Basic concepts of taxation
Sec. 24 Art. VI of the 1987 constitution, all appropriation,
Rationale of taxation:
a.) Cost of maintaining a civilized society
b.) Symbolic relationship
Primary purpose of taxation is to "raise revenue to defray
the NECESSARY expenses of the government."
Secondary purpose is to:
a.) To redistribute wealth
b.) To attract more employment
c.) To complement the police power
"Can taxation be used to control inflation? YES. By the
government implementing the fiscal policy, it fights to
control the inflation."
Three inherent powers of the state:
a.) Police power - public good and welfare
b.) Power of eminent domain - public use
c.) Power of taxation - revenue
Note: Inherent power is a power given to a state or
organized political body that is not expressly written in a
formal political document. They are supposed to co-exist
with the state.
Taxing power of LGU is NOT INHERENT
Sec. 5 Art. X of the 1987 constitution, each local
government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
BRANCHES OF THE GOVERNMENT
(INTERDEPENDENT):
a.) legislative
b.) executive
c.) judicial
What is the significance of these branches in taxation
topic? One basic corollary in a presidential system of
government is the PRINCIPLE OF SEPERATION OF
POWERS wherein legislation belongs to Congress,
execution to the Executive, and settlement of legal
controversies to the Judiciary.
CREATION OF TAX BILLS
revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills
shall originate exclusively in the House of
Representatives, but the Senate may propose or concur
with amendments.
CONSOLIDATION OF BILLS
Written Tolentino v. Secretary of Finance, G.R. No.
115455, 25th of August 1994. The contention of
petitioners is that in Enacting R.A. No. 7716, or the
Expanded Value-Added Tax Law, Congress violated the
Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not
passed by the Senate, but it was simply consolidated with
the Senate version (S. No. 1630) in the Conference
Committee to produce the bill which the president signed
into law.
POSSIBLE EXTENT OF AMENDMENT (continuation)
To begin with, it is not the law- but the revenue bill- which
is required by the Constitution to "originate exclusively"
in the House of Representatives. It is important to
emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that the
result may be a rewriting of the whole.
APPLICATION OF TAX LAWS
General rule was PROSPECTIVELY APPLIED, but the
exception was retroactive effect is EXPRESSLY
DECLARED.
INTERPRETING TAX LAWS
Sec. 4, NIRC. The power to interpret the provisions of this
code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance.
PROMULGATING RULES AND REGULATIONS
Sec. 244, NIRC. The secretary of Finance, upon
recommendation of the Commissioner, shall promulgate
all needful rules and regulations for the effective
enforcement of the provisions of this code.
TAX ISSUE ON PROPRIETARY EDUCATIONAL
INSTITUTIONS

Sec. 27 (B), NIRC. Proprietary educational institutions
and hospitals which are nonprofit shall pay a tax of ten
percent (10%) on their taxable income except those
covered by Subsection (D) hereof: Provided, That
beginning July 1, 2020 until June 30, 2023, the tax rate
herein imposed shall be one percent (1%): Provided,
further, That if the gross income from 'unrelated trade,
business or other activity' exceeds fifty percent (50%) of
the total gross income derived by such educational
institutions or hospitals from all sources, the tax
prescribed in Subsection (A)hereof shall be imposed on
the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other
activity' means any trade, business or other activity, the
conduct of which is not substantially related to the
exercise or performance by such educational institution or
hospital of its primary purpose or function. 'Proprietary'
means a private hospital, or any private school maintained
and administered by private individuals or groups with an
issued permit to operate from the Department of
Education (DepEd), or the Commission on Higher
Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations.
PROMULGATING RULES AND REGULATIONS:
LIMITATION
IN THE MATTER OF DECLARATORY RELIEF ON
THE VALIDITY OF BIR REVENUE MEMORANDUM
CIRCULAR NO. 65-2012, G.R. No. 215801, 15 January
2020. BIR Commissioner is empowered to interpret.
our tax laws but not expand or alter them.
LIMITATIONS ON THE POWER OF TAXATION
INHERENT LIMITATIONS:
a.) Public purpose. Taxes may be levied only for public
purpose.
b.) Territoriality. The State may tax persons and properties
under its jurisdiction.
c.) Exemption of the Government
d.) International comity - RMO 10- 2019. the property of
a foreign State may not be taxed by another.
e.) non-delegation of power to impose tax. The power to
tax being legislative in nature may not be delegated.
(Subject to exceptions).
Constitutional Limitations
a.) Due process clause - CIR v. Fitness by Design,
Inc., G.R. No. 215957, (9th of November 2016,
the rationale behind the requirement that
taxpayers should be informed of the facts and the
law on which the assessments are based conforms
with the constitutional mandate that no person
shall be deprived of his or her property without
due process of law. Between the power of the
State to tax and an individual's right to due
process, the scale favors the right of the taxpayer
to due process.
b.) Uniformity clause - Written British American Tobacco
v. Camacho, G.R. No. 163583, 15th of April 2009,
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated
alike both in privileges and liabilities.
c.) Progressive system - Art. VI, Sec. 28(1), The rule of
taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
INCOME TAX RATES TABLE
Taxation is a process of legislative body to raise revenue
to defray necessary expenses on public purpose.
PUBLIC PURPOSE
Sec. 4(2), PD 1445, Government Auditing Code of the
Philippines, Government funds or property shall be spent
or used solely for public purposes.
a.) Essential government functions
b.) Purposes designed to promote social justice
1.) Relocation of illegal settlers
2.) Providing low-cost housing
Note: Not unconstitutional even if it only benefits a
limited number of persons.
Taxpayers' suit
requisites:
a.) There must be illegal disbursement of public funds
b.) Petitioner is directly affected by the alleged ultra vires
act
Give example of a situation where you can file a
taxpayer’s suit?
Essential Elements of Tax
The Phil. Guaranty Co., Inc. v. CIR, et al., G.R. No. L- STAGES OF TAXATION:
22074, 30th of April 1965, the power to tax is an attribute a.) Levy / imposition
of sovereignty. It is a power emanating from necessity. It b.) Assessment (self-assessment)
is a necessary burden to preserve the state's sovereignty c.) Payment (pay as you file)
and a means to give the citizenry an army to resist an - Assessment and collection
aggression, a navy to defend its shores from invasion, a - Refund
corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those SITUS OF TAXATION:
which come within the state's territory, and facilities and a.) Place where the tax should be paid.
protection which a government is supposed to provide. b.) Jurisdiction of taxing authority.

ESSENTIAL ELEMENTS OF TAX Example:

Municipality of Cainta v. City of Pasig, G.R. No. 176703,
a.) Enforced contribution 28th of June 2017, Under the Local Government Code
b.) Proportionate in character (LGC), local business taxes are payable for every separate
c.) Generally payable in money or distinct establishment or place where business subject
d.) Levied by legislative body to the tax is conducted, which must be paid by the person
e.) Levied upon person, property, right/privilege conducting the same.
f.) For public purpose.
Importance of SITUS:
DOUBLE TAXATION
Sec. 248, NIRC
DIRECT DOUBLE TAXATION - Two taxes: (A) There shall be imposed, in addition to the tax required
a.) Imposed on same subject matter to be paid, a penalty equivalent to twenty-five percent
b.) For the same purpose (25%) of the amount due, in the following cases:
c.) By the same taxing authority (1) Failure to file any return and pay the tax due thereon
d.) Within the same jurisdiction as required under the provisions of this Code or rules and
e.) During the same taxing period regulations on the date prescribed; or
f.) Of the same kind/character (2) Unless otherwise authorized by the Commissioner,
filing a return with an internal revenue officer other than
MITIGATING THE IMPACT OF INDIRECT DOUBLE those with whom the return is required to be filed; or xxx
TAXATION
a.) Foreign tax credit Tax Avoidance:
b.) Tax exemption expressly provided a.) Tax Minimization
c.) Tax treaty b.) Legal means of reducing (or totally) voiding tax.
d.) Reciprocal tax treatment
Example:
COMPENSATION/ OFF SETTING OF TAXES Sec. 99, NIRC The tax for each calendar year shall be six
percent (6%) computed on the basis of the total gifts in
COMPENSATION NOT ALLOWED: excess of Two hundred fifty thousand pesos (P250,000)
a.) Government and taxpayers are not creditors and exempt gift made during the calendar year.
debtors of each other.
b.) Debts are due from the government in its corporate TAX EVASION
capacity.
c.) taxes are due to the government in its sovereign Sec. 254, NIRC, Any person who willfully attempts in any
capacity manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to other
PRINCIPLES OF SOUND TAX SYSTEM: penalties provided by law, upon conviction thereof, be
a.) Fiscal Adequacy (tax revenue v. expenditure) punished by a fine not less than Five hundred thousand
b.) Administrative feasibility (effective enforcement) pesos (P500,000) but not more than Ten million pesos
c.) Theoretical justice (ability to pay) (P10,000,000) and suffer imprisonment of not less than
six (6) years but not more than Ten (10) years: Provided,
That the conviction or acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the
collection of taxes.
SUBSIDIARY PENALTY
Sec. 280, NIRC, If the person convicted for violation of
any of the provisions of this Code has no property with
which to meet the fine imposed upon him by the court, or
is unable to pay such fine, he shall be subject to a
subsidiary personal liability at the rate of one (1) day for
each Eight pesos and fifty centavos (P8.50) subject to the
rules established in Article 39 of the Revised Penal Code.
AMENDMENT OF ARTICLE 39, RPC
Sec. 1, R.A. 10159, Art. 39. Subsidiary Penalty. – If the
convict has no property with which to meet the fine
mentioned in paragraph 3 of the next preceding article, he
shall be subject to a subsidiary personal liability at the rate
of one day for each amount equivalent to the highest
minimum wage rate prevailing in the Philippines at the
time of the rendition of judgment of conviction by the trial
court, subject to the following rules.
INFORMER'S REWARD
Sec. 282, NIRC, Any person, except an Internal Revenue
official or employee, or other public official or employee,
or his relative within the sixth degree of consanguinity,
who voluntarily gives definite and sworn information, not
yet in the possession of the Bureau of Internal Revenue,
leading to the discovery of frauds upon the internal
revenue laws or violations of any of the provisions
thereof, thereby resulting in the recovery of revenues,
surcharges and fees and/or the conviction of the guilty
party and/or the imposition of any of the fine or penalty,
shall be rewarded in a sum equivalent to ten percent (10%)
of the revenues, surcharges or fees recovered and/or fine
or penalty imposed and collected or One Million Pesos
(P1,000,000) per case, whichever is lower. The same
amount of reward shall also be given to an informer where
the offender has offered to compromise the violation of
law committed by him and his offer has been accepted by
the Commissioner and collected from the offender: xxx
RULES ON CONSTRUCTION
GENERAL INTERPRETATION OF TAX LAWS
CIR v. Suyoc Consolidated Mining Company, G.R. No.
L-11527, 25th of November 1958, Tax laws should be
interpreted liberally in favor of the taxpayer and strictly
against the Government, except in the matter of tax
exemptions.
STRICTISSIMI JURIS – TAX EXEMPTION
H. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 173373,
29th of July 2013, Exemptions from taxation are
construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
CIR v. Transfield Philippines Inc., G.R. No. 211449, 16th
January 2019, A tax amnesty, much like a tax exemption,
is never favored nor presumed in law. The grant of a tax
amnesty is akin to a tax exemption; thus, it must be
construed strictly against the taxpayer and liberally in
favor of the taxing authority.
INDIVIDUAL TAXATION
CLASSIFICATION OF TAXPAYERS and TAXABLE
INCOME:
As to citizenship:
- Resident citizen (Within or Without)
- Nonresident citizen (Within)
Aliens:
- Resident alien (Within)
- Nonresident alien engaged in trade or business
- Nonresident alien not engaged in trade or business
NON-RESIDENT CITIZEN Sec. 22(e), NIRC
(1) A citizen of the Philippines who establishes to the
satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
(2) a citizen of the Philippines who leaves the Philippines
during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
(3) a citizen of the Philippines who works and derives
income from abroad and whose employment thereat
requires him to be physically present abroad MOST OF
THE TIME during the taxable year.
(4) a citizen who has been previously considered as
nonresident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in
the Philippines shall likewise be treated as a nonresident
citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from
sources abroad until the date of his arrival in the
Philippines.
(5) the taxpayer shall submit proof to the commissioner to
show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the
Philippines as the case may be for purpose of this section.
Note: MOST OF THE TIME - Outside Philippines for not
less than 183 days in a particular taxable year. Sec. 2, RR
1-79
OVERSEAS CONTRACT WORKER
SEC. 23 (c), NIRC, An individual citizen of the
Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on
income derived from sources within the Philippines:
provided, that a seaman who is a citizen of the Philippines
and who receives compensation for services rendered
abroad as a member of the complement of a vessel
engaged exclusively in international trade shall be treated
as an overseas contract worker.
SEC. 2, RR 1-2011, To be considered as an OCW or OFW,
they must be duly registered as such with the Philippine
Overseas Employment Administration (POEA) with a
valid Overseas Employment Certificate (OEC).
NONRESIDENT ALIEN ENGAGED IN
TRADE/BUSINESS
SEC. 25 9A0, R.A. 8424, A nonresident alien individual
who shall come to the Philippines and stay therein for an
aggregate period of more than one hundred eighty (180)
days during any calendar year shall be deemed a
'nonresident alien doing business in the Philippines.
NONRESIDENT ALIEN NOT ENGAGED IN
TRADE/BUSINESS
SEC. 25 (B), NIRC, There shall be levied, collected and
paid for each taxable year upon the entire income received
from all sources within the Philippines by every
nonresident alien individual not engaged in trade or
business within the Philippines as interest, cash and/or
property dividends, rents, salaries, wages, premiums,
annuities, compensation, remuneration, emoluments, or
other fixed or determinable annual or periodic or casual
gains, profits, and income, and capital gains, a tax equal
to twenty-five percent (25%) of such income.
CLASSIFICATION OF TAXPAYERS
As to source of income:
A.) Purely compensation income earner (BIR form 1700)
B.) Purely business or profession income earner (BIR
form 1701A)
C.) Mixed income earner (BIR form 1701
FILING OF INCOME TAX RETURN (ITR)
✓ Self-assessment
✓ Pay as you file
✓ Substituted filing
BIR FORM 1700
SUBSTITUTED FILING SYSTEM
✓ Purely compensation income earner
✓ Only one employer
✓ Issuance of BIR form No. 2316
✓ Consolidated income tax return (BIR form 1700)
BIR FORM 1701A
8% TAX OPTION
Self-employed individuals and/or professionals shall have
the option to avail of an eight percent (8%) tax on gross
sales or gross receipts and other nonoperating income in
excess of two hundred fifty thousand pesos (P250,000) in
lieu of the graduated income tax rates under subsection
(a)(2)(a) of this section and the percentage tax under
section 116 of this code.
The option to be taxed at 8% income tax rate is not
available to:
A.) A VAT-registered taxpayer, regardless of the number
of gross sales / receipts.
B.) Taxpayer who is subject to Other Percentage Taxes
under title V of the tax code, as amended, except those
subject under section 116 of the same title.
C.) Partners of a general professional partnership (GPP)
by virtue of their distributive share from GPP which is
already net of cost and
expenses cannot avail of the 8% income tax rate option.
A taxpayer who signifies the intention to avail of the 8%
income tax rate option and is conclusively qualified for
said option at the end of the taxable year [annual gross
sales/receipts; and other non-operating income did not
exceed the VAT threshold (Php3,000,000.00), shall
compute the final annual income tax due based on the
actual annual gross sales/receipts and other non-operating
income. The said income tax due shall be in lieu of the
graduated rates of income tax and the percentage tax
under sec. 116 of the tax code, as amended. The Financial
Statements (FS) is not required to be attached in filing the
final income tax return. However, existing rules and
regulations on bookkeeping and invoicing/receipting shall
still apply.
EFFECT VAT THRESHOLD
A taxpayer shall automatically be subject to the graduated
rates, even if the flat 8% income tax rate option is initially
selected, when taxpayer's gross sales/receipts and other
non-operating income exceeded the VAT threshold during
the taxable year. In such case, his income tax shall be
computed under the graduated income tax rates and shall
be allowed a tax credit for the previous quarter/s income
tax payment/s under the 8% income tax rate option.
BIR FORM 1701
MIXED INCOME
A.) COMPENSATION INCOME - always subjected to
tax rates; AND
B.) INCOME FROM BUSINESS OR PRACTICE OF
PROFESSION
- Gross sales/receipts do not exceed VAT
threshold, graduated income tax rates or 8% income tax
rate may be used.
- Gross sales/receipts exceed VAT threshold,
graduated income tax rates shall be used.
250,000 ANNUAL DEDUCTIONS NOT APPLICABLE
REASON: SUCH DEDUCTION IS ALREADY
INCORPORATED
IN THE GRADUATED INCOME TAX RATES.
MINIMUM WAGE EARNERS
MWE’s EXEMPTIONS:
a.) MINIMUM WAGE
b.) HOLIDAY PAY
c.) OVERTIME PAY
d.) NIGHT SHIFT DIFFERENTIAL
e.) HAZARD PAY
STATUTORY MINIMUM WAGE (SMW)
a.) Rate fixed by the regional tripartite wage and
productivity board (RTWPB).
b.) Not uniform
c.) https://nwpc.dole.gov.ph/stats/current-real-
minimumwage-rates/
REVENUE REGULATION 2-1998
Holiday pay, overtime pay, night shift differential pays,
and hazard pay earned by the aforementioned MWE shall
likewise be covered by the above exemption. Provided,
however, that an employee who receives/earns additional
compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory
amount of ₱30,000.00, taxable allowances and other
taxable income other than the SMW, holiday pay,
overtime pay, hazard pay and night shift differential pay
shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from
income tax, and consequently, from withholding tax.
EFFECT OF EXCEEDING THE MINIMUM
When the wages received exceed the minimum wage
anytime during the taxable year, the employee necessarily
loses the MWE qualification. Therefore, wages become
taxable as the employee ceased to be an MWE. But the
exemption of the employee from tax on the income
previously earned as an MWE remains.
FILING OF INCOME TAX RETURN
a. KNOW THE DEADLINES OF FILING TAX
RETURNS
b. PENALTY AND INTEREST
PENALTY
NIRC SEC. 248. - CIVIL PENALTIES.
(A) THERE SHALL BE IMPOSED, IN ADDITION TO
THE TAX REQUIRED TO BE PAID, A PENALTY
EQUIVALENT TO TWENTY-FIVE PERCENT (25%)
OF THE AMOUNT DUE, IN THE FOLLOWING
CASES:
(1) FAILURE TO FILE ANY RETURN AND PAY THE
TAX DUE THEREON AS REQUIRED UNDER THE
PROVISIONS OF THIS CODE OR RULES AND
REGULATIONS ON THE DATE PRESCRIBED, OR
(2) UNLESS OTHERWISE AUTHORIZED BY THE
COMMISSIONER, FILING A RETURN WITH AN
INTERNAL REVENUE OFFICER OTHER THAN
THOSE WITH WHOM THE RETURN IS REQUIRED
TO BE FILED, OR
(3) FAILURE TO PAY THE DEFICIENCY TAX
WITHIN THE TIME PRESCRIBED FOR ITS
PAYMENT IN THE NOTICE OF ASSESSMENT, OR
(4) FAILURE TO PAY THE FULL OR PART OF THE
AMOUNT OF TAX SHOWN ON ANY RETURN
REQUIRED TO BE FILED UNDER THE PROVISIONS
OF THIS CODE OR RULES AND REGULATIONS, OR
THE FULL AMOUNT OF TAX DUE FOR WHICH NO
RETURN IS REQUIRED TO BE FILED, ON OR
BEFORE THE DATE PRESCRIBED FOR ITS
PAYMENT.
INTEREST
NIRC SEC. 249. INTEREST. -
(A) IN GENERAL. - THERE SHALL BE ASSESSED
AND COLLECTED ON ANY UNPAID AMOUNT OF
TAX, INTEREST AT THE RATE OF TWENTY
PERCENT (20%) PER ANNUM, OR SUCH HIGHER
RATE AS MAY BE PRESCRIBED BY RULES AND
REGULATIONS, FROM THE DATE PRESCRIBED
FOR PAYMENT UNTIL THE AMOUNT IS FULLY
PAID.
IMPORTANCE OF BIR FORM 2307
A certificate to be accomplished and issued to recipients
of income subject to expanded withholding tax paid by a
payor/withholding agent including government money
payments made by a government office showing therein
the monthly breakdown of the total income payments
made and the total taxes withheld and remitted during the
quarter/period.
For EWT - this certificate in turn should be attached to the
quarterly/annual income tax return - BIR forms 1701Q /
1701 for individuals, or BIR form 1702Q/ 1702 for non-
individuals, in which case, the amount of withholding tax
shall be allowed as a tax credit against the income tax
liability of the income recipient in the taxable quarter or
year in which the income was earned or received.
OTHER TOPICS
ESTATES AND TRUST
SETTLEMENT OF ESTATE:
a.) Judicial settlement of the estate
b.) Extra-judicial settlement of the estate
PROBATE PROCEEDING
“No will shall pass either real or personal property unless
it is proved and allowed in accordance with the rules of
court.” [Art. 838, Civil Code]
EXTRAJUDICIAL SETTLEMENT
“If the decedent left no will and no debts and the heirs are
all of age, or the minors are represented by their judicial
or legal representatives duly authorized for the purpose,
the parties may without securing letters of administration,
divide the estate among themselves as they see fit by
means of a public instrument filed in the office of the
register of deeds, and should they disagree, they may do
so, in an ordinary action of partition.” [Section 1, Rule 74,
Rules of Court]
ESTATES – What should be taxed?
a. Properties left behind by the decedent.
b. Same treatment as that of individual taxpayer
c. Income earned during probate proceeding (judicial
settlement of the estate)
d. BIR Form 1701, and BIR Form 1701Q
TRUST
TRUST BUSINESS
“Trust business shall refer to any activity resulting from a
trustor trustee relationship (trusteeship) involving the
appointment of a trustee by a trustor for the
administration, holding, management of funds and/or
properties of the trustor by the trustee for the use, benefit
or advantage of the trustor or of others called
beneficiaries” [Manual of Regulations for Banks]
TRUST AGREEMENT
Prior to the actual transfer of properties to the
trustor/beneficiary, those properties may generate income.
IRREVOCABLE TRUST
a. Cannot be modified.
b. The asset involved is removed from the trustor’s list of
properties.
c. The asset will be distributed according to the agreed
plan.
d. Taxable
MARRIED TAXPAYER
Married individuals, whether citizens, resident or
nonresident aliens, who do not derive income purely from
compensation, shall file a return for the taxable year to
include the income of both spouses, but where it is
impracticable for the spouses to file one return, each
spouse may file a separate return of income but the returns
so filed shall be consolidated by the Bureau for purposes
of verification for the taxable year.
❖ One income tax return
❖ Separate computation on the same form except for the
“Aggregate Amount Payable/(Overpayment)"
❖ If it is impractical to file one return, two separate
returns shall be filed.
❖ Those income that cannot be identified as to who earns
it, shall be reported by both spouses on 50:50 basis.
MANDATORY DEDUCTIONS - PAYROLL
✓GSIS/SSS
✓PHILHEALTH
✓PAG-IBIG CONTRIBUTIONS
✓UNION DUES
✓WITHHOLDING TAX
WITHOLDING TAX ON COMPENSATION
MANDATORY CONTRIBUTIONS
✓GSIS/SSS
✓PHILHEALTH
✓PAG-IBIG CONTRIBUTIONS (HDMF)
✓UNION DUES
COMPENSATION
“In general, the term “compensation” means all
remuneration for services performed by an employee for
his employer under an employer- employee relationship.”
[RR 2-98]
The name by which the remuneration for services is
designated is immaterial. Thus, salaries, wages,
emoluments, and honoraria, allowances, commissions
(e.g. transportation, representation, entertainment, and the
like); fees including director’s fees, if the director is, at
the same time, an employee of the employer/ corporation;
taxable bonuses and the fringe benefits except those
which are subject to the fringe benefits tax under sec. 33
of the code; taxable pensions and retirement pay; and
other income of a similar nature compensation income.
COMPENSATION IN KIND
“If services are paid for in a medium other than money,
the fair market value of the thing taken in payment is the
amount to be included as compensation subject to
withholding.” [RR 2-98]
LIVING QUARTERS OR MEALS
General Rules:
“If a person receives a salary as remuneration for services
rendered, and in addition thereto, living quarters or meals
are provided the value to such person of the quarters or
meals so furnished shall be added to the remuneration
paid for the purpose of determining the amount of
compensation subject to withholding."[RR 2-98]
“However, if living quarters or meals are furnished to an
employee for the convenience of the employer, the value
thereof need not be included as part of the compensation
income.”
NON-TAXABLE BENEFITS
✓ Do not include in the computation.
✓ Such as, among others:
➢ 13th-month pay, and other benefits not exceeding a
total of P90,000.
➢ Compensation income of MWEs including overtime
pay, holiday pay, night shift
differential pay, and hazard pay.
➢ Compensation for injuries or sickness.
➢ Income exempt under the treaty.
YEAR-END TAX ADJUSTMENT
✓ The total tax withheld may not match the correct annual
tax due.
✓ Income of the employee must be reckoned at the end of
the year for the necessary adjustment.
✓ Under-withholding: will be automatically deducted
from the
payroll.
✓ Over-withholding will be refunded
Failure of a withholding agent to collect and remit tax.
“Any person required to withhold, account for, and remit
any tax imposed by this code or who willfully fails to
withhold such tax, or account for and remit such tax, or
aids or abets in any manner to evade any such tax or the
payment thereof, shall, in addition to other penalties
provided for under this chapter, be liable upon conviction
to a penalty equal to the total amount of the tax not
withheld, or not accounted for and remitted.”[Sec. 251,
NIRC]
Failure of a withholding agent to refund excess
withholding tax.
“Any employer/withholding agent who fails or refuses to
refund excess withholding tax shall, in addition to the
penalties provided in this title, be liable to a penalty to the
total amount of refunds which was not refunded to the
employee resulting from any excess of the amount
withheld over the tax actually due on their return.”
[Sec. 252, NIRC]
FRINGE BENEFIT TAX
REASON FOR GIVING FRINGE BENEFITS: TO
ENCOURAGE LOYALTY AND PRODUCTIVITY.
COVERAGE OF FRINGE BENEFIT TAX
“These fringe benefits include payments for sick leave,
vacation leave or maternity leave; premium pay for work
performed on rest day and special holidays; premium pay
for regular holidays and night differential pay; and cost of
living allowances.” [Philippine Duplicators, Inc. v.
NLRC, et al., G.R. No. 110068, 11 November 1993]
INSTANCES WHEN FBT IS NOT APPLICABLE
“To avoid the imposition of the FBT on the benefit
received by the employee, and, consequently, to avoid the
withholding of the payment thereof by the employer,
PAGCOR must sufficiently establish that the fringe
benefit is required by the nature of, or is necessary to the
trade, business or profession of the employer, or when the
fringe benefit is for the convenience or advantage of the
employer.” [CIR v. Secretary of Justice, et al., G.R. No.
177387, 9 November 2016]
PAYMENT OF FBT
✓ Presumed to be withheld at source.
✓ Paid by the employer.
✓ Paid quarterly
MONETARY VALUE OF FRINGE BENEFITS
✓ Paid Cash = 100%
✓ Payment for rent of residence = 50%
Paid in kind/property:
Book Value or the Fair Market Value
whichever is higher.
VALUATION OF FRINGE BENEFITS
Free use of employer’s property:
✓ 50% of the rental value.
✓ 50% of the depreciation value (in the absence of rental
value)
Presumed useful life:
Real property = 20 years (5% of zonal value or assessed
value whichever is higher)
Personal property = 5 years (20%)
DE MINIMIS BENEFITS
The term "de minimis benefits" which is exempt from the
fringe benefit tax shall, in general, be limited to facilities
or privileges furnished or offered by an employer to his
employees, provided such facilities or privileges are of
relatively small value and are offered or furnished by the
employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees.
[See Revenue Regulation 2-98]
MONETIZED UNUSED VACATION LEAVE
Monetized unused vacation leave credits of private
employees not exceeding ten (10) days during the year.
Monetized value of vacation and sick leave
Monetized value of vacation and sick leave credits paid to
government officials and employees.
MEDICAL CASH ALLOWANCE
Medical cash allowance to dependents of employees, not
exceeding ₱1,500 per employee per semester or ₱250 per
month.
ACTUAL MEDICAL ASSISTANCE
Actual medical allowance to cover medical needs, annual
medical check-up, maternity assistance, and routine
consultations not exceeding Php10,000 per year.
RICE SUBSIDY
Rice subsidy of ₱2,000 or one sack of 50kg. rice per
month amounting to not more than ₱2,000.
CLOTHING ALLOWANCE
Uniform and clothing allowance not exceeding ₱6,000
per annum.
LAUNDRY ALLOWANCE
Laundry allowance not exceeding P300 per month.
EMPLOYEE ACHIEVEMENT AWARD
For the length of service or safety achievement, which
must be in the form of tangible property other than cash
or gift certificates, with an annual monetary value not
exceeding Php10,000 received by the employee under an
established written plan which does not discriminate in
favor of highly paid employees.
CHRISTMAS AND ANNIVERSARY GIFT
Not exceeding Php5,000/employee per year.
DAILY MEAL ALLOWANCE
For:
Overtime work
Night shift
Graveyard shift
- Not exceeding 25% of the basic minimum wage on a per
region basis.
BENEFITS RECEIVED UNDER C.B.A. &
PRODUCTIVITY
INCENTIVE SCHEMES
The total annual monetary value received from both CBA
and productivity incentive schemes combined does not
exceed Php10,000 per employee per taxable year.
If CBA benefits under a productivity incentive scheme is
equal or less than Php10,000, it is treated as De Minimis
Benefit. If it is more than Php10,000, it is treated as “other
benefits”. BIR Ruling No. 293-2015
EXCLUSIONS FROM GROSS INCOME
“13th months’ 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). xxx.” [Sec. 32 (B) (7) (e), NIRC]
CAPITAL GAINS TAXATION
Ordinary assets:
- Used (or sold) in a normal course of business
- Subject to regular income tax
Capital assets:
Assets other than ordinary assets.
CAPITAL GAINS TAX ON REAL PROPERTY
“A final tax of six percent (6%) based on the gross selling
price or current fair market value as determined in
accordance with section 6(E) of this code, whichever is
higher, is hereby imposed upon capital gains presumed to
have been realized from the sale, exchange, or other
disposition of real property located in the Philippines,
classified as capital assets, including pacto de retro sales
and other forms of conditional sales, by individuals,
including estates and trusts." [Sec. 24 (d) (1), NIRC]
AUTHORITY OF THE COMMISSIONER TO
PRESCRIBE REAL PROPERTY VALUES
“The commissioner is hereby authorized to divide the
Philippines into different zones or areas and shall, upon
mandatory consultation with competent appraisers both
from the private and public sectors, and with prior notice
to affected taxpayers, determine the fair market value of
real properties located in each zone or area xxx.” [Sec. 6
(e), NIRC]
FAIR MARKET VALUE
“For purposes of computing any Internal Revenue Tax,
the value of the property shall be, whichever is the higher
of:
(1) the fair market value as determined by the
Commissioner; or
(2) the fair market value as shown in the schedule of
values of the provincial and city assessors.” [Sec. 6 (e),
NIRC]
CERTIFICATE AUTHORIZING REGISTRATION
“No registration of any document transferring real
property shall be effected by the Register of Deeds unless
the commissioner or his duly authorized representative
has certified that such transfer has been reported, and the
capital gains or creditable withholding tax, if any, has
been paid.” [Sec. 58 (E), NIRC]
PRESUMPTION OF GAIN
✓ Note that the tax base is the SP or FMV whichever is
higher.
✓ Even if the transaction resulted in net loss CGT must
still be paid.
✓ Actual gain is immaterial.
FILING AND PAYMENT
✓ Generally, within 30 days from the date of sale or
exchange.
✓ Installment payment: Within thirty (30) days following
the receipt of the first down payment or following each
subsequent installment payment, whichever is applicable.
✓ Foreclosure sale: Within 30 days from the expiration of
the redemption period. (ONE YEAR FROM AND
AFTER THE DATE OF SALE) *
* GE Money Bank, Inc. v. Spouses Dizon, G.R. No.
184301, 23 March 2015
FILING AND PAYMENT
✓ Seller must be citizen or resident alien
✓ It involves principal residence
✓ Proceeds of the sale is used in acquiring new principal
residence.
✓ Notification to avail tax exemption (within 30 days
from sale)
✓ Reacquisition of new principal residence within 18
months from the date of sale.
✓ Capital gains tax deposited in escrow account.
✓ Can be availed only once every ten (10) years.
BASIS OF A NEW PRINCIPAL RESIDENCE
Proceeds fully utilized:
- Basis of old principal residence plus additional cost
incurred in acquiring new principal residence.
Proceeds not fully utilized:
- Basis of old principal residence x Percentage of used
proceeds

BIR form 1706 INSTALLMENT PAYMENT OF CAPITAL GAINS TAX

https://www.bir.gov.ph/images/bir_files/old_files/pdf/30 INSTALLMENT PAYMENT OF CGT

231706.pdf
Initial payment does not exceed 25% of the selling price.
SALE OF PRINCIPAL RESIDENCE Initial payment = all amounts collected in the year of sale.

“The term “principal residence” shall refer to the dwelling

house, including the land on which it is situated, where
the husband and wife or an unmarried individual, whether
qualified as head of family, and members of his family
reside. Actual occupancy of such principal residence shall
not be considered interrupted or abandoned by reason of
the individual’s temporary absence therefrom due to
travel or studies or work abroad or such other similar
circumstances. Such principal residence must be
characterized by permanency in that it must be the
dwelling house in which, whenever absent, the said
individual intends to return.” [RR 14-2000]

“Where the land is leased to the dwelling house owner,

only the dwelling house shall be treated as principal
residence of the dwelling house owner.” [RR 14-2000]

SALE OF PRINCIPAL RESIDENCE

Primary domicile of the taxpayer (house and lot)

Exempt from 6% capital gains tax.

Requisites for tax exemption (Sale of principal residence)