Tax 1

Objective of taxation

-Provide sufficient funds to the government to operate

-To achieve various economic and social objectives

-The shifting of the wealth from the rich to the poor

-Maintaining price stability

-Stimulate economic growth

-Encourage full employment

Basic principles of sound tax system

1. fiscal adequacy the source of revenue will be sufficient to meet government expenditures

2. equality or theoretical justice the amount of taxes shall be proportionate to the tax payer’s ability to
pay

3. administrative feasibility convenient just an effective administration

4. tax system should not be contrary to law public policy and economic policy

The Philippines tax system is either progressive but never regressive or it is proportional

-Progressive tax system - The rates of tax increases as the taxable base increases

-Regressive tax system - the rate of tax decreases as the taxable base increases

-Flat or uniform (proportional) tax system - the average rate of the tax remains constant at all taxable
base changes.

Revenue of the government collected under the Philippine tax system (TAXES)

Taxes represent compulsory contribution to state revenue, levied by the government on workers'
income and business profits, or added to the cost of some goods, services, and transactions. By the law
making body of the state for use and service of the state and force contribution

Amount collected which is proportionate in character and generally payable in money and payable in
regular periods and intervals
Classification of taxes

1. As to subject matter or object

a) Personal, poll or capitation. — Tax of a fixed amount imposed on individuals, whether citizens or not,
residing within a specified territory without regard to their property or the occupation in which they
may be engaged. Example : Community tax

b) Property. — Tax imposed on property, whether real or personal, in proportion either to its value, or in
accordance with some other reasonable method of apportionment. Example: Real Property Tax

c) Excise (Privilege Tax). — a tax imposed upon the performance of an act the enjoyment of a privilege
or the engaging in an occupation; any tax which does not fall within the classification of a poll tax or a
property tax. Example: Income tax, donor's tax, estate tax.

2. As to who bears the burden

a) Direct. — A tax that is demanded from the person who also shoulders the burden of the tax. Example:
Income tax, estate tax, donor's tax.

b) Indirect. — A tax demanded from one person in the expectation and intention that he shall indemnity
himself at the expense of another. Example: Value-added tax and percentage tax.

3. As to determination of amount

a) Specific. — Tax of fixed amount imposed by the head or number, or by some standard of weight or
measurement; that requires no assessment other than a listing of classification of the subjects to be
taxed. Example: Excise tax on distilled spirits, cigars, cigarettes.

b) Ad valorem. — Tax of a fixed proportion of the value of the property with respect to which the tax is
assessed; it requires the intervention of assessors or appraisers to estimate the value of such property
before the amount due from each taxpayer can be determined. Example: Real Property Tax.

4. As to purpose

a) General, fiscal or revenue. — Tax that is imposed solely to raise revenue for government
expenditures. Example: income tax, value-added tax.

b) Special or regulatory. — Tax imposed for a special purpose, i.e. to achieve some social or economic
and irrespective of whether revenue is actually raised or not. Example: Sugar adjustment taxes; Oil Price
Stabilization Fund (OPSF)

5. As to authority imposing the same

a) National. — Tax imposed by the national government. Example: Internal revenue taxes, customs
duties.
b) Municipal or local. — Tax imposed by municipal corporations. Example: Sand and gravel tax,
occupation tax.

6. As to graduation or rate

a) Proportional. — Tax based on a fixed percentage of the amount of the property, receipts, or other
basis to be taxed. Example: Value-added tax.

b) Progressive. — Tax rate of which increases as the tax base or bracket increases. Example: Income tax,
estate tax, donor's tax.

c) Regressive. — Tax rate of which decreases as the tax base increases.

Other info the taxes that shall be collected by the government are classified in different kinds

Classification of tax as to subject matter or object

-Personal poll or capitation – a tax on persons who are residents of particular territory

-Property tax – a tax on properties, real or personal

-Excise tax – a tax imposed upon the performance of an employment of a privilege or engagement in an
occupation

-Estate tax – tax na binabayaran kung ang properties ng namatay ay ipapamana na sa herederos

-Donor’s tax – tax na ibabayad sa ano man property na ililipat mo sa kanino mang tao by way of
donation

-Income tax - tax on annual income, gains or profits

-Value added tax – consumption tax collected by VAT business taxpayers. Tax binabayaran mo
percentage sa mga binili mong product o naconsume mong services

Collecting arm of the department of finance

BUREAU OF INTERNAL REVENUE

Revenue regions of the BIR is 19 in total

Revenue district office of BIR 115 in total

BUREAU OF CUSTOMS
Types of tax payers

Individual tax payers

1. according to citizenship and residency

-citizens which are classified as resident citizens and non-residents

-resident aliens and non-resident aliens

a) Engage in Trade or Business in the Philippines

b) Not in Engage in Trade or Business in the Philippines

c) Those resident aliens employed by:

1) Regional or Area head Quarters.

2) Regional Operating head Quarters of Multinational Entities in the Philippines which are engage in
international trade with affiliates and subsidiary branch offices in the Asia Pacific Region.

2. according to status

-Single

-Married

-Head of the family

Partnerships

Corporations

Cooperatives
Compliance with legal requirements

1. Salaried Employees

- Registration- Employees should be registered with the following

- SSS (Mandatory)

- Philhealth All of the three has an Id and id Number

- Pag ibig

- DOLE- Department of labor and employment

- BIR- Bureau of Internal Revenue

- Requirements to register

- Must be register 10days after employment

- Must Fill up BIR form No.1902

Update form

BIR FORM 2305- to change your status you must fill up this form

BIR Form 2305- to change your status to married to legally. separation 10days after the change

BIR FORM 1905- For change of registered address or for change of employer.

BIR is divided regional offices and every regional offices divided to many revenue districts.

Revenue district office no. 044 Taguig

Revenue District office No. 043 Pasig

This will be done by RDO electronically. and the one will be responsible for this are your former RDO

2. Tax returns to be filed

BIR FORM 1700- Must be filed on or before Apr 15 of the following year. If under that:

(1) Tax withheld from the employee is not adjusted to the equal the suppose income tax to the
employee.

The government will be discover if you have income tax payable and if you do not pay it you will be
subjected to civil penalties.
(2) BIR Form 2316- this are the certificate of compensation income/receive by the employers Tax
withheld by the employee. Filed on or before January 31 of the following year. And whose employees
that exterminated their employment within the taxable year. 2316 to be filed on the day in which the
last payment of compensation ve made.

2316 will be serve us substituted income tax returns

2316 must be certified and signed by employee and employer

This form similar to 1700 should be retained and kept for 3 years after 3 years it should be considered
prescribe.

SPA- Special Power of Attorney

3. Tax rates- the tax shall be computed in accordance at the rates established in the following schedule

(a) Tax Schedule Effective January 1, 2018 until December 31, 2022 [4]:

Not over P250,000……………………………………………… 0%

Over P250,000 but not over P400,000……………………….. 20% of the excess over P250,000

Over P400,000 but not over P800,000……………………….. P30,000 + 25% of the excess over P400,000

Over P800,000 but not over P2,000,000…………………….. P130,000 + 30% of the excess over P800,000

Over P2,000,000 but not over P8,000,000…………………... P490,000 + 32% of the excess over P2,000,000

Over P8,000,000 ……………………………………………….. P2,410,000 + 35% of the excess over P8,000,000

BIR FORM 1902- used for registration of employees

BIR FORM 1701Q - Quarterly income tax return for self-employed Individual
Annual 1701- shall be filled on or before april 15 for the following year

1701q - 1st qtr: On or before May 15 of the current taxable year. 2nd qtr: On or before August 15 of the
current taxable year. 3rd qtr: On or before November 15 of the current taxable year

Each employer subject their employees to withholding tax whether the employer is the second, third or
whatever.

Determine the total monetary and non-monetary compensation paid to the employees

whether it is taxable or non-taxable you will have to include it segregate the taxable from non-taxable
compensation income.

Therefore, one amount deduct the non-taxable compensation income

non-taxable compensation income

1. contribution to sss, medicare and pagibig (by employees)

2. Exempt amount of de minimis benefits (benefits that are relatively small amount given to an
employee).

3. 13th month pay and other benefits up to 90K

Paul Nicko
other benefits refered to 90K are excess of the de minimis benefits to the tax exemption. the law allows
de minimis amount be offset segregate the taxable compensation income into regular and
supplemental. basic salary is regular, overtime pay supplemental

Regular - these are regularly received at the payroll period.

fix amount allowance will constitute as regular compensation income.

use the appropriate table (withholding tax table) in the sense that the table there is a daily, weekly, semi
monthly and semi monthly computation.

fix the compensation level using only the amount of the regular compensation income which you have
determine.

in choosing the compensation level, should be the column where the amount of regular compensation
income is equal or over the amount of compensation level.

salaried employees - calendar year

requirement of the law should observed the year end adjustment of compensation. At the end of the
year you have to check that the withholding taxes made should equal to the suppose income tax that
the employee would pay. Tax due should be equal to tax withheld.

compare the total amount withheld and the suppose income tax due.

this is the year-end adjustment

under this :

a. if the withholding tax is more than the income tax supposed to be due, the excess of the former over
the latter shall be refunded to the employee by the employer.

b. if the tax due is more than the withholding tax, the excess of the former over the latter shall be
collected by the employer from the employees' last pay.

self employed individuals, engaged in practice profession, or engage in business

compliance with the legal requirements

1. Registration of the business.

-DTI, SSS, Pag-ibig, PhilHealth, DOLE, Local government and BIR.

Dti - certificate (5 years validity)

Lgu - yearly renewal

SSS, Dole, BIR - one time registration only

there are several registration to be complied with in BIR

a. Business - BIR form 1901 (application for registration) self employed individuals, with profession and
engage in business. Should be accomplish before commencement of the activity.

2 types of registration in BIR ( self employed indiv with profession and engaged in business)

kinds of registration depends on the kind of activity being rendered and amount of threshold for the
estimate of annual gross sales or annual sales receipts.

1. Vat registration

2. Non-Vat registration

registration of the complete sets of accounting record (registration of the book of accounts ) - no
particular bir form to be used. It is filed manually.

Regroup

1. self employed individuals and individuals engaged in practice of profession.

a. subject to the regular 0-35% income tax.

b. subject to either other percentage tax or VAT.

c. for non VAT registered individuals, who are exclusively self employed or engage in the practice of
profession. They are entitled to pay the 8% tax on gross sales or receipts in excess of 250,000 in lieu
income tax of letter A above and other percentage tax in letter B.

2. Individuals engaged in business

a.

b.VAt or other percentage tax

4. Percentage tax and vat returns to be filed.

a. Other percentage tax returns

- 2551Q (quarterly percentage tax returns) this is to be filed on or before the 25th day of the month
following the close of each quarter.

b. VAT returns

- up to december 31, 2022

- 2550M to be filed on or before the 20th day of the following month.

-2550Q (quarterly) to be filed on or before the 25th day of the following quarter

-starting 2023
- no more monthly vat returns for the first two months of every quarter.

Total compensation income received during the year : (taxable or non-taxable) Total gross na tinanggap
mo is the amount of the compensation income.

2 classification of compensation income

Regular Compensation income - binabayad regularly per payroll, basic salary, transportation, housing,
cost of living allowance, fixed allowances.

supplementary compensation income - these are the items of the compensation income which are paid
with or without the payroll period, commission, overtime pay, sick leave and vacation leave pays, profit
sharing, 13th month pay, bonus and other benefits. Although these 3 have limited amount exceptions,
but it is still included in the compensation income without indicating the portion excempted. Retirement
pay, de minimis pay, relatively small values given to employees on top of their compensation that are
not subject to withholding tax.

Deduction of portions of what you have declared in the compensation income : Less non-taxable
compensation income.

SSS

Medicare

Pag-ibig contributions - Share of employees.

De minimis benefits up to respective limited amounts of exception. can be offset in the 90,000.

13th month pay, bonus - limited to 90,000 pesos(non taxable)

10 days can only be monetized in VL.

Medical allowance for employees independence, not to exceed by 250 per month, 3,000 annually, 1,500
semiannually.

Compensation income

Everything including taxable or non-taxable basta tinanggap mo

Fix allowances

Example commission

Profit sharing
-13th month pay

-Bonus

-And other benefits

-Taxable Retirement pay

- Deminimis benefits

Deduction of portions that you have declared on compensation income that exempted on taxable
income and also withholding tax

Nontaxable income

Sss

Medicare

PAG ibig contribution

De minimis benefits

13th month pay not limited to 90k will be exempted to tax

Bonus not limited to 90k will be exempted to tax

Other benefits not limited to 90k will be exempted to tax

The excess of 90k will not be exempted to tax

The remaining balance of 90k after 13monthpay and other benefits deducted. The remaining amount
can be offset to the remaining excess to the de minimis benefits

Deminimis benefits exemption

rice subsidy - 2,000 per month,

uniform allowance - 6,000 a year.

Medical benefits - 10,000 per year.

Laundry allowance - 300 per month

Employees achievement award in a form of intangible property with a monetary value not exceeding
10,000 a year.
Christmas and major anniversary celebration - 5,000 a year

Daily meal allowance for overtime - 25% of basic minimum wage.

Benefits received by an employment of a bargaining agreement - 2,000 per employee per taxable year.

Tax payers that have qualified dependence

A single person may be called a qualified dependence if he is a head of the family.

A widow(woman) and widower (man) - a person whose partner died.

Because if this tax payers gain a qualified dependence, they are considered head of the family.

Married - a person legally contracted marriage.

Any of the following may be qualified dependence

A parent or both parents - there is no source of income.

A brother or a sister - not more than 20 years of age or more than 20 years of age but physically or
mentally incapacitated. No source of income. All of the requisites must come together.

Legitimate, illegitimate, recognize or natural, or legally adopted child - unmarried, not gainfully
employed, not more than 20 year of age, or more than 20 years of age but physically or mentally
incapacitated. All of which must be come together. One absence of qualificiation may cause the
disqualification of qualified dependence

Taxable compensation income

Example of passive income

Bank deposits with interest

As employee bukod sa sweldo and fringe benefits tumatanggap din Sila other income:

Passive income - interest in banks ( time deposit or savings deposit) shall be subject to final 20%
withholding tax.

Dividends

Your dividend income will be Deducted by final withholding tax of 10%

Computation of fringe benefit tax

Legal Requirments for self-employed and professionals/Individuals engage on bisnis (business)

Before you read on and start filing your taxes, it is important that you check your BIR Form 2303 –
Certificate of Registration, to check if the tax types I will enumerate below are shown in under the “tax
type” of your BIR Form 2303. The taxes shown in your BIR Form 2303 “tax type” are the required taxes
to be filled for your specific company. Below is a sample BIR Form 2303- Tax Type:

Now that we know the terms and definition, and have discussed the importance of checking your own
BIR Form 2303 – Tax Types, let us now discuss the type of taxes applicable to sole proprietors,
freelancers, self-employed, independent contractor and professional.

Here are the taxes that may apply, in general:

Income Tax

Business or Sales Tax

Withholding Tax

1. Income Tax

This type of tax is applicable to net taxable income or gross sales/receipts. There are two ways to
compute income tax for sole proprietors, freelancers, self-employed, independent contractor and
professional:
1st – Using Graduated Income Tax Rates

The computation of net taxable income for this type is as follows:

2nd – Using 8% Income Tax Rate

The computation of net taxable income for this type is as follows:

Important Note:

This type of special rate (8% income tax) is only applicable and allowed to individual with Yearly Gross
Sales/ Receipts below P3,000,000.00

To avail of this special income tax rate of 8%, you need to your intention or update your registration
with the BIR.
Once approved, the business or sales tax of Percentage Tax will be removed.

BIR FORM:

Quarterly: BIR Form 1701Q

Yearly: BIR Form 1701A

REQUIRED ATTACHMENT, in general and if applicable:

Copies of Tax Credit Certificates such as BIR Form 2307

Esubmission of SAWT – Summary Alphalist of Withholding Taxes

DEADLINE FOR FILING AND PAYMENT:

In general following calendar year:

Quarterly:

May 15 for the first quarter of the current year

August 15 for the second quarter of the current year

November 15 for the third quarter of the current year

Yearly: April 15 of the following year

2. Business or Sales Tax

This type of tax is applicable to sales or receipts. There are two types of sales or business tax, in general,
applicable to sole proprietors, freelancers, self-employed, independent contractor and professional:

Percentage Tax, also known as NONVAT.

Value-Added Tax, also known as VAT.

Important Note:

This business or sales tax will apply to individuals who are not qualified to avail 8% Income Tax and/or
pays regular Graduated Income Tax.

a. NONVAT or Percentage Tax

It is a type of tax applicable to individual with yearly gross sales or receipts of less than P3,000,000.00
and pays regular Graduated Income Tax from 0 to 35%.
BIR FORM:

Quarterly: BIR Form 2551Q

DEADLINE FOR FILING AND PAYMENT: In general following calendar year:

Quarterly:

April 25 of the current year – for the first quarter

July 25 of the current year -for the second quarter

October 25 of the current year for the third quarter

January 25 of the following year for the fourth quarter

b. VAT or Value-Added Tax

It is a type of tax applicable to individual with yearly gross sales or receipts of more than P3,000,000 or
chooses to be VAT registered regardless of amount of sales.

There are two taxes to be considered:

Output VAT – is computed as follows: Sales x 12%. It is a VAT imposed on sales.

Input VAT – is computed as follows: Purchases x 12%. It is a VAT imposed on purchases or expenses.

Computation:

BIR FORM:

Monthly: BIR Form 2550M

Quarterly: BIR Form 2550Q

REQUIRED ATTACHMENT, in general and if applicable:

Quarterly: Esubmssion of Summary List of Sales and Purchases (VAT RELIEF)

DEADLINE FOR FILING AND PAYMENT: In general following calendar year:

Monthly: 20th day of the following month

Quarterly:

April 25 of the current year – for the first quarter ending March 31

July 25 of the current year -for the second quarter ending June 30

October 25 of the current year for the third quarter ending September 30

January 25 of the following year for the fourth quarter ending December 31

3. Withholding Tax
It is a type of tax deducted on certain payments and remitted to BIR. The taxpayer acts as withholding
agent of the BIR by declaring income of our vendors/suppliers and collecting advance tax in behalf of
BIR.

TYPES OF WITHHOLDING TAX, if applicable:

Withholding Tax on Compensation – it is a tax withhold or we deduct from payments of salary to our
employees, if applicable.

Withholding Tax on Certain Payments to Vendors (Expanded) – it is a tax withhold or we deduct from
payments to our vendors or suppliers, if applicable, such as rental, commission, professional fee,
contractors, etc

COMPUTATION:

WITHHOLDING TAX ON COMPENSATION

WITHHOLDING TAX ON CERTAIN PAYMENTS (EXPANDED), example: RENTAL

BIR FORM:

WITHHOLDING TAX – COMPENSATION

Monthly: BIR Form 1601C

Yearly: BIR Form 1604-C

WITHHOLDING TAX – EXPANDED

Monthly: BIR Form 0619E

Quarterly: BIR Form 1601EQ

Yearly: BIR Form 1604-E

REQUIRED ATTACHMENT, in general and if applicable:

WITHHOLDING TAX – COMPENSATION

Yearly:

Esubmission of Alphalist of Employees

Distribution of BIR Form 2316 to employees

Substituted Filing of BIR Form 2316 to BIR, if applicable

WITHHOLDING TAX – EXPANDED

Quarterly:

Distribution of BIR Form 2307 to payees/vendors/suppliers

Esubmission of QAP – Quarterly Alphalist of Payees

Yearly:

Esubmission of Alpahlist of Payees

DEADLINE FOR FILING AND PAYMENT: In general following calendar year:

Monthly: Every 10th of the following month

Quarterly:

April 30 of the current year – for the first quarter ending March 31

July 31 of the current year -for the second quarter ending June 30

October 31 of the current year for the third quarter ending September 30

January 31 of the following year for the fourth quarter ending December 31

Annual:

FOR COMPENSATION: BIR FORM 1604C – January 31 of the following year

FOR EXPANDED: BIR FORM 1604E – March 1

List of BIR FORMS
FORM NO. FORM TITLE

0605 Payment Form

1600WP Remittance Return of Percentage Tax on Winnings and Prizes Withheld by Race Track
Operators

1601C Monthly Remittance Return of Income Taxes Withheld on Compensation

1601E Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded)

1601F Monthly Remittance Return of Final Income Taxes Withheld

1602 Monthly Remittance Return of Final Income Taxes Withheld (On Interest Paid on Deposits and
Yield on Deposit Substitutes/Trusts/Etc.)

1604CF Annual Information Return of Income Tax Withheld on Compensation and Final Withholding
Taxes

1604E Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments

Exempt from Withholding Taxes

1606 Withholding Tax Remittance Return (For Transactions Involving Real Property other than Capital

Asset including Taxable and Exempt)

1701-AIF Account Information Form (AIF) for Self-employed Individuals, Estates and Trusts (engaged in
trade and business)

1702-AIF Account Information Form (AIF) For Corporations and Partnerships in General

1900 Application to Use Loose-Leaf / Computerized Books of Accounts and/or Accounting Records

1901 Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts
1902 Application for Registration For Individuals Earning Purely Compensation Income, and Non-
Resident Citizens / Resident Alien Employee

1903 Application for Registration for Corporations/ Partnerships (Taxable/Non-Taxable)

1904 Application for Registration for One-Time Taxpayer and Persons Registering under E.O. 98
(Securing a TIN to be able to transact with any Government Office)

1905 Application for Registration Information Update for Updating / Cancellation of Registration /

Cancellation of TIN / New Copy of TIN card / New copy of Certificate of Registration

1906 Application for Authority to Print Receipts and Invoices

1907 Application for Permit to Use Cash Register machines/Point-of-Sale Machine

2000 Documentary Stamps Tax Declaration/ Return

2000-OT Documentary Stamp Tax Declaration/Return (One Time Transactions)

2110 Application for Abatement or Cancellation of Tax, Penalties and/or Interest Under Rev. Reg. No.

______

2200 A Excise Tax Return for Alcohol Products

2200 AN Excise Tax Return for Automobiles and Non-Essential

2200 M Excise Tax Return for Mineral Products

2200 P Excise Tax Return for Petroleum Products

2200 T Excise Tax Return for Tobacco Products

2304 Certificate of Income Payment Not Subject to Withholding Tax (Excluding Compensation Income)

2305 Certificate of Update of Exemption and of Employer's and Employee's Information

2306 Certificate of Final Income Tax Withheld

2307 Certificate of Creditable Tax Withheld at Source

2316 Certificate of Compensation Payment / Tax Withheld For Compensation Payment With or Without
Tax Withheld