Income and Business

Taxation
All earnings citizens of the Philippines,
whether from compensation or business, are
required to pay taxes. Taxes are revenue of the
government that funds government
expenditures and programs.
The Outstanding Taxpayers of 2019

REVENUE DISTRICT OFFICE NO. 114 - MATI,

DAVAO ORIENTAL
1. GO, EDDIE V.
2. GO, JUN V.
3. INOJALES, ANGELO P.
4. LARCIA, PRAXEDES M.
5. ROLDAN, EDWIN C.
6. SUNICO, JOSE D.
7. TALBIN, MARYDEL M
Taxation
• It is the act of levying (an amount of money that must be paid
and that is collected by a government or other authority) the
tax, i.e., the process or means by which the sovereign
(government), through its law-making body, raises income to
defray the necessary expenses of the government.
Taxation

Tax is defined as the lifeblood of the

government.
Principles of Taxation
 The Governing tax law in the Philippines is the National Internal Revenue Code
of 1997. The Bureau of Internal Revenue (BIR) is the primary implementing agency
of this law.

 Taxation is the process by which the government collects revenue in order to pay
for its expenses.

 Income tax is defined as the tax on the net income or the entire income realized in
one taxable year.
 Who are required to pay income tax in the Philippines?

Section 23 of the National Internal Revenue Code [NIRC] of 1997

- A citizen of the Philippines, living in the Philippines, is taxable on all
income earned inside and outside the Philippines.
- A non-resident citizen is taxable only on income earned in the Philippines
- An OFW is taxable only on income earned in the Philippines.
- A foreigner living in the Philippines is taxable only on income earned in the
Philippines.
- A domestic corporation is taxable on all income derived from sources
inside and outside the Philippines
- A foreign corporation is taxable only on the income derived inside the
Philippines.
 List of sources of gross income:
(NIRC 1997 Chapter 6 Section 32 A)
- Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items.
- Gross income derived from the conduct of trade or
business or the exercise of a profession.
- Gains derived from dealings in property; (Note: subject to
6% capital gains tax for individuals and for corporation if
land and building is not used in business)
- Interests; (Note: generally subject to 20% final
withholding tax)
- Rents

- Royalties; (Note: generally subject to 20% final

withholding tax,10% if from books and literary works)
- Dividends; (Note: generally subject to 10% final
withholding tax for individuals, tax exempt for
corporation)
- Annuities
- Prizes and winnings; (Note: generally subject to
20% final withholding tax, except those that are tax
exempt based on specific criteria in the law.
- Pensions
- Partner's distributive share from the net income
of the general professional partnership.
 COMPENSATION INCOME

- Employed individuals that earn compensation income

pay their income taxes monthly. Employers withhold the
income tax of their employees from their monthly gross
income and remit these sums to the BIR.
 COMPENSATION INCOME

• Philippine individual income tax is progressive. The

tax rate increases as the tax base increases which means
that taxpayers with more capacity to pay will pay more
taxes
 COMPENSATION INCOME
• All individual taxpayers are granted a personal exemption of P 50,000.
Additional exemptions of ₱ 25,000 are given for each qualified
dependent but only up to four dependents. For husband and wives with
children, only one spouse can claim the additional exemption. The
husband is deemed head of the family and will claim the deduction
unless he explicitly waves his right in favor of his wife
 COMPENSATION INCOME COMPUTATION

Gross compensation (salary and other bonuses)

Less: Statutory contributions (SSS or GSIS, PhilHealth and
Pag-ibig Fund)
Gross compensation, net of statutory payments
Less: 13th month pay and other bonuses that are exempted
from income tax
= Net taxable compensation income
 Example
Juan Dela Cruz generated annual compensation
income of P615,000. Statutory payments are as follows:

•SSS – P 6,975.60; Philhealth - P 5,250; Pag-ibig

Contribution – P 1,200. Total: P 13,425.60
• Tax exempt 13th month pay and other bonuses – P
50,000. (Note: Maximum tax exempt 13th month and
other bonuses is P 82,000 per Revenue Regulation 3-
2015)
Gross compensation P615,000.00
Less: Statutory contributions 13,425.60
Less: Tax exempt 13th month bonus 60,000.00
Net Taxable Compensation Income P541,574.40

Solve the Income Tax Due of Mr. Juan Dela Cruz

using the table of New Personal Income Tax Rates.
Solve the Excess of 400,000.
Php 541,574.40 – Php 400,000 = Php 141, 574.40
Solve the Income Tax
Php 30,000 + Php 141, 574.40 x 20% = Php 58, 314.88
 ACTIVITY
Mr. Surigao is an employee of a Private School. His
Monthly Salary is 12,750.00 & there are only 10 Months in
1 school year. Statutory Monthly Payments are as follows:

SSS :P500,
Philhealth :P525
Pag-ibig :P100
13th Month Pay:P10,450
Other bonuses :P15,555