CHAPTER 10:

INCOME
AND BUSINESS
TAXATION
Learning competencies:
The learners should be able to…
1. Define income and business taxation and its
principles and processes.
2. Prepare the list of sources of gross income
from compensation and gross income from
business.
3. Explain the principles and purposes of
taxation.
4. Distinguish individual from business taxation.
5. Compute the gross taxable income and tax
due.
TAXATION
It is the process by which a government,
through its lawmaking body, imposes
charges on its inhabitants to raise money
for public use.

Purposes of Taxation:
Primary Purpose: to raise revenue that will
be use in defraying government expenses
(also called the revenue purpose).
Secondarily, taxation may also be used
to achieve certain social and economic
objectives (‘non revenue purposes’)
such as the following:

a. regular inflation
b. minimize the adverse effects of
certain activities
c. equitable distribution of wealth
Nature of Taxation:

1. Inherent Power
Taxation is one of the following three inherent
powers of a sovereign state:
1. Eminent domain- the right of the government to
appropriate private property for particular uses to
promote public welfare;
2. Police power- the power to enact laws to promote
peace and order, public welfare, security, health and
safety; and
3. Taxation

Tax- often referred to as the lifeblood or the ‘bread

and butter’ of the government.
2. Legislative
Taxation is a process that is legislative in
nature. This means that tax laws must first be
enacted before taxes can be imposed.

3. Subject to constitutional and inherent

limitations
The power of taxation is considered plenary
(absolute or supreme), subject only to
constitutional and inherent limitations. This
means that the government can tax anything or
anyone within its jurisdiction.
 Inherent limitations on the power
of taxation:
a. Purpose
b. Territorial jurisdiction
c. Non-delegation of legislative
power to tax
d. Tax exemption of government
entities
e. International comity
 Constitutional limitations on the power of
taxation:
a. Due process and equal protection of the laws.
b. Rule of uniformity and equity in taxation.
c. President’s power to veto tax bills.
d. A law granting any tax exemption needs the
concurrence of the majority of the Members of the
Congress.
e. Supreme Court’s power to make final judgment
on tax cases.
f. Non-imprisonment for non-payment of poll tax.
g. Exemption of religious, charitable, or
educational entities, non-profit cemeteries, and
churches from property taxation.
h. Exemption of revenues and assets of non-stock,
non-profit educational institutions from taxation.
Theory and basis of taxation
The government cannot exist without
money. The government therefore, has the right
to compel those within its jurisdiction to pay
taxes. This is based on the following:
a. Reciprocal duties of protection and support-
the government protects the welfare of its
people, in return, the people support the
government.
b. Benefits received principle- taxes are used
for the benefit of the public.
Aspects of Taxation
1. Levy- tax laws, specifying the object and amount
of taxation, are enacted.
2. Collection- the tax laws are implemented and
administered.

Principles of a sound tax system

a. Fiscal adequacy- revenues should be sufficient to
defray expenditures.
b. Theoretical justice- taxes are proportionate to the
taxpayer’s ability to pay.
c. Administrative feasibility- tax laws can be
implemented efficiently and effectively, avoiding
unnecessary inconvenience and confusion on part of
taxpayers.
Taxes
are mandatory contributions imposed upon
persons and property for the support of the
government.

Characteristics of Tax
a. It is mandatory.
b. It levied by the lawmaking body.
c. It is imposed primarily to raise revenues for the
government.
d. It is generally payable in money.
e. It is proportionate in character.
f. It is levied on persons and property over which
taxing authority has jurisdiction.
h. It is levied for public purposes.
Classification of Taxes

1. As to subject matter:
a. Personal, capitation or poll tax- a fixed amount
charged to all persons residing within a specified
territory irrespective of their occupation or
property.
b. Property tax- tax imposed on properties based
on their value or some other method of
apportionment.
c. Excise tax- tax imposed upon the performance of
an act, the enjoyment of privilege, or the engaging
in an occupation.
2. As to who bears the burden:
a. Direct tax- tax which the taxpayer must
pay and cannot shift to another.
b. Indirect tax- tax which the taxpayer can
shift to another.

3. As to the determination of the amount:

a. Ad Valorem- tax based on the value of the
property.
b. Specific- tax based on the weight, volume
or other physical unit of measurement.
4. As to scope:
a. National tax- tax levied by the national
government.
b. Local tax- tax levied by the local government
or municipal.

5. As to rate or graduation:
a. Proportional- tax based on a fixed rate.
b. Progressive- tax based on an increasing rate
as the taxable amount increases.
c. Regressive- tax based on a decreasing rate as
the taxable amount increases.
Scope of this Book
There are various types of taxes. The
scope of this book is limited to only the
following types of taxes:
1. Income Taxes (Compensation,
Business Income and some Passive
income only); and
2. Business Taxes (VAT and Percentage
Tax only)
Income Tax vs. Business Tax

Income Tax
is a tax on a person’s income derived from
employment, business, trade, practice of
profession, or from property, after excluding the
deductions allowed under the law.

Business Tax
is a tax on the production, sale, or consumption
of goods and services, leasing of property, or other
business activities.
Classification of Individual Income Taxpayers
Individual income taxpayers are classified into the
following:
1. Resident citizen- a Filipino citizen residing
permanently in the Philippines.
2. Non-Resident citizen- a Filipino citizen residing
permanently abroad or works abroad most of the
time.
3. Resident alien- a foreigner residing in the
Philippines.
4. Non-Resident alien- a foreigner not residing in
the Philippines.
Income Taxation

Income includes all inflows of wealth

to the taxpayer other than those that
represents a mere return of capital.
Gross income refers to all income
derived from whatever source,
including:
1. Compensation income
2. Business income
3. Passive income
Gross Compensation Income
Compensation income is income that is typically
derived from employment. Examples are:

Salaries
compensation that is normally quoted on a per
month (per year) basis and is paid periodically for
the performance of a regular work.

Wages
compensation that is quoted on a per hour basis
and is paid based on the number of hours worked.
Taxable Income
is gross income minus the deductions allowed
by the law. Taxable income is the amount on which
the tax is computed. The following are allowed
deductions from gross income:
1. Contributions for the following:
a. Social Security System
b. Government Service Insurance System
c. Philippine Health Insurance Corporation
d. Home Development Mutual Fund or popularly
known as PAG-IBIG
e. Union Dues
2. Compensation for Injuries or Sickness
Tax Due
The individual taxpayer’s income tax due is computed using the
tax table below:

Tax Schedule Effective January 1,2018 until December 31,2022:

TAX TABLE
If taxable income is: Tax due is:
• Not over Php 250,000  0%
• Over Php 250,000 but not  20% of the excess over Php
over Php 400,000 250,000
• Over Php 400,000 but not  Php 30,000 + 25% of the
over Php 800,000 excess over Php 400,000
• Over Php 800,000 but not  Php 130,000 + 30% of the
over Php 2,000,000 excess over Php 800,000
• Over Php 2,000,000 but not  Php 490,000 + 32% of the
over Php 8,000,000 excess over Php 2,000,000
• Over Php 8,000,000  Php 2,410,000 + 35% of
the excess over Php
8,000,000
Tax Schedule Effective January 1, 2023
onwards:
TAX TABLE
If taxable income is: Tax due is:
• Not over Php 250,000  0%
• Over Php 250,000 but not over  15% of the excess over Php
Php 400,000 250,000

• Over Php 400,000 but not over  Php 22,500 + 20% of the excess
Php 800,000 over Php 400,000

• Over Php 800,000 but not over  Php 102,500 + 25% of the
Php 2,000,000 excess over Php 800,000

• Over Php 2,000,000 but not  Php 402,500 + 30% of the

over Php 8,000,000 excess over Php 2,000,000

• Over Php 8,000,000  Php 2,202,500 + 35% of the

excess over Php 8,000,000
OTHER FORMS OF COMPENSATION
1. Fixed or Variable Allowances- e.g. representation
allowance, transportation allowance., and cost of living
allowance.

Notes:
- For government employees, representation and
transportation allowance (RATA) and personal
economic relief allowance (PERA) are considered
reimbursements for expenses incurred while
performing government duties. Accordingly, these are
exempt from taxation.
However, additional compensation allowance
(ACA) received by a government employee is
included in “Other Benefits” and is taxable but subject
to a limit (see discussion below).
- For non-government employees, the allowances
described above are typically subject to taxation,
except when:
a. the allowance represents a reimbursement for
necessary expenses incurred in the pursuit of trade,
business or profession; and
b. the allowance is subject to liquidation.

-Allowance and other privileges are given to the

employee for the benefit of the employer are
typically exempt from taxation.
- Benefits given to managerial or supervisory
employees on account of their position are subject to
fringe benefits tax. fringe benefits task is outside the
scope of this book.
2. 13th month pay – it is additional compensation mandated
by law to be given to “rank-and-file” employees. Thirteenth
month pay is equal to an employee’s one (1) month basic
salary. However, if the employee has not worked for the
entire year, this amount is prorated.
For example, an employee with basic salary of Php
24,000 per month but was employed only on September 1
will have a 13th month pay of Php 8,000 (Php 24,000x 4/12)
for that year. The numerator of ‘4’ pertains to the months of
September to December. The denominator of ‘12’ pertains to
the twelve months in a year.

3. Christmas Bonus- is additional compensation provided to

the employee at the discretion of the employer. Most often
than not, the timing of payment of 13th month pay and
Christmas bonus coincide. Distinctions between these two
are provided below:
 13th month pay Christmas bonus
• Required by law to be paid to all • Not required by law but rather paid
“rank-and-file” employees who voluntarily by the employer
has worked for at least 1 month.
The following employees are
excluded from this requirement:
a. Managers;
b. Employees covered by civil
service law
c. Housekeepers and persons in the
personal service of another, and
d. Employees paid on purely
commission, boundary, or task
basis

• Amount is determined as 1/12 of • Amount is at the discretion of the

the employee’s monthly basic employer.
salary for each month of service
rendered.
• Required to be paid on or before • Paid at the discretion of the
December 24 of the year employer
Taxation of 13th month pay
Thirteenth month pay is not taxable up to Php90,000. Any
excess over this amount is taxable.

Taxation of Christmas bonus

The Christmas bonus is split into the following:
a. Non-performance based bonus (also known as ‘Other
Benefits’); and
b. Performance based bonus

-The Non-performance based (‘Other Benefits’) portion is

combined with the 13th month pay and subjected to the total
limit of Php 90,000. Any excess over this amount is taxable.
-The Performance based portion, if received under
collective bargaining agreement (CBA) and productivity
incentive schemes, is not taxable up to the limit of Php
10,000 (see discussion on ‘de minimis’ benefits below.
4. De Minimis Benefits- are other forms of benefit that are of
relatively small value and are given to employees (rank-and-file and
managerial or supervisory) to promote health, goodwill, contentment
and work efficiency. The following are considered “de minimis”
benefits:

a. Monetized unused vacation leave credits of private employees not

exceeding ten (10) days during the year.
b. Monetized value of vacation and sick leave credits paid to
government officials and employees.
c. Medical cash allowance to dependents of employees not exceeding
Php750.00 per employee per semester or Php125.00 per month.
d. Rice subsidy of Php1500 or one sack of 50 kg, rice per month.
e. Uniform and clothing allowance not exceeding Php5,000 per
annum.
f. Actual yearly medical benefits not exceeding Php10,000 per
annum.
g. Laundry allowance not exceeding Php300.00 per month.
h. Employees achievement award not exceeding Php10,000
(tangible property).
i. Gifts given during Christmas and major anniversary
celebration not exceeding Php5,000 per annum.
j. Daily meal allowance for overtime work not exceeding 25% of
the basic minimum wage.
k. Benefits received by an employee by virtue of a collective
bargaining agreement (CBA) and productivity incentive
schemes provided that the total monetary value received form
both CBA and productivity incentive schemes combined do not
exceed Php10,000 per employee per taxable year.

Taxation:
- “De minimis” benefits are not taxable up to the prescribed
limits stated above.
- Any excess de minimis benefit is considered ‘Other Benefits’.
It is included in the “13th month pay and Other Benefits” and is
subjected to the Php90,000 limit. Any excess is taxable.
In the succeeding illustrations, we will follow these steps in
determining the tax on 13th pay and Other Benefits:
Step 1 Determine the excess of each “de minimis” benefit
received by the employee over the prescribed limits
stated above.

Step 2 Add the excess “de minimis” benefits to the 13th

month pay and Other Benefits received by the
employee.

Step 3 Compare the amount determined in Step 2 with the

Php90,000 limit.
- If the amount is less than Php90,000, it is not
taxable
- If the amount exceeds Php90,000, the excess is
taxable
Illustration 1:
An employee receives the following:

13th month pay 24,000

Christmas bonus(non-performance
based) 6,000
Rice Subsidy 21,600
Uniform Allowance 7,000
Laundry allowance 2,400
Productivity bonus (received under
CBA and productivity incentive schemes) 5,000

Requirement: Compute for the taxable portion of the

amounts received.
Solution:

Step 1: Determine the excess de minimis benefits

Amounts Received Non-Taxable Excess

Rice Subsidy 21,600 18,000 (a) 3,600

Uniform Allowance 7,000 5,000 2,000
Laundry Allowance 2,400 3,600 (b) -
Productivity Bonus 5,000 10,000 -

Total 5,600

(a) Php1,500limit per month x 12 months= Php18,000

(b) Php300 limit per month x 12 months= Php3,600
Steps 2 and 3: Add excess de minimis benefits to
13th month pay and Other Benefits and determine
the excess over the Php90,000 limit:

Excess de minimis benefits 5,600

13th month pay 24,000
Christmas bonus (Non-performance
based) 6,000

Total 13th month pay and Other Benefits 35,600

Limit 90,000

Excess- Taxable amount -

5. Overtime Pay- compensation for work performed beyond
regular working hours.
6. Hazard Pay- additional compensation for employees
performing dangerous work, e.g., hazard payments to
electrical power-line installers and repairers.
7. Commission- e.g., percentage of sales made by a salesman.
8. Fees- additional compensation received by an employee for
services rendered, e.g., director’s fees.
9. Honoraria- payment for a service which normally has no
set price, e.g., honorarium given to a guest speaker in a High
School graduation ceremony.
10. Vacation and sick leaves- paid vacation and sick leaves
used by the employee are taxable.
Note:
-Unused vacation & sick leaves that are monetized are
considered de minimis benefits and subject to the following
limits:
a. Monetized unused vacation leave credits of private
employees not exceeding ten (10) days during the year.
B. Monetized value of vacation and sick leave credits paid
to government officials and employees.
11. Retirement pay- compensation paid to a retiring
employee.
12. Separation pay- compensation paid in exchange for the
termination of an employee’s employment other than from
retirement. Separation pay is taxable if availed of
voluntarily. It is not taxable if involuntary.
13. Compensation paid in kind- compensation is normally
in the form of cash. However, there may be instances where
the employee receives non-cash items as compensation for
services rendered. Generally, non-cash items are taxed on
the basis of their fair market value. If the non-cash item
qualifies as a de minimis benefit, it shall be subjected to the
limits stated.
Deductions from Gross Business Income
An individual taxpayer deriving business
income is allowed to deduct from his/her
gross business income either one of the
following:
1. Itemized deductions; or
2. Optional standard deduction (OSD)
Itemized deductions
The following are the itemized deductions:
a. Ordinary and necessary trade, business or professional expenses (a)
b. Interest expense
c. Taxes
d. Losses
e. Bad debts
f. Depreciation
g. Depletion
h. Charitable and other contributions
i. Research and development
j. Pension trust

These pertain to general business expenses or those that are

(a)

“directly attributable to the development, management, operation

and/or conduct of the trade, business or exercise of a profession.”
(Tax Code, Sec. 34.A)
Optional standard deduction (OSD)
In lieu of the itemized deductions, the taxpayer may choose
to deduct the OSD, which is computed as forty percent
(40%) of net sales, without deducting cost of sales.

Illustration:
The accounting records of a sole proprietorship business
show the following information for the taxable year:
Accounts Dr. Cr.

Sales Php1,000,000
Sales returns and discounts Php100,000
Inventory, beg. 50,000
Purchases 200,000
Commissions Expense 30,000
Communication, Light & Water 20,000
Depreciation Expense 40,000
Insurance expense 12,000
Office Supplies Expense 10,000
Rent expense 30,000
Salaries expense 300,000
Taxes and Licences 70,000
Transportation expense 5,000

Totals Php867,000 Php1,000,000

Additional Information:
• The ending inventory per physical count is Php60,000.

Requirements:
a. Compute for the tax due assuming the taxpayer uses the
itemized deductions.
b. Compute for the tax due assuming the taxpayer uses the
optional standard deduction (OSD).
Solutions:
Requirement (a): Itemized deductions
Sales 1,000,000
Sales returns and discounts (100,000)
Net sales 900,000
Cost of Sales:
Inventory, beg. 50,000
Purchases 200,000
Total Goods Available for Sale 250,000
Inventory, end. (60,000) (190,000)
Gross Income from business 710,000
Itemized deductions:
Commission expense 30,000
Communication, Light & Water 20,000
Depreciation expense 40,000
Insurance Expense 12,000
Office supplies expense 10,000
Rent expense 30,000
Salaries expense 300,000
Taxes and licenses 70,000
Transportation expense 5,000 (517,000)
Taxable Income 193,000

Tax Due 0
Requirement (b): Optional Standard Deduction (OSD)

Sales 1,000,000
Sales returns and discounts (100,000)
Net Sales 900,000
Optional Standard Deduction
(900,000 x 40) (360,000)
Taxable Income 540,000

Tax on Php250,000 0
Add: Tax on excess 58,000
Tax due 58,000
Optional Eight percent (8%) Tax
Self-employed individuals whose gross sales or gross
receipts and other non-operating income do not exceed the
Php3,000,000 VAT threshold have the option to avail of the
eight percent (8%) tax on gross sales or gross receipts and
other non-operating income in excess of two hundred fifty
thousand pesos (Php250,000) in lieu of the graduated
income tax rates and percentage task.

Note: The (a) itemized deductions, (b)OSD, and (c)

optional 8% tax are available only to business income
earners. These are not available to employees earning
purely compensation income.
Income Tax Return (ITR)
Taxpayers are required to file an income tax return (ITR)
with the BIR when paying taxes, except when the taxpayer
is specifically exempted by law from such filing.
The ITR consist of a maximum of a four (4) pages in
paper or electronic form. It contains the following
information:
a. Personal profile and information;
b. Gross income, excluding income subjects to final tax;
c. Allowable deductions;
d. Taxable Income; and
e. Tax due and payable
Filing of the Annual ITR
The annual ITR is required to be filed on or before May
15 of the year following the taxable year.

Declaration of estimated income and Quarterly returns

A self-employed individual is required to file a declaration
of his or her estimated income for the current year on or
before May 15 of the same year and pay the corresponding
tax due in four (4) installments by filing quarterly returns
as follows:
1. 1st installment- at the time of declaration;
2. 2nd installment- on or before August 15 of the same
year;
3. 3rd installment- on or before November 15 of the same
year; and
4. 4th installment- on or before May 15 of the following
year.
Installment payment
when the tax due exceeds Php2,000, the tax may elect to
pay in two equal installments:
a. The first intallment (50% or ½ of the tax due) is said to
be paid at the time the return is filed; and
b. The second installment (the remaining 50%), on or
before October 15of the same year.

Note: As of the writing of this book, the BIR has not yet
published the revised tax returns that incorporate the
changes brought about by the Tax Reform for Acceleration
and Inclusion (TRAIN) law.

Mixed Income
An individual taxpayer may be deriving both compensation
and business income. Mixed income earners are taxed as
follows:
a. On compensation income- at graduated rates
b. On income from business or practice of profession:
i. if exceeding the Php3M VAT threshold- at graduated
rates
ii. If not exceeding the Php3M VAT threshold- an option
of either (1) at graduated rates or (2) at the optional 8%
tax on gross sales/receipts and other non-operating
income.

Joint filing
Married individuals shall file a single return for the
taxable year, showing the respective incomes and tax dues
of the spouses. If any income cannot be clearly attributed
to either spouse, it is divided equally between the spouses
for the purpose of determining their respective taxable
income. If it is impracticable for the spouses to file a
single return, each spouse may file a separate return.
Taxpayer Identification Number (TIN)
Every taxpayer is required to register once with the BIR
and obtain one (1) Tax Identification Number(TIN). A
taxpayer obtaining more than 1 TIN for himself/herself is
punishable by law through monetary fine and/or
imprisonment.

Registration for TIN is made as follows:

Source of income BIR Form No. Date of registration

 Compensation  1902  Within ten (10)

days from date of
employment.

 Business/Mixed  1901  On or before the

commencement of
business.
Withholding taxes
Employers are required to withhold taxes on
employees’ compensation. This means that the salaries
or wages received by the employee as “take-home
pay” is already net of the related income tax.
Salaries are typically paid on a bi-monthly basis.
Thus, taxes may be withheld either on a monthly basis
(every 30th for the total compensation for the month) or
a semi-monthly basis (every 15th and 30th for the two-
week compensation received on each of those dates).
Although taxes can also be withheld on a daily or
weekly basis, we will discuss only monthly and semi-
monthly withholding taxes.
Passive Income
Passive income can be broadly defined as income
earned without actively working for it.

Passive income is typically subject to final tax.

Final tax means, once the income is taxed, it will
not be taxed again, neither does the tax need to be
adjusted. Final tax is computed by multiplying a
fixed rate on the income, rather than subjecting the
income to the tax. The amount of passive income
received by the earner is net of the final tax.
Business Taxation
Annual Registration
Businesses are required to pay an annual registration
fee of Php500 for every separate place of business on or
before January 31 of the current year. This is done
through BIR Form No. 0605 (Payment Form).

The following are also required from a business:

1. Registration of Book of Accounts
2. Application of Authority to Print Receipts and Invoices
3. Application for Authority to Use Computerized
Accounting Systems
4. Application for Permit to Use CRM (cash register
machine) and/or point-of-sale (POS) machine.
Aside from the annual payments of BIR,
businesses are also required to pay annual
taxes and fees to the local government
which include, but not limited to the
following:

a. Business permit/ Mayor’s permit,

including business tax
b. Fire safety inspection certificate fee
c. Sanitary inspection certificate fee
d. Garbage collection fee
e. Barangay clearance/ permit
Business Taxes

Recall that business tax is a tax on the

production, sale, or consumption of goods
and services, leasing of property, or other
business activities. Business taxes are
classified into the following:

1. Value-Added Tax (VAT)

2. Percentage Tax
3. Excise Tax
Value-Added Tax (VAT)
it is imposed on “any person, who, in the
ordinary course of business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods.”
(NIRC Sec. 105)

Characteristics of VAT
a. It is a consumption tax- a tax imposed on the
consumption of goods & services in the Philippines.
b. It is a form of sales tax- tax is based on sale price.
c. It is an indirect tax- it can be shifted or passed on
to the buyer.
Sales returns, allowances and
discounts

The following are excluded from the

selling price when computing for VAT:
a. Sales returns and allowances- in which a
refund is made or a credit memorandum or
refund is issued.
b. Sales discount- which is granted at the
time of sale, indicated on the invoice, and
does not depend upon the happening of a
future event.
Zero-rated and VAT-exempt sales
Not all sale transactions are subject to the 12%
VAT. Some are considered Zero-rated or VAT-
exempt.

Zero-rated sales
are those that are subject to zero percent (0%)
output VAT but the business can still claim the
related input VAT.

VAT-exempt sales
are those that are not subject to an output VAT
but the business cannot claim the related input
VAT.
Percentage Tax
Generally, business that is exempt from paying VAT is
required to pay percentage tax. A business, however, has
the option to register as VAT-payer even if it total sales or
receipts do not exceed Php3,000,000. On the other hand,
business which is registered as a percentage tax payer will
be required to pay VAT when its total sales are receipts
exceed or expected to exceed Php3,000,000.
The percentage tax rate varies depending on the nature
of the business. Typically, though percentage tax is
computed as 3% of gross sales or receipts. Unlike for VAT,
no deduction is allowed for percentage tax.
Starting January 1, 2019, self-employed and
professionals with total annual gross sales and/or gross
receipts not exceeding Php500,000 are exempt from paying
the 3% percentage tax.
Illustration:
A Non-VAT registered business reports total
sales of Php100,000 during the month. How
much is the percentage tax?

Answer: Php3,000 (100,000 x 3%)

Assuming you are one of the customers of the

business, the Non-VAT invoice issued to you will
show the following information:
Keeping of Books of Accounts

All taxpayers are required to maintain

appropriate bookkeeping records from which all
taxes due to the government can be readily
determined at any time.
Taxpayers with gross annual sales or receipts
exceeding Php3,000,000 are required to have their
books of accounts audited annually by a Certified
Public Accountant and their income tax returns
accompanied by an Account Information Form
which contains information lifted from the
taxpayer’s audited financial statements.
Issuance of Receipts or Commercial/ Sales
Invoices

All taxpayers are required to issue a BIR-

registered receipt or commercial/ sales invoice at the
point of sale if the services rendered or goods sold
are valued at Php100 or more.
The receipt or invoice should show the date of
transaction, quantity, unit cost, and description of the
goods or service. If the purchaser is VAT-registered,
the receipt or invoice should also show the
purchaser’s TIN. The original copy of the receipt is
given to the purchaser at the time of transaction.
Receipts shall be kept for a period of 3years from the
end of the year of transaction.
Penalties
Violations of tax laws are punishable by
monetary fines and/or imprisonment. The
following are relevant terms to this sub-topic:

Tax evasion (tax dodging)- occurs when a

taxpayer avoids paying his/her taxes using illegal
means
Tax avoidance- occurs when a taxpayer
minimizes hi/ her exposure to taxes through legal
means.

Monetary fines or penalties consist of surcharge

and interest.
Surcharge

A surcharge of 25% of the tax due is imposed

on the following violations:
a. Late filing and payment of taxes.
b. Filing with the wrong RDO.
c. Failure to pay the correct amount of tax.
d. Failure to pay a deficiency tax on time.

A surcharge of 50% of the tax due is imposed

on the following violations:
a. Willful neglect to file a return and pay the tax on
time.
B. Filing of fraudulent return.
Interest

Interest at the double of the legal

interest rate for loans or
forbearance of any money in the
absence of an express stipulation as
set by the BSP from the due date
until the amount is fully paid.
Tax evasion and Violations related to printing of
receipts or invoices
A fine of not less than Php 500,000 but not
more than Php10,000,000 and imprisonment of not
less than 6years but not more than 10years is
imposed to a taxpayer who:
a. willfully attempts to evade any tax;
b. prints receipts or invoices without authority
from the BIR;
c. prints double or multiple sets of receipts or
invoice; or
d. prints receipts or invoices not in accordance
with the specifications required by the BIR.
Submitted by:
ENDAYA, Abigail B.
MARANAN, Rhealyn M.

Submitted to:
Mrs. Ann Abegail Perez