Professional Documents
Culture Documents
∙ Due Process of the Law – a law which hears before it condemns, which precedes to inquiry and tenders judgment only after
trial
∙ Equal Protection of the Law – prevents any taxpayer from being singled out as a special subject of hostile or discriminating tax
legislation
∙ Non-impairment for non-payment of a debt or a poll tax
- Unless guilty of estafa (fraud or deceit)
∙ Non-impairment of the provisions on Obligations and Contracts
∙ The rule of taxation shall be uniform and equitable
- Avoids class tax legislation
- Based on the ability to pay and reasonable in amount taking into account certain factors
∙ No public money or property shall be appropriated for a religious or private purpose
∙ Exemption from taxation of educational, religious and charitable organizations
∙ No law granting any tax exemption shall be passed w/o the concurrence of a majority of all the members of Congress - Tax
exemption – a grant of immunity expressed or implies to a particular person, right or property, from a particular tax to which
other persons generally within the same class, taxing authority or territory are subjected to ∙ Non-impairment of the jurisdiction
of the Supreme Court on Tax Cases
∙ The PH President has the power to approve or veto a tax bill approved and passed by the PH congress
Inherent Limitations
∙ public purpose
∙ non-delegation of the taxing power 🡪 except to local gov’t
∙ exemption of the gov’t entities
∙ w/in the territorial jurisdiction of the state
∙ international comity, convention, or agreements
∙ prohibition of double taxation
Taxation 🡪 the inherent power of the state to exact an enforced contribution upon persons, properties or rights for the purpose of
generating revenues for the use of the gov’t
- ways or means of apportioning the operational cost of the gov’t and all its public needs among those who, in some measures,
are privileged to enjoy its benefits and therefore must bear the burden
- the act of levying a tax or the process by which the gov’t, through its law making body, raise revenues to defray its necessary
expenses
Nature of Taxation
∙ authority
- necessity and inherent in every gov’t
- legislative
- theory: gov’t cannot exist w/o taxation
∙ basis
theory: taxes are imposed upon persons, properties or rights for the support of the gov’t in return for the general
-
advantages and protections
- principle: where there is no benefit, there is no power of tax
- reciprocal duties
Objects of Taxation
● Person
● Real Property
● Transaction
● Income
● Tangible Personal Property
● Intangible Personal Property
● Gratuitous Transfer of Property
● Business
Purposes of Taxation
● primary purpose – to raise revenues for the use and support of the gov’t to enable it to carry out its functions
● secondary purpose – to promote general welfare, social and economic dev’t of a country and its people
∙ Civil in Nature – not political nor penal although there are some penalties provided for violations
Constructions – reasonable w/ a view of carrying out their purpose and intent 🡪 Plain/ ordinary language Applications –
prospective in operation 🡪 may operate retrospectively if expressly declared or if it is the legislative intent
∙ fiscal adequacy – source of revenues must be enough to meet the expenditures of the gov’t
- elastic revenue in response to variations of the public or gov’t
∙ equality or theoretical justice – equitable or proportionate distribution of the tax burden
- ability to pay – income earned or received
∙ administrative feasibility – reasonable and convenient enforcement, just, and effective administration
Tax – the enforced burden or mandatory contribution imposed by the gov’t based on power of taxation, upon persons, properties or
rights.
Essential Characteristics
∙ monetarial
∙ enforced contribution ∙ legislative in nature ∙ based on ∙ paid at regular intervals
law ∙ imposed upon persons, properties or rights ∙ for gov’t
∙ for public purpose revenues
∙ proportionate in character
Classifications
∙ as to Subject Matter
- personal/capitation/poll tax – fixed amount of taxes imposed regardless of property, professions or occupations
▪ community tax
- property tax – imposed upon taxpayers’ assets/property, real or personal, situated w/in the territorial jurisdiction of
the state in proportion to its value or some other reasonable method of apportionment
▪ real property tax
- privilege/excise tax – imposed on taxpayers’ exercising their rights and privileges of performing an act or engaging in
an occupation
▪ donor and estate tax
∙ as to Scope or Authority
- national tax – imposed by the national gov’t, enforced by the BIR or Bureau of Customs (both under the Dept of
Finance)
▪ income tax, custom duties, tariff
- local tax – imposed by the local gov’t
▪ real estate tax, community tax
∙ as to Purpose
- general tax – for national or general funds
▪ estate tax
- special tax – for special funds
▪ gasoline tax
∙ as to Liabilities
- direct tax – cannot be passed on or shifted to other person for payment
▪ income tax
- indirect tax – imposed upon persons liable to pay but are permitted by law to be shifted or passed on to other
persons ▪ value added tax
∙ as to Determination of Amounts
- specific tax – based on weight or volume capacity or any physical unit of measurements
▪ excise tax on liquors and cigarettes
- ad-valorem tax – based on the sales price or other specified values of the properties
▪ vat
∙ as to Graduation or Rates
- progressive/graduated tax – amount of tax increases as the bracket/layer increases
▪ gift tax, estate tax
- regressive tax – amount of tax decreases as the bracket/layer increases
- proportionate tax – may be higher or lower depending upon the bracket or classification
direct authority from congress levies tax imposed under delegated power to the local gov’t
amount – usually big small in amount, enough only to cover the cost of services or
regulation
failure to pay does not render the business or occupation illegal failure to pay renders a business or occupation illegal
for the support and use of the gov’t to recover the cost or property and its improvements
imposed upon persons, properties or rights imposed only on land and its improvements
for the use and support of the gov’t to recover the cost of the public improvements
ordinary and of general application extraordinary and situational as to time and locality
not all taxes are tariffs/custom duties all tariffs/custom duties are taxes
imposed upon persons, properties or rights imposed only upon articles imported to or exported from the
country
non-assignable assignable
non-payment (except poll tax) results to imprisonment non-payment does not result to imprisonment
Tax Situs or Place of Taxation – the territorial jurisdiction of the gov’t where it has the authority to impose its taxation power which is
to levy and collect taxes on persons, properties or rights
Basic rule – the state where the subject to be taxed has a situs may rightfully levy and collect the tax
∙ situs – necessarily in the state which has jurisdiction or which exercises dominion over the subject in question - persons –
poll tax may be properly levied upon persons who are inhabitants or residents of the state (citizen or not) - real
property – subject to taxation in the state in which it is located (owner – resident or not)
- tangible personal property – taxable in the state where it has actual situs or physically located
- income – properly exacted from persons who are residents or citizens in the taxing jurisdiction and even
non-residents and non-citizens provided that the income is derived from sources w/in the taxing state
- business, occupation and transaction – where the business is done, where the occupation is engaged or where the
transaction took place
- gratuitous transfer of property – transmission of property w/o consideration
▪ where the transferor is a citizen/resident or where the property is located
∙ levying or imposition of tax – the legislative process of determining the persons, properties or transactions or rights to be taxed
∙ assessment and collection of tax – manners or procedures of enforcing the tax obligations of the taxpayers - administrative in
character
- Department of Finance – BIR , Bureau of Customs, and LGUs
International Comity – fundamental rule of taxation that no law shall be passed to impose taxation on the property owned by a
foreign gov’t or sovereignty
Double Taxation – the act of taxing the same taxpayer twice by the same kind of character of tax, by the same taxing authority w/in
the same jurisdiction, for the same purpose and during the same taxable period
∙ direct
∙ indirect
Classifications of Tax Escapes
∙ tax credit – tax payments made by the taxpayer or through withholding agents, that are expressly allowed by law as deductions
directly against the basic taxes due
∙ tax exemption – grant of immunity, express or implied, to a particular person, right, transaction or property, from a particular
tax to which other persons generally w/in the same taxing authority or territory is subjected to
- express or affirmative – expressly written or cited under the provisions of the constitution, statute, treaty, ordinance,
or franchise
- omission or implied - all those not mentioned under the law are deemed tax exempted
∙ tax evasion or dodging – the fraudulent (illegal) act of using pretenses or forbidden devices in order to lessen the tax liability or
payment; punishable by law
∙ tax avoidance – act of using legitimate or lawful means permitted by our tax laws in order to minimize or avoid tax liability or
payment
∙ tax shifting – legitimate act of passing one’s tax liability for payment to another person in accordance w/ the provisions of the
law
Bureau of Internal Revenue (BIR) – the gov’t agency that is authorized and tasked to administer and execute internal revenue laws and
regulations
∙ mission – to render services to the public w/ justice and honor at all times
- to maintain public confidence in the integrity and efficiency of the revenue service
Primary Officials
∙ Chief Commissioner
∙ 4 Deputy Commissioners
∙ Revenue Regional Directors – directly responsible to the Commissioner of Internal Revenue and to the Deputy Commissioners ∙
Asst. Revenue Regional Directors
∙ Revenue District Officers
∙ Dept. Heads of the Assessment and Collection Group and Legal and Administrative Groups ( two working groups) ∙
other BIR Officials (Operational/Functional Support Offices
Central Office – confined on national policy formulation, proper planning, execution of internal revenue laws and rules and the
general direction and control of the entire internal revenue service
∙ assessment and collection of all national revenue taxes, fees and charges
∙ enforcements of all forfeitures, penalties and fines connected
∙ execution of judgments in all cases decided in its favor by various courts
∙ effect and administer the supervisory and police powers conferred to it by laws
BIR Commissioner’s Powers and Authorities
Commissioner’s Power to make: Assessments, additional requirements, for tax administration and enforcement
1. Delinquent accounts
2. Cases under administrative protest pending the revenue offices, revenue district offices, legal services, large tax payer service,
enforcement service, excise tax payers services and collection service.
3. Civil tax cases disputed before the courts
4. Collection cases filed in court
5. Criminal violations, except those already filed in court or those involving tax fraud.
1. Withholding taxes
2. Criminal tax fraud
3. Criminal violations already filed in courts
4. Delinquent accounts with duly approved schedule of installment payments
1. Taxes are erroneously or illegally received it penalties are paid w/o authority
2. Tax payers filed in writing w/in 2 years after the payment of taxes or penalties.
∙ Ensure the provision, distribution, it BIR forms, receipts, certificates and appliances and the acknowledgement of payment of
taxes
∙ Divide the country to such required number of required revenue districts
∙ Make arrests and seizures For violation of penal laws
∙ Make assignments of Internal Revenue officers and other employees
∙ Submission of the commissioner’s annual report and other pertinent information
∙ Except as provided in section 222, Internal Revenue shall be assessed within 3 years after the last day prescribe by law for the
filing of the tax return and no proceeding in court without assessment for the collection of such taxes shall begin after the
expiration if such period.
Section 222: Exceptions as to Period of Limitations of assessment of Collection of taxes.
1. In case of a false or fraudulent tax return with intent to evade tax or of failure to file tax return, the tax may be assessed, or w
proceeding in court for the collection of such tax may be filed without assessment at any time within 10 years after the
discovery of the falsity, fraud or omission.
2. If before the expiration of the time prescribed in Section 203 for the assessment of the tax both the BIR commissioner and the
tax payer have agreed in writing to it’s assessment after such time, the tax may be assessed within the period agreed upon. 3.
Any internal revenue tax which has been assessed within the period of Limitations as prescribed in paragraph (a) and (b) hereof,
and in Section 203 may be collected by distraint or levy or by proceeding in court within 5 years following the assessment of tax.
1. Suspension of the running of the Statute of Limitations in section 203 and 222, on the making of the assessment and the
beginning of the distraint or levy or proceeding in court for collection in respect of any deficiency shall be suspended. a. For
the period during which the BIR Commissioner is prohibited from making the assessment or beginning the distraint or levy
or a proceeding in court and for 60 days thereafter.
b. When the taxpayer request for a reinvestigation which is granted by the commissioner
c. When the tax payer cannot be located in the address given by him in the tax return filed, upon which a tax is being
assessed and collected without subsequently giving a change of address.
2. Non suspension
a. Warrant of distraint and levy is duly served upon the taxpayer, his authorized representative or a member of his
household with sufficient discretion and no property can be located
b. Tax payer is out of the Philippines
c. Tax payer cannot be located in the address given by him/her but has informed the BIR of a change address.
a. Civil action- files cases for collection of taxes before the courts requiring the tax payer to pay his taxes.
b. Criminal action file a case for collection of taxes and imposing penalty against tax payer.
∙ Either of these remedies or both may be simultaneously pursued. Provided however that the remedies and levy shall not be
availed of if the amount of tax involved is not more than 100.00
∙ Penalty shall not be imposed until it is finally decided by the commissioner
When The BIR commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify
the tax payer of his tax audit findings. Provided, however that such a Pre assessment Notice (PAN) Shall not be required in the
following cases:
1. When the findings for any deficiency tax is the result of a mathematical error
2. Discrepancy has been determined between tax withheld and the amount actually remitted by the withholding agent. 3. A
taxpayer who opted to claim a refund of tax credit of excess creditable withholding tax for a taxable period was determined to
have carrier over and automatically applied the same amount claimed against the estimated tax LIABILITIES for the taxable
quarters of the succeeding taxable year.
4. The excise tax due on excisable articles has not been paid
5. An article locally purchased or imported by an exempt person, such as but not limited to vehichles, capital equipment,
machinery, and spare parts has been sold traded or transferred to non-exempt person.
∙ Tax payer shall be informed in writing by the BIR of the laws and facts which the assessment was made otherwise
assessment is void
∙ Tax later is required to respond to such ore assessment Notice. If the tax payer fails to respond BIR commissioner or
duly authorized personnel shall issue FINAL NOTICE AND DEMAND (FAND).
∙ Assessment maybe protested by filing a request within 30 days from the receipt of the assessment. ∙
Within 60 days of the protest, all relevant supporting documents shall be submitted.
∙ If the protest is denied in part or whole or is not acted upon within 180 days from submission of the document the
decision will be final, executory and demandable.
− No suit or proceedings shall be maintained in any court for the recovery of any internal revenue tax hereafter allegedly to have
been Erroneously or illegally assessed or collected or if any penalty claimed to have been collected without authority or of
any sum alleged to have been excessively or in any manner wrongfully collected until a claim for refund or credit had been
duly filled with the BIR Commissioner.
− No suit or proceedings shall be filed after the expiration of the 2 years from the date of payment of the tax.
1. Tax Refund – a refund check or warrant issued which shall remain unclaimed or uncashed within 5 years from the date of the
said warrant was mailed shall be forfeited.
2. Tax Credit – tax credit that remains unutilized after 5 years from the date of issue shall unless revalidated be considered invalid.
PENALTIES /ADDITION TAXES
Failure to comply with the Tax code of the Philippines will be imposed with penalties
1. Surcharge of 25%
a. Failure to file any tax return and pay the tax due on the date required
b. Unless otherwise authorized by the BIR commissioner filing a tax return with an internal revenue officer other than
those whom the return is required to be filed
c. Failure to pay the deficiency or delinquency tax
d. Failure to pay the full/part of the amount of tax shown on tax return required to be filed in or before the date
prescribed
2. Surcharge of 50%
a. Willful neglect to file the tax return within the prescribed period
b. False or fraudulent tax return willfully made.
− Provided that a substantial under declaration of taxable sales, receipts income etc. Shall constitute prima facie evidence. −
Failure to report sales, receipts or income etc. In an amount exceeding 30% of that declared per tax return and a claim of
deductions in an amount exceeding 30% of actual deductions shall render tax payer to be liable for substantial overstatement of
deductions
3. Interest of 12% per annum
a. In general there shall be assessed and collected on any unpaid amount of tax interest at the rate of 12% per annum or
such higher rate as may be prescribed by rules and regulations from the date prescribed for payment. b. Deficiency
interest- any deficiency in the tax due as the term is defined in the NIRC shall be subject to the 12% interest prescribed
in paragraph (3) a. here of shall be assessed and collected from the date required for its payment. c. Delinquency
interest- there shall be assed and collected on the unpaid amount of taxes, 12 % interest rate in paragraph 3 (a) here of
until the amount is fully paid which interest shall form part of the tax in case of failure to pay i. The amount of the tax
due on any tax return required to be filed
ii. The amount of the tax due for which no tax return is required
iii. A deficiency tax or any surcharge or interest thereon on the due date appearing in the final notice and
demand of the BIR commissioner
d. Interest on extended payment- there shall be assessed and collected 12 % interest at the rate herein above prescribed
on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid in the ff
cases:
i. If any person required to pay the tax is qualified and elects to pay on installment, but fails to pay the tax or
any installment hereof , or any part of such amount of installment on or before the date prescribed date for
payment.
ii. Where the BIR commissioner has authorized a tax payer an extension of time within which to pay tax or
deficiency but fails to pay the said tax with extension period.
General provisions
1. The additions to the basic tax, delinquency tax or deficiency tax shall apply to all taxes, fees and charges imposed in the NIRC
and shall be paid in the same manner as part of the tax.
2. If the withholding tax agent is the government or any of its agencies or any government controlled corporations the employee
shall thereof be responsible for the withholding and remittance of the income tax and shall be personally liable. 3. The term
person includes an officer or employee of a corporation or partnership who has such officer employee or member is under duty
to perform the act in respect to which the violation occurs.
4. Income tax returns filed and taxes paid within the prescribed filing or payment period is presumed to have been filed and paid
as of the last day of the filing period.
Correct tax due per tax returned filed 150,000 Less: payment of tax due per tax return (100,000)
Delinquency Tax 50,000
Additions to delinquency tax:
Amendments to Individual Income Taxation by TRAIN Act RA No. 10963: NIRC of 2017
Compliance Requirements
Filipino Citizen
1. Registration with the BIR
2. Accounting books/records 4. Filing of tax returns and payments of related taxes 5.
3. Issuance of sales invoices and official receipts Withholding taxes on specified/certain payments to
suppliers/sellers
Persons Required to File Income Tax Returns 1.
a. Residing in the PH, on his income from sources in and out of the PH
b. Residing outside the PH, on his income from sources in the PH
2. Alien residing in the PH – income w/in the PH
3. Non-resident alien engaged in trade, business or in the exercise of profession in the PH – income w/in the PH
1. w/ respect to pure compensation income (sources w/in the PH), the income tax on which has been correctly withheld a.
deriving compensation income from two or more employers at any time during the taxable year shall file an income tax
return
2. Sole income – subjected to final withholding income tax
3. Exempt from income taxation pursuant to the Tax Code and other laws
∙ May be required to file an information return pursuant to the rules and regulations prescribed by the Sec. of Finance upon
recommendation of the BIR Commissioner
∙ City of municipality in which such person has his legal residence or principal place of business in the PH o
Authorized agent bank
o Revenue district officer
o Collection agent
o Duly authorized treasurer
∙ No legal residence or place of business in the PH
o Main office of the BIR Commissioner
1. Receiving income from two or more employers concurrently or successively at any time during the taxable year 2. If derived
compensation income’s corresponding income tax due is not equal to income tax withheld (even if collectible or refundable)
3. Monthly gross compensation income < P5,000 or the statutory minimum wage (whichever is higher) and opted for non
withholding tax on said income
4. Received other income in addition to the compensation income and otherwise not subject to final income tax
5. Spouse not entitled to the substituted filing of income tax return
6. Non-resident alien engaged in trade or business in the PH – pure compensation income and other business or professional
related income
Place and Time for Payment of Income Taxes, “Pay as you File System”
1. The amount of income tax shall be paid in money by the person subjected thereto at the place and time the income tax return
is filed
2. Installment Payment of Basic Income Tax – basic income tax due is in excess of P2,000 and the taxpayer is not a non-resident
alien
a. 1st installment – paid at the same time the income tax return is filed
b. 2nd installment – on or before Oct 15 following the close of the calendar year
c. If any installment is not paid on or before the date fixed – whole amount becomes due and payable (together with the
delinquency penalties
Amended Income Tax Returns – may be amended w/in 3 years from its filing or from the last day prescribed for its
filing ∙ No notice for tax audit/examination, assessment and demand has been actually served
∙ Signed individual’s name – prima facie (accepted correct until proven otherwise) evidence for all purposes
Self-assessment System – mandated by law, an income taxpayer is required to file his/her income tax return, computing such
declarable gross income w/ claimable allowed deduction, by himself/herself, or with the assistance of accountants based on their
own knowledge/interpretations of the income tax laws
BIR Assessment, Imposition, Collections of Deficiency Tax – the basic assessed tax or deficiency income tax or delinquency income tax
discovered shall be paid upon notice and demand from the BIR Commissioner
∙ Individual taxpayer (EEI, SEI, MIE) – may only employ the calendar year
1. Cash basis/method
2. Accrual basis/method
3. Accounting for long-term contract – recognizes income and expenses for long-term contracts
a. Percentage of Completion method
b. Completed Contract method – cannot be used anymore
4. Installment basis/method – adopted by those who sells or disposes personal property on the installment plan o
Income is recognized any taxable year – proportion of the installment payments actually received in such year o
Gross profit realized or to be realized when payment is completed, bears the contract price
Keeping Books of Accounts and Records
1. All corporations partnerships, sole proprietorships or persons required by law to pay internal revenue taxes – required to keep
a journal/ledger (or their equivalents)
2. Quarterly sales, earnings, receipts < P50,000 – simplified set of bookkeeping records
3. Quarterly sales, earnings, receipts > P150,000 – books of accounts must be audited and examined annually by an independent
CPA with a duly accomplished Account Information Form (AIF)
4. Subsidiary books – optional
∙ Native language (English or Spanish) – If kept in another language, it is required to make a true and complete translation in a
native language
Preservation of Accounting Books – 10 years from the last entry in each book/records (before 2016 – 3
years) BIT Audit, Examination of Accounting Books – made only once in a taxable year except:
1. Failure to file certain information returns – P1,000 for each failure but the aggregate amount for said failures during the
calendar year must not exceed P25,000 (unless due to reasonable cause and not to willfully neglect)
2. Failure of a withholding agent to collect and remit tax – penalty equal to the total amount of the tax not withheld/accounted
for/remitted
3. Failure of a withholding agent to refund excess withholding tax – penalty equal to the amount of tax refunds which were not
refunded to the employees resulting from any excess of the amount withheld over the tax actually due on their tax return
Globalized Income Taxation – taxation scheme/system wherein the taxable net income from whatever sources is computed under one
formula subject to the graduated income tax rates of 5% to 32%
Schedular Income Taxation – scheme/system of income taxation wherein income are classified into different categories, which at their
net amount are subjected to different graduated basic income tax rates
Income tax – tax imposed by the gov’t on the taxable income, whether at gross amount or at net amount, earned by taxable persons
Income – profit, gain, fruit, wealth or fortune derived from labor, from capital , or from both labor and capital, from sale or exchange
of assets, as well as those derived from other sources, whether legal or illegal, other than those representing returns of capital
Constructive Receipts of Income – credited to the account of the taxpayer, or set aside for him, or which may be drawn at any given
time, or a complete control for the disposal of such income is already placed in his hands
Gross Income Taxation System – the income earned/received at gross amount (without any deductions) serves as the basis of the
applicable income tax rate in order to determine the corresponding income tax due
Gross Income – total amount of income earned without considering any deductions
Net Income – excess of gross income over the amount of the deductions permitted by law
Net Income Taxation System – the income earned at net amount (after deductions permitted by law) serves as the basis of the
applicable income tax rate in order to determine the corresponding income tax due
Net loss – excess of gross income over the amount of the deductions permitted by law; not subjected to income tax nor refund
Passive income – gains/income obtained from activities in which the taxpayer does not participate on a regular and continuing basis
Active income – gains/income earned by the taxpayer from activities in which he materially participated; regular and continuing
basis Person – natural or artificial being; an individual, a trust, estate, sole-proprietorship, corporations or partnerships, associations
Minimum Wage Earner (MWE) – a worker in the private sector paid the statutory minimum wage or an employee in the public sector
with compensation income or not more than the prescribed statutory daily minimum wage in the agricultural and non-agricultural
sector
1. Non-taxable income (NTI) or Income Exempt from Income Tax (IE) – exempted from basic income tax and different single final
income taxes
∙ 13th month pay, bonus and incentive pay of P90,000 below
2. Taxable income or income subject to income tax
a. Income Subject to Final Income Taxes (IFT) – exempt from graduated basic income taxes of 0% to 35% −
Interest income on bank deposits (20%)
− Gains from sale of real property located in the PH and held as capital assets (6%)
b. Income Subject to Basic Income Tax (IBT) – items declared in the taxpayer’s gross income on the income tax return
− Gross profit from sale of goods, salaries and allowances
1. Compensation Income from Employment (CI) – earned by a fixed-earner employee, out of an employee-employer relationship
2. Income from Business, Trade or Profession (TBPI) – self-employment income
3. Other Income (OI) – earned/derived from the sale of personal assets or from personal transactions
Classifications of Expenses as to Deductibility
1. Non-deductible Business Expenses – not permitted by law as allowed deduction from the gross income 2.
Non-business expense (NBE) – not connected in the business or practice of profession (personal expenses) 3.
Deductible Business Expense (DBE) – permitted by law as allowed deductions from gross income
1. w/in the PH
2. outside the PH
3. in and partly outside the PH
1. Special Individual Taxpayers – from the PH, taxed at the preferential single/flat tax rates (not required to file income tax
returns) a. Special Aliens or Filipino Employees (SAFE) – foreigners and/or their Filipino counterparts as technocrats
(technically experts) or holding managerial positions
i. Regional Area Headquarters of MNC
i. Multi-national Corporation (MNC) – a foreign firm or entity engaged in international trade with
affiliates or subsidiaries or branch offices in the Asia Pacific Region and other foreign markets
ii. Regional Area Headquarters – branch establish in the PH by a MNC; does not earn income from the
PH but merely acts as supervisory, communications and coordinating center
ii. Regional Operating Headquarters of MNC
iii. Offshore Banking Units – foreign banking corporation located offshore, which is authorized to engaged in
foreign currency transactions and other related banking transactions in the PH
iv. Foreign Petroleum Service Contractor or Sub-Contractor engaged in petroleum operations in the PH under a
service contract w/ the gov’t
b. Non-resident Alien Not Engaged in Business in the PH (NRANEBP)
c. Minimum Wage Earner
2. Ordinary Individual Taxpayers – taxed at the graduated basic income tax rates of 0% to 35% and are required to file their
income tax returns and are required to file their income tax returns
a. Resident Citizen (RC) – Filipino in the PH
b. Resident Alien (RA) – foreigner in the PH
c. Non-resident Citizen – Filipino residing outside the PH
d. Non-resident Alien Engaged in Business in the PH (NRAEBP)
a. Non a resident nor a citizen but has a sole-proprietorship business established and operating w/in the PH
b.Non-resident alien who shall come to the PH and stay therein for an aggregate period of more than 180
days
1. Natural born citizens – citizen of the PH from birth w/o having to perform any act to acquire or perfect his citizenship
2. Naturalized citizens
3. Citizens of the PH at the time of the adoption of the PH Constitution
4. Persons who elected PH citizenship pursuant to the provisions of the Constitution
Persons Considered Non-resident Citizens
1. Established satisfaction to the BIR Commissioner of his physical presence abroad with a definite intention to reside therein
2. Left the PH during the taxable year to reside abroad (immigration or employment)
3. Works and derives income abroad; physically present abroad most of the time during the taxable year (<183 days) 4. Previously
considered as non-resident and arrives in the PH to reside permanently in the PH – non-resident for the taxable year in which he
arrives
Immigrant – leaves the PH to reside abroad as an immigrant for which a foreign visa as such has been secured
Overseas Contact Worker – individual who leaves the PH on account of a contract of employment which is renewed from time to time
w/in and during the taxable year under such circumstances; required to be physically present abroad most of the time during a taxable
year (<183 days)
1. Sole-proprietorship
2. Partnership
3. Corporation
Securities – shares of stocks in a corporation and rights to subscribe for or receive such shares
Dealer of Securities – with an established place of business, regularly engaged in the purchase of securities and resales thereof to
customers
Deposit substitutes – alternative form of obtaining funds from the public (from 20 or more individuals or corporate lenders) other
than deposits, through the issuance, endorsements or acceptance of debt instruments for the borrower’s account for relending or
purchasing of receivables and other obligations of financing their own needs or the needs of other agents or dealers
Withholding Tax Agent – any person required to deduct and withhold any tax under the provisions of the
1. Resident citizen – taxable on all income derives from sources w/in and outside the PH
2. Non-resident citizen – taxable only on income derived from sources w/in the PH
3. Overseas Contract Worker – taxable only on income from sources w/in the PH
− Seaman – vessel engaged exclusively in international trade
4. Alien – taxable only on income derived from sources w/in the PH
Income statement under GAAP must be distinguished with the income tax return under NIRC – International Tax Treaty/ Tax Law 🡨
Higher Court 🡨 Tax Code 🡨GAAP
Special Individual taxpayers – normally taxed at flat tax rate of 15% or 25% based only on their taxable gross income from within
the Philippines; no longer required to file income tax returns
Ordinary Individual Taxpayers – those required to file their income tax returns and are normally taxed at the graduated or
progressive income tax rates of 0% to 35% based on taxable income.
*If the centavos is less than P0.50, drop said centavos; if the centavos is P0.50 or over, round to P1.00
Per NIRC 2017 (years 2018-2022) Basic Income Tax Rates for Individuals RC, RA, NRC, NRAEBP
Over Not Over Tax Plus Excess Over
Per NIRC 2017 (years 2023 onwards) Basic Income Tax Rates for Individuals RC, RA, NRC, NRAEBP
Over Not Over Tax Plus Excess Over
Rule 1. Resident Citizen Taxable Net Income World, in Philippines plus in FC Basic/Regular 0% to 35%
a. Income Basic Tax (GIW less ADW)
b. Income Final Tax Taxable Gross Income In Philippines only Single rates
c. Income Exempt Various income items not subject to individual income tax
Rule 2. Resident Alien, Non Taxable Net Income In Philippines only Basic/Regular 0% to 35%
Resident Citizen, (GIP less ADP)
Non-Resident Alien Engaged
in Business in PH a. Income
Basic Tax
b. Income Final Tax Other Gross Income In Philippines only Single rates
c. Income Exempt Various income items not subject to individual income tax
Rule 3. Non-Resident Alien Taxable Gross Income In Philippines only Single Rate 25%
Not Engaged in Business in
Ph
a. Income Basic Tax
b. Income Final Tax Other Gross Income In Philippines only Single Rates
c. Income Exempt Various income items not subject to individual income tax
Rule 4. Special Alien, Gross Compensation In Philippines only Single Rate 15%
Filipino Employee Income
a. Income Basic Tax
c. Income Exempt Various income items not subject to individual income tax
Special Alien or Filipino Employee – refers to a foreigner or a counterpart Filipino employee who is holding a managerial or
technical position, employed by certain specified business organizations in the Philippines, cited as follows:
Provided that the Filipino employee, employed by regional area headquarters or regional operating headquarters of a
multinational corporation in the Philippines, as per BIR Rev. Reg. 11.2010, shall have the options to be taxed either:
Specific Formulas of Income Tax Returns for RA, RC, NRC, NRAEBP, if EEI, SEI, or MIE
*If resident citizens, the gross income allowed and allowed deduction, are those in and outside the Philippines. *In the case of
resident aliens, non-resident citizens and non-resident aliens engaged in business in the Philippine, the reportable gross income
and allowed deductions, are within the Philippines only.
1. Minimum Wage Earner – refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public
sector with compensation income of not more than the prescribed statutory minimum wage in the agricultural and non-agricultural
sector of the region where he/she is assigned.
2. Statutory Minimum Wage – refer to the rate fixed by the Regional Tripartite Wage and Productivity Board as defined by the Bureau
of Labor and Employment Statistics of the DOLE.
3. Compensation income of minimum wage earner who work in the private sector and being paid the statutory minimum wage as
fixed by the RTWPB / National Wages and Productivity Commission applicable to where he/she is assigned shall be exempt from
income taxation.
4. Compensation income of employees in the public sector with compensation of not more than the SMW in the non-agricultural
sector, as fixed by RTWPB / NWPC shall be exempt from income taxation.
5. Basic Salary of MWE in the public sector shall be equated to the SMW in the non-agricultural sector applicable to the place he is
assigned. The determination of SMW in the public sector shall adopt the same procedures and consideration as those of the
private sector.
6. Basic pay including cost of living allowances (COLA), holiday pay, overtime pay, night shift differential pay, and hazard pay earned
by the MWE shall also be exempt from income taxation. Provided however that an employee who receives additional
compensation such as commission honoraria, fringe benefits, incentive pay benefits in excess of the allowable statutory amount of
P90,000 a year, taxable allowances and other taxable income other than the SMW items shall be subject to the basic/regular tax
rates of 0% to 35% on other taxable income items. SMW items shall still be exempt from income taxation.
7. MWE’s earning other income in addition to compensation income are not exempted from income tax on their entire income during
the taxable year exempt the SMW items.
8. Hazard pay – amount paid by the employer to MWE’s who were actually assigned to danger or strife-torn areas, disease-infected
places, or in distressed or isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard pay
paid to MWE’s which does not satisfy the above criteria is deemed subject to income tax and withholding tax.
In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of Withholding Tax on Compensation
for return periods March, June, September, and December a copy of Department of Budget and Management circulars or equivalent
as to who are to receive hazard pay.
9. Any reduction of diminution of wages for purposes of exemption from income tax shall constitute misrepresentation and therefore,
shall result to the automatic disallowance of expense i.e. compensation and benefits account on the part of the employer. The
offenders may be criminally prosecuted.
The wage order shall not cover household or domestic helpers, persons in the personal service of another person, and workers of
registered micro-business establishments, with certificate of authority.
If the MWE earned income consisting only of SMW items, whether with or without income exempt from income tax and/or income
subject to final tax, but did not earned any other item subject to basic income tax, then such MWE is classified as Non-Taxable MWE
and shall be exempt from income tax on his SMW items.
If the MWE earned other income subject to the basic income tax, in addition to his SMW items, whether with or without income
exempt from income tax and income subject to final income tax, then such MWE is classified as Taxable MWE and shall be taxable
only on his other taxable income beyond the SMW items.
Married couples, subject to the provision of Section 51 (D) of the NIRC, shall compute separately their individual income taxed
based on their respective taxable net income. Provided, that if there are any unidentified income/expense which cannot be
definitely attributed to or identified as exclusively earned by either of the spouses, the same shall be shared equally between them
for the purpose of determining their respective taxable income.
1. Married couples, whether RC, RA, NRC, NRAEBP, shall file only one income tax return.
2. In one/same ITR. the gross income, allowed deductions, taxable net income and income tax due, income tax credit and income
tax payable of each spouse shall be computed separately.
3. Identify income and expenses directly or wholly attributable to either spouses. In case of
joint/unspecified/untraceable/allocated income and expenses, unless otherwise stated, these are shared equally.
4. Where it is impracticable to file one ITR, each spouse may file a separate ITR but the tax return shall be consolidated by the Bureau
of Internal Revenue for purposes of verification for the taxable year.
Format/Formula:
Husband Wife Combined
For parents and child who are both working, subject to the provisions of Section 51 (D) of the NIRC, shall compute separately
their individual income taxes based on their respective taxable net income.
1. Minor children who are gainfully employed are mandated by law to file their own separate income tax returns through
their guardians and parents.
2. The income of an unmarried minor, derived from property gratuitously received from a living parent by way of gift or donation,
shall be included and declared as part of the parent-donor’s gross income in his ITR if the related donor’s tax is still unpaid. In
such case, the parent-donor is still the legal owner of the property and its income.
3. In the following cases, the income on such donated property shall be reported as part of the child-donor’s gross income in his
ITR; a. when the related donor’s tax has been paid
b. when the transfer of such property is exempt from donor’s tax
In such case, the child-donee is already the legal owner of the property and its income.
Estate – total value of all the properties, rights, and obligations of a decedent on date of death.
Decedent – deceased individual whose property are the object of the laws on succession.
Heir/Beneficiary – person who shall receive a property inheritance, cash or non-cash, tangible or intangible in the form of a legacy,
bequest or devise from a deceased person by a last will and testament or by operation of law.
Executor – person appointed by the deceased to take charge, preserve, manage, and distribute the estate of a deceased person.
Administrator – person appointed by the court to take charge, preserve, manage, and distribute the estate of a deceased
If the decedent’s estate is not under administration or settlement, then said estate is considered a non-taxable estate. The income
received by the estate during the period of administration or settlement. Shall not be subject to income tax on the part of the said
estate.
If the decedent’s estate is under administration or settlement, then said estate is considered a taxable individual person. The income
of the estate during the period of administration shall be subject to income tax on the part of the estate which is treated as a separate
taxpaying unit since the decedent’s estate is deemed the sole beneficiary during the period of administration and settlement.
*The income from decedent’s estate which were credited or distributed to the heirs shall be included in the gross income on the
individual’s ITR of each heir.
*This income distributed to the heir shall be subject to the 15% creditable expanded withholding tax at source. However, 100% of the
gross income distributed shall be reported as part of the taxable gross income to the heir. The heirs shall claim the 15% withheld
income tax at source.
Contract of Trust – an agreement executed between a trustor-grantor and a trustee- fiduciary whereby the property of the former is
transferred to the latter for conservation or management and ultimately, the title to the property in trust as well as the income
therefrom will be transferred to the beneficiary as directed by the grantor.
Grantor – owner of the property who created the trust. He is also the trustor, benefactor, or creator.
Trustee – person who manages the property in trust. He is also known as executor, administrator, manager, receiver, fiduciary, or
conservator.
Beneficiary – person who is the ultimate successor of the property in trust. He is also known as the successor, recipient, and
In all of the above cases, the income from the trust shall be deemed credited to the grantor and shall be part of his gross income in
his ITR.
The income producing trust is considered a taxable person if under the contract of trust, the title to the said property in trust shall be
later on transferred to the beneficiary and the income of the trust is partially or fully credited to or for the benefit of the beneficiary.
Under the law, the following are treated as a separate taxable trust:
1. A trust where the income accumulated in trust for the benefit of unborn or unascertained persons, which contingent interest
and income accumulated or held for future distributions under the terms of the contract of trust.
2. A trust where the income which is to be distributed currently by the fiduciary to the beneficiaries, and the income collected
by a guardian of an infant which is to be held or distributed as the court may direct.
3. A trust where the income which, in the discretion of the fiduciary, maybe either distributed to the beneficiaries or
accumulated.
*Exception – The income tax imposed in the NIRC shall not apply to employee’s trust funds which forms part of a pension,
stock bonus, or profit-sharing plan of an employer for the benefit of some or all of his employees:
1. If contribution are made to the trust by such employer, or employees, or both for the purpose of distributing to such
employees the earnings and principal of the fund accumulated by the trust in accordance with such plan. 2. If under the
trust instrument it is possible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust,
for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit to any
employee or distribute by such employee or distribute.
*The income from the trust which were credited or distributed to the beneficiary and grantor shall be included in the gross income
on the ITR of beneficiary/grantor.
*This income distributed to the grantor shall be subject to the 15% creditable expanded withholding tax at source. However, 100% of
the gross income distributed shall be reported as part of the taxable gross income of such grantor and beneficiary. The
beneficiary/grantor shall claim the 15% withholding income tax at source.
Where, in the case of two or more trusts, the creator of the trust in each instance is the same person, and the beneficiary in each
instance is the same, the taxable income of all the trusts shall be consolidated and the income tax provided in the NIRC computed on
such consolidated income, and such proportion of said tax shall be assessed and collected from each trustee which the taxable income
of the trust administered by him bears to the consolidated income of the several trusts.
Where a grantor executed two or more separate contract of trusts on separate property each manage by separate trustees, where all
of the trusts are for the benefit of one and the same beneficiary, then:
1. Each trustee must file a separate trust’s income tax return with the BIR
2. The BIR will consolidate all the trust income tax returns files
3. Each trust shall share in the total income tax still due and payable from the consolidated trusts.
Allocation of Each Trust of the Total Income Tax Due on the Combined Trusts
Classification of Income
Gross Income Taxation/Final Income Taxation - a scheme where a final/single income tax rate is imposed on income at gross amount
(without any deduction by law)
Classification of Expenses
Business Expenses - nominal or revenue expenditures necessary in the operation of the business or in the exercise of the profession of
an individual to generate income.
1. Non-Business Expense (NBE) – not incurred or not connected in the operation of the business or in the exercise of the
profession
2. Non-Deductible Business Expense (NDBE) – expenses disallowed or not permitted by law
∙ business expenses permitted as deduction but violated any requirements for deductibility
3. Deductible Business Expense (DBE) – necessary and connected in the operation of the business or in the practice of
profession, which have complied with the requisites for deductibility
∙ declared as allowed deductions from the gross income on the ITR
Actual Itemized Deduction – actually incurred or paid, as provided for under the Tax Code
2) Amount paid for new buildings or for improvement of any property or estate
3) Amount expended in restoring the property
4) Premiums paid on any life insurance policy of any officer or employee
5) Losses from sale/exchange of property
6) Losses from wash sales, except that of a dealer in stock and securities
7) Net capital loss or capital losses
8) Net wagering losses or wagering losses
9) Bribes, kickbacks, and other similar payments
10) Interest expenses (in certain conditions)
11) Capital outlays of depreciable assets for the expansion of private school facilities
12) Bad debts
13) Losses sustained during taxable year and not compensated for by insurance
CHAPTER 5: INCOME TAX CREDITS AND INCOME TAX RETURNS FOR INDIVIDUALS
Income Tax Credits – tax payments allowed by law to be claimed as a direct deductions from the basic income tax due.
Tax Credits 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2. Withheld Tax at Source Yes 1 qtr Yes 1, 2 qtrs Yes 1, 2, 3 qtrs Yes for 12 mos.
3. Prior Quarters Income Tax Paid None Yes 1 qtr Yes 1, 2 qtrs Yes 1, 2, 3 qtrs
4. Income Tax Paid in Original Income Tax Yes Yes Yes Yes
Return Filed
A. Rule I. Income Tax Credits items numbers (1) to (5) only for
a. Resident Aliens (RA)
b. Non-Resident Citizens (NRC)
c. Non-Resident Aliens Engaged in Business in Philippines (NRAEBP)
B. Rule II. Income Tax Credits items numbers (1) to (6) for
a. Resident Citizens (RC) – because their income earned abroad are also subject to the Philippine income tax, thus
resulting to an indirect double taxation
Limitations on Tax Credit for Income Tax Abroad for Resident Citizens
Resident citizens may, at his option, treat such income taxes abroad either as (1) deductible business expenses or (2) income tax
credits (but subject to limitation formulas A and/or B, whichever is lower).
1. Non-Creditable Withholding Tax – not allowed by law to be credited against the basic income tax due, nor as a deduction from
the gross income in the income tax returns
a. Withholding Final Income Tax – income tax withheld on specific/certain types of income; shall not be included in the
computation of the gross income and the withheld final income tax is a non-creditable withholding tax 2. Creditable Withholding
Tax – permitted by law as a deduction or credit against the basic income tax due. a. Withholding Tax on Wages – income taxes
withheld on gross compensation payment; related withheld income taxes are allowed as tax credits
b. Withholding Tax at Source – income taxes withheld, on gross business and other income payments
Tax Refunds or Tax Credits – any excess of the income taxes withheld over the income tax due from the taxpayer shall be returned or
credited within three (3) months from the 15th day of April, otherwise, it will earn interest at the rate of 6% per annum.
1. Professionals
4. Prime contractor/sub-contractors 2%
8. Payments made by credit card companies to any business entity, on ½ of gross payments 1%
11. Payments made by top 10,000 corps to their local suppliers of goods 1%
12. Payments made by top 10,000 corps to their local suppliers of services 2%
13. Additional payments to gov’t personnel from importers, shipping and airline companies or their 15%
agents for overtime services
19. Income payments on purchases of materials, mineral products and quarry resources 1%
Income Tax Return – taxpayer’s sworn statement or declaration of his taxable gross income, deductible business expenses, resulting in
a net income or net loss for a given taxable period.
A. Rule I. For Employee Individual Only – Use BIR form 1700. Fixed earners shall file their calendar yearly income tax returns. B.
Rule II. For Self-Employed Individual Only – Use BIR form 1701Q and 1701. Variable income earners shall file their calendar
quarterly and yearly income tax returns.
C. Rule III. For Mixed Income Earner (both employee and self-employed) – Use BIR form 1701Q and 1701. Mixed earner shall file
their quarterly and yearly income tax returns.
Gross Income
Notes:
✔ In USA, federal income tax is a national income tax, whereas state income tax is only a local income tax and shall be treated as
deductible business expenses
✔ Withholding Tax Agent – natural or juridical who shall pay compensation income subject to withholding tax ✔
Wages – all remuneration for services performed by an employee including non-cash remunerations, except: o
Agricultural labor paid entirely in products of the farm
o Domestic service in a private home
o Casual labor not in the course of the employer’s trade or business
o Services by citizens/residents of the Philippines for foreign governments or international orgs
✔ Quarterly Income Tax Payments – amounts of income tax payments made for each quarter during the taxable year.
✔ Quarterly Income Tax Returns shall be on a cumulative basis.
✔ Annual gross compensation income and withholding tax on wages shall be reported or declared only on the 4th quarter’s
(annual) income tax return.
✔ Resident citizens shall report income and expenses from sources within and without the Philippines
✔ RA, NRC, NRAEBP shall report income and expenses from sources within the Philippines only
✔ Gross income computations only includes income items subject to basic income tax
✔ Allowed deductions are deductible business expenses only
✔ Income tax may be the
o Income tax due/payable before deducting the allowed income tax credit, if any, or
o Income tax due/payable after deducting the allowed income tax credit, if any
✔ If there is a conflict between GAAP and the Income Tax Laws, then the latter shall prevail
✔ Tax Treaty – an agreement made by two countries to resolve issues involving double taxation of passive and active income. ✔
If there is a conflict between an international tax treaty/tax law and the Philippine Tax Laws/Tax Code, then the former shall
prevail.