Prof. Nicasio C.

Cabaneiro
Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

1. INCOME TAX
a. De minimis benefits
i. Monetized unused vacation leave credits of private employees not exceeding ten
(10) days during the year;
ii. Monetized value of vacation and sick leave credits paid to government officials and
employees;
iii. Medical cash allowance to dependents of employees, not exceeding Php 1,500 per
employee per semester / Php 250 per month (previously, Php 750 per employee per
semester or Php 125 per month under the NIRC);
iv. Rice subsidy of Php 2,000 per month (previously Php 1,500 under NIRC) or one (1)
sack of 50kg rice per month amounting to not more than Php 2,000 per month
(previously, Php 1,500 under NIRC);
v. Uniform and clothing allowance not exceeding Php 6,000 per year (previously, Php
5,000 per annum under NIRC);
vi. Actual medical assistance, e.g., medical allowance to cover medical and healthcare
needs, annual medical/executive check-up, maternity assistance, and routine
consultation not exceeding Php 10,000 per annum;
vii. Laundry allowance not exceeding Php 300 per month;
viii. Employee’s achievement awards, e.g., for length of service or safety achievement,
which must be in the form of tangible personal property other than cash or gift
certificate, with an annual monetary value not exceeding Php 10,000 received by an
employee under an established written plan which does not discriminate in favour of
highly paid employees (RR No. 1-2015)
b. minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from
the payment of income tax on their taxable income. The holiday pay, overtime pay, night
shift differential pay, and hazard pay received by such minimum wage earners shall
likewise be exempt from income tax. (TRAIN Law)
c. Winnings amounting to Ten thousand pesos (P10,000) or less from Philippine Charity
Sweepstakes and Lotto which shall be exempt (TRAIN Law)
d. Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by the BSP shall be exempt
(TRAIN Law)
e. International carriers may now avail of preferential rates or exemption from income tax on
their gross revenues derived from the carriage of persons and their excess baggage based
on the principle of reciprocity or an applicable tax treaty or international agreement to
which the Philippines is a signatory (RR No. 15-2013)
f. A joint venture or consortium formed for the purpose of undertaking construction projects
not considered as corporation under Sec 22 of the NIRC of 1997 as amended, should be:
i. for the undertaking of a construction project;
ii. should involve joining or pooling of resources by licensed local contracts; that is,
licensed as general contractor by the Philippine Contractors Accreditation Board
(PCAB) of the DTI;
iii. these local contractors are engaged in construction business; and
iv. the Joint Venture itself must likewise be duly licensed as such by the PCAB of the
DTI (RR No. 10-2012)
g. Joint ventures involving foreign contractors may also be treated as a non-taxable
corporation only if the member foreign contractor is covered by a special license as
contractor by the PCAB of the DTI; and the construction project is certified by the

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Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

appropriate Tendering Agency (government office) that the project is a foreign financed /
internationally-funded project and that international bidding is allowed under the Bilateral
Agreement entered into by and between the Philippine Government and the foreign /
international financing institution pursuant to the implementing rules and regulations of
Republic Act No. 4566 otherwise known as Contractor’s License Law (RR No. 10-2012)
h. Income derived by the Government or its political subdivisions from the exercise of any
essential governmental function (Constitution)
i. Proceeds of life insurance policies. The life insurance proceeds must be paid to the heirs
or beneficiaries by reason of death of the insured, whether in a single sum or installment
(Sec. 32(B)(1), NIRC; Sec. 6, RR No. 8-2018)
j. Amounts received under life insurance, endowment or annuity contracts
i. The amount received as a return of premiums paid by him under life insurance,
endowment or annuity contracts (Sec. 32(B)(2), NIRC)
ii. In case of a transfer for a valuable consideration of a life insurance, endowment or
annuity contract or any interest therein, only the actual value of such consideration
and amount of the premiums and other sums subsequently paid by the transferee
are exempt from taxation (Sec. 62, RR No. 02-40)
k. Value of the property acquired by gift, bequest, devise or descent
i. Only donated property is excluded from gross income. However, the income from
such property, as well as gift, bequest, devise or descent, of income, from any
property, in cases of transfers of divided interest, shall be included in the gross
income. (Sec. 32(B)(3), NIRC)
l. Amount received through accident or health insurance
i. This exclusion is applicable to group life insurance proceeds, death benefit payments
under the workmen’s compensation insurance contract, and health or accident
insurance contract having the characteristics of life insurance proceeds payable by
reason of death.
m. Income exempt under tax treaty
i. The Double Taxation Convention (DTCs) or Double Taxation Agreement (DTAs)
negotiated between the Philippines and other contracting states or jurisdictions for
the avoidance of double taxation and prevention of fiscal evasion with respect to
taxes on income
ii. Income to any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines may be excluded from gross income (Sec. 32(B)(5),
NIRC)
iii. The provisions of a tax treaty must take precedence over and above the provisions
of the local taxing statute consonant with the principle of the international comity
n. Retirement benefits, pensions, gratuities, etc. The following are the requirements for
exemption on taxability of retirement benefits:
i. The plan must be reasonable;
ii. The benefits plan must be approved by the BIR;
iii. The retiring official or employee must have been in the service of the same employer
for at least ten (10) years and must at least be fifty (50) years old at the time of the
retirement; and
iv. The retiring official or employe should not have previously availed of the privilege
under the retirement benefit plan of the same or another employer (Sec. 32(B)(6)(a),
NIRC; Sec. 2.78.1 (B)(1), RR No. 8-2018).
o. Winnings, prizes and awards, including those in sports

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Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

i. Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civil achievement but only if:
1) The recipient was selected without any action on his part to enter the contest and
proceeding; and
2) The recipient is not required to render substantial future services as a condition
to receiving the prize or reward. (Sec. 32 (B)(7)(c), NIRC)
ii. All prizes and awards granted to athletes in local and international sports
competitions and tournaments whether held in the Philippines or abroad and
sanctioned by their national sports association (Sec. 32(B)(7)(d), NIRC)
p. Income derived by foreign government
i. Income derived form investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on deposits in banks in the Philippines by:
1) Foreign governments;
2) Financing institutions owned, controlled or enjoying refinancing from foreign
governments; and
3) International or regional financial institutions established by foreign governments
q. 13th Month Pay and Other Benefits - Gross benefits received by officials and employees
of public and private entities: Provided, however, That the total exclusion under this
subparagraph shall not exceed Ninety thousand pesos (P90,000) (TRAIN Law) which shall
cover:
i. Benefits received by employees pursuant to Presidential Decree No. 851, as
amended by Memorandum Order No. 28, dated August 13, 1986;
ii. Benefits received by officials and employees not covered by Presidential Decree No.
851, as amended by Memorandum Order No. 28, dated August 13, 1986;
iii. Other benefits such as productivity incentives and Christmas bonus
r. Gains realized by the investor upon redemption of shares of stock in a mutual fund
company as defined in Section 22(BB), Tax Code.
s. GSIS, SSS, Medicare, Pag-ibig contributions and sues from individuals
t. Gains realized from the sale or exchange or retirement of bond, debentures or other
certificate of indebtedness with a maturity of more than five (5) years.

2. ESTATE AND DONOR’S TAX

a. Total gifts not exceeding P250,000 made during the calendar year shall be exempt from
donor’s tax (TRAIN Law)
b. The following gifts or donations shall be exempt from donor’s or estate tax:
i. Gifts made to or for the use of the National Government or any entity created by any
of its agencies which is not conducted for profit, or to any political subdivision of the
said Government; and
ii. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or
philanthropic organization or research institution or organization: Provided, however,
that not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes (TRAIN Law; Section 17, RR No. 12-2018)

3. VAT
a. Agricultural and marine food products in their original state;
b. Fertilizers, seeds and feeds;
c. Importations of returning residents and resettlers (provided that such goods are exempt
from customs duties);

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Prof. Nicasio C. Cabaneiro
Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

d. Importation of settlers in the Philippines (provided for own use and not for sale, barter or
exchange)
e. Services subject to the percentage tax
f. Services of agricultural contract, growers and millers (but the toll processing services
which are exempt from VAT pertain only to services to clients from which growing of
animals were contracted);
g. Medical, dental, hospital and veterinary services (but sale of drugs or pharmaceutical
items of the hospital pharmacy to in-patients of hospital is considered part of hospital
service which is exempt from VAT);
h. Educational services rendered by private and government educational institutions;
i. Services rendered by individual employees to their employers pursuant to an employer-
employee relationship;
j. Services being rendered by regional or area headquarters of multinational corporations
k. Transactions which are exempt under international agreements or special laws (the
President may NOT grant tax exemptions through an Executive Agreement);
l. VAT-exempt transactions of cooperatives;
m. Export sales which are exempt from VAT;
n. Real property transactions which are exempt from VAT;
o. Sale, importation, printing, or publication of books, newspapers, magazines, reviews or
bulletins;
p. Sale of importation of vessels and aircrafts, including engine, equipment and spare parts
of domestic or international transport operations;
q. Sale of gold to BSP (Sec. 109 (Z), NIRC as amended by TRAIN Law)
r. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension,
beginning January 1, 2019 (TRAIN Law)
s. Association dues, membership dues, and other assessments and charges collected by
homeowners’ associations and condominium corporations (TRAIN Law)
t. Transfer of property on pursuance of a plan of merger or consolidation (TRAIN Law)
u. TRAIN Law increased the VAT-exempt threshold from P1,919,500 to P3 million which is
to be adjusted to inflation not later than January 31, 2021 and every 3 years thereafter
v. TRAIN Law increased the VAT-exempt threshold on lease of residential unit with a
monthly rental of P12,800 to P15,000
w. VAT-exempt threshold is reduced from P3,119,200 to P2,000,000 on sale of house and
lot and other residential dwellings beginning January 1, 2021 (TRAIN Law)
x. Cooperatives, and beginning January 1,2019, self-employed and professionals with total
annual gross sales and/or gross receipts not exceeding Five hundred thousand pesos
(P500,000) shall be exempt from the three percent (3%) gross receipts tax provided under
Sec. 116 of the NIRC as amended by the TRAIN Law
y. With respect to the VAT paid on petroleum or petroleum products by the importer on
account of 0% VAT transactions/entities and the Excise taxes paid on account of sales to
international carriers of Philippine or Foreign Registry for use or consumption outside the
Philippines or exempt entities or agencies covered by tax treaties, conventions and
international agreements for their use or consumption (covered by Certification in such
entity’s favor), as well as entities which are by law exempt from indirect taxes, the importer
may file a claim for credit or refund with the BOC, which shall process the claim for refund,
subject to the favorable endorsement of the BIR, in accordance with existing rules and
procedures (Sec. 3, RR No. 2-2012)
z. Exemption of international carriers from Value-Added Tax (VAT) and Common Carrier’s
Tax (Percentage Tax on International Carriers) on their carriage of passengers. It limits

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Prof. Nicasio C. Cabaneiro
Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

the imposition of Common Carrier’s Tax (Percentage Tax on International Carriers) to the
carriage of cargoes (RR No. 15-2013)
aa. The following withdrawals shall be exempt from the payment of the advance VAT:
i. Withdrawal of Raw Cane Sugar, including Muscovado (RR No. 8-2015)
ii. Withdrawal by Duly Accredited and Registered Agricultural Cooperative of Good
Standing
iii. Withdrawal of Sugar by Duly Accredited and Registered Agricultural Cooperative
which is sold to another Agricultural Cooperative (RR No. 6-2015)
bb. Sale of any goods and services under Sec. 3 of RR No. 5-2017 to PWD shall be exempt
from VAT (Sec. 7, RR No. 5-2017)
cc. Effective taxable year 2016, a Benefactor of a qualified PWD may claim the additional
exemption of P25,000 for each PWD, if such PWD, regardless of age, satisfies the
following:
i. Filipino citizen;
ii. Within the 4th civil degree of consanguinity or affinity to the taxpayer/benefactor;
iii. Not gainfully employed; and
iv. Chiefly dependent upon and living with the taxpayer/benefactor (Sec. 8, RR No. 5-
2017)

4. EXCISE TAX
a. Tax exemptions of fermented liquors using non-fruits as basic raw materials (such as tuba,
basi, and tapuy) (NIRC; RMC No. 41-2011)
b. The production of petroleum products, whether or not they are classified as products of
distillation and for use solely for the production of gasoline shall be exempt from excise
tax (TRAIN Law)
c. Automobiles used exclusively within the freeport zone shall be exempt from excise tax
(TRAIN Law)
d. In order for a vehicle to be classified as a Special Purpose Vehicle, and therefore exempt
from excise tax, the same must, in its original state, be ready for exclusive use for the
specific purpose for which it is being categorized as a Special Purpose Vehicle, without
necessity of any conversion, modification, renovation, adjustment or alteration to render it
available for such use (RMO No. 37-2011)
e. Purely electric vehicles shall be exempt from the excise tax on automobile (Sec. 3, RR
No. 24-2018)
f. The excise tax on non-essential services shall not apply to procedures necessary to
ameliorate a deformity arising from or directly related to congenital or developmental
defect or abnormality, a personal injury resulting from an accident or trauma, or disfiguring
disease, tumor, virus or infection. Cases and treatments covered by the NHI Program shall
not also be subject to this excise tax. Likewise, Non-Invasive Cosmetic Procedures are
excluded from the coverage (RR No. 2-2019)
g. Sweetened beverages using purely coconut sap sugar and purely steviol glycosides shall
be exempt from excise tax (TRAIN Law)
h. The following products are excluded from the excise tax on sweetened beverages:
i. All milk products, including plain milk, infant formula milk, follow-on milk, growing up
milk, powdered milk, ready-to-drink milk and flavored milk, fermented milk;
ii. Soymilk and flavored soymilk;
iii. One Hundred Percent (100%) Natural Fruit Juices;
iv. One Hundred Percent (100%) Natural Vegetable Juices;
v. Meal Replacement and Medically Indicated Beverages; and

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Prof. Nicasio C. Cabaneiro
Taxation

________________________EXCLUSIONS AND EXEMPTIONS________________________

vi. Ground coffee, instant soluble coffee, and pre-packaged powdered coffee products
(TRAIN Law; Sec. 6, RR No. 20-2018)

5. DOCUMENTARY STAMP TAX

a. The remittances of all OFWs, upon showing of the OEC, valid OWWA Membership
Certificate, or e-receipt issued by POEA, by the OFW beneficiary or recipient, shall be
exempt from the payment of DST (RR No. 11-2012)
b. Life insurance policies where the amount of insurance does not exceed P100,000 shall be
exempt from documentary stamp tax (TRAIN Law)
c. The freight tickets covering goods, merchandise or effects carried as accompanied
baggage of passengers on land and water carriers primarily engaged in the transportation
of passengers are exempt from DST (TRAIN Law)
d. Transfers exempt from donor’s tax under Section 101(a) and (b) of the Tax Code as
amended by the TRAIN Law shall be exempt from the stamp tax imposed on transfers of
real property (TRAIN Law)

6. OTHER REVENUE ISSUANCES ON EXCLUSIONS AND EXEMPTIONS

a. Tax Incentives Available Tourism Enterprises
i. Fiscal Incentives of Tourism Enterprises within Tourism Enterprise Zone (TEZ)
1) Exemption form Taxes on Importation of Capital Investment and Equipment
2) Exemption from Taxes on the Importation of Transportation Equipment and
Spare Parts
3) Registered Tourism Enterprise-exemption from VAT and excise taxes on the
importation of goods necessary to carry out its TIEZA-registered activities and
are actually consumed in the course of services related to its registered activity
actually rendered by the RTE within the TEZ (Sec. 3, RR No. 7-2016)
ii. Fiscal Incentive of Tourism Enterprise outside TEZs
1) Exemption form Taxes on Importation of Capital Investment and Equipment
(Sec. 4, RR No. 7-2016)
b. Exemption from withholding tax on compensation
i. Thirteenth month pay and other benefits
ii. GSIS, SSS, Medicare and other contributions
iii. Compensation income of Minimum Wage Earners (MWEs) who work in the private
sector and being paid the Statutory Minimum Wage (SMW), as fixed by the
RTWPB/NWPC, applicable to the olace where he/she is assigned, as well as the
compensation of employees in the public sector who are paid not more than the
SMW applicable to non-agricultural sector, as fixed by RTWPB/NWPC, applicable
to the place where he/she is assigned.
iv. Compensation during the year not exceeding Two hundred Fifty Thousand Pesos
(P250,000) (Sec. 6, RR No. 11-2018)

Good Luck to All 2021 Bar Examinees!

We Are Praying for Your Success.
God Bless You!
From: ABRC Family

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