INSTRUCTIONAL MATERIALS - BUSINESS TAX - 1ST SEM AY 2020 2021 Revised2 1 PDF

Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY & FINANCE Taxation 2: LML / VGL / GSJ
VS
INSTRUCTIONAL MATERIALS
for
ACCO 20173: BUSINESS TAX
(Presents the Old and New Tax Code of the Philippines)
COMPILED BY:
DEAN LILIAN M. LITONJUA

PROF. VIRGILIO G. LITONJUA
PROF. GENO C. SAN JOSE
NEVER GIVE UP COZ TIME PASSES ANYWAY
1
INTRODUCTION:
On this module, we will discuss the transfer taxes and business taxes levied and collected
by the National Government thru the BIR or Bureau of Internal Revenues. Transfer taxes in the
Philippines imposed by BIR are donor’s tax and estate tax. As the name suggests, transfer taxes
are impositions on the transfer of property from the owner to a buyer, beneficiary, donee or
transferee or heirs. Donor's Tax is a tax on a donation or gift and is imposed on the gratuitous
transfer of property between two or more persons who are living at the time of the transfer. An
estate tax is levied upon the transfer of the net estate of a decedent to his heirs. Estate Tax is a
tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and
beneficiaries at the time of death and on certain transfers, which are made by law as equivalent
to testamentary disposition. It is not a tax on property.
The estate-tax return, if required, shall be filed within one year from the decedent’s death.
Meanwhile, a donor’s tax is imposed upon the transfer of a property by way of a gift. A donor’s
tax may also be imposed if the property, other than real property classified as capital assets, is
transferred for less than an adequate and full consideration of money’s worth. In this case, there
shall be a deemed gift that is subject to donor’s tax. The donor’s tax return, if required, shall be
filed within 30 days from the date the gift is made. Both estate and donor’s taxes due shall be
paid at the time the return is filed. With regards to this two types of transfers, whether thru gift or
donation or transfer thru succession upon person’s death, the property shall not be transferred to
the done or heirs / transferee until there is a proper filing of donor’s / estate tax returns and
payment of the tax due. Thus, both taxes must be paid first, because evidence of payment of
these taxes is required by the Register of Deed before issuing a transfer certificate of title if real
property is involved.
On the second part, these modules will also discuss the business taxes imposed by the
National Government thru BIR to businesses namely: Other Percentage Taxes (OPT), Value
Added Tax (VAT) and Excise Tax. VAT applies to all sales of goods and services in the ordinary
conduct of trade or business or profession, and those which are incidental thereto. Other
Percentage Tax is a business tax that is regulated in the Philippines which is imposed on
individuals or businesses that sell/lease goods and services with annual gross receipts or sales
of not exceeding P 3,000,000. Excise taxes are internal taxes that are levied on the sale of specific
goods and services, such as alcohol, fuel and tobacco. An excise tax is an indirect tax that is not
paid by the customers directly — instead, the excise tax is imposed and paid by the supplier or
the producer, who then includes it in the product price. In general, a person or business shall be
subject to either VAT or OPT but not on both business taxes except in some circumstances /
exceptions. But a person or business may be subject to VAT or OPT plus excise taxes. For
instance, a producer of liquor is subject to VAT and the same time, liable to pay Value Added Tax.
Filing and payment of business taxes to BIR is required as mandated by the Tax Code, otherwise,
those persons / businesses who failed to comply shall be subject to penalties / surcharges.
Lastly, these modules are compiled based on the Tax Code of the Philippines or from the
NIRC (National Internal Revenue Code). NIRC is the law that governs the imposition of national
internal revenue taxes in the Philippines. On January 1, 2018, TRAIN Law was enacted and
became effective resulting to some amendments in our Tax Code. Thus, these modules will
present the Old and New Tax Code of the Philippines.
2
REPUBLIC OF THE PHILIPPINES

OFFICE OF THE VICE PRESIDENT FOR ACADEMIC AFFAIR
COLLEGE OF ACCOUNTANCY AND FINANCE
OBE COURSE SYLLABUS AND LEARNING PLAN

COURSE TITLE : BUSINESS TAX
COURSE CODE : ACCO 20173
COURSE CREDITS : THREE (3) UNITS
COURSE PRE-REQUISITES : ACCO 20133: INCOME TAXATION
Effectivity : Starting SY 2019-2020
COURSE DESCRIPTIONS: This subject covers the knowledge of the concepts, principles, laws, rules and procedures
associated with transfer taxes (donor’s tax, estate tax), business taxes (percentage tax, value-added tax, excise tax, documentary
stamp tax, local taxes and other relevant business taxes) for individuals, partnerships and corporations. Understanding of the new tax
laws, rules and provisions of the TRAIN ACT (Tax Reform for Acceleration & Inclusion) per RA No. 10963, known as the NIRC of 2017,
effective in the year 2018 and thereafter.
This syllabus focuses on key tax topics, along with readings of cases studies, and primary source materials (Transfer &
Business Tax Textbook and Tax Practice Set) and providing time for departmental mid-term assessment /exam and departmental final
assessment /exam.
Students must be able to do the theoretical and practical applications of said concepts, principles, laws, rules and the procedures
related to transfer and business taxation. This subject, likewise, is primarily concerned with the: general principle of taxation, tax
remedies of the government and of the taxpayers. Bureau of Internal Revenue organizations, powers and functions, classifications of
and taxation for various transfer and business taxpayers, and their compliance with the BIR rules and regulations on matters and
procedures in filing tax returns and payments of taxes due.
3
Institutional Learning Outcomes Programs Outcomes Course Outcomes
1. Creative and Critical Thinking 1. Resolve business issues and problems Upon completion of the course, the
2. Effective Communication with a global and strategic perspective, using students are expected to know the:
3. Strong Service Orientation knowledge and technical proficiency in the areas of 1. Transfer and business taxation
4. Passion to Life-Long Learning transfer and business taxation. provisions of the New NIRC of 2017 also known
5. Sense of Personal and Professional 2. Conduct accountancy research through as the TRAIN ACT per RA 10963, effective in
Ethics independent studies of relevant literature and year 2018 and thereafter
6. Patriotic, Sense of Nationalism and appropriate use of principles and concepts of 2. Pertinent and relevant BIR revenue
Global Responsiveness transfer & business taxation, accounting theory and regulations, circulars, rulings and tax advisory
7. Community Engagement methodologies. on transfer and business taxation in year 2018
8. Adeptness in the Responsible Use of 3. Demonstrate working knowledge in the onwards
Technology areas of financial accounting, reporting, cost 3. Pertinent transfer and business taxes
9. High Level of Leadership and accounting, management accounting, taxation, principles in the decisions of the Court
Organizational Skills auditing, accounting information system and of Tax Appeal and the Supreme Court
accounting research. 4. Preferential business taxation,
4. Demonstrate self-confidence in taxation exemptions, provisions pertaining to:
performing functions as a professional tax a. Senior citizens
accountant. b. Persons with disability
5. Employ technology as a business tool in c. Board of Investments
capturing financial and non-financial information, d. Special Economic Zone Act
preparing reports and making decisions. d. Barangay Micro-Business Ent.
6. Apply acquired knowledge and skills to e. Omnibus investment Act
pass the CPA professional licensure exam and 5. Compliance requirements with the
others. various transfer and business taxation
7. Confidently maintain a commitment to measures, which includes: computations of
good corporate, business, social and professional transfer and business tax liabilities,
responsibility and ethical practice in performing accomplishing the tax returns and forms,
functions as tax accountants. availment of business tax incentives, benefits,
8. Appraise ethical problems and issues in submission of business tax regulatory and
practical business, accounting and taxation registration requirements and dealing with the
situations and recommend appropriate course of various offices involved in transfer and business
actions that adheres to the personal and taxation
professional code of ethics.
4
6. Effective communication matters and
procedures pertaining to transfer and business
taxation work to be handled
7. Knowledge and competencies of an
entry-level accountant who can address the
fundamental requirements of the various parties
that he will be personally and professionally
inter-acting in the future
DETAILED COURSE LEARNING PLAN:
Weeks
Meets, Topics Learning Outcomes Methodologies Resources Assessments
Hours
1. Knowledge and compliance 1.. take class
Week Orientation with the rules and regulations of the attendance 1. PUP CAF Observations,
Meet Day /Agenda PUP and the CAF. 2. see course BUSINESS
No. 2. Discuss and inculcate in certificate of TAX Syllabus questions and
01, 1. students’ minds, their free – education registration answers,
3 Introduction of the benefits, objectives, obligations, tasks, 3. give tax 2 PUP
hours subject, major topics, attendance, attitude, behavior inside & syllabus Student Handbook Individually and
sub-topics and outside the classroom, and other 4.. encourage class group,
relevant matters issues. students to read the
2. Class 3. Outline the taxation subject, student handbook
Objectives major and sub-topics, other relevant 5. encourage
3. Obligations matters in learning-process the students to buy
and tasks of teachers tax textbook and tax
and students practice set
4. Students 5. assigned
Do’s and Dont’s for next meet;
Study,
understand topics in
Chapters 1, 2,
5
After the students self-reading 1. take class Textbook/ quizzes,

Week Topics in and self-understanding these attendance, and Reference Book seat works
Meet Chapter I. tax topics at home and after the vital collect homework, Phil. Laws recitations
No. 02 General related teachers class lectures, 2. teacher on Transfer and questions and
3 Principles of Taxation discussions and illustrations, the classroom lecture, Business Taxes answers
hours BIR Org. Powers, students should be able to know and discuss illustrations 2019, as amended board works
Functions comprehend these tax topics; on tax topics, by Republic Act home works,
3. conduct 10963
1. Principles of 1. Inherent powers of short exercise, by; Virgilio
Taxation government recitations, questions and Lilian Litonjua
2. Tax Remedies 2. Limitations on the power of & answer
3. BIR Powers, taxation, situs /place of taxation, in Chapters 1, References
Functions, 3. Principles of Sound Tax 2, NIRC of
4. BIR Commissioner system 4. discuss
2017 as amended
Powers, 4. Nature, scope, classifications answer to questions by RA 10963
Functions essential characteristics of in chapters assigned BIR
taxes, 5. assignedRevenue
4. Enumerations, definitions, for next meet: Regulations,
features, characteristics of taxes. answer theory BIR
5.Tax evasion, vs tax question for
Rulings, Circulars,
avoidance, double taxation, submission, BIR Tax
AND
6. Legislation of tax laws, recitation, quiz,
Advisory,
7. Tax remedies of the seatwork in Tax books
government and taxpayers classroom by other authors
8. Org. Powers, Functions, of
BIR Study, Practice Set
a. Primary Officials of the BIR understand topics in Phil. Transfer and
b. Powers, Functions of the BIR Chapter 3 Business Taxes
c. Powers, Functions of the BIR 2019
Commissioner
______________________ ,
Topics in 1. Changes to Donors taxation
Chapter 2 by the Train Act, per RA 10963
6
General 2. Administrative Provisions on
Impositions of Gift Taxation;
Donors Persons required to file donor’s
Taxation tax returns, place and time to file
donors tax returns and pay donors
1. Changes to taxes, other
Donors taxation by requirements to taxpayers
the Train Act, per RA 3. Fundamental Concepts on
10963 Gift Taxation;
2. Basic tax information, various
Administrative definitions, classifications, and enumerations
Provisions of items.
3. 4. Practical Provisions on
Fundamental Gift Taxation;
Concepts Interpret, discuss, illustrate
on Donors use formula, tax rate, applications,
Taxation compliance with the laws, rules
4. Practical on gift tax, problem solving
Provisions
on Donors
Taxation
Topics in After the students self-reading 1. take class Textbook/ quizzes,
Week Chapter 3 and self-understanding these attendance, and Reference Book seat works
Meet Taxable Gifts tax topics at home and after the vital collect homework, Phil. Laws recitations
No. 03 for Donors related teachers classroom lectures, 2. teacher on Transfer and questions and
3 discussions and illustrations, the classroom lecture, Business Taxes answers
hours 1. Donors Tax Laws, students should be able to know and discuss illustrations on 2019, as amended board works
Rules For comprehend these tax topics; tax topics, by Republic Act home works,
Various Donors 1. Laws, rules on Taxable Gift, 3. conduct 10963
2. Donors Tax Laws, For; RCD, RAD, NRCD,, short exercise, by; Virgilio accomplish
Rules ; 2. Laws, rules on Taxable Gift, recitations, questions and Lilian Litonjua forms for Donors tax
for unmarried donors, For; NRAD, & answer of the Practice
for Married couple 3. Unmarried Donors, in Chapters 3, References Set on Transfer and
donors 4. Married couple donors, Business Taxes 2019
5. 1st donations in the year,
7
3. Formulas /Formats 6. subsequent donations in the 4. discuss NIRC of
of Donors same year answer to questions in 2017 as amended
Tax Returns 7. Formulas, Formats of donors chapters assigned by RA 10963
tax returns 5. assigned for BIR
68 Computations of the gift next meet: Revenue
taxes due, answer theory Regulations,
question for BIR
submission, Rulings, Circulars,
recitation, quiz, BIR Tax
seatwork in classroom Advisory,
Tax books
Study, by other authors
Chapter 4, 5 Practice
Set Phil. Transfer
and Business
Taxes 2019

Week Chapter 4, and self-understanding these attendance, and Reference Book seat works
Meet Classification of Tax tax topics at home and after the vital collect homework, Phil. Laws recitations
No. Items of Donors related teachers 2. teacher on Transfer and questions and
04, classroom lectures, classroom lecture, Business Taxes answers
3 1. Classification of discussions and illustrations, the discuss, illustrations 2019, as amended board works
hours Gifts, students should be able to know and on topics, by Republic Act home works,
2. Classification of comprehend these tax topics; 3. conduct 10963
Deductions 1. Classifications of Gift; short exercise, by; Virgilio accomplish
3. Classification of Gift , Gross Gift, Net Gift, recitations, questions and Lilian Litonjua forms for Donors tax
Donors Tax Actual Gift, & answer of the Practice
Transactions Deemed Gift, in Chapters 4, References Set on Transfer and
Transactions Deemed Estate 5, NIRC of Business Taxes 2019
Donations Inter-Vivos and 2017 as amended
AND Donations Mortis-Causa, by RA 10963
8
Exempt Gift, Taxable Gift 4. discuss BIR
answer to questions Revenue
2. Classifications of Charges in chapters assigned Regulations,
and Deduction; 5. assigned BIR
Deduction on actual gift for next meet: Rulings, Circulars,
Deduction on exempt gifts, answer theory BIR Tax
Deduction on taxable gifts, question for Advisory,
Deduction on transactions submission, Tax books
deemed gifts, recitation, quiz, by other authors
Deductions on donations seatwork in
inter- vivos classroom Practice Set
3. Classifications of donors tax Phil. Transfer and
Donors tax due before tax Business Taxes
credits, Study, 2019
Doors tax creditable understand topics in
Donors tax due /payable after Chapter 6, 7, ,
tax credit
_____________________
1. Components of Donors tax

credits
Topics in Chapter 5 a. Gift Tax in prior net gift.
Donors Tax Credit b. Gift tax in original donors tax
and Donors Tax return filed,
Returns c. Donors tax abroad
2. Donors tax credits for RCD,
1. Component of Tax RAD, NRCD,
Credit, 3. Donors tax credits for NRAD
Limitations on Gift 4. Donors tax returns, formulas
Tax Credit, for various donors - filers,
2. Donors Tax Return RCD, RAD, NRCD, NRAD
Variations of Gift Tax in first donations and, in
Returns Subsequent donations
9
Week Chapter 6, and self-understanding these attendance, and Reference Book seat works
Meet Gross Gifts tax topics at home and after the vital collect homework, Phil. Laws recitations
No. 05 related teachers classroom lectures, 2. teacher on Transfer and questions and
3 1. Exclusions discussions and illustrations, the classroom lecture, Business Taxes answers
hours of items from the students should be able to know and discuss, illustrations 2019, as amended board works
Gross Gift comprehend these tax topics; on tax topics, by Republic Act home works,
2. Inclusions 3. conduct 10963
of items in the Gross 1. Exclusions from Gross Gift, short exercise, by; Virgilio accomplish
Gift a. Donations, Mortis causa recitations, questions and Lilian Litonjua forms for Donors tax
3. Component b. Other property transfers & answer of the Practice
of Gross Gift /donations subject to estate tax in Chapters 6, References Set on Transfer and
.Determination, c. Property transfers, gifts, 7, NIRC of Business Taxes 2019
Valuations donations not covered by donors tax; 4. discuss 2017 as amended
2. Inclusions in Gross Gifts; answer to questions by RA 10963
a. Donation inter-vivos, in chapters assigned BIR
AND transactions deemed gifts, 5. assigned Revenue
c. Exempt gifts or taxable gifts for next meet: Regulations,
3. composition of Gross Gifts; answer theory BIR
Property gifts, donations, question for Rulings, Circulars,
contributions, of real and submission, BIR Tax
personal property, tangible and recitation, quiz, Advisory,
intangible property, whether made in seatwork in Tax books
Topics in trust or otherwise, whether made classroom by other authors
Chapter 7 directly or indirectly,
Allowed 4. Valuations of property gifts, Study, Practice Set
Deduction donation, contributions understand topics in Phil. Transfer and
_____________________ Chapter 8, 9, Business Taxes
1. Exclusions 2019
of items from the
allowed deduction 1. Exclusions of items /non- ,
2. Inclusions declared items from the allowed
of items in the allowed deduction
deduction a. Liabilities, charges on
donations, gifts, subject to estate tax
10
3. b. Other Liability, charges on
Components of gifts, donations not covered by donors
Deduction, tax
Determination, c. Encumbrance and
Requisites diminutions on gifts if not assumed by
donees.
2. Inclusions of items /
declarable items in the allowed
deduction
a. Liabilities, charges on
Donation inter-vivos
b. Liabilities and charges on
Actual gifts or transactions deemed
gifts,
c. Liabilities and charges on
Exempt gifts or taxable gifts
3. Components of the Allowed
Deduction
a. Exempt Gifts per NIRC,
b. Exempt Gifts per various
Special Laws
c. Encumbrance on Gift
assumed by donee
d. Diminutions on Gift complied
by donee
4. Accomplishments of the
BIR Donors Tax Returns and
Forms
Topics in Chapter 8, After the students self-reading 1. take class Textbook/ quizzes,
Week Gen. Imposition of and self-understanding these attendance, and Reference Book seat works
Meet Estate Tax tax topics at home and after the vital collect homework, Phil. Laws recitations
No. 06 related teacher’s classroom lectures, 2. teacher on Transfer and questions and
3 1. Amendments to discussions and illustrations, the classroom lecture, Business Taxes answers
hours Estate Tax by TRAIN students should be able to know and Discuss, illustrations 2019, as amended board works
ACT, per RA 10963 comprehend these tax topics; on tax topics, home works,
11
2. Administrative 1. Amendments to estate 3. conduct by Republic Act
Provisions on Estate taxation by the Train Act, short exercise, 10963 accomplish
Taxation 2. Administrative Provisions; recitations, questions by; Virgilio forms for Estate Tax
3 Fundamental Persons Required to File Estate & answer and Lilian Litonjua of the Practice
Concepts on Tax Returns, Place and time to file in Chapters 8, Set on Transfer and
Estate Taxation Estate Tax Returns and Pay 9, References Business Taxes 2019
4. Practical estate Taxes, other 4. discuss NIRC of
Provisions on requirements of taxpayers answer to questions 2017 as amended
Estate Taxation 3. Fundamental Concepts; in chapters assigned by RA 10963
Basic tax information, various 5. assigned BIR
AND definitions, classifications, enumerationsforofnext meet: Revenue
items. answer theory Regulations,
Topics in Chapter 9, 5. Practical Provision on estate question for BIR
Taxable Estate of taxation; submission, Rulings, Circulars,
Decedents Interpret, discuss, illustrate, recitation,
use quiz, BIR Tax
formulas, tax rates, problem- seatwork in Advisory,
1. Laws solving, applications in complianceclassroom Tax books
/Rules on Estate, with the laws /rules on estate by other authors
Taxes taxation for decedents. Study,
for Various __________________ understand topics in Practice Set
Decedents /Estates 1.Laws, rules on Taxable Estate Chapter 10, 11, Phil. Transfer and
2. Laws For RCD, RAD, NRCD, Business Taxes
/Rules on Estate,
2. Laws, rules on taxable estate 2019
Taxes for NRAD.,
for unmarried 3. Taxable estate for ,
decedent,
Unmarried Decedent,
for married and Married Decedent,
decedent 4. Various Formulas, Formats,
3. Various RCD, RAD, NRCD, NRAD,
Formulas /Formats 5. Determination of estate taxes
on Estate Tax
Returns
12
Week Topics in /Chapter and self-understanding these attendance, and Reference Book seat works
Meet 10. tax topics at home and after the collect homework, Phil. Laws recitations
No. 07 Classification of Tax vital related teacher’s classroom 2. teacher on Transfer and questions and
3 Items of Decedents lectures, discussions and illustrations, classroom lecture, Business Taxes answers
hours students should be discuss, illustrations 2019, as amended board works
1. Classification of able to know and comprehend on tax topics, by Republic Act homeworks,
Estate, these tax topics; 3. conduct 10963
2. Classification of 1. Classifications of Estate; short exercise, by; Virgilio accomplish
Deduction Estate, Gross Estate, Net Estate recitations, questions and Lilian Litonjua forms for Estate Tax
3. Classification of Exempt Estate, Taxable Estate, & answer of the Practice
Estate Tax Assets Still Owned on Death, in Chapters References Set on Transfer and
Assets Deemed Owned on Death,10,11, NIRC of Business Taxes 2019
AND 4. discuss 2017 as amended
2. Classifications of Deduction; answer to questions by RA 10963
Topics in Chapter 11
Deduction on Taxable Estate, in chapters assigned BIR
Estate Tax Credits
Deduction on Assets Deemed 5. assigned Revenue
1. Component of Owned on Death, for next meet: Regulations,
Estate Tax Credit, Deduction on Asset Still Owned answer theory BIR
determination, on Death, question for Rulings, Circulars,
2. Estate Tax Return submission, BIR Tax
Variations of Estate 4. Classifications of estate tax; recitation, quiz, Advisory,
Tax Returns Estate tax due before tax credit seatwork in Tax books
Estate tax creditable, classroom by other authors
Estate tax due /payable after
tax credit Study, Practice Set
_________________________ understand topics in Phil. Transfer and
Chapter 12, Business Taxes
1. Estate Tax Credits 2019
a. Estate tax in original estate
tax return filed, ,
b. Estate tax abroad, limits
2. Estate tax credits for;
RCD, RAD, NRCD
3. Estate tax credit for NRAD
13
4. Estate Tax Returns,
Standard Estate Tax Return;
Other formulas formats
Week Topics in Chapter 12. After the students self-reading 1. take class Textbook/ quizzes,
Meet Gross Estate and self-understanding these attendance, and Reference Book seat works
No. 08 tax topics at home and after the vital collect homework, Phil. Laws recitations
3 1. Exclusions related teacher’s classroom lectures, 2. teacher on Transfer and questions and
hours of items from the discussions and illustrations, the classroom lecture, Business Taxes answers
Gross Estate students should be able to know and discuss, illustrations 2019, as amended board works
2. Inclusions comprehend these tax topics; on tax topics, by Republic Act homework’s,
of items in the Gross 1. Meanings of estate, 3. conduct 10963
Estate gross estate, net estate short exercise, by; Virgilio accomplish
3. Component 4. Gross Estate, World, for recitations, questions and Lilian Litonjua forms for Estate Tax
of Gross Estate RCD, RAD, NRCD, & answer of the Practice
Determination, 5. Gross Estate, Phil. in Chapters 12 References Set on Transfer and
Valuation Only for NRAD, 4. discuss NIRC of Business Taxes 2019
4 Regimes Between 6. Excluded from gross estate answer to questions 2017 as amended
Spouse 7. Included in the gross estate: in chapters assigned by RA 10963
8. Components of Gross Estate 5. assigned BIR
a. Decedents Interest in assets for next meet: Revenue
(assets still owned) answer theory Regulations,
b. Property transfers during question for BIR
lifetime, taxable in estate tax, submission, Rulings, Circulars,
(Assets deemed owned) recitation, quiz, BIR Tax
c. Life Insurance proceeds seatwork in Advisory,
d. Real property, classroom Tax books
personal property, by other authors
tangible property and intangible Study,
property, understand topics in Practice Set
8. Valuations of assets in the Chapter 13 Phil. Transfer and
gross estate
14
9. Regimes between Spouses; Business Taxes
a. Conjugal Partnership of 2019
Gains, (CPOG)
b. Absolute Community of ,
Property (ACOP)
Topics n and self-understanding these attendance, and Reference Book seat works
Week /Chapter 13, tax topics at home and after the vital collect homework, Phil. Laws recitations
Meet Allowed related teachers classroom lectures, 2. teacher on Transfer and questions and
No. 09 Deduction . discussions and illustrations, the classroom lecture, Business Taxes answers
3 students should be able to know and discuss, illustrations 2019, as amended board works
hours 1. Exclusions comprehend these tax topics; on tax topics, by Republic Act home works,
of items from the 3. conduct 10963
allowed Allowed Deduction short exercise, by; Virgilio accomplish
deduction 1. Exclusions from the allowed recitations, questions and Lilian Litonjua forms for Estate Tax
2. Inclusions deduction & answer of the Practice
of items in the allowed 2. Inclusions in the allowed in Chapters References Set on Transfer and
deduction deduction 13, NIRC of Business Taxes 2019
3. Allowed 3. Allowed Deduction for 4. discuss 2017 as amended
Deduction RCD, RAD, NRCD answer to questions by RA 10963
Components, 4. Allowed Deduction for NRAD in chapters assigned BIR
Determination 5. Components of Allowed 5. assigned Revenue
4. Regimes between Deduction; for next meet: Regulations,
Spouses a. Ordinary Deductions answer theory BIR
Expenses, losses, question for Rulings, Circulars,
indebtedness, taxes, submission, BIR Tax
Property Transfers Public Use, recitation, quiz, Advisory,
Vanishing Deduction, seatwork in Tax books
Amount Receive by Heirs classroom by other authors
from Decedent employer, Read,
b. Special Deduction; understand, in pencil Practice Set
Family Home Allowance, accomplish practice Phil. Transfer and
Standard Deduction, set part 1: Business Taxes
c. Share of spouse in NCE Transfer 2019
6. Regimes between Spouses; Taxation,
15
a. Conjugal Partnership of to discuss ,
Gains, (CPOG) /confirm correct
b. Absolute Community of procedures and
Property (ACOP) solutions later
7. Accomplishments of the in classroom.
BIR Estate Tax Returns and
Forms Study,
Chapter 14, 15,
Departmental Mid-Term Exam

Transfer Taxes
Week Topics in After the students self-reading 1. take class Textbook/ quizzes,
Meet Chapter 14 and self-understanding these attendance, and Reference Book seat works
No. 10 General tax topics at home and after the vital collect homework, Phil. Laws recitations
3 Imposition of related teachers classroom lectures, 2. teacher on Transfer and questions and
hours Percentage Taxes discussions and illustrations, the classroom lecture, Business Taxes answers
students should be able to know and discuss, illustrations 2019, as amended board works
1. Changes comprehend these tax topics; on tax topics, by Republic Act home works,
/Amendments to 1. Amendments to percentage 3. conduct 10963
Percentage Taxation taxes by the Train Act short exercise, by; Virgilio accomplish
by the TRAIN ACT, 2. Basic Concepts on recitations, questions and Lilian Litonjua forms on Percentage
per RA 10963 percentage taxes & answer Taxes
2. Administrative 3. Administrative Provisions; in Chapters References of the Practice
Provisions on Persons Required to File 14, 15, NIRC of Set on Transfer and
Percentage Taxes percentage Tax Returns, 4. discuss 2017 as amended Business Taxes 2019,
3 Fundamental Place of filing Tax Returns and answer to questions by RA 10963
Concepts on Pay percentage taxes other in chapters assigned BIR
Percentage Taxes requirements of taxpayers 5. assigned Revenue
4. Practical 4. Fundamental Concepts for next meet: Regulations,
Provisions on Basic tax information on answer theory BIR
Percentage Taxes various definitions, classification,
question for Rulings, Circulars,
enumeration of items. submission,
16
5. Practical Provisions; recitation, quiz, BIR Tax
Interpret, discuss, illustrate, seatwork
use in Advisory,
formulas, tax rates, problem- classroom Tax books
AND solving, applications in by other authors
compliance with the laws /rules Study,
on percentagen taxes understand topics in Practice Set
Topics in 6. NVRP Taxpayers Chapter 16, 17, Phil. Transfer and
Chapter 15 Sec. 116, NVRPs Exempt from Business Taxes
Taxable Sales of Vat in Sec. 109 BB 2019
Non-Vat Registered Sec. 117, NVRP Domestic
Persons, Part One; Land ,
Common Carrier& Keepers of
1, Laws, rules Garages,
on Percentage Taxes Sec. 118, NVRP International
for NVRPs In NIRC ; Common Carriers
Secs. 116 to Sec.119. NVRP Franchise
Secs. 121 Grantees
Sec. 120. Overseas
communicators from Philippines to
abroad
Sec. 121. NVRP Banks, and
Non-Bank Financial Intermediaries
,
Week After the students self-reading 1. take class Textbook/ quizzes,

Meet Topics in and self-understanding these attendance, and Reference Book seat works
No. 11 Chapter 16, tax topics at home and after the vital collect homework, Phil. Laws recitations
3 Taxable Sales of related teachers classroom lectures, 2. teacher on Transfer and questions and
hours Non-Vat Registered discussions and illustrations, the class lecture, discuss, Business Taxes answers
Persons, Part Two students should be able to know and illustrations on tax 2019, as amended board works
comprehend these tax topics; topics, by Republic Act home works,
1. NVRP Taxpayers under 3. conduct 10963
1, Laws, Sec. 122, NVRP Other Non- short exercise, by; Virgilio accomplish
Rules on Percentage Bank Financial Intermediaries recitations, questions and Lilian Litonjua forms on Percentage
Taxes For NVRPs In & answer Taxes
17
NIRC; Secs. 122 to Sec. 123. NVRP Life Insurance in Chapters References of the Practice
Secs. 127 Companies, 16, 17, NIRC of Set on Transfer and
Sec. 124. NVRP Agent of a 4. discuss 2017 as amended Business Taxes 2019,
AND non-resident Foreign Insurance answer to questions by RA 10963
Company Abroad, in chapters assigned BIR
Topics in Sec. 125. NVRP Amusement 5. assigned Revenue
Chapter 17 Places, for next meet: Regulations,
Percentage Sec. 126. Winners /Winnings in answer theory BIR
Tax Credits and Tax Horse Races, Jai-a-Lai question for Rulings, Circulars,
Returns for NVRPs: Sec. 127. Sellers, Transferors submission, BIR Tax
of listed Shares of Stocks, thru the local recitation, quiz, Advisory,
1. Laws, stock exchange, IPO, and SPO. seatwork in Tax books
Rules on Percentage classroom by other authors
Tax Credits 2. Percentage Tax Credits,
2. Withholding Components of percentage tax Study, Practice Set
Percentage Tax credits, withholding tax rates, understand topics in Phil. Transfer and
Rates determination Chapters 18, 19, Business Taxes
3. 3. Percentage tax Returns 2019
Determination, various formulas /formats
Formulas 3. Accomplishments of the ,
4. Percentage BIR Percentage Tax Returns
Tax Returns and Forms
Variations of
formulas /formats
Meet Chapter 18, and self-understanding these attendance, and Reference Book seat works
No. 12 General Imposition of tax topics at home and after the vital collect homework, Phil. Laws recitations
3 Value related teacher classroom lectures, 2. teacher on Transfer and questions and
hours Added Taxes: discussions and illustrations, the classroom lecture, Business Taxes answers
1. Changes to VAT comprehend these tax topics; on tax topics, by Republic Act home works,
Taxation by the 1. Amendments to Value Added 3. conduct 10963
Taxes by the Train Act, short exercise,
18
TRAIN ACT, RA 2. Basic Concepts on Value recitations, questions by; Virgilio accomplish
10963 Added Taxes & answer and Lilian Litonjua forms on Value Added
2. Administrative 3. Administrative Provisions; in Chapters Tax
Provisions on VAT Persons Required to File Vat 18, 19, References of the Practice
Taxes Tax Returns, 4. discuss NIRC of Set on Transfer and
3 Fundamental Place of filing Vat Tax Returns answer to questions 2017 as amended Business Taxes 2019,
Concepts on and Pay Value Added Taxes, other in chapters assigned by RA 10963
VAT Taxes requirements of Vat taxpayers 5. assigned BIR
4. Practical 4. Fundamental Concepts for next meet: Revenue
Provisions on Basic tax information on answer theory Regulations,
VAT Taxes various definitions, classification,
question for BIR
enumeration of items. submission, Rulings, Circulars,
5. Practical Provision; recitation, quiz, BIR Tax
AND Interpret, discuss, illustrate, seatwork
use in Advisory,
formulas, tax rates, problem-solving, classroom Tax books
Topics in applications in compliance with
by other authors
Chapter 19 the laws /rules on Vat. Study,
Classifications 6. VRP Taxpayers; understand topics in Practice Set
of Sales and
Sec. 106. VRP Seller of Goods Chapter 20, Phil. Transfer and
Transactions
Sec. 107. Vat on Importation of Business Taxes
Goods 2019
Sec.108. VRP Seller of Service
,
7. Classifications of Sales
/Transactions
1. Exempt Sales /Transactions
2. Zero Rated Sales
/transaction
3. Taxable /Vatable Sales and
Transactions
4. Gross Sales or Net Sales
5. Vat inclusive Sales
/transactions, or
6. Vat Exclusive Sales
/Transactions
19
Meet Chapter 20 and self-understanding these attendance, and Reference Book seat works
No. 13 Taxable Sales tax topics at home and after the vital collect homework, Phil. Laws recitations
3 /Transactions of related teachers classroom lectures, 2. teacher on Transfer and questions and
hours Vat- discussions and illustrations, the classroom lecture, Business Taxes answers
Registered Persons students should be able to know and discuss, illustrations 2019, as amended board works
comprehend these tax topics; on tax topics, by Republic Act home works,
Laws, rules Sec. 106. Seller of Goods 3. conduct 10963
procedures, Output Tax/Vat on Sales, short exercise, by; Virgilio accomplish
formulas on Input Tax/Vat on Purchases recitations, questions and Lilian Litonjua forms on Value Added
VAT Taxes for; Other Vat Credits & answer Tax
Sec. 106, Vat Payable, in Chapters References of Practice Set
VRP Seller of Goods Excess Vat Credit 20, NIRC of on Transfer and
Sec. 107 Sec. 107. Importer of goods 4. discuss 2017 as amended Business Taxes 2019,
Importers of Goods from Abroad answer to questions by RA 10963
Sec. 108 VRP Input Tax / Vat on Landed Cost in chapters assigned BIR
Seller of Services Sec, 108. Seller of Services 5. assigned Revenue
Output Tax/ Vat on Sales, for next meet: Regulations,
Input Tax/ Vat on Purchases answer theory BIR
Other Vat Credits question for Rulings, Circulars,
Vat Payable, submission, BIR Tax
Excess Vat Credit recitation, quiz, Advisory,
Methods of computing Vat; seatwork in Tax books
1. Tax exclusive basis classroom by other authors
2. Tax inclusive basis
Allocation of unidentified Study, Practice Set
untraceable input tax understand topics in Phil. Transfer and
1. Non-creditable input tax Chapter 21, 22, Business Taxes
2. Creditable input tax. 2019
20
Meet Chapter 21. and self-understanding these attendance, and Reference Book seat works
No. 14 Sec, 107. Vat tax topics at home and after the vital collect homework, Phil. Laws recitations
3 on Importers of goods related teachers classroom lectures, 2. teacher on Transfer and questions and
hours from Abroad discussions and illustrations, the classroom lecture, Business Taxes answers
1. Input Tax /Vat on purchases 3. conduct 10963
And of goods from broad; short exercise, by; Virgilio accomplish
2. Landed cost at 12%= Input recitations, questions and Lilian Litonjua forms on Value Added
Tax /Vat & answer Tax
Topics in 3. Components of Landed Cost in Chapters References of Practice Set
Chapter 22. 4. Components of Dutiable 21, 22, NIRC of on Transfer and
Value Added Value 4. discuss 2017 as amended Business Taxes 2019,
Tax 5. components of Customs answer to questions by RA 10963
Duty in chapters assigned BIR
1. Vat Credits 6. Components of Other Import 5. assigned Revenue
charges and expense for next meet: Regulations,
2. Vat Returns answer theory BIR
_________________________ question for Rulings, Circulars,
submission, BIR Tax
1. Components of Vat Credits recitation, quiz, Advisory,
a. Input tax on local purchasesseatwork in Tax books
b. Input tax on importations classroom by other authors
c. Transitional input tax
d. Presumptive Input tax Study, Practice Set
e. Advanced Vat payment understand topics in Phil. Transfer and
f. Withholding Vat Payment Chapters 23, 24, Business Taxes
g. Output Tax /Vat paid in prior 2019
1st and 2nd months
2. Various Vat declarations ,
/returns
3. Accomplishments of the
BIR Vat Tax Returns and Forms
21
Week After the students self-reading 1. take class Textbook/ quizzes,
Meet Topics in and self-understanding these attendance, and Reference Book seat works
No. Chapter 23. tax topics at home and after the vital collect homework, Phil. Laws recitations
15, Excise Taxes related teachers classroom lectures, 2. teacher on Transfer and questions and
3 discussions and illustrations, the classroom lecture, Business Taxes answers
hours students should be able to know and discuss, illustrations 2019, as amended board works
AND 3. conduct 10963
Describe, Analyze and short exercise, by; Virgilio accomplishment
Topics in Compute Excise Taxes; recitations, questions and Lilian Litonjua of Practice Set
Chapter 24. 1. Concept, Applicability, & answer on Transfer and
Documentary 2. Classifications of Excisable in Chapters References Business Taxes 2019,
Stamp Taxes materials and tax rates. 23, 24, NIRC of Train Act
3. Specific tax, Ad-valorem Tax, 4. discuss 2017 as amended by Virgilio and
4. Coverage and Time of answer to questions by RA 10963 Lilian Litonjua
Payment in chapters assigned BIR
5. assigned Revenue Departmental
for next meet: Regulations, Final Exam
Describe, Analyze and answer theory BIR
Compute Documentary Stamp Tax; question for Rulings, Circulars,
submission, BIR Tax
1, DST on Shares of Stocks, recitation, quiz, Advisory,
Sales, Debt Instruments, and seatwork in Tax books
Deed of Sales, classroom by other authors
2. Definitions,
3. Coverage and Exemptions Study, Practice Set
4. Tax Bases and Tax rates understand topics in Phil. Transfer and
5. Time and manner of Chapter 25, Business Taxes
payments 2019
22
Week Topics in After the students self-reading 1. . take class quizzes,
Meet Chapter 25. and self-understanding these attendance, and seat works
No. Local tax topics at home and after the vital collect homework, recitations
16, Government Code related teachers classroom lectures, 2. teacher questions and
3 Taxes discussions and illustrations, the classroom lecture, Local answers
hours students should be able to know and discuss, illustrations Government Code board works
comprehend these tax topics; on tax topics, of the home works,
3. conduct Philippines
Describe, Analyze and short exercise, accomplishment
Compute local government taxes; recitations, questions Various of Practice Set
& answer local government on Transfer and
1. Scopes and different types of in Chapters 25 Book by various Business Taxes 2019,
local taxes on; 4. discuss city, municipality in Train Act
a. Real property taxes answer to questions the Philippines by Virgilio and
b. Local business taxes in chapters assigned Lilian Litonjua
2. Tax bases and tax rates 5. assigned
3. Venue and time of filing of for next meet: Departmental
tax returns answer theory Final Exam
4. Venue and time of payment question for
submission,
recitation, quiz,
seatwork in
classroom
Study,
Chapter 26,
Week Topic: Accomplishment and 1. take class Textbook/

Meet Practice Set on submission of practice set on attendance, and Reference Book Submssion of
No. Transfer and Practice Set on Transfer and collect homework, Phil. Laws the requirements and
17, Business Taxes, Business Taxes, Train Act, 2. teacher on Transfer and the Accomplished
3 Train Act, per RA 10963, in 2019, classroom lecture, Business Taxes Practice Set.
hours per RA 10963, by Virgilio and Lilian Litonjua discuss, illustrations, 2019, as amended
in 2019,
23
by Virgilio and 1. Tax teacher conducts a three 3. discuss by Republic Act
Lilian Litonjua (3) hours classroom session to guide analyses, procedures, 10963
students in needed analyses and answers and by; Virgilio
The Board of solutions to given case problems, solutions to the case and Lilian Litonjua
Accountancy in its processing of applicable BIR tax forms problems in the
prescribed CPA and in the realization of the goals of this practice set. References
Licensure practice set. 4. Finalize, in NIRC of
Examination Syllabus ball pen, accomplish 2017 as amended
in Taxation, effective 2. Students are provided the practice set part 1. by RA 10963
in May 2019 onwards, adequate classroom experiences / Transfer taxes and BIR
mandates that: “hands-on activities” in the matters, part 2. business Revenue
BSA, manners, procedures and rules in the taxes, Regulations,
accountancy needed computations of taxable gross submit your BIR
students, CPA amounts, allowed deductions, taxable practice set next meet Rulings, Circulars,
candidates, must net amount transfer taxes and in the classroom. BIR Tax
have working business taxes due, business tax Advisory,
knowledge to comply credits taxes payable, filling-up and Tax books
with the various filing the various BIR Forms Nos. 1800, by other authors
taxation measures. 1801, 2550M, 2550Q, 2551M, with the
Compliance includes BIR, at the prescribed place and date Practice Set
computations of mandated by law. Phil. Transfer and
taxable amounts and Business Taxes
tax liabilities, 3. Students will be able to do 2019
accomplishing the roles and tasks of tax accountants
various transfer and in giving services to tax clients ,
business tax returns
and BIR tax forms
such as 1800, 1801,
2550M, 2550Q,
2551M.
Topics in After the students self-reading 1. take class

Chapter 26. and self-understanding these attendance, and Preferential quizzes,
Preferential tax topics at home and after the vital collect homework, Taxation Materials seat works
Taxation related teachers classroom lectures, recitations
24
Week discussions and illustrations, the 2. teacher Republic questions and
Meet 1. Senior students should be able to know and classroom lecture, Acts answers
No. Citizen Law comprehend these tax topics; discuss, illustrations board works
18. 2. Magna Preferential Taxation on tax topics, 1. Senior home works,
3 Carta for Disabled 3. conduct Citizen Law
hours Persons 1. Senior Citizen Law short exercises, 2. Magna
3. Special a. Exemptions from income tax recitations, Carta for Disabled
Economic Zone Act of senior citizens questions and Persons
4. Omnibus b. 20% discount on purchases answers 3. Special
Investment Code of goods or services from certain in Chapters 26 Economic Zone Act
(Book I of establishments 4 discuss 4. Omnibus
Executive order 226 c. Exemption from the 12% Vat answers to questions Investment Code
5. Barangay on purchases in chapters assigned (Book I of
Micro Business of goods or services from 5. assigned executive order
Enterprises certain establishments for next meet: 226
6. Double d. Tax incentives for qualified answer theory 5.
Taxation Agreement establishment selling goods, services question for Barangay Micro
to senior citizens submission, Business
recitation, quiz, Enterprises
2. Magna Carta for Disabled seatwork in class 6. Double
Persons 6. Accomplish Taxation
a. Tax incentives for qualified practice set part two: Agreements
establishment selling goods, services Business Taxes and
to disabled persons part One: Transfer
b. 20% discount on purchases Taxes, Submit
of goods or services from certain practice set next meet
establishments
c. Exemption from the 12% Vat 5. Prepare
on purchases very well for the DFE
of goods or services from
certain establishments
3. Special Economic Zone Act
a. Policy and the Philippine
Economic Zone Authority (PEZA)
b. Registration of Investment
25
c. Fiscal Incentives to PEZA
registered economic zone enterprises
4. Omnibus Investment Code
(Book I, Ex order no. 226)
a. Policy and the Board of
Investment (BOI)
b. Preferred Areas on
vestments
c. Investments priority plan
d. Registration of investments
e. Fiscal incentives to BOI
registered enterprises
5. Barangay Micro Business
Enterprises
a. Registrations of BMBEs
b. Fiscal incentives to BMBEs
6. Double Taxation
Agreements
a. Nature and purpose of DTAs
b. Manner of giving relief from
double taxation
c. Procedures for availment of
tax treaty benefits
Departmental Final Exam

Transfer & Business Taxation
26
GRADING SYSTEM:
Students will be evaluated based on homework assignments and examinations. The

homework assignments and exams will be graded on a scale from 28.60% to 100%. Student’s
grade will be divided into two: Midterm Grade (1st Grading period) and Final Grade (2nd grading
period). The Midterm Grade and Final Grade will be based and computed using the following
weights:
Quizzes 50 %
Assignments 20 %
Departmental Exam 30 %
Grades 100 %
!st Grade (Mid-Term Grade) >>> (Midterm Quizzes x 50 %) plus (Midterm Assignments x 20 %)
plus (DMTE x 30 %) equals 100 %
2nd Grade (Final Grade) >>> (Final period Quizzes x 50 %) plus (Final Period Assignments x 20
%) plus (DMTE x 30 %) equals 100 %
The semestral grade will computed as follows: The semestral grade will be equal to the average
of 1st Grading peroiod and 2nd Grading Period
3rd Grade (Semestral Grade) >>> (1st grade plus 2nd grade) / 2 = 100 %
Grades and Equivalents
Grades Equivalents Descriptions Grades Equivalents Descriptions

1.00 97% – 100% Excellent 2.75 76% - 78% Satisfactory
1.25 94% - 96% Excellent 3.00 75% Passing
1.50 91% - 93% Very Good 4.00 70% - 74% Condition
/Failing
1.75 88% - 90% Very Good 5.00 Below 70% Failed
2.00 85% - 87% Good Inc. Incomplete
2.25 82% - 84% Good W Withdrawn
2.50 79% - 81% Satisfactory D Dropped
27
TABLE OF CONTENTS:
Topics Page/s
Introduction 2
Course Syllabus 3-26
Grading System 27
Module 1: Donor’s Tax 31
Lesson 1 – Administrative Provisions and Fundamental Concepts of Donor’s Taxation 33-42

Lesson 2: Taxable Net Gift and Computation of Donor’s Tax Due 43-51
Lesson 3 – Donor’s Tax Credit 52-59
Lesson 4: Laws / Rules on Gross Gift 60-70
Lesson 5: Laws / Rules on Allowed Deductions 71-85
Module 2: Estate Taxation 86-87
Lesson 1: Administrative Provisions and Fundamental Concepts of Estate Taxation 88-98

Lesson 2: Laws on the Taxable Net Estate 99-105
Lesson 3: Estate Tax Credit 106-111
Lesson 4: Laws / Rules on Gross Estate 112-121
Lesson 5: Laws / Rules on Allowed Deductions 122-133
Module 3: Other Percentage Taxes 134-135
Lesson 1: Administrative Provisions and Fundamental Concepts

of Other Percentage Taxes 136-144
Lesson 2: Other Percentage Taxes on Non-VAT registered Taxpayers 145-158
Under NIRC, as amended Section 116,117,118,119,120, 121 and 122
Lesson 3: Other Percentage Taxes on Non-VAT registered Taxpayers
Under NIRC Sections 123, 124, 125, 126 and 127 159-169
Lesson 4: Percentage Tax Credits 170-175
Module 4: Value Added Tax 176-177
Lesson 1: Administrative Provisions and Fundamental Concepts of Value Added Tax 178-191
Lesson 2: Value Added Tax (Output Tax) (Sections 105, 106, 107, 108 and 109 of Tax Code, as
amended) 192-204
Lesson 3: Value Added Tax Credits 205-212
Module 5: Excise Taxes 213-215
References 216
28
COURSE OUTCOMES:
Upon completion of the course, the students will be able to:
1. Understand the provisions of the NIRC (National Internal Revenue Code), as amended
by RA 10963 (TRAIN Law), specifically on Transfer Taxes and Business Taxes.
2. Know how to apply and follow the provisions of NIRC, as amended by RA 10963
(TRAIN Law), specifically on Transfer Taxes and Business Taxes.
3. Compute the Donor’s tax due, Estate tax due, Other Percentage taxes due and value
Added tax payable of a taxpayer.
4. Prepare the Donor’s Tax Return, Estate Tax Return, Monthly/Quarterly VAT and
Percentage Tax Returns.
5. Understand the importance of paying correct taxes to the government
6. Apply Integrity, honesty and competence in the performance of the service as a TAX
consultant.
29
ASSESSMENT / ACTIVITY INSTRUCTIONS:
A. Modified True or False
Kindly write “T” if the statement is correct and “F” if otherwise. If your answer is “F”,
please provide the word/s that make the given statement incorrect. Write your final answers
in the answer sheet at the last page of each activity or assessment.
B. Multiple Choice
Kindly choose the correct answer from the given choices. If there is
no correct answer from the choices, please write “F” in the answer sheet provided at
the last page of each activity / assessment.
C. Problem Solving
Answer the problems based on the given data and write your final answers
in the answer sheet provided in the last page of each activity or assessment. Provide
solutions / computations to support your answer.
NOTE: There will be a deduction of 5 points to those students who will not follow
the above instructions.
30
MODULE 1: DONOR’S TAXATION
OVERVIEW:
SEC. 98. Imposition of Tax. –
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident, of the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.
Donor’s Tax is a tax on a donation or gift and is imposed on the gratuitous transfer of
property between two or more persons who are living at the time of the transfer. It shall apply
whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the
property is real or personal, tangible or intangible.
On this module, we will discuss the fundamental concepts of donation and provisions on
donor’s taxation under the Old and New Tax Code of the Philippines. Provided also in this module
are the procedures for filing and payment of donor’s tax due to BIR which includes the: Date and
place of filing, payment of donor’s tax return, BIR form for donor’s tax and others.
MODULE DURATION:
• September 14-30, 2020 Synchronous Meeting and Asynchronous Learning.

• For asynchronous learning inquiries, you may reach me through messenger
group/personal message.
MODULE OBJECTIVES:
After successful Completion of this module, you should be able to:
1. Be able to know the provisions per Tax Code, as amended, on Donor’s taxation.
2. To understand definition, elements / requisites, classes and prescribed form of Donation.
3. To determine the persons required to file Donor’s Tax return, contents of Donor’s Tax
return and its attachments, date and place of filing, payment of donor tax due and
penalties/surcharge to assessed tax, delinquency and deficiency.
4. Understand and illustrate the provisions of the law that governs imposition of Donor’s Tax.
5. To compute the taxable net gift and the corresponding donor’s tax due based on the Old
Tax Code and New Tax Code.
6. Learn the filing and computation of donor tax for Married Couple.
7. Understand the provision of the law that governs the Donor’s Tax Credit
8. To compute the taxable net gift and the corresponding donor’s tax still due based on the
Old Tax Code and new Tax Code.
31
9. To compute the limitations on Donor’s Tax Credit for donor’s tax paid on foreign country
by a resident or citizen donor.
10. Know the provisions of Tax Code (both the Old and new Tax Code) related to Gross gift
and Allowed deduction to arrive at Taxable Net Gift.
11. Identify the transactions (donations / gift) that are part of Gross gift and Allowed
deductions.
12. Identify transactions that are exempted and excluded from Donor’s tax.
Course Materials:
Under this module, the topic Donor’s Taxation is subdivided into five (5) lessons as follows:
Lesson 1; Administrative Provisions and Fundamental Concepts of Donor’s Taxation
Lesson 2: Laws / Rules on Taxable Net Gift and Computation of Donor’s tax due
Lesson 3: Donor’s Tax Credit and Donor’s Tax Return
Lesson 4: Laws / Rules on Gross Gift
Lesson 5: Laws / Rules on Allowed Deduction from Gross Gift
Watch:
https://www.youtube.com/watch?v=aHoKhXo0spk&t=168s
https://www.slideshare.net/flabert1/05-chapter-6-donors-tax
Read:
Codal Reference:
Republic Act No. 8424 – effective January 1, 1998

Sec. 22 to 27 of the Tax Reform Acceleration and Inclusion Act (TRAIN Law)
Sec. 84 to Sec. 97 of the National Internal Revenue Code (NIRC) of 1997
32
Lesson 1 – Administrative Provisions and Fundamental Concepts of Donor’s Taxation
Overview:
There are two types of donation namely; Donation Inter-vivos and Donation Mortis-causa.
The former is a type of donation that take effect during the lifetime of the donor and thus, subject
to donor’s tax. The latter type is subject to estate tax.
National Internal revenue Code (NIRC) or RA 8424, as amended, is the law governing the
donor’s taxation in the Philippines. The tax code was amended by TRAIN law or RA 10963, thus
resulting to Old and New tax code of the Philippines. The tax code of the Philippines provide
provision on who are required to file donors tax return, procedures on filing, computations of
donors tax due and other provisions related to donor’s taxation.
Module Objectives:
1. Be able to know the provisions per NIRC, as amended, on Donor’s taxation.

2. Define and explain donor’s tax.
3. To understand definition, elements / requisites and prescribed form donation.
4. To know the kinds of Donation and the classes of Donors and Donee.
5. Enumerate the classification and purpose of Donor’s taxation.
6. To determine the persons required to file Donor’s Tax return, contents of Donor’s Tax
return and its attachments, date and place of filing, payment of donor tax due and
penalties/surcharge to assessed tax, delinquency and deficiency.
Course Materials:
Donor’s tax refers to a transfer tax imposed upon persons exercising his right to
transmit his property, during his lifetime, to another person without considerations or gratuitously.
Donor’s tax is not a property tax, but it is a tax imposed on the right to transfer
property by way of gift inter vivo. The donor’s tax shall not apply unless and until there is a
competed gift. The transfer of property by gift is perfected from the moment the donor knows of
the acceptance of done. It is completed by the delivery, either actually or constructively, of the
donated property to the done.
33
Thus, the law in force at the time of perfection / completion of the donation shall govern the
imposition of donor’s tax.
Kinds of Donation as to Tax Liability:

1. Donation Inter vivos: refers to gift made and intended by donor to take effect during
his lifetime. This gift is subject to donor’s tax.
2. Donation Mortis causa: refers to gifts made during lifetime of donor but is intended by
donor to take effect upon his death. This property transfer partakes the nature of
testamentary disposition and is governed by law on succession; hence this property is
subject to estate tax.
Requisites of Valid Donation:
1. Donative intent of donor.

2. Capacity or authority of donor
3. Delivery of donated property
4. Acceptance of Donee
5. Donation is in prescribed forms
Prescribed Forms:
1.Donation of personal property- if value of property is more than P 5,000 then donation and
acceptance must be in writing; otherwise, the donation and acceptance may be made orally.
2. Donation of real property- It must be in writing and in a public document.
Classification of Donor’s tax:

1.Excise tax
2.Ad valorem tax
3.Direct tax
4. national tax
5. Transfer tax
6. Personal tax
7. Graduated tax or Progressive tax (before TRAIN law)
Purpose of Donor’s Tax:
1. To complement the estate tax by preventing the tax free depletion of donor’s estate
during his lifetime.
2. To raise revenue in order to support the government by funding the cost of its
operations.
34
Codal of Donor’s Tax (NIRC)
DONOR'S TAX
SEC. 98. Imposition of Tax. -
(A) There shall be levied, assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct
or indirect, and whether the property is real or personal, tangible or intangible.
SEC. 103. Filing of Return and Payment of Tax. -
(A) Requirements. - any individual who makes any transfer by gift (except those which,
under Section 101, are exempt from the tax provided for in this Chapter) shall, for the purpose of
the said tax, make a return under oath in duplicate. The return shall set forth:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made pursuant
to law.
(B) Time and Place of Filing and Payment - The return of the donor required in this Section
shall be filed within thirty (30) days after the date the gift is made and the tax due thereon shall
be paid at the time of filing. Except in cases where the Commissioner otherwise permits, the return
shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue
Collection Officer or duly authorized Treasurer of the city or municipality where the donor was
domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the
Office of the Commissioner. In the case of gifts made by a nonresident, the return may be filed
with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the
transfer, or directly with the Office of the Commissioner.
PROCEDURES
Who Shall File
The Donor’s Tax Return (BIR Form No. 1800) shall be filed in triplicate by any person,
natural or juridical, resident or non-resident, who transfers or causes to transfer property by gift,
whether in trust or otherwise, whether the gift is direct or indirect and whether the property is real
or personal, tangible or intangible.
35
Taxpayers who are filing BIR Form no. 1800 are excluded in the mandatory coverage from
using the eBlRForms (Section 2 of RR No. 9-2016).
When and Where to File and Pay
The Donor’s Tax Return (BIR Form No. 1800) shall be filed within thirty (30) days after the
date the gift (donation) is made.
The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District
Office having jurisdiction over the place of domicile of the donor at the time of the donation, or if
there is no legal residence in the Philippines, with the Office of the Commissioner of Internal
Revenue, (Revenue District Office No. 39, South Quezon City). In case of gifts made by a non-
resident alien, the return may be filed with RDO No. 39, or with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of donation.
A separate return shall be filed by each donor for each gift (donation) made on different
dates during the year reflecting therein any previous net gifts made in the same calendar year.
Only one return shall be filed for several gifts (donations) by a donor to the different donees on
the same date.
If the gift (donation) involves conjugal/community property, each spouse shall file separate
return corresponding to his/her respective share in the conjugal/community property
donated. This rule shall likewise apply in the case of co-ownership over the property being
donated.
When the return is filed with an AAB, taxpayer must accomplish and submit BIR-
prescribed deposit slip, which the bank teller shall machine validate as evidence that payment
was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received”
on the return and also machine validate the return as proof of filing the return and payment of the
tax by the taxpayer, respectively. The machine validation shall reflect the date of payment, amount
paid and transactions code, the name of the bank, branch code, teller’s code and teller’s initial.
Bank debit memo number and date should be indicated in the return for taxpayers paying under
the bank debit system.
Payments may also be made thru the epayment channels of AABs thru either their online
facility, credit/debit/prepaid cards, and mobile payments.
For transactions covered by one (1) Deed of Sale/Exchange/Donation involving one (1) to
three (3) properties, the taxpayer can avail of the fast lane pursuant to Revenue Memorandum
Circular (RMC) No. 43-2018, as amended by RMC No. 107-2018. Payments amounting to twenty
thousand pesos (P 20,000.00) and below shall be paid in cash while payments above twenty
thousand pesos (P 20,000.00) shall be made through Manager’s Check or Cashier’s Check to
the Revenue Collection Officer of the RDO concerned.
The time of filing and payment vary depending on the law applicable at the time of
donation.
36
Tax Form
BIR Form 1800 – Donor’s Tax Return
Donor’s Tax Return
Description
This return shall be filed in triplicate by any person, natural or juridical, resident or non-
resident, who transfers or causes to transfer property by gift, whether in trust or otherwise,
whether the gift is direct or indirect and whether the property is real or personal, tangible or
intangible.
Contents of Donors tax return:
• Each gift made during the calendar year which is to be included in computing the net gifts
• The deductions claimed and allowable
• Any previous net gift made during the calendar year.
• The name of Donee
• Relationship of donor and one
• Such further information required by rules and regulations made pursuant to law.
Filing Date
The return shall be filed within thirty (30) days after the gift (donation) is made. A separate
return is filed for each gift (donation) made on different dates during the year reflecting therein
any previous net gifts made in the same calendar year. Only one return shall be filed for several
gifts (donations) by the donor to the different donees on the same date. If the gift (donation)
involves conjugal/community property, each spouse shall file separate return corresponding to
his/her respective share in the conjugal/community property. This shall likewise apply in the case
of co-ownership over the property being donated.
Documentary Requirements
Mandatory Requirements [additional two (2) photocopies of each document]:
1. Duly Notarized Original Deed of Donation;

2. Taxpayer Identification Number (TIN) of Donor and Donee/s;
3. Proof of claimed tax credit, if applicable;
4. Validated return and Original Official Receipt/Deposit Slip as proof of payment; for no
payment return, copy of Acknowledgment Receipt of return filed thru eBlRForms;
5. Duly Notarized Original Special Power of Attorney (SPA) for the transacting party if the
person signing is not one of the parties to the Deed of Donation;
For Real Properties [additional two (2) photocopies of each document]:
6. Certified True Copy/ies of the Original/Transfer/Condominium Certificate/s of Title (front and

back pages) of the donated property, if applicable;
7. Certified True Copy/ies of the Tax Declaration at the time or nearest to the date of the
37
transaction issued by the Local Assessor’s Office for land and improvement, if applicable;
8. Certification of No Improvement issued by the Assessor’s Office, if applicable;
For Personal Properties [additional two (2) photocopies of each document]:
9. Proof of valuation of shares of stock at the time of donation, if applicable;
a. For shares of stocks not listed/not traded - Latest Audited Financial Statement of the issuing
corporation with computation of the book value per share
b. For shares of stocks listed/traded - Price index from the Philippine Stock Exchange
(PSE)/latest Fair Market Value (FMV) published in the newspaper at the time of transaction
c. For club shares - Price published in newspapers on the transaction date or nearest to the
transaction date
10. Stock certificate;

11. Proof of valuation of other types of personal properties, if applicable;
12. Proof of claimed deductions, if applicable;
13. Certificate of deposit/investment/indebtedness/stocks for donated cash or securities;
14. Certificate of registration of motor vehicle, if any;
Other Additional Requirements, if applicable [additional two (2) photocopies of each

document]:
• Duly Notarized Original Special Power of Attorney (SPA), if the person
transacting/processing the transfer is not a party to the transaction
• Certification from the Philippine Consulate if document is executed abroad
• Location Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be
readily determined from the documents submitted
• Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or
his authorized representative, if tax exempt
• Such other documents as may be required by law/rulings/regulations/etc.
Penalty / Additions to the Basic Assessed tax or Deficiency tax

1.Surcharge of 25% in cases of:
a. Failure to file any tax return and pay the tax due on the required date as prescribed
b. Unless otherwise authorized by BIR Commissioner, filing a tax return with internal revenue
officer other than those whom the return is required to be filed.
c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment and demand.
d. Failure to pay the full or part of amount of tax shown on nay tax return required to be filed.
2.Surcharge of 50% in cases of;

a. In case of willful neglect to file tax return within the period prescribed by law and regulations.
b. In case of false or fraudulent tax return is willfully made.
38
3. Interest of 20% per annum (Old tax law) / 12% per annum under the NEW tax Code.
Illustration:
Computations to determine the penalties / additions to tax:
Case 1; In 2016; Correct tax due is P 150,000 while the Payment of tax made is P 100,000 only.
The unpaid tax is overdue for 3 months. Assuming there is no fraud nor willful neglect to file and
pay the correct tax due.
Delinquent tax is 50,000 (150,000 less 100,000)
Surcharge is 25% of P 50,000 or 12,500*
Interest** is 20% of 50,000 for 3 months OR 2,500 (50,000x .2 x 3/12)
Total amount due per BIR demand will be: 65,000 (50,000+ 12,500+2,500)
*Use 50% surcharge when there is fraud or willful neglect to file and pay the tax due.
**Use 12% rate per annum starting Jan 1, 2018 and so on.
Watch:
Activities/Assessments
Name:_________________________________ Score:_________
Section:______________
True or False (1 point each)
_______1. In general, any person except corporations who makes a gratuitous transfer of his right
or property by way of donation is not required by law to file notice of donation.
_______2. Donor engaged in business shall give notice of donation to RDO which has jurisdiction
over his business within 30 days after receipt of qualified donee-institution's duly issued certificate
of donation in order for that donor to be exempt from donor's tax and claim full deduction of the
donation. The donee-institution shall be accredited by Philippine Council for NGO Certification
Inc. and donation shall be worth at least P 50,000.
_______3. Non resident alien not engaged in business in the Philippines donated property worth
P 15,000 located in USA to a resident citizen of Philippines; thus, the donation is subject to donors
tax per NIRC.
_______4. Corporation and partnership who made donations in the Philippines are not required
to file donor tax return because those are properties already subjected to income tax.
_______5. If gift involves conjugal or community property, the spouse shall file one tax return to
be filed in BIR for a calendar year.
_______6. Under RA 8424, the provision for granting of extension for filing of donor tax return
was abolished effective Jan 1998 and thereafter.
39
_______7. Donor's Tax return shall be filed with an authorized agent bank of RDO having
jurisdiction over the place of domicile / residence of the donor at time of donation. In case the
donor has no legal residence, the return may be filed to Office of BIR Commissioner (RDO 39
South QC).
_______8. Under RA 8424, the provision for granting of extension for payment of donor tax return
was abolished effective Jan 1998 and thereafter.
_______9. As mandated by law, donor taxpayer are required to file donor s tax return, and shall
hire accountants for computations of their gross gift and donor tax due based on the donor's tax
law.
_______10. There shall be imposed, in addition to the tax required to be paid, a penalty of 50%
of amount due in case of willful neglect to file tax return within the prescribed by law and
regulations or in case of false or fraudulent tax return.
________11. There shall be assessed and collected on any unpaid amount of tax interest at rate
of 20% per annum or such higher rate as may prescribed by rules and regulations from the date
prescribed for payment until the amount is fully pad.
________12. Donation Mortis-Causa is subject to donors tax.
________13. Property gifts in Phil and abroad are included in gross gift in computation of donor
tax due if the donor is a Non resident citizen.
________14. Donations in form of services such as labor and skills, are covered by Donor s tax
and shall be included in tax return based on the fair value of the services donated.
_________15. If there are different gifts made by donor within the calendar year or in several
calendar years, computation of donor tax is based upon the entire gift, on cumulative basis, over
a period of one calendar year.
Multiple Choice: Encircle the correct answer based on the given choices. Erasures are not
allowed.
1. Keisha, donor, is engaged in business located in San Mateo. The company donated property
worth P 60,000 to a duly accredited donee-institution located in Marikina. The donee is accredited
by PCNC and stated that not more than 30% of such donations are used for administrative
purposes. Where will Keisha file a Notice of Donation?
a. RDO of San Mateo b. RDO of Marikina c. Commissioner of Marikina d. No need to file a
notice of donation.
2. Donor tax return to be filed in BIR shall include the following except:
a. Name of donee
b. Any previous gift made during the same fiscal year.
c. Gift or donations made during the current calendar year.
d. Such further information required by law
3. Donor Tax return filed with BIR shall have the following attachments except:
a. Proof of claimed tax credit, if applicable
b. Certified true copy of original / Transfer of Condominium Certificate of title of donated proeprty,
if applicable
40
c. Proof of valuation of shares of stock at time of filing of donors tax return to BIR, if applicable
d. Copy of the tax debit memo used as payment, if applicable.
e. None of the above
4. Keisha, a non resident citizen, living in Canada, donated properties worth P 10,000 that is
located in USA to Pululu (Donee) , resident citizen . Where will Keisha file the Donor's tax return?
a. BIR Commissioner b. Philippine Embassy in Canada
c. Philippine embassy in USA d. a or b
e. No need to file Donor's tax return
5. Keisha, has no legal residence / domicile in the Philippines, donated properties worth P 10,000
that is located in USA to Pululu (Donee) , resident citizen . Where will Keisha file the Donor's tax
return?
a. BIR Commissioner b. Revenue District Officer in Phil
c. Philippine embassy in USA d. a or b
e. No need to file Donor's tax return
6. Donor's tax return originally filed maybe amended within ____ years from prescribed date
provided that no notice for audit an examination has been actually served to taxpayer.
a. 5 years b. 1 year c. 2 years d. 3 years
7. Keisha, living in San Mateo, donated properties to Pululu, resident of Marikina worth P 20,000.
Keisha hired the services of Gon, a lawyer with principal office in Manila, for the preparation /
acknowledgment of documents regarding donation of Keisha to Pululu. Question: Gon shall
furnish copies of such documents and information obtained to RDO of:
a. Manila b. San Mateo c. Marikina
d. No need to furnish the RDO of copies of those documents / information as they are not required.
8. The surcharge of 25% of the amount due shall be paid the taxpayer in the following cases
except:
a. Failure to pay the full or part of the amount of tax shown on any tax return required to be filed,
or the full amount of tax due for which no tax return is required to be filed on or before the date
prescribed for its payment.
b. Failure to file any tax return and pay the tax due thereon as required on the date prescribed.
c. Filing of tax return with an internal revenue officer , as authorized by BIR Commissioner, other
than those with whom the return is required to be filed.
d. Failure to pay deficiency tax within the time prescribed for its payment in the notice of
9. Refers to transfer tax imposed upon person exercising his right to transmit his property, during
his lifetime, to another gratuitously or for without considerations.
a. Estate tax b. Donee's tax c. Transfer tax d. Contributor's tax
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10. Donor's tax is a

a. Property tax b. Local tax c. Indirect tax d. Personal tax
11. When is the transfer of property by way of gift / donation perfected?

a. From the time the donor notified the donee for his intent to donate
b. From the moment the donee knows the donation from donor
c. From the time the donor knows of the acceptance of donee
d. From the time the property is delivered to donee
12. Which of the following is incorrect?

a. The purpose of donors tax is to complement the estate tax by preventing the tax-free depletion
of donors estate during his life time.
b. Renunciation of surviving spouse of her share in conjugal partnership after dissolution of
marriage in favor of her heirs of the deceased spouse is subject to donors tax.
c. Renunciation of inheritance by heirs in favor of anther heir is not subject to donor's tax.
d. All are correct
13. Donation of an immovable thing shall be in ______________ to be valid.

a. Private document b. Verbal agreement c. Public document d. In writing
14. The requisites of valid donation are as follows except:

a. Intent of donee in donation b. Capacity or authority of donor to donate
c. Delivery of donated property d. Acceptance by donee
15. Which of the following statement/s is incorrect?

a. Donation of personal property worth P 5,000 may be made orally.
b. Donation of personal property worth P 5,001 must be in writing
c. Donation of real property must be in public document
d. All are correct
Answer Sheet
1 6 11
2 7 12
3 8 13
4 9 14
5 10 15
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Lesson 2: Taxable Net Gift and Computation of Donor’s Tax Due
Overview:
On this module, it will discuss the donor’s tax rates to be used in the computation of
donor’s tax due under the Old and New Tax code, the computation of donor’s tax due according
to type or class of donors and done, and the donors taxation for married couple.
Module Objectives:
7. Understand the provision of the law that governs imposition of Donor’s Tax.
8. To learn and apply the amendments in the Old Tax code due to enactment of TRAIN law,
amending the Philippine Tax Code.
9. To compute the taxable net gift and the corresponding donor’s tax due based on the Old
Tax Code and new Tax Code.
10. Understand the Situs of Taxation of Donor’s tax.
11. Learn the filing and computation of donor tax for Married Couple.
Course Materials:
Codal of Donor’s Tax (NIRC, as amended)
SEC. 99. Rates of Tax Payable by Donor. -

Under the NEW Tax Code, (as amended by RA 10963); it simplifies the donor's
tax schedule from an eight-bracket schedule with rates ranging from 2% to 15% to a single rate
of 6% of total net gifts in excess of P250,000. The 6% tax rate likewise applies if the donee is a
stranger.
Under the OLD Tax Code (Before enactment of RA 10963 / also known as the “TRAIN
law”); the tax rates for computation of Donor’s tax are as follows:
(A) In General. - The tax for each calendar year shall be computed on the basis of the
total net gifts made during the calendar year in accordance with the following schedule:
43
If the net gift is:
Over But Not Over The Tax Plus Of the
Shall be Excess Over
P 100,000 Exempt
P 100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger,
the tax payable by the donor shall be thirty percent (30%) of the net gifts. For the purpose of this
tax, a 'stranger', is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes shall be governed by the Election Code, as amended.
Tax Rates / Computation of Donor’s tax Due
The rate applicable shall be based on the law prevailing at the time of donation.
A. Effective January 1, 2018 and onwards (Republic Act (RA) No. 10963/TRAIN):
Rate - The donor’s tax for each calendar year shall be six percent (6%) computed on the
basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000) exempt gift
made during the calendar year.
Notes:
1. When the gifts are made during the same calendar year but on different dates, the
donor's tax shall be computed based on the total net gifts during the year.
2. The relationship between the donor and the donee(s) shall not be considered. Republic
Act No. 10963 (TRAIN Law) does not distinguish donations made to relatives, or donations made
to strangers.
44
B. Effective January 1, 1998 to December 31, 2017 (RA No. 8424):
Net The Of the
But not Over Plus
Gift Over Tax Shall be Excess Over
100,000.00 exempt
100,000.00 200,000.00 0 2% 100,000.00
200,000.00 500,000.00 P 2,000.00 4% 200,000.00
500,000.00 1,000,000.00 14,000.00 6% 500,000.00
1,000,000.00 3,000,000.00 44,000.00 8% 1,000,000.00
3,000,000.00 5,000,000.00 204,000.00 10% 3,000,000.00
5,000,000.00 10,000,000.00 404,000.00 12% 5,000,000.00
10,000,000.00 and over 1,004,000.00 15% 10,000,000.00
Notes:
1. When the gifts are made during the same calendar year but on different dates, the
donor's tax shall be computed based on the total net gifts during the year.
2. Donation made to a stranger is subject to 30% of the net gift. A stranger is a person
who is not a:
• brother, sister (whether by whole or half-blood), spouse, ancestor and lineal

descendants; or
• relative by consanguinity in the collateral line within the fourth degree of
relationship.
AMENDMENTS BY TRAIN LAW (RA 10963)
DONOR’ S TAX OLD NEW (Effective Jan 1, 2018)

(Topic)
Door’s Tax rates 2% to 15% with first P 100,0000 6% rate computed on the basis
net gift exempted if the done is a of net gift in excess of P
relative 250,000 exempt gift made
during the Calendar year
whether done is a relative or a
30% flat rate if done is a stranger stranger
Definition of A stranger is a person No Longer relevant

Stranger who is not a:
• brother, sister
(whether by whole or
half-blood), spouse,
45
ancestor and lineal
descendants; or
• relative by
consanguinity in the
collateral line within
the fourth degree of
relationship.
Transfer for Less No provision regarding sale, A sale, exchange, or other

than Adequate exchange, or other transfer of transfer of property made in the
and Full property made in the ordinary ordinary course of business (a
Consideration course of business (a transaction transaction which is a bona
which is a bona fide, at arm’s fide, at arm’s length
length transactions and free transactions and free from
from donative intent), will be donative intent), will be
considered as made an considered as made an
adequate and full consideration adequate and full consideration
in money or money’s worth. in money or money’s worth.
Dowries or gift on Dowries or gift on account of No longer allowed
account of marriage and before celebration
marriage. of marriage or within one year
thereafter by parents to each of
their legitimate, recognized
natural or adopted children to the
extent of first P 10,000
COMPUTATION OF DONOR’S TAX;

Beginning Jan 1, 2018, the tax shall be 6% computed on abasis pf total net gift in excess
of P 250,000 exempt gift made during the calendar year.
The computation of donor’s tax is on a cumulative basis over a period of 1 (one) calendar
year.
Donor’s Tax Return Formula, In General
Gross Gift- to date P xxx

Less: Allowed deductions- to date P (xx)
Taxable Net Gift-To Date P xxx
Donor’s Tax due P xx
Illustration 1:
Gross Gift- to date P 3,860,000
46
Less: Allowed deductions- to date P 3, 100,000
Taxable Net Gift-To Date P 760,000
Under the OLD Tax Code;

A. Donor’s Tax Due (if relatives) use the P 29,600
graduated tax rate table (shown in previous
page)
B. Donor’s Tax Due (if Strangers) use the 30% P 228,000

tax rate
Under the NEW Tax Code*

A. Donor’s Tax Due (regardless of relationship) P 30,600
use the fixed rate of 6% in excess of P 250,000
(shown in previous page)
* The 6% donor’s tax rate is effective on Jan 1,
2018 and so on.
SUMMARIZED RULES ON DONOR’S TAXATION:
Donors Taxable Base Taxable Source Tax rates

Resident Taxable Net Gift Net Gift-World Old: Graduated tax rates if
Citizen relative; 30% if stranger
Gross Gift -Allowed (Within and Without the Phil) New: 6% of taxable Net gift in
deduction excess of 250,000
Non- Taxable Net Gift Net Gift-World Old: Graduated tax rates if
Resident relative; 30% if stranger
Citizen Gross Gift -Allowed (Within and Without the Phil) New: 6% of taxable Net gift in
Resident Taxable Net Gift Net Gift-World Old: Graduated tax rates if
Alien relative; 30% if stranger
Gross Gift -Allowed (Within and Without the Phil) New: 6% of taxable Net gift in
Non resident Taxable Net Gift Net Gift-Phil only Old: Graduated tax rates if
Alien relative; 30% if stranger
Gross Gift -Allowed (Within the Phil only) New: 6% of taxable Net gift in
Illustration 2:
Asta, donated the following properties on April 9:
47
Property Amount Allowed Deduction
Property Gift in Phil 650,000 154,000
Property Gift Abroad 300,000 45,000
On the same calendar year, dated July 25, Asta donated again the following properties:
Property Amount Allowed Deduction

Property Gift Phil 100,000 30,000
Property Gift Abroad 100,000 40,000
Compute the Donor’s tax still due IF:
Case A. Asta, donor, is a non-resident citizen and donees are his relatives. Assuming that
donation was perfected/completed on 2016.
Donor’s tax Due on April 9

Gross gift-World (650,000+300,000) P 950,000
Allowed Deductions- World (154,000+ 45,000) P 199,000
Taxable Net Gift-World on April 9 P 751,000
Donor’s tax Due (based on graduated tax rate table) P 29,060
Donor’s tax Due on July 25

Gross gift-World ( 100,000+100,000) P 200,000
Allowed Deductions- World ( 40,000+ 30,000) P 70,000
Taxable Net Gift-World on July 25 P 130,000
Plus: Previous Net Gift (April 9) P 751,000
Total net Gift-World : to date / as of July 25 P 881,000
Donor’s Tax Due-World P 36,860
Less: Prior Gift tax paid P 29,060
Donor’s tax Due (based on graduated tax rate table) P 7,800
Case B. Asta, donor, is a non-resident citizen and donees are his relatives. Assuming that

Taxable Net Gift-World on April 9 P 751,000
48
Donor’s tax Due (at 6% tax rate in excess of P 250,000) P 30,060

Taxable Net Gift-World on July 25 P 130,000
Total net Gift-World : to date / as of July 25 P 881,000
Donor’s Tax Due-World (at 6% tax rate in excess of 250,000) P 37,860
Donor’s tax Still Due P 7,800
Case C. Asta, donor, is a non-resident alien and donees are strangers. Assuming that

Gross gift-Phil only P 650,000
Allowed Deductions-Phil only P 154,000
Taxable Net Gift-Phil only on April 9 P 496,000
Donor’s tax Due (at 6% tax rate in excess of P 250,000) P 14,760

Allowed Deductions- Phil only P 30,000
Taxable Net Gift-Phil only on July 25 P 70,000
Total net Gift- Phil Only : to date / as of July 25 P 566,000
Donor’s Tax Due-Phil only (at 6% tax rate in excess of 250,000) P 18,960
Case D. Asta, donor, is a non-resident alien and donees are strangers. Assuming that

Allowed Deductions-Phil only P 154,000
Taxable Net Gift-Phil only on April 9 P 496,000
49
Donor’s tax Due at 30% rate P 148,800

Allowed Deductions- Phil Only P 30,000
Taxable Net Gift-Phil only on July 25 P 70,000
Total net Gift- Phil Only : to date / as of July 25 P 566,000
Donor’s Tax Due-Phil only at 305 rate P 169,800
DONOR’S TAXATION ON MARRIED COUPLE
Conjugal Donation of Husband and Wife cannot transfer by virtue of sale or donation of
any conjugal or communal property WITHOUT CONSENT from the other, unless it is a moderate
donation for charity or on occasion of family rejoicing.
Spouses are considered as SEPARATE DONOR of the conjugal property unless, the wife
expressly joins in making the donation, it is presumed to have been done by the husband. The
husband and wife are required to file their separate donor’s tax return and shall pay the
corresponding donor’s tax due.
Gifts made by the spouses shall be classified as either A). Exclusive gift OR B.) Conjugal
gift.
For conjugal gift, distribute the value of gross gift and its related allowed deductions with
heir separate interest or equity in said items of gift. IF not specified or not determinable, assume
heir equities are share and share alike or 50% each.
Donations made between husband and wife during marriage are void, except moderate
donation for charity or on occasion of family rejoicing.
Donation Mortis Causa is valid subject to Estate Tax.
Illustration 3: Conjugal Donation
Mr and Mrs Galla, spouses and citizens of the Philippines, donated to their legitimate
daughter the following properties in 2019:
50
• Vacation House (conjugal property- Hong Kong) 1,500,000;
• Car (conjugal property)- Phil 750,000
• Jewelry (exclusive property of Mrs.Galla) 475,000
• Assuming no allowed deductions
The Gross Gift of the Spouses are computed as:
Mr. Galla Mrs.Galla

Vacation House 750,000 750,000
(1,500,000/2)
Car (750,000/2) 375,000 375,000
Jewelry 0 475,000
Total Net Gift per Spouse 1,125,000 1,600,00
Donor’s Tax Due P 52,500 P 81,000
Watch:
https://www.youtube.com/watch?v=aHoKhXo0spk
https://www.youtube.com/watch?v=mBx5NXmHIvQ
51
Lesson 3 – Donor’s Tax Credit
Overview:
Donor’s Tax Credit refers to the amount of donor’s taxes imposed by the Philippine
government and / or by foreign country, upon the donor’s net gift situated therein, that are allowed
by law as a direct deduction from the Philippine’s Donor’s tax due.
Tax credit are computed and allowed as direct deduction to the Donor’s tax due in
order to arrive at Donor’s tax still due or payable. Tax credits are as follows: Philippines donors’
tax due paid in the original tax return, Philippine Donor’s tax due paid in the same calendar year
and foreign donor’s tax paid.
Under this module, it will discuss the related provision on tax credit under section
101 of the Tax Code and its application. This module will illustrate how to compute the limits of
foreign donor’s tax paid as tax credit and the computation of donor’s tax payable.
Module Objectives:
12. Understand the provision of the law that governs imposition of Donor’s Tax and Donor’s
tax Credit
13. To know he components of Donor’s Tax Credit
14. To summarize the Donor’s Tax credit available for different taxpayers/ donors.
15. To compute the taxable net gift and the corresponding donor’s tax still due based on the
Old Tax Code and new Tax Code.
16. To understand and compute the limitations on Donor’s Tax Credit for donor’s tax paid on
foreign country by a resident or citizen donor.
Course Materials:
Provisions on the Tax Code (before Amendments of TRAIN law) related to Donor Tax
Credit:
SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt
from the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. -
52
(1) Dowries or gifts made on account of marriage and before its celebration or within one
year thereafter by parents to each of their legitimate, recognized natural, or adopted children to
the extent of the first Ten thousand pesos (P10,000):
(2) Gifts made to or for the use of the National Government or any entity created by any
of its agencies which is not conducted for profit, or to any political subdivision of the said
Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthropic
organization or research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration purposes. For the
purpose of this exemption, a 'non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or philanthropic organization
and/or research institution or organization' is a school, college or university and/or charitable
corporation, accredited nongovernment organization, trust or philanthropic organization and/or
research institution or organization, incorporated as a non-stock entity, paying no dividends,
governed by trustees who receive no compensation, and devoting all its income, whether
students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment
and promotion of the purposes enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. -
Government.
corporation, institution, foundation, trust or philanthropic organization or research institution or
organization:Provided, however, That not more than thirty percent (30%) of said gifts shall be
used by such donee for administration purposes.
(C)Tax Credit for Donor's Taxes Paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a
resident at the time of donation shall be credited with the amount of any donor's tax of any
character and description imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the
same proportion of the tax against which such credit is taken, which the net gifts situated within
such country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against
which such credit is taken, which the donor's net gifts situated outside the Philippines taxable
under this title bears to his entire net gifts.
53

(Topic)

• brother, sister
ancestor and lineal
descendants; or
• relative by
relationship.

COMPUTATION OF DONOR’S TAX;
54
Beginning Jan 1, 2018, the tax shall be 6% computed on abasis pf total net gift in excess
of P 250,000 exempt gift made during the calendar year.
The computation of donor’s tax is on a cumulative basis over a period of 1 (one) calendar
year.
DONOR’S TAX CREDIT
The component of Donor’s tax Credit are as follows:

1.Philippine donor’s tax paid on the original donor’s tax return filed (in the case of amended
Donor’s tax return only)
2. Philippine Donor’s Tax paid in prior donor’s Tax return on the SAME calendar year. (in case
there are subsequent donations only)
3. Foreign donor’s tax paid- This refers to any donor’s tax of any character and description,
imposed by the authority of the foreign countries upon the donor’s net gift located therein. This is
subject to limits according to SEC 101 paragraph C.
Donor’s Tax Credit available for Different Taxpayer / Donors

Tax Credit *RC, Non-resident
NRC, RA Alien
Philippine donor’s tax paid on the original donor’s tax OK😊 OK😊
return filed (in the case of amended Donor’s tax return
only)
Philippine Donor’s Tax paid in prior donor’s Tax return on OK😊 OK😊
the SAME calendar year. (in case there are subsequent
donations only)
Foreign donor’s tax paid OK😊 NA☹
*Resident Citizen, Nonresident Citizen and Resident Alien
Foreign donor’s tax paid, as tax credit, is not applicable to Non resident Alien
donors.
TAX CREDIT FOR FOREIGN DONOR’S TAXES PAID:

-It is available only to resident or Citizen Donors
-This type of tax Credit is subject to limit.
LIMITS:
A. (Net Gift per Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax
B. (Net Gift in ALL Foreign Country divided by Total Net Gift) x Philippine Donor’s Tax
RULE:
1. If there is only one foreign country, only LIMIT A is used.
2. If there are more than two foreign countries, use BOTH LIMITS.
55
*Foreign donor’s tax credit is not applicable to donor who is a nonresident alien. Also, if the donor
is nonresident alien, he is taxable for donations made within the Philippines only.
LIMIT A:
Donor’s Tax paid in Country 1 versus LIMIT A (Country 1) = whichever is lower
PLUS (+)
Donor’s Tax paid in Country 2 versus LIMIT A (Country 2) = whichever is lower
EQUALS = LIMIT A
LIMIT B:
Donor’s Tax paid in Country 1 and 2 versus LIMIT B (Country 1 and 2) = whichever is lower
(LIMIT B)
TAX CREDIT for FOREIGN DONOR’S whichever is lower between LIMIT A and
TAX PAID= LIMIT B
Illustration 1:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on
July 2016:
Wrong data in the original donor’s tax return filed (corresponding donor’s tax was paid by Xin).
Philippines Canada America

Gross Gift 85,000 150,000 40,000
Allowed deduction 50,000 90,000 25,000
Net Gift 35,000 60,000 15,000
Computation of Donor’s Tax paid on the Original Donor’s Tax return:

Total net Gift-World (35,000+60,000+15,000) 110,000
Donor’s tax due / paid at Graduated tax rate P 200
(110,000 less 100,000) times 2%
Correct data in the amended Donor’s tax return:

Gross Gift 180,000 120,000 70,000
Net Gift 130,000 90,000 30,000
Gift tax paid 8,600 300
Computation of Donor’s Tax due on the Amended Donor’s Tax return:

56
Donor’s tax due / paid at Graduated tax rate P 4,000
(250,000 less 200,000) times 4% PLUS 2,000
Less: Tax Credits
Previous payment on the Original Donor’s Tax return 200
Foreign Tax Credit* (Pls see computation below) 1,740**
Donor’s tax Still Due / Payable 2,060
LIMIT A:
Canada:
Limit = (90,000 divided by 250,000) x 4,000 1,440
Versus actual payment of 8,600
Whichever is Lower (Canada) 1,440
America
Limit = (30,000 divided by 250,000) x 4,000 480
Versus actual payment of 300
Whichever is Lower (America) 300
Tax Credit under Limit A 1,740
LIMIT B:
Canada and America
Limit = ((90,000+30,000) divided by 250,000) x 4,000 1,920
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,920
Tax Credit under Limit B 1,920
Allowed Foreign tax Credit

LIMIT A 1,740
LIMIT B 1,920
Whichever is Lower (A vs B) 1,740**
Illustration 2:
Mr Xin of Hi Shin, resident citizen had the following data related to his donations to relatives on
July 2019:
57
Gross Gift 85,000 150,000 40,000
Net Gift 35,000 60,000 15,000

Donor’s tax due at 6% rate in excess of 250,000 P0

Gross Gift 200,000 120,000 100,000
Net Gift 150,000 90,000 60,000

Donor’s tax due / paid at 6% rate in excess of 250,000 P3,000
(300,000 minus 250,000) times 6%
Less: Tax Credits
Previous payment on the Original Donor’s Tax return 0
Foreign Tax Credit* (Pls see computation below) 1,200**
Donor’s tax Still Due / Payable 1,800
LIMIT A:
Canada:
Versus actual payment of 8,600
Whichever is Lower (Canada) 900
America
Versus actual payment of 300
Whichever is Lower (America) 300
Tax Credit under Limit A 1,200
58
LIMIT B:
Canada and America
Limit = ((90,000+60,000) divided by 300,000) x 3,000 1,500
Versus actual payment (8,600+ 300) 8,900
Whichever is Lower (ALL Countries) 1,500
Tax Credit under Limit B 1,500
Allowed Foreign tax Credit

LIMIT A 1,200
LIMIT B 1,500
Whichever is Lower (A vs B) 1,200**
Watch:
https://www.youtube.com/watch?v=aHoKhXo0spk
https://www.youtube.com/watch?v=mBx5NXmHIvQ
Activities/Assessments
Mr Xin of Hi Shin, nonresident alien had the following data related to his donations to relatives on
July 2019:

Gross Gift 85,000 150,000 40,000
Net Gift 35,000 60,000 15,000

Total net Gift-Phil only 35,000
Donor’s tax due at 6% rate in excess of 250,000 P0

Gross Gift 400,000 120,000 100,000
59
Net Gift 350,000 90,000 60,000
Compute the donor’s tax still due / payable

Total net Gift-Phil only
Donor’s tax due / paid at 6% rate in excess of 250,000
(350,000 minus 250,000) times 6%
Less: Tax Credits
Previous payment on the Original Donor’s Tax return
Foreign Tax Credit*
Donor’s tax Still Due / Payable
60
Lesson 4: Laws / Rules on Gross Gift
Overview:
Donation is an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another, who accepts it (Civil Code of the Philippines). The transfer includes not
only the transfer of ownership but also the passage of control over the economic benefits of the
property.
Donor’s Tax is imposed on the transfer of property by way of gift inter-vivos. The tax
shall not apply until there is completed gift. The computation is on a cumulative basis over one
calendar year.
Gross Gift is the value of the property or right donated subject to donor’s tax before
any deduction The classes of Donor are Citizen or Resident Alien donor (who are taxable for
donations within and outside Philippines) and Nonresident Alien donor who are taxable only for
the donations within the Philippines. This module will discuss in details the Gross gift in Donor’s
taxation.
Module Objectives:
1. Know the provisions of Tax Code (both the Old and new Tax Code) related to Gross
gift for purpose of determining the taxable net gift.
2. Summarized the amendments made by TRAIN law on the Philippine Tax Code.
3. Apply the provisions of Tax Code in different scenarios.
4. Identify the transactions (donations / gift) that are part of Gross gift.
6. Determine the amount of Gross Gift and Allowed deductions to compute the taxable
net gift.
7. Compute the Donor’s Tax still due based on the Tax Code (both the Old and New Tax
Code)
Course Materials:
Provisions on the Tax Code (before Amendments) related to Gross Gift and Allowed
Deductions:
SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property,
other than real property referred to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by which the fair market value of
the property exceeded the value of the consideration shall, for the purpose of the tax imposed by
61
this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
Government; and
Government.
organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be
62
SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair
market value thereof at the time of the gift shall be considered the amount of the gift. In case of
real property, the provisions of Section 88(B) shall apply to the valuation thereof.
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts'
include real and personal property, whether tangible or intangible, or mixed, wherever situated:
Provided, however, That where the decedent or donor was a nonresident alien at the time of his
death or donation, as the case may be, his real and personal property so transferred but which
are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross
gift': Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws; shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the business of which is located in the Philippines;
shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines; shares or rights in any partnership, business or
industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal
property:
(a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose
a transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and
resident at the time of his death or donation allows a similar exemption from transfer or death
taxes of every character or description in respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the
tax by the donor upon his return; but the amount so shown on the return shall first be increased
by the amount previously assessed (or Collected without assessment) as a deficiency, and
decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax,
or
(b) if no amount is shown as the tax by the donor, then the amount by which the tax
exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but
such amounts previously assessed, or collected without assessment, shall first be decreased by
the amount previously abated, refunded or otherwise repaid in respect of such tax.
63

(Topic)

• brother, sister
ancestor and lineal
descendants; or
• relative by
relationship.

COMPOSITION OF GROSS GIFT:
64
1. If Citizen or Resident Alien Donor:
• Real Property within and without the Philippines.
• Tangible and Intangible Property within and without the Philippines.
2. If Not a Citizen or Non- Resident Donor:
• Real Property within the Phil.
• Intangible and Tangible Personal Property within Phil.
Reciprocity Rule ; Intangible Personal Property of a not citizen, non resident donor. It shall be
exempt from Donor’s Tax if either of one or two conditions are present:
1. The country where the said donor is a citizen and resident does not impose a transfer tax on
intangible personal property of Filipinos not residing in that country.
2. The country where the said donor is a citizen and resident allows a similar exemption from transfer
tax on intangible personal property of Filipinos residing in that country.
Property Considered Intangible Personal Property within Philippines:
1. Franchise which must be exercised in the Philippines;

2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized
or constituted in the Philippines in accordance with its laws;
3. Shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of
the business of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines;
5. Shares or rights in any partnership, business or industry established in the Philippines,
shall be considered as situated in the Philippines
Transfer for less than adequate and full consideration :
Where property other than real property classified as capital asset is transferred for
adequate and full consideration in money or money’s worth, then the amount by which the fair
market value exceeded the value consideration shall be deemed a gift and shall be included in
the amount of gifts made during the calendar year.
INCLUSION IN THE GROSS GIFT:
1.TAXABLE Gifts or Donations subject to Donor’s tax
• Actual gifts
• Transactions deemed Gifts
➢ Condonation of receivables for without any or for inadequate
considerations
➢ Property transfer for inadequate considerations (Excess of FV over the
considerations received on transfer) EXCEPT: A). property transfer subject
65
to estate tax B). property transfer subject to capital gains tax or Real
property held as capital asset located in the Philippines and C). Property
transfer representing boa fide sale, arm’s length transactions.
2.Exempt Gifts or Donations not subject to Donor’s tax.
EXEMPTIONS OF CERTAIN GIFTS (EXEMPT GIFTS)
The following are property gifts, donations or contributions that are exempt from donor’s
tax:
1. Dowries or gifts made on account of marriage and before its celebration or within one
year thereafter by parents to each of their legitimate, recognized natural, or adopted
children to the extent of the first Ten thousand pesos (P10,000) (Repealed by TRAIN
law)
Under TRAIN law, this is no longer allowed.
2. Gifts made to or for the use of the National Government or any entity created by any of
its agencies which is not conducted for profit, or to any political subdivision of the said
Government;
3. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
organization or research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for administration
purposes.
4. Exempt gifts under Special Laws.
Entities considered exempted from Donor’s Tax under Special laws:

The list below consists of entities considered Donor’s Tax exempt under special laws
including, but not limited to the following:
· Rural Farm School (Sec. 14, R.A. No. 10618)
· People’s Television Network, Incorporated (Sec. 15, R.A. No. 10390)
· People’s Survival Fund (Sec. 13, R.A. No. 10174)
· Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083)
· Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
· Philippine Red Cross (Sec. 5, R.A. No. 10072)
· Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
· National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
· Philippine Normal University (Sec. 7, R.A. No. 9647)
· University of the Philippines (Sec. 25, R.A. No. 9500)
· National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
· Philippine Investors Commission (Sec. 9, R.A. No. 3850)
· Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
· Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
· International Rice Research Institute (Art. 5(2), PD 1620)
· Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
· National Social Action Council (Sec. 4, P.D. 294)
66
· Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2,
P.D. 292)
· Development Academy of the Philippines (Sec. 12, PD 205)
· Integrated Bar of the Philippines (Sec. 3, PD 181)
EXCLUSION FROM GROSS GIFT:

The following property transfers or transactions shall be treated as non taxable transfer and shall
not be part of the computation of gross gift:
1. Donations of property situated without the Philippines in case of non resident alien
donor.
2. Donation of intangible personal property in the Philippines if provided for under
reciprocity clause in case of non resident alien donor.
3. Donations or property transfer during the lifetime subject to estate tax; namely;
• Property donation Mortis-causa
• Property transfer in contemplation of death
• Property transfer subject to revocation
• Property transfer passing under a general power of appointment, if death
related.
• Property transfer for inadequate considerations, if death related.
4. Sale or exchange of real property held as capital asset subject to capital gain tax under
Sec 24.
5. Transfer of property by way of bona fide, arm’s length transactions and those made in
the ordinary course of business.
6. Gratuitous rendition service by a person to another.
7. Any contribution in cash or in kind to any candidate, political party or coalition of parties
for campaign purposes shall be governed by Election Code.
Bases in the Valuation of Property
The properties comprising the gift/donation shall be valued based on their fair market value as of
the time of donation.
If the property is a real property, the fair market value thereof as of the time of donation shall be,
whichever is the higher of –
1. The fair market value as determined by the Commissioner, or

2. The fair market value as shown in the schedule of values fixed by the provincial and city
assessors.
In the case of shares of stocks, the fair market value shall depend on whether the shares
are listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their
book value while unlisted preferred shares are valued at par value. In determining the book value
of common shares, appraisal surplus shall not be considered as well as the value assigned to
preferred shares, if there are any. On this note, the valuation of unlisted shares shall be exempt
from the provisions of RR No. 6-2013, as amended.
67
For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic
mean between the highest and lowest quotation at a date nearest the date of donation, if none is
available on the date of donation.
The fair market value of units of participation in any association, recreation or amusement club
(such as golf, polo, or similar clubs), shall be the bid price nearest the date of donation published
in any newspaper or publication of general circulation.
To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of Finance, upon recommendation of
the Insurance Commissioner. (Sec. 2, RR No. 17-2018 and Sec. 5 of RR No. 12-2018
Watch:
Activities/Assessments:
Problem Solving / Multiple Choice
1. Justina donated cash to his has on account of marriage on October 2014 as follows:
January 15, 2015 - P 25,000

March 10, 2015 - 20,000
July 15, 2015 ¬- 50,000
September 10, 2015 - 100,000
The donor’s tax due on September 10, 2015 is?
2. Which of the following donations results to a net gift of P80,000?
a. Alakdan donated property to Babakwa with a market value of P140,000. The property is
subject to a mortgage indebtedness of P60,000 which was paid by the donor at the time of the
donation.
b. Altura requested Busina to pay Altura’s liability with Cabangis in the amount of P100,000
and in return, the personal property of Altura valued at P180,000 will be donated to Busina.
c. The daughter of Ananias was married to her boyfriend. As a gift, Ananias donated cash
worth P100,000 to his daughter.
d. Property worth P80,000 was donated by Bibong to Barangay Maaliwalas for the use as
site of the Barangay Hall.
3. The following does not result to a gross gift
68
a. Donation to the Development Academy of the Philippines

b. Donation of a parcel of land to brother, the donation is in a private document
c. Donation of a real property to the City of Manila
d. Donation of property the encumbrance therein was assumed by the done.
4. Exempted from donor’s taxation are gift made
a. For the use of the barangay

b. In consideration of marriage
c. To a school which is a stock corporation
d. To a for-profit government corporation.
5. All of the following, except one, are exempt from donor’s tax. Which is it?
a. Donation to the Philippine National Red Cross

b. Donation to the Development Academy of the Philippines
c. Donation directly given to the victims of the eruption of Mount Bulusan
d. Donation to the City of Davao for public purposes
6. A non-stock, non-profit school always had cash flow problems, resulting in failure to
recruit well-trained administrative personnel to effectively manage the school. In 2015,
Don Leon donated P100 million pesos to the school, provided the money shall be used
solely for paying the salaries, wages, and benefits of administrative personnel. The
donation represents less than 10% of Don Leon’s taxable income for the year. Is he
subject to donor’ taxes?
a. No, since the donation is actually, directly, and exclusively used for educational purposes.
b. Yes, because the donation is to be wholly used for administration purposes.
c. Yes, since he did not obtain the requisites NGO certification before he made the donation.
d. No, because the donation does not exceed 10% of his taxable income for 2015.
7. There is reciprocity when the donor and the donated property
Donor Property
a. Nonresident alien Intangibles
b. Nonresident citizen Immovable
c. Nonresident alien Tangible personal
d. Resident alien Any kind of Property
69
Numbers 8 to 9 are based on the following information:
8. Annie donated the following properties:
Land in Los Angeles, California, USA -P 250,000

Land and building in Jolo, Sulu - 175,900
Car registered in the State of Californioa, USA - 225,000
Jewelries in the Philippines - 45,000
Shares of stock in a corporation based in USA - 65,000
Accounts receivable, debtor is in the Philippines - 25,000
If Annie is a resident citizen, the gross gift is?
8. The gross gift of Annie if she is a nonresident alien without reciprocity is?
9. The gross gift if Annie is a nonresident alien with reciprocity is?
10. Butch made donations to his children in 2015. In which of the following successive
donations will Butch pay donor’s tax?
a. January 15 – To Alma on account of marriage, P40,000

b. March 15 – To Ara on account of graduation, P50,000
c. May 15 – To Aiko on account of her 18th birthday, P50,000
d. In all of the above
.
1. 6.
2. 7.
3. 8.
4. 9.
5. 10.
70
Lesson 5: Laws / Rules on Allowed Deductions
Overview:
Under the Civil Code of the Philippines, donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in favor of another, who accepts it. The transfer
includes not only the transfer of ownership but also the passage of control over the economic
benefits of the property.
The computation is on a cumulative basis over one calendar year.

Donor’s Tax is imposed on the transfer of property by way of gift inter-vivos. The tax shall not
apply until there is completed gift.
Allowed deductions are those amounts specified by law / BIR to be deductible from
the Gross Gift to arrive at taxable net gift that is subject to computation of donor’s tax. These
deductions include encumbrances on the gift, diminution on the gift as directed by the donor and
those exempt gifts as specified by NIRC and other special laws.
This module will discuss in details the Allowed deduction in Donor’s taxation to be
able to compute the proper donor’s tax due payable to BIR.
Module Objectives:
8. Know the provisions of Tax Code (both the Old and new Tax Code) related to Allowed
deduction to arrive at Taxable Net Gift.
9. Summarized the amendments made by TRAIN law on the Philippine Tax Code.
10. Apply the provisions of Tax Code in different scenarios.
11. Identify the transactions (donations / gift) that are part of Gross gift and Allowed
deductions.
13. Determine the amount Allowed deductions to compute the taxable net gift.
14. Compute the Donor’s Tax still due based on the Tax Code (both the Old and New Tax
Code)
Course Materials:
Provisions on the Tax Code (before Amendments) related Allowed Deductions:
71
Government; and
Government.
organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be
72
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts'
include real and personal property, whether tangible or intangible, or mixed, wherever situated:
Provided, however, That where the decedent or donor was a nonresident alien at the time of his
death or donation, as the case may be, his real and personal property so transferred but which
are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross
gift': Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws; shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the business of which is located in the Philippines;
shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines; shares or rights in any partnership, business or
industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal
property:
(a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose
a transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and
resident at the time of his death or donation allows a similar exemption from transfer or death
taxes of every character or description in respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the
tax by the donor upon his return; but the amount so shown on the return shall first be increased
by the amount previously assessed (or Collected without assessment) as a deficiency, and
decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax,
or
(b) if no amount is shown as the tax by the donor, then the amount by which the tax
exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but
such amounts previously assessed, or collected without assessment, shall first be decreased by
the amount previously abated, refunded or otherwise repaid in respect of such tax.

(Topic)
73

• brother, sister
ancestor and lineal
descendants; or
• relative by
relationship.

EXEMPTIONS OF CERTAIN GIFTS (EXEMPT GIFTS)
tax:
5. Dowries or gifts made on account of marriage and before its celebration or within one
children to the extent of the first Ten thousand pesos (P10,000) (Repealed by TRAIN
law)
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6. Gifts made to or for the use of the National Government or any entity created by any of
Government;
7. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
organization or research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for administration
purposes.
Entities considered exempted from Donor’s Tax under Special laws:

The list below consists of entities considered Donor’s Tax exempt under special laws
including, but not limited to the following:
· Rural Farm School (Sec. 14, R.A. No. 10618)
· People’s Television Network, Incorporated (Sec. 15, R.A. No. 10390)
· People’s Survival Fund (Sec. 13, R.A. No. 10174)
· Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A. No. 10083)
· Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)
· Philippine Red Cross (Sec. 5, R.A. No. 10072)
· Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)
· National Commission for Culture and the Arts (Sec. 35, R.A. No. 10066)
· Philippine Normal University (Sec. 7, R.A. No. 9647)
· University of the Philippines (Sec. 25, R.A. No. 9500)
· National Water Quality Management Fund (Sec. 9, R.A. No. 9275)
· Philippine Investors Commission (Sec. 9, R.A. No. 3850)
· Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)
· Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)
· International Rice Research Institute (Art. 5(2), PD 1620)
· Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)
· National Social Action Council (Sec. 4, P.D. 294)
· Aquaculture Department of the Southeast Asian Fisheries Development Center (Sec. 2,
P.D. 292)
· Development Academy of the Philippines (Sec. 12, PD 205)
· Integrated Bar of the Philippines (Sec. 3, PD 181)
ALLOWED DEDUCTIONS
INCLUSION IN THE ALLOWED DEDUCTIONS:

A.Deductions as Specified by BIR
1. Encumbrance on the gift if such debt is assumed by the donee.
2. Diminution on the gift as directed by the donor- These are conditions or requirements provided
by donor, for compliance by donee that will reduce or diminish the value of property gift received
by donee.
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B. Exempt gifts as specified by the NIRC
tax:
1.Dowries or gifts made on account of marriage and before its celebration or within one
children to the extent of the first Ten thousand pesos (P10,000) (Repealed by TRAIN law)
2.Gifts made to or for the use of the National Government or any entity created by any of
Government.
3.Gifts in favor of an educational and/or charitable, religious, cultural or social welfare

organization or research institution or organization: Provided, however, That not more than
thirty percent (30%) of said gifts shall be used by such donee for administration purposes.
ILLUSTRATION OF DONOR’S TAX RETURN FORMULA, IN GENERAL:
Gross Gift P xxxx

Less; Allowed Deductions P xxx
Taxable Net Gift P xxx
Donor’s Tax Due P xxx
SUMMARY OF DEDUCTIONS
Deductions: Resident or Non resident

Citizen Alien
Deductions as Specified by the BIR:
Encumbrance on gifts in Phil Yes Yes
Encumbrance on gifts Abroad Yes No
Diminution on gift in Phil Yes Yes
Diminution on gift Abroad Yes No
Deductions as Specified by NIRC / Special Laws

Deduction on exempt gift in Phil in NIRC Yes Yes*
Deduction on exempt gift Abroad in NIRC Yes No
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Deduction on exempt gift in Phil in Special law Yes Yes
Deduction on exempt gift Abroad in Special law Yes No
Liabilities, charges on property transfer in Phil not No No
covered by/ not subject to donor’s tax
Liabilities, charges on property transfer in Abroad not No No
covered by/ not subject to donor’s tax
*Except dowries or gift on account of marriage. This item is not applicable to NRA.
However, this item was removed under TRAIN law effective Jan 1, 2018.
Illustration 1:
Case A. On January 1, 2014, Mr and Mrs Mayaman, resident citizen, donated a house and lot, a
conjugal property, at fair market value of 620,000 to their legitimate son on account of his marriage
on January 15, 2014.
The net gift of each spouse is: Mr. Mayaman and Mrs.Mayaman are as follows:
Mr Mrs
Gross Gift 310,000 310,000
Allowed deductions 10,000 10,000
Taxable net Gift 300,000 300,000
Donor’s tax Due 6,000 6,000
Case B. On January 1, 2019, Mr and Mrs Mayaman, resident citizen, donated a house and lot, a
conjugal property, at fair market value of 620,000 to their legitimate son on account of his marriage
on January 15, 2019.
The net gift of each spouse is: Mr. Mayaman and Mrs.Mayaman are as follows:
Mr Mrs
Gross Gift 310,000 310,000
Allowed deductions 0 0
Taxable net Gift 310,000 310,000
Donor’s Tax Due 3,600 3,600
Illustration 2:
Miss Tapia donated to Mr Gomez, her boyfriend, a car amounting to 400,000 in 2019. The car
has an unpaid mortgage of 180,000. Mr Gomez agreed to assume payment for the mortgage.
Amount
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Gross Gift 400,000
Allowed deductions- Mortgage assumed 180,000
Taxable net Gift 220,000
Donor’s tax Due P0
Illustration 3:
In 2019, Asta donated 300,000 to Yuno on condition that the latter will give 60,000 of the total gift
to the charity. The net gift of Asta would be:
Amount
Gross Gift 300,000
Allowed deductions- Diminution to charity 60,000*
*If Yuno did not comply to the condition of Asta, the diminution to charity will not be allowed as
deductible to gross gift.
Illustration 4:
In 2019, Don Kit donated his 100 hectares land valued at the date of donation at 1,000,000 as
follows: National Government 500,000; Manila City Local Government 300,000 Mr. Asta, friend
200,000
Amount
Gross Gift 1,000,000
Allowed deductions- Exempt gift per NIRC 800,000
Illustration 5:
In 2019, Mr. Hey , a nonresident alien, donated 1,000,000 to an accredited charitable

organization. Compute for the Net Gift:
If not more than 30% of the gift was used for administrative purposes:
Amount
Allowed deductions- Exempt gift per NIRC 1,000,000
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Taxable net Gift 0
If more than 30% of the gift was used for administrative purposes:
Amount
Allowed deductions- Exempt gift per NIRC 0
Taxable net Gift 1,000,000
Donor’s tax Due P 45,000
OTHER RELATED TOPICS
For purposes of Donor’s Tax, what does the term “Net Gift” means?
For purposes of the donor’s tax, “net gift” shall mean the net economic benefit from the
transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is
measured by deducting from the fair market value of the property the amount of mortgage
assumed. (Sec. 12 of RR No. 12-2018)
Contribution in cash or in kind to any candidate or political party or coalition of parties for
campaign purposes:
Sec. 28 (B) of RA No. 10963 (TRAIN Law) states that any contribution in cash or in kind
to any candidate, political party or coalition of parties for campaign purposes shall be governed
by the Election Code, as amended.”
For purposes of Donor’s Tax, is a legally adopted child considered stranger?
A legally adopted child is entitled to all the rights and obligations provided by law to
legitimate children, and therefore, donation to him shall not be considered as donation made to
stranger. (Sec. 10, RR No. 2-2003). However, with the passage of RA No. 10963 (TRAIN Law),
effective on January 1, 2018, the relationship between the donor and donee(s) is no longer
considered in the computation of donor’s tax.
Donations between businesses:
Donation made between business organizations and those made between an individual
and a business organization shall be considered as donation made to a stranger. (sec. 10, RR
No. 2-2003). However, with the passage of RA No. 10963 (TRAIN Law), effective on January 1,
2018, the relationship between the donor and donee(s) is no longer considered in in the
computation of donor’s tax.
Gratuitous donations to Homeowners’ Associations:
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Gifts, donations, and other contributions received by the Homeowners’ Associations
(Associations) are subject to the payment of donor’s tax pursuant to Section 98, and 99 of the
NIRC, as amended by Sec. 28 of RA 10963 (TRAIN Law). Endowment or gifts received by such
associations are not exempt from donor’s tax considering that gifts to Associations are not
qualified for exemption under Section 101(A)(2) of the TRAIN Law. (Section II, RMC No. 53-2013)
Treatment of Onerous donation or donation in exchange for goods, services or use or

lease of properties to Homeowners’ Association:
Pursuant to RMC No. 9-2013, associations are subject to the corresponding internal
revenue taxes imposed under the Tax Code of 1997 on their income of whatever kind and
character. In this regard, contributions to associations in exchange for goods, services and use
of properties constitute as other assessments/charges from activity in exchange for the
performance of a service, use of properties or delivery of an object. As such, these fees are
income on the part of the associations that are subject to income tax under Section 27 of the Tax
Code, as amended. (Section III, RMC No. 53-2013)
Transactions involving transfer of property other than real property referred to in Section
24 (D) for less than adequate and full consideration:
Where property, other than real property referred to in Section 24(D) of the NIRC, as
amended, is transferred for less than an adequate and full consideration in money or money's
worth, then the amount by which the fair market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this Chapter (Donor’s Tax), be deemed
a gift, and shall be included in computing the amount of gifts made during the calendar year:
Provided, however, that a sale, exchange, or other transfer of property made in the ordinary
course of business (a transaction which is a bona fide, at arm’s length, and free from any donative
intent) will be considered as made for an adequate and full consideration in money or money’s
worth. (Sec. 16, RR No. 12-2018)
Watch:
Read:
Related Revenue Issuances
Revenue Regulations (RR) Nos. 2-2003, 6-2013, 6-2014

Revenue Memorandum Circular (RMC) Nos. 63-2009, 53-2013, 43-2018, 107-2018
Revenue Memorandum Order (RMO) No. 35-2018
OPM-AS-APMD 2017-06-06
OPM-AS-APMD 2017-06-01
Codal Reference
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· Sections 28, 29 and 30 of the Tax Reform Acceleration and Inclusion (TRAIN) Law), amending
Sections 99, 100 and 101 of National Internal Revenue Code (NIRC) of 1997, respectively
· Sections 98 to 104 of the NIRC of 1997
Related Laws
· Republic Act Nos. 579, 3062, 3676, 3850, 6110, 7499, 8424, 9159, 9275, 9500, 9647, 10066,
10072, 10073, 10083, 10174, 10390, 10618, 10963 (TRAIN Law)
· Presidential Decree Nos. 69, 181, 205, 292, 294, 1773
· Executive Order No. 419
· Commonwealth Act No. 466
Name:___________________________________ Score:_________
Section:___________
Multiple Choice: Encircle the correct answer based on the given choices. Erasures are not
allowed.
1. Which of the following donors is taxable only in gifts of property within the Philippines?
a. Resident citizen donor
b. Nonresident citizen donor
c. Resident alien
d. Non resident alien
2. The reciprocity rule in donors tax is applicable only to non resident alien donors who donate:
a. Tangible personal property within the Phil
b. Intangible personal property within the Phil
c. Tangible real property within Phil
d. All of the foregoing
3. In 2016, X donated a motorbike valued at P 100,000 to Y, son of X's first cousin. What is the
tax consequence of the foregoing donation?
a. X is liable to pay donor s tax in amount of 30,000
b. X is liable to pay donor tax of 2,000
c. X is liable to pay capital gain tax of P 6,000
d. X is not liable o pay any tax
4. Which of the following statements relative to donor's tax is false?
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a. The spouses shall file separate donor's tax return where the thing donated is common property
b. Property donation in contemplation of death is subject to donor's tax
c. Donation of equipment and materials to the task force on human settlement (PD 297) is
considered as exempt gift.
d. As a rule, exempt gift are included first in gross gift and are likewise presented as part of allowed
deductions.
5. In applying the donor tax rates, no donor tax liability shall arise where the taxable net gift in
2018 will amount to:
a. P 250,000
b. P 100,000
c. P 200,000
d. Either a or b
6. A gift that is given to one of the following donees shall be subject to 30% tax rate on strangers
(gift on 2016):
a. Grandchild
b. Aunt
c. Sister in law
d. Brother
7. Which of the following statements is incorrect?

a. Conjugal property shall not be alienated without the consent of both spouses except in cases
when there is a small gift for charity or to spouse on occasion of family rejoicing.
b. Gift between spouses during marriage is valid.
c. Gift between spouses after the end of marriage is valid.
d. Each donor-spouse is considered as a separate tax payer
8. Donors tax credit cannot be claimed by:

a. Resident citizen
b. Non resident citizen
c. Non resident alien
d. None of the above
9. Which of the following is not incorrect?

a. Philippine donors tax paid in CY 2016 can be claimed as tax credit by the donor in subsequent
donations in CY 2017.
b. Philippine donor tax paid in original donor tax return filed in 2016 (in case of amended return)
can be claim as tax credit by a non resident alien on filing the amended return in 2017.
c. Foreign gift tax paid cannot be claimed as tax credit by nonresident citizen
d. Philippine donor tax paid can be claimed as tax credit but subject to limitations
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10. For donations or gifts on account of marriage made in 2018, the deduction on the gross gift
for each spouse will be:
a. P 10,000
b. lower of amount between the fair market value of property gift or maximum limit of P 10,000
c. higher of amount between the fair market value of property gift or maximum limit of P 10,000
d. No deductions
II. Problem Solving (2 points each)
____________1. On July 2017, Mr SAN JOSE gave a property with fair market value of P 550,000
(exclusive property) to Keisha, a legitimate daughter of SAN JOSE on account of passing the
CPA board exam. The donor's tax payable of San Jose is?
_______________2. On July 2018, Mr SAN JOSE gave a property with fair market value of P
550,000 (Conjugal property) to Keisha, best friend of SAN JOSE on account of passing the CPA
board exam. The donor's tax payable of San Jose is?
3-4. Mr SAN JOSE made the following donations during CY 2016 to CY 2017:
• On December 30, 2016, furniture worth P 60,000 to his best friend with related deduction
of P 5,000.
• On July 25, 2017, shares of stocks valued P 150,000 to his sister with related deduction
of P 12,000
• On July 25, 2017, car worth P 250,000 to Great Grand Nephew with deductions of P
30,000
• On December 25, 2017, appliances valued P 90,000 to his mother with related deductions
of P 6,000
• On December 25, 2017, donation to officemate worth P 30,000
• On December 31, 2017, donations to a brother of inventories worth P 78,000
______________3. What is the total gift tax payable on July 25, 2017?
______________4. What is the total gift tax still due on December 25, 2017?
5-6. Mr SAN JOSE made the following donations during CY 2017 to CY 2018:
• On December 30, 2017, furniture worth P 60,000 to his best friend with related deduction
of P 5,000.
• On July 25, 2018, shares of stocks valued P 150,000 to his sister with related deduction
of P 12,000
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• On July 25, 2018, car worth P 250,000 to Great Grand Nephew with deductions of P
30,000
• On December 25, 2018, appliances valued P 90,000 to his mother with related deductions
of P 6,000
• On December 25, 2018, donation to officemate worth P 30,000
• On December 31, 2018, donations to a brother of inventories worth P 78,000
______________5. What is the total gift tax payable on July 25, 2018?
______________6. What is the total gift tax still due on December 25, 2018?
______________7. SAN JOSE, Filipino, is a donor residing in RUSSIA. In July 2017, he donated
to his brother a property located in ICELAND worth P 350,000 with related deduction amounting
to P 25,000, including P 15,000 donors tax paid to government of ICELAND. In Feb 2017, he
donated to a property to his sister situated in BASILAN, PHILIPPINES worth P 400,000. What is
the donors tax still due on July 2017?
______________8. SAN JOSE, Filipino, is a donor residing in RUSSIA. Last year (2017), he
donated to a friend a ring worth P 20,000. In July 2018, he donated to his brother a property
located in ICELAND worth P 350,000 with related deduction amounting to P 25,000. In Feb 2018,
he donated to a property to his sister situated in BASILAN, PHILIPPINES worth P 400,000. What
is the donors tax still due on July 2018?
______________9. SAN JOSE, a non resident citizen donor, had the following data in 2017:
Net Gift - Phil is P 600,000

Net Gift in Japan is P 250,000
Net Gift in USA is P 150,000
Gift tax paid to Japan is P 68,500
Gift Tax paid to USA is P 37,500
All donees are strangers.
What is the donor tax still due?
______________10. SAN JOSE, a non resident alien donor, had the following data in 2018:
Net Gift - Phil is P 600,000

Net Gift in Japan is P 250,000
Net Gift in USA is P 150,000
Gift tax paid to Japan is P 68,500
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Gift Tax paid to USA is P 37,500
All donees are strangers.
What is the donor tax still due?
________________THANK YOU!!!__________________
RATES OF DONOR'S TAXES (UNTIL 2017 ONLY)
Over But not Over Tax shall be Plus

P0 P 100,000 Exempt 0
P 100,000 P 200,000 P0 2%
P 200,000 P 500,000 P 2,000 4%
P 500,000 P 1,000,000 P 14,000 6%
P 1,000,000 P 3,000,000 P 44,000 8%
P 3,000,000 P 5,000,000 P 204,000 10%
P 5,000,000 P 10,000,000 P 404,000 12%
P 10,000,000 - P 1,004,000 15%
RATES OF DONOR'S TAXES (EFFECTIVE JAN 1, 2018)
The donor's tax for each calendar year shall be 6% computed in the basis of the total net gifts in
excess of P 250,000 exempt gift made during the calendar year.
NEVER GIVE UP COZ TIME PASSES ANYWAY!! GSJ
Answer Sheet
1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
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MODULE 2: ESTATE TAXATION
OVERVIEW:
“Art. 712. Ownership is acquired by occupation and by intellectual creation.

Ownership and other real rights over property are acquired and transmitted by law, by donation,
by estate and intestate succession, and in consequence of certain contracts, by tradition. They
may also be acquired by means of prescription. (609a)”
Under the Civil Code, Article 712, the modes of acquiring ownership over property
are Occupation, Law, Donation, Tradition, Intellectual creation, Prescription and Succession.
Under Art. 725. Donation is an act of liberality whereby a person disposes

gratuitously of a thing or right in favor of another, who accepts it. (618a). Two type of Donation,
as to time of taking effect, may be either Donation inter vivos or Donation Mortis-causa. Donation
inter vivos take effect during the lifetime of the donor which is subject to donor’s tax. Donor’s
taxation was already discussed in Module 1. While Donation mortis-causa takes effect after death
of the donor which is subject to estate tax.
Under Art. 774, Succession is a mode of acquisition by virtue of which the property,
rights and obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by his will or by operation of law. In succession, the
property (net estate) of a person who died (called decedent) is transmitted to his heirs, successors
or beneficiaries either by will or operation of law. The rights to succession are deemed transmitted
from the moment of the decedent’s death. Acquisition or transfer of ownership over the net estate
or properties of decedent to the heirs / successors, thru succession, is subject to estate tax as
provided by the Tax Code. Under the Tax Code, Sec 84,There shall be levied, assessed, collected
and paid upon the transfer of the net estate as determined in accordance with Sections 85 and
86 of every decedent, whether resident or nonresident of the Philippines, a tax based on the value
of such net estate, as computed in accordance with Sec 84.
Estate tax is imposed on the privilege to transmit property upon death. It a tax on
the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the
time of death.
On this module, we will discuss the difference between estate and donor’s tax,
concepts of succession and its elements, the classes of heirs and the different grounds for
disinheritance. Provided also in this module are the procedures for filing and payment of estate
tax due to BIR which includes the: Date and place of filing and payment of estate tax return, BIR
form for estate tax and others.
MODULE DURATION:
• November 2-30, 2020 Synchronous Meeting and Asynchronous Learning.
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MODULE OBJECTIVES:

1. Define transfer and estate tax
2. Differentiate Estate tax and donor’s tax
3. To be able to understand the concept of Succession (Elements, Requisites, Kinds /
Classification)
4. To be able to know the classes of heirs, parts of hereditary estate and the different grounds for
disinheritance.
5. To be able to understand the administrative provisions of Estate taxation which includes:
Persons required to file the estate tax return, Date and Place of filing the estate tax return,
Payment of estate tax due, Attachments to Estate Tax Return and other provisions of law.
6. To be able to identify the classification of properties as to ownership (Exclusive or Conjugal);
To understand the rules applicable in determining the Conjugal Assets and Exclusive assets of a
married decedent and be able to apply the 2 regimes (Conjugal Partnership of Gains and Absolute
Community of Properties.
7. To compute the taxable net estate
8. To be able to know how to compute for the amount of Estate Tax Due based on the provisions
of Tax Code (both Old and New Tax Code)
9. To compute the Gross estate of decedent.
10. To determine the Allowed deductions to gross estate of decedent.
11. To know how to compute the allowed tax credits on foreign taxes paid on properties abroad
of the decedent
COURSE MATERIALS:
Under this module, the topic Estate Taxation is subdivided into five (5) lessons as
follows:
Lesson 1; Administrative Provisions and Fundamental Concepts of Estate Taxation.
Lesson 2: Laws / Rules on Taxable net Estate
Lesson 3: Estate Tax Credit and Estate Tax Return
Lesson 4: Laws / Rules Gross Estate
Lesson 5: Allowed Deduction from Gross estate
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Lesson 1: Administrative Provisions

and Fundamental Concepts of Estate Taxation
Overview:
This lesson will deal with basic ideas, informative data, enumerations,
classifications and definitions of terms related to estate taxation. As introduced, under the civil
code, succession is a mode of acquiring ownership over a property or estate of a decedent. The
gratuitous transfer of property at the decedent’s death to another person called heirs / successors
is subject to a transfer tax called estate tax.
Upon death of decedent, Estate Tax is imposed on the right of the deceased
person to transmit his/her estate to his/her lawful heirs and beneficiaries. The executor or
administrator or any of legal heirs, as the case maybe, shall file estate tax return under oath to
the BIR. This lesson will also deals with certain requirements, guidelines, in matters and manners
/ procedures for filing the estate tax returns and payment of estate tax dues under the provisions
of the National Internal Revenue Code, also known as the Tax Code, enforced by the Bureau of
Internal Revenue or the BIR.
Module Objectives:

1. Define estate tax
2. Differentiate Estate tax and donor’s tax
3. To be able to understand the concept of Succession (Elements, Requisites, Kinds /
Classification)
4. To be able to know the classes of heirs, parts of hereditary estate and the different grounds for
disinheritance.
5. To be able to understand the General principles of estate taxation.
6. To be able to know the classification of estate/decedent and the situs of estate tax laws.
7. To be able to understand the purpose of estate tax, the last will and testaments.
8. To be able to understand the administrative provisions of Estate taxation which includes:
Persons required to file the estate tax return, Date and Place of filing the estate tax return,
Payment of estate tax due, Attachments to Estate Tax Return and other provisions of law.
Course Materials:
DEFINITION: ESTATE TAX
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Estate Tax is a tax on the right of the deceased person to transmit his/her estate
to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are
made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax
imposed on the privilege of transmitting property upon the death of the owner.
The Estate Tax is based on the laws in force at the time of death notwithstanding
the postponement of the actual possession or enjoyment of the estate by the beneficiary.
DISTINCTIONS BETWEEN THE ESTATE TAX AND THE DONOR’S TAX:
Estate Tax Donor’s Tax

1 Notice of death is required In general, notice of donation is not
required.
2 CPA Certificate on the estate tax CPA Certificate is not required.
return maybe required in certain
situations.
3 Take effect upon death of the Take effect during the lifetime of donor.
decedent
4 Tax rate is 6% of net estate Tax rate is 6% in excess of P 250,000
exempt gift
5 No exemption With exemption up to P 250,000
6 Filing of estate tax return is 6 Fling of donor’s tax return is within 30 days
months (Old Tax Code). from date of donation
Under the New Tax Code, filing is

within 1 year from death of decent.
7 In general, with extension on filing of Without extension for filing of donor’s tax
estate tax return return
FUNDAMENTAL CONCEPTS OF ESTATE TAXATION:
Succession as defined under Art. 774 of the New Civil Code is a mode of acquisition by
virtue of which the property, rights and obligations to the extent of the value of the inheritance, of
a person are transmitted through his death to another or others either by his will or by operation
of law. The rights to succession are deemed transmitted from the moment of the decedent’s death.
Elements of Succession:
1. Decedent who is the person who died and whose property is transmitted through
succession. It is the general term applied to the person whose property is transmitted
through succession, whether or not he left a will. The testator is the decedent whose
properties are to be transferred to his successor through a written will. A transfer of
property from a decedent without a will is called intestate. The law defined it as:
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Art. 775. In this Title, “decedent” is the general term applied to the person whose property is
transmitted through succession, whether or not he left a will. If he left a will, he is also called the
testator. (n)
2. Successor or the heir or person to whom the property or property rights is to be transferred.
They may also be called as heirs, devisees or legatees which is defined by law as:
Art. 782. An heir is a person called to the succession either by the provision of a will or by operation
of law.
Devisees and legatees are persons to whom gifts of real and personal property are respectively
given by virtue of a will. (n)
Death of the decedent which causes the rights to the succession are transmitted from the moment
of the death of the decedent.
3. Inheritance- refers to the properties or property rights of a decedent, which is the subject
matter of succession. Also known as Inheritance.
Kinds of Successors:
1. Compulsory heirs are those for whom the legitime is reserved by law, and who succeed
whether the testator likes it or not. They cannot be deprived by the testator of their legitime
except by disinheritance properly effected.
They may be primary or those who have precedence over and exclude other Compulsory Heirs
as in the case of Legitimate Children and Descendants (LCD); They may also be secondary or
those who succeed only in the absence of the Primary Compulsory Heirs as in the cases of
Legitimate Parents and Ascendants (LPA); Lastly, they may also be concurring o those who
succeed together with the Primary or Secondary Heirs as in the cases of Illegitimate Children and
Descendants (ICD)Surviving Spouse (SS)
2. Voluntary heirs are those other than the compulsory heirs. The devisee is the person to
whom a gift of real property is given by virtue of a will while a legatee is the person to
whom a gift of personal property (bequest) is given by virtue of a will.
KINDS OF SUCCESSION:
1. Testamentary – succession by will
2. Intestate – succession in default of a will
3. Mixed
Grounds for Disinheritance under the Civil Code;

Article 915. A compulsory heir may, in consequence of disinheritance, be deprived of his legitime,
for causes expressly stated by law. (848a)
Article 916. Disinheritance can be effected only through a will wherein the legal cause therefor
shall be specified. (849)
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Article 917. The burden of proving the truth of the cause for disinheritance shall rest upon the
other heirs of the testator, if the disinherited heir should deny it. (850)
Article 918. Disinheritance without a specification of the cause, or for a cause the truth of which,
if contradicted, is not proved, or which is not one of those set forth in this Code, shall annul the
institution of heirs insofar as it may prejudice the person disinherited; but the devises and legacies
and other testamentary dispositions shall be valid to such extent as will not impair the legitime.
Article 919. The following shall be sufficient causes for the disinheritance of children and
descendants, legitimate as well as illegitimate:
(1) When a child or descendant has been found guilty of an attempt against the life of the testator,
his or her spouse, descendants, or ascendants;
(2) When a child or descendant has accused the testator of a crime for which the law prescribes
imprisonment for six years or more, if the accusation has been found groundless;
(3) When a child or descendant has been convicted of adultery or concubinage with the spouse
of the testator;
(4) When a child or descendant by fraud, violence, intimidation, or undue influence causes the
testator to make a will or to change one already made;
(5) A refusal without justifiable cause to support the parent or ascendant who disinherits such
child or descendant;
(6) Maltreatment of the testator by word or deed, by the child or descendant;
(7) When a child or descendant leads a dishonorable or disgraceful life;
(8) Conviction of a crime which carries with it the penalty of civil interdiction
Article 920. The following shall be sufficient causes for the disinheritance of parents or
ascendants, whether legitimate or illegitimate:
(1) When the parents have abandoned their children or induced their daughters to live a corrupt
or immoral life or attempted against their virtue;
(2) When the parent or ascendant has been convicted of an attempt against the life of the testator,
his or her spouse, descendants, or ascendants;
(3) When the parent or ascendant has accused the testator of a crime for which the law prescribes
imprisonment for six years or more, if the accusation has been found to be false;
(4) When the parent or ascendant has been convicted of adultery or concubinage with the spouse
of the testator;
(5) When the parent or ascendant by fraud, violence, intimidation, or undue influence causes the
testator to make a will or to change one already made;
(6) The loss of parental authority for causes specified in this Code;
(7) The refusal to support the children or descendants without justifiable cause;
(8) An attempt by one of the parents against the life of the other, unless there has been a
reconciliation between them. (756, 854, 674a)
Article 921. The following shall be sufficient causes for disinheriting a spouse:
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(1) When the spouse has been convicted of an attempt against the life of the testator, his or her
descendants, or ascendants;
(2) When the spouse has accused the testator of a crime for which the law prescribes
imprisonment of six years or more, and the accusation has been found to be false;
(3) When the spouse by fraud, violence, intimidation, or undue influence cause the testator to
make a will or to change one already made;
(4) When the spouse has given cause for legal separation;
(5) When the spouse has given grounds for the loss of parental authority;
(6) Unjustifiable refusal to support the children or the other spouse. (756, 855, 674a)
Article 922. A subsequent reconciliation between the offender and the offended person deprives
the latter of the right to disinherit and renders ineffectual any disinheritance that may have been
made. (856)
Article 923. The children and descendants of the person disinherited shall take his or her place
and shall preserve the rights of compulsory heirs with respect to the legitime; but the disinherited
parent shall not have the usufruct or administration of the property which constitutes the legitime.
(857)
Renunciation or repudiation of Inheritance, or Share of Spouse in the Net Estate:
1.Renunciation by surviving spouse of his / her share in the conjugal estate under either the
conjugal partnership of gains or the absolute community of property, after dissolution of marriage
in favor of the heirs of the deceased spouse or any other person shall be considered a taxable
gift which is subject to donor’s tax.
2.General renunciation by heir including the surviving spouse of his / her share in the hereditary
estate left by the decedent, without favoring/ excluding any particular heir is not subject to donor’s
tax.
3.Specific renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent, categorically done in favor of identified heirs/ to the
exclusion or disadvantage of the other co-heirs in hereditary estate shall not be subject to donor’s
tax.
A person's compulsory heirs are the following:

1) legitimate children and descendants, with respect to their legitimate parents and ascendants;
2) in default of the foregoing, legitimate parents and ascendants, with respect to their legitimate
children and descendants;
3) the widow or widower; and
4) acknowledged natural children and natural children by legal fiction
5). Other illegitimate children
Classification of Estate Tax:
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1.Excise Tax- The tax is imposed on a person’s exercising his right to transmit his property for
free, at death by way of testamentary disposition or by operation of law in the absence of will and
testament.
2. Ad valorem tax- The tax is computed using a rate based on property’s value.
3. Direct tax- The tax is directed to be paid by the person liable to such tax. Such tax cannot be
shifted to other person.
4. National Tax- The tax is imposed by the National Govt.
5. Transfer Tax
6. Personal tax
7. Graduated / Fixed rate
Purpose of Estate Tax:

1. To avoid the undue accumulation of wealth or fortune to an individual
2. To raise revenue for use of government
Justification of Imposing Estate Tax:
Based on benefit received theory
Kinds/ Classes of Decedent

1. Resident Citizen
2. Non-resident citizen
3. Resident Alien
4. Nonresident Alien
Nature or Forms of property/estate;
1. Real property- include buildings, ponds, canals, roads, and machinery, among other things.
2. Personal property- is a class of property that can include any asset other than real estate. The
distinguishing factor between personal property and real estate, or real property, is that
personal property is movable; that is, it isn't fixed permanently to one particular location
3. Tangible property- In comparison to intangible personal property, tangible property can be
touched. Consider property such as furniture, machinery, cell phones, computers, and
collectibles which can be felt compared to intangibles such as patents, copyrights, and non-
compete agreements that cannot be seen or touched
4. Intangible property- is property that does not derive its value from physical attributes. Patents,
software, trademarks and license are examples of intangible property
Classification of Property / estate as to Ownership:

1. Exclusive assets of decedent
2. Conjugal assets
3. Exclusive asset of spouse
4. Paraphernal property- Those assets owned and belonging to the wife.
5. Capital Property- Those assets owned and belonging to the husband.
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Kinds of Will or testament:
1. Holographic Will
2. Ordinary Will
Codicil – refers to supplemental or additional instructions made by the testator-decedent that

modifies an existing will and testament.
Administrator-is appointed by court while Executor is the person named in the will by the testator.
ADMINISTRATIVE PROVISION OF ESTATE TAXATION:
Tax Form
BIR Form 1801 - Estate Tax Return

This BIR return is filed by:
1. The executor, or administrator, or any of the legal heirs of the decedent, whether resident or
non-resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Where though exempt from estate tax, the gross value of the estate exceeds two hundred
thousand (P200,000) pesos; or
c. Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar property
for which a clearance from the BIR is required as a condition precedent for the transfer of
ownership thereof in the name of the transferee; or
2. Documentary Requirements
Mandatory Requirements [additional two (2) photocopies of each document]:
1. Certified true copy of the Death Certificate;
2. Taxpayer Identification Number (TIN) of decedent and heir/s;
3. Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if gross
taxable estate exceeds P20,000 for deaths occurring on January 1, 1998 up to December 31,
2017; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to January 1, 1998;
4. Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial Settlement
of the Estate, if the estate has been settled extra-judicially; c) Court order if settled judicially; d)
Sworn Declaration of all properties of the Estate;
5. A certified copy of the schedule of partition and the order of the court approving the same
within thirty (30) days after the promulgation of such order, in case of judicial settlement;
6. Proof of Claimed Tax Credit, if applicable;
7. Certified Public Accountant (CPA) Statement on the itemized assets of the decedent,
itemized deductions from gross estate and the amount due if the gross value of the estate exceeds
five million pesos (Php5,000,000.00) for decedent’s death on or after January 1, 2018 or two
million pesos (Php2,000,000.00) for decedent’s death from January 1, 1998 to December 31,
2017;
8. Certification of the Barangay Captain for the claimed Family Home (If the family home is
conjugal property and does not exceed Php10 Million, the allowable deduction is one-half (1/2) of
the amount only);
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9. Duly Notarized Promissory Note for "Claims Against the Estate" arising from Contract of
Loan;
10. Accounting of the proceeds of loan contracted within three (3) years prior to death of the
decedent;
11. Proof of the claimed "Property Previously Taxed";
12. Proof of the claimed "Transfer for Public Use";
13. Copy of Tax Debit Memo used as payment, if applicable;
For Real Properties, if any [additional two (2) photocopies of each document]:
1. Certified true copy/ies of the Transfer/Original/Condominium Certificate/s of Title of real
property/ies (front and back pages), if applicable;
2. Certified true copy of the Tax Declaration of real properties at the time of death, if
applicable;
3. Certificate of No Improvement issued by the Assessor's Office where declared properties
have no improvement
For Personal Properties, if any [additional two (2) photocopies of each document]:
1. Certificate of Deposit/Investment/Indebtedness owned by the decedent and the surviving
spouse, if applicable;
2. Photocopy of Certificate of Registration of vehicles and other proofs showing the correct
value of the same, if applicable;
3. Proof of valuation of shares of stock at the time of death, if applicable;
1. For shares of stocks not listed/not traded - Latest Audited Financial Statement of the
issuing corporation with computation of the book value per share
2. For shares of stocks listed/traded - Price index from the Philippine Stock Exchange (PSE)
/latest Fair Market Value (FMV) published in the newspaper at the time of transaction
3. For club shares - Price published in newspapers on the transaction date or nearest to the
transaction date
4. Photocopy of Certificate of stocks, if applicable;

5. Proof of valuation of other types of personal property, if applicable;
Other Additional Requirements, if applicable:
• Special Power of Attorney (SPA), if the person transacting/processing the transfer is not
a party to the transaction and/or Sworn Statement if one of the heirs is designated as
executor/administrator;
• Certification from the Philippine Consulate if document is executed abroad
• Location Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be
readily determined from the documents submitted
• Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or
his authorized representative, if tax exempt
• BIR-approved request for installment payment of Estate tax due
• BIR-approved request for partial disposition of Estate
• Such other documents as may be required by law/rulings/regulations/etc.
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Tax Rates
(The rate applicable shall be based on the law prevailing at the time of decedent’s death)
• Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE
determined as of the time of death of decedent composed of all properties, real or personal,
tangible or intangible less allowable deductions.
• Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)
If the Net Estate is:
Who Shall File:
The Tax Of the Excess

But not Over Plus
Over Shall be Over
P 200,000.00 Exempt
P 200,000.00 500,000.00 0 5% P 200,0000
500,000.00 2,000,000.00 P 15,000.00 8% 500,000.00
2,000,000.00 5,000,000.00 135,000.00 11% 2,000,000.00
5,000,000.00 10,000,000.00 465,000.00 15% 5,000,000.00
10,000,000.00 1,215,000.00 20% 10,000,000.00
The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by:
1. The executor, or administrator, or any of the legal heir/s of the decedent, whether resident or
non-resident of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar property
for which a clearance from the BIR is required as a condition precedent for the transfer of
ownership thereof in the name of the transferee; or
2. If there is no executor or administrator appointed, qualified, and acting within the Philippines,
then any person in actual or constructive possession of any property of the decedent.
Taxpayers who are filing BIR Form 1801 are excluded in the mandatory coverage from using the
eBlRForms (Section 2 of RR No. 9-2016)
When and Where to File and Pay

The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent's
death. In meritorious cases, the Commissioner shall have the authority to grant a reasonable
extension not exceeding thirty (30) days for filing the return.
The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office
(RDO) having jurisdiction over the place of domicile of the decedent at the time of his death. If the
decedent has no legal residence in the Philippines, the return shall be filed with the Office of the
Commissioner (RDO No. 39, South Quezon City).
96
In case of a non-resident decedent with executor or administrator in the Philippines, the return
shall be filed with the AAB of the RDO where such executor/administrator is registered or is
domiciled, if not yet registered with the BIR.
When the return is filed with an AAB, taxpayer must accomplish and submit BIR-prescribed
deposit slip, which the bank teller shall machine validate as evidence that payment was received
by the AAB. The AAB receiving the tax return shall stamp mark the word “Received’’ on the return
and also machine validate the return as proof of filing the return and payment of the tax by the
taxpayer, respectively. The machine validation shall reflect the date of payment, amount paid and
transaction code, the name of the bank, branch code, teller’s code and teller’s initial. Bank debit
memo number and date should be indicated in the return for taxpayers paying under the bank
debit system.
Payments may also be made thru the epayment channels of AABs thru either their online facility,
credit/debit/prepaid cards, and mobile payments.
In case the available cash of the estate is insufficient to pay the total estate tax due, payment by
installment shall be allowed within two (2) years from the statutory date for its payment without
civil penalty and interest upon approved by the concerned BIR Official.
The due date on filing and payment of the return/tax shall depend on the applicable law at the
time of the decedent’s death.
Extension to File and Pay

When the Commissioner of Internal Revenue finds that the payment on the due date of the estate
tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he
may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in
case the estate is settled through the courts, or two (2) years in case the estate is settled extra-
judicially. In such case, the amount in respect of which the extension is granted shall be paid on
or before the date of the expiration of the period of the extension, and the running of the Statute
of Limitations for assessment as provided in Section 203 of the National Internal Revenue Code
shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the
Commissioner.
If an extension is granted, the Commissioner of Internal Revenue or his duly authorized
representative may require the executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of tax and with such sureties as
the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance
in the terms of extension.
The application for extension of time to file the estate tax return must be filed with the Revenue
District Officer (RDO) where the estate is required to secure its Taxpayer Identification Number
(TIN) and file the tax returns of the estate. The application shall be approved by the Commissioner
or his duly authorized representative.
Name;______________________________ Score:_______
Section:_________
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Identification/ Enumeration:
1.What are the allowable deductions for Estate Tax Purposes? Enumerate the requisites
for its deductibility. ( For resident and nonresident alien)
2. What will be used as basis in the valuation of property? (real, personal and stocks)
3. What are excluded from gross estate?
4. When and where should the executor file and pay the Estate tax return? Can the heirs
withdraw the cash from bank by a decedent even without filing the estate tax return to BIR?
Explain.
5. Enumerate and explain the amendments in the Tax Code related to Estate taxation by
TRAIN law or RA 10963?
98
Lesson 2: Laws on the Taxable Net Estate
Overview:
Under the Tax Code, there shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent,
whether resident or nonresident of the Philippines, a tax based on the value of such net estate,
as computed in accordance with law.
Hereditary estate refers to the amount of decedent’s net estate after deducting the
expenses, losses, indebtedness, taxes and such other allowed deductions from the gross estate
of decedent, which net amount shall be subject of distribution to heirs, successors or beneficiaries
based on decedent’s last will and testament, or if none, by operation of law.
The computation of taxable net estate depends on the kind of decedent whether
resident / citizen or nonresident decedent. On this module, it will discuss the formulas for the
computation of taxable net estate of different decedents and the computation of estate tax due
under the Old and New Tax Code. It will also provide an overview of the allowed deductions from
the gross estate of different decedents.
Module Objectives:
1.To determine the tax source and tax bases different classes of decedent.
2.To know the estate tax rates under the Old and New Tax Code for computation of estate tax
due.
3. To understand the formulas in the computation of taxable net estate.
4. To be able to know how to compute for the Estate Tax Due under the Old and New Tax Code.
Course Materials:
Under the Tax Code, as amended:
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon
the transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax based on the value of such
net estate, as computed in accordance with the following schedule:
(The rate applicable shall be based on the law prevailing at the time of decedent’s death)
• Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
99
There shall be an imposed rate of six percent (6%) based on the value of such NET
ESTATE determined as of the time of death of decedent composed of all properties, real or
personal, tangible or intangible less allowable deductions.
• Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)
If the Net Estate is
But not The Tax Of the Excess

Over Plus
Over Shall be Over
P 200,00
Exempt
0.00
P 200,000 500,00 P
0 5%
.00 0.00 200,0000
500,000 2,000,00
P 15,000.00 8% 500,000.00
.00 0.00
2,000,000 5,000,00
135,000.00 11% 2,000,000.00
.00 0.00
5,000,000 10,000,00
465,000.00 15% 5,000,000.00
.00 0.00
10,000,000
1,215,000.00 20% 10,000,000.00
.00
Illustration of Estate Tax Return Formula, In General

Amount
Gross Estate 2,000,000
Less: Allowed Deductions 1,200,000
Taxable Net Estate 800,000
Estate Tax due (Old law; Assuming decedent died 39,000*

before Jan 1, 2018)
* The tax base or taxable net estate is 800,000; Use the graduated tax rate table;
refer to third layer (Over 500,000 But not over 2,000,000). The excess is 300,000
(800,000 less 500,000) times 8% PLUS 15,000. Then, 24,000 + 14,000 = 39,000
Estate Tax due (New law; Assuming decedent died after 48,000**
Jan 1, 2018)
**The tax rate is 6% of taxable net estate, thus, 800,000 times 6% is equal to
48,000.
SUMMARIZED RULES ON ESTATE TAXATION (TAX SOURCE)
100
Decedent Taxable Base Taxable Source Tax Rates
Resident Citizen (RC) Taxable Net Estate World Old tax Code: based
Resident Alien (RA) (Gross Estate less (Both within the Phil on Graduated tax rate
Allowed and table; 0% to 20%/ first
Non-Resident Citizen 200,000 exempt
(NRC) deductions) Abroad/Foreign
Countries) Tax rate of 6%
Non resident Alien Taxable Net Estate Estate within the Old tax Code: based
(Gross Estate less Philippines ONLY on Graduated tax rate
Allowed table; 0% to 20%/ first
deductions) 200,000 exempt
Tax rate of 6%
TAXABLE NET ESTATE for RESDIENT CITIZEN, RESIDENT ALIEN AND NON-RESIDENT
CITIZEN DECEDENT;
In case of resident citizen, resident alien and on resident citizen decedent, the
estate tax is imposed on taxable net estate situated in the Philippines and in foreign countries and
computed in accordance with graduated estate tax rates of 0% to 20% OR 6% flat rate under the
TRAIN law.
Taxable net estate is determined by gross estate -world less allowed deduction-world.
GROSS ESTATE:
Gross estate is determined by including in the estate tax return the total fair market value of all
property/ estate at their gross amounts, whether real, personal, tangible or intangible properties,
located in the Philippines and abroad.
However, there are items of assets / properties that are specified by law as exclusion from gross
estate; hence shall be disregarded or excluded in the computation of gross estate. This will be
discussed in detail in Lesson 4 Gross Estate.
ALLOWED DEDUCTIONS:
Allowed deductions is determined by including in the estate tax return the allowed
deductions from gross estate which consist of liabilities, expenses and other charges related to
properties in the Philippines and abroad of the decedent. However, there are deductions that are
excluded or not allowed to be deducted from gross estate. Unless specified by law to be excluded,
such liabilities, expenses and other charges related to properties in the Philippines and abroad of
the decedent shall be included in computation of allowed deductions.
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Composition of Allowed Deductions for Resident Citizen, Non-resident citizen and Resident Alien:
A. Ordinary Deductions:
1. Expenses, Losses, Indebtedness and Taxes (ELITE)*
2. Property Transfer for Public Purposes
3. Vanishing Deductions
4. Amount received by Heirs from Decedent’s Employer
B. Special Deductions
1. Medical Expenses*
2. Family Home*
3. Standard Deduction (SD)*
*With amendments from TRAIN law. Pls see lesson 5; Allowed Deductions for details.
C.Share of Spouse in the Net Conjugal Estate-World

This amount is determined as follows: Conjugal Assets-world less Ordinary Conjugal
deductions -world equals net Conjugal estate world multiplied by 50%.
Formula:
Conjugal estate- Phil P xxx
Conjugal estate- Abroad Xx
Conjugal Estate-World P xxxx
Less: Conjugal ordinary deductions-Phil X
Conjugal ordinary deductions-Abroad Xx
Net Conjugal Estate World P xxx
Equity of Spouse 50%
Share of Spouse in Net Conjugal Estate World P xxx
Illustration:
Conjugal estate- Phil 1,500,000

Conjugal estate- Abroad 800,000
Exclusive estate-Phil 1,900,000
Exclusive Estate-Abroad 3, 500,000
Gross Estate-World 7,700,000
Less:
Conjugal ordinary deductions-Phil 700,000
Conjugal ordinary deductions-Abroad 250,000
102
Decedent’s ordinary deductions-Phil 300,000
Decedent’s ordinary deductions-Abroad 150,000
Special Deduction 5,500,000
Share of Spouse in Net Conjugal Estate World** 675,000
Total Allowed Deductions-World 7,575,000
Taxable Net Estate-World 125,000
Estate tax Due (Old Tax Code) P0
Estate tax Due (New Tax Code) 7 500
Computation of Share of Spouse in Net Conjugal Estate World

Conjugal estate- Abroad 800,000
Conjugal Estate-World 2,300,000
Less: Conjugal ordinary deductions-Phil 700,000
Conjugal ordinary deductions-Abroad 250,000
Net Conjugal Estate World 1,350,000
TAXABLE NET ESTATE FOR NON-RESIDENT ALIEN DECEDENT;
In case of Nonresident alien decedents, estate tax is imposed on taxable net estate
situated in the Philippines ONLY and computed in accordance with graduated estate tax rates of
0% to 20% OR 6% flat rate under the TRAIN law.
Taxable net estate is determined by gross estate -Phil only less allowed deduction-Phil
only.
GROSS ESTATE:
Gross estate is determined by including in the estate tax return the total fair market value of all
property/ estate at their gross amounts, whether real, personal, tangible or intangible properties,
located in the Philippines only.
However, there are items of assets / properties that are specified by law as exclusion from gross
estate; hence shall be disregarded or excluded in the computation of gross estate. This will be
discussed in detail in Lesson 4 Gross Estate.
103
ALLOWED DEDUCTIONS:
Allowed deductions is determined by including in the estate tax return the allowed
deductions from gross estate which consist of liabilities, expenses and other charges related to
properties in the Philippines only of the decedent. However, there are deductions that are
excluded or not allowed to be deducted from gross estate. Unless specified by law to be excluded,
such liabilities, expenses and other charges related to properties in the Philippines only of the
decedent shall be included in computation of allowed deductions.
Composition of Allowed Deductions for Non-resident Alien:

A. Ordinary Deductions:
1. Expenses, Losses, Indebtedness and Taxes (ELITE)*
2. Property Transfer for Public Purposes
3. Vanishing Deductions
*With amendments from TRAIN law. Pls see lesson 5; Allowed Deductions for details.
B.Share of Spouse in the Net Conjugal Estate-Phil only (Applicable only if the Nonresident Alien
is married)
This amount is determined as follows: Conjugal Assets-Phil only less Ordinary Conjugal
deductions -Phil only equals net Conjugal estate-Phil only multiplied by 50%.
Formula:
Conjugal estate- Phil P xxx
Less: Conjugal ordinary deductions-Phil X
Net Conjugal Estate -Phil only P xxx
Share of Spouse in Net Conjugal Estate-Phil only P xxx
* Under TRAIN law, Standard deduction is allowed for NRA amounting to P 500,000
Illustration:
Using the same data above, except that the decedent is a Nonresident Alien (married):
CASE A: Before TRAIN law

Gross Estate-Phil only 3,400,000
Less:
104
Special Deduction* 0
Total Allowed Deductions-Phil only 1,400,000
Taxable Net Estate-World 2,000,000
Estate tax Due (Old Tax Code) 135,000
Read:
https://www.slideshare.net/flabert1/01-chapter-1-and-2-taxation-2?next_slideshow=1
The following data are available for a decedent in 2019:

Spouse’s exclusive property 1,000,000
Compute the estate tax due of the decedent in 2019.

Conjugal estate- Phil
Exclusive estate-Phil
Gross Estate-Phil only
Less:
Conjugal ordinary deductions-Phil
Decedent’s ordinary deductions-Phil
Special Deduction*
Share of Spouse in Net Conjugal Estate World**
Total Allowed Deductions-Phil only
Taxable Net Estate-World
Estate tax Due
.**Computation of Share of Spouse in Net Conjugal Estate World
Conjugal estate- Phil
Less: Conjugal ordinary deductions-Phil
Net Conjugal Estate Phil only
Equity of Spouse
Share of Spouse in Net Conjugal Estate**
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Lesson 3: Estate Tax Credit
Overview:
It is the duty of the decedent’s executor or administrator to file the estate tax return
of the decedent, comply with certain requirements or procedures for filing the estate tax return
and pay the corresponding estate tax payable to the BIR.
As discussed in the previous lessons, estate tax due is computed based on taxable
net estate of decedent using the graduated tax rate table or the flat rate of 6%. After computing
the estate tax due, the decedent’s executor or administrator shall determine how much tax credit
can be deducted directly from the Estate tax due computed to arrive at Estate tax payable after
tax credit.
Estate tax credit composed of Philippines estate tax paid in the original estate tax
return (in case of amended estate tax return) and foreign estate tax paid. The latter is subject to
limitations provided by Sec 86 of the Tax Code. On this module, we will discuss the components
of estate tax credit and how to compute the limits of foreign estate tax paid and determining the
estate tax payable to BIR under the Old and New Tax code.
Module Objectives:
1. To learn the laws on estate tax credit under the Tax Code
2. The identify the components of Estate Tax Credit
3. To know how to compute the limits or allowed tax credits on foreign taxes paid on
properties abroad of the decedent
4. To compute the Estate tax payable / still due under the Old and New Tax Code of
different kinds of decedents
Course Materials:
Sec 86 of the Tax Code provides that:

(E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax
imposed by the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to
each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent's net estate situated
within such country taxable under this Title bears to his entire net estate; and
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(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the decedent's net estate situated outside the Philippines taxable under
this Title bears to his entire net estate.
ESTATE TAX CREDIT:
Estate tax credit refers to amount of estate taxes imposed by the authority of the
Philippine Govt and / or by foreign country upon the decedent’s net estate situated therein, that
is allowed by law as a direct deduction from the Philippine estate tax due on decedent’s entire
taxable net estate.
The components of estate tax credit are as follows:
1. Philippines estate tax paid in the original estate tax return (in case of amended estate
tax return) and
2. foreign estate tax paid – This pertains to estate tax of any character and descriptions
imposed by the authority of foreign country upon decedent’s net estate located therein.
SUMMARY OF RULE on TAX CREDIT FOR DECEDENT:

Estate Tax credit Resident Citizen; Non Non resident Alien
resident Citizen OR Decedent
Resident Alien
Philippines estate tax paid Yes, allowed as Tax Credit Yes, allowed as Tax Credit
in the original estate tax
return (in case of amended
estate tax return)
Foreign estate tax paid Yes, allowed as Tax Credit NO
but subject to limit.
LIMITATIONS OF FOREIGN ESTATE TAX PAID
Limit A:
Foreign Country 1
Taxable Net estate x Phil = Formula Vs =
Foreign Country 1 estate Limit Whichever is
Tax Due Lower
Actual
DIVIDED by estate
tax
paid
Taxable net estate
-World (before
Standard
Deduction*)
PLUS
Foreign Country 2
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Foreign Country 2 estate Limit Whichever is
Tax Due Lower
Actual
DIVIDED by estate
tax
paid
Taxable net estate
-World (before
Standard
Deduction)
Allowed Tax Credit per LIMIT A =Lower in Foreign Country 1 PLUS Lower Foreign Country
2
Limit B:
Foreign Country 1
Foreign Country 1+ estate Limit Whichever is
Foreign Country 2 Tax Due Lower is
Actual
estate equal to
DIVIDED by tax paid LIMIT B
in
Country
Taxable net estate 1 and
-World (before Country
Standard 2
Deduction)
Allowed TAX Credit = Lower between the amounts in LIMIT A and LIMIT B.
*Under the Old Tax Code, Standard deduction allowed for RC, NRC and RA decedent is P
1,000,000. After TRAIN law, the Standard deduction allowed for RC,NRC and RA decedent was
increased to P 5,000,000.
Illustration 1:
In 2019, A, resident citizen, has the following taxable net estate before standard deduction (SD):
Year 2019 Phil Canada USA
Net Estate 6,000,000.00 3,000,000.00 1,000,000.00
Estate Tax Paid 12,000.00 82,000.00 35,000.00
Compute the Estate tax payable of A for 2019.
Solutions:
The estate tax payable of A is as follows:
Taxable net estate-Phil before SD 6,000,000
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Taxable net estate-Canada before SD 3,000,000
Taxable net estate-USA before SD 1,000,000
Taxable Net Estate-World before SD 10,000,000
Less: Standard Deduction (SD) 5,000,000
Taxable Net Estate 5,000,000
Estate tax due (at 6%) 300,000

Less: Estate tax Credit:
Philippine Estate Tax paid 12,000
Foreign Tax Credit* 112,000
Estate Tax Payable 176,000
Computation of limit for foreign estate tax paid:

Limit A;
Canada:
Limit Actual Lower
3M / 10M * 300,000=90,000 vs 82,000 82,000
USA
Limit Actual Lower
1M / 10M * 300,000=30,000 vs 35,000 30,000
LIMIT A: 112,000
LIMIT B:
Canada and USA
Limit Actual Lower
4M / 10M * 300,000=120,000 vs 117,000 117,000
Allowed Estate Tax Credit for Foreign Estate Tax paid:
Limit A LIMIT B Lower

112,000 vs 117,000 112,000
Read:
https://www.slideshare.net/flabert1/04-chapter-5-estate-tax
109
In 2017, A, resident citizen, has the following taxable net estate before standard deduction (SD):
Year 2019 Phil Canada USA
Net Estate 6,000,000.00 3,000,000.00 1,000,000.00
Estate Tax Paid 12,000.00 82,000.00 35,000.00
Compute the Estate tax payable of A for 2017.
Solutions:
The estate tax payable of A is as follows:
Taxable Net Estate
Estate tax due (at Graduated tax rate)

Less: Estate tax Credit:
Philippine Estate Tax paid
Foreign Tax Credit*
Estate Tax Payable
Computation of limit for foreign estate tax paid:

Limit A;
Canada:
Limit Actual Lower
vs
USA
Limit Actual Lower
vs
LIMIT A:
LIMIT B:
110
Canada and USA
Limit Actual Lower
vs
Allowed Estate Tax Credit for Foreign Estate Tax paid:
Limit A LIMIT B Lower

vs
111
Lesson 4: Laws / Rules on Gross Estate
Overview:
One of the functions of the executor / administrator is to gather and make a list of
inventories of the decedent’s property or estate on the date of the latter’s death. This is to
determine the Gross estate of decedent for the purpose of computing the estate tax due. Gross
estate consists of all properties owned by decedent at the time of his death excluding the exclusive
properties of the surviving spouse. It also includes the assets deemed owned by the decedent at
the time of his death.
On this module, we will discuss the composition of gross estate for purpose of
computing the taxable net estate subject to estate tax, valuation of properties of decedent and
those assets that are exempted, excluded and included in the computation gross estate. Included
on this module is the discussion of two regimes / property relations between spouses to determine
the classification of property as to ownership (conjugal or exclusive property)
Module Objectives:
1. To know the applicable rules on the properties included on the Gross Estate of a
decedent
2. To determine the properties / estate excluded on the Gross estate of decedent.
3. To learn the Valuation of the Properties of the Estate of decedent.
4. To be able to identify the classification of properties as to ownership (Exclusive or
Conjugal)
5. To understand the rules applicable in determining the Conjugal Assets and
Exclusive assets of a married decedent and be able to apply the 2 regimes
(Conjugal Partnership of Gains and Absolute Community of Properties.
6. Determine the value of Gross Estate
Course Materials:
Basis in the Valuation of Property:

The properties comprising the gross estate shall be valued based on their fair market value as of
the time of decedent’s death.
1. If the property is a real property, the appraised value thereof as of the time of death shall be,
whichever is the higher of –
a. The fair market value as determined by the Commissioner, or
b. The fair market value as shown in the schedule of values fixed by the provincial and city
assessors.
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2. In the case of shares of stocks, the fair market value shall depend on whether the shares are
listed or unlisted in the stock exchanges.
• Unlisted common shares are valued based on their book value while unlisted
preferred shares are valued at par value. In determining the book value of common
shares, appraisal surplus shall not be considered as well as the value assigned to
preferred shares, if there are any. On this note, the valuation of unlisted shares
shall be exempt from the provisions of RR No. 6-2013, as amended.
• For shares which are listed in the stock exchanges, the fair market value shall be
the arithmetic mean between the highest and lowest quotation at a date nearest
the date of death, if none is available on the date of death itself.
3. The fair market value of units of participation in any association, recreation or amusement club
(such as golf, polo, or similar clubs), shall be the bid price nearest the date of death published in
any newspaper or publication of general circulation.
4. To determine the value of the right to usufruct, use or habitation, as well as that of annuity,
there shall be taken into account the probable life of the beneficiary in accordance with the latest
basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation
of the Insurance Commissioner.(Sec. 5, RR No. 12-2018)
5. Other property- The Measured at fair value at the time of death.
GROSS ESTATE:
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a nonresident decedent who at the time
of his death was not a citizen of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.
GROSS ESTATE -WORLD FOR RESDIENT CITIZEN, RESIDENT ALIEN AND NON RESDIENT
CITIZEN DECEDENTS:
For resident alien decedents/citizens, gross estate shall include:
• Real or immovable property, wherever located
• Tangible personal property, wherever located
• Intangible personal property, wherever located
The composition of gross estate shall be to the extent of decedent’s interest, the total fair market
value of all properties, whether personal, real, intangible, whether exclusive asset of decedent or
conjugal asset of couple (in case the decedent is married) whether Assets still owned, or Assets
deemed owned located in the Philippines and in foreign countries..
However, there are properties or property transfer which under the provisions of estate tax laws
are exempt from estate tax and therefore shall be excluded from taxable gross estate -world.
GROSS ESTATE -PHIL ONLY: NON RESDIENT ALIEN DECEDENTS:

For Non resident alien, the composition of gross estate shall be to the extent of decedent’s
interest, the total fair market value of all properties, whether personal, real, intangible, whether
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exclusive asset of decedent or conjugal asset of couple (in case the decedent is married) whether
Assets still owned, or Assets deemed owned located in the Philippines only.
For non-resident decedent/non-citizens, gross estate includes:
• Real or immovable property located in the Philippines
• Tangible personal property located in the Philippines
• Intangible personal property - with a situs in the Philippines such as:
• Franchise which must be exercised in the Philippines
• Shares, obligations or bonds issued by corporations organized or constituted in the
Philippines
• Shares, obligations or bonds issued by a foreign corporation 85% of the business of which
is located in the Philippines
• Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines (i.e. they are used in the furtherance of
its business in the Philippines)
• Shares, rights in any partnership, business or industry established in the Philippines
Reciprocity Clause / Law for intangible personal property:
However, in respect of intangible personal property situated in the Phil of nonresident alien
decedent, no estate tax shall be collected if the following conditions have been complied with;
1. If the foreign country of which he is a citizen and resident at the time of his death, did
not impose death tax of any character in respect to intangible personal property of
citizens of the Philippines not residing in that foreign country.
2. If estate tax laws of foreign country of which the decedent is citizen and a resident at
the time of his death, allows a similar exemption from death tax of any character in
respect to intangible personal property owned by citizen of the Philippines not residing
on that foreign country.
Intangible personal property with a situs in the Philippines such as:
1. franchise which must be exercised in the Philippines;
2. Shares of stock, obligations or bonds issued by corporations organized or
constituted in the Philippines;
3. Shares, obligations or bonds issued by a foreign corporation 85 percent of the
business of which is located in the Philippines;
4. Shares of stock, obligations or bonds issued by a foreign corporation if such
shares, obligations or bonds have acquired a business situs in the Philippines, that
is, they are used in the furtherance of its business in the Philippines; and
5. Shares, rights in any partnership, business or industry established in the
Philippines.
Amounts received by Heirs under RA 4917:

Refers to the amount received by heirs from the decedent’s employer as a
separation benefit or as a consequence of death of decedent-employee in accordance with RA
4917.
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This amount is allowed as deduction from gross estate provided the amount
received by heir is included first as part of gross estate. For married decedent, this is a conjugal
asset and the same time, conjugal deduction.
EXCLUSIONS/EXEMPTIONS FROM GROSS ESTATE:

There are three groups of properties or property transfer which are expressly exclude/exempted
from the declaration of the decedent’s gross estate:
I. Exemptions from Estate Tax under NIRC
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of inheritance or legacy by fiduciary heir or legatee to
the fidei-commissary heir
3. All bequest, devises, legacies or property transfer to social welfare, cultural,
charitable institutions, no part of net income of which inures to the benefit of
any individual provided that no more than 30% of said property shall be used
by such institutions for administrative purposes.
4. The transmission from first heir, legatee or done in favor of another beneficiary,
in accordance with the desire / will of the predecessor.
II. Exemptions from Estate tax Under Special Laws

1. GSIS proceeds/ benefits by reason of deaths
2. Accruals from SSS by reason of death
3. Benefits from US veterans Administration (RA 360)
4. War damage payments
5. Retirement benefits from RA 4917
6. Proceeds of life insurance where the third party beneficiary is irrevocably
appointed
7. Proceeds of life insurance under a group insurance taken by employer (not
taken out upon his life).
III. Exclusions from Gross Estate under NIRC

1. Capital asset or exclusive asset of surviving spouse
2. Properties abroad in case of non resident alien decedent.
3. Intangible personal property in the Philippines in case of non resident alien
decedent with reciprocity clause.
INCLUSION IN THE GROSS ESTATE:

In general, the property included in the gross estate are the following:
1.Assets Still owned by decedent- These are property still in possession and owned by the
decedent, physically, included in the inventory of asset at his death, to the extent of decadent’s
interest or equity over that property whether owned exclusively by decedent ,owned jointly by
couple or to other person.
2.Assets Deemed Owned- Properties formerly owned by decedent but were transferred to other
persons during his lifetime by way of any taxable transfer covered by estate tax. The property
transfer are death related transfers and partake of nature of testamentary dispositions:
a. Property transfer in contemplation of death or mortis causa
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Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take
effect in possession or enjoyment at or after death, or of which he has at any time made a transfer,
by trust or otherwise, under which he has retained for his life or for any period which does not in
fact end before his death (1) the possession or enjoyment of, or the right to the income from the
property, or (2) the right, either alone or in conjunction with any person, to designate the person
who shall possess or enjoy the property or the income therefrom; except in case of a bona fide
sale for an adequate and full consideration in money or money's worth.
b. Property transfer subject to revocation
Revocable Transfer under the Tax Code. -

(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in
money or money's worth) by trust or otherwise, where the enjoyment thereof was
subject at the date of his death to any change through the exercise of a power (in
whatever capacity exercisable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the
decedent acquired such power), to alter, amend, revoke, or terminate, or where any
such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall
be considered to exist on the date of the decedent's death even though the exercise
of the power is subject to a precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a stated period after
the exercise of the power, whether or not on or before the date of the decedent's
death notice has been given or the power has been exercised. In such cases, proper
adjustment shall be made representing the interests which would have been excluded
from the power if the decedent had lived, and for such purpose if the notice has not
been given or the power has not been exercised on or before the date of his death,
such notice shall be considered to have been given, or the power exercised, on the
date of death.
c. Property transfer passing under a general power of appointment- refers to any gift or property
transfer by a donor-decedent during his lifetime, the ownership of which passing from the actual
owner through him (decedent -transferor) to another person-donee under a general power of
appointment given to and exercised by the donor-decedent.
• Property Passing Under General Power of Appointment. - To the extent of any

property passing under a general power of appointment exercised by the decedent:
(1) by will, or
(2) by deed executed in contemplation of, or intended to take effect in possession
or enjoyment at, or after his death, or
(3) by deed under which he has retained for his life or any period not ascertainable
without reference to his death or for any period which does not in fact end before
his death
a. the possession or enjoyment of, or the right to the income from, the
property, or
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b. (b) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or
the income therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's worth.
Example; Mr Xin is the owner of building. He issued a general power of appointment to King,
authorizing him to gratuitously transfer the building to anyone he likes. King donate the building
to Wei as donation mortis causa. Later, Xin and King died. Thus, the transfer of building will be
part of King’s gross estate although the building has new possessor or owner which cannot be
taken away by others.
Limited Power of appointment refers to restricted authority or power exercisable in favor of or to

appoint certain person or beneficiary or successor who shall succeed to the property entrusted to
another person for safekeeping and future transfer.
d. Property transfer for insufficient considerations- refers to transfer of property for insufficient
consideration made by decedent during his lifetime; considered covered by and subject to estate
tax if shown to have been made by way of transfer enumerated and described in subsections B,
C and D of Sec 85 of the Tax Code.
Transfers for Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or
powers (enumerated and described in Subsections (B), (C) and (D) of Section 85 of Tax Code) is
made, created, exercised or relinquished for a consideration in money or money's worth, but is
not a bona fide sale for an adequate and full consideration in money or money's worth, there shall
be included in the gross estate only the excess of the fair market value, at the time of death, of
the property otherwise to be included on account of such transaction, over the value of the
consideration received therefor by the decedent.
e. Life insurance proceeds:
Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or
to the extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
Non taxable life insurance proceeds (excluded in gross estates) are as follows:
• If beneficiary is third person and irrevocably designated under private insurance

policy
• Insurance proceeds from GSIS or SSS
• If coming from the employer’s group of insurance plan taken out by employer on
employee’s life, whoever is the beneficiary, whether designated as revocable or
irrevocable
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If designation of the beneficiary is not stated as revocable or irrevocable, the insurance law
presumes it to be revocable.
REGIME / PROPERTY RELATIONS BETWEEN SPOUSES

(Article 75 of the Family Code of the Philippines)
“The future spouses may, in the marriage settlements, agree upon the regime of absolute
community, conjugal partnership of gain, complete separation of property, or any other regime. In
the absence of a marriage settlement, or when the regime agreed upon is void, the system of
absolute community of property as established in this Code shall govern.”
A property regime is the set of rules agreed upon by the parties, before getting married, which
would govern their property relations during the course of their married life. The laws of the
Republic of the Philippines recognize three kinds of property regimes namely:
1. Regime of Conjugal Partnership of Gain
2. Regime of Absolute Community of Property
3. Regime of Complete Separation of Properties
In the absence of a marriage settlement (pre-nuptial agreement) or when there is such but is void.
One of the three property regimes will apply depending on when the person is married.
Regime of Conjugal Partnership of Gains

If there is no pre-nuptial agreement during the celebration of marriage and such marriage took
place on or before August 3, 1988 the regime of conjugal partnership of gains applies.
Under the regime of conjugal partnership of gains, the husband and wife place in
a common fund the proceeds, products, fruits and income from their separate properties and
those acquired by either or both spouses through their efforts or by chance, and, upon dissolution
of the marriage or of the partnership, the net gains or benefits obtained by either or both spouses
shall be divided equally between them, unless otherwise agreed in the marriage settlements.
(Family Code of the Philippines, Article 106). All their income, gains, fruits will be the common
properties of the spouses.
All the properties they acquire before getting married will be their own exclusive
properties. What the man owns is his own, what the woman owns is her own. Those properties
acquired before marriage will not form part of their common properties during marriage, but the
fruits and income of such exclusive properties will form part of the common properties.
Regime of Absolute Community of Property

If there is no pre-nuptial agreement during the celebration of marriage and such
marriage took place after August 3, 1988 the regime of absolute community of property regime
applies.
The community property shall consist of all the property owned by the spouses at
the time of the celebration of the marriage or acquired thereafter. (Family Code of the Philippines,
Article 91)
This is the current governing property regime in the absence of a pre-nuptial
agreement since 1988 is already past due. This is the property regime wherein the properties of
both spouses will be combined. Both of them will become owners of the properties that each of
them had brought into marriage.
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“Art. 75. The future spouses may, in the marriage settlements, agree upon the
regime of absolute community, conjugal partnership of gains, complete separation of property, or
any other regime. In the absence of a marriage settlement, or when the regime agreed upon is
void, the system of absolute community of property as established in this code shall govern.”
Absolute community of property. This means that every piece of property you have
or have acquired before and after your marriage forms part of your absolute community of
property. This can be found under Article 91 of the Family Code, which provides: “Art. 91. Unless
otherwise provided in this chapter or in the marriage settlements, the community property shall
consist of all the property owned by the spouses at the time of the celebration of the marriage or
acquired thereafter.”
In relation thereto, not every piece of property that you and your husband have
forms part of your absolute community. Thus, the exemptions therein are enumerated under
Article 92 of the same law, viz:
“Art. 92. The following shall be excluded from the community property:
(1) Property acquired during the marriage by gratuitous title by either spouse, and the fruits as
well as the income thereof, if any, unless it is expressly provided by the donor, testator or grantor
that they shall form part of the community property;
(2) Property for personal and exclusive use of either spouse. However, jewelry shall form part of
the community property;
(3) Property acquired before the marriage by either spouse who has legitimate descendants by a
former marriage, and the fruits as well as the income, if any, of such property.”
Article 92 states that inherited or donated pieces of property acquired during the marriage, as well
as their fruits and income, do not form part of the absolute community of property. In other words,
this means that such inherited or donated property to one of the spouses, belong to him or her
only.
Regime of Complete Separation of Properties

Separation of property may refer to present or future property or both. It may be
total or partial. In the latter case, the property not agreed upon as separate shall pertain to the
absolute community. (Family Code of the Philippines, Article 144)
Each spouse shall own, dispose of, possess, administer and enjoy his or her own
separate estate, without need of the consent of the other. To each spouse shall belong all
earnings from his or her profession, business or industry and all fruits, natural, industrial or civil,
due or received during the marriage from his or her separate property. (Family Code of the
Philippines, Article 144)
This is a property regime wherein both spouses needs to have an agreement in
order to put on effect or else absolute community of property regime will apply. Separation of
properties may be total or partial.
CLASSIFICATION GUIDELINES UNDER THE REGIME OF CONJUGAL PARTNERSHIP OF

GAINS (CPOG) AND ABSOLUTE COMMUNITY OF PROPERTY (ACOP):
Properties CPOG ACOP
a. Assets and income earned before celebration of Exclusive Conjugal
marriage, in general unless proven otherwise.
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b. Assets and income earned during marriage, in general Conjugal Conjugal
unless proven otherwise.
c. Exceptions: Assets acquired during marriage by way of:
c.1. Gift, donation, contribution to either spouses

c.2. Inheritance, devise, legacy, bequest to either spouse Exclusive Exclusive
c.3. Purchased from exclusive money by either spouse Exclusive Exclusive
c.4. Exchanged with exclusive money by either spouse
c.5. Redeemed with exclusive money by either spouse. Exclusive Exclusive
However, the related income/ fruits earned during Exclusive Exclusive

marriage from exclusive properties in letter c.1 to c.5 are:
Exclusive Exclusive
Conjugal Exclusive
d.Exceptions; Personal effects acquired before marriage:
d.1. Personal effect if jewelry in general

d.2. Other personal effects (except jewelry) Exclusive Conjugal
Exclusive Exclusive
e.Exceptions; Personal effects acquired during marriage:
d.1. Personal effect if jewelry in general

d.2. Other personal effects (except jewelry) Conjugal Conjugal
Conjugal Exclusive
Exceptions: Property acquired before marriage by either
spouse who has legitimate descendants by a former Exclusive Exclsuive
marriage and its fruits and income.
Read:
https://www.slideshare.net/flabert1/02-chapter-3-01-gross-estate-taxation-2
https://steemit.com/philippines/@paulthebeloved/philippines-property-regimes-meaning-and-
concepts
120
King, a Filipino, married to Risa in 2003, died on April 2016. The inventory of properties of the
couple are as follows:
a. Townhouse and lot in Manila acquired from conjugal funds of P 1,650,000
b. Farm lot in Laguna inherited by husband P 850,000
c. Land in Novaliches brought to the marriage by husband; P 450,000
d. Fishpond in Bulacan donated to wife in 2005; P 960,000
e. Time deposit in the name of husband and wife; P 120,000
f. Time deposit in the name of husband and his brother; P 65,000
g. Jewelry brought into marriage by wife; P 135,000
h. Proceeds of insurance, revocable, payable to wife; P 250,000
i. Proceeds of GSIS life insurance policy; P 150,000
j. Proceeds of private life insurance policy where the beneficiary is the sister and silent
as to designation; P 300,000
k. Cash, representing rental income from fishpond in Bulacan; P 180,000
l. Employee benefits under RA 4917; P 500,000
Required:
Compute the following:

A. Under CPOG, determine the:
a.1. Taxable gross estate of decedent and
a.2. The exclusive property of wife.
B. Under ACOP; determine the:
b.1. Taxable gross estate of decedent and
b.2. Exclusive property of wife.
Answer Sheet:
Taxable gross The exclusive

estate of decedent property of wife
CPOG
ACOP
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Lesson 5: Laws / Rules on Allowed Deductions
Overview:
The executor or administrator make a list or inventory of all liabilities, expenses

and charges related to decedent’s property / estate on the date of the latter’s death. The factors
needed n the determination of gross estate which was presented in previous lesson shall likewise
be observed in knowing the proper amount of allowed deductions from the gross estate.
After the value of the gross estate has been established, the total amount of
allowed deductions (expenses, liabilities and charges) must be known that will be deducted from
the gross estate (real, personal, tangible and intangible) to arrive at the taxable net estate. Based
on the taxable net estate, we can now determine the estate tax due of the decedent.
Module Objectives:
1.To be able to know the provisions of Tax Code on Allowed deductions from Gross Estate.
2. To identify all the components of allowed deductions from Gross estate.
3. To determine the nondeductible expenses/charges and liabilities from the Gross estate.
4. To determine the requisites for the deductibility of each allowed deductions from Gross Estate
5. To compute the allowed vanishing deductions.
6. To compute the taxable net estate and the estate tax due under the Old and New Tax Code.
Course Materials:
Allowed deductions refers to total amount of liabilities, expenses and charges

permitted or authorized by law as reduction from the decedent’s gross estate in order to arrive at
the amount of taxable net estate.
Illustration of Estate Tax Return:

Gross Estate (Yr 2019) 15,000,000
Less: Allowed Deductions 13,000,000
Taxable Net Estate 2,000,000
Estate Tax Due (at 6%) 120,000

Less: Estate Tax Credit 100,000
Estate Tax payable 20,000
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RULE I: ALLOWED DEDUCTIONS- WORLD FOR RESIDENT CITIZEN, NON RESIDENT

CITIZEN AND RESIDENT ALIEN:
In the case of resident/ citizen decedent, the composition / inclusion in their allowed
deductions shall be, to the extent of their interest at the time of their deaths, the total value of the
liabilities, expenses and charges incurred within and without the Philippines, related to decedent’s
deaths, or to their properties.
However, there are liabilities, expenses and charges which under the provisions
of tax law are disallowed or nondeductible and therefore are excluded from the allowed
deductions-world.
The following are deductions within and without the Philippines that can be claimed
by estate of citizen or resident decedent:
1.Ordinary deductions- World**

a. Expenses, Losses Indebtedness and Taxes (ELIT)
b. Vanishing Deduction (VD)
c. Property Transfer to Government for Public Use
d. Amount received by decedent’s heir from decedent’s employer per RA 4917 (ARBHFDE)
2. Special Deductions- World**

a. Medical expenses
b. Standard Deductions
c. Family Home Allowance
3. Share of spouse in the Net Conjugal estate-World: Computed by the following formula:
= (Conjugal Assets -world LESS Ordinary Conjugal deductions-world*) x 50%
*ELIT and ARBHFDE are considered conjugal deductions.
**With amendments from TRAIN law. For details, please see the subsequent discussions on
INCLUSION TO ALLOWED DEDUCTIONS.
RULE II: ALLOWED DEDUCTIONS- Phil only FOR NON RESIDENT ALIEN:
In the case of non resident alien decedent, the composition / inclusion in their
allowed deductions shall be, to the extent of their interest at the time of their deaths, the total
value of the liabilities, expenses and charges incurred within the Philippines only, related to
decedent’s deaths, or to their properties.
123
However, there are liabilities, expenses and charges which under the provisions
of tax law are disallowed or nondeductible and therefore are excluded from the allowed
deductions-Phil only.
The following are deductions within and without the Philippines that can be claimed
by estate of citizen or resident decedent:
1.Ordinary deductions- World

a. Expenses, Losses Indebtedness and Taxes (pro rata)
Formula:
a.1. Under the Old Tax Code:
= (Phil. Gross Estate divided by Total Gross Estate) X ELITE-World
a.2. Under the New Tax Code;
= (Phil. Gross Estate divided by Total Gross Estate) X LITE-World
b. Vanishing Deduction (VD)

c. Property Transfer to Government for Public Use
2. Special Deductions
a. Standard Deductions (SD)
a.1. Under the Old Tax Code, No allowed standard deduction
a.2. Under the New Tax Code, allowed SD is P 500,000
3. Share of spouse in the Net Conjugal Estate-Phil only: Computed by the following formula:
=(Conjugal Assets -Phil only LESS Ordinary Conjugal deductions-Phil only*) x 50%
*ELIT are considered conjugal deductions.
EXCLUSION FROM THE ALLOWED DEDUCTIONS
These are the items of liabilities, expenses and charges related or not to the
decedent’s death or properties which under the tax law are disallowed or non deductible:
1. On exclusive asset of surviving spouse, in case of married decedent

2. O exclusive or conjugal asset abroad of decedent in case of nonresident alien
decedent
3. Property or estate exempt from estate tax
4. Indebtedness incurred accrued after death of decedent
5. Liabilities, expenses and other charges on property not declared in the gross estate
6. On exclusive or conjugal assets in the Phil classified as intangible personal property
of nonresident alien under reciprocity clause between his country and the Philippines.
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INCLUSION IN THE ALLOWED DEDCUTIONS:

ORDINARY DEDUCTIONS:
1.EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELITE)
These are ordinary deductions representing the total and itemized amounts of the
following charges against the decedent’s estate:
a. Funeral expenses (Under the New Tax Code, Funeral Expenses is no longer allowed
as deductions from the gross estate).
b. Judicial expenses. (Under the New Tax Code, Judicial Expenses is no longer allowed
as deductions from the gross estate.)
c. Claims against the Estate
d. Claims against Insolvent person
e. Unpaid Mortgages
f. Unpaid taxes
g. Casualty loss
If there are no breakdown or details on ELITE, such as when the amount is given in
total, then in case of married decedent, this item is deemed conjugal deduction. However,
if the items of the ELITE are given, the items no “a” and “b” are deemed conjugal
deductions; whereas the item “c” to “g” maybe classified as either conjugal or exclusive
depending on the problem data.
Funeral Expenses:
For actual funeral expenses or in an amount equal to five percent (5%) of the gross
estate, whichever is lower, but in no case to exceed Two hundred thousand pesos (P200,000) –
Under the Old tax Code.
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include:
1. The mourning apparel of the surviving spouse and unmarried minor children of the
deceased bought and used on the occasion of the burial;
2. Expenses for the deceased’s wake, including food and drinks;
3. Publication charges for death notices;
4. Telecommunication expenses incurred in informing relatives of the deceased;
5. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case
the deceased owns a family estate or several burial lots, only the value corresponding to the plot
where he is buried is deductible;
6. Interment and/or cremation fees and charges; and
7. All other expenses incurred for the performance of the rites and ceremonies incident to
interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are
not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and
friends of the deceased are not deductible. Actual funeral expenses shall mean those which are
actually incurred in connection with the interment or burial of the deceased. The expenses must
be duly supported by official receipts or invoices or other evidence to show that they were actually
incurred. (Sec 6 (A)(1) of RR 2-2003)
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Under the New Tax Code, Funeral Expenses is no longer allowed as deductions
from the gross estate
Judicial Expenses
For judicial expenses of the testamentary or intestate proceedings. (Allowed
deduction under the Old tax Code).
Expenses allowed as deduction under this category are those incurred in the
inventory-taking of assets comprising the gross estate, their administration, the payment of debts
of the estate, as well as the distribution of the estate among the heirs. In short, these deductible
items are expenses incurred during the settlement of the estate but not beyond the last day
prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial expenses
may include:
1. Fees of executor or administrator;
2. Attorney’s fees;
3. Court fees;
4. Accountant’s fees;
5. Appraiser’s fees;
6. Clerk hire;
7. Costs of preserving and distributing the estate;
8. Costs of storing or maintaining property of the estate; and
9. Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed under “Judicial Expenses”
should be supported by a sworn statement of account issued and signed by the creditor. (Sec 6
(A)(2) of RR 2-2003)
Under the New Tax Code, Judicial Expenses is no longer allowed as deductions
from the gross estate
Claims against the estate
Refers to financial obligations / indebtedness due from the estate / decedent
payable to the creditor.
For claims against the estate: Provided, That at the time the indebtedness was
incurred the debt instrument was duly notarized and, if the loan was contracted within three (3)
years before the death of the decedent, the administrator or executor shall submit a statement
showing the disposition of the proceeds of the loan
Requisites for Deductibility of Claims against the Estate –
• The liability represents a personal obligation of the deceased existing at the time of death;
• The liability was contracted in good faith and for adequate and full consideration in
money’s worth;
• The claim must be a debt or claim which is valid in law and enforceable in court; and
• The indebtedness must not have been condoned by the creditor or the action to collect
from the decedent must not have prescribed.
Claims Against insolvent persons

Refers to financial obligations collectibles due to the decedent; payable by the
debtors to the decedent.
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Claims of the deceased against insolvent persons where the value of the
decedent’s interest therein is included in the value of the gross estate.
Unpaid Mortgages/ Unpaid Taxes and casualty Losses:
For unpaid mortgages upon, or any indebtedness in respect to, property where the
value of decedent's interest therein, undiminished by such mortgage or indebtedness, is included
in the value of the gross estate, but not including any income tax upon income received after the
death of the decedent, or property taxes not accrued before his death, or any estate tax. The
deduction herein allowed in the case of claims against the estate, unpaid mortgages or any
indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they
were contracted bona fide and for an adequate and full consideration in money or money's worth.
There shall also be deducted losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or embezzlement,
when such losses are not compensated for by insurance or otherwise, and if at the time of the
filing of the return such losses have not been claimed as a deduction for the income tax purposes
in an income tax return, and provided that such losses were incurred not later than the last day
for the payment of the estate tax as prescribed in Subsection (A) of Section 91.
2. VANISHING DEDCUTIONS
Refers to ordinary deductions related to a property which was previously subjected
to transfer tax during the decedent’s lifetime. This deductible item is given as a relief or consolation
for having to pay a death tax on his property which has been recently and previously subjected to
Philippine tax or donor’s tax within a relatively short period of time.
Under Sec 86 of the Tax Code, provides the following:
Property Previously Taxed. - An amount equal to the value specified below of any
property forming a part of the gross estate situated in the Philippines of any person who died
within five (5) years prior to the death of the decedent, or transferred to the decedent by gift within
five (5) years prior to his death, where such property can be identified as having been received
by the decedent from the donor by gift, or from such prior decedent by gift, bequest, devise or
inheritance, or which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to
the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more
than two (2) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more
than three (3) years prior to the death of the decedent, or if the property was transferred to him
by gift within the same period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more
than four (4) years prior to the death of the decedent, or if the property was transferred to him by
gift within the same period prior to his death;
127
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not
more than five (5) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title
was finally determined and paid by or on behalf of such donor, or the estate of such prior
decedent, as the case may be, and only in the amount finally determined as the value of such
property in determining the value of the gift, or the gross estate of such prior decedent, and only
to the extent that the value of such property is included in the decedent's gross estate, and only
if in determining the value of the estate of the prior decedent, no deduction was allowable under
paragraph (2) in respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then
the deduction allowable under said Subsection shall be reduced by the amount so paid. Such
deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise
deductible under said paragraph (2) bears to the value of the decedent's estate. Where the
property referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
FORMULA FOR VANISHING DEDUCTIONS:
Illustration:
A resident decedent had the following data on the date of his death in Nov 14, 2013:
• FMV of the Other property is P 3.5M

• FMV of property received as gift; P 500,000
• Unpaid mortgages assumed by decedent is 100,000
• Only 85% of mortgage was paid by decedent during his lifetime
• The property gift was valued at P 385,000 when received from the donor.
• ELITE, including unpaid mortgage on the gift is 900,000
• Property transferred to govt for public purposes is P 60,000
Computation of vanishing Deductions:
Fair Market Value (lower between the FV at time of 385,000

death vs FV at time received)
Less: Mortgage PAID (100,000 x 85%) 85,000
Initial basis 300,000
Less: pro rata share in Allowed Deductions
(Initial basis divided by Gross estate) x Allowed

deductions / ELITE + PTFPU)
128
(300,000 / 4,000,000) X (960,000) 72,000
Final basis 228,000
Rate of vanishing Deduction 60%
Allowed Vanishing Deductions 136,800
3. Transfers for Public Use. –
The amount of all the bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines, or any political subdivision thereof, for
exclusively public purposes.
4. Amount received by Heirs under RA 4917
Amount Received by Heirs Under Republic Act No. 4917. - Any amount received
by the heirs from the decedent - employee as a consequence of the death of the decedent-
employee in accordance with Republic Act No. 4917: Provided, That such amount is included in
the gross estate of the decedent.
SPECIAL DEDCUTIONS:
a. Medical expenses
Under the Old Tax Code, medical expenses is allowed deductions from gross
estate.
Medical Expenses incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts: Provided, That in no case shall the
deductible medical expenses exceed Five Hundred Thousand Pesos (P500, 000).
All medical expenses (cost of medicines, hospital bills, doctor’s fees, etc.) incurred
(whether paid or unpaid) within one (1) year before the death of the decedent shall be
allowed as a deduction provided that the same are duly substantiated with official
receipts. For services rendered by the decedent’s attending physicians, invoices,
statements of account duly certified by the hospital, and such other documents in
support thereof and provided, further, that the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
Under the New Tax Code (TRAIN Law), medical expenses is no longer allowed
deductions from gross estate.
b. Standard Deductions
b.1. For Resident/ Citizen decedent:
Under the Old tax Code, a deduction in the amount of One Million Pesos
(P1,000,000.00) shall be allowed as an additional deduction without need of
substantiation
129
Under the New tax Code, a deduction in the amount of Five Million Pesos
(P5,000,000.00) shall be allowed as an additional deduction without need of
substantiation
b.2. For Non resident Alien decedent:
Under the Old tax Code, no deduction is allowed. (No standard deduction is
allowed for Nonresident alien decedent)
Under the New tax Code, a deduction in the amount of Five Hundred Pesos
(P500,000.00) shall be allowed as an additional deduction without need of
substantiation.
c. Family Home Allowance
Under the Old Tax Code; An amount equivalent to the current fair market value of the
decedent's family home: Provided, however, That if the said current fair market value exceeds
One million pesos (P1, 000,000), the excess shall be subject to estate tax. As a sine qua non
condition for the exemption or deduction, said family home must have been the decedent's family
home as certified by the barangay captain of the locality.
Under the New Tax Code, The Family Home. - An amount equivalent to the current fair
market value of the decedent’s family home: Provided, however, That if the said current fair
market value exceeds Ten million pesos (₱10,000,000), the excess shall be subject to estate tax.
Illustration A: Unmarried decedent but Head of the Family
Old tax Code:
Case 1 Case 2
FMV of family home 800,000 3,000,000
Book value 500,000 4,000,000
Maximum limit 1,000,000 1,000,000
Deductible family home allowance 800,000 1,000,000
Illustration A: Married decedent
Old tax Code:
Case 1 Case 2
FMV of family home 1,800,000 3,000,000
Book value 1,500,000 4,000,000
130
Maximum limit 1,000,000 1,000,000
Deductible family home allowance 900,000 1,000,000
Watch:
https://www.youtube.com/watch?v=Ih_qfIjL_hM
https://www.youtube.com/watch?v=7c0GCyZEVBw
Read:
https://www.slideshare.net/flabert1/02-chapter-3-03-exemptions-from-gross-estate-taxation-2
https://www.slideshare.net/flabert1/03-chapter-4-deductions-from-gross-estate-part-01-
37443562
Codal Reference:

Sec. 22 to 27 of the Tax Reform Acceleration and Inclusion Act (TRAIN Law)
Sec. 84 to Sec. 97 of the National Internal Revenue Code (NIRC) of 1997
1. Q1.0. RC, a resident citizen, died on November 2, 2018. When is the deadline for filing
notice of death as required by tax code?________________________
Q1.1. RC, a resident citizen, died on November 2, 2018. When is the deadline for filing
of estate tax return as required by tax code?________________________
__________2. Which of the following statements is not required to accompany the estate
tax return?
a. Itemized assets with corresponding value
b. Itemized deductions from gross estate
c. Estate tax due
d. Itemized income and expenses of decent
3. RC, a resident citizen, died on November 2, 2018. A notice of death and a CPA
certificate, respectively, are required if the gross estate exceeds---
____________________________
4. RC, a resident citizen, died on November 2, 2017. A notice of death and a CPA
certificate, respectively, are required if the gross estate exceeds---
_____________________________
True or False:
131
___________5. A. The liability of the heir in the payment of the estate tax shall in no case
exceeds the value of his share in the inheritance.
B. The heir has the primary obligation to pay estate taxes.
___________6. A. When there are two executors, they are jointly liable for payment of
estate tax.
B. When there are two executors, they are joint and severally liable for payment of
estate tax.
7. The Commissioner of Internal revenue may extend the time of payment of estate tax in
case the estate is settled Judicially for _____ yrs OR extra judicially for ______ yrs.
8. In 2017, RC died. what is the maximum amount of cash that may be withdrawn from
the decedent's bank?___________________________
9. In 2018, RC died. what is the maximum amount of cash that may be withdrawn from
the decedent's bank account?___________________________
10. RC died on Jan 25, 2017 in Makati, the main office of the company where he worked
for 30 years. RC resides in Pasig City. RC has properties located in Manila. On July 27, 2017, the
executor filed the estate tax return in Manila. Per tax return, the amount due is P 40,000. Based
on the given facts, what is the total amount payable to BIR?
11. If required, notice of death of decedent should be given to BIR within __________
12. RC died on Jan 2017, non resident alien with properties located in Manila. RC resides
in USA. The court appointed G, an administrator, living in Pasig City, to settle the estate of RC.
Where will the estate tax return be filed?________________________.
________________13. A. Executor is the person nominated by the testator to carry out

the directions and request in his will.
B. Devisee is an heir to a particular real property given by virtue of a will.
Problem Solving: Mr A and Mrs B, both resident citizen, had the following data on death
of Mr A:
132
Amount
Exclusive property of husband 6,000,000.00
Other Exclusive property of wife 1,600,000.00
Paraphernal property of wife 600,000.00
Conjugal property of couple 5,200,000.00
Common property of Husband; jointly with a friend 800,000.00
The equity of his friend is 60% only
Deductions on property of husband 1,290,000.00
Deductions on property of wife 560,000.00
Deductions on conjugal property
(Includes funeral expense of P 100,000 and Judicial expenses of P 50,000) 1,400,000.00
Deductions on common property with a friend 550,000.00
Special Deductions:
Medical expenses (Actual medical expenses is P 600,000)
Family Home-Conjugal (FV of Family Home is P 3,000,000)
Standard deduction
________________14. What is the estate tax due if Mr A died in 2017? ( for 3 points)
________________15. What is the estate tax due if Mr A died in 2018? ( for 4 points)
________________THANK YOU!!!__________________
TAX TABLE FOR ESTATE TAX (UNTIL December 31, 2017 ONLY)
Over But not Over Tax shall be Plus

P0 P 200,000 Exempt 0
P 200,000 P 500,000 P0 5%
P 500,000 P 2,000,000 P 15,000 8%
P 2,000,000 P 5,000,000 P 135,000 11%
P 5,000,000 P 10,000,000 P 465,000 15%
P 10,000,000 AND OVER P 1,215,000 20%
RATE OF ESTATE TAXE (EFFECTIVE JAN 1, 2018)

The estate tax is 6% of total taxable net estate
Answer Sheet:
1. 6. 11.
2. 7. 12.
3. 8. 13.
4. 9. 14.
5. 10. 15.
133
MODULE 3: OTHER PERCENTAGE TAXES
OVERVIEW:
Companies are subject to different types of taxes imposed by the Government.

These taxes are governed by the National Internal Revenue Code and the amendments to that
law. Taxes imposed by the government maybe either national or local taxes. National taxes are
those taxes imposed by national government, enforced by or through the Bureau of Internal
Revenue or BIR. Taxes imposed and paid to BIR includes income taxes and business taxes.
Generally, income taxes are imposed to a person when there is an income while, business tax is
imposed when there is a business transaction such as sale or exchange of goods or services. In
the Philippines, there are generally three types of business taxes: namely, Other Percentage
Taxes (or Percentage Tax), Value Added Tax (VAT) and Excise Taxes.
On this module, we will discuss the provisions of Tax Code related to Other
Percentage Taxes or Percentage Taxes.
Percentage tax is a business tax imposed on persons, entities, or transactions

specified under Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known
as Tax Code), as amended, and as required under special laws.
MODULE DURATION:
• December 1-30, 2020 Synchronous Meeting and Asynchronous Learning.
MODULE OBJECTIVES:
1. To be able to apply the Administrative Provisions and the Practical Provisions on

Percentage taxes:
2. Learn When and Where to file and pay percentage taxes.
3. Know who are liable to pay the percentage taxes.
4. Know the statutory penalties for noncompliance.
5. To be able to identify what business activities are subjected to percentage taxes
and their respective applicable percentage tax rates under Section 116 to 127 of
Tax Code.
6. To know the basis is in computing the percentage tax (net or gross).
COURSE MATERIALS:
134
Under this module, the topic Other Percentage Taxes is subdivided into four (4)
lessons as follows:
Lesson 1; Administrative Provisions and Fundamental Concepts of Other Percentage Taxes
Lesson 2: Laws / Rules on Other Percentage Taxes from Section 116 to 122
Lesson 3: Laws / Rules on Other Percentage Taxes from Section 123 to 127
Lesson 4: Laws / Rules on Percentage Tax Credits
135
Lesson 1: Administrative Provisions

and Fundamental Concepts of Other Percentage Taxes
Overview:
Business taxes are collected from sale of goods or services. Business taxes
imposed by the government in the Philippines are Value Added Tax or VAT, Other Percentage
Taxes (OPT) or excise taxes. Companies shall file and pay the business tax applicable to their
business. In general, a person who is a VAT registered taxpayer shall pay the VAT payable only
and will not be subject to OPT and vice versa. However, a VAT registered taxpayer may be subject
to VAT and to Excise Tax or, a NON-VAT registered taxpayer may pay both percentage taxes
and excise tax.
On this module, we will discuss the provisions of the Philippine Tax Code and
fundamental concepts of Other Percentage Taxes (OPT). Percentage Tax is a business tax that
is regulated in the Philippines which is imposed on individuals or businesses that sell/lease goods
and services with annual sales not exceeding PHP 3 Million and is not VAT registered. Included
in this module the date and place of filing and payment of percentage taxes, percentage tax return
to be filed by businesses, procedures in filing, and different kinds of percentage taxes as provided
by Sec 116 to sec 127 of the Tax Code.
Module Objectives:

1. Learn the compliance requirements of BIR to all businesses and the registration of
persons subject to business taxes.
2. Understand the kinds of business taxes in the Philippines.
3. Know the person required to register as Non-VAT registered persons and the Optional
registration of VAT exempt persons
4. To know when and where to file percentage tax return.
5. To learn the penalty / additions to basic assessed tax or deficiency tax
Course Materials:
ADMINISTRATIVE PROVISIONS:
Percentage tax is a business tax imposed on persons, entities, or transactions specified under
Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code),
as amended, and as required under special laws.
136
Compliance Requirements:
Any merchant or business organization in whatever form or nature, if liable for any national tax as
provided by the Tax Code, are mandated to comply with the following requirements:
a. Registration with BIR

b. Keeping of accounting records and books
c. Issuance of sales invoice and official receipts
d. Filing of tax returns and payment of related taxes
e. Withholding of taxes on specified payment to suppliers-sellers.
Annual Registration Fee for Persons Subject to Percentage Tax
Non-VAT registered persons shall pay the applicable registration fee of P 500 for every separate
distinct establishment or place of business and every year thereafter on or before January 31.
The P 500 registration fee shall be paid to any accredited bank where each place of business or
branch is situated. In areas where there is no accredited bank, such person shall pay the
registration fee with the Revenue District officer, revenue Collection Agent or authorized
Treasurer of the City where said business or principal of office is located as the case maybe.
However, at the options of the taxpayer, payments may be made on a semiannual basis in the
amount of P 250 payable on or before Jan 31 for the first semester and on or before the 20th day
of the 1st succeeding semester.
Contents of the Non-VAT registration Certificate:
The registration shall contain:

1. Business name / owner
2. Business style
3. Place of residence / business
4. Place where such business is carried on
5. Other information as required by BIR Commissioner
Persons required to file:
Persons refer to individuals and non-individuals, which include, but are not limited to, estates,
trusts, partnerships, and corporations.
1. Persons, who are not VAT-registered, who sell goods, properties or services, whose
annual gross sales and/or receipts do not exceed three million pesos (Php3,000,000.00) and are
exempt from value-added tax (VAT) under Section 109 (BB) of the National Internal Revenue
Code, as amended by Republic Act (RA) No. 10963.
137
2. Persons who lease residential units where the monthly rental per unit exceeds fifteen
thousand pesos (Php15,000.00) but the aggregate of such rentals of the lessor during the year
does not exceed three million pesos (Php3,000,000.00)
3. Persons engaged in the following industries/transactions:
a. Cars for rent or hire driven by the lessee, transportation contractors, including
persons who transport passengers for hire, and other domestic carriers by land for the transport
of passengers (except owners of bancas and owners of animal-drawn two-wheeled vehicle) and
keepers of garages
b. International air/shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country
c. Franchise grantees of –
i. radio and/or television broadcasting companies whose annual gross receipts for the
preceding year do not exceed Php 10,000,000.00 and did not opt to register as VAT taxpayers,
and
ii. gas and water utilities.
d. Overseas dispatch, message or conversation transmitted from the Philippines by
telephone, telegraph, tele-writer exchange, wireless and other communication equipment
services, except those transmitted by:
i. The Philippine Government or any of its political subdivisions or instrumentalities;

ii. Diplomatic services;
iii. Public international organizations or any of their agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Philippine Government is committed to
recognize pursuant to international agreement; and
iv. News services for messages which deal exclusively with the collection of news items for,
or the dissemination of news item through, public press, radio or television broadcasting or a new
sticker service furnishing a general news service similar to that of the public press.
e. Banks, non-bank financial intermediaries performing quasi-banking functions
f. Other non-bank financial intermediaries (including pawnshops as clarified under Revenue
Regulations [RR] No. 10 – 2004)
g. Person, company or corporation (except purely cooperative companies or associations)
doing life insurance business in the Philippines
h. Fire, marine or miscellaneous agents of foreign insurance companies
i. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, including videoke bars, karaoke bars,
karaoke televisions, karaoke boxes and music lounges as clarified under Revenue Memorandum
Circular (RMC) No. 18 – 2010
j. Winnings or 'dividends' in horse races
Filing and Payment of Taxes:
1. BIR Form 2551Q - Quarterly Percentage Tax Return Form
138
2. Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. For amended return, proof of payment and the return previously filed
5. Authorization letter, if filed by an authorized representative
6. Copy of Certificate of Registration issued by Cooperative Development Authority for
cooperatives, and from the National Electrification Administration for electric cooperatives
When to File/Pay
Within twenty-five (25) days after the end of each taxable quarter. Please see
Lesson 2 and Lesson 3 for details of filing of Percentage Tax Returns
Extension of Filing the Percentage Tax Returns:
There shall be no granting of extension for filing of the percentage tax returns.
Preservation of Books:
All accounting records and book of accounts shall be preserved for a period beginning
from the last entry in each book until the last day prescribed by Section 203 of NIRC within which
the BIR Commissioner is authorized to make an assessment (either 3 years or 10 years.)
FUNDAMENTAL CONCEPTS:
A business is defined as an organization or enterprising entity engaged in

commercial, industrial, or professional activities. ... The term "business" also refers to the
organized efforts and activities of individuals to produce and sell goods and services for profit.
All businesses must adopt some legal configuration that defines the rights and
liabilities of participants in the business’s ownership, control, personal liability, lifespan and
financial structure. The form of business determines which income tax return form to file and the
company’s and owners legal liabilities.
Forms of Business Organizations:
1. Sole proprietorship- Most small businesses start out as sole proprietorships. These
businesses are owned by one person, usually, the individual who has day-to-day
responsibility for running the business. Sole proprietors can be independent
contractors, freelancers or home-based businesses.
2. Partnerships. In a Partnership, two or more people share ownership of a single
business. Like proprietorships, the law does not distinguish between the business and
its owners. The partners should have a legal agreement that sets forth how decisions
will be made, profits will be shared, disputes will be resolved, how future partners will
139
be admitted to the partnership, how partners can be bought out or what steps will be
taken to dissolve the partnership when needed.
3. Corporations. A corporation is considered by law to be a unique entity, separate from
those who own it. A corporation can be taxed, sued and enter into contractual
agreements. The corporation has a life of its own and does not dissolve when
ownership changes.
Business Taxes:
The following are the national taxes imposed upon businesses specified in the Tax Code / NIRC:
1. Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on

the sale, barter, exchange or lease of goods or properties and services in the
Philippines and on importation of goods into the Philippines. It is an indirect tax,
which may be shifted or passed on to the buyer, transferee or lessee of goods,
properties or services.
2. Percentage tax is a business tax imposed on persons, entities, or transactions
specified under Sections 116 to 127 of the National Internal Revenue Code of 1997
(also known as Tax Code), as amended, and as required under special laws.
3. Excise Tax is a tax on the production, sale or consumption of a commodity in a
country.
4. Documentary Stamp Tax is a tax on documents, instruments, loan agreements
and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto.
Classification of Percentage Taxes
1. Excise tax- also known as privilege tax

2. Ad valorem tax- tax is computed by applying a rate based on a property’s value.
3. Indirect tax- the burden of payment of tax is allowed bylaw to be shifted to other persons
4. National tax
5. Single rate or flat rate tax
Classification of merchants / Businesses

1. Person subject to VAT
2. Persons subject to OPT
3. Persons subject to both VAT and OPT
4. Person exempted from both VAT and OPT
5. Persons subject to both VAT and Excise Tax
6. Persons subject to both OPT and Excise tax
Marginal income earner (MIE)
A marginal income earner (MIE) is an individual not deriving compensation as an

employee under an employer-employee relationship but who is self-employed and
deriving gross sales or receipts not exceeding P100,000 in any 12-month period.
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MIE refers to an individual not deriving compensation as an employee under an
employer-employee relationship but who is self-employed and deriving gross sales or
receipts not exceeding P100,000 in any 12-month period. Moreover, the activities of such
MIE should be principally for subsistence or livelihood. The term includes, but not limited
to, agricultural growers/producers (farmers/fishermen) selling directly or indirectly to
ultimate consumers, small sari-sari stores, small carinderias or “turo-turos”,
drivers/operators of a single unit tricycle, and such, but shall not include licensed
professionals, consultants, artists, sales agents, brokers and others similarly situated,
including all others whose income have been subjected to withholding tax.
MIE are exempted from annual registration fees and business taxes. However, if
their yearly gross sales / receipts do exceed P 100,000 but not exceeding the turnover
amount of P 3,000,000, then hey are subject to OPT under Sec 116; If however, their
yearly gross sales / receipts do exceed P 3,000,000, they are subject to 12% VAT.
Options of Merchants on Percentage Taxes:
1. The merchant absorb or pay the percentage tax on sales or

2. The merchant shift the percentage on sales to its customers.
Non-Vat registered persons may not be adversely affected by the percentage taxes on
their taxable sales, though they are the ones directly liable to pay the percentage taxes, the same
however can be charged to their client or customers.
In the Course of Trade or Business;
It means the regular conduct or pursuit of a commercial economic activity, including

transactions incidental thereto, by any person regardless of whether or not the persons engaged
therein is non stock, non profit organization or government entity.
Penalty / Additions to the Basic Assessed tax or Deficiency tax

1.Surcharge of 25% in cases of:
a. Failure to file any tax return and pay the tax due on the required date as prescribed
b. Unless otherwise authorized by BIR Commissioner, filing a tax return with internal revenue
officer other than those whom the return is required to be filed.
c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
d. Failure to pay the full or part of amount of tax shown on nay tax return required to be filed.
2.Surcharge of 50% in cases of;

a. In case of willful neglect to file tax return within the period prescribed by law and regulations.
b. In case of false or fraudulent tax return is willfully made.
3. Interest of 20% per annum (Old tax law) / 12% per annum under the NEW tax Code.
Illustration:
141
Computations to determine the penalties / additions to tax:
Case 1; In 2016; Correct tax due is P 150,000 while the Payment of tax made is P 100,000 only.
The unpaid tax is overdue for 3 months. Assuming there is no fraud nor willful neglect to file and
pay the correct tax due.
Delinquent tax is 50,000 (150,000 less 100,000)
Surcharge is 25% of P 50,000 or 12,500*
Interest** is 20% of 50,000 for 3 months OR 2,500 (50,000x .2 x 3/12)
Total amount due per BIR demand will be: 65,000 (50,000+ 12,500+2,500)
*Use 50% surcharge when there is fraud or willful neglect to file and pay the tax due.
**Use 12% rate per annum starting Jan 1, 2018 and so on.
Watch:
https://www.youtube.com/watch?v=ynrD8tEljbM
https://www.youtube.com/watch?v=t5zdOHFQ8qo
Read:
https://www.bir.gov.ph/index.php/tax-information/percentage-tax.html
Codal Reference:
Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax
Code), as amended
1. In general, every person- merchant other than those required to be registered as VAT persons
engaged in any business, trade or exercise of profession shall register as Non vat registered
person with RDO concerned on or after the commencement of his business.
2. Whenever a person transfer to another revenue district, he must register his business as a non
vat registered person within 30 days from date of transfer.
3. Registration fee of Non vat registered person is P 500 for every distinct establishment or place
of business and every year thereafter on or before December 31.
4. Non Vat registration Certificate contains the name of owner, place of residence, business
name, place where business is carried on and the description of the product sold or services
offered.
5. Attachments to Non vat Registration Application / certificate includes sketch of the owner's
residence, TIN and photocopy of mayors permit and articles of partnership if it is a partnership.
6. VAT exempt persons in Sec 109 of NIRC whose gross sales or receipts does not exceeds P
3M for any 12-month period, may, at his option, to apply for VAT registration. However, they shall
not be allowed to cancel the registration for next 3 years. Of course, that person will not be VAT
exempt.
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7. Franchise grantees of radio and television broadcast station or companies may opt to apply for
VAT registration provided that the gross sales or receipts of the company does not exceed P 10M,
however, the application as VAT registered person will not be irrevocable.
8. All corporations, companies, partnership or persons required by law to pay internal revenue
taxes shall keep a journal, ledger, trial balance and worksheet representing the company's
accounting records.
9. The accounting books of the company shall be written in native language, English, Spanish or
Chinese, if necessary and to make the records understandable and easy for BIR audit.
10. In keeping accounting records, those persons with quarterly sales or receipts which does not
exceed 100,000 shall keep and use simplified set of bookkeeping records duly authorized by
secretary of finance.
11. Corporations whose quarterly sales or receipts exceeds P 150,000 shall their books of
accounts audited and examined quarterly by CPA and their Income tax returns accompanied by
duly accomplished AIF (Account Information Form)
12. The accounting records and book of accounts shall be preserve by the company until the last
day prescribed by Section 203 of NIRC. BIR can make assessment of the books of accounts
within 3 years from last date of filing or if late filing, from the date of filing of tax return. But, it
should be preserved for 10 years for BIR assessment when the return was found to be fraudulent.
13. In general, Percentage tax returns prior to 2018 shall be filed in a monthly basis, that is 20
days after the end of each taxable month. In 2018 and so on, percentage tax returns shall be filed
in a quarterly basis, file in triplicate, within 25 days after the end of each taxable quarters.
14. Quarterly percentage tax returns for Amusements places, winners in horse and dog races,
and from Overseas Communications from Philippines shall be filed within 20 days.
15. Percentage tax due shall be paid within 25 days from the date of filing.
16. Every person liable to pay percentage tax returns must file a consolidated percentage tax
return for all of them (all branches).
17. The percentage tax return originally filed maybe amended within 5 years from the prescribed
date provided that no notice for audit and examination has been actually served to taxpayer.
18. If the person failed to issue receipts or invoices to customers, the BIR Commissioner after
taking into account the sales and other taxable base of other person engaged in similar business
and under similar situations may prescribed a minimum amount of gross receipts for purpose of
computing the tax liabilities of such person.
19. Percentage tax is generally shouldered by the seller, while VAT are shouldered or collected
from buyers. Thus, business taxes, except percentage tax, is an indirect tax.
20. A person ,who is not VAT exempt registered, who issues a vat invoices shall be liable to both
percentage tax and VAT .
21. ABC Corp's place of business is in Manila. The company has a branch in Cebu. The
stockholders lived in Basilan. Thus, the company may file its percentage tax return in Cebu.
22. ABC Corp's place of business is in Manila. The company has a branch in Cebu. The
stockholders lived in Basilan. Thus, the company must pay to concerned RDO a total of P 1,000
as payment of annual registration fee.
23. Marginal Income Earner refers to person with gross receipts or gross sales that does not
exceeds P 100,000; thus exempt from both VAT and percentage taxes but shall register as vat
registered without paying the P 500 registration fee.
143
24. NON vat registered persons are not allowed to charged or shift the percentage tax to
customers because percentage taxes are shouldered by the seller.
25. In application to percentage tax, gross receipts shall mean the total amount of money or its
equivalent which the purchaser pays or obligated to pay to seller in consideration of sale of goods
which also include "other charges" such as percentage taxes, if billed to customers, and excise
tax.
26. Domestic common carriers by air or sea for transport of passengers are subject to percentage
tax of 3% of gross receipts.
27. Domestic common carriers by land for transport of cargoes/ goods are subject to percentage
tax of 3% of gross receipts.
28. International carriers by air or water for transport of passengers is not taxable or not subject
to business tax.
29. International carriers by air or water for transport of cargoes / goods from abroad to Philippines
is not taxable or not subject to business tax.
30. International carriers by air or water for transport of cargoes / goods from Philippines to abroad
is subject to 12% VAT.
31. International carriers by air or water for transport of cargoes / goods from abroad to Philippines
is subject to 12% VAT.
32. Franchise grantees of water and gas utilities are subject to 2% percentage tax based on gross
receipts ,regardless of threshold.
33. Dealers and distributors of gas and water utilities are subject to 3% percentage tax based on
gross receipts .
34. Other franchise holders like electricity are subject to 12% VAT instead of percentage tax.
35. Receipts or collections on business activities not covered by franchise grant by the govt are
subject to 10% tax.
36. The minimum standard quarterly gross receipts per unit for domestic land common carriers is
P 1,200 for jeepneys for hire operating in Manila.
37. The minimum standard quarterly gross receipts per unit for domestic land common carriers is
P 3,000 for taxi operating in Manila.
38. Cebu Pacific Airlines is subject to 3% percentage tax.
39. Pasig Catholic Cooperative, nonprofit organization is subject to percentage tax.
40. Exempted from overseas communication tax under Sec 120(B) are as follows: Government,
diplomatic services and news services.
_____________________________THANKYOU!!___________________________
1. 11 21. 31.
2. 12 22. 32.
3. 13 23. 33.
4. 14 24. 34.
5. 15 25. 35.
6. 16 26. 36.
7. 17 27. 37.
8. 18 28. 38.
9. 19 29. 39.
10. 20 30. 40.
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Under NIRC, as amended Section 116,117,118,119,120, 121 and 122
Overview:
Non-VAT Registered Persons refers to a person, natural or juridical, whose

transactions are not liable to VAT and did not registered as VAT person.
For small businesses with gross annual sales and receipts that do not exceed P
3,000,000 (P1,919,500 in the Old Tax Code), and are not VAT-registered, percentage tax is
imposed for sold or leased goods, properties or services. The percentage tax rate varies
depending on the nature of business. The usual rate is 3% of gross sales or receipts but it could
go as high as 30%, for gross receipts of Jai-Alai and racetrack operators for instance.
On this module, we will discuss the percentage tax rates provided by Tax Code
under section 116 to Section 122 which includes the following businesses: Seller of goods and
services, Domestic common carriers by land and Keepers of garage for services rendered;
International common carriers, Franchise Grantees. Overseas communication originating from
the Philippines to abroad and Banks, Non-bank Financial Intermediaries
Module Objectives:

1. To know the Administrative Provisions and the Practical Provisions on Percentage
taxes (From Section 116 to Section 122 of Tax Code).
2. To be able to identify what business activities are subjected to percentage taxes under
Sec 116, 117, 118, 119, 120, 121 and 122.
3. Who are liable to pay the percentage taxes under Sec 116, 117, 118, 119, 120, 121
and 122.
4. When and Where to file and pay percentage taxes provide under Sec 116, 117, 118,
119, 120, 121 and 122.
5. To know the basis in computing the percentage tax (net or gross) under Sec 116, 117,
118, 119, 120, 121 and 122.
6. Statutory Penalties for noncompliance.
Course Materials:
Quarterly Percentage Tax Rates Table from Section 116 to 121:
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Coverage Taxable Base Tax Rate

Non-VAT registered persons under Gross sales or receipts 3%
Section 109 (BB)
Domestic carriers and keepers of Gross receipts 3%
garages
International air/shipping carriers doing Gross receipts on transport of 3%
business in the Philippines cargo from the Philippines to
a foreign country
Franchise grantees: 2%
Gas and water utilities
3%
Radio and television broadcasting
Gross receipts
companies whose annual gross receipts
of the preceding year do not exceed
Php10,000,000 and did not opt to register Gross receipts
as VAT taxpayer
Overseas dispatch, message or Amount paid for the service 10%
conversation originating from the
Philippines
Banks and non-bank financial
intermediaries performing quasi-banking
functions
Interest, commissions and discounts from

lending activities as well as income from financial
leasing, on the basis of remaining maturities of
instruments from which receipts are derived:
• If maturity period is five 5%
years or less
• If maturity period is more 1%

than five years
Dividends and equity shares 0%
and net income of
subsidiaries
Royalties, rentals of property, 7%
real or personal, profits from
exchange and all other items
treated as gross income
under Sec. 32 of the Tax
Code, as amended
Net trading gains within the 7%
taxable year of foreign
146
currency, debt securities,
derivatives and other similar
financial instruments
Other non-bank financial intermediaries Interest, commissions, 5%
discounts and all other items
treated as gross income
under the Tax Code, as
amended
Interest, commissions, discounts from lending
activities, as well as income from financial
leasing on the basis of remaining maturities of
instruments from which such receipts are
derived:
• If maturity period is five 5%
years or less
• If maturity period is more 1%
than five years
SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). –
Any person whose sales or receipts are exempt under Section 109(V) of this Code
from the payment of value-added tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That
cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed.
Requisites in order to be subject to Sec 116 of tax Code:

1. Annual gross sales or receipts does not exceed P 3M
2. Not VAT registered
3. Not VAT exempt under Section 109 (A) to 109 (AA) – Please RA 8424 for the details
of Sec 109
4. Not subject to OPT under Sections 117 to 127
PERCENTAGE TAX ON SELLER OF GOODS OR SERVICES:

Tax Base Gross Sales price or Net Sales price of goods* / Gross receipts or net
receipts on Sale of Services
Tax Source Within the Philippines
Tax rate 3% rate
Tax Formula Gross Sales price or Net Sales price of Goods / Gross receipts / Net receipts
on services sold x 3% tax rate = Percentage Tax
Sales returns and allowances and Discounts are deducted from gross sales / gross receipts to
arrive at modified tax base known as Net Sales price/ Net receipt which shall be the amount
subject to 3% tax rate.
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Illustration:
Case 1 (OPT shouldered Case 2 (OPT shouldered by
by Seller) Buyer)
Sales price 80,000 80,000
Percentage Tax (3%) 0 2,400
Gross Sales Price 80,000 82,400
Less; Sales return / discounts 0 1,500
Net Sales Price 80,000 80,900
Percentage Tax Rate 3% 3%
Percentage Tax Due 2,400 2,427
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. –
Cars for rent or hire driven by the lessee, transportation contractors, including persons who
transport passengers for hire, and other domestic carriers by land, for the transport of passengers
[except owners of bancas] and owners of animal-drawn two wheeled vehicle), and keepers of
garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts.
The gross receipts of common carriers derived from their incoming and outgoing freight
shall not be subjected to the local taxes imposed under Republic Act No. 7160, otherwise known
as the Local Government Code of 1991.
In computing the percentage tax provided in this Section, the following shall be considered
the minimum quarterly gross receipts in each particular case:
Jeepney for hire -
1.Manila and other Cities P 2,400

2. Provincial 1,200
Public utility bus -

P 3,600
Not exceeding 30 passengers 6,000
Exceeding 30 but not exceeding 50 passengers 7,200
Exceeding 50 passengers
Taxis -
1. Manila and other Cities P 3,600

2. Provincial 2,400
Car for hire (with chauffer) P 3,000
Car for hire (without chauffer) 1,800
148
A Common carrier refers to a private or public entity that transport goods or people from one place
to another for a fee.
Two Types of Common Carriers: Domestic common carrier- refers to domestic /local companies
while; International common carrier refers to resident foreign corporations.
Requisites in order to be subject to Sec 117 of tax Code;

1. Taxpayer is classified as domestic carrier
2. Transport by land only
3. Domestic carrier for transport of passengers only
4. 3% percentage tax rate regardless whether their yearly gross receipts exceed or do
not exceed the threshold of P 3M
3% Tax rate applied on quarterly gross receipts of Cars for rent or hire driven by the
lessee, transportation contractors, including persons who transport passengers for
hire, and other domestic carriers by land, for the transport of passengers [except
owners of bancas] and owners of animal-drawn two wheeled vehicle), including
keepers of garages.
The tax base, quarterly gross receipts, will be equal to the Actual gross receipts per
quarter or the assigned minimum quarterly gross receipts whichever is higher. Other
domestic common carrier by land, on their transport of passengers, without designated
minimum quarterly receipts shall be subject to 3% OPT based on actual gross receipts
on passenger fees.
Illustration:
On transport of passengers:
Quarterly Gross Receipts Higher

Actual Minimum
Taxi, in Manila 75,000 98,600 98,600
Jeepney in 35,100 32,900 35,100
province
Bus, seats over 169,000 197,100 197,100
50
Car for hire (with 57,200 82,100 82,100
driver
TOTAL 412,900
Tax rate 3%
Percentage Tax 12,387
Due
149
SEC. 118 Percentage Tax on International Carriers. -
(A) International air carriers doing; business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country shall pay a tax of three
percent (3%) of their quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country shall pay a tax equivalent
to three percent (3%) of their quarterly gross receipts.
PERCENTAGE TAX ON INTERNATIONAL AIR/SEA CARRIER

Tax Base Actual Gross Receipts derived from transport of cargo from the Philippines
to another country
Tax Source From Philippines to Abroad
Tax rate 3% rate
Tax Formula Actual Gross receipts x 3%
Illustration:
International Common carrier:

Cargo from Phil to Passenger from Phil to Cargo or passengers
Abroad Abroad from Abroad to Phil
Gross receipts 100,000 100,000 100,000
Percentage 3% None None
Tax (3%)
Percentage 3,000 None / Exempt Excluded /Beyond the
Tax Due (OPT) scope of our Tax laws
SEC. 119. Tax on Franchises. –
Any provision of general or special law to the contrary notwithstanding, there shall be
levied, assessed and collected in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year do not exceed Ten million pesos
(P10,000.00), subject to Section 236 of this Code, a tax of three percent (3%) and on gas and
water utilities, a tax of two percent (2%) on the gross receipts derived from the business covered
by the law granting the franchise: Provided, however, That radio and television broadcasting
companies referred to in this Section shall have an option to be registered as a value-added
taxpayer and pay the tax due thereon: Provided, further, That once the option is exercised, said
option shall not be irrevocable.
The grantee shall file the return with, and pay the tax due thereon to the Commissioner or
his duly authorized representative, in accordance with the provisions of Section 128 of this Code,
and the return shall be subject to audit by the Bureau of Internal Revenue, any provision of any
existing law to the contrary notwithstanding.
150
PERCENTAGE TAX ON GAS AND WATER UTILITIES
Tax Base Actual Gross Receipts on business income covered by Franchise authority
granted by the Government; Gross Collections on sale of water and gas*
Regardless of whether their yearly gross receipts exceed or not exceed the
threshold of P 3M
Tax rate 2% rate
Tax Formula Actual Gross receipts x 2%
*Producers and sellers of electricity shall be subject to 12% VAT. Collections or receipts
on business activities not covered by the law grating the franchise are subject to 12% VAT.
PERCENTAGE TAX ON RADIO / TELEVISION BROADCASTING STATION**

Tax Base Actual Gross Receipts on business income covered by Franchise authority
granted by the Government; Gross Collections on sales of services: airtime
and similar items; Gross receipts does not exceed P 10M.
Tax rate 3% rate
Tax Formula Actual Gross Receipts x 3%
**Radio / television companies with gross receipts not exceeding P 10M, have an option
to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, that
once the option is exercised, said option shall not be irrevocable.
**Radio / television companies with gross receipts of the preceding year exceeding P 10M
shall be subject to Value Added Tax (VAT)
SEC. 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. -
(A) Persons Liable. - There shall be collected upon every overseas dispatch, message or
conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange,
wireless and other communication equipment service, a tax of ten percent (10%) on the amount
paid for such services. The tax imposed in this Section shall be payable by the person paying for
the services rendered and shall be paid to the person rendering the services who is required to
collect and pay the tax within twenty (20) days after the end of each quarter.
(B) Exemptions. - The tax imposed by this Section shall not apply to:
(1) Government. - Amounts paid for messages transmitted by the Government of the
Republic of the Philippines or any of its political subdivisions or instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and
consular offices of a foreign government;
(3) International Organizations. - Amounts paid for messages transmitted by a public
international organization or any of its agencies based in the Philippines enjoying privileges,
exemptions and immunities which the Government of the Philippines is committed to recognize
pursuant to an international agreement; and
151
(4) News Services. - Amounts paid for messages from any newspaper, press association,
radio or television newspaper, broadcasting agency, or newstickers services, to any other
newspaper, press association, radio or television newspaper broadcasting agency, or newsticker
service or to a bona fide correspondent, which messages deal exclusively with the collection of
news items for, or the dissemination of news item through, public press, radio or television
broadcasting or a newsticker service furnishing a general news service similar to that of the public
press.
PERCENTAGE TAX ON OVERSEAS COMMNICATION TAX:

Tax Base Gross payments on Sale of Services – overseas communications /
messages*
Regardless of whether their yearly gross receipts exceed or not exceed the
threshold of P 3M
Tax Source Originating from the Philippines to Abroad
Tax rate 10% rate
Tax Formula Actual Gross Receipts x 10% tax rate
The owner or operator of the communication service equipment / facilities, however, shall
be liable to the 12% VAT on its taxable gross receipts on domestic or local communication
services sold / rendered within the Philippines, bit not to the amount received for overseas
communications originating from the Philippines to Abroad.
Illustrations:
Communication/ From Phil to Abroad Within the Phil / Local From Abroad to Phil
Messages communications
Gross payment 100,000 100,000 100,000
Percentage Tax 10% None None
(10%)
Percentage Tax 10,000 None (Subject to VAT) Excluded /Beyond the
Due (OPT) scope of our Tax laws
SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi- Banking
Functions. -
There shall be collected a tax on a gross receipt derived from sources within the Philippines by
all banks and non-bank financial intermediaries in accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from
(b) financial leasing, on the basis of remaining maturities of instruments from
which such receipts are derived:
Maturity period is five
Maturity period is more than five years
152
(b) On dividends and equity shares and net income of subsidiaries
(c) On royalties, rentals of property, real or personal, profits, from exchange and all
other items treated as gross income under Section 32 of this Code
(d) On net trading gains within the taxable year on foreign currency, debt securities,
derivatives, and other similar financial instruments.
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pre-termination, then the maturity period shall be reckoned to end as of the date
of pre-termination for purposes of classifying the transaction and the correct rate of tax shall be
applied accordingly.
Provided, finally, That the generally accepted accounting principles as may be prescribed
by the Bangko Sentral ng Pilipinas for the bank or nonbank financial intermediary performing
quasi-banking functions shall likewise be the basis for the calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein
provided on persons performing similar banking activities.
Definitions:
Banks – shall refer to those entities as defined under Sec 3 of RA 8791, otherwise known as
General banking Law 2000 or more specifically, to entities engaged in lending of funds obtained
in the form of deposits. (Sec 3.1, RR8-2008)
Non-Bank Financial Intermediaries (NBFI)- Shall refer to persons or entities whose principal
function include the lending, investing or placement of funds or evidence of indebtedness or
equity deposited with them, acquired by them or otherwise cursed through them, either for their
own account or in account of others. (Sec 3.2, RR8-2008)
Quasi banking Functions – shall refer to NBFI s engaged in borrowing of funds from 20 or more
persons or corporate lenders at any one time, through issuance , endorsement or acceptance of
debt instruments of any kind , other than deposits, for borrowers own account or thru issuance of
certificate of assignment or similar instruments , with recourse, or repurchase agreement for
purpose of relending or purchasing receivables or other similar obligations. (Sec 3.3, RR8-2008)
SEC 121- GROSS RECEIPTS TAX; TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PERFORMING QUASI-BANKING OPERATIONS.
153
There shall be collected a tax on gross receipt derived from sources within the Philippines
by all banks and non-bank financial intermediaries in accordance with the following schedules;
Kind of Income Tax rate
Interest, commissions and discounts from lending activities as well as
income from financial leasing, on the basis of remaining maturities of
If maturity period is five years or less
5%
If maturity period is more than five years
1%
Dividends and equity shares and net income of subsidiaries 0%
Royalties, rentals of property, real or personal, profits from exchange and 7%

all other items treated as gross income under Sec. 32 of the Tax Code,
as amended
Net trading gains within the taxable year of foreign currency, debt 7%
securities, derivatives and other similar financial instruments
GRT is a form of percentage tax, which is defined as a business tax imposed on persons
or on entities that sell or lease goods or services in the course of trade or business in the
Philippines. Pursuant to Section 121 of the National Internal Revenue Code (Tax Code), as
amended, GRT is imposed on banks and non-bank financial intermediaries (NBFIs) performing
quasi-banking functions, and on persons performing similar banking activities. Section 122 of the
Tax Code, as amended, also imposes GRT on other NBFIs or financing companies, and on
persons performing similar financing activities. On several occasions, the BIR has ruled that
although GRT is a direct tax, banks and NBFIs may shift to their clients and borrowers the GRT
due on transactions covered under Sections 121 and 122 of the Tax Code.
The GRT that is “passed on” to clients and borrowers should form part of the tax base of
the banks and NBFIs performing quasi-banking functions. The concept of GRT is based on the
definition of “gross receipts,” that is, based on “actual or constructive receipt of income.”
Accordingly, as these entities are directly liable for GRT on gross receipts derived by them from
business operations, the “passed-on” GRT is considered as receipt of gross income, as specified
under Section 32(A) of the Tax Code, as amended. Consequently, these shall form part of the tax
base subject to 7% GRT under Section 121(c) of the Tax Code, as amended. In case the
recipients of the “passed-on” GRT are NBFIs not performing quasi-banking functions, the
“passed-on” GRT shall form part of the tax base subject to 5% GRT under Section 122.
Illustrations:
All banks and non-bank financial intermediaries:

Income Dividends Other income Interest Not over Interest over 5
5 yrs yrs
Gross receipts 60,000 100,000 100,000 100,000
Tax rate 0% 7% 5% 1%
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Percentage Tax P 0 7,000 5,000 1,000
SEC. 122. Tax on Other Non-Bank Financial Intermediaries. –
There shall be collected a tax of five percent (5%) on the gross receipts derived
by other non-bank financial intermediaries doing business in the Philippines, from interests,
commissions, discounts and all other items treated as gross income under this code.: Provided,
That interests, commissions and discounts from lending activities, as well as income from financial
leasing, shall be taxed on the basis of the remaining maturities of the instruments from which such
receipts are derived, in accordance with the following schedule:
Maturity period is five years or less 5%

Maturity period is more than five years 1%
Provided, however, That in case the maturity period is shortened thru pre-termination, then the
maturity period shall be reckoned to end as of the date of pre-termination for purposes of
classifying the transaction and the correct rate of tax shall be applied accordingly.
Provided, finally, That the generally accepted accounting principles as may be prescribed by the
Securities and Exchange Commission for other non-bank financial intermediaries shall likewise
be the basis for the calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided
on persons performing similar financing activities.
SEC 122- GROSS RECEIPTS TAX; TAX ON NON-BANK FINANCIAL INTERMEDIARIES NOT
PERFORMING QUASI-BANKING OPERATIONS.
There shall be collected a tax on gross receipt derived from sources within the Philippines
by non-bank financial intermediaries in accordance with the following schedules;
Kind of Income Tax rate
Interest, commissions and discounts from lending activities as well as
income from financial leasing, on the basis of remaining maturities of
If maturity period is five years or less
5%
If maturity period is more than five years
1%
Dividends, Royalties, rentals of property, real or personal, profits from 5%

exchange and all other items treated as gross income under Sec. 32 of
the Tax Code, as amended
155
Watch:
https://www.youtube.com/watch?v=NkKtVMwkV2M
Read:
https://www.bir.gov.ph/index.php/tax-code.html#title5
Codal Reference:
RA 8424 National Internal Revenue Code (NIRC); Sec 116 to 122
Multiple Choice ( 1 point each)
1. Which of the following is subject to 3% OPT under Sec 116 (seller of goods and services) of
the tax code?
a. seller of goods with gross sales of P 100,000 per year.

b. seller of goods and services with gross sales of P 3.1M
c. A jeepney operator with gross receipts of P 2.1M only
d. a fruit dealer whose gross receipts amounted to P 2M only
e. None of the above
2. A domestic carrier by land is engaged in transport of goods. It is not VAT registered and annual
gross receipts does not exceed P 3M. Thus, it is subject to:
a. 12% VAT
b. 3% OPT under sec 116
c. 3% common carriers tax under sec 117
d. not subject to business tax
3. A domestic carrier by sea is engaged in transport of goods, passengers and cargoes. It is not
VAT registered and annual gross receipts exceeds P 3M. Thus, it is subject to:
a. 12% VAT
4. A domestic carrier by land is engaged in transport of passengers . It is not VAT registered and
annual gross receipts exceeds P 3M. Thus, it is subject to:
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a. 12% VAT
5. It is a pool of land transportation vehicles whose accessibility to the riding pubic is facilitated
through the use of common point of contact which may be in the form of text, telephone and
cellular, email or mobile applications or by other means.
a. Domestic common carrier

b. International common carrier
c. Grab taxi and UBER taxi
d. Transportation Network vehicle services (TNVS)
6. Which of the following is not replaced by VAT?

a. Sales tax on original sales
b. Contractors tax
c. Common carriers tax
d. Compensating tax
7. Which of the following establishments are / is subject to OPT?

I. PAL II OSANG Night Club III. Far Eastern University (FEU) IV. ABC Cooperatives V.
Metrobank
a. I, II and IV
b. I, II, III and V
c. II, III, V
d. II and V
8. All of the following, except one, are not subject to common carriers tax?
a. owner of parking lot
b. rent a car companies
c. common carriers by land engaged in carriage of cargo
d. domestic airlines
9. Which of the following is not subject to OPT?

a. BDO
b. Operator of cockpits
c. MERALCO
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d. Operator or owner of race tracks
10. Exempt from overseas communication tax are as follows, except:
a. Public service and for general welfare

b. International organizations
c. News agencies
d. Government
Answer Sheet
1 6
2 7
3 8
4 9
5 10
158

Under NIRC Sections 123, 124, 125, 126 and 127
Overview:
Percentage Tax – is a business tax imposed on persons or entities who sell or

lease goods, properties or services during trade or business whose gross annual sales or receipts
do not exceed the amount required to register as VAT-registered taxpayers. Percentage taxes
are usually based on a fixed rate
Businesses with gross annual sales and receipts that do not exceed P 3,000,000
(P1,919,500 in the Old Tax Code), and are not VAT-registered, percentage tax is imposed for
sold or leased goods, properties or services. The percentage tax rate varies depending on the
nature of business. The usual rate is 3% of gross sales or receipts but it could go as high as 30%,
for gross receipts of Jai-Alai and racetrack operators for instance.
On this module, we will discuss the percentage tax rates provided by Tax Code
under section 123 to Section 127 which includes the following businesses: Life Insurance
companies, Agents of foreign Insurance Companies; Amusement places such as boxing and
professional basketball, winners of horse races and seller of stocks.
Module Objectives:

7. To know the Administrative Provisions and the Practical Provisions on Percentage
taxes (From Section 123 to Section 127 of Tax Code).
8. To be able to identify what business activities are subjected to percentage taxes under
Section 123, 124, 125, 126 and 127.
9. Who are liable to pay the percentage taxes under Section 123, 124, 125, 126 and 127.
10. When and Where to file and pay percentage taxes provide under Section 123, 124,
125, 126 and 127.
11. To know the tax basis and tax rates in computing the percentage tax (net or gross)
under Section 123, 124, 125, 126 and 127.
Course Materials:
Quarterly Percentage Tax Rates Table from Section 123 to 127:
Coverage Taxable Base Tax Rate
159
Life Insurance Company/Agent/Corporation (except Total premiums 2%
purely cooperative companies or associations) collected
Agents of foreign insurance companies (except reinsurance premium):
Insurance agents authorized under the Insurance Code Total premiums 4%
to procure policies of insurance for companies not collected
authorized to transact business in the Philippines
Owners of property obtaining insurance directly with Total premiums paid 5%
foreign insurance companies
Proprietor, lessee or operator of the following:
Cockpits Gross receipts 18%
Cabarets, Night or Day Clubs, videoke bars, karaoke Gross receipts 18%
bars, karaoke televisions, karaoke boxes and music
lounges
Boxing exhibitions (except when the World or Oriental Gross receipts 10%
Championship is at stake in any division, provided
further that at least one of the contenders for World
Championship is a citizen of the Philippines and said
exhibitions are promoted by a citizen/s of the
Philippines or by a corporation/ association at least
60% of the capital of which is owned by said citizen/s)
Professional basketball games (in lieu of all other Gross receipts 15%
percentage taxes of whatever nature and description)
Jai-alai and race track Gross receipts 30%
Winnings on horse races Winnings or 10%
'dividends'
Winnings from 4%
Double forecast
/quinella and
trifecta bets
Prizes of owners of 10%
winning race
horses
Sale, barter, exchange or other disposition of shares of Gross selling price or 6/10 of 1%
stock listed and traded through the Local Stock gross value in money
Exchange other than the sale by a dealer of securities
Sale, barter or exchange or other disposition through: Gross selling price or gross value
• Initial Public Offering (IPO) – the issuing in money
corporation shall pay the imposed tax
Proportion of disposed shares to
• Secondary Public Offering – the seller shall pay
total outstanding shares after the
the imposed tax
listing in the local stock exchange:
• Up to 25% 4%
160
• Over 25% 2%
but not over
33 1/3%
• Over 33 1%
1/3%
SEC. 123. Tax on Life Insurance Premiums. –
There shall be collected from every person, company or corporation (except purely
cooperative companies or associations) doing life insurance business of any sort in the
Philippines a tax of two percent (2%) of the total premium collected, whether such premiums are
paid in money, notes, credits or any substitute for money;
'Cooperative companies or associations' are such as are conducted by the members

thereof with the money collected from among themselves and solely for their own protection and
not for profit.
A life insurance premium - is a payment made to the life insurance company, to pay for a life
insurance policy including health, accident and any insurance premiums appertaining thereto or
connected therewith.
Exempt Life Insurance Premiums:
1. Premiums refunded within six (6) months after payment on account of

rejection of risk or returned for other reason to a person insured shall not
be included in the taxable receipts.
2. Reinsurance premiums; no tax be paid upon reinsurance by a company
that has already paid the tax.
3. Not included in taxable receipts; upon doing business outside the
Philippines on account of any life insurance of the insured who is a
nonresident, if any tax on such premium is imposed by the foreign country
where the branch is established nor upon premiums collected or received
on account of any reinsurance , if the insured, in case of personal
insurance, resides outside the Philippines, if any tax on such premiums is
imposed by the foreign country where the original insurance has been
issued or perfected;
4. Not included in taxable receipts; upon that portion of the premiums
collected or received by the insurance companies on variable contracts (as
defined in Section 232(2) of Presidential Decree No. 612), in excess of the
amounts necessary to insure the lives of the variable contract workers.
Under the Insurance Code of the Philippines,
• Insurance are deemed non-life insurance only if written by Non-Life Insurance company
• Insurance are deemed life insurance only if written by Life Insurance company
• If data is silent, then consider them as life insurance
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SECTION 123: PERCENTAGE TAX ON LIFE INSURANCE PREMIUMS
Tax base Gross receipts on Sale of Services – Life Insurance Premiums
Tax rate 2%
Tax Formula Gross receipts on Life Insurance Premiums X 2%
Formulas / Computations:
Total Receipts on Life Insurance Premiums 120,000
Less; Exempt from Life insurance premiums 20,000
Gross receipts 100,000
Tax rate 2%
Percentage Tax due 2,000
SEC. 124. Tax on Agents of Foreign Insurance Companies. –
Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code
to procure policies of insurance as he may have previously been legally authorized to transact on
risks located in the Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section 123:
Provided, That the provision of this Section shall not apply to reinsurance: Provided,
however, That the provisions of this Section shall not affect the right of an owner of property to
apply for and obtain for himself policies in foreign companies in cases where said owner does not
make use of the services of any agent, company or corporation residing or doing business in the
Philippines. In all cases where owners of property obtain insurance directly with foreign
companies, it shall be the duty of said owners to report to the Insurance Commissioner and to the
Commissioner each case where insurance has been so effected, and shall pay the tax of five
percent (5%) on premiums paid, in the manner required by Section 123.
Non-Life Insurance premiums are insurance premiums on insurance of property or rights or any
insurance appertaining thereto or connected therewith.
SEC. 125. Amusement Taxes. –
There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax equivalent
to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing
exhibitions wherein World or Oriental Championships in any division is at stake shall be exempt
162
from amusement tax: Provided, further, That at least one of the contenders for World or Oriental
Championship is a citizen[s] of the Philippines and said exhibitions are promoted by a citizen/s of
the Philippines or by a corporation or association at least sixty percent (60%) of the capital of
which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games as envisioned in
Presidential Decree No. 871: Provided, however, That the tax herein shall be in lieu of all other
percentage taxes of whatever nature and description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks - of their gross receipts,
irrespective, of whether or not any amount is charged for admission.
For the purpose of the amusement tax, the term 'gross receipts' embraces all the receipts
of the proprietor, lessee or operator of the amusement place. Said gross receipts also include
income from television, radio and motion picture rights, if any. A person or entity or association
conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with
respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the
duty of the proprietor, lessee or operator concerned, as well as any party liable, within twenty (20)
days after the end of each quarter, to make a true and complete return of the amount of the gross
receipts derived during the preceding quarter and pay the tax due thereon.
SECTION 125: PERCENTAGE TAX ON AMUSEMENT PLACES

Tax base Gross receipts on Sale of Services – income
Tax rate 0%, 10%, 15%, 18%, 30%
Tax Formula Gross receipts on Income X 2%
Formulas / Computations: Professional Professional Cabarets,

Boxing Basketball Cockpits
Total Receipts on 100,000 100,000 1,000,000
Tax rate 10% 15% 18%
Percentage Tax due 10,000 15,000 180,000
SEC. 126. Tax on Winnings. -
Every person who wins in horse races shall pay a tax equivalent to ten percent (10%) of his
winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning
ticket after deducting the cost of the ticket: Provided, That in the case of winnings from double,
forecast/quinella and trifecta bets, the tax shall be four percent (4%). In the case of owners of
winning race horses, the tax shall be ten percent (10%) of the prizes.
163
The tax herein prescribed shall be deducted from the 'dividends' corresponding to each
winning ticket or the 'prize' of each winning race horse owner and withheld by the operator,
manager or person in charge of the horse races before paying the dividends or prizes to the
persons entitled thereto.
The operator, manager or person in charge of horse races shall, within twenty (20) days
from the date the tax was deducted and withheld in accordance with the second paragraph hereof,
file a true and correct return with the Commissioner in the manner or form to be prescribed by the
Secretary of Finance, and pay within the same period the total amount of tax so deducted and
withheld.
SECTION 125: PERCENTAGE TAX ON WINNINGS
Owners of Winning Horses Bettors, on winning bets
Tax base Gross winnings / prizes before Gross winnings / prizes after cost
percentage tax of ticket, before tax
Tax Within the Philippines Within the Philippines
Source
Tax rate 0%, 10%, 15%, 18%, 30% • 4% tax rate for winnings
from double,
forecast/quinella and
trifecta bets,
• 10% tax rate for other
winnings bets such as win
bets, place bets
Formulas / Computations: Owners of Winning Winning

Winning Horse Bettors - bettors-Place
Double bets
Gross Winnings 100,000 100,000 100,000
Less Cost of Ticket 0 10,000 10,000
Net winnings 100,000 90,000 90,000
Tax rate 10% 4% 10%
Percentage Tax due 10,000 3,600 9,000
SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through
the Local Stock Exchange or through Initial Public Offering. -
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through
the Local Stock Exchange.- There shall be levied, assessed and collected on every sale, barter,
exchange, or other disposition of shares of stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent
(1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed which shall be paid by the seller or transferor (Old Tax Code)
164
Under the New tax Code (after TRAIN law), the rate is 6/10 of 1% of the of the gross selling
price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise
disposed which shall be paid by the seller or transferor.
Under the TRAIN law, Section 127 provides the following:
Sec. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through
the Local Stock Exchange or through Initial Public Offering -
"(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the
Local Stock Exchange.— There shall be levied, assessed and collected on every sale, barter,
exchange or other disposition of shares of stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a tax at the rate of six-tenths of one percent
(6⁄10 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed which shall be paid by the seller or transferor.
(B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. -
There shall be levied, assessed and collected on every sale, barter, exchange or other disposition
through initial public offering of shares of stock in closely held corporations, as defined herein, a
tax at the rates provided hereunder based on the gross selling price or gross value in money of
the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the
proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the local stock exchange:
Up to twenty-five percent (25%)
4%
Over twenty-five percent (25%) but not over thirty-three and one third
2%
percent (33 1/3%)
1%
Over thirty-three and one third percent (33 1/3%)
The tax herein imposed shall be paid by the issuing corporation in primary offering or by
the seller in secondary offering.
For purposes of this Section, the term 'closely held corporation' means any corporation
at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent (50%) of
the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly
by or for not more than twenty (20) individuals.
For purposes of determining whether the corporation is a closely held corporation, insofar
as such determination is based on stock ownership, the following rules shall be applied:
(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a
corporation, partnership, estate or trust shall be considered as being owned proportionately by its
shareholders, partners or beneficiaries.
(2) Family and Partnership Ownerships. - An individual shall be considered as owning

the stock owned, directly or indirectly, by or for his family, or by or for his partner. For purposes
165
of the paragraph, the 'family of an individual' includes only his brothers and sisters (whether by
whole or half-blood), spouse, ancestors and lineal descendants.
(3) Option. - If any person has an option acquire stock, such stock shall be considered as
owned by such person. For purposes of this paragraph, an option to acquire such an option and
each one of a series of options shall be considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively owned by

reason of the application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph
(1) or (2), be treated as actually owned by such person; but stock constructively owned by the
individual by reason of the application of paragraph (2) hereof shall not be treated as owned by
him for purposes of again applying such paragraph in order to make another the constructive
owner of such stock.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(1) Return on Capital Gains Realized from Sale of Shares of Stock Listed and Traded
in the Local Stock Exchange. - It shall be the duty of every stock broker who effected the sale
subject to the tax imposed herein to collect the tax and remit the same to the Bureau of Internal
Revenue within five (5) banking days from the date of collection thereof and to submit on Mondays
of each week to the secretary of the stock exchange, of which he is a member, a true and complete
return which shall contain a declaration of all the transactions effected through him during the
preceding week and of taxes collected by him and turned over to the Bureau Of Internal Revenue.
(2) Return on Public Offerings of Shares of Stock. - In case of primary offering, the
corporate issuer shall file the return and pay the corresponding tax within thirty (30) days from the
date of listing of the shares of stock in the local stock exchange. In the case of secondary offering,
the provision of Subsection (C) (1) of this Section shall apply as to the time and manner of the
payment of the tax.
(D) Common Provisions. - any gain derived from the sale, barter, exchange or other
disposition of shares of stock under this Section shall be exempt from the tax imposed in Sections
24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this Code and from the regular individual or
corporate income tax. Tax paid under this Section shall not be deductible for income tax purposes.
Percentage Tax for Transactions Involving Shares of Stocks under Section 127 of the Tax Code,
as amended
BIR Form 2552 - Percentage Tax Return for Transactions Involving Shares of Stocks Listed and
Traded Through The Local Stock Exchange or Through Initial and/or Secondary Public Offering
Persons required to file:

1. Every stockbroker who effected a sale, barter or exchange of shares of stock listed and
traded through the local stock exchange other than the sale by a dealer in securities, which tax
shall be paid by the seller/transferor
2. A corporate issuer, engaged in the sale, exchange or other disposition through Initial
Public Offering (IPO) of shares of stock in closely-held corporations
166
3. A stock broker who effected a sale, exchange or other disposition through secondary
public offering of shares of stock in closely-held corporations
Filing and Payment:
1. BIR Form 2552 - Percentage Tax Return for Transactions Involving Shares of Stocks
2. Duly issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
3. Proof of Exemption for transactions not subject to tax, if applicable
5. For amended return, proof of payment and the return previously filed
6. Authorization letter, if filed by an authorized representative
Procedures
1. For Manual filing and/or payment:
a. Properly fill-up the existing old BIR Form 2552 in triplicate copies using the new tax rate
then compute the tax due thereon.
b. Proceed to any AAB located within the territorial jurisdiction of the RDO where the where
the broker or corporate issuer is registered, and present the duly accomplished old BIR Form
2552, together with the required attachments.
c. If paying manually, present the aforementioned documents together with BIR-prescribed
deposit slip, and payment to the respective AAB. The Percentage Tax Involving Shares of Stocks
shall be paid at the time the return is filed by the taxpayer.
d. Receive the BIR Form 2552 taxpayer's copy duly validated and stamp-received by the
teller of the AAB.
e. Manual Filers who want to pay online can pay through GCash Mobile Payment, LandBank
of the Philippines (LBP) Linkbiz Portal (for taxpayers who have ATM account with LBP/Bancnet
ATM or Debit Card), or DBP Tax Online (for holders of VISA/Master Credit Card/Bancnet ATM or
Debit Card).
When to File/Pay :
1. For tax on sale of shares of stocks listed and traded through the local stock exchange
(LSE) – within five (5) banking days from the date of collection
2. For tax on shares of stocks sold or exchanged through primary offering - within 30 days
from the date of listing in the LSE
3. For tax on shares of stocks sold or exchanged through secondary public offering - within
five (5) banking days from the date of collection
Note: Aside from BIR Form No. 2552, a stockbroker or corporate issuer is also required to submit
a true and complete return to the Secretary of the Stock Exchange of which he is a member. The
said return shall contain a declaration of all transactions effected through him during the preceding
week and of taxes collected by him and turned over to the BIR.
167
Watch:
https://www.youtube.com/watch?v=61WtqMzJinU
Read:
Codal Reference:
RA 8424, as amended (sections 123 to 127)
RA 10963 TRAIN (Tax Reform for Acceleration and Inclusion ) Law

1. I. A seller of agricultural food products is vat exempt. If that seller's annual gross sales in 2018
amounted to P 3M, thus, that seller is subject to 3% business tax.
II. A taxpayer who is subject to OPT, will also subject to income tax on his net income.
2. I. The 3% common carriers tax is based on the actual quarterly gross receipts or minimum
quarterly receipt whichever is lower.
II. Percentage tax is a business tax on sale of services.
3. I. A VAT registered transportation contractor is engaged in transport of passengers, thus he is

liable to 12% VAT on gross receipts from transport of goods and 3% common carriers tax on
gross receipts from transport of passengers.
II. 8% optional tax based on net income is in lieu of income tax and OPT (OPT under sec 116)
4. I. Operators of transport facilities are subject to VAT on gross sales from transporting cargoes
or goods.
II. Operators of transport facilities are subject to VAT on gross receipts from renting out its
transport facilities.
5. I. Partners or owners of TNVS without valid Certificate of Public Convenience is subject to

12% VAT.
II. Domestic airlines such as Cebu Pacific is subject to 3% common carriers tax under sec 117.
6. I. All vat exempt taxpayers shall be subject to OPT

II. Generally, OPT can be imposed together with VAT.
7.I. OPT is a transfer tax because OPT may be transfer to buyer or consumer same as VAT,
since both are considered indirect taxes and both a national tax.
II. OPT is an ad valorem, not progressive and a business tax.
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8. I. Banks are subject to VAT for their interest income earned from lending activities. Examples
are BDO and Metro bank.
II. Principle of reciprocity is applicable to Sec 118 (Tax on International common carrier)
9. I. Radio broadcasting companies whose Gross receipts in previous year did not exceeds the
threshold (P 10M)shall have the option to register as VAT, but it's not irrevocable.
II. Airlines are subject to VAT
10. I. Rent a car is not subject to common carriers tax.
II. Aggregate rule is applied when a person has more than one business for purpose of threshold
excluding VAT exempt business.
11.I. Cargo trucks are subject to OPT.

II. Pedicabs in PUP are not subject to OPT because they are considered Margin of Income
Earners or MIE.
12. I. Overseas communication tax is imposed on owner of communication facilities.
II. Domestic calls are subject to OPT.
13. I. Banks, credit corporations, money changers, pawnshops and registered credit cooperatives
are subject to Gross receipt tax.
II. The gross receipt tax for rent income of banks is 7% of gross rental receipts (gross of
withholding tax of 5%)
14. I. The threshold before 2018 is P 1,919,500. IN 2018, the threshold was increased by P
3,000,000.
II. Pawnshops are subject to 5% GRT on gross receipts from interest income.
15. I. Cabarets and Clubs are subject to 18% amusement tax based on gross receipts in the
Philippines.
II. Comedy bar are subject to 12% VAT
Answer Sheet
1 11
2 12
3 13
4 14
5 15
6
7
8
9
10
169
Lesson 4: Percentage Tax Credits
Overview:
Percentage Tax is a business tax imposed on persons or entities who sell or lease
goods, properties or services during trade or business whose gross annual sales or receipts do
not exceed P 3,000,000 (P1,919,500 under the Old Tax Code), and are not VAT-registered.
Percentage tax is computed based on a fixed rate depending on the nature of business of a
person ranging from 0% to 30% as discussed from Sections 116 to 127 of the Tax Code of
Philippines. By multiplying the tax base to tax rate, we can derive the percentage tax due of a
person. Same with other taxes, there is a percentage tax credit that can be deducted directly from
the Percentage Tax Due to arrive at Percentage tax Still Due.
On this module, we will discuss the percentage tax credit available to taxable
person. Percentage tax still due or payable is computed by deducting the percentage tax credit
from the computed percentage tax due. Percentage tax credit varies depending on the nature of
business transactions of a person and the corresponding Withholding Percentage tax rates. The
withholding percentage tax rates ranges from 0% to 30%.
Module Objectives:

12. To learn the revenue regulations on withholding percentage tax rates.
13. To be able to identify the business activities / transactions subject to withholding tax
and the corresponding rates.
14. To compute the percentage tax due and still due / payable.
Course Materials:
Percentage Tax credit refers to the amounts of percentage tax imposed by the authority of the
government of the Philippines that are allowed by law to directly reduce / deduct from the
percentage tax due computed under Sections 116 to 127 to arrive at percentage tax payable.
BIR Revenue Regulation No 298: Withholding Percentage Tax rates:
Bureaus, offices, and instrumentalities of the government, including government owned controlled
corporations as well as their subsidiaries, provinces, cities and municipalities making payment to
a private individuals, corporations, partnership and or associations are required to deduct and
withhold the following percentage tax rate due from the payees on account of such payments:
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NIRC NON VAT registered person / Business / Merchant Withholding

Percentage tax rates
Sec 116 VAT exempt person in Sec 109 (V)
Seller of goods 3%
Seller of services 3%
Sec 117 Domestic Common carriers 3%
Sec 118 International Common carrier 3%
Sec 119 Franchise Grantees
Water and Gas 2%
Radio, television Stations 3%
Sec 120 Overseas communication originating from Phil 10%
Sec 121 Bank and Non banks Financial Intermediaries 0%, 1%5% and 7%
Sec 122 Other Non banks Financial Intermediaries 1%, 5%
Sec 123 Life Insurance Company 5%
Sec 124 Agents of Foreign Insurance Companies
Indirect insurance through agents 10%,
Direct insurance through agents 5%
Sec 125 Amusement Places
Boxing 10%
Professional Basketball 15%
Clubs , cabarets 18%
Jai Alai 30%
Sec 126 Winner in horse races
Owners of Horse 10%
Bettors 4%, 10%
Sec 127 Seller or transferor of stocks
Through Local Stock Exchange 6/10 of 1%
Through IPO 1%,2%,4%
Through secondary Public Offerings 6/10 of 1%
Components of Percentage Tax credits

Percentage taxes
1. Percentage Tax paid in the original Percentage Paid within the
Tax return (in case of amended return) Philippines, include in
percentage Tax Credit
2. Percentage Tax withheld by customer- Paid within the
withholding tax agents Philippines, include in
percentage Tax Credit
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FORMULA:
Gross receipts 100,000
Tax rate 3%
Percentage tax due 3,000
Less:
Percentage tax paid inn original returns 1,000
Percentage tax withheld 500
Percentage tax Still due / Payable 1,500
Watch:
Read:
Codal Reference:
1. All VAT exempt taxpayers shall be subject to OPT.

2. OPT may be imposed together with excise tax
3. Percentage tax is a transfer tax
4. An isolated transactions not in the course of business will not result to a liability for a percentage
tax.
5. Common carriers refers to person, corporations, firms or associations engaged in business of
carrying of transporting passengers or goods or both by land, water and air for compensation,
offering their services to the public and shall include transportation contractors.
6. Keepers of garage is a person whose business is to keep automobiles for hire or keep them
stored for use or for order.
7. Owners of common carriers by air relative to transport of cargoes is subject to 3% OPT.
8. Owner of parking lot for domestic carriers is subject to VAT
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9. Partners or owners of Grab taxi and Uber taxi with valid Certificate of Public Convenience is
subject to 3% OPT common carriers under 117.
10. Aggregate rule is applied when person has more than one business for purpose of
determining threshold excluding VAT exempt business under sec 109.
11. Airlines are subject to VAT.
12. Rent a Car is not subject to common carriers tax.
13. Pedicab operators is not subject to both OPT and VAT because the law considered them as
minimum wage earners.
14. Gross revenues earned by franchise grantees of water and gas is subject to 2% OPT.
15. Taxpayers registered under sec 116 is liable to OPT of 3% of gross receipts regardless when
it is earned and recognized in IS.
Problem Solving (2 points)
1. A is a non-VAT registered tax payer with a grocery store. The following data are available for
2018:
Sales of non food items is P 300,000

Sales of processed food items is P 400,000
Purchases from VAT registered person is P 250,000
Salaries of employees is P 150,000
What is the percentage tax due (net of applicable taxes)?
2. A, keepers of garage, whose gross receipts in year 2017 totaled P 3,050,000. In year 2018, the
total receipts of A amounted to P 4,000,000 with disbursements of operating expenses of P
2,000,000. What is the common carriers tax due from A?
3. A domestic carrier by land is engaged in transport of passengers. It's annual gross receipts
exceeds P 3M. Gross revenues is P 3,500,000; cost of services is P 2,000,000; cost of gas and
salaries is P 500,000; Receivable, end is P 200,000. What is the OPT under sec 117?
4. SAN JOSE Airlines, a domestic carrier had the following gross receipts for the month of July
2018: carriage of passenger is P 5,000,000; carriage of cargo is P 6,000,000 and carriage of other
goods is P 2,000,000. What is the amount of OPT due from SAN JOSE?
5. SAN JOSE, an operator of 10 buses with provincial operations from Manila- San Mateo. It has
also 5 cargo trucks. For 2018, the gross receipts from bus operations is P 1,300,000 and gross
receipts from cargo truck is P 1,200,000. SAN JOSE is a non-VAT registered tax payer. How
much is the total business taxes due?
6. ABC, VAT registered person has the following gross receipts for year 2018:
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• Red Bus has total receipts of P 200,000 (includes receipts from carriage of goods of P
10,00)
• Blue Bus has total receipts of P 300,000 (excludes receipts from carriage of goods of P
10,00)
• Taxi- receipts of P 40,000
• Jeepney has total receipts of P 70,000.
• Cargo trucks has total receipts of P 100,000
• Sea vessel has total receipts of P 300,000
What is the total business taxes due from ABC?
7. SAN JOSE, operator of transportation vehicles, has the following data for the 1st quarter 2018:
Jeep 1 (Manila) with gross receipts of P 4,000

Jeep 2 (Manila) with gross revenue of P 2,200 ( P 200 is still collectible from passenger X)
Payment for meals and allowance of employees totaled P 2,200
Jeep 3 (Provincial) with gross receipts of P 2,000
Taxi in manila with gross receipts of P 2,000
Gross receipts of SANJOSE's taxi driver as their salaries, totaled P 1,000
Payment of P 2,000 for gas consumption (VAT-registered supplier)
What is the percentage tax due from San Jose?
8. SAN JOSE Company, non vat registered subject to 3% OPT under sec 116, had the following
data in the first quarter of 2018:
Accounts receivable, beginning 12,500.00
Accounts receivable, ending 8,000.00
Trade payable-purchases, beg 4,000.00
Trade payable-purchases, end 6,500.00
Cash Purchases at list price 40,000.00
(Trade discounts given: 10%;20%)
Purchase discount not taken from Cash Purchases 1,000.00
Payments to Trade Suppliers 36,300.00
Beginning Inventory 9,500.00
Inventory decreased by-------------- 2,800.00
Operating expenses paid 18,700.00
Gross Profit rate is 30% based on cost
What is the percentage tax due?
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9. Based on number 8, ASSUMING that SAN JOSE is a service provider, what will be the
percentage tax due?
10. ABC Company is an operator of service equipments for overseas communications / calls.
During the 3rd quarter of the year 2018, SAN JOSE, an international news services agency, made
calls originating from Philippines to CANADA and paid to ABC the total gross payment for sale of
services amounting to P 110,000, inclusive of all charges and taxes, if any. How much will be paid
by ABC as percentage tax due for the 3rd quarter?
______________________THANK YOU!!_______________________
ANSWER SHEET
1. 6. 11.
2. 7. 12.
3. 8. 13.
4. 9. 14.
5. 10. 15.
1. 6.
2. 7.
3. 8.
4. 9.
5. 10.
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MODULE 4: VALUE ADDED TAX (VAT)
OVERVIEW:
We may not be aware of it, VAT (Value Added Tax) is part of our life, we are paying it
regularly. VAT is everywhere, it’s in most of the goods or services we purchase. Take for an
instance, whenever we go to the salon to get our hair done, when we dine in a restaurant, watch
a movie, when we buy clothes, when we gas up our car, and many more, VAT is included in what
we pay.
VAT stands for Value Added Tax. VAT is a type of sales tax which is levied on
consumption on the sale of goods, services or properties, as well as importation, in the
Philippines. VAT is a business tax imposed by the government to VAT-registered persons
engaged in trade or business where the latter can shift or transfer the burden (VAT) to consumers.
To simplify, it means that a certain tax rate (0% to 12%) is added up to the selling price of
a goods or services sold. It is also imposed on imported goods from abroad.
Under the New Tax Code, any person or entity who, in the course of his trade or business,
sells, barters, exchanges, leases goods or properties and renders services is subject to VAT, if
the aggregate amount of actual gross sales or receipts exceeds three million pesos ( P
3,000,000). (Under the Old Tax Code, the threshold is One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos or P1,919,500.00). Also, a person required to register as VAT
taxpayer but failed to register and Any person, whether or not made in the course of his trade or
business, who imports goods shall be subject to value Added Tax.
MODULE DURATION:
• January 2-10, 2021 Synchronous Meeting and Asynchronous Learning.
MODULE OBJECTIVES:

1. To learn the different business organization, registration of business to BIR and maintenance
of accounting books.
2. To know the procedures for filing of VAT returns: when and where is the filing and payment of
VAT.
3. Determine the penalties / additions to assessed tax.
4. To know the threshold amount of sales for VAT registration and the classification of sales
under the Tax Code.
5. To understand and explain the Sections 106, 107 and 108 of Old and New tax Code of the
Philippines as to classification of VAT registered persons.
6. To determine the formulas for determination of tax base, VAT rate and value added tax dues.
7. Enumerate the components of value added tax credits.
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8. Computation of VAT input and VAT payable
COURSE MATERIALS:
Under this module, the topic Value Added Tax (VAT) is subdivided into four (4) lessons
as follows:
Lesson 1; Administrative Provisions and Fundamental Concepts of Value Added Tax (VAT)
Lesson 2: Classification of Sales Transactions – Sections 105 to 109
Lesson 3: Laws / Rules on Value Added tax on Importation of Goods- Section 107: tax base, VAT
due
Lesson 4: Laws / Rules on Value Added Tax Credits-Section 111
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MODULE 4: VALUE ADDED TAX
Lesson 1: Administrative Provisions and Fundamental Concepts

of Value Added Tax
Overview:
SEC. 105. Persons Liable. - Any person who, in the course of trade or business,
sells barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of
this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services
On this module, we will discuss the BIR requirements to merchants / business

owners such as filing and payment of VAT returns. One source of taxes collected by BIR is the
business tax called VAT imposed to seller of goods and services who are VAT registered and had
exceeded the VAT threshold. The imposition of VAT by the government to VAT registered persons
is governed by RA 8424 (National Internal Revenue Code) which was amended by the enactment
of TRAIN law. TRAIN law took effect last January 1, 2018 resulting to some changes in the Tax
Code of the Philippines. For example, the VAT threshold before the TRAIN law is P 1,919,500;
but was increased to P 3,000,000 by the passage of TRAIN law or RA 10963. Thus, on this
module, we will study both the Old Tax Code and New Tax code of the Philippines
Module Objectives:

1. Know the compliance requirements of BIR for merchant or business organizations
2. Identify the persons who are under mandatory registration and Optional registration to
VAT.
3. Enumerate the instances / reason for cancellation of registration, understand the
annual registration fee and keeping of accounting books and books of accounts.
4. Know when and where to file and pay the Value Added Tax.
5. Learn the invoicing requirements and determination of Gross receipts.
6. Understand the nature / characteristic and classification of value Added Tax.
7. Learn the accounting treatment of VAT and Journal Entries to record VAT transactions.
Course Materials:
ADMINISTRATIVE PROVISIONS
Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on

the sale, barter, exchange or lease of goods or properties and services in the Philippines and on
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importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on
to the buyer, transferee or lessee of goods, properties or services
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters,
exchanges, leases goods or properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered
in the Philippines by nonresident foreign persons shall be considered as being rendered in the
course of trade or business.
Compliance Requirements:
Any merchant or business organization in whatever form or nature, if liable for any national tax as
provided by the Tax Code, are mandated to comply with the following requirements:
f. Registration with BIR

g. Keeping of accounting records and books
h. Issuance of sales invoice and official receipts
i. Filing of tax returns and payment of related taxes
j. Withholding of taxes on specified payment to suppliers-sellers.
Illustration of VAT return:

VAT Output 100,000
VAT input 80,000
VAT payable 20,000
Registration and payment of the registration fee:
VAT taxpayers shall apply for registration as VAT Taxpayers and pay the
corresponding registration fee of five hundred pesos (P500.00) using BIR Form No. 0605
for every separate or distinct establishment or place of business before the start of their
business following existing issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five
hundred pesos (P500.00) not later than January 31, every year.
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Under RA 10963; The registration shall contain the taxpayer’s name, style,
place of residence, business, and such other information as may be required by the
Commissioner in the form prescribed therefor: Provided, That the Commissioner shall
simplify the business registration and tax compliance requirements of self-employed
individuals and/or professionals
The following compliance activities must be performed by a VAT-registered taxpayer:
a. Pay the annual registration fee of P500.00 for every place of business or establishment
that generates sales;
b. Register the books of accounts of the business/occupation/calling, including practice of
profession, before using the same;
c. Register the sales invoices and official receipts as VAT-invoices or VAT official receipts
for use on transactions subject to VAT. (If there are other transactions not subject to VAT, a
separate set of non-VAT invoices or non-VAT official receipts need to be registered for use on
transactions not subject to VAT);
d. Filing of the Monthly Value-added Tax Declaration on or before the 20th day following the
end of the taxable month (for manual filers)/on or before the prescribed due dates enunciated in
RR No. 16-2005 (for e-filers) using BIR Form No. 2550M and of the Quarterly VAT Return on or
before the 25th day following the end of the taxable quarter using BIR Form No. 2550Q, reflecting
therein gross receipts (for seller of service)/ gross sales (for seller of goods) and output tax (VAT
on sales); purchases of goods and services made in the course of trade or business/exercise of
profession and input tax (VAT on purchases), other allowable tax credits as in the case of advance
VAT payment and VAT withheld by government payors, and VAT payable or excess input VAT,
whichever is applicable, with the accredited agent banks (AABs) of the BIR or Revenue Collection
Officers (RCOs) of the BIR (in areas without AAB), for returns with payment, or with the
RDO/LTDO having jurisdiction over the taxpayer (home RDO/LTDO), for returns without payment.
(The monthly VAT Declaration and the Quarterly VAT Return shall reflect the consolidated total
for all the taxable lines of activity and all the establishments - head office and branches);
e. Submit with the RDO/LTDO having jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT Return, the soft copy of the Quarterly Schedule of
Monthly Sales and Output Tax (if the quarterly sales exceed P2,500,000.00), and the soft copy of
the Quarterly Schedule of Monthly Domestic Purchases and Input Tax/ the soft copy of the
Schedule of Transactional/Individual Importation ( if the quarterly total purchases exceed
P1,000,000.00), reflecting therein the required data prescribed under existing revenue issuances
Persons Required to Register for Value-Added Tax under RA 10963:
Any person who, in the course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject
to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code, as amended.
1. His gross sales or receipts for the past twelve (12) months, other than those that are
exempt under Section 109(A) to (BB), have exceeded Three million pesos
(₱3,000,000)*
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2. There are reasonable grounds to believe that his gross sales or receipts for the next
twelve (12) months, other than those that are exempt under Section 109(A) to (BB),
will exceed Three million pesos (₱3,000,000).
Any person who becomes liable to VAT and fails to register as such shall be liable to pay
the output tax as if he is a VAT-registered person, but without the benefit of input tax credits for
the period in which he was not properly registered.
3. Franchise grantees of radio and/or television broadcasting whose annual gross

receipts of the preceding year exceed ten million pesos (P10,000,000.00) derived from
the business covered by the law granting the franchise; shall register within 30 days at
end of the calendar year.
*Under the Old tax Code; Persons required to Register for VAT are those persons (a).
With gross sales or receipts for the past twelve (12) months, other than those that are
exempt under Section 109(A) to (V), have exceeded Three million pesos (₱1,919,500); or
"(b) There are reasonable grounds to believe that his gross sales or receipts for the next
twelve (12) months, other than those that are exempt under Section 109(A) to (V), will
exceed Three million pesos (₱1,500,000).
Optional Registration as VAT:
a. Vat exempt person in Sec 109 (V) of NIRC; seller or lessor of goods or services
whose actual or expected gross ales or receipts do not exceed the marginal
threshold amount of P 3,000,0000 for any 12 month period. (Under the Old tax
Code, the threshold is P 1,919,500)
b. Any person who is VAT-registered but enters into transactions which are
exempt from VAT (mixed transactions) may opt that the VAT apply to his
transactions which would have been exempt under Section 109 of the Tax
Code, as amended.
c. Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed ten million pesos
(P10,000,000.00) derived from the business covered by the law granting the
franchise may opt for VAT registration. This option, once exercised, shall be
irrevocable. (Sec. 119, Tax Code).
d. Any person who elects to register under optional registration shall not be
allowed to cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before
the beginning of the calendar quarter and shall pay the registration fee unless they have already
paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day
of the month following registration.
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Under TRAIN law (RA 10963), it provides additional provisions regarding optional registration as
follows:
“Any person taxed under Sec 24 (A) (2)(b) and 24 (A) (2)(c) (2) (a) of NIRC who elected to pay
8% tax o gross sales or receipts shall not be allowed to avail of this option.”
Instances when a VAT-registered person may cancel his VAT registration:
a. If he makes a written application and can demonstrate to the commissioner's satisfaction

that his gross sales or receipts for the following twelve (12) months, other than those that are
exempt under Section 109 (A) to (U), will not exceed Three Million Pesos (P3,000,000.00); or
b. If he has ceased to carry on his trade or business, and does not expect to recommence
any trade or business within the next twelve (12) months.
The cancellation for registration will be effective from the first day of the following month the
cancellation was approved.
FILING OF VAT RETURNS:
A. Monthly VAT Declarations
BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if
applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding
Tax at Source (SAWT), if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.
Procedures
1. Fill-up BIR Form No. 2550M in triplicate copies (two copies for the BIR and one copy for
the taxpayer).
2. If there is payment:
o File the Monthly VAT declaration, together with the required attachments, and pay the
VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue
District Office (RDO)/Large Taxpayers District Office (LTDO) where the taxpayer (head office of
the business establishment) is registered.
o Accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine
validate as evidence that payment was received by the AAB. The AAB receiving the tax return
shall stamp mark the word "Received" on the return and machine validate the return as proof of
filing the return and payment of the tax.
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o In places where there are no AAB, file the Monthly VAT declaration, together with the
required attachments and pay the VAT due with the Revenue Collection Officer (RCO)
o The RCO shall issue a Revenue Official Receipt upon payment of the tax.
3. If there is no payment:
o File the Monthly VAT Declaration, together with the required attachments, with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent having jurisdiction over the
registered address of the taxpayer (head office of the business establishment).
Deadline
• Manual Filing - Not later than the 20th day following the end of each month
• Through Electronic Filing and Payment System (eFPS):
B. Quarterly Value-Added Tax Return
BIR Form No. 2550Q - Quarterly Value-Added Tax Return (February 2007 ENCS)
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form
2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected
to Withholding Tax at Source (SAWT), if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Previously filed return and proof of payment, for amended return
6. Authorization letter, if return is filed by authorized representative
Procedures
Fill-up BIR Form 2550Q in triplicate copies (two copies for the BIR and one copy
for the taxpayer)
1. If there is payment:
o File the Monthly VAT declaration, together with the required attachments,
and pay the VAT due thereon with any Authorized Agent Bank (AAB) under the
jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office
(LTDO) where the taxpayer (head office of the business establishment) is
registered.
o Accomplish and submit BIR-prescribed deposit slip, which the bank teller
shall machine validate as evidence that payment was received by the AAB. The
AAB receiving the tax return shall stamp mark the word "Received" on the return
and machine validate the return as proof of filing the return and payment of the tax.
o In places where there are no AAB, file the Monthly VAT declaration,
together with the required attachments and pay the VAT due with the Revenue
Collection Officer (RCO)
o The RCO shall issue a Revenue Official Receipt upon payment of the tax.
2. If there is no payment:
o File the Quarterly VAT Return, together with the required attachments with
the RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent having
jurisdiction over the registered address of the taxpayer (head office of the business
establishment).
Reminders:
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• Only one consolidated Monthly VAT Declaration/Quarterly VAT Return
shall be filed covering the results of operation of the head office as well as the
branches for all lines of business subject to VAT.
• The Quarterly Summary Lists of Sales and Purchases shall be submitted
in Compact Disk-Recordable (CDR) following the format provided under Section
4.114-3(g) of RR No. 16-2005, as amended by RR No. 1-2012.
• The Quarterly Summary Lists of Sales and Purchases shall be submitted
through electronic filing facility for taxpayers under the jurisdiction of the Large
Taxpayers Service (LTS) and those enrolled under the eFPS.
Deadline
Within twenty five (25) days following the close of the taxable quarter.
Value-Added Tax Rates
➢ On sale of goods and properties - twelve percent (12%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or
exchanged
➢ On sale of services and use or lease of properties - twelve percent (12%)
of gross receipts derived from the sale or exchange of services, including
the use or lease of properties
➢ On importation of goods - twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges, such as tax
to be paid by the importer prior to the release of such goods from customs
custody; provided, that where the customs duties are determined on the
basis of quantity or volume of the goods, the VAT shall be based on the
landed cost plus excise taxes, if any.
➢ On export sales and other zero-rated sales - 0%
Invoicing/receipt requirement of a VAT-registered person:
A VAT registered person shall issue :
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties and for every sale,
barter or exchange of services.
Issuance of a single invoice/ receipt involving VAT and Non-VAT transactions:
VAT registered person may issue a single invoice/ receipt involving VAT
and non-VAT transactions provided that the invoice or receipt shall clearly indicate
the break-down of the sales price between its taxable, exempt and zero-rated
components and the calculation of the Value-Added Tax on each portion of the
sale shall be shown on the invoice or receipt.
A VAT registered person may issue separate invoices/ receipts for the
taxable, exempt, and zero-rated component of its sales provided that if the sales
is exempt from value-added tax, the term "VAT-EXEMPT SALE" shall be written
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or printed prominently on the invoice or receipt and if the sale is subject to zero
percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or printed
prominently on the invoice or receipt.
Presentation of VAT in the receipt/ invoice
The amount of the tax shall be shown as a separate item in the invoice or receipt.
Sample:
Sales Price P 100,000.00

VAT 12,000.00
Invoice Amount 112,000.00
Information that must be contained in the VAT invoice or VAT official receipt:
1. Name of Seller
2. Description of the goods or properties or nature of the service
3. Unit cost
4. Quantity
5. Date of transaction
6. TIN of buyer, if VAT- registered and amount exceeds P1,000.00
7. Address of Buyer
8. Business Style of Buyer
9. Name of Buyer
10. Statement that the seller is a VAT-registered person, followed by his TIN
11. Business Address of the Seller
12. Business Style of the Seller
13. Purchase price plus the VAT, provided that
o The amount of tax shall be shown as a separate item in the invoice or
receipt;
o If the sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be
written or printed prominently on the invoice or receipt;
o If the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED
SALE" shall be written or printed prominently on the invoice receipt; and
o If the sale involves goods, properties or services some of which are subject
to and some of which are zero-rated or exempt from VAT, the invoice or receipt
shall clearly indicate the breakdown of the sales price between its taxable, exempt
and zero-rated components, and the calculation of the VAT on each portion of the
sale shall be shown on the invoice or receipt.
14. Authority to Print Receipt Number at the lower left corner of the invoice or
receipt.
Liability of a VAT-registered person in the issuance of a VAT invoice/ receipt for

VAT-exempt transactions:
If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-
exempt transaction but fails to display prominently on the invoice or receipt the
words "VAT-EXEMPT SALE", the transaction shall become taxable and the issuer
shall be liable to pay the VAT thereon. The purchaser shall be entitled to claim an
input tax credit on his purchase.
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"Output tax" means;
Output tax means the VAT due on the sale, lease or exchange of taxable goods
or properties or services by any person registered or required to register under
Section 236 of the Tax Code.
"Input tax" means:
Input tax means the VAT due on or paid by a VAT-registered on importation of

goods or local purchase of goods, properties or services, including lease or use of
property in the course of his trade or business. It shall also include the transitional
input tax determined in accordance with Section 111 of the Tax Code, presumptive
input tax and deferred input tax from previous period.
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property
or right;
c. The right or privilege to use in the Philippines of any industrial, commercial
or scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs;
and
e. Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
whether in kind or in cash, including those performed or rendered by the following:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods
for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension
houses, inns, resorts, theatres, and movie houses;
h. Proprietors or operators of restaurants, refreshment parlors, cafes, and
other eating places, including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
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k. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in the
Philippines;
m. Sale of electricity by generating, transmission by any entity including the
National Grid Corporation of the Philippines (NGCP), and distribution companies
including electric cooperatives shall be subject to twelve percent (12%) VAT on
their gross receipts.;
n. Franchise grantees of electric utilities, telephone and telegraph, radio
and/or television broadcasting and all other franchise grantees, except franchise
grantees of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and
franchise grantees of gas and water utilities;
o. Non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity and bonding companies; and
p. Similar services regardless of whether or not the performance thereof calls
for the exercise of use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a. The lease of use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade brand
or other like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or
information;
d. The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such
property, or right or any such knowledge or information;
e. The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus purchased from such non-
resident person;
f. The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific, industrial
or commercial undertaking, venture, project or scheme;
g. The lease of motion picture films, films, tapes and discs; and
h. The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
Transactions considered deemed sales:
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties

originally intended for sale or for use in the course of business. Transfer of goods or
properties not in the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
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a. Distribution or transfer to:

➢ Shareholders or investors as share in the profits of the VAT-registered
person; or
➢ Creditors in payment of debt or obligation
b. Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned. Consigned goods returned by the consignee within
the 60-day period are not deemed sold;
c. Retirement from or cessation of business, with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of such
retirement or cessation, whether or not the business is continued by the new owner or
successor. The following circumstances shall, among others, give rise to transactions
"deemed sale";
➢ Change of ownership of the business. There is a change in the ownership of the
business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business
➢ Dissolution of a partnership and creation of a new partnership which takes over the
business.
Grounds where the Commissioner of Internal Revenue can suspend the business operations of
a taxpayer:
The Commissioner or his authorized representative is empowered to suspend the business

operations and temporarily close the business establishment of any person for any of the following
violations:
a. In the case of a VAT-registered Person:
➢ Failure to issue receipts or invoices;
➢ Failure to file a value-added-tax return as required under Section 114; or
➢ Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
b. Failure to any Person to Register as Required under Section 236
➢ The temporary closure of the establishment shall be for the duration of not less
than five (5) days and shall be lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the closure order.
ACCOUNTING TREATMENT OF VAT AND JOURNAL ENTRIES TO RECORD VAT

TRANSACTIONS:
Date Transactions Debit Credit

Jan Purchases 12,000
Input Tax 1,440
Cash 13,440
To record purchase of inventory for

cash
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Jan Cash 2,240
Purchase return 2,000
VAT input 240
To record return of inventory to

supplier
Mar Cash 20,160

Sales 18,000
VAT output 2,160
To record cash sales
Mar VAT output 2,160

31
VAT input 1,200
VAT payable 960
To record VAT payable
Watch:
Read:
Codal Reference:
1. Sale or importation of agricultural food product in their original state; livestock and poultry used
as, or producing foods for human consumption and breeding stocks are VAT exempt transitions.
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2. Products in their original state means product which undergone in simple process of preparation
or preservation for the market such as freezing, drying, salting and roasting.
3. Sale of livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.
4. Sale or importation of fertilizer, seeds, fish, prawn and poultry feeds are VAT exempt.
5. Importation of personal and household effects belonging to the resident of the Phil returning
from abroad are VAT exempt and exempt from custom duties
6. Services subject to OPT are VAT exempt.
7. Services by the Agricultural contract growers and milling are VAT exempt.
8. Medical, dental, hospital and veterinary services except those rendered by professionals are
VAT exempt.
9. Government educational institutions are VAT exempt.
10. Private educational institution are VAT exempt.
11. Services rendered by individuals pursuant to employee-employer relationship are VAT
exempt.
12. Sale of cooperatives to nonmembers of goods other than the cooperative's own produce is
not VAT exempt.
13. Export sales by person who are not VAT registered are subject to 0% rate. The VAT input
attributable to the sales / export may be treated as part of expenses or cost.
14. Sale of books and any newspaper, magazines, review or bulletin are VAT exempt.
15. Money changers and pawnshops are VAT exempt.
16. Sale of gold to BSP starting Jan 1, 2018 are VAT exempt.
17. Radio broadcasting companies are required to registered as VAT when the previous gross
receipts exceed P 10M.
18. If there is a reason to believe that the gross sales or receipts of a person for the next 12
months will exceeds P 3M, that person is REQUIRED to registered as VAT.
19. Persons liable to VA are those who are in the course of his trade or business; who sells,
leases goods or properties or renders services.
20. VAT of 12% is based on gross receipts for services rendered; while 12% VAT rate will be
based on gross sales if sales of goods. For importation, the 12% rate is based on landed cost.
21. Output tax of seller may arise from actual sales or from transactions deemed sale.
22. Consigned goods not sold within 60 days following the date of such goods were consigned
are subject to 12% VAT.
23. Input tax attributable to Zero rated sales are creditable input tax.
24. Input tax attributable to VAT exempt sales are non creditable input tax.
25. Input tax attributable to Government sales are non creditable input tax.
26. Input tax attributable to Vatable sales are creditable input tax.
27. Purchases or importations of capital goods, the aggregate acquisition cost, net of VAT, in a
calendar month exceeds P 1M , regardless of the acquisition cost of each capital good, shall be
amortized.
28. he amortization of input tax arising from capital goods are amortized based on its useful life
or 60 months whichever is shorter.
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29. Tax payers who became VAT registered person (previously NON VAT) shall be entitled to
transitional input tax of 2% of the value of beginning inventory or actual VAT paid on those
beginning inventories, whichever s higher.
30. There will be a presumptive input tax for person engaged in processing of sardines, mackerel
and milk equal to 4% of purchases of primary agricultural products.
31. VAT return are filed on a monthly and quarterly basis. The quarterly return is on a cumulative
basis.
32. Quarterly VAT return are filed within 25 days after the end of each quarter.
33. A capital good acquired at cost of P 1M give rise to input vat not subject to amortization.
34. Lease of a residential unit with monthly rental not exceeding P 15,000 in 2018 regardless of
the amount aggregated rentals by lessor during the year are VAT exempt.
35. If output is greater than VAT input, the company will recognize a liability on its statement of
financial position.
_____________________________THANKYOU!!___________________________
1. 11 21. 31.
2. 12 22. 32.
3. 13 23. 33.
4. 14 24. 34.
5. 15 25. 35.
6. 16 26.
7. 17 27.
8. 18 28.
9. 19 29.
10. 20 30.
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MODULE 4: VALUE ADDED TAX (VAT)
Lesson 2: Value Added Tax (Output Tax) (Sections 105, 106, 107, 108 and 109 of Tax Code,
as amended)
Overview:
VAT Registered Persons refers to a person, natural or juridical, whose transactions

are liable to VAT and registered as VAT person.
For medium-large businesses with gross annual sales and receipts that exceed P
3,000,000 (P1,919,500 in the Old Tax Code), and are VAT-registered, Value Added Tax is
imposed for sold or leased goods, properties or services. The value added tax rate varies
depending on the nature of sales transactions. The usual rate is 12% of gross sales or receipts
but it may be 0% VAT rate or Exempt transactions.
On this module, we will discuss the sales transactions / business transactions

subject to 12% VAT, 0% VAT rate and VAT exempt transactions under Section 106, 107,108 and
109 of the Tax Code, as amended. Included on this module is the computation of VAT output from
sales transactions, local and export and VAT on importations.
Module Objectives:

1. To know the threshold amount of sales for VAT registration
2. To enumerate and classify the sales transactions / business transactions as to
Vatable transactions, VAT exempt and zero rated transactions under the New Tax
Code.
3. To understand and explain the Sections 105, 106, 107, 108 and 109 of Old and
New tax Code of the Philippines as to classification of VAT registered persons.
4. To determine the formulas for determination of tax base, VAT rate and value added
tax dues.
Course Materials:
Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on

the sale, barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on
to the buyer, transferee or lessee of goods, properties or services.
Required to File VAT Returns (based on RA 10963) :
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1. Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if the
aggregate amount of actual gross sales or receipts exceed Three Million Pesos
(Php3,000,000.00)
2. A person required to register as VAT taxpayer but failed to register
3. Any person, whether or not made in the course of his trade or business, who imports
goods
NOTE: For purpose of the threshold amount of P 3,000,000 (P 1,919,500 under

the Old tax Code), the husband and wife shall be considered separate taxpayers. However, the
aggregation rule for each spouse shall apply, for instance, if a professional, aside from practice
of profession, also derives income from other line of business which are otherwise subject to VAT,
the same shall be combined for purpose of determining whether the threshold has been
exceeded. Lastly, VAT exempt sales shall not be included in determining the threshold amount.
Classification of Sales / transactions of a person in the course of trade or business:
1. On sale of goods and properties - twelve percent (12%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged
2. On sale of services and use or lease of properties - twelve percent (12%) of gross
receipts derived from the sale or exchange of services, including the use or lease of
properties
3. On importation of goods - twelve percent (12%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such as tax to be paid by the importer prior to
the release of such goods from customs custody; provided, that where the customs
duties are determined on the basis of quantity or volume of the goods, the VAT shall
be based on the landed cost plus excise taxes, if any.
4. On export sales and other zero-rated sales - 0%
Transactions are considered deemed sales:
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties originally
intended for sale or for use in the course of business. Transfer of goods or properties not in the
course of business can take place when VAT-registered person withdraws goods from his
business for his personal use;
a. Distribution or transfer to:

• Shareholders or investors as share in the profits of the VAT-registered person; or
• Creditors in payment of debt or obligation
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b. Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned. Consigned goods returned by the consignee within the 60-day
period are not deemed sold;
c. Retirement from or cessation of business, with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or successor. The following
circumstances shall, among others, give rise to transactions "deemed sale";
• Change of ownership of the business. There is a change in the ownership of the
business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business
• Dissolution of a partnership and creation of a new partnership which takes over the
business.
VAT EXEMPT TRANSACTIONS (SECTION 109), AS AMENDED / AFER TRAIN LAW
VAT EXEMPT sales is a sale of goods, properties or service and the use or lease
of properties which is not subject to output tax and whereby the buyer is not allowed any tax credit
or input tax related to such exempt sale.
VAT EXEMPT SALES are afollows

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;
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 considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines;
Provided, that such goods are exempt from custom duties under the Tariff and
Customs Code of the Philippines;
d. Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects
belonging to persons coming to settle in the Philippines or Filipinos or their families
and descendants who are now residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to
the profession, rank or position of the persons importing said items, for their own use
and not for barter or sale, accompanying such persons, or arriving within a reasonable
time: Provided, That the Bureau of Customs may, upon the production of satisfactory
evidence that such persons are 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: Provided, further, That vehicles, vessels, aircrafts, 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 of the Tax Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
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g. Medical, dental, hospital and veterinary services except those rendered by
professionals;
h. Educational services rendered by private educational institutions, duly accredited by
the Department of Education (DepEd), the Commission on Higher Education (CHED),
the Technical Education and Skills Development Authority (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 and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as of their
produce, 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 and in good standing with the Cooperative Development Authority;
n. Sales by 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 Fifteen thousand pesos (₱15,000) and regardless
of the aggregate capital and net surplus ratably distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. Sale of real properties 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 Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, residential lot valued
at One million five hundred thousand pesos (₱1,500,000) and below, house and lot,
and other residential dwellings valued at Two million five hundred thousand pesos
(₱2,500,000) and below: Provided, That beginning January 1, 2021, the VAT
exemption shall only apply to sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business, sale of real
property utilized for socialized housing as defined by Republic Act No. 7279, sale of
house and lot, and other residential dwellings with selling price of not more than Two
million pesos (₱2,000,000): Provided, further, That every three (3) years thereafter,
the amount herein stated shall be adjusted to its present value using the Consumer
Price Index, as published by the Philippine Statistics Authority (PSA);q. Lease
of residential units with a monthly rental per unit not exceeding Fifteen Thousand
Pesos (P15,000.00), regardless of the amount of aggregate rentals received by the
lessor during the year; Provided, that not later than January 31, 2009 and every three
(3) years thereafter, the amount of P10,000.00 shall be adjusted to its present value
using the Consumer Price Index, as published by the Philippine Statistics Authority
(Formerly known as NSO);
q. Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos
(₱15,000);
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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;
s. Transport of passengers by international carriers;
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine
equipment and spare parts thereof for domestic or international transport operations;
Provided, that the exemption from VAT on the importation and local purchase of
passenger and/or cargo vessels shall be subject to the requirements on restriction on
vessel importation and mandatory vessel retirement program of Maritime Industry
Authority (MARINA);
u. Importation of fuel, goods and supplies by persons engaged in international shipping
or air transport operations: Provided, That the fuel, goods, and supplies shall be used
for international shipping or air transport operations;
v. Services of bank, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries;
w. Sale or lease of goods and services to senior citizens and persons with disability, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and
10754 (An Act Expanding the Benefits and Privileges of Persons With Disability),
respectively;
x. Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;
y. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations;
z. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019; and
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 Three million pesos (₱3,000,000).
ZERO RATED SALES (AFTER TRAIN LAW)
It is a sale, barter or exchange of goods, properties and/or services subject to 0%

VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for
VAT purposes, but shall not result in any output tax. However, the input tax on purchases of
goods, properties or services, related to such zero-rated sales, shall be available as tax credit or
refund in accordance with existing regulations.
The following services performed in the Philippines by VAT-registered person shall be subject to
zero percent (0%) rate:
A. Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
B. Services other than processing, manufacturing or repacking rendered to a person
engaged in business conducted outside the Philippines or to a non-resident person
engaged in business who is outside the Philippines when the services are performed,
the consideration for which is paid for in acceptable foreign currency and accounted
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for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
C. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate;
D. Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof; Provided, that these services
shall be exclusively for international shipping or air transport operations. (Thus, the
services referred to herein shall not pertain to those made to common carriers by air
and sea relative to their transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines, the same being subject to twelve
percent (12%) VAT under Sec. 108 of the Tax Code, as amended);
E. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceeds seventy percent
(70%) of total annual production;
F. Transport of passengers and cargo by domestic air or sea carriers from the Philippines
to a foreign country. (Gross receipts of international air carriers and international sea
carriers doing business in the Philippines derived from transport of passengers and
cargo from the Philippines to another country shall be exempt from VAT; however they
are still liable to a percentage tax of three percent (3%) based on their gross receipts
derived from transport of cargo from the Philippines to another country as provided for
in Sec. 118 of the Tax Code, as amended); and
G. Sale of power or fuel generated through renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy,
and other shipping sources using technologies such as fuel cells and hydrogen fuels;
Provided, however that zero-rating shall apply strictly to the sale of power or fuel
generated through renewable sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of plants generating said power.
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
A. Export sales
1. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported, paid in acceptable foreign currency
or its equivalent in goods or services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
2. The sale of raw materials or packaging materials to a non-resident buyer for delivery to as
a resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods, paid for in acceptable foreign currency,
and accounted for in accordance with the rules and regulations of the BSP;
3. The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
4. Transactions considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws; and
5. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, That the goods, supplies, equipment,
and fuel shall be used exclusively for international shipping or air transport operations; Provided,
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that the same is limited to goods, supplies, equipment and fuel that shall be used in the transport
of goods and passengers from a port in the Philippines directly to a foreign port, or vice-versa
without docking or stopping at any other port in the Philippines unless the docking or stopping at
any other Philippine port is for the purpose of unloading passengers and/or cargoes that
originated from abroad, or to load passengers and/or cargoes bound for abroad ;Provided, further,
that if any portion of such fuel, goods or supplies is used for purposes other than the mentioned
in this paragraph, such portion of fuel, goods and supplies shall be subject to twelve percent
(12%) output VAT.
b. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement
Sale of goods or property to persons or entities who are tax-exempt under special laws or
international agreements to which the Philippines is a signatory, such as, Asian Development
Bank (ADB), International Rice Research Institute (IRRI), subject such sales to zero rate
TAXABLE TRANSACTIONS:
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters,
exchanges, leases goods or properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code
VAT ON SELLERS OF GOODS (SECTION 106 and SECTION 108)
There shall be levied, assessed and collected on every sale, barter or exchange
of goods or properties, value-added tax equivalent to twelve percent (12%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to
be paid by the seller or transferor.
"Goods or Properties." The term "goods" or "properties" shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term "gross selling price" means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange
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of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods
or properties shall form part of the gross selling price.
Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may be
deducted from the gross sales or receipts for the quarter in which a refund is made or a credit
memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time
of sale and the grant of which does not depend upon the happening of a future event may be
excluded from the gross sales within the same quarter it was given.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-
added tax equivalent to twelve percent (12%) 10 of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire another domestic common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity
by generation companies, transmission, and distribution companies; services of franchise
grantees of electric utilities. [50] telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under section 119 of this Code, and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity, and bonding
companies; and similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties. The phrase "sale or exchange of services"
shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan secret formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of any such property, or right as is mentioned in
subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person.
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(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the
Philippines.
The term "gross receipts" means 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 advanced payments actually
or constructively received during the taxable quarter for the services performed or to be performed
for another person, excluding value-added tax.
Illustration:
Gross Sales Price of Goods VAT exclusive 80,000
VAT rate 12%
Value Added tax (VAT Output) 9,600
Invoice Price 89,600
Gross receipts from Services VAT exclusive 90,000

VAT rate 12%
Value Added tax (VAT Output) 10,800
Invoice Price 100,800
VAT ON IMPORTATIONS OF GOODS (SEC 107)
In General. - There shall be levied, assessed and collected on every importation

of goods a value-added tax equivalent to twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes,
if any, and other charges, such tax to be paid by the importer prior to the release of such goods
from customs custody: Provided, That where the customs duties are determined on the basis of
the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any.
Illustration:
To Determine the Landed Cost”
200
Dutiable Value 100,000
Custom Duties 20,000
Other import duties and charges 20,000
Total Landed Cost 140,000
Landed Cost of Imported Goods (w/o VAT) 140,000

VAT rate 12%
VAT due (input tax) 16,800
Total Landed Cost with VAT 156,800
This means that importation of goods and properties brought into the Philippines
for whatever purposes, whether for use in business or not are Vatable transactions except for
importations specifically exempted from 12% VAT rate under Section 109.
Under Section 107; (B) Transfer of Goods by Tax-exempt Persons. –
In the case of tax-free importation of goods into the Philippines by persons, entities
or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients
shall be considered the importers thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the goods superior to all
charges or liens on the goods, irrespective of the possessor thereof.
VAT on TRANSCATIONS DEEMED SALE:
Transactions Deemed Sale. - The following transactions shall be deemed sale and shall be
subject to 12% VAT rate:
(1) Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons;
or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing
as of such retirement or cessation.
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SUMMARIZED RULES ON VALUE ADDED TAX:

NIRC VAT Registered person Tax base Tax Source Tax rate
Sec 106 Seller of goods Gross Sales price In the Phil 12%
Sec 107 Importers of Goods Landed Cost of From Abroad to 12%
imported goods Phil
Sec 108 Seller of Services Gross sales receipts In the Phil 12%
FORMULA FOR VAT PAYABLE;
OUTPUT TAX
Gross sales price of goods 100,000
VAT rate 12%
VAT Output 12,000
INPUT TAX
VAT Input from Purchases 80,000
VAT rate 12%
VAT Input 9,600
DETERMINATION OF VAT PAYABLE:

VAT output (Output tax from Sales transactions) 12,000
Less: VAT credits (Input Tax from Purchases and others) 9,600
VAT payable or (Excess VAT credit) 2,400
Vat Credits are:

1. Creditable Input taxes
2. Other VAT Credits
• Excess VAT credit in prior period
• VAT paid in the previous months
• Withholding VAT payment
• Advanced VAT payment
• VAT paid on the original return.
Watch:
https://www.youtube.com/watch?v=NkKtVMwkV2M
Read:
https://www.bir.gov.ph/index.php/tax-code.html#title5
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Codal Reference:
RA 8424 National Internal Revenue Code (NIRC); Sec 116 to 122
Problem Solving:
1. SAN JOSE become subject to VAT for the first time. The following data are available
for SAN JOSE for first quarter of 2018:
Beginning inventory purchased from VAT registered, P 20,160 at cost (VAT inc)
Beginning inventory purchased from NON VAT, P 120,000 at cost
Sales, vat inc is P 212,800

Purchases of packaging materials from VAT registered is P 80,000 (net of tax)
Purchases of materials for manufacturing of cooking oil, net of tax is P 30,000
Water bill, net of tax is P 10,000
Electricity bill, net of tax is P 20,000
Salaries of employees, gross of tax is P 50,000
What is the VAT payable (excess vat input)?
2. SAN JOSE has the following data (VAT exclusive):
Taxable sales is P 1,200,000

Exempted sales is P 400,000
Zero rated sales is P 200,000
Input tax (cannot be directly determined / attributable to any of the above sales) is P
80,000.
What is the VAT payable if the company choose to claimed the input tax from zero rated
sales as tax refund?
3. SAN JOSE is a producer of cooking oil. The company become VAT registered t the
start of 2018. Previously, the company is subject to OPT. The following data are as follows:
Inventory beginning: Packaging materials bought from VAT registered is P 17,920 (VAT
exc)
Coconut / corn purchased from farmers is P 20,000
Data for first quarter is as follows:
Sales, vat inc is P 196,000

Purchases of coconut and corn from farmers is P 40,000, net of any tax
Purchase of packaging materials , VAT exc is P 25,000
Purchases of supplies, VAT inc is P 10,080
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What is the presumptive input tax?
4. Based on number 3, what is the VAT payable?
5. SAN JOSE has the following data for first quarter of 2018:
Month Output tax Input tax

Jan P 30,000 P 25,000
Feb P 45,000 P 40,000
March P 10,000 P 6,000
The company has debit balance of input tax at the beginning of the year amounting to P
9,000.
What is the amount paid for VAT in Feb? (VAT payable)
6.Based on number 5, what is the VAT payable for the first quarter of 2018?
7-9. The following data are available for SAN JOSE, producer of cooking oil and become
VAT registered for the first time in 2018 (ALL amounts are net of tax):
Sales is P 680,000; Purchases of corn as raw materials is P 80,000; Purchased of

supplies from VAT registered is P 20,000; Two equipment costing P 700,000 (useful life is 4
years); Four big equipments costing P 400,000 (useful life is 6 years); Beginning inventory of
supplies purchased from VAT registered, is P 5,000, net of tax and beg inventory for corn of P
12,000.
What is the VAT payable in July?
8. What is the presumptive input tax?
THANK YOU!!
1. 4. 7.
2. 5. 8.
3. 6.
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MODULE 4: VALUE ADDED TAX
Lesson 3: Value Added Tax Credits
Overview:
Output tax means the VAT due on the sale, lease or exchange of taxable goods
or properties or services by any person registered or required to register under Section 236 of the
Tax Code. While the "input tax” means the VAT due on or paid by a VAT-registered on importation
of goods or local purchase of goods, properties or services, including lease or use of property in
the course of his trade or business. It shall also include the transitional input tax determined in
accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from
previous period.
Generally, VAT output creates a liability on the seller as a result of the sale of
goods or services to customers at 12% rate or 0% rate. The VAT output is reduced by VAT input,
or simply, the VAT input is deducted directly from the VAT output to determine the VAT payable
or Excess VAT input. If VAT output from sales is greater than the VAT input from the purchases
/ importation, it results to VAT payable, thus, the VAT registered [person must pay the net (VAT
payable) to BIR on time. On the other hand, if VAT input is greater than the VAT output, the VAT
registered person has no liability, instead it will result to asset called Excess VAT input.
Module Objectives:

1. Understand the provisions of Tax Code related to tax Credit under section 110 and
111.
2. Enumerate the sources of VAT input / VAT credits of VAT registered person
3. Compute the VAT input from purchases of goods and services and importations.
4. Compute the VAT payable or excess VAT input
5. Learn the allocation of VAT input not specifically attributable to any sales transactions
Course Materials:
VALUE ADDED TAX ON PURCHASES; (INPUT TAX)
The term "input tax" means the value-added tax due from or paid by a VAT-
registered person in the course of his trade or business on importation of goods or local purchase
of goods or services, including lease or use of property, from a VAT-registered person. It shall
also include the transitional input tax determined in accordance with Section 111 of this Code.
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The term "output tax" means the value-added tax due on the sale or lease of
taxable goods or properties or services by any person registered or required to register under
Section 236 of this Code.
SEC. 110. Tax Credits. – Creditable Input Tax.
Vat Credits are:

3. Creditable Input taxes
4. Other VAT Credits
• Excess VAT credit in prior period
• VAT paid in the previous months
• Withholding VAT payment
• Advanced VAT payment
• VAT paid on the original return.
1. Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section
113 hereof on the following transactions shall be creditable against the output tax:
(a).Purchases of local or importation of goods:
(i) For sale; or

(ii) For conversion into or intended to form part of a finished product for sale
including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or
amortization is allowed under this Code.
(b.) Purchase of services on which a value-added tax has been actually paid.
2. The input tax on domestic purchase or importation of goods or properties by a VAT-

registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or

properties; and
(b) To the importer upon payment of the value-added tax prior to the release of
the goods from the custody of the Bureau of Customs.
Provided, that the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code shall be spread evenly over the a month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos (P 1, 000, 000): Provided,
however, That if the estimated useful life of the capital good is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: [67]Provided, finally, that in the case of purchase of services,
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lease or use of properties, the input tax shall be creditable to the purchaser, lessee
or license upon payment of the compensation, rental, royalty or free.
3. A VAT-registered person who is also engaged in transactions not subject to the value-
added tax shall be allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to value-
added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either
activity.
4.VAT input on purchases of real properties for which VAT has actually paid
5. Presumptive Input Tax
6. Transitional Input Tax
7. Excess Input Tax carried over from a prior period
INPUT TAX ON PURCHASE / IMPORTATION OF ITEMS

Purchase of Goods Importation of Goods
Tax base Gross Purchase price (w/o Landed Cost
VAT)
Tax rate 12% 12%
Example:
Gross purchase price 40,000
VAT rate 12%
VAT input 4,800
Landed Cost of Imported Goods 60,000

VAT rate 12%
VAT input from importation 7,200
INPUT TAX ON DEPRECIABLEGOODS (WITH LIMIT):
Input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code shall be spread evenly
over the a month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million
pesos (P 1, 000, 000)
The input tax will be amortized over the life of the depreciable asset or 60 months
whichever shorter.
Under the NEW tax Code; it provides that:
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That the input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code shall be spread
evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million
pesos (₱1,000,000): Provided, however, That if the estimated useful life of the capital good is less
than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, further, That the amortization of the input VAT shall only be
allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods
purchased or imported shall be allowed to apply the same as scheduled until fully utilized:
Cost of Depreciable asset without VAT

Asset 1 Asset 2
Purchase cost 1,000,000 1,200,000
Life 6 years 3 years
VAT rate 12% 12%
VAT input 120,000 144,000
Sales (w/o VAT) 2,000,0000

VAT rate 12%
VAT output 240,000
Computation of VAT payable for the month of January:

VAT output 240,000
Less: VAT input
Assets 1 120,000 No amortization of VAT
input because the cost
does not exceed P 1M
Asset 2 4,000 VAT input of Asset 2 is
Amortized over 3 yrs
(shorter)- 144,000 /
36mos
VAT payable 116,000
APPORTIONMENT OF INPUT TAX ON MIXED TRANSACTIONS:
1. All the input tax that can be directly attributed to transactions subject to VAT maybe
recognized for input tax credit; Provided that input taxes that can be directly attributed
to VAT taxable sales of goods or services to the government or any political
subdivision, instrumentalities or agencies including GOCC shall not be credited
against the output taxes arising from sales to non-government entities.
208
(Taxable sales to Govt divided by Total Sales) x Unidentified Input tax = Input tax
attributable to Govt.
2. If any input tax cannot be directly attributed to either VAT taxable or VAT exempt
transactions, the input shall be pro-rated to VAT taxable and VAT exempt transactions
and only the ratable portion pertaining to transactions subject to VAT shall be
recognized for input tax credits.
(VAT exempt sales divided by Total Sales) x Unidentified Input tax = Input tax
attributable to VAT exempt sales.
(Taxable sales + Zero rated sales) divided by Total sales x Unidentified Input tax =
Creditable VAT input
Amortization of input VAT from Depreciable Assets:
It is only allowed until December 31, 2021 after which taxpayers with unutilized input VAT
on capital goods purchased or imported shall be allowed to apply the same as scheduled until
fully utilized: Provided, That in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee
Treatment for Withholding of VAT on Government Money Payments:
The government or any of its political subdivisions, instrumentalities or agencies,

including government-owned or controlled corporations (GOCCs) shall, before making payment
on account of each purchase of goods and/or services taxed at twelve percent (12%) VAT
pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a Final VAT due at the
rate of five percent (5%) of the gross payment.
The five percent (5%) final VAT withholding rate shall represent the net VAT
payable of the seller. The remaining seven percent (7%) effectively accounts for the standard
input VAT for sales of goods or services to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs in lieu of the actual input VAT directly attributable
or ratably apportioned to such sales. Should actual input VAT attributable to sales to government
exceed seven percent (7%) of gross payments, the excess may form part of the sellers' expense
or cost. On the other hand, if actual input VAT attributable to sale to government is less than
seven percent (7%) of gross payment, the difference must be closed to expense or cost.
The government or any of its political subdivisions, instrumentalities or agencies

including GOCCs, as well as private corporation, individuals, estates and trusts, whether large or
non-large taxpayers, shall withhold twelve percent (12%) VAT with respect to the following
payments:
• Lease or use of properties or property rights owned by non-residents; and
• Other services rendered in the Philippines by non-residents
209
SEC. 111. Transitional/Presumptive Input Tax Credits. -
(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax
or any person who elects to be a VAT-registered person shall, subject to the filing
of an inventory according to rules and regulations prescribed by the Secretary of
finance, upon recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to two percent
(2%) of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax.
SEC 111 (B) Presumptive Input Tax Credits. –
Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to four percent (4%) of the gross value in money of their
purchases of primary agricultural products which are used as inputs to their production.
As used in this Subsection, the term 'processing' shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for special use to which it could not have
been put in its original form or condition.
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of
a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-
rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot
be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. Provided, finally, That for a
person making sales that are zero-rated under Section 108(B) (6), the input taxes
shall be allocated ratably between his zero-rated and non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose registration has been
cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Section 106(C) of this Code may, within two (2) years
from the date of cancellation, apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal revenue
taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
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submission of complete documents in support of the application filed in accordance
with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals.
(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner
or by his duly authorized representative without the necessity of being countersigned by the
Chairman, Commission on audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the
Commission on Audit.
Watch:
Problem Solving:
VGL Corporation has the following sales during the month of October:
Sales to private company, VAT exc; of P 100,000

Sales to private companies, 0% VAT rate; P 100,000
Sales of exempt goods; P 100,000
Sales to Govt; subject to 5% final VAT withholding tax; P 100,000
The following input taxes were passed on by it suppliers:
Input tax on taxable goods at 12%; P 6,000

Input tax on zero rated sales of P 3,000
Input tax on sales to Gov”t of P 7,000
Input tax on depreciable asset- Not attributable to any specific activity (amortization)
of P 20,000
Input tax on exempt sales of P 1,000
211
Compute the VAT payable:
VAT output: Amount
Total VAT output

Less: VAT input
VAT payable (Excess VAT input) (7,000)
212
MODULE 5: EXCISE TAXES
OVERVIEW:
Merchants or companies are subject to business taxes on their sales transactions

or business transactions. The Government imposed business taxes under the provision of the
Tax Code of the Philippines namely: Other Percentage Tax, Value Added Tax, Excise Tax and
Documentary Tax. We have already discussed the OPT and VAT in the previous modules, and
now, we will discuss the Excise tax.
Excise taxes are internal taxes that are levied on the sale of specific goods and services,
such as alcohol, fuel and tobacco. An excise tax is an indirect tax that is not paid by the customers
directly — instead, the excise tax is imposed on the supplier or the producer, who then includes
it in the product price.
Excise taxes are imposed by the federal, state, and local governments. The taxes can
either be applied as a percentage of the total cost of a product or service or as a fixed amount.
For example, the excise tax on a vehicle is a percentage of the total cost while the excise tax on
a tobacco and gasoline is a fixed amount.
MODULE DURATION:
• January 11-12, 2021 Synchronous Meeting and Asynchronous Learning.
MODULE OBJECTIVES:

9. To understand the administrative provisions of Excise Taxes under the Tax Code
10. Know the persons liable to file Excise tax returns
11. Understand the classification and reasons for impositions of excise taxes.
12. Enumerate the group / categories of articles / products subject to excise tax.
13. Computation of excise tax due.
COURSE MATERIALS:
DEFINITION:
Excise Tax is a tax on the production, sale or consumption of a commodity in a

country.
APPLICABILITY:
213
• On goods manufactured or produced in the Philippines for domestic sale or

consumption or for any other disposition; and
• On goods imported.
TYPES OF EXCISE TAX:
1. Specific Tax – refers to the excise tax imposed which is based on weight or volume
capacity or any other physical unit of measurement
2. Ad Valorem Tax – refers to the excise tax which is based on selling price or other
specified value of the goods/articles
MANNER OF COMPUTATION:
1. Specific Tax = No. of Units/other measurements x Specific Tax Rate

2. Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific
value per unit x Ad Valorem Tax Rate
MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND RELATED CODAL SECTION:
1. Alcohol Products (Sections 141-143)
a. Distilled Spirits (Section 141)

b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)

b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)

b. Non-essential Goods (Section 150)
c. Non-essential Service (Section 150-A) - RA 10963 [TRAIN Law))
d. Sweetened Beverages (Section 150-B)-(RA 10963 [TRAIN Law])
214
5. Mineral Products (Sections 151)
PERSONS LIABLE TO EXCISE TAX:
In General:
a. On Domestic or Local Articles
•Manufacturer
•Producer
•Owner or person having possession of articles removed from the place of
production without the payment of the tax
b. On Imported Articles
• Importer
• Owner
• Person who is found in possession of articles which are exempt from excise taxes
other than those legally entitled to exemption
c. Others:
On Indigenous Petroleum
• Local Sale, Barter or Transfer

➢ First buyer, purchaser or transferee
• Exportation
➢ Owner, lessee, concessionaire or operator of the mining claim
TIME OF PAYMENT:
In General
A. On domestic products
➢ Before removal from the place of production
B. On imported products
➢ Before release from the customs' custody
Watch:
https://www.youtube.com/watch?v=o-BWpkEdNPo
https://www.youtube.com/watch?v=fDKbP15Xo5A
215
REFERENCES:
Book/E-book:
✓ Philippine Laws on Transfer and Business Taxes; 2018 edition by Dean Lilian M,
Litonjua, CPA and Prof Virgilio G. Litonjua, CPA.
Laws:
✓ Civil Code of the Philippines
✓ RA 10963 / New Tax Code of the Philippines
✓ RA 8424 National Internal Revenue Code
Online resources:
✓ https://www.slideshare.net/flabert1/05-chapter-6-donors-tax
✓ https://www.youtube.com/watch?v=aHoKhXo0spk&t=168s
✓ https://www.slideshare.net/flabert1/05-chapter-6-donors-tax
✓ https://www.youtube.com/watch?v=e6ZxIL_Mqj4
✓ https://www.youtube.com/watch?v=EvlMZ3er4aQ
✓ https://www.slideshare.net/flabert1
✓ https://www.bir.gov.ph/index.php/tax-information/estate-tax.html
✓ https://www.youtube.com/watch?v=NDBsp8cGl_8
✓ https://www.youtube.com/watch?v=JT5gsGyPZqw
✓ https://www.bir.gov.ph/index.php/tax-information/percentage-tax.html
✓ www.bir.gov.ph
✓ https://www.youtube.com/watch?v=o-BWpkEdNPo
✓ https://www.youtube.com/watch?v=fDKbP15Xo5A
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INSTRUCTIONAL MATERIALS - BUSINESS TAX - 1ST SEM AY 2020 2021 Revised2 1 PDF

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INSTRUCTIONAL MATERIALS - BUSINESS TAX - 1ST SEM AY 2020 2021 Revised2 1 PDF

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Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

DEAN LILIAN M. LITONJUA

NEVER GIVE UP COZ TIME PASSES ANYWAY

REPUBLIC OF THE PHILIPPINES

OBE COURSE SYLLABUS AND LEARNING PLAN

Institutional Learning Outcomes Programs Outcomes Course Outcomes

DETAILED COURSE LEARNING PLAN:

After the students self-reading 1. take class Textbook/ quizzes,

Topics in After the students self-reading 1. take class Textbook/ quizzes,

1. Components of Donors tax

Departmental Mid-Term Exam

Week After the students self-reading 1. take class Textbook/ quizzes,

Week Topic: Accomplishment and 1. take class Textbook/

Topics in After the students self-reading 1. take class

Departmental Final Exam

Students will be evaluated based on homework assignments and examinations. The

Grades and Equivalents

Grades Equivalents Descriptions Grades Equivalents Descriptions

Lesson 1 – Administrative Provisions and Fundamental Concepts of Donor’s Taxation 33-42

Module 2: Estate Taxation 86-87

Lesson 1: Administrative Provisions and Fundamental Concepts of Estate Taxation 88-98

Module 3: Other Percentage Taxes 134-135

Lesson 1: Administrative Provisions and Fundamental Concepts

Module 4: Value Added Tax 176-177

Module 5: Excise Taxes 213-215

Upon completion of the course, the students will be able to:

5. Understand the importance of paying correct taxes to the government

ASSESSMENT / ACTIVITY INSTRUCTIONS:

A. Modified True or False

MODULE 1: DONOR’S TAXATION

SEC. 98. Imposition of Tax. –

• September 14-30, 2020 Synchronous Meeting and Asynchronous Learning.

After successful Completion of this module, you should be able to:

Lesson 1; Administrative Provisions and Fundamental Concepts of Donor’s Taxation

Lesson 3: Donor’s Tax Credit and Donor’s Tax Return

Lesson 4: Laws / Rules on Gross Gift

Lesson 5: Laws / Rules on Allowed Deduction from Gross Gift

Republic Act No. 8424 – effective January 1, 1998

MODULE 1: DONOR’S TAXATION

Lesson 1 – Administrative Provisions and Fundamental Concepts of Donor’s Taxation

After successful Completion of this module, you should be able to:

1. Be able to know the provisions per NIRC, as amended, on Donor’s taxation.

Kinds of Donation as to Tax Liability:

Requisites of Valid Donation:

1. Donative intent of donor.

2. Donation of real property- It must be in writing and in a public document.

Classification of Donor’s tax:

Purpose of Donor’s Tax:

Codal of Donor’s Tax (NIRC)

SEC. 98. Imposition of Tax. -

SEC. 103. Filing of Return and Payment of Tax. -

(2) The deductions claimed and allowable;

(4) The name of the donee; and

Who Shall File

When and Where to File and Pay

BIR Form 1800 – Donor’s Tax Return

Donor’s Tax Return

Contents of Donors tax return:

Mandatory Requirements [additional two (2) photocopies of each document]:

1. Duly Notarized Original Deed of Donation;

For Real Properties [additional two (2) photocopies of each document]:

6. Certified True Copy/ies of the Original/Transfer/Condominium Certificate/s of Title (front and