Income tax compliance, schemes of income

taxation and final income taxation

By: Mrs. Rovelle siazon, Mr. Aldrian Ventura and mr. John
Liquigan
 compliance

- The state of being too willing to do what other people want you to do
- the process of complying to a desire
- Pliant – yielding – giving way under pressure, generating/producing
 The two fold obligation of a taxpayer

- TO PAY
- TO WITHHOLD
 TO PAY
- Voluntary Assessment and Payment
- Self Assessment Method
GROSS INCOME
(DEDUCTIONS)
TAXABLE INCOME
APPLICABLE TAX RATE( INDIV/CORP)
TAX DUE
(TAX CREDIT)
TAX PAYABLE
 3 TYPES OF INCOME TAX – RELATED
RETURNS FILED TO THE GOVERNMENT

• INCOME TAX RETURN

• INFORMATION RETURN
• WITHHOLDING TAX RETURN
 INCOME TAX RETURN

- CAPITAL GAINS TAX RETURN

- REGULAR INCOME TAX RETURN
 CAPITAL GAINS TAX RETURN – CAPITAL
GAINS TAXATION
Sale of Domestic Stock Classified as Capital asset directly to buyer
- BIR FORM 1707 and 1707 A
BIR FORM 1707 BIR FORM 1707A
- 30 DAYS AFTER THE DATE OF SALE 15TH DAY OF 4TH MONTH FOLLOWING THE
TAXABLE YEAR

Sale of Real Property Classified as Capital Asset

- BIR FORM 1706
- DEADLINE IS 30 DAYS AFTER THE OF SALE / PAYMENT OF INSTALLMENT
 REGULAR INCOME TAX RETURN
PERIOD/TAXPAY INDIVIDUAL DEADLINE CORPORATION DEADLINE
ER
QUARTER • BIR FORM 45 DAYS • BIR FORM 60 DAYS
1701Q FOLLOWING THE 1702 Q FOLLOWING THE
TAXABLE TAXABLE
QUARTER QUARTER
ANNUAL • BIR FORM 1700 – 15TH DAY OF THE • BIR FORM 15TH DAY OF THE
PURE 4TH MONTH 1702 RT 4TH MONTH
COMPENSATIO FOLLOWING THE • BIR FORM FOLLOWING THE
N TAXABLE YEAR 1702 EX TAXABLE YEAR
• BIR FORM 1701 –
MIXED INCOME • BIR FORM
EARNER 1702 MX
INCLUDING
ESTATE AND
TRUST
• BIR FOROM
1701A - PURE
BUSINESS
INCOME
EARNER
 WHO ARE REQUIRED TO FILE A REGULAR INCOME TAX
RETURN

INDIVIDUALS (INCLUDING TAXABLE ESTATE AND TRUST)

- RC
- NRC
- RA
- NRA ETB
CORPORATION (INCLUDING BP AND TAXABLE JV)
- DC
- RFC
GENERAL PROFESSIONAL PARTNERSHIP
- INFORMATION RETURN
 WHO ARE NOT REQUIRED TO FILE A
REGULAR INCOME TAX RETURN

INDIVIDUALS WHO ARE EXEMPT - LESS THAN OR EQUAL TO 250,000 TAXABLE INCOME
INDIVIDUALS WHO ARE PURE COMPENSATION INCOME EARNERS UNDER
SUBSTITUTED FILING
- UNDER ONE EMPLOYER
- THE EMPLOYER WITHHELD THE CORRECT AMOUNT OF TAX
THOSE TAXPAYERS COVERED BY FINAL INCOME TAXATION
- NRA – NETB
- NRFC
IMPORTANCE OF KNOWING THE DEADLINES

TO AVOID PENALTIES
- SURCHAGE (25%/50%)
- INTEREST (12%) – 2 TIMES THE LEGAL INTEREST
- COMPROMISE PENALTY - TABLE
 WITHHOLDING

- BY INDIVIDUALS WHO ARE ENGAGED IN BUSINESS AND CORPORATION

WHETHER TAXABLE OR NOT
- FINAL WITHHOLDING TAX
- WITHHOLDING TAX ON COMPENSATION
- EXPANDED WITHHOLDING TAX
 MODE AND VENUE OF FILING

BIR
LARGE LTSD EFPS
(NATIONAL)

NON
RDO MANUAL
LARGE

AAB EBIR

MUN.
TREAS. EFPS

Wrong venue filing : 25% surcharge

ACTIVITY/MODE MANUAL EBIR EFPS

ENCODING MANUAL ELECTRONIC ELECTRONIC

FILING MANUAL ELECTRONIC ELECTRONIC

PAYMENT MANUAL MANUAL ELECTRONIC

 Electronic Filing and Payment System

• Filing reference number - refers to control number issued by the EFPS to acknowledge
that a tax return including attachments, has been successfully filed electronically
• Confirmation number – refers to the control number issued by AAB to the taxpayer and
the BIR to acknowledge that the taypayer’s account has been debited successfully
• Acknowledgement number – refers to the control number issued by the AAB to the BIR
to confirm that tax payment has been credited to the account of the Government or
recognized as revenue by the Bureau of Treasury
CHARACTERISTICS OF A LARGE TAXPAYER
VAT and % TAX >200K/QUARTE
R
INCOME TAX > 1M/YEAR
EXCISE TAX
VIEW AND DOCUM.
PAYMENTS WITHHOLDING
TAX

SEP SALES >1B/YEAR

FINANCIALS
EQUITY >300M/YEAR
OTHERS PURCHASES >800M/YEAR

a. Top 20,000 private corporations duly notified by the

BIR
b. Top 5,000 individual taxpayers duly notified by the BIR
c. Taxpayers who wish to enter into contracts with
government offices
d. Corporations with paid-up capital of P10 million.
 SCHEMES OF TAXATION
RETURN ON CAPITAL
GROSS REALIZED BENEFIT
INCOME * NOT EXEMPTED

EXCEPTION
RULES GENERAL
RULE

FINAL INCOME REGULAR

TAXATION INCOME
CAPITAL GAINS
TAXATION TAXATION

GROSS INCOME
TAXATION/ GLOBAL SYSTEM OF
SCHEDULAR SYSTEM TAXATION/NET INCOME
OF TAXATION TAXATION
 *NOT EXEMPTED BY LAW, CONTRACT,
CONSTITUTION OR TREATY

THINGS TO CONSIDER:
- SITUS OF INCOME
- KIND OF TAXPAYER
- RULES OF EACH SCHEME/SYSTEM
 CERTAIN LIST
FIT CHAPTER 5 PASSIVE
INDIV AND INCOME
CHAPTER SALE OF
CGT CORP CERTAIN
6 DS – BUYER
CAPITAL RP
INTRO TO
CHAPTER 7 GAINS - CA
RIT
EXCLUSIONS CHAPTER COMPENSATION CHAPTER
GROSS INCOME 8 INCOME
10
CHAPTER BUSINESS INCOME
(DEDUCTIONS) INCLUSIONS
9 PROFESSIONAL
TAXABLE INCOME INCOME FBT
* TAX TABLE /30% PRINCIPLES- CHAPTER INCOME NOT
CHAPTER 13 12 - DIP EXEMPTED/TAXED
TAX DUE IN FIT CHAPTER
RAID – 11
(TAX CREDIT) CHAPTER 13A INCOME NOT
TAX PAYABLE SAID – EXEMPTED/TAXED
CHAPTER 13B IN CGT
OSD-
INDIV – CHAPTER 13 C
CHAPTER 14

CHAPTERS
CORPORATION 15A AND 15B
 FINAL INCOME TAXATION

- WITHHOLDING AT SOURCE
- FINAL TAX
- NO INCOME TAX RETURN
- CERTAIN PASSIVE INCOME
- CERTAIN NON RESIDENTS
- TERRITORIAL
 WITHHOLDING AT SOURCE, FINAL TAX AND
NO ITR
- PAYOR OF INCOME
- WITHHELD AMOUNT IS FULL AND FINAL PAYMENT OF TAX
ON THE INCOME OF THE PAYEE
- THE PAYEE NEED NOT TO FILE INCOME TAX RETURN

PAYOR
INCOME(NET) PAYEE

BIR

WITHHELD
PORTION
 FINAL WITHHOLDING TAX VS CREDITABLE
WITHHOLDING TAX
GROSS INCOME

- Final tax is full amount payment of tax

(DEDUCTIONS)
TAXABLE INCOME
- Creditable withholding taxes are only estimate * TAX TABLE
TAX DUE
WITHHELD
(TAX CREDIT)
PORTION
BIR
TAX PAYABLE

PAYOR PAYEE
INCOME(NET)

ITR
FINAL WITHHOLDING TAX VS CREDITABLE WITHHOLDING TAX

Similarities FINAL CREDITABLE

The income payor withhold a percentage of the income
Serves to avoid cash flow problems to taxpayers by collecting at the moment cash is
available
Differences FINAL CREDITABLE
Tax withheld Full Only Portion
Coverage Certain Passive income Certain Passive income
and regular income
Who remits tax Income Payor Income payor and the
taxpayer (payee)
Necessity for a None Required
consolidated return
(payee)
 CERTAIN PASSIVE INCOME
LIST Interest
Dividends
Royalties
Prizes
Winnings
Tax Informers Reward

PASSIVE INCOME ACTIVE INCOME

- NO EFFORT/MINIMAL - ACTIVE/RECURRING
EFFORT/CASUAL
CAN SUBJECT TO FIT, CGT, RIT SUBJECT TO RIT
TERRITORIAL AND IMPOSED TO CERTAIN NON
RESIDENTS
Final taxes apply only on specified passive income by the law earned in the
Philippines
- If those specified passive income is earned abroad/outside it is subject to
regular income tax only if the taxpayers are RESIDENT CITIZEN AND
DOMESTIC CORPORATION
We cannot mandate Non Resident who are not in the Philippine to file income
tax return, so NRA NETB and NRFC are subject to final tax generally on all their
income which are taxable
- NRA NETB – 25%
- NRFC – 30%
 INTEREST INCOME –FROM BANKS

PERIOD INDIV CORP

SHORT(<5) 20% 20%
peso
LONG(=> 5) EXEMPT 20%
foreign
BANKS - BANKS -
FCDU OBU
EFCDU

PERIOD INDIV CORP

RESIDENT 15% 15%
NON EXEMPT EXEMPT
-RESIDENT
S
PRE TERMINATION OF LONG TERM DEPOSITS
- Tax is applied to initially exempted interest income on to and based to the
holding period of the depositor
< 3 years- 20%
3 years - < 4 years – 12%
4 years - <5 years – 5%
5 and above – 0%
 EXERCISE
During 2018, Jabie, a resident citizen deposited his money in a domestic bank
and a foreign bank with a short term period. Jabie’s deposit account was
credited to a 800,000 interest income on his deposit in the domestic bank and
he also receives 1,000,000 interest income from the foreign bank

Required:
a. How much is the final tax payable by Jabie?
b. How much income is reportable by Jabie?
 Answers:

a. 0
b. 1,000,000
 EXERCISE

On January 1, 2015. Helen invested 1,000,000 to RCBC Commercial Banks with

a period of 5 years tax free time deposit. The long term deposits pays 15%
annual interest every January 1. In need of cash, Helen pre terminated her
investment on July 1 2018.
Required:
a. How much is the final tax due and proceeds of Helen’s Deposit?
b. How much final tax is withheld in the interest income paid by the bank on
January 1, 2018
 ANSWERS

2015 150,000
a. 63,000, 1012,000 2016 150,000
b. 0 2017 150,000
2018 75,000
1,000,000+75,000 –( 525,000 * .12) = 1,012,000
 DIVIDENDS
RECIPIENT RC/NR NRAETB NRA DC/RFC NRFC TAX
C/RA NETB SPARING
TAX 10% 20% 25% EXEMPT 30/15%
APPLICATION

DC FIT
WITHIN

RFC PREDOMIN
FC ANCE WITHOUT
NRFC
RIT RC
Phil (NRFC) Abroad(DC)
30% 25%
(15%) (15%)
15 10
 TYPES OF DIVIDENDS

- Cash
- Property
- Script
- Stock Dividends – are not income
- Liquidating dividends – RIT, Dividends > Equity
SHARE IN THE NET INCOME OF A BUSINESS
PARTNERSHIP/ TAXABLE JOINT VENTURE
RECIPIENT RC/NR NRAETB NRA DC/RFC NRFC
C/RA NETB
TAX 10% 20% 25% 10% 30%
APPLICATION
DIVIDENDS VS SHARE IN THE NET INCOME
OF BUSINESS PARTNERSHIP AND TAXABLE
JOINT VENTURE

TIMING OF TAX APPLICATION

DIVIDENDS SHARE IN NI OF BP/JV
Point of Distribution Point of income determination
1,000,000 1,000,000
(400,000) (400,000)
ACTUAL 600,000 600,000 ACTUAL

CONSTRUCTIVE
 EXERCISE

1. Carrots Inc, owns 20% of the stock of Cabbage corporation. Carrots and
Cabbage are both domestic corporations. Cabbage declared 120,000 in
2019. How much dividend income after any applicable tax will Carrots
receive?
2. Surigao Inc. is the only corporate shareholder of Sison inc. owning 60% of its
outstanding voting shares. During the year, Sison Inc. declared 1,000,000
dividend. Compute the final income tax to be withheld by Sison?
 ANSWERS

1. 24,000 – 120,000*20%
2. 40,000 – 40% * 1,000,000= 400,000 * 10%
 ROYALTIES

ACTIVE RIT

PASSIVE FIT
SOURCE/TAXPAYER CITIZEN NRA ETB NRANETB DC/RFC NRFC
AND RA
BOOKS , LITERARY, MUSICAL 10% 10% 25% 20% 30%
COMPOSITIONS
OTHERS 20% 20% 25% 20% 30%
 PRIZES WINNINGS
EFFORT/DETERMINATION CHANCES/LUCK

EXEMPT
W/OUT
EXEMPT
INTENTION
PRIZES ACCREDITED
W/ SPORTS
INTENTION NOT ACCREDITED
NON
SPORTS

TAXABLE
 PRIZES

INDIVIDUALS CORPORATIONS
PRIZES EXCEEDING 20% RIT
10,000
PRIZES NOT EXCEEDING RIT RIT
10,000
 EXEMPT PRIZES
• EXEMPT PRIZES
1. Prizes received by recipient without any effort on his part to join a contest such as Nobel
Prize, Most Outstanding Citizen, and the likes
2. Prizes from sports competition that are sanctioned by their respective national sport
organization. 

• Requisites of Exemption
1. The recipient was selected without any action on his part to enter the contest.
2. The recipient is not required to render substantial future service as a condition to receiving the
prize or reward.
 WINNINGS
RC,NRC, NRA NETB DC, RFC NRFC
RA,NRA ETB
PCSO/LOTTO EXEMPT 25% EXEMPT 30%
NOT
EXCEEDING
10,000
PCSO/LOTTO 20% 25% 20% 30%
EXCEEDING
10,000

Other 20% 25% RIT RIT

winnings
 TAX INFORMERS REWARD
A cash reward may be given to any person instrumental in the discovery of violations of the NIRC or discovery and
seizure of smuggled goods. The tax informer’s reward is subject to 10% final tax.
 
Requisite of Tax Informer’s Reward
1. Definite sworn information which is not yet in the possession of the BIR
2. The information furnished lead to the discovery of fraud upon internal revenue laws or provisions thereof
3. Enforcement results in recovery of revenues, surcharges and fees, and/or conviction of the guilty party or
imposition of any fine or penalty
4. The informer must not be a
a. BIR official or employee
b. Other public official or employee
c. Relative within the 6 degree of consanguinity of those officials or employee in a. and b.
th
 TAX INFORMERS REWARD

• Amount of cash reward = whichever is lower of the following per case

a. 10% of revenues, surcharges or fees recovered and/or fine or penalty imposed and collected
or
b. P1,000,000

• The amount of cash reward is subject to 10% final tax which shall be withheld by the
government.