Income Tax

A. 2 Kinds of Income Tax

1. Income Tax on Individuals
2. Income Tax on Corporations

B. Withholding of Final Tax (FT) on Certain Income Payments

- Amt. of income tax withheld = full + final payment of the income tax
due
- Liab. for payment = rests primarily on the payor (withholding agent)

C. Withholding of Creditable Tax at Source

- Taxes withheld = intended to equal or at least approximate the tax due
fr. the payee on his/her income
- Income recipient = still required to file an ITR:
- To report the income; and/or
- Pay the diff. bet. tax withheld + tax due
*Also known as EWT or CWT

D. Reasons for Withholding Tax System

1. Convenient manner to meet probable income tax liab.
2. Ensure collection of income tax
3. Improve gov’t cash flow

E. Kinds of Withholding Tax

1. CWT / EWT
2. Withholding Tax on Compensation/Wages

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 3. Withholding of Tax
4. Withholding of Percentage Tax

F. FWT vs CWT

- full + final payment of income tax - creditable against income tax due
due on the said income

- liab. for payment : payor - payee: required to report the diff.

bet. tax withheld + tax due

- payee: NOT required to file an - payee: includes the income he/she

ITR or include the same in his/her receives in the gross income subj. to
computation of taxable income subj. normal income tax AND the tax
to regular income tax withheld is a credit/deduction fr.
income tax due thereon

G. Persons Constituted as Withholding Agents

1. Any juridical person - W/N engaged in T/B
2. Any individual - w/ respect to payments made in connection w T/B

*Transfer/Sale of RP:
Individual Buyers who are
NOT Engaged in TB = Also Constituted as Withholding Agents

3. All gov’t offices - including GOCCs + LUGs

H. Withholding Tax on Compensation

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 - a METHOD of collecting income tax at source upon receipt of income
- applies to ALL employed individuals, whether citizens or aliens,
deriving income fr. compensation for services rendered in PH

- EE: liable to pay income tax

- ER: collects income tax (to improve tax collection)

I. 3 Types of Income
1. Those earned fr. employment, business or profession
- subj. to:
a. Sec. 24 (A)(2) of the NIRC; or
b. 8% income tax
2. Passive income
- subj. to final tax
1. Capital gains
- subj. to CGT