Income Taxation citizen principle, the residence principle,
and the source principle.
Chapter 1: Principle of Taxation
Introduction to Income Tax
[We are taxing their income, where income is
privilege. Kapag ang income ng isang tao hindi
naman nabigyan ng privilege ang taxpayer, hindi
taxable yon. That is one technique to identify if
the income is taxable. Kung hindi nagbebenefit sa
taxpayer, hindi tinataxan. For example, in salary
na nagbibigay ng benefit, kaya siya taxable.]
Concept of Income Tax
 An income tax is one levied on the
income from property or an occupation.
It is direct upon the thing called income.
[Ito yung income na nagbebenefit ang taxpayer
pwedeng income from property or occupation.]
Purpose of Income Tax
1. To raise revenue to defray the expense of
the government; and
2. To mitigate the evils arising from the
inequalities of wealth by a progressive
scheme of taxation is places the burden
on those able to pay. (Bigyan ng action
yung hindi nagbabayad ng tax)
Characteristics of Philippine Income Tax
1. A national tax - It is imposed and
collected by the National Government
throughout the country.
2. A general tax - it is levied without a
specific or predetermined purpose. Thus,
the revenue from income tax maybe
appropriated for general public purposes.
3. An excise tax - It is imposed on the right
or privilege of a person to receive or earn
income.
4. A direct tax - It is payable by the person
upon whom it is directly imposed by law.
It cannot be shifted or passed to others.
5. In general, a progressive tax for
individual taxpayers - It is based upon
one's ability to pay. (based on the power
of taxpayer to pay.)
6. The income tax system is a
comprehensive system - It adopts the
7. Semi-global or semi-schedular system -
Some types of taxable income are
compounded or grouped together
without distinction, and after deducting
expenses and other allowable deductions
therefrom, are then subjected to the
same set of tax rate(s). This is known as
the global tax system (or net income tax
system). However, there are some types
of taxable income like passive income and
certain capital gains which are classified
into different categories and are accorded
different tax treatments. Each category of
income has its own schedule of tax rates.
This is known as the schedular tax system
(or gross income tax system).
Meaning of Income
 Income means all wealth which flows into
the taxpayer other than a mere return of
capital. Income is a gain derived from:
a. The use or employment of labor
or capital, or both labor and
capital, and/or
b. From the sale or other
disposition of assets or property
(both ordinary and capital).
(Hindi lahat ng income taxable, kung hindi siya
nagfafall sa A at B, hindi taxable)
Income vs Capital
 Capital is a fund, income is a flow. Capital
is wealth, while income is the service (or
fruit) of wealth.
 Capital is the tree, income is the fruit.
 Amounts received as a return of capital
are not income.
Theory of Separability or Severance Test of
Income
The income tax system of the Philippines may be
characterized under 2 general categories, namely:
1. Gross income taxation, whereby a final
tax is imposed on the gross amount of
specified types of income, such as
interest income, royalty, prizes, dividends,
 and capital gains (known as schedular tax
systems).
2. Net income taxation, whereby certain
deduction are allowed and subtracted
from the aggregate of incomes not
subject to final tax, and the tax computed
is based on the resulting net income
therefrom (known as global system of
taxation).
General Principles of Taxation
Taxation
 The exercise of the Sovereign power to
raise revenues for the expenses of the
government.
 Taxation as a power, it refers to the
inherent power of state the demand,
enforce distribution for public purpose to
support the government.
 Taxation is a process, the legislative task
in levying the tax income for the
government for prey the necessary
expenses. Isang batas na pinasa para
masuportahan ang proyekto ng
gobyerno.
 As mode of cost allocation, taxation is a
mean of allocating government burden to
the people. Pinapasa sa mga taxpayer
yung burden ng gobyerno. That is a
power
[Bottomline to support the government projects.
It is not just an obligation or contribution;
payment of taxes is our duty.]
Stages of Coverage of Taxation
Taxation covers 3 separate areas of aspects of
government activity, namely:
1. Levying or imposition of the tax. This
involves the passage of tax laws which is
generally a legislative act. In the
Philippines, the taxing power is exercised
by Congress. [Government and
Legislative)
[Ang taxes nagooriginate sa Congress to make it
law. Democratic tayo kaya sa Congress. Dito nag-
uugat. Kapag Nakagawa na, ipapasa ng senate
doon iassess kung mayroong changes hanggang
magkasundo. Ipapasa sa Office of President para
iapproved.]
2. Assessment. The process of determining
the correct amount of tax due. (BIR)
[Kapag naapprove, iaassess ng BIR para
makakolekta.]
3. Collection and payment - the act of
compliance with tax law by the taxpayer.
(BIR)
[Executive or administrative in nature. Done by
the BIR.]
[Sa mundo ng local government, saan naguugat
yung mga ordinansa nila, yung real estate taxes or
property taxes or business permit or license. City
Council magoorginate na kung saan binubuo ng
mga congressman ng kada Distrito. Ginagawa nila
ang batas, they communicate doon sa brgy.
Captain then the barangay captain sa mga
Kagawad. Para malaman ang mga problema.
Kapag may batas, ang maniningil ay yung
licensing division ng city hall. Sila magaassess at
mangongolekta]
[The local government, BIR, BOC are all collector
of taxes, kaya they have their own jurisdiction.
Ang BIR ang kinokolekta niya yung major taxes
then si BOC mga import at export. Then, local
government yung sa mga property tax. All of their
collection will be put sa Bureau of Treasury. Then
gagawa ng report si Department of Budget
Management para magpondo sa mga
government agency.]
Three Inherent powers of the state
1. Power to tax
Subject to inherent and constitutional limitations,
the power of taxation is regarded as CUPS
(Comprehensive, Unlimited, Plenary, Supreme).
As long as the legislative, in imposing a tax, does
not violate applicable constitutional limitations or
restrictions, the courts have no concern with the
wisdom or policy of the exaction, the poltical or
other collateral motives behind it, the amount to
be raised, or the persons, properly, or other
privileges to be tax.
 [Without the power to tax ang gobyerno ay Limitatio Limited based Public Public
walang silbi.] n on interest purpose in
constitutionall and just
2. Police Power y and requiremen compensatio
inherent t of due n
Is the inherent power of a soveriegn state to restricted. process
legislate for the protection of the health, general *Constitutionally nakastate sa batas. Inherent
welfare, safety, and morals of the public. It automatic hindi na kailangan isulat sa batas.
involes the power to regulate both liberty and
Limitation on the Power to Tax
property for the promotions of the public good.
The police power of the state may be exercised
1. Constitutional Limitation
through taxation because taxes may be levied for
a. No person shall be deprived of life, liberty
the promotion of the welfare of the public.
or property without due process of law
3. Power of Eminent Domain nor shall any person be denied the equal
protection of the laws.
The power of eminent domain is the inherent b. The rule of taxation shall be uniform and
power of a soveriegn state to take private equitable. The Congress shall evolve a
property for a public purpose. The constituion progressive system of taxation.
limits the exercise of this power by providing c. No person shall be imprisoned for debt or
that: "Private property shall not be taken for non-payment of a poll tax.
public use without just compensation". d. Charitable institutions, churches, and
Distinctions among the 3 Inherent parsonages, or convents appurtenant
Powers thereto, mosques, non-profit cemeteries,
and all lands, buildngs, and
Distinction Power To Tax Police Power Power to improvements, actually, directly, and
Eminent exclusively used for religious, charitable,
Domain
or educational purposes shall be exempt
Exercising of Government Government Government
Authority or Private from taxation.
Entities e. No law granting any tax exemption shall
Necessity of It is inherent There is There must be passed without the cuncurrence of a
Delegation (duty) delegation be due majority of all the members of Congress.
delegation
As to purpose Revenue and Protection of It is taken for f. No law impairing the obligation of
support of well-being of public use contracts shall be passed.
the the people g. No law shall be made respecting an
government establishment of religion or prohibiting
Person Community Community Operates of
affected or class or class the owner of the free exercise thereof.
individual individual the property h. All appropriation, revenue or tariff bills
Effects of It becomes No transfer of Ownership shall originate exclusively in the house of
transfer of the public right representatives. But the senate may
rights fund
Amount of Unlimited Sufficient to No imposition propose or cuncur with amendments.
imposition (any taxes or the cost of i. The Congress may, by law, authorize the
limited taxes regulation President to fix within specified limits,
pwedeng and subject to such limitations and
ipasa ng
gobyerno) restgrictions as it may impose, tariff rates,
Importance Most Most superior No import and export quotas, tonnage and
important importance wharfage dues, anf other duties or
Relationship Inferior to the Superior to Superior or imposts within the framework of the
to the non- the non- may overight
constitution impairment impairment the non - national; development program of the
loss of the loss of the impairment govt.
constitution constitution loss. j. The SC shall have the power to review,
*Delegation mean uutusan revise, reverse, modify, or affirm an
 appeal or certionari as the law or the
rules of court may provide, final
judgements and orders of lower courts in
all cases involving the legality of any tax,
impost, assessment, or toll, or any
penalty imposed in relation thereto.
k. All revenues and assets of non-stock,
non-profit educational institutions used
actually, directly, and exclusively for
educational purposes shall be exempt
from taxes and duties.
l. The president shall have the power to
veto any particular item or items in an
appropriation, revenue, or tariff bill, but
the veto shall not affect the item or items
to which he does not object.
m. All money collected or any tax levied for a
special purpose shall be treated as a
special fund and paid out for such
purposes only. If the purpose for which a
special fund was created has been
fulfilled or abandoned, the balance, if
any, shall be transferred to the general
funds of the government.
2. Inherent Limitations
These are restrictions Arising from the very
nature of the power to tax itself. They are:
a. The levy must apply within teritorial
limits for the exercise of effective tax
jurisdiction.
b. The tax must be for a public purpose.
c. Exemptions from taxation of the
government, any political subdivision
thereof, or agencies performing purely
governmental functions.
d. As a general rule, the Taxing power of the
legislature may not be delegated.
e. International comity
f. Double Taxation – same collection of tax
Nature or Construction of Tax laws
1. Tax laws are prospective, generally, but
can have retrospective application
2. A statue will not be construed as
imposing a tax unless it does not clearly,
and unambiguously.
3. Tax exemption are to be construed strictly
against the taxpayer
4. Revenue laws are not political in nature
5. Legislative intention must be considered
6. Tax laws are special laws, and prevail over
general laws.
Sources of Tax Laws
1. The 1987 constitution
2. Tax statutes as the NIRC, the tariff and
customs code, the VAT law, the revised
documentary stamps tax law, the
amended excise tax law, and positions of
the local government code.
3. Executive orders on taxation, and local
tax ordinances
4. Tax treaties and conventions with foreign
countries
5. Judicial decisions
6. Rules and regulations promulgated by the
DOF, BIR
7. Administrative interpretations and
opinions of tax officials particularly those
of CIR.
Basic Principles of a Sound Tax System
1. Fiscal Adequacy - Which means that the
sources of revenue should be sufficient to
meet the demands of public
expenditures.
[Titingnan kung sapat ba yung binabayad na
tax sa mga proyekto ng gobyerno]
2. Equality or Theoretical Justice - which
means that the tax imposed should be
proportionate to the taxpayer's ability to
pay.
[Depend upon the power of the taxpayer to pay.]
3. Administrative Feasibility - which means
that the tax laws should be capable of
convenient, just, and effective
administration.
[Iassess kung nakakakolekta ang BIR.
Mayroon pa rin siya police power.]
Theory or Basis of Taxation
1. Life-blood Theory – kapag mayaman ang
bansa wala silang tax.
 2. Benefits Protection Theory – kung from the improvement their property
naapply ba ng tama being increased in value by the
expenditure to an amount at least equal
Essential Elements or Characteristics of a to the sum they are required to pay.
Tax
1. Enforced contribution. [kapag yung pinagkukunan mo ng income ay very
2. Exacted pursuant to legislative authority unique sa BIR, may special assessment. For
3. For raising revenues for public needs example, the taxpayer has a power to withhold a
4. Proportionate in character or uniforms. taxes, ibig sabihin pwede ang isang individual
5. Payable in money mangolekta ng taxes sa kapwa taxpayer, like
6. Imposed within the state’s jurisdiction. employer. Kapag ikaw ay one of the best taxpayer
7. Personal to the taxpayer ng lugar, bibigyan ka ng privilege to power to
assess, pwede mo tanggalin yung withholding
Classification of taxes tax.]
a. According to scope or exercising authority Characteristics of Special Assessment
b. According to subject matter or object 1. A special assessment can be levied only
c. According to who bears the burden of the on land.
tax. 2. A special assessment cannot (at least in
d. According to purpose most states) be made a personal liability
e. According to the rate applied. of the person assessed.
f. According to measurement of the 3. A special assessment is based wholly on
amount due benefits.
4. A special assessment is exceptional both
Nature or Construction of Tax Laws as to time and locality.
1. Tax laws are prospective, generally, but
can have retrospective application. Tax vs Special Assessment
2. A statute will not be construed as
 Tax - Imposed on all property (real or
imposing a tax unless it does not so
personal) in a prescribed area.
clearly, and unambiguously.
 Special Assessment - Imposed only on
3. Tax exemptions are to be construed
property w/c benefit from the
strictly against the taxpayer.
improvement.
4. Revenue laws are not political in nature.
5. Legislative intention must be considered. Tax vs Debt
6. Tax laws are special laws, and prevail over
general laws. Tax and Debt Tax Debt
Distinguished
Forms of escape from taxation Source of Law Contract
Obligation
1. Shifting the burdens of the tax
Obligee Due to the govt in Due to obligee
2. Capitalization its sovereignty under a contract;
3. Transformation capacity May be due to
4. Tax exemption the govt in its
5. Tax avoidance corporate
6. Tax evasion capacity
Form of payment Money Money, property,
Special Assessment or services
Interest No interest If stipulated or if
 is in the nature of a tax upon property except in cases of the payment is in
levied according to benefits conferred on delinquency delay
the property. The whole theory of a Assignability Not Assignable Generally
special assessment is based on the Assignable
Compensation/ No Yes
doctrine that the property against which
set-off
it is levied derives some special benefit
 1. Tax evasion – sadyang hindi nagbabayad ng tax

2. Tax avoidance – umiiwas sa pagbabayad ng tax

Yes, except for non- No person can be 3. Tax exempt – nagpaexempt but they did to file.
payment of poll tax imprisoned for non-
payment of debts Chapter 2: Tax Administration

Tax Law
Tax and Toll Distinguished
 Any law that provides for the assessment
Tax Toll and collection of taxes for the support of
Demand for sovereignty Demand of ownership or the government and other public
proprietorship purposes.
Imposed by the government May be imposed by private
person or entities
May be based on income or Largely based on the cost of  Sources of Tax Laws
on the value of the property the property used, or on the 1. Constitution
cost of the improvement 2. Statues and Presidential Decrees
3. Executive Orders and Batas Pambansa
Forced Contributions Compensation charged 4. Tax treaties and conventions w/ foreign
by the owner for the Tax
countries
voluntary use of the vs
property/improvement 5. Administrative issuance or BIR rulings
File and pay kahit wala Pay 6. Judicial decisions
babayaran magfifile pa 7. Local ordinances
rin 8. Revenue regulations of by the DOF
License
Revenue Regulations (RR)
Tax and License Tax License
Distinguished  are issuances signed by the Secretary of
Purpose To raise revenue To regulate Finance, upon recommendation of the
action, business, Commissioner of Internal Revenue, that
industries, specify, prescribe or define rules and
profession regulations for the effective enforcement of
Limitations on Subject to Not subject to the
the provisions of the National Internal
Taxation constitutional & limitations on
inherent taxation Revenue Code (NIRC) and related statutes.
limitation on the
Revenue Memorandum Orders (RMOs)
power tax
Amount Unlimited Limited to the  are issuances that provide directives or
cost of regulation
instructions; prescribe guidelines; and
Effect of a non- Does not make Makes the
payment the business business illegal outline processes, operations, activities,
illegal workflows, methods and procedures
necessary in the implementation of
stated policies, goals, objectives, plans
*Income tax – cannot be shift and programs of the Bureau in all areas of
operations, except auditing.
*Business tax (Value added tax)- shift sa customer
ang pagbabayad ng tax Revenue Memorandum Circular (RMCs)
(Tax shield para makaiwas)  are issuances that publish pertinent and
applicable portions, as well as
*Tax amnesty- discounted ang tax
amplifications, of laws, rules, regulations
*Shifting to professional para walang withholding and precedents issued by the BIR and
tax other agencies/offices.
Revenue Delegation of Authority Orders
(RDAOs)
 refer to functions delegated by the
Commissioner to revenue officials in
accordance with law.
Revenue Administrative Orders (RAOs)
 are issuances that cover subject matters
dealing strictly with the permanent
administrative set-up of the Bureau, more
specifically, the organizational structure,
statements of functions and/or
responsibilities of BIR offices, definitions
and delegations of authority, staffing and
personnel requirements and standards of
performance.
Tax Administration
 ORGANIZATION AND FUNCTION OF
THE BUREAU OF INTERNAL REVENUE
(As Last Amended by RA 10963) [1]
The Bureau of Internal Revenue
 is tasked with tax administration function
of the government. Together with the
BOC , they are under the supervision and
control of the DOF.
SEC. 1. Title of the Code. - This Code shall be
known as the National Internal Revenue Code of
1997. [2]
SEC. 2. Powers and Duties of the Bureau of
Internal Revenue. - The Bureau of Internal
Revenue in its favor by the Court of Tax Appeals
and the ordinary courts. The Bureau shall give
effect to and administer the supervisory and
police powers conferred to it by this Code or
other laws.
SEC. 3. Chief Officials of the Bureau of Internal
Revenue. - The Bureau of Internal Revenue shall
have a chief to be known as Commissioner of
Internal Revenue, hereinafter referred to as the
Commissioner, and four (4) assistant chiefs to be
known as Deputy Commissioners.
SEC. 4. Power of the Commissioner to Interpret
Tax Laws and to Decide Tax Cases. - 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. The power to
decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters
arising under this Code or other laws or portions
thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to
the exclusive appellate jurisdiction of the Court of
Tax Appeals. [3]
SEC. 5. Power of the Commissioner to Obtain
Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the
correctness of any return, or in making a return
when none has been made, or in determining the
liability of any person for any internal revenue
tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is
authorized:
A. To examine any book, paper, record, or
other data which may be relevant or
material to such inquiry;
B. To obtain on a regular basis from any
person other than the person whose
internal revenue tax liability is subject to
audit or investigation, or from any office
or officer of the national and local
governments, government agencies and
instrumentalities, including the Bangko
Sentral ng Pilipinas and government-
owned or -controlled corporations, any
information such as, but not limited to,
costs and volume of production, receipts
or sales and gross incomes of taxpayers,
and the names, addresses, and financial
statements of corporations, mutual fund
companies, insurance companies,
regional operating headquarters of
multinational companies, joint accounts,
associations, joint ventures of consortia
and registered partnerships, and their
members; Provided, That the Cooperative
Development Authority shall submit to
the Bureau a tax incentive report, which
shall include information on the income
tax, value added tax, and other tax
incentives availed of by cooperatives
registered and enjoying incentives under
Republic Act No. 6938, as amended:
 Provided, further, That the information
submitted by the Cooperative
Development Authority to the Bureau
shall be submitted to the Department of
Finance and shall be included in the
database created under Republic Act No.
10708, otherwise known as “The Tax
Incentives Management and
Transparency Act (TIMTA).” [4]
C. To summon the person liable for tax or
required to file a return, or any officer or
employee of such person, or any person
having possession, custody, or care of the
books of accounts and other accounting
records containing entries relating to the
business of the person liable for tax, or
any other person, to appear before the
Commissioner or his duly authorized
representative at a time and place
specified in the summons and to produce
such books, papers, records, or other
data, and to give testimony;
D. To take such testimony of the person
concerned, under oath, as may be
relevant or material to such inquiry; and
E. To cause revenue officers and employees
to make a canvass from time to time of
any revenue district or region and inquire
after and concerning all persons therein
who may be liable to pay any internal
revenue tax, and all persons owning or
having the care, management or
possession of any object with respect to
which a tax is imposed.
The provisions of the foregoing paragraphs
notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the
authority to inquire into bank deposits other than
as provided for in Section 6(F) of this Code.
SEC. 6. Power of the Commissioner to Make
Assessments and Prescribe Additional
Requirements for Tax Administration and
Enforcement. –
a. Examination of Return and Determination
of Tax Due. After a return has been filed
as required under the provisions of this
Code, the Commissioner or his duly
authorized representative may authorize
the examination of any taxpayer and the
assessment of the correct amount of tax,
notwithstanding any law requiring the
prior authorization of any government
agency or instrumentality [4]: Provided,
however, That failure to file a return shall
not prevent the Commissioner from
authorizing the examination of any
taxpayer. The tax or any deficiency tax so
assessed shall be paid upon notice and
demand from the Commissioner or from
his duly authorized representative. Any
return, statement of declaration filed in
any office authorized to receive the same
shall not be withdrawn: Provided, That
within three (3) years from the date of
such filing, the same may be modified,
changed, or amended: Provided, further,
That no notice for audit or investigation
of such return, statement or declaration
has in the meantime been actually served
upon the taxpayer.
b. Failure to Submit Required Returns,
Statements, Reports and other
Documents. - When a report required by
law as a basis for the assessment of any
national internal revenue tax shall not be
forthcoming within the time fixed by laws
or rules and regulations or when there is
reason to believe that any such report is
false, incomplete or erroneous, the
Commissioner shall assess the proper tax
on the best evidence obtainable. In case
a person fails to file a required return or
other document at the time prescribed
by law, or willfully or otherwise files a
false or fraudulent return or other
document, the Commissioner shall make
or amend the return from his own
knowledge and from such information as
he can obtain through testimony or
otherwise, which shall be prima facie
correct and sufficient for all legal
purposes.
c. Authority to Conduct Inventory-taking,
Surveillance and to Prescribe
Presumptive Gross Sales and Receipts. -
The Commissioner may, at any time
during the taxable year, order inventory-
taking of goods of any taxpayer as a basis
for determining his internal revenue tax
liabilities, or may place the business
 operations of any person, natural or
juridical, under observation or
surveillance if there is reason to believe
that such person is not declaring his
correct income, sales or receipts for
internal revenue tax purposes. The
findings may be used as the basis for
assessing the taxes for the other months
or quarters of the same or different
taxable years and such assessment shall
be deemed prima facie correct. When it is
found that a person has failed to issue
receipts and invoices in violation of the
requirements of Sections 113 and 237 of
this Code, or when there is reason to
believe that the books of accounts or
other records do not correctly reflect the
declarations made or to be made in a
return required to be filed under the
provisions of this Code, the
Commissioner, after taking into account
the sales, receipts, income or other
taxable base of other persons engaged in
similar businesses under similar
situations or circumstances or after
considering other relevant information
may prescribe a minimum amount of
such gross receipts, sales and taxable
base, and such amount so prescribed
shall be prima facie correct for purposes
of determining the internal revenue tax
liabilities of such person.
d. Authority to Terminate Taxable Period. -
When it shall come to the knowledge of
the Commissioner that a taxpayer is
retiring from business subject to tax, or is
intending to leave the Philippines or to
remove his property therefrom or to hide
or conceal his property, or is performing
any act tending to obstruct the
proceedings for the collection of the tax
for the past or current quarter or year or
to render the same totally or partly
ineffective unless such proceedings are
begun immediately, the Commissioner
shall declare the tax period of such
taxpayer terminated at any time and shall
send the taxpayer a notice of such
decision, together with a request for the
immediate payment of the tax for the
period so declared terminated and the
tax for the preceding year or quarter, or
such portion thereof as may be unpaid,
and said taxes shall be due and payable
immediately and shall be subject to all
the penalties hereafter prescribed, unless
paid within the time fixed in the demand
made by the Commissioner.
e. 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, subject to automatic
adjustment once every three (3) years
through rules and regulations issued by
the Secretary of Finance based on the
current Philippine valuation standards:
Provided, That no adjustment in zonal
valuation shall be valid unless published
in a newspaper of general circulation in
the province, city or municipality
concerned, or in the absence thereof,
shall be posted in the provincial capitol,
city or municipal hall and in two (2) other
conspicuous public places therein:
Provided, further, That the basis of any
valuation, including the records of
consultations done, shall be public
records open to the inquiry of any
taxpayer. [4] 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.
f. Authority of the Commissioner to Inquire
into Bank Deposit Accounts and Other
Related information held by Financial
Institutions. [5] - Notwithstanding any
contrary provision of Republic Act No.
1405, Republic Act No. 6426, otherwise
known as the Foreign Currency Deposit
Act of the Philippines, and other general
or special laws, the Commissioner is
hereby authorized to inquire into the
bank deposits and other related
information held by financial institutions
of:
1. A decedent to determine his gross
estate; and
2. Any taxpayer who has filed an
application for compromise of his tax
liability under Section 204(A)(2) of
this Code by reason of financial
incapacity to pay his tax liability. In
case a taxpayer files an application to
compromise the payment of his tax
liabilities on his claim that his
financial position demonstrates a
clear inability to pay the tax assessed,
his application shall not be
considered unless and until he waives
in writing his privilege under Republic
Act No. 1405, Republic Act No. 6426,
otherwise known as the Foreign
Currency Deposit Act of the
Philippines, or under other general or
special laws, and such waiver shall
constitute the authority of the
Commissioner to inquire into the
bank deposits of the taxpayer.
3. A specific taxpayer or taxpayers
subject of a request for the supply of
tax information from a foreign tax
authority pursuant to an
international convention or
agreement on tax matters to which
the Philippines is a signatory or a
party of: Provided, That the
information obtained from the banks
and other financial institutions may
be used by the Bureau of Internal
Revenue for tax assessment,
verification, audit and enforcement
purposes. In case of a request from a
foreign tax authority for tax
information held by banks and
financial institutions, the exchange of
information shall be done in a secure
manner to ensure confidentiality
thereof under such rules and
regulations as may be promulgated
by the Secretary of Finance, upon
recommendation of the
Commissioner. The Commissioner
shall provide the tax information
obtained from banks and financial
institutions pursuant to a convention
or agreement upon request of the
foreign tax authority when such
requesting foreign tax authority has
provided the following information to
demonstrate the foreseeable
relevance of the information to the
request:
A. The identity of the person under
examination or investigation;
B. A statement of the information
being sought, including its nature
and the form in which the said
foreign tax authority prefers to
receive the information from the
Commissioner;
C. The tax purpose for which the
information is being sought;
D. Grounds for believing that the
information requested is held in
the Philippines or is in the
possession or control of a person
within the jurisdiction of the
Philippines.
E. To the extent known, the name
and address of any person
believed to be in possession of
the requested information;
F. A statement that the request is in
conformity with the law and
administrative practices of the
said foreign tax authority, such
that if the requested information
was within the jurisdiction of the
said foreign tax authority then it
would be able to obtain the
information under its laws or in
the normal course of
administrative practice and that it
is in conformity with a
convention or international
agreement; and
G. A statement that the requesting
foreign tax authority has
exhausted all means available in
its own territory to obtain the
information, except those that
would give rise to
 disproportionate difficulties. The
Commissioner shall forward the
information as promptly as
possible to the requesting foreign
tax authority. To ensure a prompt
response, the Commissioner shall
confirm receipt of a request in
writing to the requesting tax
authority and shall notify the
latter of deficiencies in the
request, if any, within sixty (60)
days from receipt of the request.
If the Commissioner is unable to
obtain and provide the
information within ninety (90)
days from receipt of the request,
due to obstacles encountered in
furnishing the information or
when the bank or financial
institution refuses to furnish the
information, he shall immediately
inform the requesting tax
authority of the same, explaining
the nature of the obstacles
encountered or the reasons for
refusal. The term “foreign tax
authority,” as used herein, shall
refer to the tax authority or tax
administration of the requesting
State under the tax treaty or
convention to which the
Philippines is a signatory or a
party of.
H. Authority to Accredit and
Register Tax Agents. - The
Commissioner shall accredit and
register, based on their
professional competence,
integrity and moral fitness,
individuals and general
professional partnerships and
their representatives who
prepare and file tax returns,
statements, reports, protests,
and other papers with or who
appear before, the Bureau for
taxpayers. Within one hundred
twenty (120) days from January
1, 1998, the Commissioner shall
create national and regional
accreditation boards, the
members of which shall serve for
three (3) years, and shall
designate from among the senior
officials of the Bureau, one (1)
chairman and two (2) members
for each board, subject to such
rules and regulations as the
Secretary of Finance shall
promulgate upon the
recommendation of the
Commissioner. Individuals and
general professional partnerships
and their representatives who are
denied accreditation by the
Commissioner and/or the
national and regional
accreditation boards may appeal
such denial to the Secretary of
Finance, who shall rule on the
appeal within sixty (60) days from
receipt of such appeal. Failure of
the Secretary of Finance to rule
on the Appeal within the
prescribed period shall be
deemed as approval of the
application for accreditation of
the appellant.
I. Authority of the Commissioner to
Prescribe Additional Procedural
or Documentary Requirements. -
The Commissioner may prescribe
the manner of compliance with
any documentary or procedural
requirement in connection with
the submission or preparation of
financial statements
accompanying the tax returns.
SEC. 7. Authority of the Commissioner to
Delegate Power. - The Commissioner may
delegate the powers vested in him under the
pertinent provisions of this Code to any or such
subordinate officials with the rank equivalent to a
division chief or higher, subject to such limitations
and restrictions as may be imposed under rules
and regulations to be promulgated by the
Secretary of Finance, upon recommendation of
the Commissioner: Provided, however, That the
following powers of the Commissioner shall not
be delegated:
 a. The power to recommend the
promulgation of rules and regulations by
the Secretary of Finance;
b. The power to issue rulings of first
impression or to reverse, revoke or
modify any existing ruling of the Bureau;
c. The power to compromise or abate,
under Sec. 204 (A) and (B) of this Code,
any tax liability: Provided, however, That
assessments issued by the regional
offices involving basic deficiency taxes of
Five hundred thousand pesos (P500,000)
or less, and minor criminal violations, as
may be determined by rules and
regulations to be promulgated by the
Secretary of finance, upon
recommendation of the Commissioner,
discovered by regional and district
officials, may be compromised by a
regional evaluation board which shall be
composed of the Regional Director as
Chairman, the Assistant Regional
Director, the heads of the Legal,
Assessment and Collection Divisions and
the Revenue District Officer having
jurisdiction over the taxpayer, as
members; and
d. The power to assign or reassign internal
revenue officers to establishments where
articles subject to excise tax are produced
or kept.
SEC. 8. Duty of the Commissioner to Ensure the
Provision and Distribution of Forms, Receipts,
Certificates, and Appliances, and the
Acknowledgment of Payment of Taxes. –
a. Provision and Distribution to Proper-
Officials. – Any law to the contrary
notwithstanding, it shall be the duty of
the Commissioner, among other things,
to prescribe, provide, and distribute to
the proper officials the requisite licenses;
internal revenue stamps; unique, secure
and non-removable identification
markings (hereafter called unique
identification markings), such as codes or
stamps, be affixed to or form part of all
unit packets and packages and any
outside packaging of cigarettes and
bottles of distilled spirits; labels and
other forms; certificates; bonds; records;
invoices; books; receipts; instruments;
appliances and apparatus used in
administering the laws falling within the
jurisdiction of the Bureau. For this
purpose, internal revenue stamps, or
other markings and labels shall be caused
by the Commissioner to be printed with
adequate security features. Internal
revenue stamps, whether of a bar code or
fuson design, or other markings shall be
firmly and conspicuously affixed or
printed on each pack of cigars and
cigarettes and bottles of distilled spirits
subject to excise tax in the manner and
form as prescribed by the Commissioner,
upon approval of the Secretary of
Finance. To further improve tax
administration, cigarette and alcohol
manufacturers shall be required to install
automated volume-counters of packs and
bottles to deter over-removals and
misdeclaration of removals.
b. Receipts for Payment Mode. – It shall be
the duty of the Commissioner or his duly
authorized representative or an
authorized agent bank to whom any
payment of any tax is made under the
provisions of this Code to acknowledge
the payment of such tax, expressing the
amount paid and the particular account
for which such payment was made in a
form and manner prescribed therefor by
the Commissioner.
SEC. 9. Internal Revenue Districts. - With the
approval of the Secretary of Finance, the
Commissioner shall divide the Philippines into
such number of revenue districts as may from
time to time be required for administrative
purposes. Each of these districts shall be under
the supervision of a Revenue District Officer.
SEC. 10. Revenue Regional Director. - Under rules
and regulations, policies and standards
formulated by the Commissioner, with the
approval of the Secretary of Finance, the Revenue
Regional director shall, within the region and
district offices under his jurisdiction, among
others:
a. Implement laws, policies, plans,
programs, rules and regulations of the
 department or agencies in the regional
area;
b. Administer and enforce internal revenue
laws, and rules and regulations, including
the assessment and collection of all
internal revenue taxes, charges and fees;
c. Issue Letters of authority for the
examination of taxpayers within the
region;
d. Provide economical, efficient and
effective service to the people in the
area;
e. Coordinate with regional offices or other
departments, bureaus and agencies in
the area;
f. Coordinate with local government units
in the area;
g. Exercise control and supervision over the
officers and employees within the region;
and
h. Perform such other functions as may be
provided by law and as may be delegated
by the Commissioner.
SEC. 11. Duties of Revenue District Officers and
Other Internal Revenue Officers. - It shall be the
duty of every Revenue District Officer or other
internal revenue officers and employees to
ensure that all laws, and rules and regulations
affecting national internal revenue are faithfully
executed and complied with, and to aid in the
prevention, detection and punishment of frauds
of delinquencies in connection therewith. It shall
be the duty of every Revenue District Officer to
examine the efficiency of all officers and
employees of the Bureau of Internal Revenue
under his supervision, and to report in writing to
the Commissioner, through the Regional Director,
any neglect of duty, incompetency, delinquency,
or malfeasance in office of any internal revenue
officer of which he may obtain knowledge, with a
statement of all the facts and any evidence
sustaining each case.
SEC. 12. Agents and Deputies for Collection of
National Internal Revenue Taxes. - The following
are hereby constituted agents of the
Commissioner:
a. The Commissioner of Customs and his
subordinates with respect to the
collection of national internal revenue
taxes on imported goods;
b. The head of the appropriate government
office and his subordinates with respect
to the collection of energy tax; and
c. Banks duly accredited by the
Commissioner with respect to receipt of
payments internal revenue taxes
authorized to be made thru banks. Any
officer or employee of an authorized
agent bank assigned to receive internal
revenue tax payments and transmit tax
returns or documents to the Bureau of
Internal Revenue shall be subject to the
same sanctions and penalties prescribed
in Sections 269 and 270 of this Code
SEC. 13. Authority of a Revenue Officer. - Subject
to the rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation
of the Commissioner, a Revenue Officer assigned
to perform assessment functions in any district
may, pursuant to a Letter of Authority issued by
the Revenue Regional Director, examine taxpayers
within the jurisdiction of the district in order to
collect the correct amount of tax, or to
recommend the assessment of any deficiency tax
due in the same manner that the said acts could
have been performed by the Revenue Regional
Director himself.
SEC. 14. Authority of Officers to Administer Oaths
and Take Testimony. - The Commissioner, Deputy
Commissioners, Service Chiefs, Assistant Service
Chiefs, Revenue Regional Directors, Assistant
Revenue Regional Directors, Chiefs and Assistant
Chiefs of Divisions, Revenue District Officers,
special deputies of the Commissioner, internal
revenue officers and any other employee of the
Bureau thereunto especially deputized by the
Commissioner shall have the power to administer
oaths and to take testimony in any official matter
or investigation conducted by them regarding
matters within the jurisdiction of the Bureau.
SEC. 15. Authority of Internal Revenue Officers to
Make Arrests and Seizures. - The Commissioner,
the Deputy Commissioners, the Revenue Regional
Directors, the Revenue District Officers and other
internal revenue officers shall have authority to
make arrests and seizures for the violation of any
penal law, rule or regulation administered by the
Bureau of Internal Revenue. Any person so
arrested shall be forthwith brought before a
court, there to be dealt with according to law.
SEC. 16. Assignment of Internal Revenue Officers
Involved in Excise Tax Functions to Establishments
Where Articles subject to Excise Tax are Produced
or Kept. - The Commissioner shall employ, assign,
or reassign internal revenue officers involved in
excise tax functions, as often as the exigencies of
the revenue service may require, to
establishments or places where articles subject to
excise tax are produced or kept: Provided, That an
internal revenue officer assigned to any such
establishment shall in no case stay in his
assignment for more than two (2) years, subject
to rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of
the Commissioner.
SEC. 17. Assignment of Internal Revenue Officers
and Other Employees to Other Duties. - The
Commissioner may, subject to the provisions of
Section 16 and the laws on civil service, as well as
the rules and regulations to be prescribed by the
Secretary of Finance upon the recommendation
of the Commissioner, assign or reassign internal
revenue officers and employees of the Bureau of
Internal Revenue, without change in their official
rank and salary, to other or special duties
connected with the enforcement or
administration of the revenue laws as the
exigencies of the service may require: Provided,
That internal revenue officers assigned to
perform assessment or collection function shall
not remain in the same assignment for more than
three (3) years; Provided, further, That
assignment of internal revenue officers and
employees of the Bureau to special duties shall
not exceed one (1) year.
SEC. 18. Reports of Violation of Laws. - When an
internal revenue officer discovers evidence of a
violation of this Code or of any law, rule or
regulations administered by the Bureau of
Internal Revenue of such character as to warrant
the institution of criminal proceedings, he shall
immediately report the facts to the Commissioner
through his immediate superior, giving the name
and address of the offender and the names of the
witnesses if possible: Provided, That in urgent
cases, the Revenue Regional director or Revenue
District Officer, as the case may be, may send the
report to the corresponding prosecuting officer in
the latter case, a copy of his report shall be sent
to the Commissioner.
SEC. 19. Contents of Commissioner's Annual
Report. - The Annual Report of the Commissioner
shall contain detailed statements of the
collections of the Bureau with specifications of
the sources of revenue by type of tax, by manner
of payment, by revenue region and by industry
group and its disbursements by classes of
expenditures. In case the actual collection
exceeds or falls short of target as set in the
annual national budget by fifteen percent (15%)
or more, the Commissioner shall explain the
reason for such excess or shortfall.
SEC. 20. Submission of Report and Pertinent
Information by the Commissioner. –
a. ) Submission of Pertinent Information to
Congress. - The provision of Section 270
of this Code to the contrary
notwithstanding, the Commissioner shall,
upon request of Congress and in aid of
legislation, furnish its appropriate
Committee pertinent information
including but not limited to: industry
audits, collection performance data,
status reports in criminal actions initiated
against persons and taxpayer's returns:
Provided, however, That any return or
return information which can be
associated with, or otherwise identify,
directly or indirectly, a particular taxpayer
shall be furnished the appropriate
Committee of Congress only when sitting
in Executive Session Unless such taxpayer
otherwise consents in writing to such
disclosure.
b. Report to Oversight Committee. - The
Commissioner shall, with reference to
Section 204 of this Code, submit to the
Oversight Committee referred to in
Section 290 hereof, through the
Chairmen of the Committee on Ways and
Means of the Senate and House of
Representatives, a report on the exercise
of his powers pursuant to the said
section, every six (6) months of each
calendar year
 Chapter 2: Individual Taxpayer b. Sales of the share of stocks – directly
to the buyer, the company is not
Taxpayer listed.
[Before we compute the income tax of our client, 2. Passive Income – corresponding tax rate
we need to identify the client] 3. Other Income – multiply by graduate tax
rate
1. Individual – employees or sole
proprietors - Compensating Income – 1700, in
2. Non-Individual – partnership and form of salary (if you have several
corporation employer you need to file BIR form)
- Business/Practice of Profession
 Types of Individual Taxpayer Income – 1701A (self Employed)
a. Resident Citizen - Other source of income – 1701A (self
b. Non-resident citizen employed)
c. Resident Alien - Mixed Income - 1701
d. Non-resident Alien
 Engaged in trade or business [every source of income that is taxable that
 Not engaged in trade or business belong to the other income has different BIR
form]
Residen Non- Residen Non- Engag Not
t Citizen residen t Alien resident ed in Enaga Tax Exempt in 6%
t alien trade ge in
Citizen or trade 1. The real property was a principal
busine or residence.
ss busine 2. The taxpayer is a citizen or resident of the
ss Philippines
Naturali Filipino Foreign Foreign May Walan 3. Utilization of the proceeds was made
ze but not er who er and Negos g within 18 months from the date of sale
Filipino Living live in not yo sa Negos
4. Notice of such utilization was given to the
who live in the Philippi Filipinos Pilipin yo
or work Philippi nes but who is as dito sa BIR within 30 days from the date of sale
in the ne they not a not Pilipin 5. A cash deposit is made with an accredited
Philippi work Filipino reside in as bank for an amount equal to the capital
nes abroad the gain tax answerable for the capital gain
Philippi tax if the condition on the exemption are
nes not satisfied
6. The exemption is availed of once only
[Resident Citizen – we need to tax their income every 10 years.
whatever within and outside the Philippines. The
*Rules on the basis of the new principal
rest, only within.]
residence
 BIR Form 2316
a. If the total proceeds of the sale is invested
 Accumulating all basic pay, net pay, and
withholding tax. 1. There is a total exemption from the capital gain
tax
 Sources of Income
1. Capital Gain – it is equal to capital asset 2. The entire proceeds of the sale will go into the
which is not used in the business. basis of the new principal residence
a. Real Property – it is only a land or b. If only a portion of the proceeds is invested
house, anything that attached (6% of
selling price or based sonal value of 1. The partial exemption from the capital gain tax
BIR, assess value) is:
Proceed of sale not invested/Entire proceeds of
the sale x what would have been the capital gain
tax
2.Going into the basis of the new principal
residence is:
Proceed of the sale invested/Entire proceeds of
the sale x Basis of the old residence
[BOOK]
Individual Taxpayers
 Natural persons with income derived
from within the territorial jurisdiction of a
taxing authority.
 Under 8424, NIRC or Tax Code, it
classified as follows:
Citizen of the Philippines
 Those who are citizens of the Philippines
at the time of the adoption of the 1987
Philippine Constitution
1. Resident Citizen (RC)
 A Filipino citizen taxpayer who is reside in
the Philippines.
2. Nonresident Citizen (NRC)
 Leaves the Philippines during the taxable
year to reside abroad.
 Example, as an immigrant, for
employment on a permanent basis, for
work and derives income from abroad
(OFW).
Alien
 An alien is a foreign-born person who is
not qualified to acquire Philippine
citizenship by birth or after birth.
3. Resident Alien (RA)
 As an individual whose residence is
within the Philippines and who is not
citizen.
 Whether an alien is transient or not is
determined by his intentions with regard
to the length and nature of his stay.
4. Non-resident Alien (NRA)
 An individual whose residence is not in
the Philippines and who is not a citizen
thereof.
a) Nonresident alien engaged in trade or
business (NRAET) – aliens who stayed
in the Philippines for an aggregate
period of more than 180 days during
the taxable year and/or aliens who
have business income in the
Philippines.
b) Nonresident alien not engaged in
trade or business (NRA-NETB) – an
alien stay in the Philippines for only
180 days or less, or he is not deriving
business income in the Philippines.
They are subject to 25% income tax
based on gross income from all
sources within the Philippines.
Application Income Taxes and Tax Rates
The applicable taxes for individuals depend on
several factors:
 Classification of the Taxpayer
 Source of income
 Type of income
 Three Types of Income Tax
(1) Basic income tax or regular tax
 Refers to income such as compensation
income (salaries or wages), business
income, income from practice of
profession, income from sale and/or
dealings of property and miscellaneous
income.
 They subject to graduated tax (TABLE 2-2)
(2) Final withholding tax (FWT) on certain
passive incomes
 These passive incomes are not subject to
graduated tax rate or basic tax but to
specific FWT rates (TABLE 2-3)
(3) Capital gains tax (CGT)
 Capital gains from sale of shares of stock
of a domestic corporation not traded in
the local stock exchange.
 Capital gains from sale of real property in
the Philippines.
[Table 2-1]
*Income earned by an OFW is earned out of the
country is exempted from Philippine income tax.
However, the earnings of an OFW from a business
venture or any other properly in the Philippines
are subject to income tax in the Philippines.
SUMMARY OF INCOME AND THE APPLICABLE
INCOME TAX
Page 67
Self-Employed and Professionals (SEP)
 Self-Employed
 A sole proprietor or an independent
contractor who reports income earned
from self-employment.
 It is subject to graduated tax rate.
 Professional
 As a person formally certified by a
professional body belonging to a specific
profession by virtue of having completed
a required course of studies and/or
practice, whose competence can usually
be measured against an established set of
standards.
*SEP are generally subject to two types of taxes,
the income tac (using graduated tax), and
business tax.
[Regular income of SEP amounting to more than
250,000 in a taxable year shall have an option to
avail of 8% tax on gross sales receipts and other
non-operating income in excess of 250,000.]
Requisites to avail 8% Preferential Tax Rate
1. The gross sales/receipts and other non-
operating income does not exceed the
vat threshold of 3,000,000.
2. The SEP shall be non-VAT registered;
3. The gross sales/receipts were not derived
from vat-exempt sales and transactions;
4. The SEP is not subject to Percentage Tax
other than under Section 116 of the Tax
Code, as amended.
5. The SEP signifies his/her intention to
elect the 8% income tax.
 Purely SEP
 If s/he is not earning income from
employment.
[Table page 70]
The following are not allowed to avail the 8%
tax
(a) VAT-registered taxpayers
(b) Those liable for Percentage Taxes other
than Sec 116 under Title V of NIRC.
SEP’s Gross sales/receipts exceeded the
VAT Threshold during the year
 The taxpayer shall be allowed an
income tax credit of quarterly
payments initially made under the 8%
income tax option.
 Taxpayer is likewise liable for
business tax(es), in addition to
income tax.
 For this purpose, the taxpayer is
required to update his registration
from non-VAT to vat taxpayer, within
the 30 days from the close of the
month the vat threshold was
breached.
 Percentage tax under Sec. 116 shall
still be imposed from the beginning
of the year until taxpayer is liable to
vat. The percentage tax pursuant to
Section 116 of the Tax Code, as
amended, shall be imposed on the
first P3,000,000.00. The excess of the
threshold shall be subject to VAT.
Thus, for this purpose, vat shall be
imposed prospectively.
 Percentage tax due on the
P3,000,000 shall be collected without
penalty, if timely paid on the due
date immediately following the
month the threshold.
 SEP with Mixed Income
 The taxpayer is considered mixed income
earner if s/he is deriving income from
both from self-employment and
compensation income (salary).
[Table page 75/]
 Passive Income subject to Final
Withholding Tax (FWT)
The five (5) passive income derived from
Philippine sources subject to final withholding tax
are as follows:
1.) Interest Income
2.) Dividend Income
3.) Royalties
4.) Prizes; and
5.) Other winnings
[Table 2-3, Page 78-79]
 Final Withholding Tax
 A kind of tax which prescribed on “certain
income” (interest income, dividends,
royalties, prizes and winnings) derived
from Philippine sources and is not
creditable against the income tax due of
the payee on income subject to regular
rates of tax for the taxable year.
 The amount of tax withheld by the
withholding agent (payor) is constituted
as a full and final payment of the income
tax due from the payee on the said
income.
 Deposit Substitutes
 As an alternative form of obtaining funds
from the public other than deposits,
through the issuance, endorsement, or
acceptance of debt instruments for the
borrower’s own account.
 Interest Income from Long-Term Deposit
or Investment
 Refers to certificate of time deposits or
investment in the form of savings,
common or individual trust funds,
deposit substitutes, investment
management accounts and other
investments with a maturity period of not
less than five (5) years.
Requisites/Condition for Exemption:
1.) The depositor or investor is an individual
citizen, RA or NRAET in the Philippines
2.) The long-term deposits or investments
certificates should be under the name of
the individual.
3.) Must be in the form of savings, common
or individual trust funds, deposit
substitutes, investment management
account.
4.) Must be issued by banks only.
5.) Must have a maturity period of not less
than five (5) years.
6.) Must be in denominations of Ten
Thousand pesos (P10,000) and other
denominations as may be prescribed by
the BSP.
7.) Should not be terminated by the original
investor before the fifth (5th) year,
otherwise they shall be subjected to final
tax rates of 5%, 12% or 20% on interest
income earnings.
8.) Except those specifically exempted by law
or regulations.
9.) The underlying investment of the
common or individual trust account or
investment management account must
comply with the requirements of Section
22 (FF) of the NIRC of 1997.
10.)Must hold on to such underlying
investment in continuous and
uninterrupted period for at least five (5)
years.
*For NRA-NETB, interest income received from
long-term deposit or investment shall be subject
to a final withholding tax at the rate of twenty
five percent (25%).
 Pre-termination of Long-Term Deposit
(RR 14-2012)
 It shall be subject to the following
graduated rates of final withholding tax in
the entire income and shall be withheld
by the depository bank from the
proceeds of the long-term deposit or
investment certificate based on the
remaining maturity (holding period)
thereof as follows:
 Four (4) years to less than five (5)
years – 5%
 Three (3) years to less than four
(4) years – 12%
 Less than three (3) years – 20%
Capital Gains Tax
 Income from sale of capital assets,
specifically from the sale of shares of
 stocks of a closely held corporation and
real properties located in the Philippines
are subject to capital gain tax (CGT).
 Ordinary asset vs. Capital asset
Ordinary Asset
1. Stock in trade of the taxpayer or other
property of a kind
2. Properly used in trade or business subject
to depreciation
3. Real Property held by the taxpayer
primarily for sale to customers in the
ordinary course of trade or business.
4. Real Property used in trade or business of
the taxpayer.
Capital Asset
 Include all other property held by the
taxpayer (whether or not connected with
his trade or business) not included in the
dCaefinition of ordinary asset above.
*Gain on sale of ordinary asset are commonly
known as ordinary or regular income that are
subject to basic income tax or graduated tax rate
as provided for under Section 124(A) of the Tax
Code.
1. Capital Gains Tax
a.) Capital gain on sale of shares of stocks of a
closely-held domestic corporation is subject to a
capital gains tax of 15%.
b.) Sale of real properties classified as capital
asset located in the Philippines is subject to six
percent 6% capital gains tax (CGT) imposed under
Section 124(D) of the Tax Code
Sale of Real Property to the Government
 The individual taxpayer shall have the
option to be taxed at 6% CGT or basic
income tax using the graduated tax rate.
2.Percentage Tax
Share of stock sold or disposed of through the
local stock exchange exempt from income tax. It
is subject to a Percentage Tax of 6/10 of 1% of
gross selling price (also known as Stock
Transaction Tax (STT)].
3.Basic Income Tax
 Sale of capital asset other than those
subject to capital gains tax and
percentage tax is subject to basic income
tax or the graduated tax rate.
SUMMARY OF INCOME AND THE APPLICANTS
INCOME TAX
[Page 89]
 Sale of Principal Residence
 The family home of the individual
taxpayer.
 The seller/transferor’s compliance with
the preliminary conditions for exemption
from the 6% capital gains tax under Sec.
3(1) and (2) of the Regulations shall be
sufficient basis for the RDO to approve
and issue the Certificate Authorizing
Registration or Tax Clearance Certificate
of the principal residence sold.
Requisites for Tax Exemption
1. The process is fully utilized in acquiring or
constructing a new principal residence
within eighteen (18) calendar months
from the date of disposition.
2. The historical cost or adjusted basis of
the real property sold or disposed shall
be carried over to the new principal
residence built or acquired.
3. The BIR shall have been duly notified by
the taxpayer within 30 days from the date
of sale or disposition through a
prescribed return of his intention to avail
of the tax exemption.
4. The tax exemption can only be availed of
once every 10 years.
Taxable Income Subject to Basic Tax
a. Pure Compensation Income Earner
b. Pure Business Income Earner
c. Mixed Income Earner (Business and
Compensation)
Creditable vs. Final Tax
Final Withholding Tax
Certain incomes such as those enumerated under
section 24(B) of the Tax Code as summarized in
Table 2-3 are subject to final taxes instead of [Page 105]
basic tax or graduated tax rates.
Hazard Pay Given to Minimum Wage
Creditable Withholding Tax Earners
1. Where the nature of work exposes the
Certain regular income not subject to final taxes workers to dangerous environmental
on passive income and capital gains tax are elements, contaminants, or work
subject to “credible” withholding taxes. conditions.
Quarterly Tax Returns 2. Where the workers are engaged in
construction work.
[Page 100] 3. Where the workers are engaged in the
manufacture or handling of explosives
Income Tax Due of Married Taxpayers
and other pyrotechnic products.
 Under RA 10963, husband and wife shall
4. Where the workers use or are exposed to
compute separately their individual
power driven or explosive powder
income tax based on their respective
actuated tools.
total taxable income.
5. Where the workers are exposed to
biologic agents such as bacteria, fungi,
Minimum Wage Earners (MWE)
viruses, protozoa, nematodes, and other
 The term “statutory minimum wage
parasites.
earner (SMW) shall refer to a worker in
the private sector paid the statutory
Senior Citizens (SCs) and Person with
minimum wage.
Disabilities (PWDs)
 Determine the wage rates in the different
 Subject to income tax in the same
regions based on established criteria and
manner as an ordinary individual
shall be the basis of exemption from
taxpayer . If its not exceed 250,000 they
income tax.
exempted.
 Minimum Wage, Holiday Pay, Overtime
 A senior citizen/PWD can still be liable for
Pay, Night Shift differential, Hazard Pay.
other taxes such as:
1. The 20% final withholding tax on interest
 MWE with additional “compensation”
income from any currency bank deposit.
Income in excess of 90,000
2. The 15% final withholding tax on interest
 Section 32(B)(7)(E) of the Tax Code in
income from a depository bank under the
relation to PD 851 as amended by RA
expanded foreign currency deposit
10963 (TRAIN LAW) provides that 13th
system.
month Pay and other benefits received by
3. Pre-termination of long-term deposit or
officials and employees of public and
investment.
private entities are exempt from income
4. The 10% withholding tax
tax and credible withholding tax on
5. The capital gains tax from sales of shares
compensation. It shall not exceed
of stock not traded un the stock
P90,000.
exchange.
6. The 6% final withholding tax on
 MWE with additional “business” income
presumed capital gains from sale of real
 Minimum wage earners receiving other
property, classified as capital asset .
income such as income from the conduct
7. Other Taxes – VAT or Other Percentage
of trade, business or practice of
Tax, Donor’s Tax, Estate Tax, Excise Tax,
profession, except income subject to final
and Documentary Stamp.
tax, in addition to compensation income
are not exempted from income tax on Benefit for Senior Citizen and/or PWDs
their entire income earned during taxable
year.
  20% discount and exemption from
VAT on their purchase of specified
goods and services.
 5% discount on basic and prime
commodities.
 P500 monthly social pension, for
indigent senior citizen
 Death benefit assistance;
 5% discount on utilities; and
 Income tax exemption for minimum
wage earner whose taxable income is
not more than 250,000.
Individual of Alien Individuals employed
by POGO’s or OGLs
 Taxation of alien individuals employed by
an offshore gaming license or Philippine
offshore gaming operation and its service
providers under RA 11590 and RR 20-
2021, regardless of residency and term
and class of working permit visa.
Definition of Terms
 Philippine offshore Gaming Operation
refers to the operation by an OGL of
online games of chance or sporting
events via the internet using a network
and software program.
 Offshore Gaming License – refers to an
offshore gaming operator, whether
organized in the Philippines or abroad,
duly license and authorized through a
gaming license issued by a POGO
Licensing Authority to conduct offshore
gaming operations.
 Accredited service provider refers to a
natural person regardless of citizenship or
residence, or juridical person regardless
of place of organization which provides
ancillary services to an OGL or any other
offshore gaming operator with license
acquired from other jurisdiction.
 POGO Licensing Authority – refers to
Philippine Amusement and Gaming
Corporation (PAGCOR) or any other
special economic zone authority, tourism
zone authority or freeport authority
authorized by their respective charters to
issue gaming licenses and accreditation
to POGO entities.
 OGL – Gaming Agent – refers to a
representative in the Philippines of a
foreign-based OGL who shall act as a
resident agent for the mere purpose of
receiving summons, notices and other
legal processes for the OGL and to
comply with the disclosure requirements.
Filing of Income Tax Returns (ITR)
 Basic Tax
- FOR PURELY COMPENSATION
INCOME EARNERS:
 Once a year only (unless qualified for
substituted filing)
 On or before April 15 of the following
year.
- FOR BUSINESS INCOME EARNERS
including income from practice of
profession
 Required to file a quarterly tax return on
or before the following dates (regardless
of the result of operations)
 1st Quarter – May 15
 2nd Quarter – Aug. 15 (45 days
after end of Quarter)
 3rd Quarter – Nov. 15 (45 days
after the end of the Quarter)
 Final Adjusted actual return –
April 15 of the succeeding year.
 Final Withholding Tax on Passive Income
- PRIOR TO 2018
 January to November – 10th day of the
month following the month the
withholding was made.
 December – January 15 of the succeeding
year
- BEGINNING 2018
 For final and Credible Withholding Taxes,
the return shall be filed and paid not later
than the last day of the month following
the close of the taxable year quarter
during which the withholding was made.
 Capital Gain Tax
- SHARE OF STOCK
 Ordinary Return – within 30 days after
each transaction
 Final Consolidated Return – on or before
April 15 of the following year.
 - REAL PROPERTY
 Within 30 days following each sale or
other disposition.
 Manner of Filing
A) Manual Filing
B) Electronic Filing and Payment System
(EFPS)
C) eBIR Forms
 Payment
RA 10963 (TRAIN LAW) provides that, when the
tax due is in excess of P2,000, the individual
taxpayer may elect to pay the tax in two equal
installments as follows:
1st Installment: at the time of filing the annual
ITR.
2nd Installment: on or before October 15 following
the close of the calendar year.
 Place of Filing Income Tax Return
(1) Authorized Agent Banks
(2) Revenue District Officer
(3) Collection Agent
(4) Duly Authorized city or municipal
Treasurer
- FOR “WITH PAYMENT” RETURNS
 File the return in with the Authorized
Agent Bank (AAB) of the place where the
taxpayer registered or required to be
registered.
- FOR “NO PAYMENT” RETURNS
 File the return with concerned Revenue
District Office where the taxpayer
registered.
Person Required to file Income Tax Return
1) Individuals engaged in business and/or
practice of profession, regardless of the
result of operations.
2) Individuals deriving compensation from
two or more employers concurrently or
successively at any time during the
taxable year.
3) Employees deriving compensation
income.
4) Individuals deriving other non-business,
non-profession-related income in
addition to compensation income not
otherwise subject to final tax.
5) Individuals receiving purely
compensation income from a single
employer.
6) Non-resident alien engaged in trade or
business in the Philippines deriving purely
compensation income, or compensation
income and other non-business, non-
profession-related income.
Person not Required to file Income Tax Return
(RR 8-2018)
1. An individual earning purely
compensation income whose taxable
income does not exceed P250,000.
2. An individual whose income tax has been
correctly withheld by his employer
3. An Individual whose sole income has
been subjected to final withholding tax
4. Minimum wage earners.
 Certificate of Withholding by the
Employer
 Under Section 2.83 of RR2-98, every
employer is required to furnish its
employees (including minimum wage
earners) BIR Form 2316 on or before
January 31 of the succeeding calendar
year.
 Substituted filing of Income tax returns
(ITR)
1. Receiving purely compensation income,
regardless of amount
2. The amount of income tax withheld by
the employer is correct (Tax due = Tax
withheld)
3. Only one employer during the taxable
year
4. If married, the employee’s spouse also
complies with all three aforementioned
conditions, or otherwise receives no
income.
 Chapter 3: Fringe Benefits Tax

Fringe Benefits
 The term compensation means all
renumeration for services performed by
an employee for his employer for his
employer under an employer-employee
relationship.
 Fringe benefit is any goods, service or
other benefits furnished or granted by an
employer in cash or in kind, other than
the basic compensation, by an employer
to an individual employee except the rank
and file.

 Fringe Benefits of Tax

 Under the tax Code, fringe benefits
subject to fringe benefit tax cover
only those fringe benefit given or
furnished to a managerial or
supervisory employee.
 It is a FBT is a final tax imposed on
the employee withheld by the
employer computed at 35% (upon
the effectivity of TRAIN LAW which
started in 2018). On gross-up
monetary value (GUMC).

 Items of Fringe Benefits subject to Tax

1. Housing
2. Expense Account
3. Vehicle any kind
4. Household personnel, such as maid,
driver and others
5. Interest on loan at less than market rate
to the extent of the difference between
the market rate and actual rate granted.
6. Membership fees, dues and other
expenses borne by the employer for the
employee in social and athletic clubs and
similar organizations.
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Education assistance to the employee or
his dependents.
10. Life or health insurance and other non-
life insurance premiums or similar
amount in excess of what the law allows.

 Tax exempt Fringe Benefits

1.) Contribution