Chapter 1 (concepts) 3.

State interfere with private rights and

property.
4. Legislative in nature and character.
Taxation
5. There is an equivalent compensation
- Process by which independent state received by person affected.
imposes burdens upon subjects and
Distinctions of the 3 Inherent Powers
objects within its jurisdiction for the
purpose of raising revenues to carry out Taxation Police Eminent
the legitimate objects of government. Power Domain
- To apportion the cost of government for Nature Enforced For general Take private
those who are privileged to enjoy contribution to welfare property for
benefits. raise govt public use with
funds. compensation.
- Power is inherent and essential for the
Authority Government Government Granted to
existence of every government. –
only only public service /
necessity / necessary attribute of utility
sovereignty. company
- State’s power to tax should NOT be Purpose Support of the Promotion of Take private
interpreted as a “grant of power” gov’t general property for
- TAXES, are enforced proportional welfare public use
contributions levied by the law making through
regulation
body by virtue of its sovereignty for the
Persons All person, All person, Owner of the
support of the government and all public Affected property and property and personal
needs. exercises may exercises property that
be subject. may be is particularly
3 Inherent Powers subject. comprehended
1. Police Power Scope Plenary, General Power to take
supreme, power is to private prop.
 For peace and order
comprehensive make and
 Promoting public welfare by implement
restraining and regulating the law
use of liberty and property. Effect Contribution No title / Transfer of
 Exercised only by government. become a part tranfser. title to
2. Power of Taxation of the public Restraint on property
fund injurious use
 Power which the state raises
of property
revenue to defray necessary Benefits Form of Maintenance Market Value
expenses of government. Received protection and of a healthy of the property
3. Power of Eminent Domain. benefits economic
 Acquire private property for received form standard
public purpose. government
Amount of No Limit Cover cost Paid equivalent
Similarities: Impositio of license of the fair
n and expenses value
1. Inherent of police
2. Exist Independently although conditions surveillance
are prescribed by the constitution.
Purposes of Taxation
1. Primary: Revenue or Fiscal Purpose
 On the part of government –
provide funds and property
which to promote the general
welfare and the protection of
its citizen
 Can run its duty through
public funding which can be
collected in the form of tax.
Manifestation of Lifeblood Theory
2. Secondary: Regulatory Purpose
 Raise revenue for the support of
the government
a. Promotion of General
Welfare
b. Reduction of Social
Inequality
c. Economic Growth
Theory and Basis of Taxation
1) Necessity Theory
 Existence of the government is a
necessity
 It is to preserve the sovereignty
and a means to give the
citizenry protection which the
government is supposed to
provide.
 “power is predicated upon
necessity”
2) Lifeblood Theory
 Power of taxation is essential,
without it, the government can
neither existence nor endure.
 Tax is an imperious need for
the government to perform its
basic functions of serving and
protecting its people.
3) Benefits Received / Reciprocity
Theory
 Responsibility of the state and
its people
 Doctrine of Symbiotic
Relationship – taxes are what
we pay for a civilized society.
a. No estoppel against the government
b. No court except Court of Tax Appeals
shall have authority to grant an
injunction to restrain the collection.
(collection should not be tainted).
c. Taxes could not be the subject of
compensation or set off
 Taxes is not a debt or contract
 Compulsory rather than a matter
of bargain
 No debtor/creditor relationship
between government and
taxpayer
d. Right to select objects of Taxation
 Subject to be taxed
 Purpose of the object to be
taxed
 Amount or rate of tax
 Kind of tax
 Apportionment of tax
 Situs (place) of tax
 Manner, means and agencies of
collection.
e. Valid tax may result in the destruction
of taxpayer’s property
 It is not literally a destruction of
taxpayer’s property, it is only
because the government can
compel payment of tax and
forfeiture of property through
the exercise of police power.
 LIMITATION OF TERRITORIAL
JURISDICTION - Tax laws cannot operate
beyond territorial limits
*ESSENTIAL ELEMENTS OF TAX EXEMPTION (IMMUNITY) OF
GOVERNMENT ENTITIES, AGENCIES
I. Enforced Contribution
AN INSTRUMENTALITIES.
II. Payable in Money – legal tender /
progressive system  Agencies performing governmental
III. Proportionate in Character (ability functions
to pay theory / theoretical justice  Agencies / GOCC’S performing
IV. Levied on persons, property, or the proprietary functions are subject to tax
exercise of right or privilege unless expressly exempted.
V. Levied by law making body –
 Following are tax exempt:
Legislative function
1. GSIS (Government Service
VI. Levied for public person.
Insurance System)
ASPECTS OF TAXATION 2. SSS (Social Security System)
3. PHIC (Phil. Health Insurance
1. Levying – imposition of tax Corporation
2. Assessment – determination of correct 4. PCSO (Phil, Charity
amount of applicable tax Sweepstakes office)
3. Collection – essentially administrativc 5. RA 10026 (local water district)
in character.
*Power of tax is the strongest among the
EXCEPTION TO NON – DELEGATION inherent powers of the state.
RULE:
CLASSIFICATION OF TAX
a. “Delegation to the President”
As to scope:
 Congress may authorize, by
law, the president to fix, within National Local
specified limits and subject to Authority Inherent – imposed Delegated – imposed
such limitations and restrictions under the National by local government
b. Delegation to Local Government Internal Revenue units
 Power to impose taxes and fees Nature Legislative in nature Legislative in nature
through enactment of through enactment of
with the limitations and
tax laws by the local ordinances by
guidelines given by the congress and senate the local legislative
congress. branch
c. Delegation to Administrative Agencies As to subject matter: (levied on person,
(taxing process not legislative in nature) property or exercise of right and privilege)
 Power to value property
 Power to assess and collect tax a. Personal / Poll / Capitation – fixed
amount imposed on individual residing
 Power to perform details of
within a specified territory.
computation, appraisement or
adjustment.
 b. Property – tax imposed on property
(real / personal), method of
apportionment
c. Excise – tax imposed on sin products
and non - essential goods.
ELEMENTS OF SOUND TAX SYSTEM:
1. Fiscal Adequacy – government should
meet its expenditure / budget to sustain
the level of public services.
2. Theoretical Justice / Equity – Ability
to pay principle, base on its capability to
pay tax – progressive tax
3. Administrative Feasibility – Tax
should be clear and collected properly.
Tax laws must be capable of effective
and efficient enforcement. Philippine tax
is complicated
Limitations on the State’s Power of Tax
1. Inherent Limitations – restrictions
arising from very nature, exist despite
the absence of an express constitutional
provision.
a. Purpose must be public in nature –
governmental purpose (lifeblood
theory)
 Congress has the power to
determine whether the purpose
is public or private.
b. Legislative enactment / imposition /
levying of tax measure is cannot be
delegated.
c. Territorial Limitation – property
outside jurisdiction cannot receive
any protection from the state.
2. Constitutional Limitations
a. Due process of law – there must be
valid law and measure should not be
unconscionable and unjust.
b. Equal Protection of Law – persons
and properties were treated the same
in law.
c. Rule of uniformity and equity –
uniform application and operation /
does not require absolute identity or
equality under all circumstances.
d. Progressive System – tax laws shall
place emphasis on direct taxes
rather than indirect taxes.
e. Prohibition against imprisonment
for non - payment of poll tax
 Punishable only by surcharge
 Poll Tax: fixed amount imposed
on residents within specified
territory regardless citizenship,
business or profession.
f. Prohibition against impairment of
obligation of contracts
 Terms / conditions were
changed by law without the
consent of other.
g. Prohibition against infringement
of religious freedom.
h. Prohibition against appropriation
of proceeds of taxation for the use,
benefit or support of any church.
i. Prohibition against taxation of
religious, charitable, and
educational entities
 Exemption from real property
tax only – not limited to
property but extends to facilities
necessary for the
accomplishment of purpose.
FACTORS TO CONSIDER IN
DETERMINING THE SITUS OF
TAXATION:
I. Subject Matter (person, property or
activity)
II. Nature of the Tax
III. Citizenship
IV. Residence of the Taxpayer
 V. Source of Income Permit / License Fee Tax
VI. Place of Excise, Business or Occupation For regulation For revenue
being taxed. Police Power Taxing Power
Limited to necessary No limit
*Only indirect tax may be shifted; direct taxes expenses of regulation
cannot be shifted Right of reward of an Imposed also on persons
officer for specific or property
services
Legal compensation or Enforced contribution
Examples: reward of an officer assesses by sovereign
authority to defray public
1. Person – residence expenses
2. Real Property – location Failure to pay = makes Enforced contribution
3. Personal Property – location / Place of the act or business assesses by sovereign
sale or transaction illegal authority to defray public
expenses
4. Intangible Personal Property – domicile
of the owner / place or country where
such intangibles are exercised. Debt Tax
5. Income Based on contract Based on law
*Occupation – where it is engaged in Paid in kind Payable in money
*Transaction – where it took place Assignable / may be Cannot be assignable /
6. Business – place where business is subject of set off or subject of set off or
located. compensation compensation
Cannot be imprisoned Imprisonment is a
7. Gratuitous Transfer – residence or
for non - payment of sanction for non -
citizenship of taxpayer / location of debt (except arises from payment of tax
property crimes)
Draw interest when Does NOT draw interest
Toll Tax stipulated or when of except when delinquent.
Demand of Proprietorship Demand of sovereignty prescription default
Paid for the use of another Paid for the support of
property government
Amount is based on cost of Based on the necessities of DOUBLE TAXATION
maintenance of public the state
improvement  Strict Sense – direct duplicate taxation
Maybe imposed by private Imposed only by state  Broad Sense – indirect double taxation
individuals or government
*it means taxing twice which was prohibited by
the constitution
Penalty Tax
To regulate conduct Aimed at rising revenue  Same taxing authority
Sanction Obligation  Same purpose
Imposed by government or Imposed only by
 Same year or taxing period
private individuals government
 Same subject or object
 Same kind / character of the tax
Revenue Tax
Amount collected Amount imposed SOURCES OF TAX LAWS

1. Constitution
 2. National Internal Revenue Code 5. Provisions of taxing act are not to be
3. Tariff and customs code extended by implication
4. Local Government Code (Book II) 6. Tax laws operate “prospectively” unless
5. Local tax ordinances / city or municipal the purpose of the legislature to
tax codes retrospective effect is expressly declared
6. Tax treaties and international 7. Tax laws are special laws and prevail
agreements over a general law.
 It is in order to avoid or
minimize the effects of double Application of Tax Laws
taxation. GR: Prospective in operation
7. Special laws
8. Decision of Supreme Court and the E: may nevertheless operate retroactively
Court of Tax Appeals provided that, it is expressly declared.
9. Revenue Rules and Regulation and Taxpayer’s Suit
Administrative rulings and opinions
 Case where the act complained involves
Purpose of Rules and Regulations illegal disbursement of public funds
a. To properly enforce and execute the derived from taxation.
laws  GR: not only persons individually
b. To clarify and explain the law affected but also taxpayers have
c. To carry into effect the law’s general sufficient interest of preventing the
provisions by providing details of illegal expenditures of money raised by
administration and procedure taxation.

Requisites for Validity of Rules and

Regulations

a. Not be contrary to law and the

constitution
b. Must be published in the Official
Gazette or a newspaper of general
circulation.

Construction of Tax Laws

1. Public purpose is always presumed

2. If law is clear, apply it in accordance to
its plain and simple tenor.
3. A statute will not be construed as
imposing a tax unless it does so clearly
and expressly
4. In case of doubt, construed most
strongly against the Government and
liberally in favor of the taxpayer

Chapter 2 (Income tax for
individuals)
Individual taxpayers – natural persons with
income derived from within the territorial
jurisdiction of taxing authority. – tinitignan kung
ano ang citizenship
 Resident Citizens (RC)
 Nonresident Citizens (NRC)
 Resident Aliens (RA)
 Nonresident Aliens (NRA)
o Engaged in trade / business
(NRA – ETB)
o Not engaged in trade / business
(NRA – NETB)
Importance of Classification:
 Situs of income
 Manner of computing tax
 Treatment of certain passive incomes
 Allowable deductions
 References in the tax code
Citizen of the Philippines
1. Born by birth with a Filipino citizen
parents.
2. Born before January 17, 1973 of
Filipino mother who elects Philippine
citizenship upon reaching age of
maturity.
3. Acquired Philippine Citizenship after
birth (in accordance with Philippine
law)
Non - resident Citizens
1. Physical presence abroad with a definite
intention to reside.
2. Leaves the country during taxable year
to reside
 As an immigrant
 Employment on permanent
basis
 For work and derives income
from abroad which requires to
work there.
3. Have stayed outside the country for 183
days and more.
 Non – resident who arrives in
the Philippines anytime during
taxable year to reside
permanently shall be considered
a NRC.
Overseas Contract Worker (OCW) /
Overseas Filipino Worker (OFW)
 Classified as NRC
 Duly registered with the Philippine
Overseas Employment Administration
(POEA) with a Valid Overseas
Employment Certificate (OEW)
 Same as to Seamen or seafarers but with
Seafarers Identification Record Book
(SIRB) or Seaman’s Book issued by the
maritime Industry Authority (MARINA)
Alien
 Foreign-born who is not qualified to
acquire Philippine citizenship
Resident Aliens
 An individual who is a resident in the
Philippines but not a citizen.
 An alien with no definite intention of his
stay in the Philippines
 Purpose requires an extended stay for its
accomplishments
Non – resident Aliens
 Aliens who come to the Philippines for
definite purpose.
 Engaged in trade or business, have
business income; Stayed for a period of
more than 180 days during taxable year
 NETB = stayed for less than or equal to
180 days and not deriving business
income in the Philippines; subject to
25% income tax on gross income from
all sources (Ordinary or Passive income)
TYPES OF INCOME:
 Ordinary / Regular Income
- Income such as Compensation
income (salaries or wages),
business income, income from
practice of profession, income
from sale, dealings of property,
miscellaneous income and
passive income other than
subject to final taxes. (Operation
mainly ng business)
- Subject to Graduated tax / basic
tax
 Passive Income
- Subject to final withholding tax
- Interest income, dividend
income, royalties, prizes and
other winnings.
 Sale of Capital Assets
- Subject to capital gains tax
- Sale of shares of stocks of a
Domestic Corporation not
traded in local stock exchange
- Sale of Real Property
Self-Employed &/or Professionals (SEP)
 Not under employer-employee
relationship
 Can usually be measured against an
established set of standards
Regular income amounting more than 250 000
in taxable year but with gross sales/receipts and
other non-operating income not exceeding VAT
threshold of 3 000 000 – shall have the option to
avail of 8% tax in excess of 250 000
 Exceeds VAT threshold, subject to basic
tax
 Percentage tax due on 3M shall be
collected without penalty, if timely paid
on the due date.
Final Withholding Tax
 Subject to final taxes
 Prescribed on “certain income” and not
creditable against the income tax due of
the payee income subject to regular
rates.
 Amount of tax withheld = constituted as
a full and final payment
 LIABILITY FOR PAYMENT of tax
rests primarily on the Payor as a
withholding agent.
 Failure to withhold, the deficiency tax
shall be collected from the payor /
withholding agent.
 Payor required to issue final withholding
tax
 Payee not required anymore to file
income tax return, these incomes will no
longer form par of the payee’s “taxable
income”
Deposit Substitute
 Alternative form of obtaining funds
from the public other than deposits for
the purpose of re-lending or purchasing
of receivables and other obligations or
financing their own needs or the need of
their agent or dealer.
 Mere issuance of government debt
instruments or securities is falling
within the coverage.
  Bureau of treasury issued instruments
(treasury bonds, bills and notes) is
classified if it is to traded or exchanged
in the secondary market.
Long Term Deposit / Investment
 Maturity period of not less than 5 yrs.
 Should be issued by banks only to
individuals and not be under the name of
a corporation or bank or trust
department of bank
Requisites / Conditions for Exemptions:
a. RA & NRA – ETB depositor or
investor
b. Certificates shall be under the name
of a corporation or bank or trust
department of bank
c. Evidenced by certificates by BSP
(duly licensed)
d. Issued by banks only not by other
financial institutions.
e. Not less than 5 yrs. (without
interruption)
f. In denominations of 10 000 and
other denominations prescribed by
BSP.
g. Should not be terminated by original
investor before the 5th year,
otherwise subjected to final taxes.
h. EXCEPT specifically exempted by
law or regulations, gains from
trading, foreign exchange gain shall
not be covered by income tax
exemption.
i. NETB = subjected to final tax
(25%)
j. Non – resident foreign Corporation
= subjected to final tax (30%)
- Subjected to regular income tax
(30%) if received by domestic
corporation and resident foreign
corporation
Informer’s Reward
 Voluntarily gives definite and sworn
information about fraud and violation,
shall be rewarded a sum equivalent to
10% of revenues, surcharges or fees
recovered or/& fine or penalty imposed
and collected; or 1M, whichever is
lower.
 Reward provided shall be paid under the
rules and regulations issued by Secretary
of Finance, upon recommendation of
Commissioner.
 Discovery and Seizure of Smuggled
Goods – cash reward is equivalent to
10% of FMV of the smuggled and
confiscated good or 1M, whichever is
lower shall be given to the person who
discovered.
 Cash rewards are subjected to income
tax and collected as final withholding
tax with a rate of 10%
Gains on sales of Assets
 Ordinary Asset
- Stock in trade or other property
of a kind included in the
inventory of taxpayer
- Property used in trade, subjected
to depreciation.
- Real property held primarily for
sale
- Real property used in trade or
business.
- Gains on such sale is subject to
Graduated tax rate.
 Capital Assets
- All other property not included
in ordinary asset.
- Subject to Capital Gains Tax
 - No CGT in case of Capital Loss
Capital Gains on Sale of Real Properties
 Whichever is higher between FMV /
Zonal Value or Gross selling price
multiplied by 6%
 Sale of Real Property to the Government
- 6% CGT or Basic Tax
 Sale of Principal Residence
- Exempt from CGT
Other Percentage Tax (OPT)
 Sale of shares of stock of domestic
corporation listed in local stock
exchange = not subject to income tax
but on Stock Transaction Tax (STT) –
6/10 of 1% of Gross Selling Price
Capital Gains subject to Basic Tax
 It is also subject to additional tax rules
such as holding period and net capital
carry – over
 Sale of shares of Foreign Corporations
 Sale of real properties located abroad
 Sale of other personal assets such as
cars, jewelries etc.
Creditable Withholding Tax
Sale of Principal Residence
 Principal Residence
- Family home; permanent
dwelling
- Absence: where individual
intends to return
- Should be certified by Barangay
chairman over the place or
Building administrator if
residence is a condominium or
Senior Citizen and Person with Disabilities
taxpayer’s address in his latest
tax return.
- Certificate Authorizing
Registraation (CAR) or Tax
Clearance Certificate (TCC)
shall state that the said sale,
exchange or disposition of the
taxpayer’s principal residence is
exempt from capital gains tax.
 Requisites for Tax Exemption:
- Proceeds are fully utilized
(commenced with the
construction) in acquiring or
constructing new principal
residence
1. Within 18 calendar months from
date of acquisition
 Expenses paid for by
the seller in effecting
the sale shall be
considered as part of the
amount utilized.
2. Historical cost or adjusted basis
shall be carried over to the new
principal residence built.
3. BIR shall have been duly
notified within 30 days from
date of sale / disposition (date of
notarization of document
evidencing transfer of property)
4. Tax exempt can only be availed
once every 10 yrs.
 Not internal revenue tax but a method of
“collecting income tax in advance”
 Creditable: Taxes withheld are
deductible from tax due.
 Example: Tax withheld by an employer
from compensation income of an
employee.
 Shall be filed and the applicable tax paid
not later than the last day of the month.
 Required to file their income tax returns
and pay tax as they file the return.
 If returnable income is in nature of
compensation income but qualifies as
 minimum wage earner, shall be exempt
from income tax
 If gross income earned do not exceed
250k = shall be exempt from income tax
and not required to file income tax
return but still liable for other taxes:
1. Interest income from any currency
bank deposit (20%) and under
expanded foreign currency deposit
system (15%)
2. Pre – termination of Long-term
deposit / investment (3%, 12%,
20%)
3. 10% final withholding tax = all
those in Cash and property
dividends
4. CGT from sales of share of stock
not traded in stock exchange (15%)
5. CGT from sale of real property (6%)
6. Other Taxes
- VAT
- SEP (rules of 3% and 8%)
- Donor’s Tax – on all donations
made during calendar year
- Estate Tax in event of death
- Excise Tax on certain goods
- Documentary Stamp Tax
Benefits of Seniors and PWDs
 20% discount and exempt from VAT
 ₱500 monthly pension- indigent seniors
 Death benefit assistance
 5% discount on facilities
 Income tax exempt if gross income
earned do not exceed 250k.
Minimum Wage Earners (MWE)
 Or Statutory minimum wage earner
(SMW)
 Private worker paid the SMW or public
employee with compensation income of
not more than SMW in the non –
agricultural sector
 Exempt from income tax on:
- Minimum Wage
- Holiday Pay
- Overtime Pay
- Night Shift Differential
- Hazard Pay
MWE with additional “Compensation” in
excess of 90 000
 13th month pay and other benefits
received are exempt from income tax
and creditable withholding tax. Total
exclusion shall not exceed 90k
 Shall still enjoy the privilege of being an
MWE
 Intent is to free the low-income earner
from the burden of tax
MWE with additional “business” income
 Receiving other income except income
subject to final tax are not exempted
from income tax on their entire income
earned
Hazard Pay given to MWE
 Exposures to hazards are compensable,
example are the ff.
1. Dangerous environmental elements
2. Engaged in construction work,
logging, fire-fighting, etc.
3. Engaged in manufacture or handling
of explosives
4. Exposed to biological agents
Filing of Income Tax Returns (ITR)
 Basic Tax
1. Purely compensation income
earners
- On or before April 15 of
succeeding year
2. Business Income Earners (income
from practice of profession)
- Quarterly tax
- 1st = May 15
 - 2nd = August 15 (45 days after
end of quarter)
- 3rd = November 15 (45 days
after end of quarter)
- 4th = April 15 of succeeding
year
 Final Withholding Tax
- The return shall be filed and
paid not later than the last day
of the month
 Capital Gains Tax
1. Share of stock
 Ordinary Return – 30 days
after transaction
 Final Consolidated Return –
on or before April 15
2. Real Property – 30 days following
each sale or disposition
Manner of Filing
a. Manual filing
b. Electronic filing and Payment System
(EFPS)
c. eBIR forms
Payment
 Income tax payable shall be paid at the
time the return is filed.
 Tax due is in excess of 2 000, may elect
to pay in 2 equal installments
1st = at the time of filing
2nd = on or before October 15 following
the close of the calendar year.
Place of Filing Income Tax Return
 Filed and paid with any of the ff:
1. Authorized agent banks (AAB)
2. Revenue district officer (RDO)
3. Collection agent
4. Duly authorized city or municipal
treasurer in which taxpayer has his
legal residence or principal place.
 With payment returns
-
File the return with AAB
-
No AAB, filed directly with re
revenue collection officer or
duly authorized treasurer
- There’s none, fling of the return
will be at the office of the
commissioner.
 No payment returns
- File return with RDO where
taxpayer is registered
- Filed late, shall be accepted by
RDO but shall be filed with an
AAB of collection officer /
Deputized Municipal Treasurer
Person required to File Income Tax Return
1. Engaged in business, or practice of
profession
2. Deriving compensation from 2 or more
employers concurrently
3. Deriving compensation income resulting
to collectible or refundable return
4. Deriving other non – business, in
addition to compensation income not
otherwise subject to final tax
5. Receiving purely compensation income
but whose spouse is required to file
income tax return
6. NRA – ETB or non-profession related
income
Person not required to File Income Tax
Return
1. Purely compensation income = does not
exceed 250k
2. Income tax has been correctly withheld
by his employer
3. Sole income has been subject to final
withholding tax
4. MWE
Certificate of Withholding by the Employer
  Employer is required to furnish
employees BIR form 2316 on or before
January 31
 If employment is terminated = on last
payment of compensation made.
 Employers shall submit the duplicate
copy of BIR form 2316 to the BIR not
later than February 28
 Penalty of 1 000 each failure, maximum
amount of 25 000 for all such failure
during the calendar year
 Fails to comply, the filing submission of
BIR 2316 for 2 consecutive years,
employer shall be liable to a fine in
amount of 10k and suffer imprisonment
not less than 1 year but more than 10
years
 In settlement, compromise fee of 1 000
for each BIR form 2316 not filed.

Substituted Filing of Income Tax Returns

 May no longer file ITR on or before

April 15 provided taxpayer has:
1. Receiving purely compensation
income, regardless of amount
2. Amount of income tax withheld by
the employer is correct (tax due =
tax withheld)
3. Only one employer during taxable
year
4. If married, spouse also complies
with all 3 aforementioned
conditions, otherwise receives no
income.

Chapter 3 (fbt)
 Employee income that were effectively
tax were those given in cash
 Additional tax and non-cash were
virtually untaxed given rise to inequity
in the distribution of tax burden
 Untaxed perks = tax avoidance
 To enhance progressivity of income tax
and broaden tax basis
Definition of FBT
 Compensation: remuneration for
services performed
 Granted by an employer in cash or in
kind, in addition to basic salaries.
 Form of pay to supplement a stated pay
for the performance of services.
 Benefits given or furnished to
managerial or supervisory employee.
Nature of FBT
 Monetary burden imposed by
sovereignty on any good / other benefit
furnished / granted by an employer
 Final tax imposed on employee and
withheld by an employer (35%)
 It is collected at the firm’s level rather
than at the taxpayer’s level to facilitate
tax administration = valuation is easier,
and the problem of allocating benefits is
avoided.
 Shall be withheld and paid by employer
on or before 10th day of the month
following the calendar quarter.
Items of Fringe Benefits subject to Tax
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household Personnel
5. Interest on loan at less than market rate
(extent of difference b/w market rate
and actual rate granted.
6. Membership fees in social and athletic
clubs or similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expense
9. Educational Assistance
10. Life or Health insurance and other non-
life insurance premiums.
Tax exempt Fringe Benefits
1. Income tax under any special laws:
- Contributions under SSS law
- Contributions under GSIS law
- Similar contributions under
existing law
- Premiums for group insurance
of employees
2. Required in nature of, or necessary to
trade, business or profession
3. De minimis benefits
4. For the convenience or advantage of the
employer (irrespective of Employee’s
rank)
Computation of FBT
 35% rate but for NRA – NETB (25%)
1. Evaluating the value of the benefit
granted
2. Determining the proportion or
percentage of benefit subject to FBT
 3. Determining the grossed-up
monetary value of FB by dividing
monetary value of FB by gross
monetary value factor
4. Multiplying grossed-up monetary
value factor by FBT rate.
FBT Tax
 Grossing up FB is to align the tax
treatment of FB with salaries and wages.
 Compensation incomes are included in
the computation
 Grossed-up monetary represents the
entire income earned by the employee.
Valuation of FB
 Granted in money, value is the amount
granted
 Granted in property or transfer
ownership, value is FMV of property
 Granted in property but no transfer of
ownership, value is equal to
depreciation value of the property.
Deductible expense of the employer
 Given to rank and file employee or to
supervisory or managerial employee but
not subject to FBT, deduction is the
monetary value of the FB.
 If FB is given to supervisory or
managerial employee, it is subjected to
FBT, deduction is the grossed-up
monetary value.
De Minimis Benefits (DMB)
 “courtesy” discount on purchases
 Not considered as compensation subject
to income tax and consequently to
withholding tax
Ff. is considered DMB not subject to income
tax
1. Monetized unused “vacation leave” not
exceeding 10 days during the year
- As well as “sick leave” shall be
added to “other benefits” with
90k ceiling. Amount exceeding
90k shall be subject to basic and
creditable withholding tax.
2. Monetized value of vacation and sick
leave, credits paid to government
officials and employees
- Monetized unused “vacation
and sick leave” credits to
government shall be exempt
from tax compensation income.
3. Medical allowance not exceeding 1 500
per semester or 250 a month
4. Rice subsidy not more than 2 000 per
month or 1 sack rice per month
5. Uniforms not exceeding 6 000 per
annum
6. Medical assistance not exceeding 10 000
per annum
7. Laundry allowance not exceeding 300
per month
8. Achievement awards, in the form of
tangible personal property and annual
monetary value not exceeding 10 000
9. Christmas and majo0r anniversary
celebrations not exceeding 5 000 per
employees per annum
10. Daily meal allowance for overtime work
and night /graveyard shift not exceeding
25% basic minimum wage
- Subjected to income tax
however, meal allowance and
lodging furnished are exempt
from tax if for advantage or
convenience of the employer.
11. Benefits received by virtue of a
collective bargaining agreement (CBA)
and Productivity incentive schemes
provided that the two do not exceed 10
000 per employee per taxable year.
90k ceiling for 13th month pay/bonuses and
“other benefits”
 13th month pay and other benefits
received are exempt from income tax
and creditable withholding tax. Total
exclusion shall not exceed 90k
 Other Benefits
- Christmas bonus
- Productivity incentive bonus
- Loyalty Awards
- Gifts in cash or in kind and
other benefits or similar nture.
 Gross income is not applicable to:
- Self-employed individuals
- Income generated from business
Excess of DMB over their respective ceilings
 Benefits not included shall not be
considered DMB but should fall under
the classification of “other benefits” and
is subject to 90 000 ceilings.
 Excess of 90k would form part of an
individual’s gross income and subject to
income tax and applicable creditable
withholding taxes
Fixed or Variable Allowances
 Received by public officer or employee
of private entity in addition to the
regular compensation and is subject to
income tax and creditable withholding
tax
 Expenses which are pre-computed on
daily basis and are paid while on an
assignment need not be subject to
requirement of substantiation and to
withholding.
Business related expenses / Allowances
subject to liquidation
 Any amount paid specifically, expected
to be incurred by the employee in the
performance of his duties are not
compensation subject to withholding if
ff. conditions are satisfied:
- Ordinary and necessary
expenses paid in the pursuit of
trade, business or profession
- Required to account / liquidate
for the foregoing expenses
Representation and Transportation
Allowances (RATA)
 Considered reimbursements for the
expenses incurred in the performance
one’s duties. Excess of RATA, if not
returned = constitutes taxable
compensation income of the employees.
 Expenses which are pre-computed and
are paid while on assignment or duty
should not be subject to withholding tax
 Allowances which are fix in amounts
and are regularly received as part of
their monthly compensation are subject
to basic tax
Communication Allowance
 Not subject from FBT and tax on
compensation on the basis that
communication allowance is deemed
required by the nature.
Non-Taxable Housing Benefits
1. Housing unit inside or adjacent (within
50 meters) from perimeter of housing
premises.
- Shall be considered for the
“convenience or advantage of
the employer”
2. Temporary housing for a stay for 3
months
3. Housing privilege of military officials
Other Fringe Benefits
1. Expense Account
a. Paid for or reimbursed by employer
are taxable FB. If were receipted in
the name of employer and do not
partake the nature of “personal
expenses” – should not be taxable as
Fringe benefits.
b. Not treated as taxable fringe
benefits
- RATA allowance given
regularly on a monthly basis are
not taxable FB but subject to
basic tax
2. Expenses for foreign travel
- In connection with attending
business meeting or average of
300 per day are considered
reasonable expense not be
subject to FBT. (such as cost of
economy and business class
airplane ticket)
- 30% of cost of first-class
airplane ticket shall be subject
to FBT.
- Absence of documentary
evidence in connection with the
business travel shall be treated
as taxable fringe benefits also in
traveling expenses of family
members of employees.
3. Educational Assistance treated as
taxable FB except:
- Study is directly connected with
the employer’s trade and there is
a written contract.
- Employee’s dependents through
a competitive scheme under
scholarship program.
4. Membership dues or fees of
employees borne by the employer
5. Life or health insurance and other non-
life insurance premiums are treated as
taxable benefits
6. The following shall not be treated as
taxable fringe benefits:
- Fringe benefits exempted from
income tax
- Required by the nature of or
necessary to trade
- For the convenience or
advantage of the employer
- Benefit to retirement, insurance
and hospitalization benefit
plans.
- Non – taxable housing benefits
- Benefits given to rank and file
employees
- Other non-taxable benefits
Use of Aircraft and Helicopters
 Owned and maintained by employer is
not taxable fringe benefit but treated as
business expense
Filing of Returns
 10th day of the month following the end
of the calendar quarter
SUMMARY:
Subject to FBT
 Purpose is para sa kapakanan ng mga
employees, supervisory and up
Subject to Basic Tax
 Purpose is para sa operation mainly ng
business.