subject to the 3% percentage tax, EXCEPT if:
i. a different percentage tax applies
ii. taxpayer opted to be a value-added
tax payer.
Manufacturers or importers who are subject

to the excise taxes also pays either:
Value Added tax; or
The 3% percentage tax

( if the sales did not exceed P1,919,500.00)
P3,000,000.00

Excise Taxes are imposed on:
1. Manufacturers or
2. Importers of any of the following categories of
DWFTC
goods or articles: AMMNC
-Distilled spirits - Automobiles

-Wines - Manufactured fuel oils
-Fermented liquors - Mineral Products
-Tobacco products - Non-essential goods
-Cigars - Cigarettes
THREE (3) MAJOR BUSINESS TAXES
IN THE NATIONAL INTERNAL REVENUE CODE
Value-Added Tax
Percentage Tax or
General Consumption Tax
Excise Tax

Value-Added Tax
A value-added tax is an indirect tax

imposed on the gross selling price or
gross receipt derived from sale, barter
or exchange of goods, properties and
services, or the lease of goods and
properties in the course of trade or
business, and on importations
(Sec. 105 to 108).
BAR QUESTION/S
What are the characteristics of the Value –Added Tax?
1996 BAR Exam

NATURE AND CHARACTERISTICS
OF THE VALUE ADDED TAX
1.Value added tax is a tax on consumption
2. Levied on the sale, barter exchange or lease

of goods or properties and services in the
Philippines and the importation of goods
into the Philippines.
3. Seller is the one statutorily liable for the

payment of tax, but the amount of tax may
be shifted or passed on to the buyer,
transferee or lessee of the goods or
properties or services.
BAR QUESTION/S
Who are liable for the payment of Value-Added Tax?
1996 BAR Exam

PERSONS LIABLE TO VALUE-ADDED TAX
Sec. 105 to 108 - In general, any

person engaged in the business of
selling or leasing goods, properties or
services with annual sales or gross
receipts of more than P1,919,500
(now, P3M) is liable to VAT of 12%
based on his sales or gross receipts as
amended.
The following persons are
subject to the VAT:
Registered person under the value-added tax system - Any person who is
registered under the value added tax system, in the course of trade
or business, sells, barters, exchanges goods or properties, renders
services, and leases shall be subjected to 12% VAT regardless of the
amount of his gross annual sales or receipts.
If a person is VAT–registered, he is entitled to have an Input Tax as a

reduction from his Output Tax.
subject to the VAT:
Non-VAT registered person under the value added
tax system – Any person engaged in the business
of selling or leasing goods, properties or services
subject to value added tax, and whose gross
sales or receipts during the year or in any
twelve-month period exceed P1,919,500, (now,
P3M) whether or not registered under the value-
added tax system.
If a person is not VAT- registered, he is not

allowed to have an Input Tax. He is required to
pay the 12% value added tax or the total
amount of the output tax.
subject to the VAT:
Franchise grantees of radio/ television broadcasting, whose annual receipts
for the preceding calendar year do not exceed P10,000,000, but opted
to register under the VAT system. Once the option is exercised, it shall
not be revoked. (Sec. 119).
However, if the annual receipts for the preceding calendar year exceed
P10,000,000, the company is automatically subjected to a 12% VAT
whether VAT-registered or not.
subject to the VAT:
Importers of goods – Any person who

imports goods subject to value added
tax, whether or not in the course of
trade or business, (Sec. 107(A),
except in cases of tax-free importation

of goods, (Sec. 107 (B)).
Who are subject to the value-added tax?
Any person who:
A. sells, barters or exchanges goods or

properties in the course of trade or business; or
B. sells services in the course of trade or

business; or
C. imports goods, whether or not in the course of

trade or business
Registration of Business
Every taxpayer subject to the Value Added Tax

must register with the Bureau of Internal Revenue as a
VAT taxpayer.
Pay the Annual registration fee of P 500.00 for
every separate and distinct establishment, including
facility types (sales outlet, places of production,
warehouses and storage places) where the business is
conducted.
For VAT exempt persons, they must also

register as a non-VAT taxpayers.

Registration for Value Added Tax
MANDATORY REGISTRATION
Section 236 (G)
OPTIONAL REGISTRATION
Section 236 (H)

MANDATORY REGISTRATION
When the business gross sales or receipts for
the past 12 months, other than those exempt
under Section 109 of NIRC letter A to U, (now
W,X,Y,Z,AA) HAVE EXCEEDED
P 1,919,500.00. (now, P3M)
When there are reasonable grounds to believe

that his gross sales or receipts for the next 12
months will exceed P 1,919,500.00. (now, P3M)
OPTIONAL REGISTRATION
Any person who is not required to register as a

VAT taxpayer because his sales in a 12
month period do not, shall not exceed
P1,919,500.00, (now, P3M) may register for
the Value Added Tax.

Invoices and Receipts
A taxpayer who is in business should have

his invoices and receipts registered with the
BIR.
If the taxpayer is a VAT taxpayer, the

invoices and receipts shall clearly show that
he is a VAT taxpayer.

ACCOMPLISHMENT OF VAT INVOICE
•The invoicing requirement is intended to

show the total amount chargeable to
the buyer separately indicating the
purchase price portion from the VAT
portion of the total invoice amount.
basic things to be reported in the
invoice of receipts
• A statement that the seller is VAT-registered
STAVZ person followed by the TIN.
• The amount of tax shown as a separate item.
• The word “VAT-Exempt Sale” written or

printed prominently if sale is VAT-exempt.
• The word “Zero-Rated Sale” written or printed

prominently if sale is subject to zero percent.
basic things to be reported in the
invoice of receipts
• Option to issue combined or separate
invoices receipts of sale on a combination of
VAT-liable and VAT-exempt sale.
• Date of transaction’ quantity, unit cost and

description of the goods or properties or
the nature of the service.
• For sale of VAT-registered persons

amounting to P1,000 or more, indicate the
name, business style, address and TIN of
the purchaser.
tax liability for issuing
erroneous invoice or receipts PV50
A non-VAT person who issues VAT invoice/official

receipt shall have the following penalties:
• Percentage taxes applicable to his transactions;
• VAT due on the transaction under Sec. 106 or 108

of the Tax Code without the benefit of any input
tax credit; and
• 50% surcharge under Sec. 248(B) of the Tax Code.

OBJECTS of VAT
•Sales of goods (actual sales or deemed sales)

•Gross receipts (sale of services or lease)
•Importation (either for personal or business use)
The sales of goods or services

should be made in the Philippines
to be subjected to VAT.
tax base of Output VAT
•The objects of business tax may be

based on:
(a) gross selling price; or
(b) gross receipts.

VALUE-ADDED TAX ON SALE OF
GOODS and PROPERTIES
Section 106(1)[a to e]
TAX
GROSS SELLING PRICE
BASE
Section 106(1)[par. 2]

considered as the amount of
gross selling price
The taxable base for the sales of goods is the gross selling price which refers
to the total amount of money or its equivalent which the purchaser give
up as a sacrifice including excise tax, if any, but excluding VAT.
(Sec. 106A1, NIRC)
Gross selling price shall include:

•Charges for packing, delivery and insurance
•Excise taxes if goods are subject to excise tax
allowable deductions from
gross selling price
Sales returns and allowances are

deductible from recorded gross
sales or receipts if a proper
credit or refund was made
during the month or quarter.
(Rev. Reg. 7-95)
allowable deductions from
gross selling price
Sales discounts may only be deducted from gross
sales or receipts within the same month/quarter
it was given if all of the following conditions are
met:
» It is determined and granted at the time of sale;
» The discount is expressly indicated in the
invoice;
» The amount thereof should form part of the
gross sales duly recorded in the books; and
» The granting of the discount does not depend
on the happening of a future event.
(Sec. 4.106-9, R. R. 14-2005)
For business tax computation, sale
becomes taxable when…..
Gross selling price for the sale of goods
The point of taxation is the period when

the sale was made, regardless of
whether it is collected or not.
(Sec. 106, 1(e), NIRC)
proof of the tax base of business tax I-gp
OR-slgp
A VAT-registered person shall issue:
• A VAT invoice for sale of goods or

properties; and (point of taxation is when
SALE is MADE)
• VAT Official Receipt for sale of services or
lease of goods or properties (point of
taxation is when COLLECTION IS MADE)
TAX RATES
A. Twelve percent (12%)

of the gross selling price;

TAX RATES
B. Zero percent (0%) of the gross

selling price if:
a. Export Sale (Section 106[2]{a})

Export Sales
Section 106 (A)(2) The following are entitled to The following sales by VAT
Zero-rated Sale of VAT zero-rating: registered persons shall be
Goods or subject to zero percent 0%
Properties 1. The sale and actual rate:
shipment of goods from the
Philippines to a foreign 1. The sale and actual
country, irrespective of any shipment of goods from
shipping arrangement that the Philippines to a foreign
may be agreed upon which country, irrespective of any
may influence or determine shipping arrangement,
the transfer of ownership of paid for in acceptable
the goods so exported and foreign currency or its
paid for in acceptable equivalent in goods or
foreign currency or its services, and accounted
equivalent in goods or for in accordance with the
services, and accounted for rules and regulations of
in accordance with the rules the Bangko Sentral ng
and regulations of the Pilipinas (BSP).
Bangko Sentral ng Pilipinas
(BSP).
Export Sales

Section 106 2. Sale and delivery of goods to:
(A)(2)
Zero-rated Sale  Registered enterprises within
of Goods or a separate customs territory
Properties
 Registered enterprises within
tourism enterprise zones
(The above provision was vetoed

by President Duterte because
this go against the principle of
limiting the VAT zero-rating to
direct exporters.)
Export Sales
Section 106 2. Sale of raw materials or 3. Sale of raw materials or
(A)(2) packaging materials to a packaging materials to a
Zero-rated Sale nonresident buyer for nonresident buyer for
of Goods or delivery to a resident delivery to a resident local
Properties local export-oriented export-oriented enterprise
enterprise to be used in to be used in
manufacturing, manufacturing,
processing, packing or processing, packing or
repacking in the repacking and paid for in
Philippines of the said acceptable foreign
buyer's goods and paid currency and accounted
for in acceptable foreign for in accordance with the
currency and accounted rules and regulations of
for in accordance with the Bangko Sentral ng
the rules and Pilipinas (BSP).
regulations of the
Bangko Sentral ng
Pilipinas (BSP).
Export Sales

Section 106 (A)(2) 3. Sale of raw materials 4. Sale of raw materials or
Zero-rated Sale of or packaging materials packaging materials to
Goods or to export-oriented export-oriented
Properties enterprise whose enterprise whose export
export sales exceed sales exceed seventy
seventy percent (70%) percent (70%) of total
of total annual annual production.
production.
4. Sale of gold to BSP.

Export Sales
Section 106 5. Those considered 5. Those considered export

(A)(2) export sales under sales under Executive Order
Zero-rated Executive Order NO. No. 226, otherwise known as
Sale of Goods 226, otherwise known the “Omnibus Investment
or Properties as the “Omnibus Code of 1987”, and other
Investment Code of special laws; and
1987”, and other
special laws. 6. The sale of goods, supplies,
equipment and fuel to
6. The sale of goods, persons engaged in
supplies, equipment international shipping or
and fuel to persons international air transport;
engaged in provided, that the goods,
international shipping supplies, equipment and fuel
or international air have been sold and used for
transport operations. international shipping or air
transport operations.
Export Sales

Section 106 Additional provision:
(A)(2) Items 3, 4, and 5 shall be subject to the
Zero-rated Sale 12% VAT and no longer be considered
of Goods or export sales subject to 0% VAT upon
Properties satisfaction of the following conditions:
 There is a successful establishment
and implementation of an enhanced
VAT refund system that grants
refunds of creditable input tax within
90 days from the filing of the VAT
refund application with the Bureau.
 All pending VAT refund claims as of

December 31, 2017 shall be fully
paid in cash by December 31, 2019.
Export Sales
The Department of Finance shall establish a

Section 106 (A)(2) VAT Refund Center in the BIR and BOC that
Zero-rated Sale of will handle the processing and granting of
Goods or Properties cash refunds of creditable input tax.
An amount equivalent to 5% of the total VAT

collection of the BIR and BOC from the
immediately preceding year shall automatically
be appropriated annually and shall be treated
as a special account in the General Fund or as
trust receipts for funding VAT refund claims.
Further, the BIR and BOC shall be required to

submit to the Congressional Oversight
Committee on the CTRP a quarterly report of
all pending claims for refund and any unused
fund.
Export Sales
Section 106 Deleted provision:

(A)(2)
Zero-rated The following shall no longer be
Sale of Goods subject to 0% VAT:
or Properties
1. Sale of gold to BSP
2. Foreign-currency denominated
sales
Section 108 Sale or exchange Sale or exchange of services include
(A) of services “sale of electricity by generation
Definition of include “sale of companies, transmission by any entity
Sale or electricity by including the National Grid
Exchange of generation Corporations of the Philippines
Services companies, [NGCP], and distribution companies,
transmission, and including electric Cooperatives”.
distribution
companies”
TAX RATES

selling price if:
b. Foreign Currency Denominated
Sale (Section 106[2]{b})
sale to non residents of goods (except automobiles and
non essential goods subject to excise taxes) assembled
and manufactured in the Philippines, for delivery to residents
in the Philippines, and paid in acceptable foreign currency
and accounted for in accordance with the rules and
regulations of the BSP.
GOODS and PROPETIES
TAX RATES
B. Zero percent (0%) of the gross selling

price if:
c. Sales to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a
signatory effectively subjects to zero rate.
(Section 106[2]{c})
Sale to SBMA and Clark Development , IRRI and ADB.

GOODS and PROPETIES
Zero if:
Export
Foreign currency denominated sale
TAX
Tax treaty
TAX RATES
BASE
GROSS SELLING 12% OR 0%
PRICE
VAT Output/Output Tax

Section 110 (A)[3]{b, 3rd paragraph)

OUTPUT VAT?
Output tax (Output VAT) is the value-added tax due on the sale or lease of
taxable goods or properties or services by any registered person or any
person required to register under Sec. 236.
The amount is reduced by input tax (if any) to arrive at the net VAT
payable.
If there is no creditable input tax, the entire amount of the output tax
becomes the VAT payable.
BAR QUESTION/S
Under the Value-Added Tax (VAT), the tax is

imposed on sales, barter, or exchange of goods and
services. The VAT is also imposed on certain
transactions “deemed sales”. What are these so-
called transactions “deemed sales”?
1997 BAR Exam

GOODS and PROPETIES
TRANSACTIONS DEEMED SLE
1. Consumption of Inventory
Goods originally intended for sale, but used

or consumed for personal use by the
taxpayer is considered deemed sales.
(Sec. 106 B (1), NIRC)

GOODS and PROPETIES
2. Distribution to Stockholders
Transfer of inventory to shareholders as

share in the profits of a VAT-registered
person is considered as transactions
deemed sale.
(Sec. 106 B (2), NIRC)
GOODS and PROPETIES
3. Distribution to Creditors
Transfers of inventory in payment of debts

constitute transactions deemed sale.
(Sec. 106B, NIRC)

GOODS and PROPETIES
4. Consignment of Goods
Consignment of goods is considered

transaction deemed sales if actual sale is
not made within 60 days following the date
such goods were consigned.
GOODS and PROPETIES
5. Retirement from Business
The merchandise inventory left at the

retirement of business is deemed sold for
VAT purposes
taxable amount for deemed sales
•For “transactions deemed sale,” the taxable

base is the market value of such goods as of
the occurrence of the transaction
considered as sale. (Sec.106B, NIRC)
•Where the gross selling price is

unreasonably lower than the actual market
value, the Commissioner shall determine
the appropriate tax base for 12% VAT.
(Sec.106D3, NIRC)
taxable amount for deemed sales
• Where the gross selling price is unreasonably lower than

the actual market value, the Commissioner shall
determine the appropriate tax base for 12% VAT.
(Sec.106D3, NIRC)
• The gross selling price is unreasonably lower than the actual market value if
it is lower by more than 30% of the actual market value of the same goods
of the same quantity or quality sold in the immediate locality or the nearest
date of sale. (Sec. 4.106-7b, R.A. 9337)
OBJECTS of VAT



based on:
(b) gross receipts.

VALUE-ADDED TAX ON IMPORTATION OF GOODS
all importation of goods in the

Philippines are subject to VAT, even
if such goods are not intended to
be sold or used for business
activities,
. . . except those mentioned under

Section 109 of NIRC. (A to U, with
RA 10963, W,X,Y,Z and AA)
TAX BASE and TAX RATE

Section 107A, NIRC
value used by the Bureau of
Custom in determining the tariff and
custom duties, plus custom duties and
12%
excise taxes, if any, and other charges,
paid by the importer prior to the release of
such goods from the custody of the BOC.

Transfer of Goods by Tax-Exempt Persons

(In cases of Tax-Free Importation)
Sale or exchange of tax-free goods to non-

exempt person in the Philippines is taxable
with Internal Revenue Taxes against the
purchaser, transferee or recipient who
shall be considered as importer thereof.
(Sec. 107B, NIRC)

Are VAT paid on importations allowed as creditable
input VAT?
OBJECTS of VAT



based on:
(b) gross receipts.

VALUE-ADDED TAX ON SALE OF SERVICES and
USE/LEASE OF PROPERTIES
Requirements for Value-Added Taxability

of Service Transactions
•The service must be performed or is to be performed in

the course of business in the Philippines.
•The service is rendered for valuable consideration

actually or constructively received.
•The service rendered is not exempt from VAT under

the Tax Code, other special laws or international
agreement.
Section 108(A)
TAX
GROSS RECEIPTS
BASE
Section 108(A) [last par.]

For business tax computation, gross
receipts becomes taxable when…
Gross receipts for rendering of services
The point of taxation is the period when

the collection was made, regardless of
whether it is earned or not.
(Sec. 108 A, last paragraph, NIRC)
amount considered as gross receipts
• Total amount of money or its equivalent
representing the contract price,
compensation service fee, rental or
royalty.
• Amount charged for materials supplied,

with the services and deposits and
advance payments actually or
constructively received during the taxable
quarter, excluding VAT. (Sec.108, NIRC)
amount considered as gross receipts
• Taxable based on services does not

include receivables. It includes
amounts billed and collected to clients
intended to recover cost and expenses
including profits. (VAT Ruling 111-88)
TAX RATES
A. Twelve percent (12%)

of the gross receipts;

TAX RATES

receipts on the following sale or
exchange of services:
(Section 108)[B]{1 to 7} of the NIRC

all kinds of services performed in the

Philippines are subject to VAT at rate of
12%, except those which are classified
and qualified as Zero-rated or VAT-
exempt transactions.
(Sec.108, NIRC)

Common Carriers by Air and Sea
Common carriers by air and sea relative to the

transport of passengers and cargoes within the
Philippines is subject to 12% VAT.
But in Section 108(B)(6), as added by R.A. No.

9337---transport of passengers and cargo by air
or sea vessels from the Philippines to a foreign
country shall be subject to zero (0%) rate.
VAT on Professional Fees
As a rule, earnings from a practice of

profession (including services rendered by
doctors of medicine and lawyers) will be
subject to a 12% VAT if:
•The professional is a VAT-registered person, or
•Not VAT-registered but his total gross receipts
exceed P1,919,500 per year. (R. A. 9337)
TAX TAX RATES

BASE
GROSS 12% OR 0%
RECEIPTS


TAX CREDITS
CREDITABLE INPUT TAX or VAT INPUT

Section 110(A)
Section 110 (A)[3]{b, 2nd paragraph)

Input VAT
Input tax (Input VAT) is the value-added

tax due paid by a VAT-registered person
in the course of his trade or business on
importation of goods or local purchases
of goods or services, including lease or
use of property from VAT-registered
person.
TAX TREATMENT OF INPUT VAT
If paid by the VAT registered person in

the conduct of his business, it is
allowed as tax credit against his output
VAT.
If paid by non-VAT person, it is part of

his expense (capitalized if pertaining to
capital goods).
TAX TREATMENT OF
EXCESS CREDITABLE INPUT VAT
If the input tax exceeds the output tax,

the excess shall be carried over to
the succeeding quarter or quarters.
TAX CREDITS
WHAT ARE THE INPUT TAXES?
Input Taxes are the value added taxes paid on

local purchases and importation of goods FOR:
1. sale
2. conversion into or intended to form part of a
finished product for sale, including packaging
materials

TAX CREDITS
Input Taxes are the value added taxes paid on

local purchases and importation of goods FOR:
3. use as supplies
4. use in trade or business, for which
depreciation or amortization is allowed for
income tax purposes, except automobiles,
aircrafts and yachts.
TAX CREDITS

And, input taxes also includes value added taxes
paid on the following:
5. purchases of real property;

6. purchases of services
7. Presumptive Input Input Tax
8. Transitional Input Tax

TAX
BASE TAX RATES
VALUE PAID on
PURCHASES and 12%
IMPORTATION of
GOODS
VAT Input/Input Tax

Section 110 (A)[3]{b, 2nd paragraph)

TAX CREDITS
What is a presumptive Input Tax?
Persons or firms engaged in processing

sardines, mackerel, and milk, and in manufacturing
refined sugar and cooking oil, and packed noodle-
based instant meals, shall be allowed a
PRESUMPTIVE INPUT TAX, equivalent to four
percent (4%) of the goods value in money of their
purchases of PRIMARY AGRICULTURAL
PRODUCTS which are used as inputs to their
production.
TAX CREDITS
What is a transitional input tax?
A taxpayer not subject to the value added tax

BECOMES SUBJECT to the value added tax because:
-the gross sales of the preceding year exceeded

P1,500,000.00 or
- the taxpayer being exempt from the VAT system, he was

qualified, and opted to be, registered under the value
added tax system.
TAX CREDITS
What is a transitional input tax?
Then, he shall be allowed an input tax on

his inventory on the transition date, of goods,
materials and supplies equivalent to two (2%) of
the inventory value, OR the value added tax
actually paid on it, WHICHEVER IS HIGHER,
excluding goods that are VAT exempt.
The inventory on the transition date should
be reported to the Bureau of Internal Revenue.
TAX CREDITS
THE VALUE ADDED TAX IN

THE SALES INVOICE
As a general rule, the VALUE-ADDED TAX

should be shown as a separate item in the sales
invoice. If the invoice shows only a total, the
value added tax component on the total shown in
the invoice is determined by multiplying the total
by the fraction of 12/112.

TAX CREDITS
THE VALUE ADDED TAX IN THE SALES INVOICE
Example: If the total invoice is amounting to

P 120,000.00, vat included.
So, the VALUE ADDED TAX is computed as:
120,000 x 12/112 P 12,857.14

NET AMOUNT (120,000-12,857.14) P107,142.86
TOTAL AMOUNT IN THE INVOICE P120,000.00

TAX CREDITS

Mr. DEE LAH TAH purchases sardines from fishermen and
processes them into canned sardines called “ BUBOY
SARDINES”. Going to processing in a certain taxable period
were the following purchases, value added tax not included:
Fish from fishermen P 100,000.00
Tin Cans P 20,000.00
Tomato paste in cans P 5,000.00
Olive oil in plastic bottles P 2,500,00
Pepper from farmers P 1,800.00
Paper labels from printers P 500.00
Sales during the period, value added tax not included,
amounted to P400,000.00.
TAX CREDITS
Determine the VAT Output or Output Tax.

Determine the VAT Input or Input Tax.
Output Tax (400,000 x 12%) P 48,000.00

Input Taxes:
Fish from fishermen ( 100,000.00 x 0%) P0
Tin Cans ( 20,000.00 x 12%) P 2,400.00
Tomato paste in cans ( 5,000.00 x 12%) P 600.00
Olive oil in plastic bottles ( 2,500,00 x 12%) P 300.00
Pepper from farmers ( 1,800.00 x 4%) P 72.00
Paper labels from printers ( 500.00 x 12%) P 60.00
TOTAL INPUT TAXES P 3,432.00

TAX CREDITS
RULES in VALUE ADDED TAX

An Input VAT is usually creditable against an
Output VAT if the related goods or service
from which it arises are used in the conduct
of business.
At the end of any taxable period, if the
Output VAT exceeds the Input VAT, only
such excess amount is payable by the
taxpayer to the BIR.
Section 110 (B)
TAX CREDITS
VAT formula:

Less : VAT Input/Input Tax
VAT Payable to the BIR
Section 110 (B)

TAX CREDITS
Output Tax (400,000 x 12%) P 48,000.00

Input Taxes:
Fish from fishermen ( 100,000.00 x 0%) P0
Tin Cans ( 20,000.00 x 12%) P 2,400.00
Tomato paste in cans ( 5,000.00 x 12%) P 600.00
Olive oil in plastic bottles( 2,500,00 x 12%) P 300.00
Pepper from farmers ( 1,800.00 x 4%) P 72.00
Paper labels from printers( 500.00 x 12%) P 60.00
TOTAL INPUT TAXES P 3,432.00
VAT PAYABLE P 44,568.00

TAX CREDITS
Section 110 (C)
If the Input VAT, inclusive of input tax carried over from
the previous quarter(s) exceeds the Output VAT, the
excess Input VAT shall be carried over to the
succeeding quarter or quarters.
Output VAT from sales P100,000
Less: Input VAT from:
Purchases P60,000
Carry-over from last quarter 50,000 P110,000
Excess Input VAT (P10,000)

Note: The excess input VAT can be claimed as a VAT credit
in the succeeding quarters.
TAX CREDITS
VAT formula:

Less : VAT Input/Input Tax
VAT Payable to the BIR
Section 110 (B)

TAX CREDITS
Any Input VAT attributable to the zero-rated sales by a

VAT-registered person may, at his option and WITHIN
TWO (2) YEARS, after the close of the taxable quarter
when the sales were made, be refunded or applied
for a tax credit certificate which may be used in the
payment of internal revenue taxes, EXCEPT
transitional input tax, to the extent that such input tax
has not been applied against output tax.
Section 112 (A)

Under RR No. 5-2000 July 29, 2011, it says
that:
“ALL TAX CREDIT CERTIFICATES

(TCC’S) ISSUED BY THE BIR SHALL NOT
BE ALLOWED TO BE TRANSFERRED OR
ASSIGNED TO ANY PERSON.”
1.EXECUTIVE ORDER NO. 68: “MONETIZATION
PROGRAM OF OUTSTANDING VALUE-ADDED TAX (VAT)
TAX CREDIT CERTIFICATES (TCCs)
In order to give qualified VAT-registered taxpayers

the cash equivalent of their outstanding TCCs.
For revalidated and unexpired TCCs issued in the years

2002 and 2003, THE MONETIZATION WILL BE FROM
JULY 17, 2012 TO SEPTEMBER 1, 2012.
For revalidated and unexpired TCCs issued in the years

2004 to April 11, 2012, THE MONETIZATION WILL BE
FROM JULY 17, 2012 TO OCTOBER 17, 2012.
TAX CREDITS
Cancellation of registration as a VAT taxpayer
The registration of any person as a value added taxpayer

may be cancelled if:
•He makes a written application and can demonstrate to the
Commisioner’s satisfaction that his gross sales for the
following 12 months will not exceed P1,500,000.00.
•He has ceased to carry on his trade or business and does
not expect to recommence any trade or business within the
next 12 months.
Section 236 (F)

TAX CREDITS
Cancellation of registration as a VAT taxpayer
WITHIN TWO (2) YEARS FROM THE DATE OF

CANCELLATION, apply for issuance of a tax credit certificate
for any UNUSED INPUT TAX which may be used in payment
of his other internal revenue taxes.
BIR will grant a refund or issue tax credit certificate

within 120 days from submission of complete documents
in support of the application.
Section 112 (B)(C)

TAX CREDITS
MONTHLY DECLARATION AND QUARTERLY RETURN
Within the twenty five (25) days after the end of

the quarter, there shall be a Quarterly VAT return.
Payment of VAT shall be on a monthly basis. Filing
anf payment shall be made to an authorized agent
bank, Revenue Collection Officer or duly authorized
city or municpal Treasurer in he Philippines located
within the Revenue District where the taxpayer is
registered.
Section 114 (A)(B)
TAX CREDITS
WITHHOLDING OF VALUE-ADDED TAX
The Government , or any of its political subdivisions,
instrumentalities or agencies, including GOCC’s, shall,
before making payment on account of its purchase of goods
from sellers who are subject to the value-added tax, deduct
and withhold a final value-added tax at the rate of 5% of
the gross payment, to be remitted within ten (10) days
following the end of the month the withholding was made.
But for lease or use of properties or property rights to non-
resident owners shall be subject to 12% withholding tax
a the time of payment.
Section 114 (C)
TAX CREDITS
The Commissioner of Internal Revenue has the

power to suspend the business operations of
taxpayer in the following cases:
1. Failure to issue receipts or invoices;

2. Failure to file VAT return
3. Understatement of taxable receipts or sales by
30% or more of his correct taxable sale or
receipts for the taxable quarter.
Section 115
Under Sections 116 to 127 of the NIRC
the percentage taxes are:
a. 3% percentage tax on persons exempt from

the value added tax because their gross
annual sales do not exceed one million five
hundred thousand pesos (P1,500,000.00),
and who are not required to pay a
percentage tax under any of (b) to (l) ,
below;

b. Tax on domestic carriers;

c. ax on international carriers;
d. Franchise tax;
e. Overseas Communications tax;
f. Tax on banks and non-bank financial
intermediaries performing quasi-banking
functions;

g. Tax on other non-bank financial

intermediaries;
h. Tax on life insurance companies;
i. Tax on agents of foreign insurance
companies;
j. Amusement Tax;
k. Tax on winnings;
l. Tax on stock transactions.

TAX BASE OF PERCENTAGE TAXES
Percentage taxes are based on gross

receipts.
Payable by the sellers of the services, except the
overseas communications tax, which is payable by the
user of the facilities of the seller.
Gross Receipts are cash actually or constructively
received. Receivables are not yet taxable although an
income is already earned thereon.
There are no deductions from gross receipts, except
Sales Returns and Allowances and Sales Discounts, to
arrive at the taxable gross receipts.
TAX RATES
A. 3% percentage tax based on gross

quarterly sales on persons exempt from the value
added tax because their gross annual sales do not
exceed one million five hundred thousand pesos
(P1,919,500.00),
Take Note of the BUSINESSES THAT ARE EXEMPTED

FROM VAT OR PERCENTAGE TAXES (regardless of
annual gross sales or receipts) , as provided for by
Section 109 of the National Internal Revenue Code (NIRC)

TAX RATES
B. Tax on Domestic Carriers
There are common carrier’s that can be

subjected to Percentage Tax known as
“common carriers tax. and there are also
common carriers that can be subjected to
Value Added Tax.

TAX RATES
COMMON CARRIER BY LAND:
1. Transporting goods or cargoes 12% Value Added Tax

2. Transporting passengers 3% Common Carriers Tax
3. Cars for rent or hire driven
by the lessee 3% Common Carriers Tax
4. Carriers Transportation Contractors,
including persons who transport
passengers for hire 3% Common Carriers Tax
5. Other domestic carriers by land for
transport of passengers, except owners
of animal-drawn two wheeled vehicles 3% Common Carriers
6. Keepers of garages 3% Common Carriers Tax
The percentage tax/common carriers tax

of 3% is based on quarterly gross receipts
TAX RATES
How does one determine the actual gross

receipts of a jeepney or taxi on which to apply
the 3% percentage tax?
The law provides statutory minimum

quarterly gross receipts:

TAX RATES
Quarterly Monthly
Jeepney for hire:
Manila and other cities P 2,400 P 800
Provincial P 1,200 P 400
Public Utility Bus:
Not exceeding 30 passengersP 3,600 P 1,200
Exceeding 30 but not 50 pax P 6,000 P 2,000
Exceeding 50 passengers P 7,200 P 2,400
Taxis:
Manila and other cities P 3,600 P 1,200
Provincial P 2,400 P 800
Car for hire:
With chauffeur P 3,000 P 1,000
Without chauffeur P 1,800 P 600

TAX RATES
COMMON CARRIER BY AIR or SEA
From one point in the Philippines to

another point in the Philippines
Transporting goods or cargoes 12% VAT
Transporting passengers 12% VAT
From one point in the Philippines to a

point outside the Philippines
Transporting goods or cargoes 0% Value Added Tax
Transporting passengers 0% Value Added Tax

TAX RATES
C. INTERNATIONAL CARRIERS
International air carriers and international

shipping carriers doing business in the
Philippines shall pay a tax equivalent to 3% of
their quarterly gross receipts from
shipping outgoing from the Philippines.

TAX RATES
D. FRANCHISE TAX
Franchise is a law. It authorizes a certain person, natural

or juridical persons, to operate a public utility. Certain
franchise grantees are subject to percentage tax and also
known as franchise tax .
However, there are also other franchise grantees that

shall be subject to the value added tax.

TAX RATES
FRANCHISE TAX IS:
On Gross Receipts covered by the law granting the

franchise;
1. for radio and/or television broadcasting

companieswhose annual gross receipts of the
preceding year did not exceed P10,000,000.00 3%
2. on gas and water utilities 2%

TAX RATES
F. Tax ON BANKS AND NON-BANK FINANCIAL

INTERMEDIARIES PERFORMING QUASI-BANKING
FUNCTIONS.
TAX BASE:
Gross receipts from sources WITHIN the Philippines.

TAX RATES
Note:
On radio and/ or television broadcasting company
whose annual gross receipts of the preceding year
exceeded P 10,000,000 shall be subject to the
value added tax.
However, those whose gross receipts did not

exceed P10,000,000.00 may opt to be registered
under the value added tax system. But once the
option is exercised, (as a VAT registered) the option
is IRREVOCABLE.

TAX RATES
E. OVERSEAS COMMUNICATIONS TAX
AMOUNTS RECEIVED FOR OVERSEAS

DISPATCH MESSAGE OR CONVERSATION
ORIGINATING FROM THE PHILIPPINES (outgoing
message) SHALL BE SUBJECTED TO A PERCENTAGE
TAX KNOWN AS THE OVERSEAS COMMUNICATIONS
TAX.
Tax Base – on the amount paid by the user to the

provider of the communication facility.
Tax Rate- 10% of the amount paid.

TAX RATES

FUNCTIONS.
TAX BASE:

TAX RATES
But, the overseas communications tax shall
not apply to :
1. Government
2. Diplomatic Services
3. International Organization
4. News services

TAX RATES

FUNCTIONS.
TAX BASE:

TAX RATES

FUNCTIONS.
TAX BASE:

TAX RATES
FUNCTIONS.
TAX RATES:
1.On interest, commissions and discounts from lending

activities as well as income from financial leasing on the
basis of the remaining maturities of instruments from which
such receipts were derived:
Maturity period is five years or less 5%
Maturity period is more than five years 1%

TAX RATES
FUNCTIONS.
TAX RATES:
2. On dividends and equity shares in net income

subsidiaries 0%
3. On royalties, rentals of property, real or personal, profits
from exchange and all other items treated as gross
income under the income tax law and on net trading
gains on foreign currency, debt instruments, derivatives
and other similar financial instruments 7%
TAX RATES
G. Tax ON OTHER NON-BANK FINANCIAL INTERMEDIARIES
TAX BASE:
TAX RATES:
1.On interest, commissions and discounts from lending
activities as well as income from financial leasing on the
basis of the remaining maturities of instruments from which
such receipts were derived:
Maturity period is five years or less 5%
Maturity period is more than five years 1%
2. On interest, commissions, discounts and all other items
treated as gross income under the income tax law. 5%
TAX RATES
H. Tax ON INSURANCE COMPANIES.
Insurance companies may be divided into two classes:

A.Non-life insurance companies; and
B.Life insurance companies.
Note: NON-LIFE INSURANCE COMPANIES ARE

SUBJECT TO THE VALUE ADDED TAX.
LIFE INSURANCE COMPANIES ARE SUBJECT

TO A PERCENTAGE TAX, called PREMIUM TAX.
TAX RATES
H. Tax ON INSURANCE COMPANIES.
Tax Base: Total life insurance premiums collected

(gross receipts), whether in money, notes,
credits, or any substitute for money;
Tax Rate: Five percent (5%)

TAX RATES
Exemptions:
1. Premiums refunded within six (6) months after

payment on account of rejection of risk or returned
for other reasons to a person insured;
2. Reinsurance premiums paid by a company that has
already paid a tax;
3. Premiums collected or received by any branch of a
domestic corporation, firm or association doing
business in the Philippines on account of any
life insurance of an insured who is a non
resident , if any tax on such premiums is imposed by
the foreign country where the branch is established;
TAX RATES
Exemptions:
4. Reinsurance premiums, if the insured of personal

insurance resides outside the Philippines, if ay tax
on such premium is imposed by the foreign country
where the original has been issued or perfected.
5. Portion of the premiums collected or received by
insurance companies on variable contracts in
excess of the amount necessary to insure the
lives of variable contract owners.

TAX RATES
I. Tax ON AGENTS OF FOREIGN INSURANCE
COMPANIES.
Every fire, marine or miscellaneous insurance agent

authorized under the Insurance Code to procure
insurance as he may have previously been authorized
to transact on risks located in the Philippines, for those
companies not authorize to transact business in the
Philippines, SHALL PAY A TAX EQUAL TO TWICE THE
TAX IMPOSED ON LIFE INSURANCE COMPANIES-
hence, ten percent (10%).
TAX RATES
I. Tax ON AGENTS OF FOREIGN INSURANCE
COMPANIES.
BUT, An owner of property can obtain

directly for himself policies in foreign
companies but he must report to the Insurance
Commissioner and to the Commissioner of
Internal Revenue such case, and pay a tax of
five percent (5%) on premiums paid.

TAX RATES
J. AMUSEMENT TAX
Amusement Tax on admissions to theaters,

cinematographs, concert halls, circuses and other
places of amusement is a local tax.
The Tax Base of amusement tax is the

GROSS RECEIPTS of the proprietor, lessee or
operator of the amusement place. It includes
income from television, radio and motion picture
rights, if any.

TAX RATES
Amusement Places NOT ALL ARE SUBJECT TO THE

AMUSEMENT TAXES.
Amusement Activities- NOT ALL ARE SUBJECT TO
AMUSEMENT TAXES.
Amusement Places subject to percentage tax called

amusement tax:
Place for boxing exhibition 10%

Place for professional basketball 15%
Cockpits, cabarets, night or day clubs 18%
Jai-alai and race tracks 30%

TAX RATES
J. AMUSEMENT TAX
Exemption:
Boxing exhibitions where World or Oriental

Championships in any division is at stake shall
be exempt from amusement tax, IF ONE OF THE
CONTENDERS is a citizen of the Philippines and
said exhibitions are promoted by citizens of the
Philippines or a by a corporation or association at
least sixty percent (60%) of the capital of which is
owned by such citizens.
TAX RATES
K. TAX ON WINNINGS.
The tax is on winnings of:
1. person who wins in horse races and jai-alai. Tax must
be based on his WINNINGS . 10%
But if winnings is from double,
forecast, quinella and trifecta bets 4%
2. Owner of winning race horses,

based on the prize. 10%
Note: The tax shall be withheld from the

winnings or prize by the operator, manager, or
person in charge of the horse races or jai alai.
TAX RATES
L. TAX ON STOCK TRANSACTIONS
On sale, barter, exchange or other disposition of

shares listed and traded thru a local stock
exchange, other than by a dealer in securities:
½ of 1 percent based on the gross selling price

or gross value in money of the shares
sold.

TAX RATES
L.TAX ON STOCK TRANSACTIONS
On sale, barter, exchange or other disposition of shares thru

initial public offering of shares of stock in a closely held
corporation, in accordance with the proportion of the
shares sold, bartered, exchanged, or otherwise disposed of
to the total outstanding shares of stock after listing in the
local stock exchange, as follows:
Up to 25% 4%
Over 25%, but not over 33 and 1/3% 2%
Over 33-1/3% 1%

TAX RATES
RETURN AND PAYMENT OF PERCENTAGE TAXES
The taxpayer may file a separate return for each branch or

place of business, or a consolidated return for all.
As a general rule:
Every person liable to pay a percentage tax shall file a
quarterly return of the amount of his gross receipts and
pay the tax thereon, within twenty five (25) days after the
end of each taxable month.
Exceptions:
When the BIR Commissioner may, by rules and regulations,
prescribe the time for filing the returns.
A national internal revenue tax to which only:
•Manufacturers; or
•Importers
may be subjected to excise tax.

TWO (2) KINDS OF EXCISE TAXES
SPECIFIC
AD VALOREM
TAX
TAX
an excise tax imposed
an excise tax imposed
and based on weight
and based on selling
or volume or capacity
price or other specified
or any other physical
value of the article.
unit of measurement.
PURPOSES OF EXCISE TAX
•To curtail consumption of certain commodities which
are considered harmful to the individual as well as the
community as a whole;
•To protect domestic industries from competition caused by similar imported

products;
•To distribute the tax burden in proportion to benefit

derived from a particular government service;
•To raise revenue.

ARTICLES SUBJECT TO EXCISE TAX
TOBACCO
PRODUCTS
PETROLEUM
PRODUCTS
ARTICLES SUBJECT TO EXCISE TAX
AUTOMOBILES
NON-ESSENTIAL
GOODS
Alcohol Products-Distilled Spirits
Distilled Spirits
substance known as ethyl alcohol and ethanol

including all dilutions, purification and mixtures
thereof, from whatever source, by whatever
process produced, and shall include whisky,
brandy, rum, gin and vodka and other similar
products or mixtures.

Retail Price – it is the amount of money or prices which
an ultimate consumer or end user pays for the product.
If the Retail Price: Excise Tax would be:

Less than P250 per 750 ml. P 75 per proof liter
P250 to P675 per 750 ml. P 150 per proof liter
More than P675 per 750 ml. P 300 per proof liter
How to determine Proof Liter:

1 liter = 1,000 ml
Percent of proof = degree of proof per 100%
Proof liter = percent of proof liter x volume in
liter
But, if the alcohol products is produced from sap of nipa,

coconut, cassava, camote, buri palm or from juice or syrup
of sugar cane, the excise tax would be as follows:
Excise Tax
Small-scale production
(not more than 100 liters/day) P 4 per proof liter
Commercial production
(more than 100 liters/day) P 8 per proof liter

Alcohol Products-Wines
Wines
alcoholic beverages produced by fermentation

without distillation from juice of any kind of fruit.

Alcohol Products-Wines
Retail Price /Liter Tax per Liter
(exclusive of VAT & Excise Tax)
•Sparkling wine/Champagne, regardless of proof liter:
P500 and less P 100
More than P500 P 300
•Wine containing 14% alcohol or less P 12

•Wine containing more than 14% alcohol but not
more than 25% alcohol by volume P 24
•Fortified wines produced by mixture of distilled

spirits with water and other substance such
as flavoring extracts and coloring materials
in such portion that the resultant mixture contains Same manner
more than 25% of alcohol by volume as in distilled
spirits.
Alcohol Products-Fermented Liquors
Fermented liquors
alcoholic beverages produced by fermentation without

distillation of grains or malt, which include beer, lager, ale
porter and other similar products but excluding tuba, basi,
tapoy and other similar domestic fermented liquor.
Retail Price /Liter Tax per Liter

(exclusive of VAT & Excise Tax)
Less than P 14.50 P 6.15
P 14.50 up to P 22.00 P 9.15
More than P 22.00 P 12.15
Tobacco Products
1. P 0.75/KILO of the following tobacco products:
•Tobacco twisted by hand or reduced into a condition to be

consumed in any manner other than the ordinary mode of
drying and curing;
•Tobacco prepared or partially prepared with or without the

use of any machine or instrument or without being pressed or
sweetened;
•Fine-cut shorts and refuse, scraps, clippings, cuttings, stems

and sweepings of tobacco.
Tobacco Products
2. P 0.60/KILO of tobacco specially prepared

for chewing and not suitable for use in any other
manner;
3. P 1.00 per piece on cigar (cigar means all rolls of tobacco

or any substitute thereof, wrapped in leaf tobacco)
4. P0.40 per pack on cigarettes packed by hand (cigarette

means all rolls of finely cut leaf tobacco or any substitute
thereof, wrapped in paper or in any other similar materials).
Tobacco Products
5. Cigarette packed by machine:
Retail price/pack Excise Tax per pack

(excluding VAT & Excise Tax)
Below P 5.00 P 1.00

P5.00 to P6.50 P 5.00
Over P6.50 but not over P10 P 8.00

Over 10 P12.00

Petroleum Products
1. P 4.50/LITER of volume or P4.50/KILO of

lubricating oil and greases.
2. P 0.05/LITER on processed gas
3. P 3.50/KILO on waxes and petroleum
4. P0.05/LITER on denatured alcohol used for or
motive power.
5. P4.50/LITER on Naptha, regular gasoline and
other similar products of distillation.
6. P5.35/LITER on leaded premium gasoline
Petroleum Products
7. P3.67/LITER on aviation turbo jet fuel

8. P0.60/LITER on kerosene
9. P1.63/LITER of diesel fuel oil
10. ZERO on liquefied petroleum gas
11. P.056/KILO of asphalt
12. P.030/LITER of bunker fuel oil-But if other
petroleum product will be produce from the
banker oil, the excise which have been levied
shall be credited with excise taxes paid in the
produced petroleum products.
Mineral Products
1. P10 per metric ton on coal and coke;
2. On all non metallic minerals and quarry resources – 2% based
on actual market value of gross output thereof at the
time of removal.
3. On all metallic minerals –based on actual market value of
the gross output at the time of removal thereof; for:
- Copper and other metallic resources minerals:
1% on the 1st 3 years of effectivity of RA 7729
1 ½% on the 4th and 5th year
2% on the 6th year and thereafter
- Gold and Chromite – 2%
- On indigenous petroleum- 3% on the fair
international market price on the first taxable
sale, barter, exchange or such similar
transaction.
AUTOMOBILES
TAX BASE
1. If locally manufactured or if imported for re-sale

domestically, the tax base shall be the manufacturer
or importer’s selling price net of excise and value
added tax.
2. If the importation is not intended for re-sale domestically,

the tax base shall be the total value used by the
Bureau of customs in determining tariff and custom
duties, including custom duty and all other charges,
plus 10% of the total thereof.

AUTOMOBILES
TAX RATE
Engine Displacement in cubic centimeter:
Gasoline Driven Diesel Driven Tax Rate
Up to 1600cc Up to 1800 cc 15%

1601 to 2000cc 1801 to 2300cc 35%
2001 to 2700cc 2301 to 3000cc 50%
2701cc and over 3001cc or over 100%

Non-ESSENTIAL GOODS
Non essential goods include the following:
All goods commonly or commercially known as

Jewelry, whether real or imitation, pearls,
precious and semi-precious stoned and
imitations thereof;
Perfumes and toilet waters;
Yachts and other vessels intended for pleasure or

sports.
Non-ESSENTIAL GOODS
EXCISE TAX BASE and RATE
20% of the wholesale price or the value of

importation used by the Bureau of Customs in
determining the tariff and custom duties, net
of excise tax and value added tax.

PLACE and TIME FOR FILING OF RETURN and
PAYMENT OF TAX
Return shall be filed and Excise tax shall be paid:
•By the manufacturer or producer before

removal of the products from the place of
production. A separate return for each place of
production shall be filed by every liable person.
PAYMENT OF TAX
•By the importer before removal of the

importation from the custom warehouse to be
paid to the Custom Officers under the
regulation of the Department of Finance.

PAYMENT OF TAX
With respect to the excise tax on locally produced

or extracted metallic mineral or mineral products,
the person liable shall file a return and pay the tax
within 15 days after the end of the calendar quarter
when such products were removed subject to such
conditions as may be prescribed by rules and
regulations to be promulgated by the Secretary of
Finance upon recommendation of the BIR.
PAYMENT OF TAX
The return shall be filed with and the tax paid

to any authorized agent bank or Revenue
Collection Officer, or duly authorized City or
Municipal Treasurer in the Philippines.

THANK YOU!!

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Income Taxation

atty. cleo d. sabado-andrada, cpa, mba,llm

It includes the forms of income specifically described as

atty. cleo d. sabado-andrada, cpa, mba,llm

“HONORARIA” no matter how

Source of income is any property, activity or service

atty. cleo d. sabado-andrada, cpa, mba,llm

Earnings, lawfully or unlawfully, acquired without

1. There must be GAIN or PROFIT, whether in cash

There should be an earnings in EXCESS of the capital

that income must be credited to

atty. cleo d. sabado-andrada, cpa, mba,llm

There are some EXCLUSIONS FROM GROSS INCOME,

atty. cleo d. sabado-andrada, cpa, mba,llm

1995 BAR Examination

atty. cleo d. sabado-andrada, cpa, mba,llm

the original investment or

income is the service

atty. cleo d. sabado-andrada, cpa, mba,llm

THEREFORE: NOT SUBJECT TO INCOME

atty. cleo d. sabado-andrada, cpa, mba,llm

presenting his present his

atty. cleo d. sabado-andrada, cpa, mba,llm

refers to the all funds accruing to

atty. cleo d. sabado-andrada, cpa, mba,llm

Revenue pertains to all funds accruing

atty. cleo d. sabado-andrada, cpa, mba,llm

refers to the are considered cash

atty. cleo d. sabado-andrada, cpa, mba,llm

PARTLY WITHIN and PARTLY WITHOUT THE PHILIPPINES

atty. cleo d. sabado-andrada, cpa, mba,llm

A Resident Filipino Citizen or a

General Rule: Exception:

atty. cleo d. sabado-andrada, cpa, mba,llm

RC – Resident Citizens FC-Foreign Corporations

atty. cleo d. sabado-andrada, cpa, mba,llm

Income Tax is an imposition by the

atty. cleo d. sabado-andrada, cpa, mba,llm

In the Philippines, the INCOME TAX in the NIRC is:

National Tax Imposed by the National Government

atty. cleo d. sabado-andrada, cpa, mba,llm

demanded from the person whom

levied for the general purpose of the

atty. cleo d. sabado-andrada, cpa, mba,llm

Ad Valorem levied on value or amount of the

A burden not laid directly upon

It is neither a poll tax nor property

INCOME TAX has been increasingly relied

To provide a large amount of revenue

To remove inequalities in the distribution of income

(Income Tax is levied at progressive rates.)

Republic Act No. 10963

THE Tax reform for acceleration and

atty. cleo d. sabado-andrada, cpa, mba,llm

1996 BAR Examination

atty. cleo d. sabado-andrada, cpa, mba,llm

NET INCOME TAXATION

PAY AS YOU FILE SYSTEM

atty. cleo d. sabado-andrada, cpa, mba

Substituted Filing of Income Tax

atty. cleo d. sabado-andrada, cpa, mba,llm

F Provides for different tax rules

atty. cleo d. sabado-andrada, cpa, mba,llm