Income Tax:
Income Tax is a tax on a person's income, emoluments,
profits arising from property, practice of profession, conduct of
trade or business or on the pertinent items of gross income
specified in the Tax Code of 1997 (Tax Code), as amended, less
the deductions if any, authorized for such types of income, by
the Tax Code, as amended, or other special laws.
SEC. 23. General Principles of Income Taxation in the
Philippines- Except when otherwise provided in this Code:(A)
A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the
Philippines;(B) A nonresident citizen is taxable only on income
derived from sources within the Philippines;(C) An individual
citizen of the Philippines who is working and deriving income
from abroad as an overseas contract worker is taxable only on
income derived from sources within the Philippines: Provided,
That a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract
worker;(D) An alien individual, whether a resident or not of the
Philippines, is taxable only on income derived from sources
within the Philippines;(E) A domestic corporation is taxable on
all income derived from sources within and without the
Philippines; and (F) A foreign corporation, whether engaged or
not in trade or business in the Philippines, is taxable only on
income derived from sources within the Philippines.
TYPES OF TAX SYSTEM IN THE PHILIPPINES
1. Global income tax
2. Schedular tax
3. Semi-Schedular or Semi-Global tax
Global Income Tax:
Global income tax is one in which a single tax is
imposed on all income, whatever its nature. Also, it is a
combination of gross compensation income and/or net income
from business, trade or profession to arrive at the total (global)
income subject to tabular tax rates. All items of gross income,
deductions, and personal and additional exemptions, if any,
were declared in one income tax return, and one set of tax rates
were applied on the net taxable income.
Examples of globalized income tax:
Compensation income;
Net income from business, trade or profession;
Capital gains (not subjected to capital gains tax); and
Passive income (not subjected to final tax)
Schedular Income Tax:
Schedular income tax is one in which separate taxes are
imposed on different categories of income. Under the schedular
tax system, adopted by the Philippines by virtue of Batas
Pambansa Big. 135, there are different types of incomes that
are subject to different sets of graduated or flat income tax
rates. In Sison vs. Ancheta (G.R. No. 59431, July 25, 1984),
Sison assailed the constitutionality of Batas Pambansa Big.
135, claiming that by the imposition of higher tax rates (5% to
60%) upon his income derived from the exercise of his
profession, he would be unduly discriminated against
compared to those imposed upon compensation income
earners (0% to 35%).
The Supreme Court ruled in favor of the
constitutionality of said law. The court said that there is no
legal objection to a broader tax base or taxable income by
eliminating some deductible items from business or
professional income and at the same time reducing the
applicable tax rate on compensation income.
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Examples of schedular tax:
Annual income tax return; and
Capital gains tax return
Semi-Schedular or Semi-Global Tax System:
Under the semi-schedular or semi-global tax system, all
compensation income, business or professional income, capital
gain, passive income, and other income not subject to final tax
are added together to arrive at the gross income, and after
deducting the sum of allowable deductions from business or
professional income, capital gain and passive income, and
other income not subject to final tax, in the case of corporation,
as well as personal and additional exemptions, in the case of
individual taxpayer, the taxable income is subjected to one set
of graduated tax rates (if an individual) or normal corporate
income tax rate (if a corporation). With respect to the above
incomes not subject to final withholding tax, the computation
of income tax is "global." However, passive investment incomes
subject to final tax and capital gains from the sale or transfer
of shares of stocks of a domestic corporation and real properties
remain subject to different sets of tax rates and covered by
different tax returns.
FEATURES OF THE PHILIPPINE INCOME TAX
1. Income tax is a direct tax because the tax burden is
borne by the income recipient upon whom the tax is
imposed. It is a tax demanded from the very person who,
it is intended or desired, should pay it, while indirect
tax is a tax demanded in the first instance from one
person in the expectation and intention that he can shift
the burden to someone else.
2. Income tax is a progressive tax, since the tax base
increases as the tax rate increases. It is founded on the
ability to pay principle and is consistent with the
Constitutional provision that "Congress shall evolve a
progressive system of taxation."
3. The Philippines follows the semi-schedular or
semiglobal system of income taxation, although certain
passive investment incomes, capital gains on sale of
shares of stock of domestic corporations and real
property located in the Philippines, and other income
are subject to final taxes at preferential tax rates.
CRITERIA IN IMPOSING PHILIPPINE INCOME TAX
1. Citizenship principle
A citizen of the Philippines is subject to income
tax on his worldwide income, if he resides in the
Philippines or only on his Philippine source income, if
he qualifies as a non-resident citizen; hence, his foreign-
source income shall be exempt from Philippine income
tax.
2. Residence or domicile principle
An alien is subject to Philippine income tax
because of his residence in the Philippines. This
principle was copied from the U.S. tax law, but it was
discarded in R.A. No. 8424 in view of the complexity in
tax administration. Thus, a resident alien is now liable
to pay Philippine income tax only on his income from
sources within the Philippines but is exempt from tax
on his income from sources outside the Philippines.
3. Source of income principle
An alien is subject to Philippine income tax
because he derives income from sources within the
Philippines. Thus, a non-resident alien or non-resident
foreign corporation is liable to pay Philippine income tax
on income from sources within the Philippines, such as
dividend, interest, rent, or royalty, despite the fact that
he has not set foot in the Philippines.
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Tan vs Del Rosario 237 SCRA 324
The income tax law, in levying the tax, adopts the most
comprehensive tax situs of nationality and residence of resident
citizens and domestic corporations that subject them to income
tax liability on their income from all sources within and without
the Philippines, while the law adopts the source rule with
respect to income received by taxpayers, other than resident
citizens and domestic corporations.
TYPES OF PHILIPPINE INCOME TAXES
1. Graduated income tax on individuals;
2. Normal corporate income tax on corporations;
3. Minimum corporate income tax on corporations;
4. Special income tax on certain corporations (e.g., private
educational institutions; foreign currency deposit units;
and international carriers);
5. Capital gains tax on sale or exchange of unlisted shares
of stock of a domestic corporation classified as a capital
asset;
6. Capital gains tax on sale or exchange of real property
located in the Philippines classified as a capital asset;
7. Final withholding tax on certain passive investment
incomes;
8. Final withholding tax on income payments made to
nonresidents (individual or corporation);
9. Fringe benefit tax;
10. Branch profit remittance tax; and
11. Tax on improperly accumulated earnings.
TAXABLE PERIOD
The period of time, consisting of 12 consecutive months,
that is used to determine tax liability based on income earned
in that period.
KINDS OF TAXPAYERS
1. Individuals
1.1. Resident Citizen
1.2. Nonresident Citizen
SEC 22 (E)(1) A citizen of the Philippines who
establishes to the satisfaction of the
Commissioner the fact of his physical presence
abroad with a definite intention to reside
therein.
SEC 22 (E) (2) A citizen of the Philippines who
leaves the Philippines during the taxable year
to reside abroad, either as an immigrant or for
employment on a permanent basis.
SEC 22 (E) (3) A citizen of the Philippines who
works and derives income from abroad and
whose employment thereat requires him to be
physically present abroad most of the time
during the taxable year.
SEC 23 (E) (4) A citizen who has been
previously considered as nonresident citizen
and who arrives in the Philippines at any time
during the taxable year to reside permanently
in the Philippines shall likewise be treated as a
nonresident citizen for the taxable year in which
he arrives in the Philippines with respect to his
income derived from sources abroad until the
date of his arrival in the Philippines.
1.3. Resident Alien
SEC 22 (F) An individual whose residence is within the
Philippines and who is now a citizen thereof.
1.4. Nonresident Alien
SEC 22 (G) An individual whose residence is not within
the Philippines and who is not a citizen thereof.
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 Nonresident Alien Engaged in Trade or Business within
the Philippines

A nonresident alien individual engaged in trade

or business in the Philippines shall be subject to an
income tax in the same manner as an individual citizen
and a resident alien individual, on taxable income
received from all sources within the Philippines.

A nonresident alien individual who shall come

to the Philippines and stay therein for an aggregate
period of more than one hundred eighty (180) days
during any calendar year shall be deemed a
'nonresident alien doing business in the Philippines.

Nonresident Alien NOT Engaged in Trade or Business

within the Philippines

There shall be levied, collected and paid for each

taxable year upon the entire income received from all sources
within the Philippines by every nonresident alien individual
not engaged in trade or business within the Philippines as
interest, cash and/or property dividends, rents, salaries,
wages, premiums, annuities, compensation, remuneration,
emoluments, or other fixed or determinable annual or periodic
or casual gains, profits, and income, and capital gains, a tax
equal to twenty-five percent (25%) of such income.

Capital gains realized by a nonresident alien individual

not engaged in trade or business in the Philippines from the
sale of shares of stock in any domestic corporation and real
property shall be subject to the income tax prescribed under
Subsections (C) and (D) of Section 24.

2. Estates and Trusts

3. Corporations
4. Partnerships

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