INCOME TAXATION

REVIEWER ON PRINCIPLES, INDIVIDUALS, CORPORATIONS,

GROSS INCOME, DEDUCTION
 STARTED: DECEMBER26, 2019 |

INCOME TAXATION [Publish Date]

Contents
Fundamental Principles of Taxation..............................................................2
Situs of TAXATION......................................................................................5
Individual Taxpayers......................................................................................8
SOURCE OF INCOME...................................................................................9
Types of Income Taxes................................................................................9
Table 2.1 – GRADUATED TAX RATE  BASIC INCOME TAX....................9
Table 2.2 – FINAL WITHHOLDING TAX  FWT PASSIVE INCOME........10
Table 2.3 – CAPITAL GAINS TAX  CGT................................................11
SELF-EMPLOYED and/or PROFESSIONALS (SEP)........................................12
Minimum Wage Earners...........................................................................12
BTX of MARRIED INDIVIDUALS..................................................................13
Income Tax of Senior Citizen.....................................................................13
Fringe Benefits and De Minimis (FBT).......................................................13

2
Anna Mae S. Leron
INCOME TAXATION [Publish Date]

Fundamental Principles of Taxation Proctect local industries against unfair

competition.

Inherent Power – natural/basic part of every sovereign state.

– Not granted by the people/Constitution.
3 Inherent Powers ( P. E. T.)
1. Police Power – promoting public welfare by restraining
& regulating the use of liberty and property.
**property taken are destroyed because it is noxious (harmful to living things).
2. Eminent Domain – power to take private property for
public purposes with just compensation.
**process of expropriation.
3. Power of Taxation – act of levying tax. The power of
state to raise revenue to defray the necessary expenses.
**involutary(compulsary)

Similarities ( I. P. I. L. E)
a. Inherent
b. State interfere with private rights and property
c. Exist independently of the consitution
d. Legislative in nature and character
e. Equivalent compensation received, directly or
indirectly.
Purposes of Taxation
Primary Purpose – Revenue/Fiscal Purpose
 To raise revenues/funds to defray necessary expenses.
Secondary Purpose
 Regulatory Purpose – devise for regulation and control.
 Compensatory Purpose (REP)
Reduction of Social Inequality
Economic Growth

2
Anna Mae S. Leron
INCOME TAXATION [Publish Date]

Nature and Characteristics of TAXATION (I.L.L.T.I.P.P.S.E) 4. Proportionate in character

5. Legislative authority
1. Inherent Power 6. Levied on person, property, or exercise of right/privilege
2. Legislative Function – cannot be exercise by the
executive or judicial branches of gov’t Theory of Taxation
3. Subject to Inherent and Constitutional Limitations
4. Territorial in scope a. Necessity Theory – gov’t can’t continue to serve without
5. Subject to International treaty or comity means to pay its expenses.
6. For Public Purpose b. Lifeblood Doctrine – without taxes gov’t can’t exist or
7. Generally payable in money endure. It is an imperious NEED.
8. Strongest inherent power Manefestation of Lifeblood Theory
9. Exemption of gov’t entities, agencies and
instrumentalities – governmental functions.  No Estoppel against the gov’t
 Collection of Taxes can’t be enjoined (stopped) by
SCOPE OF POWER OF TAXATION injuction – collected without unnecessary delay. ( bayad
- Most absolute power; broadest scope. muna, refund kapag may mali.)
- In the absence of inherent and constitutional  Not subject to compesation or set-off. – not a
limitations, power to tax is COMPREHENSIVE, debt/contract. Gov’t and taxpayer are not mutual debtor
PLENARY, SUPREME, and UNLIMITED. and creditor of each other.
1. Subject/object to be taxed **EXN: where both claims are DUE, DEMANDABLE, & FULLY
LIQUIDATED.
2. Purpose (as long as for public purpose)
 May result to destruction of taxpayer’s property
3. Amount/rate of the tax  Valid tax = power to destroy
4. Kind of tax  Invalid tax = not destructive
5. Apportionment of tax (general/limited to a locality)  Right to select objects/subjects of taxation
6. Situs of taxation
7. Manner or method of collection Basis of Taxation

**Power to tax includes power to destroy.
TAX – enforced proportional contributions from persons &
property levied by the state for the support of gov’t and its
public needs.
Benefits-Protection Theory – reciprocal duties of “protection
and support”
 The state collects taxes to function.
 The citizens pay taxes to enjoy the benefits.

Essential Characteristics of TAX (E.P.P.P.L.L.) Doctrine of Symbiotic Relationship – Taxes are what we pay
for a civilized society.
1. Enforced contribution
2. Pecuniary burden payable in money Aspects/Stages of TAXATION
3. For Public purpose a. Levying/Imposition – passage of tax laws

2
Anna Mae S. Leron
INCOME TAXATION [Publish Date]

b. Assessment and Collection – act of administration & b. Property – real/personal property

implementation of tax laws; determination of correct c. Excise – exercise of certain rights
amount 3. As to WHO BEARS THE BURDEN
c. Payment of Tax – Bureau of Internal Revenue (BIR) a. Direct – cannot be shifted; taxpayer is directly liable
b. Indirect – can be transferred/shifted; tax paid by a
person indirectly liable
4. As to DETERMINATION OF AMOUNT
1. Levying a. Specific – fixed amount (by head/number;
(Legilative Function)
measured)
b. Ad valorem – fixed proportion
5. As to PURPOSE
a. Primary/Fiscal/General/Revenue Purpose
b. Secondary/Regulatory/Special/Sumptuary
3. Payment of Purpose
Taxes -
2. 6. As to GRADUATION or RATE
Collection Assessment a. Proportional – fixed percentage; unitary/single rate
(Executive Function)
(Executive Function)
b. Progressive/Graduated – tax rate increases as tax
base increases
Principles/Elements of Sount Tax System c. Regressive – tax rate increases as tax base
decreases.
1. Fiscal Adequacy – revenue must be sufficient to meet 7. As to TAXING AUTHORITY/JURISDICTION/SCOPE
gov’t expenses and other public needs a. National
2. Administrative Feasibility – must be capable of b. Local
convenient, just and effective administration – free from
confusion & uncertainty LIMITATIONS ON THE STATE’S POWER TO TAX
3. Theoretical Justice – Tax burden should be
Inherent Limitations
proportionate to taxpayer’s ability to pay.
1. For public purpose (governmental purpose)
Classification of TAXES
Proceeds must be used for:
1. As to SCOPE:  Support for gov’t
a. National – VAT, OPT, Income tax, Documentary  Recognized object of gov’t
stamp tax, Excise Tax, Estate and Donor’s Tax  To promote the welfare of the community
( V.O.I.D.E.E.D) 2. Territorial limitation
b. Local - Cannot operate beyond state’s jurisdiction
2. As to SUBJECT MATTER 3. International comity/treaty
a. Personal/Poll/Capitation – w/in a specified - state cannot tax another state.
territory 4. Non-delegability of Taxing power

2
Anna Mae S. Leron
INCOME TAXATION
EXN: to non-delegation rule.  (no. 2)
a. Delegation to the President
 Tariff rates
 Import and export quotas
 Tonnage and wharfage dues
 Other duties or imposts w/in the
framework of national dev’t program of
the gov’t
b. Delegation to local government units
- Delegated
- legislative in nature of local ordinances by
the local legislative branch
- Congress cannot abolish LGUs power to tax
c. Delegation to administrative agencies
- Power to value property
- Power to assess and collect taxes
- Power to perform details
computation/appraisement/adjustment
d. Subject to inherent and Constitutional
Limitations
5. Exemption of gov’t entities, agencies and
instrumentalities
a. Governmental functions  Tax exempt
b. Proprietary functions  subject to tax
c. GOCCS proprietary functions  Tax exempt
 GSIS
 SSS
 PHIC
 PCSO
 Local water districts
Constitutional Limitations
1. Due process of law – right to notice & hearing
2. Equal protection of laws – prohibits class legislation
w/c discriminates against someone in favor of
another.
Anna Mae S. Leron
[Publish Date]
 Substantial distinction
 Be germane to the purpose of the law
 Not be limited to existing conditions only
 Apply equally to all members of the same class
3. Rule of Uniformity and Equity in Taxation –
4. Progressive scheme of taxation – emphasis on direct
tax
**Regressive System of Taxation – more indirect taxes than direct taxes.
5. Non-imprisonment for non-payment of POLL TAX –
only punishable by surcharge.
6. Non-impairment of obligations and contracts
7. Free-worship clause
8. REAL PROPERTY Tax exemption for institutions
directly and exclusively used for religious, charitable
and educational purposes. – not ownership but refers
to exclusively as in primarily or solely used for the
said purpose.
of 9. Tax exemption of non-stock, non-profit educational
institutions – revenues and assets actually, directly,
and exclusively exempt from taxes/duties; subject to
internal revenue tax on income from trade, business
or other activity. (income, property, donor’s tax and
custom duties)
**Proprietary educational institutions (non-profit) –
entitled to exemptions subj to limitations.
10. Non-appropriation of public funds or property for
the benefit of any church, sect, or system of religion
11.No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.
12.Concurrence of a majority of ALL MEMBERS OF
CONGRESS for the passage of a law granting tax
exemption
13.Non-diversification of tax collections
14.The president shall have the power to veto any
particular item(s) in an appropriation, revenue, or
tariff, but the veto shall not affect the item(s) to wc no
objection has been made
2
 INCOME TAXATION [Publish Date]

15.Non-impairment of the jurisdiction of the Supreme Transaction  where it took place

Court to review tax cases Business Place of Business
16.Appropriations, revenue or tariff bills shall originate Residence/citizenship of taxpayer; or
exclusively in the House of Representatives but the Gratuitous Transfer
location of property
Senate may propose or concur with amendments.
17.Each LGU shall exercise the power to create its own
sources of revenue and shall have a just share in the DOUBLE TAXATION – direct duplicate taxation
national taxes. Taxing twice by:
Situs of TAXATION  Same taxing authority or district; jurisdiction
- Place of taxation – place wc has jurisdiction to impose  Same purpose
particular tax.  Same year or taxing period
 Same subject/object
Factors to consider in determining situs
 Same kind/character of the tax
a. Subject matter (person, property, or activity)
TAX distinguished from OTHER TERMS
b. Nature of tax
c. Citizenship Toll – sum of money for the use of something.
d. Residence of the taxpayer Penalty – sanction imposed as punishment for violation
e. Source of income of law.
f. Place of excise, business, or occupation being taxed Special Assessments – enforced proportional
contribution from owners of lands for special benefits
Application of Situs of Taxation
resulting from public improvements. (prop with special
Person Residence of Taxpa
benefits)
Real Property Location Revenue – all funds/income derived by gov’t from tax or
Personal Property Location; place of sale/transaction other source
Domicile of the owner Subsidy – pecuniary aid directly granted the gov’t to an
individual/private commercial enterprise deemed
EXN: when it has situs elsewhere
beneficial to the public
Intangible Personal
Franchise  place where exercised Permit/License Fee – charge imposed under police
Property
Receivables  domicile/residence of debtor power for purposes of regulation
Bank Deposits  Location of depository Debt – liability based on contract, assignable
bank
Custom Duties – taxes imposed on goods exported
from/imported into a country
Income Source of income; residence;
Tariff – may be used in one of three senses
citizenship
a. A book of rates drawn usually in alphabetical
order containing the names of several kinds of
Occupation  where engaged in

2
Anna Mae S. Leron
 INCOME TAXATION [Publish Date]

merchandised with corresponding duties to be Grounds for granting tax exemption

paid for the same
b. Duties payable on goods imported/exported  May be based on a contract.
c. System or principle of imposing duties on the  May be based on some ground of public policy.
importation of goods.  May be based on the ground of reciprocity.
** tariff and custom duties are used interchangeably in the Tariff and Nature of power to grant tax exemption
Customs Code a. National gov’t
b. Local gov’t
Escape from TAXATION
Kinds of EXEMPTIONS
a. Shifting – transfer of tax burden (not payment) to
As to Basis
another.
 Constitutional – originates from constitution
Ex. VAT, Percentage, Excise, Ad-valorem (oil co.)
 Statutory – emanates from legislation
**only indirect taxes may be shifted
As to Form
Impact – point wc a tax is originally imposed  Express – expressly granted by statute
Incidence – “ “ tax burden finally rests/settles down  Implied – deemed exempt as they fall outside the
scope. Not mentioned.
b. Transformation – manufacturer absorbs the additional As to Extent
taxes w/o passing it to the buyers for fear of lost of his  Total – absolute immunity
market.  Partial – collection of a part of the tax is
**increases quantity production, for lower cost
dispensed with
transforming the tax into gain through the medium of
production. Sources of TAX LAWS
c. Evasion (aka Tax dodging)– unlawful/illegal/fraudulent 1. Constitution
means to lessen tax payment. 2. Tax Treaties and Conventions with Foreign Countries
d. Tax Avoidance (aka tax minimization) – legally 3. Tax Code – National Internal Revenue Code, Tariff and
permissible means of reduction or tally escaping tax Customs Code, portion of Local Gov’t Code (Book II)
payment. 4. Statutes and laws – TRAIN Law, Court of Tax Appeals, E-
** must be in good faith and at arm’s length. VAT Law, tax Reform act of 1997
5. Presidential Decrees
e. Capitalization – reduction in selling price provided that 6. Executive Orders
buyer will shoulder the taxes. 7. Court Decisions
f. Exemption – grant of immunity/privilege/freedom from 8. Revenue regulations (DOF)
payment. With clear provision; reasonable foundation/ 9. Administrative issuance of the BIR
rational basis. 10.BIR Rulings
** not favored and are construed against the taxpayer. 11.Local Tax Ordinances

2
Anna Mae S. Leron
 INCOME TAXATION [Publish Date]

12.Special Laws
TAX LAWS
- Not political in nature
- Civil not penal in nature
- Purpose: Impose penalties for delinquencies to compel
timely payment of taxes or punish evasion or neglect of
duty.
- IN CASE OF DOUBT: Tax statutes are construed strictly
against the gov’t and liberally in favor of the taxpayer.
Tax exemptions are construed strictly
against the taxpayer and liberally in favor of gov’t.
- APPLICATION: prospective in operation, but may operate
retroactively if expressly declared or is clearly the legislative
intent.
System of INCOME TAXATION
a. Global System – all items are reported in one income
tax return and the applicable tax rate is applied on the
tax base.
b. Schedular System – diff types of income are subj to diff
sets of graduated/flat income tax rates.
OTHER DOCTRINES/RULES in Taxation
Equitable Recoupment – claim for refund may be allowed to
be used as payment for unsettled tax liabilities – if both taxes
arise from same transaction in which overpayment is made
and underpayment is due
Set-off taxes – not subject to legal compensation
Taxpayer’s suit – allowed only if the act involves a direct and
illegal disbursement of public funds derived from taxation
Taxpayers have locus standi to question the validity of
tax measures/ illegal expenditures of public money.

2
Anna Mae S. Leron
 INCOME TAXATION [Publish Date]

Individual Taxpayers permanent basis or for work and derives income from
abroad that requires him to be physically abroad most of
the time during taxable year
Individual Taxpayers – Natural persons with income derived  Stays outside the Philippines for 183 days or more.
from within territorial jurisdiction of a taxing authority.  NRC who arrives in the PH at any time during the
taxable year to reside permanently shall be considered
Classifications:
NRC until the date of his arrival in the PH.
1. Resident Citizen (RC)  OFW/OCW (Overseas Contract Workers) – must be
2. Nonresident Citizen (NRC) registered in Philippine Overseas Employment
3. Resident Alien (RA) Administration (POEA) with valid Overseas Employment
4. Nonresident Alien (NRA) Certificate.
a. Engaged in trade/business (NRA-ETB) **includes seafarers and seamen
b. Not engaged in trade/business (NRA-NETB) **income earned by OCW/OFW are exempted from
income tax but not the earnings from business venture
Importance of Classification in PH.

 Situs of income Aliens – foreign-born person not qualified to acquire PH

 Manner of computing tax
 Treatment of certain passive incomes
 Allowable deductions
 References in the tax code
Citizens
 Born by birth with father/mother as Filipino citizens
 Born before January 17,1973 of Filipino mother who
elects Philippines citizenship upon reaching age of
majority
 Acquired citizenship after birth (NATURALIZED)
Nonresident Citizen
 Physical presence abroad with a definite intention to
reside therein.
 Leaves the PH during taxable year to reside abroad –
either as an immigrant or for employment on a
Anna Mae S. Leron
citizenship by birth or after birth.
Resident Aliens – residence is w/in PH but not a citizen
 Present in the PH who is not a mere transient/sojourner
**Transient – a person who comes for a definite purpose
**Sojourn - temporary stay by a person who is not just passing
through a place but is also a permanent resident.
 Aliens who comes with no definite intention as to his
stay
 Alien who comes for the purpose that requires extended
stay making his home temporarily in the PH.
**regardless of his intention to return to his residence abroad
An alien who has acquired residence in PH retains his status
as a resident until he abandons the same and actually depart
from PH.
2
 INCOME TAXATION [Publish Date]

Nonresident Alien – not a resident and citizen; - Kind of tax prescribed on a “certain income”
- Not credible against income tax
 with definite purpose which in its nature may be
- Passive Income derived abroad are subject to Basic Tax.
promptly accomplished
- Interest Income
 transients/nonresidents
- Dividend Income
 NRA-Engaged in Trade/Business - Royalties
 Actually, engaged in Trade/Business - Prizes
 Stays in PH for an aggregate period of more than 180 - Other Winnings
days (>180) 3. Capital gains Tax (CGT)
 NRA-Not Engaged in Trade/Business - On Sale of Shares of Stock of domestic Corporations
 Not deriving business income - On Sale of Real Properties located in PH
 Stays in PH for 180 days or less
**Total Income Tax Expense – total amount of taxes above
NRA-NETB – subject to 25% income tax based on gross income
from all sources within PH.
**Ordinary income, passive income except for income Table 2.1 – GRADUATED TAX RATE  BASIC INCOME TAX
subject to CGT Amount of Net Taxable
Rate
Income
SOURCE OF INCOME Over But Not Over
Taxpayer Tax Base Source - P250,000 EXEMPT
RC Net Income Within & Without P250,000 P400,000 20% of the excess over P250,000
NRC, RA, NRA-ETB Net Income Within only P30,000 + 25% of the excess over
P400,000 P800,000
NRA-NETB Gross Income Within only P400,000
P130,000 + 30% of the excess over
P800,000 P2,000,000
P800,000
Types of Income Taxes P490,000 + 32% of the excess over
P2,000,000 P8,000,000
1. Basic Income Tax (Regular/Ordinary Income) (BTX) – Graduated Rate P2,000,000
- Ordinary Income P2,410,000 + 35% of the excess over
P8,000,000
- Passive income derived ABROAD by RC P8,000,000
- Capital gains NOT subject to CGT

**Subject to Creditable Withholding Taxes wc may be DEDUCTED

from Basic income tax DUE.s

2. Final Withholding Tax on Passive Income – w/in PH sources (FWT)

2
Anna Mae S. Leron
INCOME TAXATION [Publish Date]

Table 2.2 – FINAL WITHHOLDING TAX  FWT PASSIVE Other Winnings

25%
20% 20% *Prior 2018 =
includes
INCOME PCSO/Lotto

Final Withholding Tax PCSO/LOTTO winnings

Passive Income RC, NRC, NRA- NRA- Amount ≤ ₱ 10,000 EXEMP
EXEMPT
RA ETB NETB T 25%
INTEREST Amount > ₱ 10,000 EXEMP
20%
T
from any currency bank
*NOT INCLUDED IN WINNINGS – exempt from income tax
deposits  Winnings subject to OPT (4%; 10%)
Yield or any other  In recognition of religious, charitable, scientific, educational, artistic,
monetary benefit from literary, or civic achievement (REALSCC)
20% 20% 25%
 Deposit Substitutes  Without any action on his part to enter the contest
 Trust Funds  Not required to render substantial future services as a condition
 Similar  Granted to athletes in local and international sports competitions and
arrangement tournaments both in PH/abroad sanctioned by their NATIONAL
Depository bank under 15% SPORTS ASSOCIATIONS.
EXEMP EXEMP DIVIDENDS
Foreign Currency NRC = EXEMPT T T Received from
Deposit System (FCDU) Prior 2018 = 7.5%
Long term EXEMP  Domestic corp,
5 yrs/more EXEMPT  Joint stock co.
bank deposit T
or investment 4 - < 5 yrs 5% 5% 25%  Insurance/mutual
*at least 5-year maturity
3 - < 4 yrs 12% 12% fund co. 10% 20% 25%
 Regional Operation
< 3 yrs 20% 20%
Hedquarters
ROYALTIES
(ROHQ)of
General 20% 20% 25% multinational co.
Books Share in distributable net
Literary works 10% 10% 25% income after tax of a
Musical Compositions 10% 20% 25%
partnership
PRIZES **(EXCEPT GPP - BTX)
Amount > ₱ 10,000 20% 20% 25% 1. Share in the net income
Amount ≤ ₱ 10,000 Basic after tax
Basic tax 25%
Tax  Association
WINNINGS 10% 20% 25%
 Joint Account
 ***Taxable Joint
Venture/Consortium

2
Anna Mae S. Leron
 INCOME TAXATION [Publish Date]

Rate %
CGT XX
**INSERT DEPOSITE SUBSITUTE REQUISITE FOR EXEMPTIONS –
red tabag
Sale of Real Property 6%
***Share in the Net income – JOINT VENTURE  Capital asset Tax base SP, FMV, Zonal Value
CO-VENTURER TAXABLE ****NON-TAXABLE  Located in PH (highest)
Individual Dividend Income – 10% FWT Basic Tax income 3. FORMULA
Tax Base (highest)
Corporation TAX EXEMPT Basic Corporate Tax
(not dividend income) SP, FMV, Zonal Value xx
****Non-Taxable JV – JV organized for the purposes of: Rate %
1. Construction projects CGT XX
2. Engaged in petroleum, coal, geothermal and other energy operations 4. OPTION of the SELLER in case SALE TO GOV’T or any POLITICAL
pursuant to an operating consortium agreement under a service contract 1. Pay CGT 6%
with the gov’t 2. Pay Basic Income Tax
5. EXEMPTIONS:
Table 2.3 – CAPITAL GAINS TAX  CGT  Property sold must be the principal residence of the seller
 Proceeds  fully utilized in acquiring or constructing new
CAPITAL GAINS TAX principal residence
 Within 18 calendar months from the date of sale/disposition of
the intention to avail exemption
SALE OF SHARES OF DOMESTIC  Can only be availed once every 10 years
CORP - SHAREHOLDERS AND INVESTORS*** PARTIAL EXEMPTION  TAXABLE PORTION
 Not through the local stock  No full utilization
exchange (sold directly to a  Unutilized portion shall be paid within 30 days after the
buyer) expiration of the 18 months period
15% of capital gain
Prior 2018 = 1st ₱100,000 gain = 5%
*through – subject to BUSINESS TAX -Stock Unutilized Portion
In excess of ₱ 100,000 = 10% Taxable Amount= ×↑ SP FMV Zonal
Transaction Tax (STT) – 6/10 of 1% of GSP
Prior 2018 = ½ of 1% of GSP
Gross Selling Price

**FOREIGN CORP – Basic income tax CGT =Taxable Amount × 6 %

***SALE BY A DEALER – Basic income tax
INFORMER’S REWARD
2. FORMULA
For Violations of Tax Code
Selling Price xx
Acquisition Cost (xx) Reward: sum equivalent to 10% of the revenues,
Cost to sell (xx) surcharges, or fees recovered and/or fine or penalty imposed
Net Capital Gain xx and collected OR ₱ 1,000,000 per case whichever is lower.
2
Anna Mae S. Leron
 INCOME TAXATION [Publish Date]

For Discovery and Seizure of Smuggled Goods ***PROVIDED that anytime, a taxpayer’s gross sales/receipts EXCEEDED the
VAT THRESHOLD (₱3M)  subject to BASIC INCOME TAX.
Reward: cash equivalent to 10% of the FMV of smuggled
and confiscated goods OR ₱ 1,000,000 per case whichever is  Allowed income tax credit of quarterly payments initially made
lower. under 8% income tax option
**subject to income tax collected as FWT (10%)  Taxpayer is liable for Business tax, in addition to income tax. A
percentage tax shall be imposed on the first ₱3M. The EXCESS shall
SELF-EMPLOYED and/or PROFESSIONALS (SEP) be subject to VAT.
 Percentage tax due on the ₱3M shall be collected w/o penalty if
timely paid on the due date immediately following the month the
PURELY SEP MIXED Income Earner
threshold was breached.
Compensation + Business/Professional Income
Business Professional Income
Compensation
₱3M and Below Above ₱3M ₱3M and Below Above ₱3M
Basic FORMULA  8% OPT
Basic Income Basic Basic Basic Income
Income
Tax; OR Income Tax Income Tax Tax; OR Gross Sales/Receipts xx
Tax
8% tax on 8% tax on (₱ 250,000)
Gross + Gross
Excess Amount xx
Sales/Receipts Sales/Receipt
and other s and other Rate x 8%
operating operating OPT XX
income IN income IN
EXCESS of EXCESS of
₱250,000 ₱250,000 Minimum Wage Earners
Statutory Minimum Wage (SMW) – refer to a worker in the private sector
*Provided that: paid the statutory minimum wage, or public sector with compensation
 Non-VAT registered income of not more than the minimum wage
 Not engaged in VAT exempt-sales/transactions **MWEs are EXEMPT from income tax on:
 Not subj to OPT
 Minimum wage
** Unless the taxpayer signifies in the 1st Quarter Return of the taxable year  Holiday pay
the intention to elect the 8% income tax, the taxpayer shall be considered as  Overtime pay
having availed BASIC INCOME TAX; such election shall be IRREVOCABLE.  Night shift differential
 Hazard pay

2
Anna Mae S. Leron
INCOME TAXATION [Publish Date]

Applicable Taxes of MWEs Fringe Benefit – any good, service, or other benefit furnished or granted by
PURELY MWEs EXEMPT an employer in CASH or in KIND, IN ADDITION to basic salaries, to an
MWEs with additional individual employee (except RANK/FILE employee)
compensation income H.E.V – H.I.M – H.E.L.E
EXCEEDING: EXEMPT
1. Housing
₱ 90,000
(Prior 2018 ₱ 82,000) 2. Expense Account
MWE with additional Business Income as MWE  EXEMPT 3. Vehicle of any kind
income Business Income  TAXABLE
BTX of MARRIED INDIVIDUALS
4. Household Personnel
 Consolidated income tax return
5. Interest on loan – at less than market rate to the extent of the
 Compute separately their individual income tax
difference between the market rate and the actual rate granted*
 Unidentified income by either one  equally divided between the
6. Membership fees/dues/expenses in social and athletic clubs/orgs.
spouses for the purposes of determining their taxable income
 No legal separation  still rewuired to file consolidated/joint 7. Holiday and Vacation expenses
returns for wc they are considered as jointly and severally liable. 8. Educational assistance to employee or his dependents
9. Life or health insurance and other non-life insurance premiums
**MAKE A SAMPLE OF HOW TO COMPUTE LIKE SIR JOHN BO
10. Expenses for foreign travel
Income Tax of Senior Citizen NOT SUBJECT TO FBT:
 Those deriving RETURNABLE INCOME are required to file and pay
 As MWE  EXEMPT 1. Fringe Benefits give to RANK/FILE employees (but subj to BTX)
 Exemption under “Expanded Senior Citizen Act of 2010” will not 2. Housing benefits/privilege:
extend to all types of income earned. a. Military officials
 Rules Prior to 2018 refer to TABAG (Reviwer) – page 62 b. Wc is situated inside/adjacent (w/in 50 meters from
perimeter of the business premises)
Fringe Benefits and De Minimis (FBT) c. Only temporary for an employee OR for a temporary housing
FBT unit of 3 months or less.
- Final withholding tax 3. Expenses incurred by the employee which are paid by employer and
- Imposed on GROSSED-UP MONETARY VALUE (GUMV) expenses paid for by the employee but reimbursed by his employer:
- of Fringe benefit furnished, granted, or paid by the EMPLOYER (can a. Expenses duly receipted for and in the name of the employer
be individual/professional partnership/corp/gov’t – regardless if b. Does not partake the nature of personal expense attributable
corp is taxable or not) to the employee
- To MANAGERIAL or SUPERVISORY employees 4. Allowances subject to liquidation (Tax exempt allowances)

2
Anna Mae S. Leron
INCOME TAXATION
a. Allowances not subj to liquidation  taxable
b. Representation and transportation allowances wc are FIXED
IN AMOUNTS and are regularly received by the employees
part of monthly compensation (subj to BTX)
5. Reasonable business travel expenses
a. Inland travel during foreign travel (food beverages transpo)
b. Lodging cost in a hotel  average of US$300 or less per day
c. Cost of economy and business class airplane ticket for
“FOREIGN TRAVEL”
d. 70% of the cost of the first-class airplane ticket for foreign
travel
* Business travel expenses in PH are assumed to be reasonable
in amount.
6. Educational Assistance
 To the EMPLOYEE
a. Directly connected with the employer’s business
b. There is a written contract that the employee is under
obligation to remain in the employ of the employer
 To the DEPENDENTS
a. Provided through competitive scheme under the
scholarship program of the company
7. Contributions of the employer
a. SSS and GSIS
b. Similar condition arising from provision of existing law
c. To retirement, insurance and hospitalization benefit plans
8. The cost of premiums borne by EMPLOYER for the group insurance
of his employees
9. Fringe Benefits wc are/if:
a. Exempted from income tax
b. It is required by nature or necessary to the business of
employer
c. Convenience/advantage of the employer
Anna Mae S. Leron
[Publish Date]
De Minimis Benefits
Tax exempt not exceeding the said amounts.
1. Monetized
a. Unused vacation leave – private  10 days
b. Value of leave credits – gov’t officials/employees  -
2. Medical cash allowancedependents ₱1,500/employee/sem or ₱250/month
3. Rice subsidy  ₱2,000/month OR 1 sack (50kg)/month
4. Uniform and clothing allowance  ₱6,000/annum
5. Actual yearly medical benefits  ₱10,000/annum
6. Laundry allowance  ₱300/month
7. Employees achievement awards  ₱10,000/annum
8. Gifts (Christmas/Major Annivesary)  ₱ 5,000/employee/annum
9. Daily meal allowance(overtime/night/graveyard)25% of basic minimumwage
10. Productivity incentive schemes/benefits by virtue of collective
bargaining agreement  ₱ 10,000/employee/taxableyear
a. Total annual monetary value received from the two items
combined do not exceed the said amount limit.
13th Month Pay and Other Benefits
- Both public and private  not exceeding ₱ 90,000 EXEMPT from
income tax and creditable withholding tax on compensation income.
- Amount IN EXCESS  part of individual’s GROSS INCOME subj to
income tax and applicable creditable withholding tax.
Other Benefits:
 Christmas Bonus
 Productivity incentive bonus
 Loyalty awards
 Gifts in cash/kind (both public and private) *
*Any excess in GIFTS from Christmas – included in OTHER BENEFITS
EXCESS OF DE MINIMIS OVER THE CEILINGS & 13TH MONTH
2
INCOME TAXATION [Publish Date]

PAY FWT on Passive income

De Minimis conforming to  January – November  10th day of the month following the
TAX EXEMPT
the ceiling. month withholding was made
EXCESS of De minimis over INCLUDED  ₱ 90,000 ceiling of  December  January 12 succeeding year
ceiling other benefits
CGT
IN EXCESS of ₱ 90,000  subj to  Shares of stock
BTX  Ordinary Return  30 days after transaction
 Final Consolidated Return  on/before April 15 of
the following year
 Real Property  30 days following sale
RC NRC RA NRA-ETB NRA-NETB
FBT  10TH day of the month following the end of the quarter
Monetary Value* xx xx
which fb were granted.
÷ GUMV Factor 65% 75%
BTX
GUMV xx xx
 Purely CompensationApril 15
X FBT rate 35% 25%
 Business Income/ Practice  Quarterly tax return
FBT XX XX
 1st Quarter  May 15
 2nd Quarter  August 15
*MONETARY VALUE  3rd Quarter  November 15
Money Amount of money  Annual Return April 15
Non-cash property w/ transfer of ownership  FMV OR ZV
Non-cash property w/o Depreciation Value
Employer lends money free of interest Principal x 12%
Employer lends money at lower than 12% Principal x (12% - Actual Rate)

**insert table for guide sa HOUSING AND MOTOR CYCLE

FILING OF INCOME TAX

Through:
 Manual Filing
 Electronic Filing and payment system (EFPS)
 eBIR Forms

2
Anna Mae S. Leron