OVERALL REVIEW FOR

PRELIM TOPICS
BY: Mrs. Rovelle Siazon, Mr. Aldrian Ventura and Mr. John
Liquigan
 taxation

- As a power
- As a process
- As a mode of cost allocation
 Taxation as a power

- Mandatory/Compelling/Exacting Imposition NECESSITY THEORY

- It is the power of the sovereign state to raise revenue to Defray the

necessary expenses of the government

Primary Purpose:
To Raise Revenue LIFEBLOOD DOCTRINE
Secondary: The Government ensure the early and certain
Regulatory availability of Tax
Compensatory BASIS OF TAXATION
  Taxation Police Power Eminent Domain
Authority Government Government Government and private utilities
To make and implement laws for
Nature To raise government funds To take private property for public use
general welfare
To protect the general welfare of the
Purpose For the support of the government Public use
people
Person
Community or class of individuals Community or class of individuals Owner of the property
affected
Amount of No imposition (owner is paid
No limit (tax is based on government
Limited (to cover cost of regulation) equivalent to the fair value of the
imposition needs)
property)
Importance More important Most important Important
Plenary, comprehensive, supreme, General power to make and implement A power to take private property for
Scope
unlimited law public use
Contribution becomes part of public No transfer of title(just a restraint on
Effect There is a transfer of title to property
fund the injurious use of property

Benefits No direct and immediate benefit but

In form of protection and benefits
may arise from the maintenance of a Market value of the property taken
Received received from government
healthy economic standard of society

Constitutional and Inherent

Limitation Public interest and due process Public purpose and just compensation
Limitations
Relationship
Inferior to the “non-impairment Superior to the “non-impairment Superior to the “non-impairment
With the
clause” of the constitution clause” of the constitution clause” of the constitution
constitution
 Scope of the power to tax

-At to what extent can the taxation comprehend

- No delineation on the extent of the power to tax
- SC – Jurisprudence – Coined as PUSC
- Subject to Limitations – Conscience of the Congress

INHERENT CONSTITUTIONAL
 INHERENT LIMITATIONS(penis)

PUBLIC PURPOSE
EXEMPTION OF THE GOVERNMENT
NON DELEGATION OF THE POWER TO TAX
INTERNATIONAL COMITY
SITUS OF TAXATION
 PUBLIC PURPOSE

- Non Payment of Tax can lead to Prosecution

 Exemption of the government

- Can the Government Tax itself? There is no prohibition

- It is not an absolute rule

AGENCIES, DEPARTMENT, BUREAU, EXEMPT

INSTRUMENTALITIES
GOCC TAXABLE

EXEMPT: SSS,GSIS,PHIC, PHILHEALTH LANDBANK, PAGCOR, PCSO

 NON DELEGATION TO POWER TO TAX
- Legislative in Nature

Exceptions:
The Power of the President to veto items of tax law
The Power of the President to tariff and customs rate
Tax Administration
Local Taxation
 International comity
- International Courtesy – In Good Terms with other countries
- UN Declaration No. 2 – Co equal Sovereignty clause
Application
1. Property and Income of Foreign Government are not objects of Taxation
2. Observance of Treaty Provisions – Agreement
- It is not an absolute rule – it is contingent on the rule of reciprocity
 SITUS OF TAXATION - TERRITORIALITY

The Place or authority to impose and collect taxes

- The Taxing Authority is restricted to its territorial boundaries

- Benefit Received Theory
FILE

- Cannot imposed tax obligations on Certain Non residents

PAY
 APPLICATIONS OF TERRITORIALITY
COVERS ONLY ON CERTAIN
FINAL INCOME TAXATION PASSIVE INCOME EARNED IN
THE PHILIPPINES
NRA – NETB AND NRFC ARE
GENERALLY SUBJECTO FIT
CGT SALE OF DOMESTIC STOCKS –
CA – DIRECTLY TO BUYER
SALE OF REAL PROPERTY – CA
– LOCATED IN THE PHILIPPINES
RIT GENERALLY ALL TAXPAYERS
ARE TAXABLE ON THEIR
INCOME IN THE PHILIPPINES
PASSIVE INCOME EARNED
ABROAD IS COVERED BY RIT
SALE OF STOCKS ISSUED BY
FOREIGN CORPORATION AND
REAL PROPERTIES LOCATED
ABROAD IS COVERED BY RIT
RC AND DC ARE TAXABLE ON
THEIR WORLD INCOME

CLAIM FOR FOREIGN TAX CREDIT INDIRECT DOUBLE TAXATION

 DOUBLE TAXATION
ELEMENTS DIRECT DUPLICATE INDIRECT DUPLICATE
PRIMARY:
SAME SUBJECT/OBJECT PRESENT PRESENT
SECONDARY:
SAME TYPE OF TAX PRESENT PRESENT/NOT
SAME PURPOSE OF TAX PRESENT PRESENT/NOT
SAME TAX AUTHORITY PRESENT PRESENT/NOT
SAME TAX PERIOD PRESENT PRESENT/NOT
DISCOURAGED ALLOWED
 CONSTITUTIONAL LIMITATIONS

1. Doctrine of Due Process of Law

- Substantive and Procedural
2. Equal Protection of the Law
- Same object, Same tax
3. Uniformity of Taxation
- The Congress shall evolve a progressive system of taxation
4. Non imprisonment of non payment of debt and poll tax
- Does not cover additional poll tax 1/1,000 maximum of 5,000
 CONSTITUTIONAL LIMITATIONS
5. Non Impairment of obligation and contract
6. Free Worship rule
7. Exemption of religious or charitable entities, non-profit cemeteries,
churches, mosque from property taxes
8. Non Appropriation of public funds for the benefit of any system of religion
9. Exemption from taxes of the revenues and assets of non-stock educational
institutions
10. Concurrence of a majority of all members of Congress for the passage of
law granting tax exemption
11. Non-impairment of the jurisdiction of the Supreme Court to review tax
cases
 Taxation as a process

LEVY – TAX LEGISLATION – IMPACT OF TAXATION

ASSESSMENT – THE PROCESS OF DERTERMINATION OF CORRECT
AMOUNT OF TAX AND IT IS ALSO A NOTICE AND DEMAND FOR PAYMENT
COLLECTION – TO EFFECT THE EXACTION OF TAXES
ASSESSMENT AND COLLECTION – INCIDENCE OF TAXATION
 Taxation as a mode of cost allocation

COST/EXPENSES OF GOV’T TAXPAYER/PEOPLE

ABILITY TO PAY BENEFIT RECEIVED

 ESCAPES FROM TAXATION – LOSS OF REVENUE

TAX EVASION – ILLEGAL WAY OF ESCAPING FROM TAXATION

EXAMLE: DELINQUENT TAXPAYMENT, UNDERSTATEMENT OF REVENUE
FOR MORE THAN 30%
TAX AVOIDANCE/TAX MINIMIZATION – ACT OF REDUCING TAXES
PERMISSIBLE BY LAW
TAX EXEMPTION/TAX HOLIDAY - IMMUNITY
 Escapes from taxation – NO LOSS OF REVENUE

SHIFTING – THE IMPACT AND INCIDENCE OF TAXATION FALLS ON DIFFERENT

PERSON
STATUTORY TAXPAYER ECONOMIC TAXPAYER
IMPACT INCIDENCE

CAPITALIZATION
TRANSFORMATION
 tax
- An enforced proportionate contribution imposed upon persons, properties,
businesses, rights, interests, privilege, transactions and acts within the
territorial jurisdiction of the taxing authority exercised by the legislature for
public purpose and generally payable in money
Elements of a Valid Tax
1. Levied by the taxing power having jurisdiction over the object of taxation
2. Does not violate constitutional and inherent limitations
3. Uniform and equitable
4. For public purpose
5. Proportional in character
6. Generally payable in money
 TAX LAWS/ TAX LEGISLATION
- Originates from the House of Representatives
- Vague tax laws are strictly construed against the government and liberally in favor of the taxpayer

Classifications:
Tax Imposition Law
NIRC
Tariff and Customs Code
Local Tax Code
Real Property Tax Code
Tax Exemption Law
- Generally Tax exemptions are discouraged by law – Lifeblood Doctrine
- Tax exemptions, deductions, and tax credits are strictly construed against the taxpayer and
liberally in favor of the government
Minimum wage law
EO 226
BMBE Law
Cooperative Development Act
Hierarchy of tax laws

CONSTITUTION
STATUTES – REPUBLIC ACT
EXECUTIVE ORDER – PRESIDENT
SCRA – JUDICIARY
ADMINISTRATIVE RULINGS - BIR
 Characteristic of Tax Laws

- Legislative in nature
- Civil in nature
- Not political
- Not Penal
- Prospective
- Special Laws
 Classification of Taxes
As to purpose: Fiscal/Revenue/General, Regulatory, and Compensatory
As to subject matter: Personal tax, Property Tax, Excise Tax
As to Incidence: Direct Tax and Indirect Tax
As to Amount: Specific and Ad Valorem
As to Rate: Proportional, Graduated/Progressive, Regressive
As to Imposing Authority: National, Local
 TAX VS OTHER ITEMS

TAX REVENUE
- Only a source of the revenue of the - Refers to funds collected by the
government government from taxes and other
sources
TAX LICENSE
- For Revenue - For regulation
TAX TOLL
- Demand of sovereignty - Demand of Ownership
TAX DEBT
- Based on Law - Based on Contract
TAX SPECIAL ASSESSMENT
- Imposed on Persons, Properties and - Imposed Land improved by Public
Privileges Improvements
 Systems of taxation

Progressive system/Global System of Taxation

- Taxation on the income of Individuals (Tax Table)
Proportional system/Schedular System of Taxation
- Taxation on the income of Corporations (30%) , Business Taxes – VAT (12%),
FIT (Specific Rates), CGT (15% and 6%)
 Tax administration

- Assessment and Collection

Two Fold Obligations of a taxpayer
To File
- Voluntary Compliance System – Self Assessment Method
- Assessment or enforcement system - Tax Mapping/Compliance Verification
Drive, BIR Audit, Run Against Tax Evaders, Oplan Kandado
To Withhold
- Final withholding tax, Withholding on compensation, Expanded Withholding tax
 Principles of a sound tax system

Fiscal Adequacy/Certainty
- Revenue must be sufficient to meet the demands of public expenditures
Administrative Feasibility/Convenience
- Capable of convenient, just and effective administration
Theoretical Justice/ Equality
- Based on Ability to pay
 Elements of Gross income

Return On Income
- Resulted To Increase In Net Worth At The Moment Of Its Generation
Compensatory Damages – Return Of Capital, Interest – Return On Capital
Recovered Damages - Return On Capital
Realized Benefit
- Mere increase in the value of a object of taxation is only a benefit it is not yet
realized, Benefit from gratuitous transfer are benefit but are not realized –
income of properties received are taxable
- Actual Receipt and Constructive receipt of income
Promissory notes received are not considered income until it is collected
 Constructive receipt of income

- Share of Partners in the income of the Partnership to be credit in their

capital accounts
Condonation of Debt
Debtor rendered services to the credit – taxable income to the debtor
No service rendered – Taxable to the creditor as gift given to the debtor under
Donor’s Tax
Creditor is a corporation while debtor is a stockholder – constructive receipt of
dividend
 Not exempted by law, contract, treaty, and constitution

- There are exemption that are revocable

 Classifications of taxpayer

INDIVIDUAL CORPORATION
Resident Citizen Domestic Corporation
INTENTION Non – Resident Citizen Resident Foreign Corporation
Resident Alien Non – Resident Foreign Corporation
Non Resident Alien Engaged in Business/General Co Partnership
Trade/Business
ACTUAL
LENGTH OF Non Resident Alien Not Engaged in Taxable joint ventures
STAY Trade/Business

Judicial Estate
Irrevocable Trust
 Situs of income
SOURCE/TYPE OF INCOME
INTEREST INCOME
Dividends Declared By:
Domestic Corporation
Resident Foreign Corporation
Non Resident Foreign Corporation
Service
Rent
Royalty
Gain on sale
On Real/Immovable Property
On Personal/Movable Property
Exception: Domestic Stocks
SITUS/PLACE OF TAXATION
DEBTOR’S RESIDENCE
Within the Philippines
Within/without the Philippines
Without the Philippines
Where Rended
Location of the Property
Where the intangible is employed
Location of the Property
Place of Sale
In the Philippines
 Schemes of taxation
TAXPAYER FINAL INCOME CAPITAL GAINS REGULAR INCOME
TAXATION TAXATION TAXATION
INDIVIDUALS CERTAIN PASSIVE SALE OF DS – CA- INCOME NOT TAXED
INCOME BUYER BY FIT AND CGT
SALE OF RP - PHIL- CA
CORPORATION CERTAIN PASSIVE SALE OF DS – CA- INCOME NOT TAXED
INCOME BUYER BY FIT AND CGT
SALE OF RP - PHIL- CA

NOTES NRA NETB AND NRFC – FC ON DS – TWO RC AND DC ARE THE

25 AND 30% FIT TIERED ONLY TAXPAYERS ON
FC ON RP - RIT THEIR WORLD INCOME
APPLIED TAX RATES SPECIFIC TAX RATE DS – 15% (FC – 5/10%) INDIV – TAX TABLE
DEPENDENT ON RP – 6% CORPORATION – 30%
SOURCE OF INCOME
TAX BASIS GROSS INCOME DS-GAIN TAXABLE INCOME
RP – GSP/FV(HIGHER) GROSS INCOME
(DEDUCTIONS)
 Accounting period and methods
ACCOUNTING PERIODS:

CALENDAR – ALLOWED ONLY FOR INDIVIDUAL AND CORPORATION

FISCAL – ALLOWED FOR CORPORATION

SHORT PERIOD

ACCOUNTING METHODS

ACCRUAL METHOD – ADVANCES FOR SERVICES ARE TAXABLE

CASH BASIS – PREPAYMENTS ARE NOT DEDUCTIBLE

 Accounting METHODS
DEALER NON DEALER
MOVABLE PROPERTY ALWAYS ALLOWED W/ LIMIT
IMMOVABLE PROPERTY W/ LIMIT W/ LIMIT

LIMIT = INITIAL PAYMENT IS LESS THAN OR EQUAL TO 25% OF SELLING PRICE

DOWNPAYMENT IS NOT INITIAL PAYMENT, INITIAL PAYMENT COVERS

DOWNPAYMENT AND INSTALLMENT PAYMENTS IN THE YEAR OF SALE
WHEN OBLIGATIONS EXCEEDED THE TAX BASIS OF THE PROPERTY SOLD, THE
DIFFERENCE IS PART OF THE INITIAL PAYMENT
INSTALLMENT GROSS PROFIT= COLLECTIONS/SELLING PRICE * GROSS PROFIT
INSTALLMENT TAX PAYMENT= COLLECTIONS/SELLING PRICE * TAX DUE
Long term construction contracts

PERCENTAGE
OF
Construction Revenue
COMPLETION
(Construction Cost)
Gross Income
Construction Revenue =
Percentage of Completion *
COMPLETED Contract Price
CONTRACT
BASIS
 INCOME ON Leasehold improvements

- Are tenant improvements or build outs

Payments Made Lessor Lessee

Rent Income Expense
Advance rent Income Amortized expense over
the lease term covered
Leasehold Improvement Income (Benefit for use) Expense(Depreciation)

OUTRIGHT SPREAD -
FAIR VALUE/BOOK
OUT
VALUE OF THE
LEASEHOLD
IMPROVEMENT AT THE
END OF THE CONTRACT
LEASE
 REPORTING

LARGE NON LARGE

- EFPS - MANUAL
PAYMENTS: VIEW - EBIR
FINANCIALS: SEP - EFPS
OTHERS
 FINAL INCOME TAXATION

- WITHHOLDING AT SOURCE – Payor of income has the liability to remit to the BIR
- FINAL TAX – Full and Final Payment of tax on the income of the payee
- CERTAIN PASSIVE INCOME – Passive income are income earned with minimal involvement on
the generating process and is irregular in timing or casual
- CERTAIN NON RESIDENTS – NRA NETB and NRFC (25% and 30% Respectively on all income)
- TERRITORIAL –Passive income earned in the Philippines are subjected under FIT, Passive
income earned abroad are under the RIT provided that the recipient of the income(payee) is a
Resident Citizen or Domestic Corporation
 CERTAIN PASSIVE INCOME
LIST Interest
Dividends
Royalties
Prizes
Winnings
Tax Informers Reward
Fringe Benefit Tax

PASSIVE INCOME ACTIVE INCOME

- NO EFFORT/MINIMAL - ACTIVE/RECURRING
EFFORT/CASUAL
CAN SUBJECT TO FIT, CGT, RIT SUBJECT TO RIT
 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%
 Interest income subject rit

- Interest on Lending Activities

- Interest income earned Abroad – RC and DC
- Interest income from promissory notes
 DIVIDENDS

- Final Tax on Dividends applies only for dividends declared by Domestic

Companies or from joint stock companies
Not Applicable to:
Foreign Corporations
Insurance and mutual fund companies
Regional operating headquarters of multinational companies
 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 and DC
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

SHARE IN THE NET INCOME OF GENERAL PROFESSIONAL PARTNERSHIP –

SUBJECT TO REGULAR INCOME TAX
 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
 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.
 FRINGE BENEFIT TAX (CHAPTER 11)

- Applied on Grossed Up monetary value of the fringe benefits of

MANAGERIAL AND SUPERVISORY employees only
- Fringe Benefits received by RANK AND FILE EMPLOYEE are subject to RIT
Capital gains taxation
 CAPITAL CAPITAL
GAINS ASSETS OTHER THAN ORDINARY ASSETS
ASSETS
ASSETS
ORDINARY ASSETS USED IN BUSINESS
ASSETS

FINANCIAL
CAPITAL ASSETS
ASSETS
INTANGIBLE
ASSETS
HELD FOR
ORDINARY INVENTORY
SALE
ASSETS

HELD FOR SUPPLIES

USE
PPE
 THINGS TO CONSIDER FOR ASSET CLASSIFICATION

KIND OF TAXPAYER – ENGAGED OR NOT ENGAGED IN BUSINESS

PERSONAL CAPITAL
ASSETS ASSETS
BUSINESS ORDINARY
ASSETS ASSETS
CAPITAL
ASSETS

NATURE OF BUSINESS
- ORDINARY ASSET OF AN SPECIFIC ENTITY CAN BE CAPITAL ASSETS FOR
ANOTHER ENTITY OR VICE VERSA
- THE BOUNDARY BETWEEN OA AND CA IS DELINEATED BY THE BATURE OF THE
TAXPAYER’S BUSINESS
 SPECIAL RULES

OA
BANKS
LOAN

COLLATERAL FORECLOSE ROPA

FINANCIAL LOAN
COMPANIES RECEIVABLE OA
 CHANGES IN ASSET CLASSIFICATION
1. Transfer Between taxpayer
2. Employment of asset in business
- To be used in business – OA – even there is non usage
3. Abandonment of Assets
- Ordinary Assets will be automatically converted as Capital Assets after non
usage for 2 years with exception of Real Estate Dealers, Developer and Lessors
 IMPORTANCE OF ASSET CLASSIFICATION
To Identify the scheme/system which governs the income generated by these
assets
ORDINARY GROSS INCOME
GAINS
OA RIT (DEDUCTIONS)
ORDINARY
TAXABLE INCOME
LOSS

DS - CA
CA BUYER CGT
RP - CA

OCA
DIP - 12
 CGT ON THE SALE OF DS DIRECTLY TO BUYER

INCLUDES: THROUGH PSE

EXCHANGE
ISSUED BY DC SUBJECT TO 15% CGT
OTHER DISPOSITION
(TERRITORIALITY) ON CAPITAL GAINS
- EQUITY
EXCEPT FC
SECURITIES
SUBJECT TO STT- 60%
OF 1% OF GSP
FOREIGN CORPS

TWO TIERED: 5% FOR THE FIRST 100K

GAINS AND 10% FOR THE EXCESS
 COMPUTATION OF NET GAIN

PURCHASE
CASH INHERITANCE (BEQUEST)
SELLING PRICE
GIFT
PROP
(COST/TAX BASIS) INADEQUATE
CONSIDERATION
COMMISSION
(EXPENSES) TAX FREE EXCHANGES

NET GAIN DOC STAMP

TAX

SELLER
 SALE OF REAL PROPERTY - CA
• REAL PROPERTY
- All sales, exchanges and other dispositions of real property capital assets
located in the Philippines shall be subject to 6% tax on whichever is
higher of (Does not covers Foreign Corporations)
a.Fair Market Value – Zonal Value/Fair Value per tax declaration (SMV)
b.Gross Selling Price
• Exception Rules:
a.Exemption rule
b.Alternative taxation rule
 THE EXEMPTION RULE

• Requisites:
a.Sale of Principal Residence for the reacquisition of another principal residence
b.By Citizens or resident aliens
c.Within 18 months
d.Once every 10 years
e.Deposit in escrow
f.Full Utilization of proceeds
g.Tax Basis of the old residence must be carried
h.Notify the BIR with the intention within 30 days from the date of sale
 Issues!

• Less than full utilization of proceeds

a.New tax basis UTIL PORTION/PROCEEDS * OLD TAX BASIS
b.Capital gains tax UNUTILIZED PORTION/PROCEEDS* CGT
• More than full utilization of proceeds
- New tax basis OLD TAX BASIS+ADDITIONAL OUT OF
POCKET COST
 THE ALTERNATIVE TAXATION RULE

• Requisites:
a.Seller is an individual taxpayer
b.Buyer is the government
• Seller can opt to be tax under CGT or RIT
 

• 6% CGT COMPLIANCE
- Using BIR FORM 1706, 30 days after the date of sale/collection
 INSTALLMENT PAYMENT OF CGT

SP= >1,000
IP/SP SHOULD NOT EXCEED 25%
SP = entire amount for which the buyer is obligated
PAYMENT = COLLECTION/CONTRACT PRICE * CGT
CP= amounts receivable in cash or other property from the buyer
 Regular income taxation
Covers:
1. Active Income
2. All other passive income not subjected or exempted to final tax and
capital gains tax
Nature
3. General in coverage
4. A net income tax
5. Progressive or proportional tax
6. It is self assessed by the taxpayer
7. It employs creditable withholding tax
 General coverage and a net income tax
PROGRESSIVE AND PROPORTIONAL TAX
1. The Regular Income tax applies to all items of income except those that are subject to final and
capital gains
2. The Regular Tax is imposed on residual profits or gains after deductions and personal
exemptions allowable by law
Compensation income
Gross income from business/profession – Sales – Cost
Sales (Ordinary Asset)

Gains derived from dealings in properties – Gains on

Other Capital Assets

Interest – Lending companies, Promissory notes,

Foreign interest(RC and DC)

Rents
GROSS INCOME
Royalties – Active and Foreign(RC and DC)
(DEDUCTIONS) BUSINESS
Dividends – FC EXPENSES
TAXABLE INCOME
Annuities
Prizes - <10,000 for indiv , Corporations
Winnings – Other winning - Corporations INDIVIDUALS CORPORATIONS
TAX PROPORTIONAL TAX
Pensions TABLE(GRADUATED OF 30%
Share in the net income of GPP TAX RATE)
 APPLICATION OF TAX ON TAXPAYERS
INDIVIDUAL TAX APPLICATION CORPORATION TAX APPLICATION
RC Tax table on Taxable DC 30% on Taxable income
income world world
NRC Tax table on Taxable RFC 30% on Taxable income
income Philippines Philippines

RA Tax table on Taxable NRFC 30% Final Tax on Gross

income Philippines income

NRA – ETB Tax table on Taxable

income Philippines

NRA - NETB 25% Final tax on Gross

income
 SELF ASSESSMENT METHOD – FILE TO BIR
TAXPAYER FREQUENCY OF REPORTING BIR FORMS
INDIVIDUALS
Pure compensation Earner Annual 1700
Pure engaged in Quarterly and Annual 1701Q AND 1701A
business/profession
Mixed Income earner Quarterly and Annual 1701Q AND 1701

Corporation Quarterly and Annual 1702Q, 1702RT, 1702EX, 1702MX

Substituted Filing for employees – The employer files in lieu of the employee
Requisites:
1. The Employee is a pure compensation earner
2. The employee receives income from only 1 employer
3. The amount of tax due on the income of employee equals to the amount withheld by the employer
Taxable income of pure compensation earner

GROSS COMPENSATION INCOME

(NON-TAXABLE COMPENSATION INCOME)
TAXABLE COMPENSATION INCOME
Taxable income of pure BUSINESS INCOME earner

SALES/REVENUE
GROSS INCOME
(COST OF SALES/COST OF SERVICES)
(ALLOWABLE DEDUCTIONS)
BUSINESS NET INCOME - TAXABLE INCOME
 Taxable income of mixed income earner
GROSS COMPENSATION INCOME SALES/REVENUE
(COST OF SALES/COST OF SERVICES)
(NON-TAXABLE COMPENSATION INCOME)
(ALLOWABLE DEDUCTIONS)
TAXABLE COMPENSATION INCOME BUSINESS NET INCOME

TAXABLE INCOME
 FACTORS ON CONTRIBUTING TAXABLE INCOME
EXCLUSIONS FROM
REGULAR ALLOWABLE
GROSS INCOME
ITEMIZED DEDUCTIONS
GROSS INCOME
SPECIAL ALLOWABLE
ITEMIZED DEDUCTIONS (DEDUCTIONS) INCLUSIONS IN GROSS
OPTIONAL STANDARD TAXABLE INCOME INCOME
DEDUCTIONS
 Exclusions from gross income
- This are not considered in computing Taxable Income
1. Proceeds under life insurance policy – In compensation of Life – Return of
Capital
2. Amounts received by the insured as a return of premium – outliving the policy
Proceeds – Premiums Paid = Taxable income
3. Gift, Bequest and Devises – Gratuitous transfer – income of such properties are
taxable
4. Compensation for injuries and sickness – In compensation of health – Return of
Capital
5. Income exempt under treaty
6. Retirement Benefits pension and gratuities – First time availment of retirement
benefit, in service for the employer of at least 10 years, at least 50 years old
Private Benefit plan is maintained by the employer

7. Separation pay or termination pay – Beyond the control of the employee

Resignation – Taxable