GENERAL PRINCIPLES OF TAXATION

NOTE: Non-observance of Fiscal Adequacy and Administrative Feasibility will render the tax measure unsound but not unconstitutional. However, non-observance
I. TAXATION of the Principle of Theoretical Justice is invalid because the Constitution itself requires that taxation must be equitable.

TAXATION is the inherent power by which the sovereign, through its law-making body, raises revenue to defray the necessary expenses of the government. “THE POWER TO TAX IS THE POWER TO DESTROY”

It is a manner of apportioning the costs of the government among those who, in some measure, are privileged to enjoy its benefits and must bear its burdens. According to Justice Marshall: The power to tax includes the power to destroy. Taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the government. (McCulloch vs. Maryland, 4 Wheat, 316 4 L ed. 579,
INHERENT TO THE STATE: It is inherent in character because its exercise is guaranteed by the mere existence of the state. It could be exercised even in the 607)
absence of a constitutional grant. The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential
and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government. (Pepsi-Cola Bottling Co. of the Philippines vs. However, according to Justice Holmes: The power to tax is not the power to destroy as long as this court (Supreme Court) sits.
Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27, 1976)
Taxpayers may seek redress before the courts in case of illegal imposition of taxes and irregularities. The Constitution, as the fundamental law, overrides any
SCOPE OF LEGISLATIVE POWER TO TAX legislative or executive act that runs counter to it. In any case, therefore, where it can be demonstrated that the challenged statutory provision fails to abide by
1. The determination of purposes for which taxes shall be levied provided it is for the benefit of the public. its command, then the court must declare and adjudge it null. (Sison Jr. v. Ancheta; G.R. No. L-59431; July 25, 1984)
2. The determination of subjects of taxation such as the person, property or occupation within its jurisdiction.
3. The determination as to the amount or rate of tax unless constitutionally prohibited. IMPRESCRIPTIBILITY OF TAXES: Taxes are generally imprescriptible, except when the law provides otherwise, e.g. the statute of limitations provided under
4. The determination as to the kind of tax to be collected (i.e. property tax, income tax, inheritance tax, etc.). the Tax Code.
5. The determination of agencies to collect the taxes.
6. The power to specify or provide for administrative and judicial remedies. DOUBLE TAXATION: means taxing the same person for the same tax period and the same activity twice, by the same jurisdiction.
7. The power to grant tax exemptions and condonations.
Double taxation in strict sense is when:
THEORY AND BASIS 1. Both taxes are imposed on the same property or subject matter;
1. Life Blood Theory – Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. (Commissioner of Internal 2. For the same purpose;
Revenue vs. Algue; GR No. L-28896; Feb. 17, 1988) 3. Imposed by the same taxing authority;
4. Within the same jurisdiction;
2. Necessity Theory - government is necessary; however, it cannot continue without the means of paying for its existence; hence, it has the right to compel 5. During the same taxing period;
all citizens and property within its power to contribute for the same purpose. (71 Am. Jur. 2d 346) 6. Covering the same kind or character of tax.

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a Double Taxation in Broad sense is the opposite of direct double taxation and is not legally objectionable. The absence of one or more of the foregoing
means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement requisites of obnoxious direct tax makes it indirect.
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed
to provide. (Phil. Guaranty Co., Inc. vs. CIR; GR No. L-22074; April 30, 965) Constitutionality of double taxation: Double taxation in its stricter sense is unconstitutional but that in the broader sense is not necessarily so.

3. Symbiotic relationship theory - It is said that taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack Our Constitution does not prohibit double taxation. However, double taxation will not be allowed if it results in a violation of the equal protection clause.
of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities,
every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form Modes of eliminating double taxation
of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. (Commissioner 1. Tax Deduction – an amount subtracted from the gross income to arrive at taxable income.
of Internal Revenue vs. Algue, supra) 2. Tax Credit - an amount subtracted from an individual’s or entity’s tax liability (tax due) to arrive at the tax liability still due.

PURPOSE OF TAXATION
1. Primary – to raise revenues; to support the existence of the State and enable the state to promote the general welfare.
2. Secondary – non-revenue or sumptuary
a. Promotion of general welfare – taxation may be used to implement police power (e.g., grant of VAT exemption and Discounts to Senior Citizens);
b. Regulation - where taxes are levied on excises or privileges for purposes of rehabilitation and stabilization of threatened industry which is affected by
public interest or to discourage consumption of harmful products (e.g., excise taxes on cigarettes and alcohol);
c. Reduction of Social Inequity – This is made possible through the progressive system of taxation where the objective is to prevent the undue
concentration of wealth in the hands of few individuals. Progressivity is keystoned on the principle that those who are able to pay should shoulder the
bigger portion of the tax burden. (e.g., Income tax)
d. Encouragement of economic growth – tax incentives and reliefs may be granted to encourage investment (i.e., Income Tax Holiday, 5% preferential
Gross Income Tax for PEZA registered entities);
e. Protectionism – for the protection of local industries, in case of foreign importations, protective tariffs and customs duties and fees (e.g., Special
Duties imposed by the Bureau of Customs)
CHARACTERISTICS OF THE POWER TO TAX (CUPS)
1. Comprehensive – it covers persons, businesses, activities, professions, rights and privileges.
2. Unlimited – it is so unlimited in force and searching in extent that courts scarcely venture to declare that it is subject to any restrictions, except those
that such rests in the discretion of the authority which exercises it. (Tio vs. Videogram Regulatory Board; GR No. 75697; June 18, 1987)
3. Plenary – it is complete; unqualified; absolute. Under the Tax Code, the BIR may avail of certain remedies to ensure collection of taxes.
4. Supreme – insofar as the selection of the subject of taxation is concerned.
PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
1. Fiscal Adequacy – revenue raised must be sufficient to meet government/public expenditures and other public needs. (Chavez vs. Ongpin; GR No. 76778;
June 6, 1990)
A deduction differs from a tax credit, in that a deduction reduces taxable income while a credit reduces tax liability.
3. Treaties with other states: a tax treaty sets out the respective rights to tax of the state of source (situs) and the state of residence with regard to
certain cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states are given
the right to tax, although the amount of tax that may be imposed by the state of source is limited.
It applies whenever the state of source is given full or limited right to tax. The treaty makes it incumbent upon the state of residence to allow relief in order
to avoid double taxation.
Note: The BIR issued RMO No. 1-2000, as amended by RMO No. 72-2010, requiring taxpayers to file for a Tax Treaty Relief Application on or before the
transaction date before availing of the provisions of a tax treaty. However, as held by the Supreme Court, this administrative requirement cannot defeat
the right of any taxpayer entitled to the preferential rates in the tax treaty.
FORMS OF ESCAPE FROM TAXATION
1. Shifting – the burden of payment is transferred from the statutory taxpayer to another without violating the law (e.g., VAT);
2. Capitalization – the reduction in the price of the taxed object equal to the capitalized value of future taxes the purchaser is expected to be called upon
to pay.
3. Transformation - for manufacturers or producers, upon whom tax are imposed, fearing the loss of his market if he should add to the price, pays the tax
and endeavor to recoup himself by improving his process of production, thereby producing his units at a lower cost.
4. Tax Avoidance – exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to
avoid or reduce tax liability. Also known as “tax minimization.” (e.g. utilizing all permissible allowable deductions)
5. Tax Exemption – grant of immunity to particular persons or corporations of a particular class from a tax which persons or corporations generally within
the same rate or taxing district are obliged to pay.

2. Administrative Feasibility – tax laws must be clear and concise; capable of effective and efficient enforcement; convenient as to time and manner of Basic Principles Regarding Tax Exemption
payment, must not obstruct business growth and economic development. i. Exemptions are highly disfavored by law and he who claims an exemption must be able to justify his claim by the clearest grant of law. An exemption
from the common burden cannot be permitted to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; see also House vs.
The VAT law cannot be considered as violative of the Administrative Feasibility principle because it is principally aimed to rationalize the system on taxes Posadas, 53 Phil. 338)." (Collector of Int. Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755, March 24, 1956)
of goods and services. Thus, simplifying tax administration and making the system more equitable to enable the country to attain economic recovery. ii. He who claims exemption should prove his factual and legal basis for exemption. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
(Kapatiran ng Mga Naglilingkod sa Pamahalaan v. Tan; June 30, 1988) Corporation, G.R. No. 147295, February 16, 2007)
iii. Tax exemptions are strictly construed against the person claiming it. (Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs; GR No. L-
3. Theoretical Justice – must take into consideration the taxpayer’s ability to pay (Ability to Pay Theory). Art. VI, Sec. 28(1) of the 1987 Constitution 21841; Oct. 28, 1966)
mandates that the rule on taxation must be uniform and equitable and that the State evolve a progressive system of taxation. iv. Constitutional grant of exemptions are self-executing.
v. In the same way that taxes are personal, tax exemptions are also personal.
 vi. Deductions from income tax purposes partake of the nature of tax exemptions, therefore should also be construed strictly against the taxpayer.
(Commissioner of Internal Revenue vs. General Foods (Phils), Inc.; GR No. 143672; April 24, 2003)
vii. Same treatments are given to tax refunds. (Commissioner of Internal Revenue v. Eastern Telecommunications Phils., Inc., G.R. No. 163835, July 7,
2010)
Kinds of Tax Exemption
As to Form:
a. Express - Expressly granted by the Constitution, statutes, treaties, franchises or similar legislative acts.
b. Implied - When particular persons, properties, or exercise are deemed exempt as they fall outside the scope of the taxing provision itself.
c. Contractual - Are those agreed to by the taxing authority in contract lawfully entered into by them under enabling laws.
As to Basis:
a. Constitutional Exemptions – Immunities from taxation which originate from the Constitution.
b. Statutory Exemptions – those which emanate from legislation.
As to Extent:
a. Total Exemption – connotes absolute immunity.
b. Partial Exemption – one where a collection of a part of the tax is dispensed with.
Grounds for Tax Exemption
a. Contract – the grant of tax exemption is usually contained in the charter of the corporation to which the exemption is granted.
b. Public policy - to encourage new and necessary industries, or to foster charitable institutions.
c. Reciprocity – to reduce the rigors of international double or multiple taxation, tax exemptions maybe granted in treaties. A tax exemption is a personal
privilege of the grantee and therefore not assignable; it is generally revocable by the government, unless founded on contract and must not be
discriminatory.
Revocation of Tax Exemption: If the grant of an exemption does not constitute a contract, but merely “a spontaneous concession by the legislature,
not connected with any service or duty imposed” it is REVOCABLE by the power which made the grant.
Thus, if the basis of the tax exemptions is by virtue of a franchise granted by Congress, the exemption may be revoked.
However, if the tax exemption constitutes a binding contract and for a valuable consideration, the government cannot unilaterally revoke the tax exemption.
6. Tax Evasion – use of a taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. Also known as “tax dodging,” it presupposes malice,
fraud, bad faith, or willful intent on the part of the taxpayer either to underdeclare income or overdeclare deductions to defeat tax liability.
Connotes the integration of 3 Factors:
a. The end to be achieved, i.e. the payment of less than that known by the taxpayer to be legally due;
b. An accompanying state of mind which is described as being “evil”, in “bad faith”, “willful”, or “deliberate and not merely accidental”, and
c. A course of action or failure of action which is unlawful.
7. Compensation or Set-off: as a general rule, taxes cannot be the subject of a set-off or compensation because of the lifeblood doctrine; they are not
contractual obligations but arise out of duty to the government; and the government and the taxpayer are not mutually debtors and creditors of each
other. (Francia vs. IAC No. L-67649; June 28, 1988)
Taxes are of a distinct kind, essence and nature, and these impositions cannot be classed in merely the same category as ordinary obligations; the applicable
laws and principles governing each are peculiar, not necessary common, to each; and public policy is better subserved if the integrity and independence
of taxes are maintained. (Republic vs. Mambulao Lumber Co.)
A person cannot refuse to pay tax on the basis that the government owes him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government. (Philex Mining Corp. v. Commissioner)
Doctrine of Equitable Recoupment: is a doctrine in common law applicable where the taxpayer has a claim for refund but he was not able to file a
written claim due to the lapse of the prescription period within which to make a refund.
The taxpayer is allowed to credit such refund to his existing tax liability.
This doctrine is not allowed in the Philippines.
Note that the prescription of tax refunds in this jurisdiction is generally two years from the date of payment and the assessment of taxes is generally 3
years from filing. Thus, if the taxpayer failed to file a refund within the 2 year period, his liability as assessed by the BIR cannot be recouped against such
prescribed refund claim.
8. Compromise and Abatement – these are powers granted to the Commissioner of Internal Revenue to reduce tax liabilities and/or penalties. (see Tax
Remedies)
9. Tax Amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power to impose penalties on persons or
entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean by giving them an opportunity
to straighten out their records. (Metropolitan Bank and Trust Co. v. Commissioner of Internal Revenue, G.R. No. 178797, 4 August 2009)
Distinguished with tax exemption: Tax amnesty is an immunity from all criminal and civil obligations arising from non-payment of taxes. It is a general
pardon given to all taxpayers. It applies only to past tax periods. (People vs. Castañeda, G.R. No. L-46881, September 15, 1988) It applies to past tax
liabilities.
Tax exemption is an immunity from the civil liability only. It is an immunity or privilege, a freedom from a charge or burden of which others are subjected.
(Florer vs. Sheridan, 137 Ind. 28, 36 NE 365). It applies prospectively after the grant of exemption or qualification therefrom.
TAX AMNESTY ACT (Republic Act No. 11213): towards the policy of the State in protecting and enhancing revenue administration and collection, the
State shall:
a. Provide a one-time opportunity to settle estate tax obligations through an estate tax amnesty program that will give reasonable relief to estates with
deficiency estate taxes
b. Enhance revenue collection by providing a tax amnesty on delinquencies to minimize administrative costs in pursuing tax cases and declog the dockets
of the BIR and the courts; and
c. Provide a more equitable tax system by adopting a comprehensive tax reform program that will simplify the requirements on tax amnesties with the
use of simplified forms and utilization of information technology in broading the tax base.
General Amnesty: the law originally includes a general tax amnesty to cover all other taxes, but this portion of the law (Title III) was vetoed entirely by
the President stating that “without the provisions breaking down the walls of bank secrecy, setting the legal framework for us to comply with international
standards on exchange of information for tax purposes, and safeguarding against those who abuse the amnesty by declaring an untruthful asset or net
worth, a general amnesty that is overgenerous and unregulated would create an environment ripe for future tax evasion, the very thing we wish to
address.”
Estate Tax Amnesty:
a. Coverage: estate of decedents who died on or before December 31, 2017, with or without assessments duly issued therefor, whose estate taxes
have remained unpaid or have accrued as of December 31, 2017.
b. Exceptions to the Coverage: the Estate Tax Amnesty shall not extend to cases which shall have become final and executory and to properties
involved in cases pending in appropriate courts:
i. Falling under the jurisdiction of the Presidential Commission on Good Government;
ii. Involved in unexplained or unlawfully acquired wealth under RA No. 3019, or the Anti-Graft and Corrupt Practices Act, and RA No. 7080 or the
Plunder Act;
iii. Involving violations of RA No. 9160, or the Anti-Money Laundering Act, as amended;
iv. Involving tax evasion and criminal offenses under the Tax Code, as amended; and
v. Involving felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under the Revised Penal Code.
c. Tax Base:
i. Total net estate at the time of death, or the gross estate less all allowable deductions as provided in the Tax Code, as amended, or the applicable
estate tax laws prevailing at the time of death of the decedent;
ii. If an estate tax return was previously filed, the estate tax shall be based on net undeclared estate.
d. Tax Rate: 6%
e. Tax Due: shall be 6% of the Net Estate as determined above. However, if allowable deductions applicable at the time of death of the decedent
exceed the value of the gross estate, the heirs, executors, or administrators may avail of the benefits under the Tax Amnesty Act and pay the minimum
estate amnesty tax of P5,000.
f. Who will avail:
i. The executor or administrator of the estate, or
ii. if there is no executor or administrator appointed, the legal heirs, transferees or beneficiaries
g. Period of availment: 2 years from the effectivity of the Implementing Rules and Regulations (IRR) of the Tax Amnesty Act.
h. Where to File: the sworn Estate Tax Amnesty Return shall be filed with the RDO of the BIR which has jurisdiction over the last residence of the
decedent. For non-residents, the return shall be filed and the tax paid at RDO No. 39, or any other RDO which shall be indicated in the IRR.
i. Time of payment: at the time of the filing of the return.
j. Previous transfers of property: the Tax Amnesty Act originally provided that if the estate involved properties which are still in the name of another
decedent or donor, the present holder, heirs, executors or administrators shall file only 1 Estate Tax Amnesty Return and pay the corresponding taxes
thereon based on the total net estate at the time of death of the LAST decedent covering all accrued taxes under the Tax Code, arising from the
transfer of such estate from all prior decedents or donors through which the property/ies comprising the estate shall pass.
The President, however, vetoed such provision, the message providing that the tax is imposed not because of the property itself but on the privilege
of transferring property to the heirs. As the message provides, the flat rate of 6% estate amnesty tax, without penalties, imposed at EVERY STAGE
OF TRANSFER is more than a fair imposition on the privilege.
k. No admission of liability: the availment of the Estate Tax Amnesty and the issuance of the corresponding Acceptance Payment Form do not imply
admission of criminal, civil or administrative liability on the part of the availing estate.
l. NO Presumption of Correctness of the Estate Tax Amnesty Returns: the TAA originally provides that the Estate Tax Amnesty Returns shall
be conclusively presumed as true, correct and final upon filing and shall be deemed complete upon full payment of the amount due. However, the
President vetoed this provision stating that beyond the transfer of property, rights and obligations to the heirs, legatees, and devisees, the valuation
of the subject properties is a technical aspect that cannot be left to mere self-declaration and that there must be an opportunity for implementing
agencies to evaluate the truthfulness of the declarations made by the taxpayers.
m. Duties of the BIR: the RDO shall issue an acceptance form for the Authorized Agent Bank or the revenue collection agent or municipal treasurer
concerned, to accept the tax amnesty payment.
After payment, a Certificate of Availment of the Estate Tax Amnesty shall be issued by the BIR within 15 calendar days from submission to the BIR of
the Acceptance Payment Form and the Estate Tax Amnesty Return. Otherwise, the duplicate copies of the Acceptance Payment Form and the Estate
Tax Amnesty Return shall be deemed sufficient proof of availment.
n. Immunities and Privileges: Estates covered by the Estate Tax Amnesty, which have fully complied with the conditions set forth above, including
the payment of the estate amnesty tax shall be immune from the payment of all estate taxes for taxable year 2017 and prior years, and from all
appurtenant civil, criminal and administrative cases and penalties under the Tax Code, as amended.
Tax Amnesty on Delinquencies
a. Coverage: all national internal revenue taxes collected by the BIR, including VAT and excise taxes collected by the Bureau of Customs.
Delinquencies covered and Applicable Rates:
Delinquency Covered Applicable Rate
A Delinquencies and assessments, which have become final and executory, including delinquent tax 40% of the basic tax assessed
account, where the application for compromise has been requested but was denied by the Regional
 Evaluation Board or the National Evaluation Board, as the case may be, on or before the IRR takes Offenses and Penalties:
effect.
B Pending criminal cases with the DOJ or the courts for tax evasion and other criminal offenses under 60% of the basic tax assessed Offense Penalty
the Tax Code, as amended, with or without assessments issued. Unlawful Divulgence of Information – any officer or employee of the BIR who divulges to any Fine – P50,000 to P100,000;
C Tax cases subject of final and executory judgment by the courts on or before the IRR takes effect. 50% of the basic tax assessed person or makes known in any other manner than may be provided by law, information regarding Imprisonment – 2 years to 5 years;
D Withholding tax agents who withheld taxes but failed to remit the same to the BIR 100% of the basic tax assessed the business, income, or estate of any taxpayer, the secrets, operations, style of work, or Or both
apparatus of any manufacturer or producer, or confidential information regarding the business of
Delinquent Account: pertains to a tax due from a taxpayer arising from the audit of the BIR which had been issued Assessment Notices that have any taxpayer, knowledge of which was acquired by him in the discharge of his official duties.
become final and executory due to the following instances:
i. Failure to file a valid Protest, whether a request for reconsideration or reinvestigation, within 30 days from receipt thereof. Divulgence in any other manner to any person other than the requesting foreign tax authority Fine – P500,000 to P1,000,000;
ii. Failure to file an appeal with the CTA or an administrative appeal before the CIR within 30 days from receipt of the decision denying the information obtained from banks and financial institutions, knowledge or information acquired by Imprisonment – 2 years to 5 years.;
request for reinvestigation or reconsideration; or him in the discharge of his official duties Or both
iii. Failure to file an appeal with the CTA within 30 days from receipt of the decision of the CIR denying the taxpayer’s administrative appeal to Unlawful Divulgence of Tax Amnesty Return and Appurtenant Documents – any person having Fine – P150,000;
the FDDA. knowledge of the Tax Amnesty Return and appurtenant documents who discloses any information Imprisonment – 6 years to 10 years;
relative thereto, and any violation hereof. Or both
Basic Tax Assessed: refers to:
i. Tax due shown on the Assessment Notice, net of any basic tax paid prior to the effectivity of RR No. 4-2019, exclusive of civil penalties; If the offender is an officer or employee of the BIR or any government entity Fine – P50,000 to P100,000;
ii. The computed basic tax liabilities as shown in the criminal complaint filed by the BIR with the DOJ/Prosecutor’s Office or int eh information Imprisonment – 2 years to 5 years;
filed in the Courts for violations of tax laws and regulations; and Or both
iii. The basic tax liabilities as per Court’s final and executory decision. Plus perpetual disqualification to hold public office

Deficiency Withholding Taxes in assessments or tax cases: the tax rate shall still be 100% under letter D above, even in cases of non-remittance of CONSTRUCTION AND INTERPRETATION OF TAX LAWS:
withholding taxes falling under letters A, B and C above.
Tax laws must be construed reasonably to carry out the purpose, intent and the objective of the law.
With Pending Compromise Settlement Application under letter A above: if the delinquent tax is subject of an application for compromise settlement,
whether denied or pending, the amount of payment shall be based on the NET basic tax as certified by the concerned office. As a rule, if the tax law is clear and free of ambiguity, it will be applied in its literal import. If there is doubt as to its validity or if it is ambiguous, the law will be
construed strictly against the Government and liberally in favor of the taxpayer.
ILLUSTRATION: B Company received a Final Assessment Notice with a P1,000,000 basic tax deficiency. It applied for compromise and paid P400,000
as the minimum amount required. If B Company applied for Tax Amnesty, how much would it pay? Tax Exemptions; deductions and refund: in case of ambiguity, the law will be construed strictly against the taxpayer and liberally in favor of the government,
except:
Basic Tax per FAN P1,000,000 1. Where the statute granting exemption expressly provides for a liberal interpretation;
Basic Tax paid per Compromise Settlement Application (400,000) 2. Special taxes relating to special cases and affecting only special classes of persons;
Net Basic Tax prior to the effectivity of the Regulation 600,000 3. Property held in private ownership;
Amnesty Rate 40% 4. Traditional exemptees, such as those in favor of religious and charitable institutions;
Amnesty Tax to be paid P240,000 5. In favor of the government, its political subdivisions or instruments; and
6. By clear legislative intent.
Partial/Installment Payments: the amount of payment shall be based on the NET amount as certified by the concerned office.
Tax exemptions are never presumed. It must be established and proved by the taxpayer; must be limited to what the law says; and personal to the person
b. When and Where to File: Any person, natural or juridical, who wishes to avail of the Tax Amnesty on Delinquencies shall, within one year from the entitled to the same.
effectivity of the IRR file with the appropriate office of the BIR, which has jurisdiction over the residence or principal place of business of the taxpayer,
a sworn Tax Amnesty on Delinquencies Return accompanied by a Certification of Delinquency. II. TAXATION and the other INHERENT POWERS

The payment of the amnesty tax shall be made at the time of the filing of the Return. Similar to the Estate Tax Amnesty, the RDO shall issue and 1. Taxation is the power of the State to demand from the members of society their proportionate share or contribution in the maintenance of the government.
endorse an Acceptance Payment Form authorizing the authorized agent bank, or in the absence thereof, the revenue collection agent or municipal 2. Eminent Domain is the power of the State to forcibly acquire private property, upon payment of just compensation, for some intended public use
treasurer concerned, to accept the amnesty tax payment. 3. Police Power is the power of the State to regulate liberty and property for the promotion of general welfare
c. No admission of liability: the availment of the Tax Amnesty on Delinquencies and the issuance of the corresponding Acceptance Payment Form do
not imply admission of criminal, civil or administrative liability on the part of the availing taxpayer. SIMILARTITIES:
d. Immunities and Privileges: The tax delinquency of those who avail of the Tax Amnesty on Delinquencies and have fully complied with all the 1. Inherent in the State and need not be conferred by the Constitution;
conditions and upon payment of the amnesty tax shall be considered settled and the criminal case under Sec. 18(c) of the Tax Code, as amended, as 2. Indispensable in that the State cannot continue or be effective unless it is able to exercise the same;
such relate to the taxpayer’s assets, liabilities, networth and internal revenue taxes that are subject of the tax amnesty, and from such other 3. Methods whereby the State interferes with private rights;
investigations or suits. 4. Presuppose an equivalent compensation, tangible or otherwise, for the private rights interfered with; and
5. Primarily exercised by the legislature.
e. Proof of Availment and Compliance; effects thereof: Any notices of levy, attachments and/or warrants of garnishment issued against the
taxpayer shall be set aside pursuant to the lifting of notice of levy/garnishment duly issued by the BIR. DIFFERENCES:

The Authority to Cancel Assessment shall be issued in favor of the taxpayer within 15 days from submission to the BIR of the Acceptance Payment Taxation Police Power Eminent Domain
Form and the Tax Amnesty on Delinquencies Return. Otherwise, the duplicate copies, stamped as received, of the Acceptance Payment Form, and Raise revenue Promote public welfare through Facilitate the taking of private property
Purpose regulations for public use
the Tax Amnesty on Delinquencies Return shall be deemed sufficient proof of availment.
No limit BUT must be equal to the Limited to the cost of regulation and No specific amount BUT just
The Form and the Return shall be submitted to the RDO after complete payment and the completion of these requirements shall be deemed full needs of the government issuance of license or surveillance fees compensation must be paid to the
compliance with the provisions of the TAA. owner which is equivalent to the market
Amount of Exaction
value of the property
After full compliance with all the conditions and payment of the corresponding tax on delinquency, the tax amnesty granted shall become final and
irrevocable.
No direct benefit; only general benefit No direct benefit; only a healthy Direct benefit in the form of just
Confidentiality and Non-Use of Information and Data: any information or data contained in, derived from or provided by the taxpayer in the Tax Benefits Received of protection economic standard of society compensation
Amnesty Return and appurtenant documents shall be confidential in nature and shall not be used in any investigation or prosecution before any judicial,
quasi-judicial and administrative bodies. Non-impairment of Contracts may NOT be impaired Contracts MAY be impaired Contracts MAY be impaired
Contracts
Documents:
Transfer of Property Taxes become part of the public funds No transfer but only restraint in its Transfer in favor of the State
Document BIR Form/Reference Rights exercise
Tax Amnesty Return BIR Form No. 2118-DA (Annex A of RR No. 4-19) All persons, property and excises All persons, property and privileges Only upon a particular property
Acceptance Payment Form BIR Form No. 0621-DA (Annex B of RR No. 4-19) Scope
Certificate of Tax Delinquencies/Tax Liabilities Annex C of RR No. 4-2019
 Only by the government and its political Only by the government and its political May be by (1) the government or its Determination of Amount Determined by the sovereign Determined by the cost of the property or improvement
subdivisions subdivisions political subdivisions OR (2) public Who may impose Imposed by the State Imposed by the government or private individual
Who exercises the
service companies or public utilities
power
granted with such power. TAX VS. PENALTY

Tax Penalty
III. TAXES
Definition Enforced proportional contributions from persons Sanction imposed for violation of laws
and property
TAXES: are enforced proportional contributions from the persons and property levied by the law-making body of the State by virtue of its sovereignty in support
Purpose For revenue To regulate conduct
of government and for public needs.
Authority Imposed only by the government Imposed either by the government or by private individuals or
entities
ESSENTIAL CHARACTERISTICS OF TAX
1. Imposed by the State which has jurisdiction over the person, property or excises (activity);
2. Levied by the Legislature; TAX VS. SPECIAL ASSESSMENT
3. It is an enforced contribution;
4. Generally payable in money; Tax Special Assessment
5. Proportionate in character – based on the taxpayer’s ability to pay; Definition Demand of sovereignty for raising revenue Special levy on lands comprised within the territorial jurisdiction of a
6. Levied on persons, property or excises; Province, City or Municipality specially benefitted by public works,
7. Levied for public purpose; projects, improvements funded by the LGU concerned
8. Paid at regular periods of intervals; Subject Imposed on lands, persons, property, income, Imposed on land only
9. Personal to the taxpayer. business, etc.
Liability Personal Non-personal
CLASSIFICATOIN OF TAXES Basis Based on necessity (and partially on benefits) Based solely on benefits
1. As to purposes:
a. General/Fiscal or Revenue – purpose is to raise revenue for the government’s ordinary needs; Application General Special to a particular time and place
b. Special/Regulatory or Sumptuary – purpose is some social or economic ends irrespective of whether revenue is actually raised.
2. As to subject matter: TAX VS. CUSTOMS DUTIES
a. Personal, poll or capitation – those imposed upon residents of a territory, regardless of citizenship, property, occupation, business.
b. Property – those imposed upon real and personal property depending on their value. Tax Custom Duties
c. Excise or privilege – those imposed upon the performance of an act, enjoyment of a privilege, or engaging in an occupation, profession or business. Purpose Raising revenue Controlling the flow of the goods of the country
3. As to incidence: Broadness Broader term Tariff or tax on the importation (usually) or exportation (unusually)
a. Direct – where the burden for the payment of the tax as well as the impact falls on the same person; as such, the person who pays is the person who of goods
is statutory liable to pay the tax (e.g., income tax);
b. Indirect – where the incidence falls on one person but the burden falls another. (e.g., VAT). TAX VS. DEBT
4. As to amount:
a. Specific – amounts fixed and is imposed by the head or number or some measurement, hence, no valuation is needed except for the list of things to Tax Debt
be taxed. Basis Law Contract/ judgment
b. Ad valorem – one which is based on the value of the object to be taxed. Effect of failure to pay Civil and criminal liability Civil liability only (No imprisonment)
5. As to rate/progression: Mode of payment Money Money, property or service
a. Progressive – tax rates increase as the tax base or bracket increases. Assignability No Yes
b. Regressive – tax rate decreases as tax base or bracket increases.
Subjectivity to No Yes
c. Proportionate – tax is based on a fixed percentage of the amount of the property, receipts or other bases to be taxed.
Compensation/ Set-off
6. As to authority imposing the tax:
a. National – levied by the national government and enforced by the BIR; Interest Yes, if deficient or delinquent. General Rule: no interest, unless expressly stipulated or after
b. Local – levied by the local government through its sanggunian and enforced by the treasurer. demand is made
Authority Public authority Private individuals
TAX VS. LICENSE FEES Prescription Determined by the Tax Code Determined by the Civil Code

Tax License Fee SOURCES OF REVENUE: the following are considered national internal revenue taxes:
Basis Taxation power Police power 1. Income tax;
Purpose Revenue Regulation 2. Estate and donor’s taxes;
Limitation on Amount Subject only to inherent and constitutional limitations Limited to the cost of issuance of license and cost of 3. Value-added tax;
inspection and surveillance 4. Other percentage taxes;
5. Excise taxes;
When paid After the start of business Before the start of business 6. Documentary Stamp Taxes; and
7. Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue.
Surrender vis-a-vis necessity of Cannot be surrendered except for lawful Lawful consideration not necessary
consideration consideration IV. INHERENT LIMITATIONS
Effect of non-payment Will not render the business illegal BUT criminal Will render the business illegal A. IT MUST BE FOR A PUBLIC PURPOSE
prosecution will result
A revenue measure must be laid for a public purpose determined by the legislature. The proceeds of the tax must be used either for the support of the State or
for some recognized objective of government or directly to promote the welfare of the community.
IMPORTANCE OF DISTINCTION:
1. Government instrumentality concerned may not be authorized to exact taxes but IS authorized to exact license fees The public purpose must exist at the time the law is enacted. (Pascual vs. Secretary of Public Works, GR No. L-10405; Dec. 29, 1960)
2. Person imposed upon may be exempt from taxes BUT NOT exempt from license fees
3. Tax, NOT fees, may be claimed as income tax deduction for income tax purpose. However, fees may be considered as expenses ordinary and necessary Tests in determining public purpose:
for business. 1. Duty Test – whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State, as a government.
4. In Local Government Taxation, Sec. 187 of the Local Government Code covers only “tax” ordinance. Such that, if the ordinance is regulatory, it does not 2. Promotion of General Welfare Test – whether the law providing the tax directly promotes the welfare of the community in equal measure.
come within the purview of Sec. 187 and the CTA does not have jurisdiction over the legality of the same, jurisdiction thereof being under the RTC.
One sector is not benefited: Public purpose is not destroyed by the fact that the tax law may not be beneficial to one group. The fact that one sector is benefited
TAX VS. TOLL and in the process another sector is being in a way prejudiced would not diminish the public character of the tax (Tio v. Videogram Regulatory Board, G.R.
75697, June 1987)
Tax Toll
Definition Demand of sovereignty for raising revenue Amount charged for the cost and maintenance of property used B. EXEMPTION OF GOVERNMENT ENTITIIES, AGENCIES and INSTRUMENTALITIES
Purpose For support of the government As compensation for use of another's property
 As a rule, the government, its agencies and instrumentalities performing governmental function are exempt from VAT. This is because taxes are financial
burdens imposed for the purpose of raising revenues to defray the cost of the operation of the Government, and a tax on property of the Government, Substantive due process: requires that assessments must not be harsh, oppressive or confiscatory; it must be made under authority of a valid law; and must
whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket (Board of Assessment of Appeals of be imposed within the territorial jurisdiction of the State.
Laguna vs. CTA, G.R. No. L-35683, May 7, 1987).
Specific Cases:
Exceptions: 1. There is a denial of due process on account of the passage of an ordinance in the City of Manila which imposes a permit fee of P50.00 on aliens as a
1. Agencies performing proprietary functions; condition to employment or engaging in any business or occupation, where it appears that under said ordinance, the City Mayor of Manila could withhold
2. When the charter creating the agency or instrumentality or the law provides that they are subject to tax. or refuse issuance of such permit at will. Aliens, once admitted in the Philippines, cannot be deprived of life without due process of law and this guarantee
3. If the government wishes to tax itself. includes the means of livelihood (Villegas vs. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646, November 10, 1978)
2. Due process was not violated when the VAT law (EO 273) was promulgated. Petitioners failed to show that EO 273 was issued capriciously and whimsically
GOCCs: performing proprietary functions are taxable similar to a corporation. However, Sec. 27(c) of the Tax Code provides for the following corporations or in arbitrary or despotic manner by passion or personal hostility since it appears that a comprehensive study of the VAT was made before EO 273 was
as exempt: issued (Kapatiran vs. CIR, G.R. No. L-81311, June 30, 1988).
1. Government Service Insurance System (GSIS) 3. The modified schedular income tax whereby individual income was classified into three different classes under different tax rates (compensation,
2. Social Security System (SSS) business/other income and passive investment income) is not a denial of due process because there is no proof of arbitrariness in the imposition of tax
3. Philippine Health Insurance Corporation (PHIC) rates (Sison vs. Ancheta, G.R. No. 59431, July 25, 1984).
4. Local Water Districts 4. Section 112 (B) allows a VAT registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against output taxes. The input tax is not a property or property right within the constitutional purview of the due
PAGCOR: is no longer exempt from income tax by its omission from the above list. (PAGCOR vs. BIR, GR No. 12087, March 15, 2011) However, PAGCOR process clause. A VAT-registered person’s entitlement to the creditable input tax is merely a statutory privilege (Abakada Guro Party List vs. Ermita, Ibid.).
remains exempt from income tax for its income arising from casino operations which are subject to franchise tax in lieu of all taxes. (PAGCOR vs. BIR, GR
No. 215427, Dec. 10, 2014) B. EQUAL PROTECTION OF THE LAWS

PCSO: was removed under the TRAIN and is thus taxable beginning January 1, 2018. Art. III, Sec. 1: No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection
of laws.
C. THE POWER TO TAX IS INHERENTLY LEGISLATIVE (NON-DELEGABILITY)
The requirement of equal protection of the laws requires that the law must apply equally to all persons within the same class. As such, providing for a classification
Taxation is the inherent power of the state and it is exercised primarily by the Legislature as delegates of the people. In accordance with the latin maxim, and applying the law only to a particular class is not violative of the constitutional right so long as it comes from a valid classification.
potestas delegatas non delegare potest, which means, what has been delegated can no longer be delegated, as a rule, only the Congress (to whom the legislative
power has been delegated by the people) can exercise this power. Requisites for a valid classification:
1. Must be based upon substantial distinctions;
Exceptions: 2. Must be germane to the purpose of law;
3. Must apply to both present and future conditions; and
1. Delegation to Local Government – the Constitution, as implemented by the Local Government Code, empowers the local government units (LGU) to 4. Must apply equally to all members of a class.
create its own sources of revenue and to levy taxes, fees and charges which shall accrue exclusively to the LGU. (Sec. 5, Art. X of the Constitution)
2. Delegation to the President – the Constitution, as implemented by the Tariff and Customs Code, allows the President to fix tariff rates, import and Two ways by which equal protection clause is violated:
export quotas, tonnage and wharfage dues and other duties or imposts. (Sec. 28[2], Art. VI of the Constitution) 1. When classification is made when there should be none
2. When classification is not made when called for
Likewise, the President may exercise emergency powers (Sec. 23[2], Art. VI of the Constitution) and enter into executive agreements or treaties which
may contain tax exemption provisions subject to the concurrence of the Senate. (Sec. 27, Art. VII of the Constitution) Specific Cases:
1. If the ordinance is intended to apply to a specific taxpayer and to no one else regardless of whether or not other entities belonging to the same class are
3. Delegation to Administrative Agencies – administrative agencies may issue rules and regulations to implement tax laws, under their quasi-legislative established in the future, it is a violation of the equal protection clause, but if intended to apply also to similar entities which may be established in the
powers, subject to the following tests: future, then the tax ordinance is valid (Ormoc Sugar Central vs. CIR, G.R. No. L-23794, February 17, 1968)
2. The fact that the taxpayer is the only sugar central or refinery in the municipality where the tax ordinance is enacted does not make said ordinance
a. Completeness test – in order for the delegation to be valid, the law must be complete in all aspects when it leaves the legislature. The only thing discriminatory. The reason is that since other refineries to be established in the future would also be taxable, no singling out of the taxpayer to its
left for the delegate to do is to implement the law. disadvantage has ever taken place (Victorias Milling Co., Inc. vs. Municipality of Victoria, G.R. No. L-21183, September 27, 1968)
b. Sufficiently Determinable Standards test – there must exist sufficient standards which should limit the boundaries of the delegate’s authority by 3. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by
defining legislative policy and the circumstance under which it is to be pursued and implemented. itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike (Juan Luna Subd. Vs.
Sarmiento, G.R. No. L-3538, May 28, 1952)
Technically, no. 3 is not really an exception as the powers of the administrative agencies are limited to implementing and/or interpreting the tax laws issued 4. A local ordinance which levies an ad valorem tax on motor vehicles registered in Manila without also taxing those which are registered outside the city but
by Congress. which enters the city and use its streets occasionally violates the rule on the equality of taxation (Assoc. of Customs Brokers vs. Municipality Board of
Manila, G.R. No. L-4375, May 22, 1953).
D. INTERNATIONAL COMITY 5. With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 114 par. C merely
provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. Since it has not been shown that the class subject
The principle of international comity recognizes that States are co-equal sovereigns such that one cannot exercise its inherent sovereign powers over to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not
another, including the power to tax. the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government (Abakada Guro Party List vs. Ermita, Ibid.).

States find it mutually advantageous to create self-imposed restraints on their taxing powers with reference to properties of foreign governments. Moreover,
when on state enters the territory of another, there is an implied understanding that the former does not intend to degrade its dignity by placing itself
under the jurisdiction of the latter, note that a foreign state cannot be sued without its consent, thus it would be useless to impose or assess a tax which
cannot be collected.
E. TERRITORIAL IN APPLICATION (SITUS)
C. UNIFORMITY AND PRGRESSIVITY OF TAXATION
Art. VI, Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
UNIFORMITY means that all taxable articles or kinds of property of the same classes shall be taxed at the same rate. A tax is uniform when it operates with
the same force and effect in every place where the subject of it is found. (Commissioner vs. Lingayen Gulf Elec. Co., G.R. No. L-23771, August 4, 1988)

Tax is territorial in application in the sense that the object and/or subject of the tax must be within the territorial jurisdiction of a State. As such, income Amusement Tax: Uniformity is not disregarded if a tax is levied on admission to cinema, theaters, vaudeville companies, theatrical shows and boxing exhibitions
earned by non-residents and aliens are not subject to tax in the Philippines unless they are earned herein – here the subject of the tax is the income. On but does not tax other places of amusement such as race tracks, cockpits, cabarets, concert halls, circuses and other places of amusement. (Eastern Theatrical
the other hand, resident citizens are subject to income tax for their worldwide income – here the object of the tax is the individual who is subject to the Co. vs. Alfonso, G.R. No. L-1104, May 31, 1949)
protection of the State.
Uniformity vs. Equitability vs. Equality
V. CONSTITUTIONAL LIMITATIONS
• Uniformity – All taxable property shall be alike to be subjected to tax
A. DUE PROCESS REQUIREMENT • Equitability – The burden of taxation falls to those better able to pay.
• Equality – When the burden of the tax falls equally and impartially upon all persons and property subject to it.
Art. III, Sec. 1: No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal
protection of laws. PROGRESSIVITY means that the tax rate increases as the tax base thereof increases. Our income tax system is one good example of such progressivity
because it is built on the principle of the taxpayer’s ability to pay. Taxation is progressive when its rate goes up depending on the resources of the person
Procedural due process: requires that taxpayers must be notified of the assessment in writing and must state the fact and the law upon which it is based. affected (Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991)
Moreover, assessments and collection must not be arbitrary.
D. NO IMPRISONMENT FOR PAYMENT OF POLL TAX
While Sec. 30 covers non-stock, non-profit educational institutions, the above limitation on exemption does not apply to it. Thus, even if it derives income from
Art. III, Sec. 20. No person shall be imprisoned for debt or non-payment of a poll tax. activities conducted for profit, the income remains exempt as long as it is actually, directly and exclusively used for educational purposes. (Commissioner of
Internal Revenue vs. De La Salle University, Inc., GR No. 196596, November 9, 2016)
Poll Tax is a tax on individuals residing within a specified territory, whether citizens or not, without regard to their property or the occupation in which they
may be engaged. Proprietary educational institutions: are subject to 10% income tax on their taxable income under Sec. 27(B) of the Tax Code. The same provision provides
that if income from unrelated trade, business or other activity exceeds 50% of the total gross income, the tax shall be the 30% Regular Corporate Income Tax.
E. EXEMPTION FROM PROPERTY TAX OF REGILIOUS, CHARITABLE AND EDUCATIONAL INSTITUTIONS
G. GRANT OF EXEMPTION REQUIRES THE MAJORITY VOTE OF CONGRESS
Art. VI, Section 28.
Art. VI, Sec. 28(4): No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Rationale: in order to prevent the indiscriminate grant of tax exemptions.

Property Tax: The tax exemption under this constitutional provision covers property taxes only. As Chief Justice Hilario G. Davide, Jr., then a member of the H. PROHIBITION ON TAX LEVIED FOR SPECIAL PURPOSE
1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for religious, charitable or educational purposes." (Lung Center of the Philippines vs. Quezon City, GR Art. VI, Sec. 29(3): All money collected or any tax levied for special purposes shall be treated as special fund and paid out for such purpose only. If the
No. 144104, June 29, 2004) purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the government.

Estate and donor’s tax are excise taxes on the privilege to transfer property gratuitously. Accordingly, the above exemption does not cover estate and donor’s I. VETO POWER OF THE PRESIDENT
tax unless specifically provided under the Tax Code. (see Sections 101(A)(3) and 101(B)(2) of the Tax Code)
Art. VI, Sec. 27(2): The President shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill but the veto shall not
“Exclusive”: is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a affect the item or items which he does not object.
manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted
purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence J. REVENUE OR TARIFF BILL MUST EXCLUSIVELY ORIGINATE FROM THE LOWER HOUSE
to the Constitution and the law (Lung Center of the Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).
Art. VI, Sec. 24: All appropriation, revenue or tariff bills, bills authorizing the increase of public debts, bills of local application and private bills, shall
Actual and Direct Use is necessary: To be exempt from tax, the lands, buildings and improvements must not only be exclusively but also actually and originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.
directly used for religious and charitable purposes (Province of Abra vs. Hernando, G.R. No. L-49336, August 31, 1981)
K. LOCAL GOVERNMENT’S POWER TO TAX
Thus, even if a property is owned by a religious, educational or charitable institution, if it is rented out and used for activities other than the main purpose of
the institutions, it will be subject to tax and not covered by the exemption. Note that in Real Property Taxation, the actual use is determinative of assessment Art. X, Sec. 5: Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such
and taxability NOT OWNERSHIP. guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.
Incidental Use: the exemption likewise covers activities which are incidental to the main activity. As such, canteens owned and operated by the school, as
well as libraries are covered by the exemption extended to schools. L. NO APPROPRIATION FOR RELIGIOUS PURPOSES

If the use is not incidental, exemption does not apply: While the use of the second floor of the main building for residential purposes of the Director and his Art. VI, Sec. 29(2): No public money or property shall be appropriated applied, paid or employed, directly or indirectly, for the use, benefit or support of
family may find justification under the concept of incidental use, which is complimentary to the main or primary purpose, i.e., educational, the lease of the first any sect, church, denomination, sectarian institution or system of religion, or of any priest, preacher, minister, other religious teacher, or dignitary as such,
floor to the Northern Marketing Corporation cannot be considered incidental to the purpose of education. Since only a portion is used for the purpose of except when such priest, preacher, minister, or dignitary is assigned to the armed forces, or to any penal institution, or government orphanage or leprosarium.
commerce, it is only fair that half of the assessed tax be returned to the school involved (Abra Valley vs. Aquino, G.R. No. L-39086, June 15, 1988).
M. RELIGIOUS FREEDOM
Only the portion used for commercial purpose are subject to the tax: While portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a
Art. III, Sec. 5: No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of
canteen. Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not
religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or
exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying
political rights.
or non-paying, are exempt from real property taxes. (Lung Center of the Phil. vs. Quezon City, G.R. No. 144104, June 29, 2004).
Sale of Bibles at cost or at a low premium: The Constitutional guaranty of the free exercise of religion carries with it the right to disseminate religious
Receipt of Donation: The institution does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies
information. Any restraint on such right can only be justified on the ground that there is a clear and present danger of any substantive evil which the State has
granted by the government.
the right to prevent.
F. EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS
Activities simply and purely for propagation of faith are exempt (i.e., sale of bibles and religious articles by non-stock, non-profit organizations at minimal profit).
A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise
Art. XIV, Sec. 4(3): All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes
of its right. Hence, although its application to others is valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses, in connection
shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in
with the latter’s sale of religious books and pamphlets, is unconstitutional (American Bible Society v. City of Manila, G.R. L-9637, April 1957)
the manner provided by law.
N. NON-IMPAIRMENT OF CONTRACTS
Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by
law including restrictions on dividends and provisions for reinvestment.
Art. III, Sec. 10: No law impairing the obligation of contracts shall be passed.
Coverage: the above exemption does not only cover property tax but also income tax unlike the exemption of religious and educational institutions provided
Revocability of Tax Exemption: A law which changes the terms of the contract by making new conditions, or changing those in the contract, or dispenses
under (E) above which covers only property taxes.
with those expressed, impairs the obligation.
The tax exemption granted is conditioned only on the actual, direct and exclusive USE of their revenues and assets for educational purposes.
However, the non-impairment rule does not apply to public utility franchises since a franchise is subject to amendment, alteration or repeal by the Congress
when the public interest so requires (Article XII, Section 11). This is so because under the Constitution [now Section 11, Article XII, 1987 Constitution], the
Revenues: the exemption extends to the non-stock, non-profit educational institution on all revenues that is USED for educational purposes, regardless of its
legislature can impair a grantee’s franchise since a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires.
source.
(Cagayan Electric Power & Light Co., Inc. vs. CIR, G.R. No. L-60126, September 25, 1985)
Assets: the property, to be considered exempt from real property tax, the test is USE also, not ownership.
Rules applicable to revocation:
a. When the exemption is unilaterally granted by law and the same is withdrawn by virtue of another law, there is no violation.
Thus, if the institution earns rental income from a commercial entity but uses such rental for educational purposes, it is exempt from income tax, local business
b. When the exemption is bilaterally agreed upon between the government and the taxpayer, it cannot be withdrawn without impairing the contract.
tax, and/or VAT, but NOT real property tax.
c. When the exemption is granted under a franchise, it may be revoked because a franchise is subject to amendment, alteration, or repeal by Congress.
Limitation under Section 30 of the Tax Code: the last paragraph of Sec. 30 (Exempt Entities) under the Tax Code provides that “income from whatever kind and
O. NON-IMPAIRMENT OF THE JURISDICTION OF THE SUPREME COURT
character of the foregoing corporations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax”.
 Art. VIII, Sec. 5[2]: The Supreme Court shall have the power to review, revise, modify or affirm on appeal or certiorari as the law or the Rules of Court
may provide, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in
relation thereto.
Thus, Congress cannot enact a law which makes the decisions of the Court of Tax Appeals final and non-appealable to the Supreme Court.
INCOME TAX ON INDIVIDUALS
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 and/or personal and additional exemptions, if any,
authorized for such types of income, by the Tax Code, as amended, or other special laws.

VI. STAGES OF TAXATION A person means an individual, a trust, estate or corporation. (Sec. 22[A] of the Tax Code)

1. LEVY GENERAL PRINCIPLES OF TAXATION

The determination by Congress of the subject and object of taxation as well as the rate (Domondon, 9th ed, p. 29). It refers to the enactment of tax laws or SEC. 23. General Principles of Income Taxation in the Philippines. - Except when otherwise provided in this Code:
statutes (Dimaampao, 2011 ed, p. 14).
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
Note: This is NOT the “Levy” under Sec. 207 of NIRC, which refers to the remedy of the Government to collect taxes. (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
2. ASSESSMENT AND COLLECTION 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;
Assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. (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
Rules governing assessment and collection of taxes to prevent its abuse (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
1. The tax law must designate which agency will collect the taxes Philippines.
2. The circulars or regulations issued by the Secretary of Finance or the Commissioner of the Internal Revenue must be in accordance with the tax measures
imposed by Congress Taxability of Individuals:

Collection is the final stage and goal of tax administration. Earned within the Earned outside the
Philippines Philippines
3. PAYMENT Resident Citizens Taxable Taxable
Non-Resident Citizens Taxable Non-Taxable
The act of compliance by the taxpayer, including such options, schemes or remedies as may be legally open or available to him. Resident Alien Taxable Non-Taxable
Non-Resident Aliens (whether Taxable Non-Taxable
4. REFUND engaged in trade or business or not)

The taxpayer asks for restitution of the money paid as tax which is either excessive or erroneous. For simplicity, resident citizens are taxable on their worldwide income, while all the rest (Non-resident Citizen and Aliens [whether resident or non-resident) are
taxable only on their income from sources within the Philippines.

Taxability of Corporations:

Earned within the Earned outside the

Philippines Philippines
Domestic Corporations Taxable Taxable
Resident Foreign Corporations Taxable Non-Taxable
Non-Resident Foreign Corporations Taxable Non-Taxable

RULES ON SITUS (whether earned within or outside the Philippines):

1. Interest – the situs of interest income is the residence of the debtor. Thus, if the debtor is a resident of the Philippines, it is considered earned within the
Philippines.

2. Dividends – the following are considered earned WITHIN the Philippines, dividends received from:
a. A domestic corporation;
b. A foreign corporation, unless less than 50% of the gross income of such foreign corporation for the 3 year period ending with the close of its taxable
year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources
within the Philippines; but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period
derived from sources within the Philippines bear to its gross income from all sources.

In summary: if the gross income from the PH of the foreign corporation in relation to its worldwide gross income is:
i. Less than 50% - all are treated as income from without the Philippines;
ii. 50% or more – that same percentage is treated as earned within the Philippines in relation to the dividend received.

In BIR Ruling No. 102-1994 (dated May 4, 1994), Pfizer Panama, by way of property dividends, distributed the shares of stock it owns in Pfizer PH.
Its parent company Pfizer USA received such dividends. In short, there was a dividend declaration made by a Non-Resident Foreign Corporation (Pfizer
Panama) in favor of its stockholders (including Pfizer USA, another Non-Resident Foreign Corporation). The BIR ruled that the same is not subject to
any Philippine Tax. Moreover, citing the above provision, the BIR deemed that the dividends were all derived from sources without the Philippines
since not more than 50% of the gross income of Pfizer Panama were derived from the Philippines within the three-year period prior to declaration.

In BIR Ruling No. 252-1991 (dated November 20, 1991), the BIR ruled that the dividends received by SMNV from SMAB (a foreign corporation) is not
subject to Philippine tax since the income derived by SMAB from PH sources amounted only to 1.6% of its worldwide income in 1987 and 1.7% in
1988. Therefore, the property dividends were treated as income not derived from sources within the Philippines.

The above rulings were likewise reiterated and cited by the BIR in BIR Ruling [DA-594-1999] dated October 7, 1999.

The same ruling was made by the BIR in BIR Ruling [DA-632-2004] (dated December 14, 2004), holding that the property dividends issued by SAHL
to its stockholder Marubeni Corporation (both non-resident foreign corporations) shall not be considered income derived from the Philippines since
less than 50% of the worldwide income of SAHL in the three year period preceding the dividend declaration is derived within the Philippines pursuant
to Section 42(A) of the Tax Code.
3. Services – where performed. Thus, if performed within the Philippines, it is considered earned herein. b. One who may either be a:
i. NRA engaged in trade or business (NRAETB) in the Philippines or
4. Rentals and Royalties – where the property is located or the place of use of the intangible. As such, if the property or any interest in such is located in ii. NRA not engaged in trade or business (NRANETB) in the Philippines.
the Philippines, rentals and royalties therefrom are considered earned within the Philippines.
An NRA who shall come to the Philippines and stay for an aggregate of more than 180 days shall be deemed a NRAETB.
5. Sale of real property – where the real property is located. As such, gains, profits and income from the sale of real property located in the Philippines are
considered earned herein. B. SOURCES OF INCOME FOR INDIVIDUAL TAXPAYERS
1. Compensation Income – all remuneration received for services performed by an employee for his employer under an employee-employer
6. Sale of Personal Property relationship. (Section 2.78.1 (A) of RR No. 2-98)

Purchase: where the property is sold. If the personal property was purchased outside the Philippines, but sold herein, the gains, profits and income derived
therefrom are considered earned within the Philippines. On the other hand, even if it was purchased in the Philippines and sold outside, gains therefrom
shall be treated earned from outside the Philippines.
Produced: if the personal property is produced in the Philippines and sold outside, it shall be treated as derived from sources partly within and partly
without the Philippines. (see no. 7)
Except: sale of shares of stock of a domestic corporation, which shall be considered entirely within the Philippines even if sold outside.
7. Income partly within and partly without the Philippines: aside from sale of personal property produced in the Philippines, income from transportation
and other services rendered partly within and partly without, is covered by this number.
It includes salaries, wages, emoluments and honoraria, allowances, commissions (e.g., transportation, representation, entertainment and the like);
fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except
those which are subject to the fringe benefits tax under Sec. 33 of the NIRC; taxable pensions and retirement pay; and other income of a similar
nature.
2. Business or Professional Income – income earned by an individual from his sole proprietorship business, from the practice of profession, or share
in the income of a general professional partnership subject to Income Tax and Expanded Withholding Tax, whenever applicable.
“Professional” is a person the activities formally certified by a professional body to a specific profession by virtue of having completed a required
examination or course of studies and/or practice, whose competence can usually be measured against an established set of standards, such as CPAs,
Lawyers, Doctors, etc.

In these cases, the net income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto and a It likewise includes a person who engages in some art or sport for money, as a means of livelihood, rather than as a hobby, such as athletes, artists,
ratable part of any expenses, losses or other deductions which cannot definitely be allocated to some items or class of gross income; and the portion of bookkeeping agents, and other recipients of professional, promotional or talent fees. (RR No. 8-2018)
such net income attributable to sources within the Philippines may be determined by processes and formulas of general apportionment prescribed by the
Secretary of Finance. Income owned in common with the spouse: if there is a disposal of an asset which is conjugally owned by the spouses, the gain therefrom shall
be divided equally to both the husband and the wife. Same is true with expenses incurred conjugally, which are deductible, and it is not determinable
Requisites of Income: who among the spouses actually incurred the same, they shall share in such deduction equally.
1. There must be gain or profit.
2. The gain must be realized or received Note that there are no other rules applicable to spouses with regards income tax, since they compute for their own income tax liabilities; however,
3. The gain must not be excluded by law or treaty from taxation. (Commissioner of Internal Revenue vs. The Court of Appeals, et.al ., G.R. No. 108576, spouses can opt to report their income separately but in ONE tax return, which provides for separate columns and sections for the spouse. In fact, it
January 20, 1999 301 SCRA 152) is encouraged by the BIR that spouses file their income together in one return.

TAX ON INDIVIDUALS 3. Passive Income - income generated without any active conduct. These are income generated by assets which can be in the form of real properties
that return rental income, shares of stock in a corporation that earn dividends or interest income received from savings. (Chamber of Real Estate and
A. CLASSIFICATION OF INDIVIDUALS Builders Associations, Inc. vs. the Hon. Executive Secretary Alberto Romulo, et. Al)

1. Resident Citizens – A citizen of the Philippines residing therein. Under Sec. 1, Art. IV of the 1987 Constitution, the following are citizens of the Philippines. Specific rates of final withholding tax are provided for certain passive incomes, such as interest from deposits, dividends, royalties, etc. However, if
they are not covered by such rate, it will form part of the taxpayer’s gross income subject to income tax.
(1) Those who are citizens of the Philippines at the time of the adoption of this Constitution;
(2) Those whose fathers or mothers are citizens of the Philippines; 4. Capital Gains are those arising from the sale of capital assets which may be subject to Capital Gains Tax, for sale of real property and shares of
(3) Those born before January 17, 1973, of Filipino Mothers, who elect Philippine citizenship upon reaching the age of majority; and stock not traded in a local stock exchange; or as part of gross income subject to income tax for all other types of capital assets.
(4) Those who are naturalized in accordance with law.
C. ALLOWABLE DEDUCTIONS FOR INDIVIDUAL TAXPAYERS
2. Non-resident citizen
a. A citizen of the Philippines whose physical presence abroad is with a definite intention to reside therein – to the satisfaction of the Commissioner Compensation Income – for individuals earning purely compensation income, there is no allowable deduction. However, the first P250,000 of their income is
of Internal Revenue. subject to 0% income tax.

b. 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 Business Income – for those earning business income or income from the practice of profession, the individual is allowed to claim itemized deductions or the
permanent basis. optional standard deduction. If they earn income purely from business or practice of profession, the first P250,000 of such income is deductible from their gross
sales/receipts if they opt to avail of the 8% flat rate of income tax. Otherwise, if they avail of the graduated rates or failed to signify that they are availing of
A good example would be Overseas Contract Workers (OCW) or Overseas Filipino Workers (OFW) who were issued an overseas employment permit. the 8% flat rate of income tax, the first P250,000 is subject to 0% income tax therein.
For purposes of income tax, a seaman is considered an OCW.
Basic and Additional Personal Exemption and Premiums for Health and/or Hospitalization Insurance has now been removed under the Republic Act No. 10963,
c. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN) Act.”
most of the time during the taxable year.
1. Itemized Deductions (Sec. 34 of the Tax Code)
“Most of the time” meaning at least 183 days. (Sec. 2 of RR No. 1-79)
Expenses incurred in conducting the business or in the practice of profession are allowed as deductions for income tax purposes provided that they meet all the
d. A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside requirements for deductibility. (See handout on Income Tax on Corporations and Deductions)
permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year with respect to his income derived from sources
abroad until the date of his arrival in the Philippines. (Sec. 22[E] of the Tax Code) 2. Optional Standard Deduction (OSD)

So, if the taxpayer, who is previously considered a non-resident citizen arrived in the Philippines on July 1, 2018 with the intention of residing In lieu of the itemized (per item) expenses mentioned above, the Individual may opt to claim Optional Standard Deduction. Accordingly, no other deductions
permanently in the Philippines, shall be considered a non-r resident citizen for his income from January 1 to June 30, 2018 (prior to his date of arrival) for expenses, such as Cost of Sales, Cost of Services, Rent, Selling or any Administrative Expenses, or other business expenses or those incurred in the practice
and a resident citizen for the rest of the year. of profession, shall be allowed.

3. Resident Alien Purpose: The purpose of OSD is to make the BIR Audit a little less complex since the BIR need not go through all the documents evidencing, and necessary to
a. An alien who lives in the Philippines with no definite intention as to his stay (floating intention); support, itemized deductions; the BIR audit would then be limited to the completeness of the reported gross sales or receipts and items of tax credits, if any.
b. One who comes to the Philippines for a definite purpose which in its nature would require an extended stay and to that end makes his home
temporarily in the Philippines; Basis of computation: The OSD is 40% of Gross Sales or Receipts. If the individual has mixed income (from business and compensation) the basis for the 40%
c. An alien who has acquired residence in the Philippines and retains his status as such until he abandons the same and actually departs from the will not include compensation income. Note that the basis for the OSD is gross sales or receipts which is the amount BEFORE any deduction for cost of sales or
Philippines. cost of services.

4. Non-resident alien (NRA) Non-resident aliens: The OSD cannot be claimed by Non-Resident Aliens.
a. An alien who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished.
Period to elect: as to the use of OSD or Itemized Expenses shall be made on the first quarter of the taxable year, upon filing of the first quarter return and shall 4. If a qualified dependent child dies during the taxable year, the taxpayer may still claim the additional exemption of P25,000, as if the child died at the close
be irrevocable for the said year. (RR No. 2-10) of the taxable year.

3. Special Allowable Itemized Deductions In general, changes would be treated in a way that is favorable to the taxpayer and no pro-rata application is necessary.

In addition to the regular itemized deductions, these are the deductions allowed by regular and special laws such as Rooming-in and Breast-feeding Practices 6. Premium Payment on Health and/or Hospitalization Insurance (PHHI) (Sec. 34[M], Tax Code)
under RA 7600, Adopt a School Program under RA 8525, Senior Citizen Discount under RA 9257, etc.
Premiums paid during the taxable year for insurance taken by the taxpayer for himself, including his family, shall be allowed as a deduction for income tax
All of the above deductions (no. 1 to 3) are not available: purposes.
a. Against compensation income – no deductions are allowed for a taxpayer who is a purely compensation income earner. If the taxpayer is a mixed-income
earner, the deductions are available only against the business income or income from practice of profession and not against compensation income. For purposes of claiming this deduction, the following rules must be observed:
b. If the taxpayer opted to avail the 8% income tax since the tax base for this tax is gross sales/receipts (before the above deductions, including costs of a. Amount Deductible – P2,400 per family (P200 a month) or actual payment whichever is lower.
sales) b. Total Family Income must not exceed P250,000 in order to claim deduction.
c. In case of married taxpayers, the one claiming additional exemptions shall be the one allowed to claim deduction for PHHI.
4. Basic Personal Exemption
TRAIN AMENDMENT: Basic Personal and Additional Exemptions and Premiums on Health and/or Hospitalization Insurance are no longer
available beginning Jan. 1, 2018.
In accordance with the provisions of Revenue Regulations (RR) No. 10-2008 implementing Republic Act No. 9504, each taxpayer shall be allowed a Basic
Personal Exemption of Fifty Thousand Pesos (P50,000). D. BASIC FORMAT OF COMPUTATIONS

This amount is available to all individuals, regardless of status, whether single, married or head of the family. 1. Pure Compensation Income
Gross Taxable Compensation Income P XXX
Non-resident alien engaged in trade or business: is allowed a basic personal exemption, provided: Less: Non-Taxable Compensation Income* (XXX)
Taxable Income** XXX
a. His country has an income tax law and it allows a similar privilege to Filipinos residing therein (reciprocity rule);
b. The amount allowable as basic personal exemption shall not exceed P50,000 (that given in the Philippines); Tax Due XXX
c. An accurate statement of his income from all sources within the Philippines is filed. Less: Withholding Tax on Compensation (XXX)
Tax Payable (Refundable) XXXX
Non-resident alien NOT engaged in trade or business: is not given any Basic Personal Exemptions since he is taxable on gross income.
*non-taxable compensation income includes those benefits provided by the employer which are considered de minimis or otherwise exempted from income tax
5. Additional Exemption – P25,000 for each qualified dependent child, not to exceed four (4). such as mandatory government and other contributions.
**Less Basic and Personal Exemptions if prior to Jan. 1, 2018
Dependent: A dependent means a legitimate, illegitimate or legally adopted child (including a FOSTER child):
a. Chiefly dependent upon AND living with* the taxpayer; 2. Pure Business or Professional Income Availing of the Graduated Rates
b. Not more than twenty-one (21) years of age;
c. Unmarried; and Gross Sales/Receipts from Business/Profession* P XXX
d. Not gainfully employed; Less: Costs and Allowable Deductions (OSD or Itemized) (XXX)
e. Or regardless of age, is incapable of self-support because of mental or physical defect. Taxable Income** XXX

*the term “living with” does not necessarily require that the child and the taxpayer are under the same residence at all times and under all circumstances. The Tax Due XXX
terms till applies even if the parent is absent on business; the child is away for school or on a visit; a parent, through force of circumstances, is obliged to Less: Withholding Tax XXX
maintain his dependent children with relatives or in a boarding house while living elsewhere. Creditable Tax XXX (XXX)
Tax Payable (Refundable) XXXX
If, however, without the necessity, the dependent continuously makes his home elsewhere, his benefactor is not entitled to additional exemption irrespective of
the question of support. Thus, a resident alien with children abroad is not thereby entitled to credit for additional exemption. (Ampongan, Income Taxations,
8th edition, p. 170-171) *The amount reported as business/professional income shall be gross of any applicable withholding taxes. Note that creditable withholding taxes are deducted
from the Tax Due; not as reductions to gross income to arrive at Taxable Income.
Married Individuals: For purposes of claiming additional exemptions for married individuals, only the Husband can claim them except when: **Less Basic and Personal Exemptions if prior to Jan. 1, 2018
(1) The Husband is unemployed;
(2) The Husband is a non-resident citizen deriving income from foreign sources; or 3. Pure Business or Profession Income availing of the 8% Income Tax
(3) The Husband waives his right to additional exemptions in favor of his wife through a waiver executed for that purpose.
Gross Sales/Receipts* P XXX
Legally Separated Spouses: In case of legally separated souses, additional exemptions are claimed by the spouse who has custody of the child or children. Other Operating Income XXX
Less: First P250,000 exempt from Income Tax (P250,000)
Relatives other than a child: A brother, sister, mother, father, uncle, aunt, grandparent is not considered a qualified dependent for purposes of additional Taxable Sales/Receipts XXX
exemptions, regardless if they are actually dependent on the taxpayer since the law limits the additional exemptions to a child. Except only in case of a PWD. Tax Rate 8%
Income Tax XXX
Persons with Disabilities: while RA No. 9054 limited qualified dependents to “children”, Sec. 14 of the Implementing Rules and Regulations of RA No. 10754 Less: Withholding Tax XXX
provides that “[f]or purposes of granting the incentives, persons with disability shall be treated as dependents under Sec. 35(b) of the Tax Code, as amended,
Creditable Tax XXX (XXX)
and as such, individual taxpayers providing care for them shall be accorded the privileges granted by the Code insofar as having dependents under the same Tax Payable (Refundable) XXXX
section is concerned.”
*No deduction for costs or any other items of deduction, save for sales returns, discounts and allowances.
Thus, those caring for and living with a person with disability, up to the fourth degree of affinity or consanguinity, shall be granted the above tax incentive.
However, the maximum number of dependents is still limited to four. Note that the 8% is available only beginning Jan. 1, 2018, so there is no instance that the 8% will be applicable to a taxable year when the basic and personal
exemptions are still allowed.
Foster Children: under RA No. 10165, the term “dependent” under Sec. 35(B) of the Tax Code now includes a “foster child”. As such, the foster parent shall be
allowed to claim a foster child as his qualified dependent for an additional exemption. 4. Mixed Income Earners (from compensation and income from business or practice of profession) can be taxable as follows:
a. COMPENSATION INCOME - is ALWAYS subject to the graduated rights.
Non-resident aliens: same rules for the basic personal exemptions apply in case of a non-resident alien. b. INCOME FROM BUSINESS/PRACTICE OF PROFESSION:
i. If the taxpayer’s gross sales/receipts, together with other non-operating income, do not exceed P3,000,000: either
Change of status: a) 8% income tax rate without the first P250,000 exempt (since this will be considered in the application of the graduated rates for
1. If a qualified dependent child turns 21 during the year, say August 12, the taxpayer may still claim P25,000 additional exemption on said child for the
income from compensation); or
taxable year, as if he turned 21 at the close of the year. b) Graduated rates
2. The same rule will apply if the child became gainfully employed or got married.
ii. If the taxpayer’s gross sales/receipts, together with other non-operating income, exceeds P3,000,000 – graduated rates.
3. If a qualified dependent child is born during the year, say November 30, 2016, the taxpayer may claim in full additional exemption of P25,000 for the
taxable year 2016, as if the child was born at the beginning of the year. E. INCOME TAX RATES
 2. The tax base is the gross sales/receipts. Thus, cost of sales, expenses or even the optional standard deduction is not allowed as a deduction.
Graduated Income Tax Rate for Individuals (sometimes referred to as basic income tax or schedular income tax or regular income tax of individuals) 3. Since she is earning purely from such business and practice of profession, the first P250,000 is considered non-taxable.

Under Section 24(A)(2) of the National Internal Revenue Code, the tax shall be computed in accordance with and at the rates established in the following c. if the taxpayer is a mixed-income earner, i.e., he earns compensation income too, the first P250,000 treated as non-taxable is not applicable
schedule:
ILLUSTRATION: In the above illustration, Mx. X likewise earned P1,000,000 from employment with XYZ Company for which P180,000 was tax withheld
Upto December 31, 2017 and remitted to the BIR. How much is her income tax due and payable?

But Not Of Excess Answer: P278,000 and P98,0000 computed as follows:

Over Over Tax Plus Over
- 10,000 5% On her business income and income from the practice of profession:
10,000 30,000 500 10% 10,000
30,000 70,000 2,500 15% 30,000 Gross Sales – convenience store P800,000
70,000 140,000 8,500 20% 70,000 Gross Sales – bookkeeping services 300,000
140,000 250,000 22,500 25% 140,000 Total Sales/Receipts P1,100,000
250,000 500,000 50,000 30% 250,000 Tax Rate 8%
500,000 - 125,000 32% 500,000 Income Tax Due P88,000

On her compensation income:

January 1, 2018 to December 31, 2022:
Compensation Income P1,000,000
But Not Of Excess
Over Over Tax Plus Over Tax on the first P800,000 P130,000
- 250,000 - On the excess (P1,000,000 – 800,000) * 30% 60,000
250,000 400,000 - 20% 250,000 Income Tax Due P190,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
Total Income Tax Liability:
2,000,000 8,000,000 490,000 32% 2,000,000 Income Tax on income from self-employment P88,000
8,000,000 - 2,410,000 35% 8,000,000 Income Tax on compensation income 190,000
Total Income Tax Due P278,000
Effective January 1, 2023 and onwards:
Tax Withheld (180,000)
Income Tax Still Payable P98,000
But Not Of Excess
Over Over Tax Plus Over
1. Ms. X’s gross sales/receipts from business and practice of profession did not exceed P3,000,000. Thus, she can avail of the 8% income tax rate
- 250,000 -
applicable only to such income.
250,000 400,000 - 15% 250,000
2. The tax base is the gross sales/receipts. Thus, costs, expenses or even the optional standard deduction is not allowed as a deduction.
400,000 800,000 22,500 20% 400,000
3. Income from compensation is always subject to the graduated rates.
800,000 2,000,000 102,500 25% 800,000
4. Since she is a mixed-income earner there is no first P250,000 considered non-taxable as to her business income and income from the practice of
2,000,000 8,000,000 402,5000 30% 2,000,000
profession, since this amount (the non-taxable P250,000) has already been considered in the graduated rates.
8,000,000 - 2,202,500 35% 8,000,000
5. Note that Ms. X will not qualify for substituted filing since she has income other than compensation. Thus, she would need to file her individual
income tax return using BIR Form No. 1701.
The above rates shall apply to:
a. Purely compensation income earners
b. Mixed income earners as regards their compensation income If the compensation income is less than P250,000, the excess of the P250,000 over the actual compensation income is NOT DEDUCTIBLE against the
c. Those earning income from business or practice of profession whose sales/receipts and other income EXCEEDS P3,000,000 gross sales/receipts from practice of profession or from business. (Sec. 3[D], RR No. 8-2018)
d. Those earning income from business or practice of profession whose sales/receipts and other income DOES NOT exceed P3,000,000 and the taxpayer
opted to avail of the graduated income tax rates or opted to avail of optional VAT registration. d. The 8% income tax shall be in lieu of the percentage tax under Sec. 116. Accordingly, the taxpayer shall not be subject to the 3% other percentage tax
e. Those who failed to signify that they are availing the 8% flat rate in their 1st quarter income tax return. on his gross sales/receipts.
f. Those who are not allowed to avail the 8% flat rate of income tax. e. Availment of the 8% income tax rate shall be made on the 1 st quarter Income Tax Return or on the initial quarter return of the taxable year after the
commencement of a new business or practice of profession. Such election shall be irrevocable, and no amendment of option shall be made for the said
The 8% Income Tax Rate: this income tax rate applies ONLY to income from business or practice of profession where the gross sales or receipts do not taxable year. Accordingly, the taxpayer shall compute for the final annual income tax due using such rate.
exceed P3,000,000 and only beginning the 2018 taxable year. f. Otherwise if the taxpayer failed to make such election, the taxpayer shall be considered to have availed of the graduated rates.

Rules applicable to the 8% income tax rate: In the above illustration, if Ms. X failed to signify her intention to be subjected to the 8% income tax rate, she shall be subject to the graduated tax and
a. The tax base shall be the gross sales/receipts including other non-operating income, unlike the graduated rates which are based on taxable income. her income tax liability shall be computed as follows:

Returnable Deposits: In general, all deposits received are included in the definition of Gross Receipts under Section 2(g) of RR No. 8-2018. However, Total Sales/Receipts P1,100,000
returnable deposits held in trust and recorded as liability (e.g., security deposit) are excluded. (Q&A No. 26, RMC No. 50-2018) Less: Cost of Sales (300,000)
Gross Income 800,000
b. For those earning purely from business or practice of profession, the tax base shall be that in excess of P250,000 Less: Operating Expenses (100,000)
Taxable Income P700,000
ILLUSTRATION: Ms. X operates a convenience store while she offers bookkeeping services to her clients. In 2018, her gross sales amounted to
P800,000.00, in addition to her receipts from bookkeeping services of P300,000.00 and incurred costs and expenses of P300,000 and P100,000, Income Tax Due
respectively. How much is her tax due using the 8% tax rate? On the first P400,000 P30,000
On the excess (P700,00 – 400,000) * 25% 75,000
Answer: P68,000, computed as follows: Income Tax Due P105,000

Gross Sales – convenience store P800,000 Aside from being subjected to the graduated tax rates, Ms. X shall likewise be liable for 3% percentage tax on her gross sales/receipts.
Gross Sales – bookkeeping services 300,000
Total Sales/Receipts P1,100,000 g. The Financial Statements (FS) is not required to be attached to the final income tax return. However, existing rules and regulations on bookkeeping and
Less: Non-taxable portion (250,000) invoicing/receipting shall still apply.
Taxable Income P850,000 h. If the taxpayer’s gross sales/receipts and other non-operating income exceeds P3,000,000, he/she shall be automatically subjected to the graduated rates.
Tax Rate 8% In such case, his/her income tax shall be computed under the graduated income tax rates and shall be allowed a tax credit for the previous quarter/s
Income Tax Due P68,000 income tax payment/s under the 8% income tax rate option.

1. Ms. X’s gross sales/receipts from business and practice of profession did not exceed P3,000,000. Thus, she can avail of the 8% income tax rate.
 ILLUSTRATION: Mr. ABC earned P3,000,000 on his practice of profession for the first three quarters of 2018 for which he filed quarterly income tax Except for sale of capital assets (shares of stock and real property) covered by Sec. 24 (C) and (D) of the Tax Code, the entire income received from all
returns and availed of the 8% income tax rate, and on the fourth quarter, he earned P3,500,000. For the taxable year, he incurred cost of sales and sources within the Philippines by every non-resident alien NOT engaged in trade or business within the Philippines such as interest, cash and/or property
operating expenses amounting to P3,000,000 and P1,440,000, respectively. How much is his tax due and tax still payable for taxable year 2018? 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 – the applicable tax rate is 25% (Sec. 25[B])
Answer: P509,200 and P289,200, computed as follows:
F. PASSIVE INCOME
Total Sales P6,500,000
Less: Cost of Sales (3,000,000) There are items of passive income which are specifically enumerated in the Tax Code as subject to final withholding tax and thus are not included in the Gross
Gross Income 3,500,000 Income of the Taxpayer for purposes of computing his taxable income subject to the graduated/scheduler/basic income tax or the 8% tax rate.
Less: Operating Expenses (1,440,000)
Taxable Income P2,060,000 The final withholding tax is the amount of tax which constitutes the full and final payment of the income tax due from the payee of the said income.

Income Tax Due Remittance of the Tax:

Tax Due based on graduated rates P509,200
Less: 8% Income Tax paid for the first three quarters The liability for the payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under-
(P3,000,000 – P250,000) * 8% (220,000) withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to include the income subject to final withholding
Income Tax Payable P289,200 tax to his gross income subject to income tax.

Since the gross receipts exceeded the P3,000,000 threshold, Mr. ABC shall automatically be subject to the graduated rates. However, he can claim the The final tax is withheld at source; thus, the income earner need not file a return for the income subjected to Final Tax.
8% income tax paid for the first three quarters as tax credits.
Example: A earned P100 interest from his deposits with X Bank, X Bank withheld P20 final tax due on the interest.
In addition, Mr. ABC shall be liable to business taxes, as follows:
1. Percentage Tax – on the gross sales/receipts upto P3,000,000 In this transaction:
2. VAT – on gross sales/receipts after exceeding the P3,000,000 threshold. 1. the P100 interest is the passive income of A
2. X Bank will remit the P20 final tax on interest to the BIR
However, there shall be no penalties for the percentage taxes if timely paid on the due date immediately following the month/quarter when the taxpayer 3. A will receive the interest net of the tax, P80.
ceased to be a non-VAT taxpayer. 4. The P100 interest will no longer be included in A’s taxable income subject to income tax.

i. The following are not allowed to avail of the 8% flat rate of income tax: Rates and Income Items Subject to Final Withholding Tax
1. Purely compensation income earners.
2. VAT-registered taxpayers, regardless of the amount of gross sales/receipts and other non-operating income. The following types of income are subject to the following rates of income tax for Citizens and Resident Aliens:
3. Non-VAT taxpayers whose gross sales/receipts exceed P3,000,000 VAT threshold.
4. Taxpayers who are subject to percentage taxes other than the 3% OPT under Sec. 116 (e.g., those subject to common carrier’s tax, amusement tax, 20% Interest from any currency bank deposit; Yield or other monetary benefit from
gross receipts tax, etc.) deposit substitutes and from trust funds and similar arrangements.
5. Partners of GPPs as to their share in the net income thereof (note, however, that they can still claim the 8% flat rate of income tax as to their own Royalties, except on books and other literary works and musical compositions.
business income, provided the gross sales/receipts thereof do not exceed P3,000,000). This is because their share is already net of applicable costs Prizes (except prizes amounting to P10,000 or less)
and expenses; and Winnings (except Philippine Charity Sweepstakes and Lotto winnings amounting to
6. Individuals enjoying income tax exemption such as those registered under the Barangay Micro Business Enterprises (BMBEs), etc., since taxpayers P10,000 or less)
are not allowed to avail of double or multiple tax exemptions under different laws unless specifically provided by law. (Q&A 16, RMC No. 50-2018)
Note that prior to the TRAIN: winnings from the PCSO and Lotto are exempt
Alien individuals employed by: regardless of amount.
a. Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies – 15% of gross income received from such 15% Interests from depository banks under the Foreign Currency Deposit System (prior
establishment. Provided, that the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by to the TRAIN, the rate applicable is 7.5%)
these multinational companies. (Sec. 25[C]) 10% Royalties from books and other literary works and musical compositions
Cash and/or property dividends*
b. Offshore Banking Units (OBUs) – 15% of gross income therefrom. Provided, that the same treatment shall apply to Filipinos employed and occupying Exempt Interest Income from LONG TERM deposit or investment are generally exempt from
the same position as those aliens employed by these OBUs. (Sec. 25[D]) tax, but if they are PRETERMINATED before the 5th year the final tax would be:

c. Petroleum Service Contractor and Subcontractor – 15% of the salaries, wages, annuities, compensation, remuneration and other emoluments, 5% 4 years to less than 5 years
such as honoraria and allowances received from such contractor or subcontractor with the same preferential treatment for Filipino employees therein. 12% 3 years to less than 4 years
(Sec. 25[E]) 20% Less than 3 years

d. Any other income from all sources within the Philippines by the above alien employees shall be subject to the pertinent income tax, as the case may be, Passive Income earned from outside the Philippines: if a resident citizen earns any of the above income items from abroad, the same is not subject to
imposed under the Tax Code. final withholding tax but to the regular income tax and will thus form part of his taxable income subject to the same. Note that the above rates apply only for
income earned from Philippine sources.
Multinational Companies means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific
Region and other foreign markets. *dividends must come from a domestic corporation to be subject to the 10% FWT. Thus, if the dividend income is received from a Resident Foreign Corporation,
it will be subject to regular income tax and not to final withholding tax.
Requirements: for a Filipino employed by an ROHQ/AHQ/RHQs to qualify for the 15% preferential tax rate, the following requisites must be present:
a. The employee must be performing a managerial or technical position; The following rates shall apply on the income of Non-Resident Alien ENGAGED in Trade or Business in the Philippines (NRAETB):
b. The gross compensation, exclusive of fringe benefits subject to FBT, must be at least P975,000.
c. The employee must be exclusively working for the RHQ or ROHQ as a regular employee and not just a consultant or contractual personnel. (RR No. 11- 20% Interest from any currency bank deposit; Yield or other monetary benefit from
10) deposit substitutes and from trust funds and similar arrangements.
Ineffective Veto: The TRAIN Subsection (F) to Section 25 providing that entities registered January 1, 2018 onwards can no longer avail of the preferential Royalties, except on books and other literary works and musical compositions.
tax rate of 15% for its qualified employees. Such subsection likewise provided that “PROVIDED, HOWEVER, THAT EXISTING RHQS/ROHQS, OBUS OR
PETROLEUM SERVICE CONTRACTORS AND SUBCONTRACTORS PRESENTLY AVAILING OF PREFERENTIAL TAX RATES FOR QUALIFIED EMPLOYEES SHALL Winnings
CONTINUE TO BE ENTITLED TO AVAIL OF THE PREFERENTIAL TAX RATE FOR PRESENT AND FUTURE QUALIFIED EMPLOYEES.”
Prizes (except prizes amounting to P10,000 or less)
The President vetoed the part of the provision in capital letters above, effectively leaving the 15% preferential tax rate (provided under Sec. 25 (C to E)
untouched but limiting its availment to entities already availing of the same prior to the TRAIN, as included by Subsection F (the non-vetoed portion). However, Cash and/or property dividends
the BIR, under RR No. 8-2018 and eventually RR No. 11-2018, deemed the veto a valid removal of the preferential rate, thus treating special aliens and their 10% Royalties from books and other literary works and musical compositions
Filipino counterparts as subject to the graduated rates.
Exempt Interest Income from LONG TERM deposit or investment are generally exempt from
tax, but if they are PRETERMINATED before the 5th year the final tax would be:
Non-resident aliens NOT engaged in trade or business:
5% 4 years to less than 5 years
 12% 3 years to less than 4 years (1) sale of shares of stock of a domestic corporation NOT listed or traded through a local stock exchange held as capital assets; and
20% Less than 3 years (2) sale of real property located in the Philippines held as a capital asset.
Exempt Interest from depository banks under the Foreign Currency Deposit System
Philippine Charity Sweepstakes and Lotto Winnings* All other capital gains are subjected to regular income tax.

*The TRAIN did not amend Section 25(A)(2) providing for the 20% Final Withholding Tax for NRAETB. As it is, the winnings from Philippine Charity Sweepstakes Transactions Subject to Capital Gains Tax:
and Lotto are still considered exempt.
1. Sale of Shares of Stock of a Domestic Corporation NOT listed and traded through a local stock exchange
A NRAETB is subject to the same rates as that of a citizen or resident alien, except for the following:
1. Dividend Income – 20%; Held as capital assets: means all stocks and securities held by taxpayers other than dealers in securities. (Sec. 2[a] of RR No. 6-2008)
2. Philippine Charity Sweepstakes and Lotto Winnings – exempt still under the TRAIN.
3. Interest Income from FCDUs – exempt. Not applicable: the Capital Gains Tax does not apply if the sale of shares of stock was made by
a. A dealer in securities;
Income derived from the foreign currency deposit system: for non-residents (whether individual or corporation), ANY income derived from foreign currency b. Investor in shares of stock in a mutual fund company; and
deposit units of banks are EXEMPT from tax. (Sec. 27[D][3], last par. of the Tax Code) c. Other persons exempt under special law. (Sec. 4 of RR No. 6-2008)

Non-Resident Aliens NOT engaged in trade or business are subject to the 25% Final Tax on his entire income, save for capital gains on shares of stocks Capital Gains Tax Rate: is now 15%. Prior to the TRAIN, the rates are:
not listed or traded in a local stock exchange. The above rates do not apply.
Rate Net Capital Gain
However still, a NRANETB’s income from an FCDU is exempt because he is still a non-resident. 5% Not over P100,000
10% On any amount in excess of P100,000
G. GAINS FROM DISPOSITION OF ASSETS
Tax base: is the net capital gain, which is the excess of the selling price/fair market value (less cost to sell) over the cost of the shares.
Capital Assets are those not falling within the definition of an ordinary asset.
Determination of cost/fair market value: the value of the shares of stock at the time of sale shall be the fair market value. In determining the value of the shares,
Ordinary Assets, on the other hand, means: the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the liability
1. Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the values is the indicated value of the equity. The appraised value of real property at the time of sale shall be the higher of –
taxable year;
2. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; (1) The fair market value as determined by the Commissioner, or
3. Property used in the trade or business, of a character which is subject to the allowance for depreciation; (2) The fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors, or
4. Real property used in trade or business of the taxpayer. (3) The fair market value as determined by Independent Appraiser. (Sec. 7 of RR No. 6-08, as amended by RR No. 6-2013)

Thus, "capital assets" refers to taxpayer’s property that is NOT any of the following: Shares listed or traded through the stock exchange: if the shares are disposed through the stock exchange, the same is not subject to CGT but to the Stock
1. Stock in trade; Transaction Tax of 6/10 of 1% of the selling price (prior to the TRAIN, the rate was ½ of 1%), which is a business tax (this is part of the discussion in Percentage
2. Property that should be included in the taxpayer’s inventory at the close of the taxable year; Taxes). However, this tax constitutes the final tax on such sale since the Tax Code provides that the same shall be exempt from income tax. Thus, any gain
3. Property held for sale in the ordinary course of the taxpayer’s business; resulting from such disposition will no longer be included in the taxpayer’s gross income subject to regular income tax.
4. Depreciable property used in the trade or business; and
5. Real property used in the trade or business. (SMI-ED Philippines Technology, Inc. vs. CIR) However, if the shares, although listed in the stock exchange, are sold over-the-counter, or directly to the buyer, and not through such stock exchange, then it
will still be subject to the CGT.
Determination of gain or loss: the gain shall be the excess of the amount realized from the disposition of property over the basis or adjusted basis for
determining the gain; on the other hand, the loss is the excess of the basis or adjusted basis for determining loss over the amount realized. Not subject to the Capital Gains Tax:
a. The sale is made through the local stock exchange;
Amount realized: is the sum of the money plus the fair market value of the property received. b. The shares of stock are of a foreign corporation (not domestic corporations);
c. The shares are NOT held as capital assets, e.g., the seller is a dealer in securities.
Amount of cost or basis or adjusted basis of computing gain or loss: d. The sale resulted in a capital loss.
1. Purchase – the cost;
2. Inheritance – fair market value as of the date of acquisition; 2. Sale of Real Property located in the Philippines
3. Gift – the basis is the same as if it would be in the hands of the donor or the last preceding owner who did not acquire the property by gift; however, if
the same exceeds the fair market value at the time of the gift, then for purposes of determining loss, the fair market value. A 6% Capital Gains Tax of 6% is imposed on the presumed gain from sale of real property, based on the gross selling price or the fair market value, whichever
4. Property acquired for less than an adequate consideration in money or money’s worth – the amount paid by the transferee; is higher.

The above amounts are adjusted by amounts of improvements that materially add to the value of the property or appreciably prolong its life less accumulated Fair Market Value: shall be the higher between:
depreciation. (RR No. 6-08) a. Zonal Value as determined by the BIR;
b. Fair Market Value per local assessor.
No gain or loss: generally, upon the sale or exchange of property, the entire amount of the gain or loss as the case may be, shall be recognized. Except in the
following instances where no gain or loss shall be recognized in pursuance of a plan of merger or consolidation: Note: for individuals, real property subject to CGT consists of ALL real properties (classified as capital assets); whereas for domestic corporations, the only real
a. A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a corporation, which is a party to the merger or property subject to capital gains tax are LANDS and BUILDINGS. Sale of machineries, even though classified as a capital asset, shall be subject to the regular
consolidation; or corporate income tax.
b. A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for the stock of another corporation, also a party to
the merger or consolidation; or Sale of real property to government or any of its political subdivisions or agencies or GOCCs may be treated as subject to capital gains tax or ordinary income
c. A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities in such corporation, solely for stock or securities tax, at the option of the taxpayer. (Sec. 22[D] of the Tax Code)
in another corporation, a party to the merger or consolidation. (Sec. 40[C][2] of the Tax Code)
Sale of Principal Residence: sale of principal residence of natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal
Tax Free Exchange: no gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation residence within 18 calendar months from the date of sale or disposition is not subject to the 6% CGT. Subject to the following requirements:
in such a corporation of which as a result of such exchange said persons, alone or together with others, not exceeding four (4) persons, gains control of the a. The historical cost or adjusted basis of real property sold or disposed is carried over to the new principal residence;
corporation: Provided, that stocks issued for services shall not be considered as issued in return for property. (Sec. 40[C], last par. of the Tax Code) b. The exemption can only be availed once every 10 years;
c. The BIR is notified by the taxpayer within 30 days from the date of sale or disposition of his intention to avail of the tax exemption.
Treatment of Ordinary Gains: or those arising from the sale of ordinary assets will form part of the taxable income subject to the graduated/basic/regular
income tax. Likewise, losses arising from such sale may be claimed as deductible expense, without any limitation as to amount, unlike in capital losses. (see If there is no full utilization of the proceeds, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to the 6%
limitation on capital losses) CGT, as follows:

Treatment of Capital Gains: depending on the nature of the property, the gains derived from sale or disposition of capital assets may be subject to: Unutilized Portion
Taxable Amount = X CGT base*
1. Capital gains tax; or Gross Selling Price
2. Ordinary income tax.
*CGT base is the higher between the FMV and the Selling Price.
Capital Gains Tax: is applicable only to
The CGT then would be 6% of the Taxable Amount computed above. In case the distribution is in instalments: the first payments are applied against the cost. The gain is returnable only when he has completely recovered.
The loss can be taken only upon the distribution of the final liquidating dividend.
ILLUSTRATION: Mr. F sold his principal residence which he acquired for P1,000,000 for P3,000,000. At the time of sale, the fair market value is P2,500,000.
After 1 year, Mr. F bought a house and lot for P3,200,000. 6. Retirement or Redemption for Cancellation of Preferred Shares - when preferred shares are redeemed at a time when the issuing corporation is
still in its "going-concern" and is not contemplating in dissolving or liquidating its assets and liabilities, capital gain or capital loss upon redemption shall be
Assuming all other requisites are present, how much is the CGT due on the sale? recognized on the basis of the difference between the amount/value received at the time of redemption and the cost of the preferred shares.

Answer: P0. The proceeds of P3,000,000 was fully utilized to acquire a new principal residence. This, however, does not apply if a corporation acquires its own shares and books it as treasury shares. (Sec. 9, RR No. 6-08)

If, however, the new principal residence was acquired for only P2,000,000, how much is the CGT? Rules applicable to capital gains:
1. Percentage taken into account:
Answer: P60,000, computed as follows:
The following percentages of the gain or loss recognized upon the sale or exchange of capital assets shall be taken into account in computing net capital gain,
1,000,000 loss or net income:
X 3,000,000 = 1,000,000 * 6% = P60,000
3,000,000
Percentage Applicability
1. Unutilized Portion is 1,000,000 (3,000,000 selling price less the utilized portion of 2,000,000) 100% If the capital asset has been held for NOT more than 12 months;
2. CGT Base is P3,000,000 (the higher between the selling price and fair market value) 50% If the capital asset has been held for MORE than 12 months.
3. Taxable Amount is P1,000,000, the ratio of unutilized portion over the selling price multiplied by the CGT base (Sec. 39[B] of the Tax Code)
4. CGT, therefore, is P60,000, 6% of the taxable amount.
This rule is not applicable to corporations.
If, however, fair market value of the principal residence was P3,300,000, how much is the CGT?
2. Limitation on Capital Losses:
Answer: P66,000, computed as follows:
The capital losses realized during the taxable year are deductible only to the extent of capital gains from the same type of transaction during the same period.
1,000,000 This rule likewise applies to sales of shares of stock subject to 15% CGT.
X 3,300,000 = 1,100,000 * 6% = P66,000
3,000,000
Exception: banks and trust companies whose business is the receipt of deposits, sells any bond, debenture, note or certificate or other evidence of indebtedness.
1. Unutilized Portion is P1,000,000 (3,000,000 selling price less the utilized portion of 2,000,000) Any loss resulting from such sale shall not be subject to the foregoing limitation and not included in determining the applicability of such limitation to other
2. CGT Base is P3,300,000 (the higher between the selling price and fair market value) losses. (Sec. 39[C] of the Tax Code)
3. Taxable Amount is P1,100,000, the ratio of the unutilized portion (P1,000,000) over the selling price (P3,000,000). Note that the denominator is ALWAYS
the selling price (and not the fair market value) because this is the total amount which can possibly be utilized for the acquisition or construction of a 3. Net Capital Loss Carry-Over
new principal residence considering that this will be the total amount of proceeds that will be collected from the buyer.
4. CGT, therefore, is P66,000, 6% of the taxable amount. If the individual sustains in any taxable year a net capital loss, such loss, in an amount not to exceed the net income of such year, shall be treated in the
succeeding taxable year as a loss from the sale or exchange of asset held for not more than 12 months. (Sec. 39[D] of the Tax Code)

Real Property located abroad: is not subject to CGT. Note that what is subject to the 6% CGT is sale of real property LOCATED IN THE PHILIPPINES. Thus, if This rule is likewise not applicable to a corporation.
the property is located abroad, gain from such disposal, if taxable in the Philippines, is subject to regular income tax.
4. Corporations
Forced Sale of Real Property: the fact that the sale is involuntary, e.g., from a court order of foreclosure sale, does not affect the classification of the property
in the hands of the seller, either as capital asset or ordinary asset, and are thus subject to the rules applied therefor. Based on the above, only the rule on limitation on capital losses apply to corporations; and if the corporation sustains a net capital loss, the same cannot be
carried over in the succeeding taxable year.
Capital Gains not subject to CGT; subject to regular income tax: Note that the CGT applies only to two disposals of two classes of assets, i.e., real
property and shares of stock of a domestic corporation not listed or traded in the local stock exchange. Thus, if a capital asset, not among the said two classes, 5. Sale of shares of stock subject to 15% CGT
resulted in a gain, they are considered “capital gains” still but subject to regular income tax.
For sale, barter, exchange or other forms of disposition of shares of stock subject to the 15% capital gains tax, if the transferor of the capital asset is an
Transactions resulting in capital gains and losses even if no sale of capital assets include: individual, the rule on holding period and capital loss carry-over will not apply.
1. Retirement of bonds: amounts received by the holder upon the retirement of bonds, debentures, notes or certificates or other evidences of indebtedness
issued by a corporation with interest coupons or in registered form, shall be considered as amounts received in exchange therefor.
FRINGE BENEFITS
2. Short sales of property – gains or losses from short sales of property shall be considered as gains or losses from exchanges of capital assets.
Fringe Benefit means any good, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an individual
Short sales: is a transaction in which the speculator sells securities which he does not own (he merely borrows the stock certificate through or from his (Sec. 33[B]).
stock broker) in anticipation of a decline in its price, and within a reasonably short period of time buys or covers the stock to complete the transaction.
Fringe benefits given to non-rank-and-file employees are generally subject to fringe benefits tax; while fringe benefits received by rank-and-file employees are
3. Option gains and losses – an option is a contract granting a person the exclusive privilege to buy or not to buy certain objects at any time within the subject to withholding tax on compensation.
agreed period at a fixed price. It is a contract different from the contract which the parties may enter into; it is one supported by a consideration (called
option money) which is distinct from the purchase price. Fringe Benefits Tax is 35% effective January 1, 2018 (32% from Jan. 31, 2000 to December 31, 2017). Fringe benefits tax is paid by the employer and
is considered a final tax. Accordingly, the fringe benefits received by the employee is no longer included in his taxable income subject to income tax.
The law considers the option or the privilege as the capital asset itself.
A. DIFFERENT KINDS OF EMPLOYEES
Thus, if X wanted to buy the cellphone of A, and gave P100 as option money to decide within 3 days, but forfeits the same, the P100 is considered capital
loss of X and A likewise recognizes a capital gain of P100. Rank and File Employees are those who are not holding managerial or supervisory positions

4. Securities becoming worthless – loss from shares of stock, held as capital asset, which have become worthless during the taxable year shall be treated Managerial Employees are those who are vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend,
as capital loss at the end of the year. However, this loss is not deductible against the capital gains realized from the sale, barter or exchange or other forms lay-off, recall, discharge, assign or discipline employees.
of disposition of shares of stock during the taxable year, but must be claimed against other capital gains to the extent of capital gains. (RR No. 6-2008)
Note that in order to be subject to 5% and 10% CGT, there must be actual disposition of the shares of stock. Supervisory Employees are those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not
merely routinary or clerical in nature but requires the use of independent judgment.
5. Liquidating Dividends - Upon surrender by the investor of the shares in exchange for cash and property distributed by the issuing corporation upon its
dissolution and liquidation of all assets and liabilities, the investor shall recognize either capital gain or capital loss upon such surrender of shares computed B. Fringe Benefits SUBJECT to Fringe Benefit Tax
by comparing the cash and fair market value of property received against the cost of the investment in shares. The difference between the sum of the 1. Housing;
cash and the fair market value of property received and the cost of the investment in shares shall represent the capital gain or capital loss from the 2. Expense account;
investment, whichever is applicable. (Sec. 8, RR No. 6-08) 3. Vehicle of any kind;
4. Household personnel such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference between the market rate and the actual rate granted (12% benchmark rate);
6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations; a. Treatment of the above for FBT purposes is similar to that of the housing privilege except that the presumptive economic useful life of the vehicles is 5
7. Expenses for foreign travel; years (20 years for housing privileges).
8. Holiday and vacation expenses; b. The same rule applies, the monetary value is 50% of the benefit if there is no transfer of ownership
9. Educational assistance to the employee or hid dependents; c. The vehicles owned by the company used for business purposes although provided to a managerial or supervisory employee is not subject to FBT.
10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. d. Use of an aircraft and helicopters owned and maintained by the employer is treated as business expense and is not subject to FBT.

C. Fringe Benefits NOT SUBJECT to Fringe Benefit Tax 3. FORGONE INTEREST:

1. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law;
2. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; For loans with no or less interest than that of the market rate (12%), the monetary value would be the difference between the market interest and
3. Benefits given to rank and file, whether granted under a collective bargaining agreement or not; the interest paid, if any.
4. De minimis benefits;
5. Benefits granted to employee which are required by the nature of, or necessary to the trade, business or profession of the employer; or ILLUSTRATION: If the employee extends a loan to an employee with a 7% interest rate in the amount of P100,000, the annual monetary value would be
6. Benefits granted for the convenience or advantage of the employer. 5% (12%-7%) of P100,000 or P5,000 for FBT purposes.

D. MONETARY VALUE AND EXEMPTIONS FROM FBT Starting 2013, however, the Bangko Sentral ng Pilipinas has already lowered the market rate of interest to 6%. However, no Revenue Regulation has been
issued by the BIR to implement such change in the market rate.
In case of housing privilege and motor vehicle:
a. If there is NO transfer of ownership, the monetary value of the benefit is 50% of the value of the benefit. 4. EXPENSE ACCOUNTS which are personal to the employee (such as groceries for personal consumption) are subject to FBT based on the amount
b. If there is transfer of ownership, the monetary value shall be the same as the value of the benefit, or 100% thereof. reimbursed to the employee. If, however, they are not personal (such as food expensed for a meeting with a client) and duly receipted in the name of the
EMPLOYER, they will be treated as valid reimbursable expenses and is not subject to FBT.
In case of other fringe benefits, the monetary value shall be the same as the value of the benefit.
Fixed amounts: if the amounts are given regularly on a monthly basis, this will not be considered as fringe benefits subject to FBT. They will form part
1. Monetary value of HOUSING PRIVILEGE: of the regular compensation of the employee subject to withholding tax on compensation.

Value of the benefit Monetary value of the benefit 5. EDUCATIONAL ASSISTANCE provided to an employee is generally subject to FBT, except if the study is directly related with the trade or business or
Employer leases residential property for the use of the employee Rental paid 50% of the value of the benefits profession or if there is a “bond” where the employee is required to stay in the employ of the employer for some period after finishing.
Employer OWNS the residential property which is assigned to the 5%* of the FMV of the land and 50% of the value of the benefits
employee for his use improvements 6. EDUCATIONAL ASSISTANCE PROVIDED TO A DEPENDENT of an employee is generally subject to FBT, except if awarded through a competitive
Employer PURCHASES residential property on the instalment 5% of the acquisition cost exclusive 50% of the value of the benefits scheme under a scholarship program.
basis and allows employee to use the same as his residence of interest
Employer PURCHASES a residential property and TRANSFERS Employer’s acquisition cost or FMV, Entire value of the benefit 7. INSURANCE PREMIUMS paid by the employer for the employee is generally subject to FBT, except those exempt under the law (SSS, GSIS, etc.) and
ownership to the employee whichever is higher those which are for the group insurance of the employer.
Employer PURCHASES a residential property and TRANSFERS The difference of the FMV and the Entire value of the benefit
ownership to the employee at a PRICE LOWER than the payment of the employee 8. EXPENSES FOR FOREIGN TRAVEL are generally subject to FBT, except if in connection with attending business meetings or conventions at an average
acquisition cost of $300 a day (excluding lodging costs). For all others, the cost of economy and business class airplane tickets shall NOT be subject to FBT and 70% of
the cost of first class tickets shall likewise be exempt.
*5% is used in the computation to equate depreciation, on the presumption of the regulations that the economic useful life of a house is 20 years.
E. TAX BASE AND TAX RATE
ILLUSTRATIONS: 1. The Fringe Benefit Tax (FBT) is computed as follows:
a. If an employer rents a house for an employee for P10,000 a month, the P10,000 is the value of the benefit. For purposes of computing the FBT, P5,000 Monetary Value XXX
would be the monetary value, or 50% of the value of the benefit, since there is no transfer of ownership. Divided by 65%
b. If an employer owns the house with a FMV of P1,000,000 and allows the employee to use the same as residence, the value of the benefit would be Grossed Up Monetary Value XXX
P50,000 (5% of P1,000,000) and the monetary value for FBT would be P25,000 (50% of the value of the benefit, since there is no transfer of ownership). Tax Rate 35%
c. If an employer purchased a house for P1,200,000 on an instalment basis where the P200,000 is for the interest throughout the instalment period, and Fringe Benefit Tax XXX
allows the employee to use the same, the value of the benefit would be P1,000,000*5% (without the interests) or P50,000. For FBT, the monetary 2. For Non-Resident Aliens NOT Engaged in Trade or Business, the gross up rate is 75% and the FBT rate is 25%.
value would be P25,000, or 50% of the value since there is no transfer of ownership. 3. For Special Aliens and their Filipino counterparts and employees in Special Economic Zones it is 85%/15% respectively. (Note: the BIR is of the position
d. If an employer purchased a house for P1,000,000 with a FMV of P800,000, and transfers the same to the employee, the value of the benefit would be that Special Aliens and their Filipino counterparts are now subject to the regular rates, thus, the FBT as to them should be computed based on the 65%/35%
P1,000,000 (Higher acquisition cost) and the monetary value for FBT would be the same, or 100% of the value since there was transfer of ownership. rate, following the veto of the President which provides that there is no longer a 15% preferential tax rate)
e. If in (d) above, the employee is required to pay half of the purchase price (P500,000), the value of the benefit would only be P300,000 which is the 4. The FBT is imposed on the benefit received by the managerial or supervisory employee but the liability of paying FBT is on the employer. This is the reason
difference between the FMV (P800,000) and the amount paid by the employee (P500,000), the monetary value would be the same since there as why the amount received by the employee is grossed up for the imposition of FBT, so that the tax base would be the total amount actually given; and the
transfer of ownership. amount received by the employee is already NET of the FBT.
5. The Fringe Benefit and the related FBT are both allowable deductions for the EMPLOYER’s taxable income computation.
Exempt housing privileges:
a. If the house is within the maximum of 50 meters from the perimeter of the business premises; Limitation on deductibility: The benefit cannot be claimed as FRINGE BENEFIT EXPENSE for computation of the taxable income if the house/vehicle or
b. Housing privilege of military officials of Armed Forces of the Philippines; depreciable asset is already subjected to DEPRECIATION and such is claimed as a deduction already.
c. Temporary housing for an employee who stays in a housing unit for 3 months or less.
ITEMS EXEMPT FROM WITHHODING TAX ON COMPENSATION/FRINGE BENEFITS TAX
2. Monetary value for VEHICLES of any kind:
1. Remunerations received as an incident of employment (Sec. 2.78.1 (B)(1) of RR No. 2-98)
Value of the benefit Monetary value of the benefit
Employer OWNS and maintains a fleet of motor vehicles Acquisition cost of all motor vehicles not 50% of the value of the benefit a. Retirement benefits received under Republic Act (RA) No. 7641 AND those received by officials and employees of private firms, whether individual or
for the use of the business and employees normally used for business divided by 5 years corporate, under a reasonable private benefit plan.
Employer LEASES motor vehicles for the use of the Amount of rental payments for motor vehicles 50% of the value of the benefit
business and the employees not normally used for business purposes
(1) Those received under a reasonable private benefit plan: is exempt subject to the following requisites:
i. Plan is reasonable;
Employer PURCHASES the motor vehicle in the name of Acquisition cost Entire value of the benefit
ii. Plan is approved by the BIR;
the employee
iii. Retiring employee must have been in the service of the same employer for at least 10 years
Employer PROVIDES CASH to the employee for the Cash received by employee Entire value of the benefit
iv. Retiring employee is 50 years old or older at the time of retirement; and
purchase of a vehicle in the name of the employee
v. Retiring employee has not previously availed of the privilege under the retirement benefit plan of the same or another employer
Employer SHOULDER A PORTION of the purchase price Amount shouldered by employer Entire value of the benefit
of the motor vehicle in the name of the employee
(2) Retirement benefits under R.A. 7641 (amendment to the Labor Code granting retirement pay under Art. 287 thereof) where:
Employer purchases the car on instalment in the name Acquisition cost exclusive of interest divided by Entire value of the benefit i. No private retirement plan or retirement plan under the CBA/employment contract.
of the employee 5 years ii. Must have served the company for at least 5 years
iii. Retiree at least 60 years old but not more than 65 years of age at the time of retirement.
Note:
“Applicability of RA No. 7641”
 RA No. 7641 applies only in situations where: (1) there is no CBA or other applicable employment contract providing for retirement benefits of an employee; De Minimis Benefits Maximum Value Per Year per Employee
or (2) there is a CBA or other applicable contract providing for retirement benefits for an employee, but it is below the requirements set by law. (Oxales 1. Monetized unused vacation leave (VL) credits* Equivalent to 10 days VL
vs. Abbot Laboratories, Inc., GR No. 152991 dated July 21, 2008) 2. Medical cash allowance to dependents, per employee ₱1,500 per employee per semester or ₱250 per month
(as amended by RR No. 11-18 from P750 per semester, or P125 per
CBA or other employee contract providing retirement benefits to employees to be non-taxable: month)
• If the CBA or other employee contract providing retirement benefits to employees provides for a less or equal benefit provided under RA No. 7641, 3. Rice subsidy ₱24,000
provided the requirements under RA No. 7641 are met. (under No. (2) above) (BIR Ruling No. DA-151-04 dated March 31, 2004) (₱2,000 or 1 sack of 50kg rice per month)
• If it provides more benefits than those under RA No. 7641, must comply with the requirements of Sec. 32(B)(6)(a) of the Tax Code or RA No. 4917 (as amended by RR No. 11-18, from P1,500 per month)
(under No. (1) above). (Oxales, BIR Ruling No. DA-151-04 dated March 31, 2004 and BIR Ruling No. 068-14 dated February 25, 2014) 4. Uniform and clothing allowance ₱6,000 (as amended by RR No. 11-18 from P5,000 annually)
5. Actual medical assistance/allowance ₱10,000
b. Any amount received by an employee or by his heirs from the employer due to death, sickness, or other physical disability or for the cause beyond the 6. Laundry allowance ₱3,600 (₱300 per month)
control of the said employee such as retrenchment, redundancy, or cessation of business. 7. Employees achievement awards ₱10,000
(Must be in the form of tangible personal property other than cash or
i. The cause of separation by the employee from the service was beyond his control. gift certificate, received by employees under an established written plan
ii. Amounts received by involuntary separation remain exempt from income tax even if the employee, at the time of separation, had rendered less than which does not discriminate in favor of highly paid employees)
10 years of service and/or is below 50 years old;
8. Gifts given during Christmas and major anniversaries ₱5,000
9. Daily meal allowance for overtime or night/graveyard work 25% of basic minimum pay on a per region basis
However, any payment made by an employer to an employee on account of dismissal constitutes compensation regardless of legal contract, statute,
10. Benefits received by an employee by virtue of a collective ₱10,000
or otherwise to make such payment - thus not exempted.
bargaining agreement (CBA) and productivity incentive schemes
c. Social security benefits, retirement gratuities, pensions and other similar benefits received by resident and non-resident citizens of the Philippines or aliens
(RR No. 1-2015)
who reside permanently in the Philippines from foreign entities whether private or public
d. Payments of benefits due or to become due to any person residing in the Philippines under the law of the US administered by the US Veterans Administration Note:
e. Payments of benefits made under the Social Security System Act of 1954, as amended a. *This applies only to employees of private entities. For government employees, the conversion of SL and VL credits to cash is considered exempt from
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received by government officials and employees tax, regardless of number of days.
b. Only Medical Assistance/Allowance to the employee is required to be actually spent for the purpose. All other benefits need no proof that they have
2. Remuneration for casual labor not in the course of an employer's trade or business (Sec. 2.78.1 (B)(4) of RR No. 2-98) actually been spent for, say, rice purchase, laundry, uniform, etc.
c. Only Employee Achievement Awards is required to be in tangible personal property and given NOT in cash or gift certificates. All other de minimis benefits
Remuneration paid for labor which is occasional, incidental, or irregular AND does not promote or advance the employer's trade or business; may be given, or are given, in cash.
d. Christmas Bonuses may fall under gifts given during Christmas and the excess thereof may form part of Other Benefits exempt upto P90,000.
The above is exempt from withholding tax on compensation because there may be no employer-employee relationship between the employer and e. Productivity Bonuses may fall under benefits received by virtue of a productivity incentive scheme and the excess thereof may form part of Other Benefits
the casual laborer. However, the remuneration received by the laborer is part of his taxable income for income tax purposes. exempt upto P90,000.

Note: The following remunerations constitutes compensation income, thus taxable: Treatment: De Minimis benefits are considered non-taxable and are not included in the computation of taxable income and withholding tax on compensation,
• Remuneration paid for labor which is occasional, incidental, or irregular but is in the course of the employer's trade or business; and as well as fringe benefits tax.
• Remuneration paid for casual labor performed for another corporation
Amounts in excess of the above-mentioned ceiling will form part of OTHER BENEFITS, which is non-taxable only up to P90,000 together with other benefits
3. Compensation for services by a citizen or resident of the Philippines performed for a foreign government or international organization. (Sec. received by the employee including 13th month pay and other bonuses, etc. (BIR Ruling No. 030-2013, Q&A No. 5, RMC No. 50-2018)
2.78.1 (B)(5) of RR No. 2-98)
12. COMPENSATION INCOME OF MINIMUM WAGE EARNERS (MWES) who work in the private sector and being paid the Statutory Minimum Wage
i. Includes remuneration paid for services performed by ambassadors, ministers, and other diplomatic officers and employees; (SMW) (Sec. 2.78.1 (B)(13) of RR No. 2-98, as amended).
ii. Includes remuneration paid for services performed as consular or other employee of a foreign government or a non-diplomatic representative of such
government Coverage: No income tax and consequently, withholding of tax, shall be required on:
a. The SMW
4. Damages (Sec. 2.78.1 (B)(6) of RR No. 2-98): Actual, moral, exemplary and nominal damages received by an employee or his heirs pursuant to a final b. Holiday pay
judgment or compromise agreement. c. Overtime pay
d. Night shift differential; and
5. Life Insurance proceeds (Sec. 2.78.1 (B)(7) of RR No. 2-98): proceeds of life insurance policies paid to heirs or beneficiaries upon death of the insured, e. Hazard pay
whether single sum or otherwise are exempt. Provided that interest payments agreed under the policy for the amounts which are held by the insured shall
be included in gross income. Other Income earned by MWEs: Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the allowable statutory
amount to P90,000, taxable allowances and other taxable income given to an MWE by the same employer other than those which are expressly exempt above
6. Amount received by the insured as a return of premium. (Sec. 2.78.1 (B)(8) of RR No. 2-98): the amount received by the insured, as a return of shall be subject to income tax and consequently, withholding tax on compensation.
premiums paid by him under life insurance, endowment, or annuity contracts either during the term or at the maturity of the term mentioned in the contract
or upon surrender. Likewise, MWEs receiving other income from other sources in addition to compensation income, such as income from other concurrent employers, from the
conduct of trade, business, or practice of profession except income subject to final tax, are subject to income tax only to the extent of income other than SMW,
7. Compensation for injuries or sickness (Sec. 2.78.1 (B)(9) of RR No. 2-98): Amounts received through Accident or Health Insurance or under Workmen's holiday pay, overtime pay, night shift differential pay, and hazard pay earned during the taxable year.
Compensation Act, as compensation for personal injuries or sickness. It likewise includes the amount of any damages received whether by suit or agreement
on account of injuries or sickness. The same shall still be not subject to income tax if it does not exceed P250,000 (not considering those which are exempt as enumerated above)

8. Income exempt under treaty (Sec. 2.78.1 (B)(10) of RR No. 2-98): income required by any treaty obligation binding on the Government of the ILLUSTRATION: Mr. Brent Quito is employed by ABC Corporation. He received the SMW for 2018 in the total amount of ₱100,000 and 13th month pay
Philippines. amounting to ₱75,000. In the same year, he also received overtime pay of ₱40,000 and nightshift differential of ₱25,000. He also received commission
income from the same employer of ₱20,000, thus, total income received amounted to ₱260,000. How much is his income tax due, if any?
9. Thirteenth (13th) month pay or other benefits (Sec. 2.78.1 (B)(11) of RR No. 2-98; RR No. 3-2015): 13th month pay and other benefits such as
Christmas bonus, loyalty awards, gifts in cash or kind, and other benefits of similar nature; Provided that the total amount shall not exceed ₱90,000 Answer: P0, computed as follows:
(as amended by RR No. 11-18, previously ₱82,000).
Total Income Received P260,000
10. GSIS, SSS, Medicare and Other Contributions (Sec. 2.78.1 (B)(12) of RR No. 2-98): GSIS, SSS, Medicare, Pag-ibig contributions and union dues of Less: Income Exempt
individual employees. For purposes of computing taxable income subject to Income Tax and Withholding Tax on Compensation, the said contributions are SMW P100,000
deducted to arrive at taxable income. However, for employees, the amount considered not taxable shall only pertain to the maximum required by law. Any 13th month pay (not exceeding P90,000) 75,000
amount in excess of the mandatory amounts, voluntarily given as contribution by the employee, shall be taxable. Night shift differential 25,000
Overtime pay 40,000 (240,000)
11. Facilities and privileges of relatively small value or “de minimis” benefits (Sec. 2.78 (A)(3)(c) of RR No. 2-98, as amended by RR No. 10-2008, as further Taxable Income – Commission P 20,000
amended by RR No.5-2011) are facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are
offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees, Income Tax Due (not in excess of P250,000) -
including:
1. Mr. Quito’s SMW, overtime pay and night shift differential are exempt from income tax.
2. Likewise, the 13th month pay not in excess of P90,000 is also exempt from income tax.
 3. The taxable income is only P20,000, representing the commission received. However, since it did not exceed the P250,000, it is not subject to any
income tax.
13. Other benefits given to employees not included in the list, but are otherwise treated as not subject to withholding tax on compensation:
a. Living quarters or meals (Sec. 2.78.1 (A)(2) of RR No. 2-98), subject to the following conditions:
(1) The lodging and meals are furnished within the business premises of the employer;
2. Any individual, with respect to payments made in connection with this trade or business. However, insofar as taxable sale, exchange or transfer of real
property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents; and
3. All government offices including GOCC, as well as provincial, city and municipal governments and barangays.
Return and Payment in Case of Government Employees: If the employer is the Government of the Philippines or any political subdivision, agency or
instrumentality thereof, the return of the amount deducted and withheld upon any wage shall be made by the officer or employee having control of the payment
of such wage, or by any officer or employee duly designated for the purpose (Section 81, NIRC).

Business premises of the employer means the place where the employee performs a significant portion of his duties or where the employer conducts Withholding Tax on Compensation: A method of collecting that income tax at source upon receipt of income. It applies to all employed individual whether
a significant portion of his business. In case of doubt, the criteria to be used shall be (a) time, more than 50% of the employee's work time or (b) citizens or aliens, deriving income from compensation for services rendered in the Philippines, and the employer is constituted as the withholding agent.
value of business, more than 50% of the production of the said employee. (Section (2)(2.4) of RAMO No. 1-87)
The income recipient is the person liable to pay the income tax, yet to improve the collection of compensation income of employees, the State requires the
(2) The employee is required to accept the lodging as a condition of his employment; and employer to withhold the tax upon payment of the compensation income.
(3) The meals are furnished for the convenience of the employer. (RAMO No. 1-87; BIR Ruling [DA-197-97])
b. Tips and gratuities (Sec. 2.78.1 (A)(4) of RR No. 2-98): Tips or gratuities paid directly to an employee, by a customer of the employer, which are not Refunds or credits
accounted for by the employee to the employer are considered as taxable income but not subject to withholding tax on compensation. a. Employer – when there has been an overpayment of tax under this Section, refund or credit shall be made to the employer only to the extent that the
c. Other benefits and allowances: amount of such overpayment was not deducted and withheld by the employer.
(1) Transportation, Representation and Other Allowances (Sec. 2.78.1 (A)(6) of RR No. 2-98, as amended) b. Employees – the amount deducted and withheld under the Code during any calendar year shall be allowed as a credit to the recipient of such income
(2) Advances/Reimbursements against the income tax due. Refunds and credits in cases of excessive withholding shall be granted under rules and regulations promulgated by the Secretary
of Finance, upon recommendation of the Commissioner.
In general, fixed or variable transportation, representation and other allowances which are received by an employee in addition to his/her regular is
compensation subject to withholding. (Section 2.78.1(A)(6)(a) of RR No. 2-98, as amended) Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of counter-signature by the
Chairman, Commission on Audit or the latter’s duly authorized representative as an exception to the requirement prescribed by Section 49, Chapter 8, Subtitle
To be considered as tax-exempt, all of the following conditions shall be met based on the rulings/opinions issued by the BIR, as follows: B, Title 1 of Book V of the Administrative Code of 1987.
1. It is incurred in the pursuit of trade or business of the employer;
2. the employee is required to, and does make an accounting/ liquidation for each expense; and FILING OF RETURNS FOR INDIVIDUALS
3. Liquidated in the Name of the employer.
A. INCOME TAX RETURN
Advances in excess of actual expense, if not returned to the employer constitutes taxable compensation/benefit. 1. Annual Income Tax Return:
a. BIR Form No. 1700 – for individuals earning purely compensation income.
Per Diem Allowances: reasonable amounts of reimbursements/ advances for traveling and entertainment expenses which are pre-computed on a daily b. BIR Form No. 1701 – for self-employed individuals or mixed income earners (including Income Tax on Estates and Trusts)
basis and are paid to an employee while he is on an assignment or duty need not be liquidated and not subject to withholding.
The deadline for either is April 15 of the succeeding year.
WITHHOLDING TAX SYSTEM
SUBSTITUTED FILING OF INCOME TAX RETURN: under this rule, individual income taxpayers need not file their own ITR, provided the following
Amount reported as income is GROSS of creditable withholding tax: the concept of a withholding tax on income obviously and necessarily implies that requisites are met:
the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, a. The individual is receiving purely compensation income;
then that amount manifestly forms part the taxpayer’s gross receipt. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the b. The amount of income tax has been correctly withheld by the employer;
government in payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts (China c. There is only one employer during the taxable year.
Banking Corporation v. CA, 403 SCRA 634, 2003).
Employers fill-up BIR Form No. 2316 for employees covered by this rule in triplicate: a copy to the employee; one copy to the BIR; and one for their file.
Withholding of Final Tax of Certain Income Payments: The amount of income tax withheld by the withholding agent is constituted as a full and final The BIR Form No. 2316 constitutes the income tax return of the covered employee.
payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent.
(see Final Tax Rates on Passive Income) The substituted filing of income tax return rule is now embodied under Sec. 52(A) of the Tax Code, as amended by the TRAIN.

Withholding of Creditable Tax at Source: Taxes withheld on certain income payments are intended to equal or at least approximate the tax due from the WHO ARE REQUIRED TO FILE AN INCOME TAX RETURN:
payee on said income. The income recipient is still required to file an income tax return, as prescribed in Sec. 51 and 52 of the Tax Code, to report the income a. Individuals deriving compensation from two or more employers concurrently or successively at any time during the taxable year.
and/or pay the difference between the tax withheld and the tax due on the income. This is otherwise known as Expanded Withholding Tax (EWT) or the b. Employees deriving compensation income, regardless of the amount, whether from a single or several employers during the calendar year, the income
Creditable Withholding Tax (CWT). tax of which has not been withheld correctly.
c. Individuals deriving income other than compensation, such as business income or income from the practice of profession.
A manner of collection: A withholding tax on income is not a new kind of tax but simply a manner or system by which income taxes may be collected when the d. Individuals whose spouse is required to file an ITR.
income is paid or received. It is in the nature of advance tax payment by a taxpayer on the annual tax which may be due at the end of the taxable year. e. Non-resident alien engaged in trade or business in the Philippines.

Reason for the system: the withholding tax system was devised for three primary reasons: 2. Quarterly Income Tax Return (BIR Form No. 1701Q) – applicable only to individuals who earn business income or income from the practice of profession,
1. To provide the taxpayer a convenient manner to meet his probable income tax liability; the deadline of which is 60 days following the close of the quarter, except for the first quarter return which should be filed on May 15 of the year.
2. To ensure the collection of income tax which can otherwise be lost or substantially reduced through failure to file the corresponding returns; and
3. To improve the government’s cash flow. B. CAPITAL GAINS TAX
1. Shares of stock – 30 days after each transaction using BIR Form No. 1707; the consolidated return shall be filed on or before April 15 of the following
Kinds: year.
1. Creditable or Expanded Withholding Tax (Withholding Tax at Source); 2. Real Property – 30 days following each sale or other disposition using BIR Form No. 1706.
2. Withholding tax on employee’s compensation or wages (Withholding Tax on Compensation/Wages);
3. Withholding of value-added tax; and Real Property subject to regular income tax: If the sale of real property is subject to regular income tax, the same shall likewise be subject to
4. Withholding of percentage tax. CREDITABLE WITHHOLDING TAX, and such withholding tax shall be remitted on the 10th day following the month of transaction using BIR Form No. 1606.

Final Withholding Tax (FWT) and Creditable Withholding Tax (CWT) distinguished C. WITHHOLDING TAX RETURNS (Withholding tax on compensation, Final Withholding Taxes, Expanded Withholding Taxes) – end of the month following
1. In FWT, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the close of the taxable quarter using the following returns:
the said income. In CWT, the taxes withheld on certain income payments are creditable against the income tax due on said income. The latter is more of
an advance payment of income tax but does not constitute the full income tax due on the income subject to the withholding tax. Tax Type BIR Return
2. In FWT, the liability for payment of the tax rests primarily on the payor as a withholding agent. In CWT, the payee of the income is required to report the Expanded (Creditable) Withholding Tax BIR Form No. 1601EQ
income and/or pay the difference between the tax withheld and the tax due on the income. Final Withholding Tax on Interest on Bank Deposits BIR Form No. 1602
3. In FWT, the payee is not required to file an income tax return for the particular income or include the same in the computation of his taxable income Fringe Benefits Tax BIR Form No. 1603
subject to regular income tax. In CWT, the income received by the payee is to be included in his gross income subject to normal income tax, and the tax All other Final Withholding Taxes BIR Form No. 1601FQ
withheld is a credit/deduction from the income tax due thereon.
For this purpose, the quarter shall follow the calendar quarter. As such, the first quarter ends on March 31, and the deadline for the filing would be April
Persons Constituted as Withholding Agent (Sec. 3 of RR No. 14-2002) 30, the last day of the month following the close of the quarter.
1. Any juridical person whether or not engaged in trade or business;
 Deadline for Payment: is likewise the same as the deadline for the filing of the returns. INCOME TAX ON CORPORATIONS

However, Under RR No. 11-2018, the BIR requires that withholding agents file BIR Monthly Remittance Form (BIR Form No. 0619E and/or 0619F) every Under Sec. 2 of the Corporation Code (Batas Pambansa Bilang 68), a “corporation” is an artificial being created by operation of law, having the right of succession
tenth (10th) day of the following month when the withholding is made, regardless of the amount withheld. For withholding agents using EFPS facility, the and the powers, attributes and properties expressly authorized by law or incident to its existence.
due date is on the fifteenth (15th) day of the following month. Withholding agents with zero remittance are still required to use and file the same form.
However, for income tax purposes, the term “corporation” shall include:
Quarterly Alphabetical List of Payees (QAP): The return filed shall be accompanied by the Quarterly Alphabetical List of Payees (QAP), reflecting the: 1. Partnerships, no matter how created or organized,
1. Name of income payees; 2. Joint stock companies;
2. Taxpayer Identification Number (TIN); 3. Joint accounts (cuentas en participacion);
3. The amount of income paid segregated per month with total for the quarter (all income payments prescribed as subject to withholding tax under 4. Associations, or
these regulations, whether actually subjected to withholding tax or not subjected due to exemption); and 5. Insurance companies,
4. the total amount of taxes withheld, if any
EXCEPT:
It is arguable, however, whether the BIR actually requires a QAP for BIR Form No. 1602, the return for Final Withholding Tax on Interest on Bank Deposits,
considering that this may violate Republic Act No. 1405, or the Bank Secrecy Law. 1. General Professional Partnership; and
2. Joint Venture or Consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy
Prior to the TRAIN: the EWT Return (1601-E) and the FWT Return (1601-F) was filed on a monthly basis on or before the 10th day of the month following operations pursuant to an operating or consortium agreement under a service contract with the government. (Sec. 22([B] of the Tax Code)
the close of the month of withholding (or 11-15th day for EFPS filers) and the Alphabetical List of Payees was likewise submitted monthly.
Partnership Under the Civil Code, a partnership is one created when two or more persons contribute money, property or
Timing of Withholding: Under Sec. 2.57.4 of RR No. 2-98, as amended, the obligation to withhold arises at the time the income payment is accrued or industry to a common fund with the intention of dividing the profit among themselves. (Art. 1767)
recorded as an expense or asset, whichever is applicable, in the payor’s books, or when the payment becomes payable, whichever comes first. General Professional Partnerships formed by persons for sole purpose of exercising their common profession, no part of the
Partnerships income of which is derived from engaging in any trade or business.
Withholding Tax Statement at Source: Every payor required to deduct and withhold taxes under this subsection shall furnish each payee, a withholding Joint Venture A commercial undertaking by two or more persons, differing from a partnership in that it relates to the
tax statement, in triplicate, within twenty (20) days from the close of the quarter. disposition of a single lot of goods, or the completion of a single project.
Joint Stock Constituted when a group of individuals, acting jointly, establish and operate a business enterprise
The prescribed form (BIR Form No, 2307 for creditable withholding tax and BIR Form 2306 for final withholding tax) shall be used, showing the monthly Companies under an artificial name, with an invested capital divided into transferrable shares, an elected board of
income payments made, the quarterly total, and the amount of taxes withheld. Provided, however, that upon request of the payee, the payor must furnish directors and other corporate characteristics, BUT operating without formal governmental authority
such statement, simultaneously with the income payment. Joint Accounts Constituted when one interests himself in the business of another by contributing capital thereto, and sharing
in the profits or losses in the proportion agreed upon. They are not subject to any formality and may be
Annual Information Returns: The withholding agent is required to file with the concerned office of the LTS/RR/RDO where the withholding agent is privately contracted orally or in writing.
registered, the following: Associations Includes all organizations which have substantially the salient features of a corporation to be taxable as such.
1. Annual Information Return of Creditable Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR Form No. 1604E) including
the corresponding Annual Alphabetical List of Payees - on or before March 1 of the following year in which payments were made; and A. CLASSIFICATION OF CORPORATIONS
2. Annual Information Return on Final Income Taxes Withheld (BIR Form 1604F) including the corresponding Annual Alphabetical List of Payees – On or 1. Domestic Corporation – is a corporation created and organized under the law of the Philippines;
before January 31 of the following year in which payments were made. 2. Foreign Corporations – are those which are created and organized under foreign laws:
a. Resident – having a permanent establishment/branch in the Philippines, acquiring residency for tax purposes;
D. MANNER OF FILING: the returns can be filed (1) manually; (2) through electronic filing and payment system (EFPS); or (3) through the use of eBIR b. Non-resident – no permanent establishment in the Philippines; not regularly engaged in trade or business in the Philippines.
Forms.
Corporation Tax Base
In case of filing through the eFPS, the deadlines are extended by 1 to 5 days depending on the industry classification of the taxpayer.
Domestic Corporation Taxable Income from sources within and outside the Philippines
Resident Foreign Corporation Taxable Income from sources within the Philippines
Non-resident Foreign Corporation GROSS Sales/Receipts from sources within the Philippines

B. TAX BASE
1. Tax base for Regular Corporate Income Tax purposes is taxable income which is the gross income less allowable deductions;
2. For Minimum Corporate Income Tax, the tax base is the gross income; “Gross Income”, as contemplated in the tax code, is Net Sales or Receipts (Gross
sales or receipts less sales returns, discounts and allowances) less any Cost of Sales or Cost of Services.
3. For Non-resident Foreign Corporations, the tax base is the Gross Sales/Receipts which generally connotes Sales/Receipts less Discounts, Returns and
Allowances, or Net Sales/Receipts.

For reference:

Gross Sales/Receipts xxx

Less: Discounts and Returns (xxx)
Net Sales xxx
Less: Cost of Goods Sold (xxx)
Gross Income xxx
Less: Itemized Deductions/Optional Standard Deduction (xxx)
Taxable Income xxx

4. Gross Income excludes items which are subject to Capital Gains Tax or Final Tax and those which are Exempt.

C. TAX RATES

1. Income Tax rate (or the Regular Corporate Income Tax (RCIT) or Normal Corporate Income Tax or Normal Income Tax) for all corporations is 30%,
notwithstanding if they are domestic or foreign.

2. Capital Gains Tax rates for:

Domestic Corporations

Transaction Rate Tax Base

Sale of shares of stock of a 15%* On the net capital gain
domestic corporation not listed
and traded though a local stock
 exchange, held as capital asset 15% Intercorporate Dividends provided that the country where the Company is
(Sec. 27[D][2]) domiciled provides for a 15% credit on Philippine taxes deemed paid*
Sale of LAND and/or BUILDING in 6% On the gross selling price, or the Exempt Interests from depository banks under the Foreign Currency Deposit
the Philippines held as capital current fair market value at the System
asset (Sec. 27[D][5]) time of sale, whichever is higher
*TAX SPARING RULE: Tax on dividend income is entitled to a reduction up to 15 percent if the country of residence of a corporate stockholder:
Note that for corporations, only sale of land and/or building held as capital assets shall be subject to the 6% CGT unlike an individual taxpayer who is liable 1. Allows a sparing credit of 15-percent tax deemed to have been paid in the Philippines against the tax due on the dividends; or
for the 6% CGT on sale of “real property”. Accordingly, a corporation’s sale of machineries, although it may be classified as real property, held as a capital asset 2. Does not impose any tax on the dividends. (Interpublic Group of Companies, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 7796, Feb. 21, 2011,
is not subject to the 6% CGT but to ordinary income tax. citing Commissioner of Internal Revenue vs. Wander Philippines, Inc.)

*the rate prior to the effectivity of the TRAIN for sale of shares of stock of a domestic corporation not listed and traded through a local stock exchange, held as SUMMARY OF TAXABILITY OF NON-RESIDENT FOREIGN CORPORATION: From the above, it will be noted that the income earned by a non-resident
capital asset is that applicable to Foreign Corporations, the rates of which were overlooked and thus remained unchanged. foreign corporation earned from the Philippines is GENERALLY subject to 30% Final Tax, EXCEPT:
1. Interest on Foreign Loans – which is subject to 20% Final Tax;
Foreign Corporations (resident or non-resident) 2. Dividends – when the tax sparing rule applies;
3. Income (whatever type) from Foreign Currency Deposit Units of local banks - exempt;
Transaction Rate Tax Base 4. Income covered by a Tax Treaty providing for exemption or a lower rate.
Sale of shares of stock On the net capital gain:
of a domestic 5% Not over P100,000 D. MINIMUM CORPORATE INCOME TAX (MCIT) (Sec. 27[E])
corporation not listed 10% On any amount in excess of
and traded though a P100,000 The MCIT is 2% of Gross Income, which is Net Sales or Revenue (Gross sales or revenue less discounts, returns or allowances) less Cost of Sales or Services;
local stock exchange, (Sec. 28[A][7][c] and
held as capital asset [B][5][c]) Cost of Sales or Services are those directly incurred in bringing about the revenue or sales.

3. Final Withholding Tax/Final Tax rates for: 1. For a trading or merchandising concern, ‘cost of goods sold’ shall include the invoice cost of the goods sold, plus import duties, freight in transporting
the goods to the place where the goods are actually sold, including insurance while the goods are in transit.
Domestic Corporations
2. For a manufacturing concern, ‘cost of goods manufactured and sold’ shall include all costs of production of finished goods, such as raw materials used,
Rate Income direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.
20% Interest from any currency bank deposit; Yield or other monetary
benefit from deposit substitutes and from trust funds and similar 3. In the case of taxpayers engaged in the sale of service, ‘gross income’ means gross receipts less sales returns, allowances and discounts less ‘cost of
arrangements and Royalties. (Sec. 27[D][1] and Sec. 28[A][7][a]) services’ which includes:
15% Interests from depository banks under the Foreign Currency Deposit a. Salaries and employee benefits of personnel, consultants and specialists directly rendering the service; and
System. (Sec. 27[D][3] and Sec. 28[A][7][b]) b. Cost of facilities utilized in providing the service such as depreciation or rental of equipment used; and
Exempt Cash and/or property dividends c. Cost of supplies.
20% FWT or Interest Income from LONG TERM deposit or investment*
30% RCIT Note, however, that specific industries have different components of the Cost of Sales or Services, as provided under RMC No. 4-2003. E.g., interest expense is
not considered part of cost of services, except for Banks and other Financial Institutions.
Resident Foreign Corporations: the rates applicable to resident foreign corporations are the same except for interests from depository banks under the
Other income items: all other income shall be included in the computation of the Gross Income subject to MCIT, except those exempt and those subject to
Foreign Currency Deposit System which is subject still to the old rate of 7.5% since the TRAIN package 1 did not amend the provisions pertaining to RFCs.
final tax.
*Interest from Long-term deposits: Note that interest income from long-term deposit or investment earned by individuals is exempt, subject to tax only in
So, a manufacturing entity earning rental income, is required to include the rental income in computing the MCIT even if it is not arisng from its main line of
case of pre-termination. Under Revenue Regulations No. 14-2012, such exemption is limited only to individuals. Accordingly, interest earned by corporations
business.
from long-term deposits is subject to the following tax:
a. 20% FWT – for interest income from long-term deposits issued by banks or investment certificates considered as deposit substitutes;
When applicable: A company is liable for MCIT starting the 4th year immediately following the year in which it commenced its operations. Meaning,
b. 30% RCIT – for interest earned from long-term deposits NOT issued by banks or investment certificates NOT considered as deposit substitutes. (Q&A5 of
if the Company started operating in 2016 (regardless of the month), it will be liable for MCIT (provided it is higher than RCIT) starting 2020, which is the 4 th
RMC No. 77-2012)
year from 2017 (the year following the year in which it commenced operations).
Deposit Substitute: following the 19-lender rule (or the 20 or more lender rule) and as defined under Sec. 22(X) of the Tax Code, a deposit substitute shall
The MCIT does not apply to non-resident foreign corporations. However, Resident Foreign Corporations are also liable for MCIT under Sec. 28(A)(2) of
mean an alternative form of obtaining funds from the public (“public” means borrowing from 20 or more individual or corporate lenders at any one
the Tax Code.
time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of relending
or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer.
When due: The tax due shall be equivalent to the MCIT whenever it is higher than RCIT.
Government issued securities are not automatically deposit substitutes: under Sec. 2(1) of RR No. 14-2012, the BIR provided that the instruments
Accordingly, its computation is done quarterly, same as RCIT, on a cumulative basis (i.e., the income and expenses from the first quarter are included in the
issued by the Government, including the Bureau of Treasury (BTr), is considered as a “deposit substitute” regardless of the number of lenders at the time of
preparation of the 2nd quarter return and so on). Thus, if in a taxable quarter, the MCIT is higher than the RCIT, the former shall be the amount due for payment,
origination if such debt instruments and securities are to be traded or exchanged in secondary market.
less any available tax credits.
However, in Banco de Oro, et. al. vs. Republic of the Philippines, the SC held that for purposes of determining whether an instrument constitutes a deposit
EXCESS MCIT CARRY-OVER (Sec. 27[E][2]): Any excess of the MCIT over the RCIT shall be carried forward and credited against normal tax (RCIT) for the
substitute, it must comply with the 19-lender rule or the 20 or more lender rule; and for purposes of determining the "20 or more lenders", the phrase "at any
three (3) immediately succeeding taxable years.
one time" would mean every transaction executed in the primary or secondary market in connection with the purchase or sale of securities, not just the original
issuance.
In the period it is to be credited, the RCIT should be higher than the MCIT. Thus, if in the three succeeding taxable years, the MCIT is higher than the RCIT,
the excess MCIT carry-over would expire and would no longer be creditable beyond that period.
As such, BIR Ruling No. 370-2011 which enunciated the rule that “all treasury bonds . . . regardless of the number of purchasers/lenders at the time of
origination/issuance are considered deposit substitutes” was declared void for it disregarded the 20 or more lender rule under the Tax Code. It also created a
Accounting entry: the accounting entry for excess MCIT carry-over would be:
distinction for government debt instruments as against those issued by private corporations when there was none in the law. (GR No. 198756, January 13,
2015) Provision for income tax/Income Tax Expense XXX
Deferred Charge – MCIT/MCIT Carry-over XXX
Non-Resident Foreign Corporation (Sec. 28[B][1] and [5][a,b]): Income Tax Payable/Cash XXX

Rate Income The provision for income tax or the income tax expense would be equivalent to the normal tax (RCIT), while the Income Tax Payable/Cash would be equivalent
30% All sources of income: interests, dividends, rents, royalties, salaries, to the MCIT. The difference is treated as an asset which may be creditable against the RCIT in the succeeding 3 years where RCIT is higher.
premiums, annuities, emoluments or other fixed or determinable annual,
periodic or casual gains, profits and income, and capital gains, except FORMAT OF COMPUTATION:
capital gains subject to capital gains tax and those provided below Sales/Revenues/Receipts/Fees XXX
20% Interest on Foreign Loans Less Cost of sales/services (XXX)
Gross Income from Operations XXX
 Add: Non-operating and taxable other income XXX
Total Gross Income (A) XXX Prima facie improper accumulation of profits: Under the Corporation Code, a corporation can retain profits not exceeding 100% of its paid-up capital.
Less: Itemized Deductions/Optional Standard Deduction (XXX) As such, retained earnings amounting to more than 100% of the paid-up capital is prima facie evidence of improper accumulation.
Taxable Income (B) XXX
Exempt from IAET: the following are exempt from IAET (Sec. 29[B][2]):
Regular Corporate Income Tax (RCIT) 30% of Taxable Income (B) XXX a. Publicly-owned corporations
Minimum Corporate Income Tax (MCIT) 2% of Total Gross Income (A) XXX b. Banks and other non-bank financial intermediaries
c. Insurance companies
Tax Due (whichever is higher) XXX d. Those exempt from income tax (i.e., Non-taxable partnerships, GPPs, Non-taxable joint ventures)
If RCIT is higher: less Unexpired excess of prior year’s MCIT (XXX) e. PEZA-registered entities.
Balance XXX f. Partnerships.
Less: Tax credits XXX
Prior year’s excess tax credits other than MCIT XXX F. OPTIONAL CORPORATE INCOME TAX (GROSS INCOME TAX)
Tax payments for the first three quarters XXX 1. Upon recommendation of the Secretary of Finance, the President, effective January 1, 2000, may allow corporation to be subjected to optional corporation
Creditable tax withheld for the first three quarters XXX tax.
Creditable tax withheld for the fourth quarter XXX 2. The Optional Corporate Income Tax shall be 15% of the gross income;
Foreign tax credits, if applicable XXX 3. This option is available to both domestic corporation and resident foreign corporation;
Tax paid in return previously filed, if this is an amended return XXX (XXX) 4. The option to be taxed based on gross income shall be available only to firms whose ratio of cost sales to gross sales does not exceed 55%;
Tax Payable/(Overpayment) XXX 5. Election of the gross income tax shall be irrevocable for the three consecutive taxable years during which the corporation is qualified.

RELIEF FROM MCIT (Sec. 27[E][3], Tax Code): G. GOVERNMENT-OWNED OR -CONTROLLED CORPORATIONS
The Secretary of Finance is authorized to suspend the imposition of the MCIT on any corporation which suffers losses on account of;
1. Prolonged labor disputes: losses arising from a strike staged by the employees which lasted more than 6 months within a taxable period and which has 1. Generally subject to 30% regular corporate income tax;
caused the temporary shutdown of business operations. 2. The following are tax-exempt government owned or controlled corporations under Sec. 27(C) of the Tax Code:
2. Because of force majeure: means a cause due to irresistible force by “act of God” like lightning, earthquake, storm, flood and the like. This term shall also a. Government Service Insurance System (GSIS)
include armed conflicts like war or insurgency. b. Social Security System (SSS)
3. Legitimate business reverses: include substantial losses due to fire, robbery, theft or embezzlement, or other economic reasons as determined by the c. Philippine Health Insurance Corporation (PHIC); and
Secretary of Finance. d. Local Water Districts

CORPORATIONS NOT SUBJECT TO MCIT: PAGCOR and PCSO: are now subject to the 30% RCIT and are no longer considered as exempt GOCCs.
1. Propriety educational institutions subject to the tax of 10%;
2. Non-profit hospital subject to 10% tax; H. SPECIAL CORPORATIONS
3. Depository banks under the expanded foreign currency deposit system (Foreign Currency Deposit Units [FCDUs]) for offshore income exempt from income 1. Special Domestic Corporations
tax and onshore income subject to 10% final tax;
4. Offshore banking units similarly taxed as FCDUs; Special Domestic Corporation Tax Base Tax Rate
5. International carriers subject to 2.5% tax on Gross Philippine Billings; Proprietary Educational Institutions Generally, 10%;
6. ROHQs subject to 10% tax; and Non-profit Hospitals (Sec. 27[B] Net Income 30% - if income from unrelated
7. PEZA registered entities’ income subject to ITH or the 5% preferential GIT; of the Tax Code) business* exceeds 50%
8. BOI registered entities for income subject to ITH. Non-stock, non-profit educational Exempt from income taxes**(Sec.
institutions None 4[3], Art. XIV of the 1987 Constitution)
Note that the MCIT is due only if it is higher than the 30% RCIT and all the above entities are not subject to the 30% RCIT. However, taxable income of FCDUs,
OBUs, PEZA- and BOI-registered entities, which are not covered by the special rates (subject to 30% RCIT), are likewise subject to the MCIT, whenever Government-owned or controlled 30%
applicable. corporations, agencies or Same as those imposed upon
Net Income
instrumentalities (Sec. 27(C) of the corporation or association engaged in
E. IMPROPERLY ACCUMULATED EARNINGS TAX (Sec. 29) Tax Code) similar business, or activity.***

The Improperly Accumulated Earnings Tax (IAET) is 10% of the Improperly Accumulated Earnings, the latter to be computed in accordance with Sec. 29(D), as *“Unrelated trade, business or other activity” are those which are not substantially related to the exercise or performance of the school or hospital’s primary
follows: purpose or function. Thus, whenever such income is more than 50% of the total income of the proprietary educational institution or non-profit hospital, all its
income becomes subject to 30% RCIT.
Taxable Income XXX
Add Income Exempt from Tax XXX Deduction: for private educational institutions, capital outlays, or expenditures made for expansion of school facilities may either be:
Income excluded from gross income XXX a. Deducted as expenditure; or
Income subject to Final Tax XXX b. Depreciated over estimated life.
NOLCO deducted XXX
Less Income Tax Paid/Payable during the year (XXX) Note that for other corporations, the capital outlays and expenditures may only be treated as outright expense if, for accounting purposes, they are determined
Dividends actually or constructively paid (XXX) as repairs and maintenance; while it may be treated as capitalizable and forms part of the cost of the asset if considered as such for accounting purposes.
Amount reserved for the reasonable needs of the business (XXX)
Improperly Accumulated Earnings XXX **This exemption extends not only to the revenues and income of assets derived from strictly school operations like tuition and miscellaneous fees but also to
IAET (10%) XXX incidental income derived from canteen operations, bookstores and dormitory facilities which are owned and operated by the school itself and are located inside
the campus. (DECS Order No. 137-87)
“Reasonable needs of the business” – this term refers to the immediate needs of the business, including reasonably anticipated needs which would justify
accumulation of earnings, such as: Thus, canteens operated by mere concessionaires even though located inside the campus, are taxable.
a. Those reserved for expansion projects or programs requiring substantial capital expenditures;
b. Those reserved for building, plants or equipment acquisition; 2. Special Resident Foreign Corporations
c. In compliance with loan covenants or pre-existing obligation established under a legitimate business arrangement;
d. Those required by law or applicable regulations to be retained by the corporation or in respect of which there is a legal prohibition against its distribution; Special RFC Tax Base Tax Rate
e. In case of subsidiaries of foreign corporations, those intended or reserved for investments within the Philippines. International carrier Gross Philippine Billings* 2 1/2%
(Sec. 28[A][3])
Presumption of improper accumulation: there are three cases, when, in the absence of proof to the contrary, a corporation would be considered improperly Offshore banking units Income from foreign currency transactions with non-residents, Offshore Banking Units Exempt from all
accumulating profits, that is, formed for the purpose of preventing the imposition of income tax on its shareholders, to wit: (OBU) (Sec. 28[A][4]) (OBUs) in the Philippines, local commercial banking units including Philippine branches taxes
of foreign banks under the foreign currency deposit system
A Holding Company A corporation that practically have no activities except holding property,
and collecting the income therefrom or investing therein. Interest income from foreign currency loans granted to residents other than other 10% final tax
An Investment Company A corporation whose activities further includes, or consists substantially OBUs or local commercial banks under the foreign currency deposit system.
of, buying and selling stocks, securities, real estate, or other investment
yield but also from profits upon market fluctuations. Income other than interest from loans 30% RCIT
 INCOME TAX ON ESTATES AND TRUSTS
Income of non-resident from OBUs Exempt
A. TAXABILITY OF ESTATES
Branch Profit Remittance Total profits applied or earmarked for remittance without deduction for the tax
15% An estate pertains to all the property, rights and obligations of a deceased person, including those that accrue since the opening of succession.
Tax** (Sec. 28[A][5]) component
Regional or area
headquarters of Taxability: An estate is taxable DURING judicial settlement, that is, during the time the estate is the subject of judicial testamentary or intestate proceedings.
Exempt from tax
multinationals*** (Sec.
28[A][6][a]) Estates are taxed similar to an individual, so the rules on taxable income, those subject to final tax, capital gains tax, the deductions and the rates are similar,
Regional operating EXCEPT:
headquarters of 1. An estate is required to obtain its own Tax Identification Number (TIN).
Taxable Income 10% 2. Distribution of the INCOME to the heirs shall be deductible for purposes of computing taxable income. Such distribution shall be subject to a 15%
multinationals**** (Sec.
28[A][6][b]) withholding tax and will be reported by the heir as part of his personal taxable income.

*Gross Philippine Billings for:
a. International air carrier refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo, or mail originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document.
(Sec. 28[A][3][a]) Provided, that tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if
the passenger boards a plane in a port or point in the Philippines. Provided further, that for a flight which originates from the Philippines, but transhipment
of passenger takes place at any part outside the Philippines or another airline, only the aliquot portion of the cost of the ticket corresponding to the leg
flown from the Philippines to the point of transhipment shall form part of the Gross Philippine Billings. (as amended by RA No. 10378)
b. International shipping means gross revenue whether for passenger, cargo or mail originating from the Philippines up to final destination, regardless of
the place of sale or payment of the passage or freight documents. (Sec. 28[A][3][b])
Personal Exemption: of 20,000 provided under Sec. 62 has been repealed under the TRAIN.
Period to start: The estate is taxed only on its income from the death of the decedent. Any income for the year which was earned prior to death is reported
separately in the individual’s income tax return for the year.
Not under JUDICIAL settlement: An estate NOT under judicial settlement shall be treated as a co-ownership for tax purposes or if the heirs actively participated
in its management or invested additional capital thereto, it may be considered a partnership, taxable as such.
Liability to pay the income tax: the administrator or executor will be liable to pay the income tax liability of the estate.

Exemption under reciprocity: international carriers doing business in the Philippines ma avail of a preferential rate or exemption from the tax herein imposed on B. TAXABILITY OF TRUSTS
the basis of applicable tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity such that an international carrier,
whose home country grants income tax exemption to Philippine carriers shall likewise be exempt from the tax imposed under this provision. (as amended by RA A trust is the arrangement created by will or an arrangement under which title to property is passed to another for consideration or investment with the income
No. 10378) therefrom and ultimately the corpus to be distributed in accordance with the directions of the creator as expressed in the governing instrument.

**PEZA-registered entities are exempt from the imposition of the Branch Profits Remittance Tax. Parties to a trust include the trustor, the one who establishes the trust; the trustee, the one in whom confidence is reposed as regards the property for the
benefit of another person; and the beneficiary, for whose benefit the trust has been established.
***Regional or area headquarters is a branch in the Philippines by a multinational company and which headquarters do not earn or derive income from
Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches in the Asia Pacific Region and Kinds of trust:
other foreign market. 1. Revocable – one where at any time the power to revest (return) in the grantor title to any art of the corpus of the trust is vested; the trust is not considered
a separate taxable entity and the income from the corpus forms part of the taxable income of the grantor.
****Regional operating headquarters are those branches established in the Philippines by multinational companies to offer services to its affiliates outside 2. Irrevocable – where no such right exists or cannot be exercised after an agreed period; Here, the trust itself is considered a separate taxable entity from
the Philippines; they are engaged in different services such as general administration and planning, business planning and coordination, marketing control and the grantor, and is taxed similar to an estate under judicial settlement and similarly entitled to a P20,000 basic personal exemption.
sales promotion, etc.
Rules on Taxability:
3. Special Non-Resident Foreign Corporation (Sec. 28[B][2, 3 and 4]) 1. If the income is distributed regularly, such will form part of the taxable income of the beneficiary.
2. If the trust is revocable, the income of the trust forms part of the taxable income of the trustor.
Special NRFC Tax Base Tax Rate 3. Only when the trust is irrevocable and the income is kept in the trust, would there be a need to compute for the income tax liability of the Trust.
Non-resident cinematographic film Gross income from Philippine sources 25% 4. If the Trust is treated as a separate taxable unit, the rules on individuals are the same, except that the Distribution of INCOME to the beneficiary
owner, lessor or distributor shall be deductible for purposes of computing the taxable income of the Trust subject to 15% withholding tax, and the amount distributed (gross of the
Non-resident owner or lessor of aircraft, Gross rentals or fees derived within the Philippines 7½% withholding tax) will form part of the beneficiary’s taxable income.
machineries and other equipment
Personal Exemption: of 20,000 provided under Sec. 62 has been repealed under the TRAIN.
Non-resident owner or lessor of vessels Gross rentals, lease or charter fees from leases or charters to Filipino
4½%
chartered by Philippine nationals citizens or corporations, as approved by Maritime Industry Authority
ILLUSTRATION: G transferred property to F, in trust, and under the terms of the transfer, F should accumulate the income for the benefit of B until the latter
reaches the age of majority. During 2016, the property earned P1,000,000 and incurred expenses of P350,000. P50,000 of the income was distributed to B.
TAX EXEMPT CORPORATIONS
How much is income tax?
Sec. 30 of the Tax Code enumerates the following corporations which are exempt from the Tax on Corporations:
Gross Income P1,000,000
A. Labor, Agriculture, or Horticultural Organization not organized principally for profit.
Less: Deductions for:
B. Mutual Savings Banks and Cooperative Banks
Expenses 350,000
C. Fraternal Beneficiary Society, Order or Association
Distribution of income to beneficiary 50,000
D. Cemetery Companies owned and operated exclusively for the benefit of its members;
Exemption 0 400,000
E. Religious, Charitable, Scientific, Athletic or Cultural Corporations
Taxable Income 600,000
F. Business League, Chamber of Commerce, or Board of Trade
G. Civic League Income Tax P 80,000
H. Non-Stock, Non-Profit Educational Institutions
I. Government Educational Institution 1. In the above illustration, G is known as the Grantor, F is known as the Fiduciary, B is known as the Beneficiary.
J. Mutual Fire Insurance Companies and Like Organizations 2. Income distribution to the beneficiary and income set aside or applied for his benefit shall be deductible for the computation of the taxable income of the
K. Farmers, Fruit Growers’ or Like Associations trust. (similar to an Estate)
3. The income distributed is subject to a 15% creditable withholding tax. Accordingly, B will receive P42,500 cash, net of the related withholding tax of P7,500
EXCEPTION: income from whatever kind and character of the foregoing corporations from any of their properties, real or personal, or from any of their activities (P50,000 * 15%). The amount to be included in B’s taxable income is still P50,000 with a tax credit of P7,500. (similar to an Estate)
conducted for profit regardless of the disposition made of such income, shall be subject to tax. 4. The Fiduciary is the one liable to file the income tax return for trusts held.
5. Note that Estates and Trusts are no longer entitled to the P20,000 exemption.
An institution under Section 30(E) or (H) does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant Two or more Trusts: In the event that a Fiduciary holds two or more trusts from the same grantor with the same beneficiary, the income tax shall be consolidated
to Section 27(B). (Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc., GR No. 203514, Feb. 13, 2017, citing same titled case, GR Nos. 195909 for such trusts. Accordingly, the gross income and deductions are consolidated as if they are from one property.
and 195960, September 26, 2012)
INCOME TAX ON PARTNERSHIPS, JOINT VENTURES and CO-OWNERSHIPS

TAXABILITY OF PARTNERSHIPS AND PARTNERS:

KINDS OF PARTNERSHIPS
1. General Professional Partnerships are formed by persons for sole purpose of exercising their common profession, no part of the income of which is Income Tax 130,000
derived from engaging in any trade or business. Withholding Tax on Share in the Net Income of GPP
2. Taxable Partnerships are those formed by persons for purposes of profits. (P300,000 * 10%) (30,000)
Withholding Tax on Salary (10,000)
A general professional partnership is exempt from income tax; while a taxable partnership is taxed similar to a corporation. Income Tax Payable P 90,000

GENERAL PROFESSIONAL PARTNERSHIPS TAXABLE PARTNERSHIPS: for tax purposes, taxable partnerships are taxed, in all respects, similar to a corporation.
Sec. 26 of the Tax Code provides:
Accordingly, it may claim itemized and optional standard deductions subject to the same applicable rules for corporations.
“Sec. 26. Tax Liability of Members of General Professional Partnerships. - a general professional partnership as such shall not be subject to
the income tax imposed under Chapter III. Persons engaged in business as partners in a general professional partnership shall be liable for income They are also subject to the rules on Final Tax, Capital Gains Tax and Minimum Corporate Income Tax EXCEPT Improperly Accumulated Earnings Tax. (see
tax only in their separate and individual capacities. discussion under Tax on Corporations)

For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a ILLUSTRATION: A business partnership organized by partners Tom and Jerry, equal partners, has the following data for the calendar year ended 2016:
corporation.
Gross business income P1,000,000
Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.” Deductible expenses 300,000
Yield from deposit substitutes 62,500
In relation thereto, Sec. 2.57.5(4) of RR No. 2-98, as amended, provides that GPPs are exempt from the Expanded Withholding Tax (EWT). However, Sec. Withdrawals on the share in the net income of the partners, net of
2.57.2(H) of the same Regulations provide that the income payments made periodically or at the end of the taxable year by a GPP to the partners, such as withholding tax 150,000
drawings, advances, sharings and allowances, stipends, etc. shall be subject to 15% EWT if the income payments to the partner for the current year exceeds Rent income 300,000
P720,000; and 10%, if otherwise. Quarterly payments of income tax 120,000

Every general professional partnership shall file, in duplicate, a return of its income, except income exempt under the Tax Code, setting forth the items of gross NOTES:
income and deductions and the names, TIN, Address and Shares of each partner. 1. Taxable income, Income Tax and Distributable Income is computed as follows:

ILLUSTRATION: Arthur, married to Guinevere, has two dependent minor brothers. He is a partner of a general professional partnership. He also has a trading Gross business income P1,000,000
business of his own. The following are data pertaining to taxable year 2016: Deductible expenses (300,000)
Rent income 300,000
Gross Income, trading business P500,000 Taxable Income 1,000,000
Expenses, trading business 100,000 Income Tax (30%) (300,000)
Interest Income, Maybank 20,000 Distributable Income 700,000
Salaries as part-time teacher, gross of withholding tax 100,000
2. The Income Tax of P300,000 is 30% of the taxable income (P1,000,000), the regular corporate income tax rate.
The general professional partnership had a gross income of P1,000,000 and expenses of P100,000. Arthur has a 1/3 share in the profits. 3. Distributable Income will be the net income (taxable income), after tax.
4. The distributable income shall be distributed to the partners based on their profit sharing agreement. Here, Tom and Jerry will each get P350,000 as their
How much is Arthur’s Taxable Income? share in the income of the partnership.
5. The share in the net income of the taxable partnership shall be subject to a final tax of 10%, similar to dividends. (see Final Tax under Tax on Individuals)
Gross Income, trading business 500,000 Thus, the share of a partner in the net income of a taxable partnership is no longer included in the computation of the individual income tax of the partner.
Expenses, trading business (100,000) 6. Accordingly, Tom and Jerry would each receive cash of P315,000, their share in the profit of the partnership (P350,000) less 10% final tax (P35,000) which
Salaries as part-time teacher, gross of withholding tax 100,000 is remitted by the partnership to the BIR; if the partner is a non-resident alien engaged in trade or business in the Philippines, it is subject to 20% final
Share in the Net Income of GPP: tax.
(1,000,000-100,000) x 1/3 300,000
Taxable Income 800,000 Since the partnership is taxed similar to a corporation, the share of the partners from its income is treated similar to dividends.
7. The withdrawals of the partners would not affect the amount of distributable income, ONLY the CASH remittance.
NOTE: 8. A share in the profit of a partnership is deemed received by the partner even if no ACTUAL payment was made, under the principle of constructive
1. Net income or distributable net income of a General Professional Partnership (GPP) shall be computed in the same manner as that of a Corporation, as receipt.
such, it may claim itemized deductions or optional standard deduction.
TAXABILITY OF JOINT VENTURES
However, the partners’ distributive share from GPP income can no longer be subject to further deduction under RR No. 8-2018.
JOINT VENTURES: similar to a taxable partnership, taxable joint ventures are taxed similar to a corporation and the rules on deductions, as well as Capital
Note also, that individual partners are not allowed to claim the 8% Flat Tax Rate on their distributive share from the GPP since the same is already net of Gains Tax, Final Tax and Minimum Corporate Income Tax are likewise applicable.
applicable deductions.
On the other hand, if the joint venture is considered as exempt, its taxation is similar to a general professional partnership.
But, if the partner also derives other income from trade, business or practice of profession apart and distinct from the share in the net income of the GPP,
the deduction that can be claimed from the other income would either be the itemized deductions or OSD. Exempt Joint Ventures:
a. If it formed for the purpose of undertaking construction projects;
2. A GPP is exempt from tax, thus, the net income of P900,000 (P1M – P100,000) is already the distributable income to the partners, 1/3 (P300,000) of which
is the share of Arthur. However, under RR No. 10-2012, the following are the requisites for a joint venture undertaking construction projects to be exempt from income tax:
3. The share of a partner in a GPP’s net income shall be considered part of its taxable income subject to Income Tax in their individual capacities. 1. it must be for the undertaking of a construction project; and
4. The computation of the taxable income of a partner is just the same as in Taxation of Individuals with just the inclusion of the share in the net income of 2. Should involve joining or pooling of resources by licensed local contracts; that is, licensed as general contractor by the Philippine Contractors
GPP. Accreditation Board (PCAB) of the Department of Trade and Industry (DTI);
5. All other income, from trade, other business, rentals, etc. which are not subject to final tax or capital gains tax are considered part of the computation of 3. These local contractors are engaged in construction business; and
taxable income of a partner (individual). 4. The Joint Venture itself must likewise be duly licensed as such by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade
6. The Final Tax rates applicable to individuals (for resident citizens, non-resident citizens, etc.) are also applicable to the partners. and Industry (DTI)
7. The computation of the Income Tax is also the same for individuals, and the graduated income tax table shall apply.
8. Accordingly, Income Tax of Arthur would be P130,000, computed as follows: Previously, a joint venture between an individual lot-owner and a contractor, who will spend on the construction and development costs, for the purpose
of a construction project, were treated as tax-exempt, under several BIR Rulings. With the above RR, this set-up will no longer be considered as exempt
First P400,000 30,000 joint ventures since the individual lot-owner is not a local contractor engaged in the construction business licensed by PCAB.
Excess over P500,000: (P800,000 – 500,000) * 25% 100,000
Total 130,000 b. Engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the
government.
9. The share of a partner in the net income of GPP is subject to 10% creditable withholding tax; or 15% if the gross income for the year exceeds P720,000
10. In the above illustration, the P300,000 share of Arthur in the income of GPP is subject to 10% withholding tax. If the withholding tax on the salaries as a ILLUSTRATION: San Miguel Construction and Asia Construction formed a joint venture to undertake a construction project. Profits are to be shared equally. The
part-time teacher amounted to P10,000, the income tax payable of Arthur would be computed as follows: following information relate to the individual operations of SMC and AC, as well as the operations of the Joint Venture:
 Asia Construction San Miguel Construction Joint Venture
Gross Income P20,000,000 P30,000,000 P150,000,000
Expenses 5,000,000 10,000,000 50,000,000

NOTE:
1. In the above illustration, if all the requisites of RR No. 10-2012 are present, the Joint Venture shall be treated as tax-exempt and the taxability is similar to
a GPP.
2. Accordingly, the Net Income of P100M (P150,000,000 – 50,000,000) is exempt from tax and is therefore the distributable income to the joint venture
parties.
3. SMC and AC, sharing equally the profits, would receive P50M each.
4. Since the joint venture is exempt from income tax, the share in the distributable income of SMC and AC shall form part of the parties to the joint venture’s
computation of taxable income. Accordingly, taxable income of the companies are as follows:
Asia San Miguel
Construction Construction
Gross Income P20,000,000 P30,000,000
Share in the exempt Joint 50,000,000 50,000,000
Venture
Expenses (5,000,000) (10,000,000)
Taxable Income 65,000,000 70,000,000

5. If, however, the joint venture entered into is for a purpose other than those which are exempt, then the joint venture shall be taxable as a corporation,
and is therefore liable for P30M Income Tax ([P150M – 50M) *30%]
6. The share of AC and SMC in the net income of the joint venture shall be based on the distributable income, after tax, that is, P70,000,000 (P100M taxable
income less P30M tax), or P35M each.
7. The share of AC and SMC from the income of the TAXABLE joint venture shall be treated as inter-corporate dividends, and is therefore exempt from income
tax and final tax (see discussion of Final Tax under Tax on Corporations). Accordingly, it is not included in their separate taxable income, as computed
below:

Asia San Miguel

Construction Construction
Gross Income P20,000,000 P30,000,000
Share in the exempt Joint Venture - -
Expenses (5,000,000) (10,000,000)
Taxable Income 15,000,000 20,000,000

8. In the case however of individual co-venturers, the share in the net income of a taxable joint venture shall be subject to a 10% final tax, similar to that of
dividends received by partners in a taxable partnership.

TAXABILITY OF CO-OWNERSHIPS

There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. (Art. 484, Civil Code)

Taxability: Co-ownerships are generally not taxable because the activities of the co-owners are usually limited to the preservation of the property owned in
common and collection of the income therefrom.

The income of the property owned in common is divided among the co-owners who shall then report in their respective income tax returns their shares of the
income of the co-ownership.

When treated as a partnership: there must be unmistakable intention to form a partnership.

The mere sharing of gross returns does not in itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest
in any property from the returns are divided. (Art. 1769[3], Civil Code)

However, when the income of the co-ownership is invested by the co-owners in business or other income producing properties, the co-ownership becomes
taxable as a corporation because the co-owners have constituted a partnership.

1
 AUTHORS’ PROFILE
Neil and Alina Sison (NAS: The Professional-in-Pajamas, a.k.a.
Accountant-in-Pajamas) are the founders of Sison Corillo Parone & Co.
(SCP & Co./www.scp-ph.com), now one of the top accounting firms in
the Philippines and SJC Group of Companies. It is composed of over 12
companies engaged in professional services, education, training and
certification, software and information technology, retail, construction
and real estate, sales and marketing.
Marketer (CDM), Certified Tax Return Preparer (CTRP) and a holder of
various IT Certifications. He has a total of 15 certifications.
Alina is a Certified Public Accountant (CPA), Certified Internal Auditor
(CIA), Registered Financial Advisor (RFA), Certified Real Estate Broker
(CRB), and a holder of various IT Certifications.
They are graduates from the province – UP Tacloban. Their mission:
Extraordinary Professionals. Heroic Professionals.

They are the authors of best-selling books: 1) Pass the CPA Board Exam,
10x the Probability, 2) Doctors can Avoid Unnecessary Taxes, 3) Doctors
Taxes Made Easy, 4) Dentist Taxes Made Easy, and 5) EntraProfessional
Accountants: 50 Stories. They have written 5 books to date and counting.

They consider themselves as Entrepreneurs by Intentional Accident.

They began their careers as ordinary employees for about 9 years. When
Neil is applying for a job, he is either overqualified or underqualified for
a position. He doesn’t want to work for a job he does not love to do. So,
he focused on establishing an accounting practice, just to “employ 6
people would be enough.” A work closest to his heart. Right now, they
manage more than 600 employees.

NAS have about 25 years each of expertise in the fields of organizational

leadership, operations, taxation, financial and business fraud audit,
business risk management, systems development and implementation, IT
audit, business process outsourcing, business set-up and registration,
human resource management and general business administration.

Neil has become a most-sought after and one of the in-demand

inspirational speakers who talks from an intelligent heart: An Intelligent
Heart Speaker. He was trained in Dale Carnegie School of
Communications and Guthrie-Jensen programs. As a seasoned speaker,
he has been travelling all over the country providing trainings on
extraordinary attitude, work values, leadership and supervisory,
counseling and mentoring, communication, sales negotiation and
customer service.

He is Certified Public Accountant (CPA), Certified Fraud Examiner (CFE),

Certified Internal Auditor (CIA), Certified Information Systems Auditor
(CISA), Registered Financial Advisor (RFA), Certified Real Estate
Appraiser (CREA), Certified Real Estate Broker (CRB), Certified Digital

2 3
 DISCLAIMER
This e-book is intended to aid the tax payers or their bookkeepers for an
easy understanding and simplified reference of the TRAIN Law. Certain
examples, opinions and interpretations cited here are only based on our
own interpretation and available Implementing Rules and Regulations as
of the release of this e-book. This, however, may not be used in lieu of an
expert opinion. For more clarification, you may still need to consult an
expert accountant or lawyer to address your specific concern.
4 5
INTRODUCTION
This ebook TRAIN Law Simplified is made specifically for
PhilTax Window members or subscribers, for simpler and better
understanding of the new tax law.
Someone asked, “I am an engineering consultant and I have
learned from my accountant that with the new tax law I could
have big savings in my tax returns. Is it true?”
Yes, it’s true. As a self-employed individual, you have an option
to choose between the graduated tax rate and 8% flat tax rate
provided, that, your sales or receipts are within the VAT
threshold. You have a choice which option will benefit you.
There were also statements like, “I am just a simple employee and
I think I won’t really feel the effect since most of the beverages I
am buying will increase its price anyway”.
Well, it’s also true that excise tax on sweetened beverages
increased but if you look at it on the other side, it may actually
lead you to look for other healthier alternatives.
It only boils down to one conclusion that each of us have different
opinion and understanding on our tax law. Most of us think it is a burden
on one’s pocket. But it only depends on how we look at it. And we saw it
as an opportunity to encourage every tax payer to be knowledgeable
enough, know your options and pay the right taxes.
But, why are we doing this?
Our government needs our help to realize their planned projects,
like, infrastructures and other “Build, Build, Build” projects which will not
only benefit them but all of us as a citizen of our country. We know for a
fact that our government greatly depends on the taxes that we are paying.
But, what if taxes collected are not enough? Where will the government
get its funds?
If we really want change, it should have to start from us. We heard
that, with this TRAIN law, the government expects to generate around 80
to 90 billion pesos per year. However, what we believe is that, if each of
us will pay the right taxes, the government will make more than enough.
 We want to help government collect and the citizens or taxpayer OVERVIEW
pay the right taxes. With that in mind, we made an effort to summarize
The Tax Reform for Acceleration and Inclusion (TRAIN) is the first
the TRAIN for you for easy reference and understanding.
package of the comprehensive tax reform proposed by President Rodrigo
Duterte’s administration.

The TRAIN law program aims to create a more just, simple and
effective system of tax collection, as per the constitution, where the rich
will have a bigger contribution and the poor will benefit more from the
government’s programs and services.

TRAIN law seeks to raise P130 billion in revenue in order to

facilitate the funding of the government’s Build, Build, Build
infrastructure program and socio-economic programs.

The vision of TRAIN law is to achieve the following:

1. Poverty rate reduced from 26% to 17% (or some 10 million Filipinos
uplifted from poverty).
2. Law-abiding country.
3. Peace within the country and with our neighbors.
4. Achieve high middle-income status, where per capital gross national
income (GNI) increased from USD 3,000 to USD 4,200 by 2022 in
today’s money.
5. Eradicate extreme poverty.
6. Inclusive economic and political institutions where everyone has
equal opportunities.
7. Achieve high income status where per capital GNI increases from
USD 3,000 to USD 12,000 by 2040 in today’s money.

TRAIN has finally been signed into law by President Duterte on

December 19, 2017 as Republic Act No. 10963. It addresses several
weaknesses of the current tax system such as lowering and simplifying
personal income taxes, simplifying estate and donor’s taxes, expanding
the value-added tax (VAT) base, adjusting oil and automobile excise tax,
and introducing excise tax on sugar-sweetened beverages.

TRAIN has lowered the income tax rates in the personal income tax
schedule of individual taxpayers and introduced a new tax rate equivalent
to 8% allowing individual taxpayers to have significant tax savings and
higher take-home pays. It also made the taxation for estate and donor’s
taxes simpler and lower through the implementation of a 6% flat tax rate
on net estate and net donations. Certain allowable deductions from gross

6 7
estate has also been increased. A considerable increase in VAT threshold We’ve made this e-book color-coded for your easy reference. Please see
is also one of the substantial amendments in TRAIN. From the P1,919,500 below Color Coding guidance:
to P3,000,00 VAT threshold, a substantial number of taxpayers has now
availed VAT exemption. Amendments increasing excise taxes particularly
on petroleum, mineral products and automobiles were made and a tax on Red – Common for all
sugar-sweetened beverages has been implemented.
Blue – Employed

Violet – Self-employed/ Professional

Pink – Both Employed and Self-employed/ Professional

Orange – Corporation

Yellow – Common for all except for employed

Green – Others

Be it noted that some of the amendments included in the law has

corresponding VETO provision by the President. We have included notes
for your reference.

8 9
 TABLE OF CONTENTS I. POWERS AND DUTIES OF INTERNAL REVENUE
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Page A. Power to obtain information, and to summon, examine, and take testimony of
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 persons
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Sec. 5 (b) The power of the commissioner Additional Provision:
I. Power and Duties of Internal Revenue . . . . . . . . . . . . . . . . . 11
to obtain information from any person Cooperative Development Authority
II. Tax on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
other than the person whose internal shall submit to the Bureau a tax
III. Tax on Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
revenue tax liability is subject to audit or incentive report, which shall include
IV. Computation of Taxable Income . . . . . . . . . . . . . . . . . . . . . . 16
investigation or from any office or officer information on the income tax, value-
V. Computation of Gross Income . . . . . . . . . . . . . . . . . . . . . . . . 17
of the national and local governments, added tax, and other tax incentives
VI. Allowable Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
government agencies and availed of by cooperatives registered
VII. Returns and Payment of Tax . . . . . . . . . . . . . . . . . . . . . . . . . 19 and enjoying incentives under
instrumentalities.
VIII. Estate and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Republic Act No. 6938. The
IX. Quarterly Corporate Income Tax Annual Declaration and information submitted by the
Quarterly Payment of Income Taxes . . . . . . . . . . . . . . . . . . . 22 Cooperative Development Authority
X. Estate and Donor’s Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 to the Bureau shall be submitted to
XI. Value-Added Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 the Department of Finance and shall
XII. Other Percentage Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 be included in the database created
XIII. Excise Tax on Certain Goods . . . . . . . . . . . . . . . . . . . . . . . . . 33 under Republic Act No. 10708
XIV. Provision Regulating Business of Persons Dealing in otherwise known as Tax Incentives
Articles subject to Excise Tax . . . . . . . . . . . . . . . . . . . . . . . . . 39 Management and Transparency Act
XV. Documentary Stamp Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (TIMTA).
XVI. Compliance Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
B. Examination of Returns and Determination of Tax Due
XVII. Administrative Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Sec. 6 (A) After a return has been filed, the The Commissioner or his duly
XVIII. Statutory Offenses and Penalties . . . . . . . . . . . . . . . . . . . . . 48
Commissioner or his duly authorized authorized representative shall have
XIX. Crime, Other Offenses and Forfeitures . . . . . . . . . . . . . . . . . 49
representative may authorize the the authority notwithstanding any
XX. Penalties imposed on Public Officers . . . . . . . . . . . . . . . . . . 53
examination of any taxpayer and the law requiring the prior authorization
XXI. Special Disposition of Certain National Internal Revenue
assessment of the correct amount of tax. of any government agency or
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
instrumentality.
C. Authority of the Commissioner to Prescribe Real Property Values
Sec. 6 (E) The Commissioner is hereby The Commissioner shall, upon
authorized to determine the fair market mandatory consultation with
value of real properties. competent appraisers both from the
private and public sectors, and with
prior notice to affected taxpayers,
determine the fair market value of
real properties, subject to automatic
adjustment once every three (3) years
through rules and regulations issued
by the Secretary of Finance. No
adjustment in zonal valuation shall
be valid unless published in a
newspaper of general circulation or

10 11
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
posted in conspicuous public places. Basic Salary (P20,000 x 12 P240,000 Basic Salary (P20,000 x 12 P240,000
The basis of any valuation, shall be mos.) mos.)
public records open to the inquiry of Less: Contribution to SSS, 11,175.6 Less: Contribution to 11,175.6
any taxpayer. PHIC, HDMF SSS, PHIC,
Personal Exemption 50,000 HDMF
Additional exemption 75,000 Taxable Income P228,824.4
II. TAX ON INCOME (P25,000 x 3)
Taxable Income P103,824.4 Tax Due: Ana did not exceed
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Bracket over 70,000 to 140,000 8,500 P250,000, she is not liable to pay any
A. Rates of Income Tax on Individual
20% of the excess over 70,000 6,764.88 tax at the end of the taxable year
Sec. 24 (A) (2) Rates of Tax on Taxable A. For Compensation income earners Tax Due P15,264.88
Income of Individuals - Compensation Effective January 1, 2018
income earners and self-employed Effective January 1, 2023
and/or professionals. Amount of Net Taxable Income
Over But Not Rate
Amount of Net Taxable Income Amount of Net Taxable Income
Over
Over But Not Rate Over But Not Rate
250,000 0%
Over Over
250,000 400,000 15% of the
10,000 5% 250,000 0%
excess over
10,000 30,000 500 + 10% of the 250,000 400,000 20% of the
250,000
excess over 10,000 excess over
400,000 800,000 22,500 + 20% of
250,000
the excess over
30,000 70,000 2,500 + 15% of the 400,000 800,000 30,000 + 25% of
400,000
excess over 30,000 the excess over
800,000 2,000,000 102,500 + 25% of
400,000
the excess over
70,000 140,000 8,500 + 20% of the 800,000 2,000,000 130,000 + 30% of
800,000
excess over 70,000 the excess over
2,000,000 8,000,000 402,500 + 30% of
800,000
the excess over
140,000 250,000 22,500 + 25% of the 2,000,000 8,000,000 490,000 + 32% of
2,000,000
excess over 140,000 the excess over
8,000,000 2,202,500 + 35%
2,000,000
of the excess
250,000 500,000 50,000 + 30% of the 8,000,000 2,410,000 + 35%
over 8,000,000
excess over 250,000 of the excess
over 8,000,000 B. For purely self-employed and
500,000 125,000 + 32% of the professionals
excess over 500,000 Earnings Rate
Below 250,000 0%
Example: Ana is an accounting staff Example: Ana is an accounting staff 3,000,000 and Can choose between:
earning P20,000 monthly salary with 3 earning P20,000 monthly salary with below 1. an 8% flat tax rate on
qualified dependents. 3 qualified dependents. gross sales/receipt;
2. Based on the
graduated income tax
rate schedule
Over 3,000,000 Subject to graduated
income tax rate
schedule

12 13
National Internal Revenue Code of 1997
B. Rate of tax on certain passive income
Sec. 24 (B) (1) Philippine Charity
Sweepstakes Office (PCSO) and lotto
winnings are exempt from the final tax of
20%.
A 7.5% final tax on interest income
received by an individual taxpayer from
a depository bank under the expanded
foreign currency deposit system.
C. Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange
Sec. 24 (C) A final tax at the rates A final tax at the rate of 15% is
prescribed below is hereby imposed on imposed on the sale of shares of
the sale of shares of stock in a domestic stocks in a domestic corporation,
corporation, except shares sold, or except shares sold or disposed of
disposed of through the stock exchange.
5% - Not over P100,000
10% - Any amount in excess of P100,000
R.A. No. 10963 or TRAIN Law
Example:
Gross Sales/ Receipts P700,000
In excess of 250,000 450,000
Flat Tax Rate x 8%
Tax Due P36,000
C. For Mixed Income Earners
1. All income from compensation
will be subject to taxes imposed
based on the graduated income
tax rates.
2. All income from business or
practice of profession will be
taxed based on the graduated
income tax rate. For gross
sales/receipts which do not
exceed the P3,000,000 VAT
threshold, the taxpayer has an
option to be taxed at an 8% flat
tax rate.
PCSO and lotto winnings exceeding
P10,000 would be subject to the 20%
final tax.
An increase to 15% on final tax
imposed on Interest income received
by an individual taxpayer from a
depository bank under the expanded
foreign currency deposit system.
through the stock exchange.
14
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
D. Alien individuals and qualified Filipinos employed by specific employers
Sec. 25 (C), (D) and (E) A rate of 15% final Beginning January 1, 2018, the 15%
withholding tax on the gross Preferential Tax treatment shall not
compensation income of alien individuals apply for all employees of RHQs,
and qualified Filipinos employed by the ROHQs, OBUs and PSCS registered
following employers: with the Securities and Exchange
• Alien Individual Employed by Commission.
Regional or Area Headquarters
(RHQs) and Regional Operating Note: This Item has been VETOED by
Headquarters (ROHQs) of President Rodrigo R. Duterte.
Multinational Companies
• Alien Individual Employed by
Offshore Banking Units (OBUs)
• Alien Individual Employed by
Petroleum Service Contractor and
Subcontractor (PSCS)
III. TAX ON CORPORATIONS
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Government-owned or -Controlled Corporations, Agencies or
Instrumentalities
Sec. 27 (C) The provisions of existing Corporate income tax exemption of
special or general laws to the contrary Philippine Charity Sweepstakes
notwithstanding, all corporations, Office (PCSO) is removed.
agencies, or instrumentalities owned or
controlled by the Government, except the
Government Service and Insurance
System (GSIS), the Social Security System
(SSS), the Philippine Health Insurance
Corporation (PHIC), the local water
districts (LWD) and the Philippine
Charity Sweepstakes Office (PCSO), shall
pay such rate of tax upon their taxable
income as are imposed by this Section
upon corporations or associations
engaged in a similar business, industry,
or activity.
15
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law V. COMPUTATION OF GROSS INCOME
B. Passive Income on Interest from Deposits and Yield or any other Monetary National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Benefit from Deposit Substitutes and from Trust Funds and Similar A. 13th Month Pay and Other Benefits
Arrangements, and Royalties Sec. 32 (B)(7)(e) 13th month pay and other 13th month pay, and other benefits
Sec. 27 (D) (1) The interest income derived The interest income derived by a benefits amounting to P82,000 is exempt from the computation of
by a domestic corporation from a domestic corporation from a exempted from the computation of gross gross income is increased to P90,000.
depository bank under the expanded depository bank under the expanded income.
foreign currency deposit system shall be foreign currency deposit system shall The provision of power of the
subject to a final income tax at the rate of be subject to a final income tax at the The President shall adjust the amount of President to adjust the amount of
seven and one-half percent (7.5%) of such rate of fifteen percent (15%) of such income tax exemption to its present value benefit is removed.
interest income. interest income. using the Consumer Price Index (CPI) for
other benefits such as productivity
incentives and Christmas bonus every
three years.
C. Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange
Sec. 27 (D) (2) A final tax at the rates A final tax at the rate of 15% is Example: Ana is an accounting staff Example: Ana is an accounting staff
prescribed below is hereby imposed on imposed on the sale of shares of earning P20,000 monthly salary. She earning P20,000 monthly salary. She
the sale of shares of stock in a domestic stocks in a domestic corporation, received incentive bonus and 13th month received incentive bonus and 13th
corporation, except shares sold, or except shares sold through the stock pay amounting to P80,000 and P20,000, month pay amounting to P80,000 and
disposed of through the stock exchange. exchange. respectively. P20,000, respectively.

5% - Not over P100,000 Non- Taxable Non- Taxable

taxable taxable
10% - On any amount in excess of
13th month pay 20,000 13th month pay 20,000
P100,000
Incentive Bonus 80,000 Incentive Bonus 80,000
Exempt (82,000) 18,000 Exempt (90,000) 10,000

B. Special Treatment of Fringe Benefit

IV. COMPUTATION OF TAXABLE INCOME
National Internal Revenue Code of 1997
A. Definition of Taxable Income
Sec. 31 The term ‘taxable income’ means The
the pertinent items of gross income, less exemptions were removed.
the deductions and/or personal and
additional exemptions, if any, authorized
for such types of income by this Code or
other special laws.
Sec. 33 (A) A final tax of thirty-two
R.A. No. 10963 or TRAIN Law percent (32%) is hereby imposed on the
grossed-up monetary value of fringe
personal and additional benefit furnished or granted to the
employee (except rank and file employees
as defined herein) by the employer. The
grossed-up monetary value of the fringe
benefit shall be determined by dividing
the actual monetary value of the fringe
benefit by sixty eight percent (68%).
A final tax of thirty-five percent
(35%) is hereby imposed on the
grossed-up monetary value of fringe
benefit furnished or granted to the
employee (except rank and file
employees as defined herein) by the
employer. The grossed-up monetary
value of the fringe benefit shall be
determined by dividing the actual
monetary value of the fringe benefit
by sixty five percent (65%).

16 17
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law VII. RETURNS AND PAYMENT OF TAX
Example: XYZ Co. purchased a Example: XYZ Co. purchased a National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
residential unit and transferred the residential unit and transferred the A. Individual Return
ownership of such property to Ana, a ownership of such property to Ana, a Sec. 51 (A)(2)(a) An individual whose An individual whose taxable income
manager, as fringe benefit. The fair manager, as fringe benefit. The fair gross income does not exceed his total does not exceed ₱250,000 shall not be
market value is P4,000,000. Compute for market value is P4,000,000. Compute personal and additional exemptions for required to file an income tax return.
the fringe benefit tax. for the fringe benefit tax. dependents shall not be required to file
an income tax return. Provided, that a Additional Provisions:
citizen of the Philippines and any alien The income tax return (ITR) shall
Grossed-up monetary value P5,882,353 Grossed-up monetary P6,153,846 individual engaged in business or consist of a maximum of four (4)
(4,000,000/ 68%) value (4,000,000/ 65%)
practice of profession within the pages in paper form or electronic
Fringe Benefit rate x 32% Fringe Benefit rate x 35%
Philippine shall file an income tax return, form, and shall only contain the
Fringe Benefit Tax P1,882,353 Fringe Benefit Tax P2,153,846
regardless of the amount of gross income. following information:
1. Personal profile and information;
2. Total gross sales, receipts or
income from compensation for
VI. ALLOWABLE DEDUCTION services rendered, conduct of trade or
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law business or the exercise of a
A. Deductions from Gross Income - Optional Standard Deduction profession, except income subject to
Sec. 34 (L) In lieu of the deductions Additional Provision: final tax
allowed, an individual subject to tax, other A general professional partnership 3. Allowable deductions
than a nonresident alien, may elect a and the partners comprising such 4. Taxable income
standard deduction in an amount not partnership may avail of the 5. Income tax due and payable
exceeding forty percent (40%) of his gross optional standard deduction only
sales or gross receipts, as the case may be. once, either by the general No Existing Provision Sec. 51-A Individual taxpayers
professional partnership or the receiving purely compensation
partners comprising the income, from only one employer in
partnership. the Philippines for the calendar year,
the income tax of which has been
B. Allowance of Personal Exemption for Individual Taxpayer withheld correctly by the said
Sec. 35 Personal Exemption amounting to Repealed employer shall not be required to file
Fifty thousand pesos (P50,000); and an annual income tax return. The
Additional Exemption amounting to certificate of withholding filed by the
Twenty-five thousand pesos (P25,000) for respective employers, duly stamped
each dependent not exceeding four (4). ‘received’ by the BIR, shall be
tantamount to the substituted filing
of income tax returns by said
employees.

18 19
National Internal Revenue Code of 1997
B. Corporation Returns
Sec. 52 (A) The return shall be filed by the
president, vice-president or other
principal officer, and shall be sworn to by
such officer and by the treasurer or
assistant treasurer.
C. Payment and Assessment of Income Tax for Individuals and Corporation
Sec. 56 (A)(2) Installment payment - The second installment shall be paid
When the tax due is in excess of Two on or before October 15 following the
thousand pesos (P2,000), the taxpayer close of the calendar year.
other than a corporation may elect to pay
the tax in two (2) equal installments in
which case, the first installment shall be
paid at the time the return is filed and the
second installment, on or before July 15
following the close of the calendar year.
R.A. No. 10963 or TRAIN Law
Additional Provision:
The income tax return shall consist of
a maximum of four (4) pages in paper
form or electronic form, be filed by
the president, vice president or other
principal officer, shall be sworn to by
such officer and by the treasurer or
assistant treasurer, and shall only
contain the following information:
1. Corporate profile and
information;
2. Gross sales, receipts or income
from services rendered, or
conduct of trade or business,
except income subject to final tax
as provided under this Code;
3. Allowable deductions under this
Code;
4. Taxable income as defined in
Section 31 of this Code; and
5. Income tax due and payable.
20
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
D. Withholding of Creditable Tax at Source
Sec. 57 (B) The Secretary of Finance may, Additional Provision:
require the withholding of a tax on the Beginning January 1, 2019, the rate of
items of income payable to natural or withholding shall not be less than one
juridical persons, residing in the percent (1%) but not more than
Philippines, by payor- fifteen percent (15%) of the income
corporation/persons, at the rate of not payment.
less than one percent (1%) but not more
than thirty-two percent (32%) thereof,
which shall be credited against the
income tax liability of the taxpayer for the
taxable year.
E. Returns and Payment of Taxes Withheld at Source
Sec. 58 The return for final withholding The return for final and creditable
tax shall be filed and the payment made withholding taxes shall be filed and
within twenty-five (25) days from the the payment made not later than the
close of each calendar quarter, while the last day of the month following the
return for creditable withholding taxes close of the quarter during which
shall be filed and the payment made not withholding was made.
later than the last day of the month
following the close of the quarter during
which withholding was made. Provided, The provision allowing the
that the Commissioner, with the approval Commissioner of Internal Revenue to
of the Secretary of Finance, may require pay or deposit the taxes deducted or
these withholding agents to pay or withheld tax at more frequent
deposit the taxes deducted or withheld at intervals is removed.
more frequent intervals when necessary
to protect the interest of the government.
VIII. ESTATE AND TRUST
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Exemption Allowed to Estates and Trusts
Section 62. For the purpose of the tax Repealed
provided for in this Title, there shall be
allowed an exemption of Twenty thousand
pesos (PhP20,000) from the income of the
estate or trust.
21
IX. QUARTERLY CORPORATE INCOME TAX ANNUAL DECLARATION National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN
AND QUARTERLY PAYMENTS OF INCOME TAXES Law
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Declaration of Income Tax for Individuals Example: Example:
Net Estate P2,500,000
Sec. 74 (A) Every individual subject to Filing a declaration of estimated Net Estate P2,500,000
Tax at P2,000,000 135,000
income tax, who is receiving self- income is changed from April 15 to Estate tax rate x 6%
11% of the excess over 2,000,000 55,000
employment income, whether it May 15. Tax Due P150,000
Tax Due P190,000
constitutes the sole source of his income or
in combination with salaries, wages and
other fixed or determinable income, shall B. Computation of Net Estate
make and file a declaration of his Sec. 86 (A) Deductions Allowed to the Estate of Removed:
estimated income for the current taxable Citizen or a Resident • Funeral expenses
year on or before April 15 of the same 1. Expenses, losses, indebtedness, and taxes • Judicial expenses
taxable year. - Funeral expenses not exceeding P200,000 • Medical expenses
- Judicial expenses
B. Return and Payment of Estimated Income Tax by Individuals
2. The Family home not exceeding P1,000,000 Increased:
Sec. 74 (B) The amount of estimated Payment of fourth installment shall
3. Standard deduction of P1,000,000 • Allowance for deduction
income shall be paid in 4 installments. On be paid on or before 15 May of the
4. Medical expenses not exceeding P500,000 of family home to
which the fourth installment shall be paid following calendar year.
P10,000,000.
on or before April 15 of the following
• Standard deduction to
calendar year.
P5,000,000.
C. Income Tax Collected at Source Sec. 86 (B) Deductions Allowed to Nonresident Removed:
Sec. 79 (D) and (F) Personal Exemptions These provisions are removed. Estates – A nonresident not a citizen of the • Expenses, losses,
and Husband and Wife, respectively. Philippines is allowed the following deductions, indebtedness, and taxes.
among others:
1. Expenses, losses, indebtedness, and taxes Additional Provision:
- Funeral expenses not exceeding P200,000 • A standard deduction of
- Judicial expenses P500,000.
X. ESTATE AND DONOR'S TAXES
2. Property previously taxed • A proportion of the
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN
3. Transfers for public use claims against the estate,
Law
claims against insolvent
A. Rates of Estate Tax
persons, and unpaid
Sec. 84 Estate Tax table: Estate tax rate is fixed at 6%. mortgages may be claimed
Over But not Tax Plus Of the
Over shall be excess
as a deduction from the
over estate.
P200,000 Exempt Sec. 86 (D) Miscellaneous Provisions. - No This provision is removed.
200,000 500,000 0 5% 200,000 deduction shall be allowed in the case of a
500,000 2,000,000 15,000 8% 500,000 nonresident not a citizen of the Philippines, unless
2,000,000 5,000,000 135,000 11% 2,000,000 the executor, administrator, or anyone of the heirs,
5,000,000 10,000,000 465,000 15% 5,000,000 as the case may be, includes in the return required
10,000,000 1,215,000 20% 10,000,000
to be filed under Section 90 the value at the time of
his death of that part of the gross estate of the
nonresident not situated in the Philippines.

22 23
 National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN
Law Law
C. Notice of Death to be Filed F. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights
Sec. 89 In all cases of transfers subject to tax, or Repealed Sec. 97 Banks which has a knowledge of the death Allow any withdrawals
where, though exempt from tax, the gross value of of the person, shall not allow any withdrawal from from the said deposit
the estate exceeds Twenty thousand pesos the said deposit account without the account which is subject to a
(PhP20,000), the executor, administrator or any of Commissioner certifying that taxes imposed final withholding tax of six
the legal heirs, as the case may be, within two (2) thereon have already been paid. (6%).
months after the decedent's death, or within a like
period after qualifying as such executor or The administrator of the estate or any one of the
administrator, shall give a written notice thereof to heirs may, when authorized by the Commissioner,
the Commissioner. withdraw an amount not exceeding P20,000 even
D. Estate Tax Returns without the certification from the Commissioner
Sec. 90 In all cases of transfers subject to the tax The exemption of P200,000 that the estate taxes have been paid.
imposed herein, those have gross value of the on the amount of gross estate G. Rates of Tax Payable by Donor
estate exceeds Two hundred thousand pesos is removed. Sec. 99 (A) Donor’s Tax Rate The tax for each calendar
(P200,000), or regardless of the gross value of the Over But Not Tax Plus Of the year shall be six percent (6%)
estate, where the said estate consists of registered Over shall be Excess computed on the basis of the
or registrable property shall file a return. Over total gifts in excess of Two
P100,000 Exempt hundred fifty thousand
Sec. 90 (3) Estate tax returns showing a gross value Certification by CPA shall P100,000 200,000 0 2% P100,000 pesos (₱250,000) exempt gift
exceeding Two million pesos (P2,000,000) shall be now be required for those 200,000 500,000 2,000 4% 200,000 made during the calendar
supported with a statement duly certified to by a estate tax return exceeding 500,000 1,000,000 14,000 6% 500,000 year whether the donee is a
Certified Public Accountant. Five million pesos 1,000,000 3,000,000 44,000 8% 1,000,000 stranger or not.
(P5,000,000). 3,000,000 5,000,000 204,000 10% 3,000,000
5,000,000 10,000,000 404,000 12% 5,000,000
Sec. 90 (B) The estate tax return shall be filed The estate tax return shall be 10,000,000 1,004,000 15% 10,000,000
within six (6) months from the decedent's death. filed within one (1) year
from the decedent’s death. Sec. 99 (B) Tax Payable by Donor if Donee is a
E. Payment of Tax Stranger - When the donee or beneficiary is
Sec. 91 Payment of estate tax Additional Provision: stranger, the tax payable by the donor shall be
Sec. 91 (C) Payment by thirty percent (30%) of the net gifts.
Installment. — In case the Example: Example:
available cash of the estate is Donated to relative: Net of Donation P700,000
Net of Donation P700,000 In excess of: 250,000
insufficient to pay the total
Tax at P500,000 14,000 Taxable Donation 450,000
estate tax due, payment by
6% in excess of 500,000 12,000 Rate x 6%
installment shall be allowed Tax Due P26,000 Tax Due P27,000
within two (2) years from the
statutory date for its Donated to stranger:
payment without civil Net of Donation P700,000
penalty and interest. Donor’s tax rate 30%
Tax due P210,000

24 25
 National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN
Law
H. Transfer for Less Than Adequate and full Consideration
Sec. 100 The amount by which the fair market Additional Provision:
value of the property exceeded the value of the The sale, exchange, or other
consideration shall be deemed a gift and shall be transfer of property made in
included in computing the amount of gifts made the ordinary course of
during the calendar year. business (a transaction
which is a bona fide, at arm’s
length, and free from any
donative intent), will be
considered as made for an
adequate and full
consideration in money or
money’s worth.
I. Exemption of Certain Gifts
Sec. 101 Dowries or gifts made on account of Repealed
marriage, the first P10,000 are exempt from
donor’s tax.
XI. VALUE- ADDED TAX
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Zero-Rated Sale
Sec. 106 (A)(2) VAT zero-rating on sale of For Item 1 - Sale of gold to BSP is
goods classified as: reclassified from export sales to
a) The term export sales means: exempt transactions.
1. Sale of gold to the Bangko Sentral For Item 2 - The goods, supplies,
ng Pilipinas (BSP); equipment and fuel shall be used for
2. Sale of goods, supplies, international shipping or air
equipment and fuel to persons transport operations.
engaged in international shipping For Item 3, 4, 5 - shall be subject to
or international air transport 12% VAT upon the successful
operations. establishment and implementation
3. Sale of raw materials or packaging of an enhanced VAT refund system
materials to a nonresident buyer that grants refunds of creditable
26
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
for delivery to a resident local input tax within 90 days from filing
export-oriented enterprise to be of the VAT refund application with
used in manufacturing, the BIR and all pending VAT refund
processing, packing or repacking claims as of 31 December 2017 shall
in the Philippines of the said be fully paid in cash by 31 December
buyer’s goods and paid for in 2019.
acceptable foreign currency and Removed:
accounted for in accordance with • Foreign currency denominated
the rules and regulations of the sales
(BSP)
4. Sale of raw materials or packaging Note: This Item has been VETOED
materials to export-oriented by President Rodrigo R. Duterte.
enterprise whose export sales
exceed seventy percent (70%) of Note: The following are supposed to
total annual production be included in the zero-rated sale
5. Those considered export sales but was vetoed by the President:
under Executive Order No. 226, Sale and delivery of goods to:
otherwise known as the Omnibus (i) Registered enterprise within a
Investment Code of 1987, and separate customs territory as
other special laws; provide under laws; and
(ii) Registered enterprise within
Foreign currency denominated sales tourism enterprise zones as
declared by the Tourism
Infrastructure and Enterprise
Zone Authority (TIEZA) subject
to the provisions under Republic
Act No. 9593 or The Tourism Act
of 2009.
B. Value-Added Tax on Importation of Goods
Sec. 107 (A) There shall be levied, assessed The VAT on the Importation of
and collected on every importation of Goods increased at Twelve percent
goods a value-added tax equivalent to 10% (12%).
based on the total value used by the
Bureau of Custom in determining tariff
and customs duties, plus customs duties,
excise taxes.
27
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
C. Rate and Base of Tax
Sec. 108 (A) Provision defines sale or Sale of electricity by generation
exchange of services. companies, transmission by any
entity, and distribution companies,
including electric cooperatives is
included in the definition of sale or
exchange of services.
D. Transactions Subject to Zero Percent (0%) Rate
Sec. 108 (B) Zero-rated sales of services For Item 1 - Those services shall be
include: exclusive for international shipping
1. Services rendered to persons engaged or air transport operations
in international shipping or For Items 2 and 3 - Subjected to 12%
international air transport operations, VAT upon successful establishment
including leases of property for use and implementation of an enhanced
thereof VAT refund system that grants
2. Processing, manufacturing or refunds of creditable input tax
repacking goods for other persons within 90 days from filing of the
doing business outside the VAT refund application with the
Philippines which goods are BIR and all pending VAT refund
subsequently exported, where the claims as of 31 December 2017 shall
services are paid for in acceptable be fully paid in cash by 31 December
foreign currency and accounted for in 2019.
accordance with the rules and
regulations of the BSP Note: This Item has been VETOED
3. Services performed by subcontractors by President Rodrigo R. Duterte.
and/or contractors in processing,
converting, or manufacturing goods Note: The following are supposed to
for an enterprise whose export sales be included in the zero-rated sale
exceed seventy percent (70%) of total but was vetoed by the President:
annual production Services rendered to:
(i) Registered enterprise within a
separate customs territory as
provide under laws; and
(ii) Registered enterprise within
tourism enterprise zones as
declared by the Tourism
Infrastructure and Enterprise Zone
Authority (TIEZA) subject to the
provisions under Republic Act No.
9593 or The Tourism Act of 2009.
28
National Internal Revenue Code of 1997
E. Exempt Transactions
Sec. 109 (1) Following transactions shall be
exempt from the value-added tax:
1. Importation of professional
instruments implements, wearing
apparel, etc. belonging to persons
coming to settle in the Philippines, for
their own use and not for sale,
accompanying such persons or
arriving within 90 days before or after
their arrival;
2. Sale of real properties not primarily
held for sale to customers or held for
lease in the ordinary course of trade
or business, or real property utilized
for low-cost and socialized housing,
residential lot valued at P1,500,000
and below, house and lot, and other
residential dwellings valued at
P2,500,000.
3. Lease of a residential unit with a
monthly rental not exceeding Ten
thousand pesos P10,000
4. Importation of fuel, goods, and
supplies by persons engaged in
international shipping of air transport
operations; and
5. Sale or lease of goods or properties or
the performance of services, the gross
annual sales and/or receipts do not
exceed the amount of One million five
hundred thousand pesos P1,500,000.
R.A. No. 10963 or TRAIN Law
For Item 1 - Importation of
professional instruments and
implements, tools of trade,
occupation or employment, wearing
apparel, etc. belonging to persons
coming to settle in the Philippines or
Filipinos or their families and
descendants who are now residents
or citizens of other countries,
referred as overseas Filipinos, for
their own use and not for sale,
accompanying such persons, or
arriving within a reasonable time.
For Item 2 - Beginning January 1,
2021, the VAT exemption shall only
apply to sale of real properties not
primarily held for sale to customers
or held for lease in the ordinary
course of trade or business, sale of
real property utilized for socialized
housing, sale of house and lot, and
other residential dwellings with
selling price of not more than Two
million pesos P2,000,000.
For Item 3 - Lease of a residential
unit with a monthly rental not
exceeding Fifteen thousand pesos
P15,000
For Item 4 - Exemption of the
importation of fuel, goods and
supplies shall only apply if such are
used for international shipping or
air transport operations.
For Item 5 - Sale or lease of goods or
properties or the performance of
services the, gross annual sales
and/or receipts do not exceed the
29
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
amount of Three million pesos
P3,000,000.
Additional Provision:
• Exemption for sale or lease of
goods and services to senior
citizens and persons with
disability.
• Exemption for transfer of
property made by the parties
involved during merger or
consolidation such as follows:
1. Property in exchange for
stock in a corporation
2. Stock of a corporation in
exchange of stock of another
corporation
3. Securities of a corporation
in exchange for stock or
securities of a corporation.
Reference: Section 40 (C)(2) of NIRC
• Exemption for association dues,
membership fees, and other
assessments and charges
collected by homeowners’
associations and condominium
corporation.
• Exemption for sale of gold to
BSP.
Exemption for sale of drugs and
medicines prescribed for diabetes,
high cholesterol, and hypertension
beginning January 1, 2019
30
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
F. The input tax on domestic purchase or importation of goods or properties by a
VAT-registered person
Sec. 110 (A) (2)(b) The input tax on goods Additional Provision:
purchased or imported in a calendar The amortization of the input VAT
month for use in trade or business for shall only be allowed until
which deduction for depreciation is December 31, 2021 after which
allowed, shall be spread evenly over the taxpayers with unutilized input
month of acquisition and the 59 VAT on capital goods purchased or
succeeding months if the aggregate imported shall be allowed to apply
acquisition cost for such goods, excluding the same as scheduled until fully
the VAT component thereof, exceeds utilized.
P1,000,000.
G. Refunds or Tax Credits of Input Tax
Section 112 (C) The Commissioner shall The Commissioner shall grant a
grant a refund or issue the tax credit refund for creditable input taxes
certificate for creditable input taxes within within ninety (90) days from the
one hundred twenty (120) days from the date of submission of the official
date of submission of complete documents receipts or invoices and other
in support of the application filed. documents in support of the
application filed. The Commissioner
In case of full or partial denial of the claim should find that the grant of refund
for tax refund or tax credit, or the failure is not proper, the Commissioner
on the part of the Commissioner to act on must state in writing the legal and
the application within the period factual basis for the denial.
prescribed above, the taxpayer affected
may, within thirty (30) days from the In case of full or partial denial of the
receipt of the decision denying the claim or claim for tax refund, the taxpayer
after the expiration of the one hundred affected may, within 30 days from
twenty day-period, appeal the decision or the receipt of the decision denying
the unacted claim with the Court of Tax the claim, appeal the decision with
Appeals. the Court of Tax Appeals. The
failure on the part of any official or
agent or employee of the BIR to act
on the application within the 90-day
period shall be punishable under
Sec. 269 of this Code.
31
 National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
H. Return and Payment of Value-Added Tax B. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through
Sec. 114 (A) Every person liable to pay the Additional Provision: the Local Stock Exchange or through Initial Public Offering
value-added tax imposed shall file a Beginning January 1, 2023, the filing Sec. 127 (A) There shall be levied, assessed The tax rate imposed increase at the
quarterly return of the amount of his gross and payment shall be done within and collected on every sale, barter, rate of six-tenths of one percent
sales or receipts within twenty-five (25) twenty-five (25) days following the exchange, or other disposition of shares of (6/10 of 1%).
days following the close of each taxable close of each taxable quarter. stock listed and traded through the local
quarter prescribed for each taxpayer. The stock exchange other than the sale by a
VAT-registered persons shall pay the dealer in securities, a tax at the rate of one-
value-added tax on a monthly basis. half of one percent (1/2 of 1%) of the gross
I. Withholding of Value-Added Tax selling price or gross value in money of the
Sec. 114 (C) Government shall, before Beginning January 1, 2021, the VAT shares of stock sold.
making payment on account of each withholding system shall shift from C. Returns and Payment of Percentage Taxes
purchase of goods and services which are final to a creditable system. The Sec. 128 The Commissioner may prescribe Repealed
subject to the value-added tax deduct and payment for lease or use of property the time for filing the return and time of
withhold a final value-added tax at the rate rights to non-resident owners shall payment, including a scheme of tax
of five percent (5%) of the gross payment. be subject to twelve percent (12%) prepayment of other percentage taxes.
Payment for lease or use of properties or withholding tax at the time of
property rights to nonresident owners payment. The payments for
shall be subject to ten percent (10%) purchases of goods and services XIII. EXCISE TAX ON CERTAIN GOODS
withholding tax at the time of payment. arising from projects funded by National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Official Development Assistance A. Goods subject to Excise Taxes
(ODA) shall not be subject to the Sec. 129 Excise taxes apply to goods Excise taxes also apply to the services
final withholding tax system. manufactured or produced in the performed in the Philippines.
Philippines for domestic sales or
consumption or for any other disposition
and to things imported.
XII. OTHER PERCENTAGE TAXES
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Tax on Persons Exempt from Value-Added Tax (VAT)
B. Cigars and Cigarettes
Sec. 116 Any person whose sales or This provision is retained.
Sec. 145 (B) Cigarettes Packed by Hand Imposes excise tax on cigarettes
receipts are exempt from the payment of
shall be based on the following schedule: packed by hand and packed by
VAT and who is not a VAT-registered Note: This Item has been VETOED
machines at the following schedule:
person shall pay a tax equivalent to three by President Rodrigo R. Duterte.
Effective Jan. 1, 2013 P12/pack Effective Jan. 1, 2018 P32.50/pack
percent (3%) of his gross quarterly sales or Jan. 1, 2014 15/pack Jul. 1, 2018 35/pack
receipts. Jan. 1, 2015 18/pack Jan. 1, 2020 37.50/pack
Jan. 1, 2016 21/pack Jan 1, 2022 40/pack
Jan. 1, 2017 30/pack

32 33
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Sec. 145 (C) Cigarettes Packed by Machine AVIATION
shall be based on the following schedule: GAS (per liter
Kerosene 0.00 per liter Kerosene (per 3.00 4.00 5.00
Effective P11.50 and More than liter)
below P12.00 Diesel fuel oil 0.00 per liter Diesel fuel oil 2.50 4.50 6.00
Jan. 1, 2013 12.00/pack 25.00/pack (per liter)
The rates of tax imposed shall be
Liquefied Petroleum Gas 0.00 per liter Liquefied 1.00 2.00 3.00
Jan. 1, 2014 17.00/pack 27.00/pack increased by 4% every year effective
Petroleum Gas
Jan. 1, 2015 21.00/pack 28.00/pack on January 1, 2024, through revenue (per kg)
Jan. 1, 2016 25.00/pack 29.00/pack regulations issued by the Secretary of Asphalt 0.56 per kg Asphalt (per 8.00 9.00 10.00
Jan. 1, 2017 30.00/pack 30.00/pack Finance. kg)
C. Manufactured Oils and Other Fuels Bunker fuel oil 0.00 per liter Bunker fuel oil 2.50 4.50 6.00
Sec. 148 Excise Tax Rate: (per liter)
Manufactured Oils and Excise tax rates Manufactured Jan. Jan. Jan. Petroleum coke 2.50 4.50 6.00
Other Fuels Oils and Other 1, 1, 1, (per metric ton)
Fuels 2018 2019 2020
Lubricating oils and greases P4.50 per Lubricating oils P8.00 9.00 10.00 For the period covering 2018 to 2020,
liter/kg (per liter) and the scheduled increase in the excise
greases (per kg) tax on fuel as imposed in this Section
Processed gas 0.05 per liter Processed gas P8.00 9.00 10.00
shall be suspended when the average
(per liter)
Dubai crude oil price based on Mean
Waxes and petrolatum 3.50 per kg Waxes and P8.00 9.00 10.00
petrolatum (per of Platts Singapore (MOPS)for three
kg) (3) months prior to the scheduled
Denatured alcohol 0.05 per liter Denatured P8.00 9.00 10.00 increase of the month reaches or
alcohol (per exceeds Eighty dollars (USD 80) per
liter) barrel.
Naphtha, regular gasoline 4.35 per liter Naphtha, 7.00 9.00 10.00
and other similar products regular The following items are exempt from
of distillation gasoline,
excise tax:
PYROLYSIS
GASOLINE
• Naphtha and pyrolysis gasoline,
and other when used as a raw material in
similar the production of petrochemical
products of products, or in the refining of
distillation and petroleum products, or as
(per liter) replacement fuel for natural-gas-
Unleaded premium 5.35 per liter UNLEADED 7.00 9.00 10.00 fired-combined cycle power
gasoline premium plant in lieu of locally-extracted
gasoline (per
natural gas during the non-
liter)
Aviation turbo jet fuel 3.67 per liter Aviation turbo 4.00 4.00 4.00
availability thereof.
jet fuel,) • Production of petroleum
products, whether they are

34 35
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
classified as products of E. Excise tax on automobiles
distillation and for use solely for Sec. 149 Excise Tax imposed on Excise Tax schedule on automobiles,
the production of gasoline. automobiles are as follows: amended:
• Liquefied petroleum gas when
used as raw material in the Net Manufacture’s Rate Amount Excise Tax Rate
production of petrochemical price/ Importer’s
products; selling price
• Petroleum coke, when used as Up to P600,000 2% Not over P600,000 4%
Over P600,000 to P12,000 + 20% of Over 600,000 to 10%
feedstock to any power
P1,100,000 value in excess of 1,000,000
generating facility.
P600,000
Over P1,100,000 to P112,000 + 40% of Over 1,000,000 to 20%
Excise taxes paid on the purchased P2,100,000 value in excess of 4,000,000
base stock (bunker) used in the P1,100,000
manufacture or excisable articles and Over P2,100,000 P512,000 + 60% of Over 4,000,000 50%
forming part thereof shall be value excess of
credited against the excise tax due P2,100,000
therefrom. Indexation of brackets by the Secretary of Hybrid vehicles shall be subject to
Finance every two years is pegged on a fifty percent (50%) of the applicable
Note: This Item has been VETOED percentage of the change in the exchange excise tax rates on automobiles. The
by President Rodrigo R. Duterte. rate of the Philippine peso against the purely electric vehicles and pick-
United States dollar. ups shall be exempt from excise tax
on automobiles.
D. Mandatory Marking of all Petroleum Products Jeeps are considered automobiles.
No Existing Provision Sec. 148-A - The Secretary of Finance Pick-ups are considered as trucks.
shall require the use of an official fuel
marking or similar technology on Indexation of brackets by the
petroleum products that are refined, Secretary of Finance is removed.
manufactured, or imported into the
Philippines, and that are subject to
the payment of taxes and duties, Example: Example:
such as but not limited to, unleaded Selling Price P1,500,000 Selling Price P1,500,000
Bracket over P1,100,000 to 112,000 Bracket over P1,100,000 to 20%
premium gasoline, kerosene, and
2,100,000 4,000,000
diesel fuel oil after the taxes and 40% in excess of 1,100,000 160,000 Tax Due P300,000
duties thereon have been paid. Tax Due P272,000

36 37
National Internal Revenue Code of 1997
F. Non-essential Services
No Existing Provision
G. Sweetened Beverages
No Existing Provision
R.A. No. 10963 or TRAIN Law
Sec. 150 (A) A tax equivalent to five
percent (5%) based on the gross
receipts derived from the
performance of services on invasive
cosmetic procedures, surgeries, and
body enhancements directed solely
towards improving, altering, or
enhancing the patient’s appearance
and do not meaningfully promote
the proper function of the body or
prevent or treat illness or disease.
This tax shall not apply to
procedures necessary to ameliorate a
deformity arising from a congenital
or developmental defect or
abnormality, a personal injury
resulting from an accident or trauma,
or disfiguring disease, tumor, virus
or infection; and cases or treatments
covered by the National Health
Insurance Program.
Sec. 150 (B) A tax of Six pesos (P6.00)
per liter of volume capacity shall be
imposed on sweetened beverages
using purely caloric sweeteners, and
purely non-caloric sweeteners, or a
mix of caloric and non-caloric
sweeteners.
This tax rate shall not apply to
sweetened beverages using high
fructose corn syrup; and sweetened
beverages using purely coconut sap
sugar and purely steviol glycosides.
38
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
H. Mineral Products
Sec. 151 Excise Tax on Mineral Products Increased excise taxes on domestic or
• P10/metric ton - On coal and coke imported coal and coke,
• 2% - Actual market value of the gross notwithstanding any incentives
output of all nonmetallic minerals and granted in any law or special law, to
quarry resources wit:
• Metallic minerals are subject to the
following taxes: • Effective Jan. 1, 2018, P50/metric
1 to 2% - copper and other metallic ton
minerals • Effective Jan. 1, 2019,
2% - gold and chromite P100/metric ton
• 3% - Indigenous petroleum • Effective Jan. 1, 2020,
P150/metric ton
Increased excise tax on nonmetallic
and metallic minerals to 4%.
Increased excise tax on indigenous
petroleum to 6%.
XIV. PROVISIONS REGULATING BUSINESS OF PERSONS DEALING IN
ARTICLES SUBJECT TO EXCISE TAX
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Manufacturers and/or Importers to Provide Themselves with Counting or
Metering Devices to Determine Volume of Production and Importation
Sec. 155 Manufacturers of cigarettes, Additional Provision:
alcoholic products, oil products and other • Department of Finance shall
articles subject to excise tax that can be maintain a registry of all
similarly measured shall provide petroleum manufacturers
themselves with such necessary number of and/or importers and the
suitable counting or metering devices to articles being manufactured
determine as accurately as possible the and/or imported.
volume, quantity or number of the articles • Department of Finance shall
produced. mandate the creation of a real-
time inventory of petroleum
articles being manufactured,
imported o found in storage
depots of such petroleum
39
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
manufacturers and/or • All field tests shall be properly
importers. filmed or video-taped and
• Importers of finished petroleum documented.
products shall also provide • A sample of the randomly tested
themselves with Bureau- fuel shall be immediately
accredited metering devices to obtained by the revenue or
determine as accurately as customs officer upon
possible the volume of discovering that the same is
petroleum products imported unmarked, adultered, or
by them. diluted.
B. Authority of Internal Revenue Officer in Searching for and Testing Taxable • Confirmatory fuel test
Articles certificates issued by fuel testing
Sec. 171 Authority of Internal Revenue Additional Provisions: facilities shall be valid for any
Officer in Searching Taxable Articles Subject to rules and regulations to be legal purpose from the date of
issued by the Secretary of Finance, issue and shall constitute
the Commissioner of Internal admissible and conclusive
Revenue or his authorized evidence before any court.
representatives may conduct
periodic random field tests and
confirmatory tests on fuel required XV. DOCUMENTARY STAMP TAX
to be marked found in warehouses, National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
storage tanks, gas stations and other A. Stamp Taxes
retail outlets, and in such other Secs. 174-175, 177-182, 186, 188-195 The Increased the rates for the following
properties of persons engaged in the following are the corresponding DSTs: transactions:
sale, delivery, trading,
transportation, distribution, or Sec. 174 Stamp Tax P1.00 on each 200 Sec. 174 Stamp P2.00 on each
importation of fuel intended for the on Original Issue of the par value or Tax on Original 200 of the par
domestic market. of Shares of Stock actual Issue of Shares value or actual
consideration for of Stock consideration
• Random field testing shall be
no-par shares for no-par
conducted in the presence of shares
revenue or customs officers, fuel Sec. 175 Stamp Tax 0.75 on each 200 of Sec. 175 Stamp 1.50 on each
marking provider, and the on Sales, the par value; or Tax on Sales, 200 of the par
authorized representative of the Agreements to Sell. 25% of the DST Agreements to value; or 50%
owner of the fuel to be tested. An Memoranda of paid upon original Sell. of the DST paid
employee assigned or working Sales, Deliveries or issuance of no-par Memoranda of upon original
at the place where the random Transfer of Shares shares Sales, issuance of no-
field tests conducted shall be or Certificates of Deliveries or par shares
Stock Transfer of
deemed an authorized
Shares or
representative of the owner.

40 41
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Certificates of Sec. 186 Stamp Tax 0.20 on each 200 of Sec. 186 Stamp 0.40 on each
Stock on Pre-Need Plans the premium or Tax on Pre- 200 of the
Sec. 177 Stamp Tax 0.50 on each 200 of Sec. 177 Stamp 1.00 on each contribution Need Plans premium or
on Certificates of the face value Tax on 200 of the face collected contribution
Profits or Interest Certificates of value collected
in Property or Profits or Sec. 188 Stamp Tax 15.00 per Sec. 188 Stamp 30.00 per
Accumulations Interest in on Certificates certificate Tax on certificate
Property or Certificates
Accumulations Sec. 189 Stamp Tax 15.00 per Sec. 189 Stamp 30.00 per
Sec. 178 Stamp Tax 1.50 on each Sec. 178 Stamp 3.00 on each on Warehouse warehouse receipt Tax on warehouse
on Bank Checks, instrument Tax on Bank instrument Receipts (valued at 200 or Warehouse receipt (valued
Drafts, Certificates Checks, Drafts, more) Receipts at 200 or more)
of Deposit Not Certificates of Sec. 190 Stamp Tax 0.10 on every 1.00 Sec. 190 Stamp 0.20 on every
Bearing Interest, Deposit Not on Jai-Alai, Horse cost of the ticket Tax on Jai-Alai, 1.00 cost of the
and Other Bearing Racing Tickets, Horse Racing ticket
Instruments Interest, and lotto or Other Tickets, lotto or
Other Authorized Other
Instruments Numbers Games Authorized
Sec. 179 Stamp Tax 1.00 on each 200 of Sec. 179 Stamp 1.50 on each Numbers
on All Debt the issue price Tax on All Debt 200 of the issue Games
Instruments Instruments price Sec. 191 Stamp Tax Exempt if Sec. 191 Stamp Exempt if
Sec. 180 Stamp Tax 0.30 on each 200 of Sec. 180 Stamp 0.60 on each on Bills of Lading bill/receipts not Tax on Bills of bill/receipts
on All Bills of the face value Tax on All Bills 200 of the face or Receipts exceeding 100; Lading or not exceeding
Exchange or Drafts of Exchange or value 1.00 for Receipts 100; 2.00 for
Drafts bill/receipts not bill/receipts
Sec. 181 Stamp Tax 0.30 on each 200 of Sec. 181 Stamp 0.60 on each exceeding 1,000; or not exceeding
Upon Acceptance the face value Tax Upon 200 of the face 10.00 for 1,000; or 20.00
of Bills of Acceptance of value bill/receipts for bill/
Exchange and Bills of exceeding 1,000 receipts
Others Exchange and exceeding
Others 1,000
Sec. 182 Stamp Tax 0.30 on each 200 of Sec. 182 Stamp 0.60 on each Sec. 192 Stamp Tax 15.00 on each Sec. 192 Stamp 30.00 on each
on Foreign Bills of the face value Tax on Foreign 200 of the face on Proxies proxy of voting Tax on Proxies proxy of voting
Exchange and Bills of value Sec. 193 Stamp Tax 5.00 on each Sec. 193 Stamp 10.00 on each
Letters of Credit Exchange and on Powers of power of attorney; Tax on Powers power of
Letters of Attorney except for acts of Attorney attorney;
Credit connected with except acts
Sec. 186 Stamp Tax 0.50 on each 200 of Sec. 186 Stamp 1.00 on each claims due connected with
on Policies of premium or Tax on Policies 200 of to/from the claims due
Annuities installment of Annuities premium or government to/from the
payment installment government
payment

42 43
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Sec. 194 Stamp tax 3.00 for the first Sec. 194 Stamp 6.00 for the first Exceeds 1,000 tons 1, 000 + an additional tax Exceeds 1,000 2,000 + an additional
on Leases and 2,000 + 1.00 for tax on Leases 2,000 + 2.00 for and does not of 100 for each month or tons and does tax of 200 for each
Other Hiring every 1,000 and Other every 1,000 exceed 10,000 tons fraction of a month in not exceed month or fraction of a
Agreements thereafter Hiring thereafter excess of 6 months 10,000 tons month in excess of 6
Agreements months
Sec. 195 Stamp Tax 20.00 for the first Sec. 195 Stamp 40.00 for the Exceeds 10,000 1, 500 + an additional tax Exceeds 10,000 3,000 + an additional
on Mortgages, 5,000 + 10.00 on Tax on first 5,000 + tons of 150 for each month or tons tax of 300 for each
Pledges and Deeds every 5,000 Mortgages, 20.00 on every fraction of a month in month or fraction of a
of Trust thereafter Pledges and 5,000 thereafter excess of 6 months month in excess of 6
Deeds of Trust months
B. Stamp Tax on Life Insurance Policies
Sec. 183 Policies of insurance or other Increased on DST Rate on life
XVI. COMPLIANCE REQUIREMENTS
instruments are subjected to the following insurance policies:
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
Documentary Stamp Tax rates:
Does not exceed P100,000 Exempt Does not exceed P100,000 Exempt A. Keeping of Books of Accounts
Exceeds 100,000 but does not 10.00 Exceeds 100,000 but does 20.00 Sec. 232 All corporations, companies, All corporations, companies,
exceed 300,000 not exceed 300,000 partnerships or persons required by law to partnerships or persons required by
Exceeds 300,000 but does not 25.00 Exceeds 300,000 but does 50.00 pay internal revenue taxes shall keep a law to pay internal revenue taxes
exceed 500,000 not exceed 500,000 journal and a ledger or their equivalents. shall keep and use relevant and
Exceeds 500,000 but does not 50.00 Exceeds 500,000 but does 100.00 appropriate set of bookkeeping
exceed 750,000 not exceed 750,000 Those whose quarterly sales, earnings, records.
Exceeds 750,000 but does not 75.00 Exceeds 750,000 but does 150.00
receipts, or output do not exceed Fifty
exceed 1,000,000 not exceed 1,000,000
Exceeds 1,000,000 100.00 Exceeds 1,000,000 200.00 thousand pesos (P50,000) shall keep and Books of accounts with gross annual
C. Stamp tax on Deeds of Sale and Conveyances of Real Property use simplified set of bookkeeping records. sales, earnings, receipts or output
Sec. 196 Documentary Stamp Tax is Documentary Stamp Tax collected Books of accounts with gross quarterly exceeding P3,000,000 must be
collected on deeds of sale and conveyances on deeds of sale, conveyances and sales, earnings, receipts or output audited and examined yearly by
of real property only. donations of real property. Transfers exceeding P150,000 must be audited and independent Certified Public
exempt from donor’s tax are examined yearly by independent Certified Accountants.
exempted from DST. Public Accountants.
D. Stamp Tax on Charter Parties and Similar Instruments
Sec. 197 Every charter party and similar Every charter party and similar XVII. ADMINISTRATIVE PROVISIONS
instrument shall be collected a DST at the instrument shall be collected a DST National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
following rates: at the following rates: A. Registration Requirements
Registered DST rate Registered DST rate
Sec. 236 (A) The registration shall contain Additional Provision:
tonnage tonnage
the taxpayer's name, style, place of The Commissioner shall simplify
Does not exceed P500 + an additional tax Does not P1,000 + an additional
1,000 tons of PHP50 for each month exceed 1,000 tax of PHP100 for each residence, business, and such other business registration and tax
or fraction of a month in tons month or fraction of a information as may be required by the compliance requirements of self-
excess of 6 months month in excess of 6 Commissioner. employed individuals and/or
months professionals.

44 45
 National Internal Revenue Code of 1997
Sec. 236 (G) Persons Required to Register
for Value-Added Tax.
(a) His gross sales or receipts for the past
twelve (12) months, other than those
that are exempt, have exceeded One
million five hundred thousand pesos
(P1,500,000); or
(b) There are reasonable grounds to
believe that his gross sales or receipts
for the next twelve (12) months, other
than those that are exempt, will exceed
One million five hundred thousand
pesos (P1,500,000).
Sec. 236 (H) Any person who elects to
register for VAT shall not be entitled to
cancel his registration for the next three (3)
years.
Sec. 237 (A) All person subject to an
internal revenue tax shall, for each sale and
transfer of merchandise or for services
rendered valued at Twenty-five pesos
P25.00 or more, issue duly registered
receipts or sale or commercial invoices,
prepared at least in duplicate, showing the
date of transaction, quantity, unit cost and
description of merchandise or nature of
service.
R.A. No. 10963 or TRAIN Law
Persons Required to Register for
Value-Added Tax.
(a) His gross sales or receipts for the
past twelve (12) months, other
than those that are exempt, have
exceeded Three million pesos
(P3,000,000); or
(b) There are reasonable grounds to
believe that his gross sales or
receipts for the next twelve (12)
months, other than those that are
exempt, will exceed Three
million pesos (P3,000,000).
Additional Provision:
Any person taxed under Sec. 24
(A)(2)(B) and Sec. (A)(2)(c)(2)(a) of
TRAIN Law who elected to pay the
eight percent (8%) tax on gross sales
or receipts shall not be allowed to
avail the optional registration for
Value-Added tax exempt person.
All person subject to an internal
revenue tax shall, at the point of each
sale and transfer of merchandise or
for services rendered valued at One
hundred pesos (P100) or more, issue
duly registered receipts or sale or
commercial invoices, showing the
date of transaction, quantity, unit
cost and description of merchandise
or nature of service.
Additional Provisions:
• Within five (5) years from the
effectivity of this Act and upon
the establishment of a system
capable of storing and
processing the required data. the
Bureau shall require taxpayers
46
National Internal Revenue Code of 1997
No Existing Provision
R.A. No. 10963 or TRAIN Law
engaged in the export of goods
and services, taxpayers engaged
in e-commerce, and taxpayers
under the jurisdiction of the
Large Taxpayers Service to issue
electronic receipts or sales or
commercial invoices in lieu of
manual receipts or sales or
commercial invoices.
• Taxpayers not covered by the
mandate of this provision may
issue electronic receipts or, sales
or commercial invoices, in lieu
of manual receipts, and sales
and commercial invoices.
• Digital records shall keep and
preserve the same in his place of
business for a period of three (3)
years from the close of the
taxable year in which such
invoice or receipt was issued.
Sec. 237-A Within five (5) years from
the effectivity of this Act and upon
the establishment of a system
capable of storing and processing
the required data, the Bureau shall
require taxpayers engaged in the
export of goods and services, and
taxpayers under the jurisdiction of
the Large Taxpayers Service to
electronically report their sales data
to the Bureau through the use of
electronic point of sales systems.
Machines, fiscal devices and fiscal
memory devices shall be at the
expense of the taxpayer.
47
National Internal Revenue Code of 1997
XVIII. STATUTORY OFFENSES AND PENALTIES
National Internal Revenue Code of 1997
A. Interest
Sec. 249 There shall be assessed and
collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%)
per annum, or such higher rate as may be
prescribed by rules and regulations, from
the date prescribed for payment until the
amount is fully paid.
Any deficiency in the tax due shall be
assessed and collected from the date
prescribed for its payment until the full
payment thereof.
R.A. No. 10963 or TRAIN Law
The data processing of sales and
purchase data shall comply with the
provisions of R.A. No. 10173
otherwise known as the Data
Privacy Act, the unlawful
divulgence of taxpayer information
and such other laws relating to the
confidentiality of information.
The Bureau shall also establish
policies, risk management
approaches, actions, trainings, and
technologies to protect the cyber
environment, organization, and data
in compliance with Republic Act No.
10175 or the Cybercrime Prevention
Act of 2012.
R.A. No. 10963 or TRAIN Law
There shall be assessed and collected
on any unpaid amount of tax,
interest at the rate of double 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 date
prescribed by rules and regulations,
from the date prescribed for
payment until the amount is fully
paid.
Delinquency and deficiency interest
shall in no case be imposed
simultaneously.
48
XIX. CRIMES, OTHER OFFENSES AND FORFEITURES
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Attempt to Evade or Defeat Tax
Sec. 254 Any person who willfully A fine increased of not less than Five
attempts in any manner to evade or defeat hundred thousand pesos (P500,000)
any tax shall, in addition to other penalties but not more than Ten million pesos
provided by law, upon conviction thereof, (P10,000,000), and imprisonment of
be punished by a fine not less than Thirty not less than six (6) years but not
thousand (P30,000) but not more than One more than ten (10) years.
hundred thousand pesos (P100,000) and
suffer imprisonment of not less than two
(2) years but not more than four (4) years.
B. Failure or refusal to Issue Receipts or Sales or Commercial Invoices, Violations
related to the Printing of such Receipts or Invoices and Other Violations
Sec. 264 (B) Any person who commits any Any person who commits any of the
of the acts enumerated hereunder shall be acts enumerated hereunder shall be
penalized with a fine of not less than penalized with a fine of not less than
P1,000 but not more than P50,000 and Five hundred thousand pesos
imprisonment of not less than two years (P500,000) but not more than Ten
but not more than four years for the million pesos (P10,000,000), and
following: imprisonment of not less than six (6)
1. Printing of receipts or sales or years but not more than ten (10)
commercial invoices without authority years.
from the Bureau of Internal Revenue;
2. Printing of double or multiple sets of Including printing of other
invoices or receipts; fraudulent receipts or sales or
3. Printing of unnumbered receipts or commercial invoices.
sales or commercial invoices, not
bearing the name, business style,
Taxpayer Identification Number, and
business address of the person or
entity.
No Existing Provision on the Failure to Sec. 264-A Any taxpayer required to
Transmit Sales Data Entered on Cash transmit sales data to the Bureau’s
Register Machine (CRM)/Point of Sales electronic sales reporting system but
System (POS) Machines to the BIR’s fails to do so, shall pay, for each day
Electronic Sales Reporting System of violation, a penalty amounting to
one-tenth of one percent (1⁄10 of 1%)
of the annual net income as reflected
in the taxpayer’s audited financial
49
National Internal Revenue Code of 1997
No Existing Provision on the Purchase,
Use, Possession, Sale or Offer to Sell,
Installment, Transfer, Update, Upgrade,
Keeping or Maintaining of Sales
Suppression Devices
R.A. No. 10963 or TRAIN Law
statement for the second year
preceding the current taxable year
for each day of violation or Ten
thousand pesos (P10,000),
whichever is higher.
If the aggregate number of days of
violation exceed one hundred eighty
(180) days within a taxable year, an
additional penalty of permanent
closure of the taxpayer shall be
imposed.
If the failure to transmit is due to
force majeure or any causes beyond
the control of the taxpayer the
penalty shall not apply.
Sec. 264-B Any person who shall
purchase, use, possess, sell or offer
to sell, install, transfer, update,
upgrade, keep, or maintain any
software or device designed for, or is
capable of: (a) suppressing the
creation of electronic records of sale
transactions that a taxpayer is
required to keep under existing tax
laws and/or regulations; or (b)
modifying, hiding, or deleting
electronic records of sales
transactions and providing a ready
means of access to them, shall be
punished by a fine of not less than
Five hundred thousand pesos
(P500,000) but not more than Ten
million pesos (P10,000,000), and
suffer imprisonment of not less than
two (2) years but not more than four
(4) years: Provided, That a
cumulative suppression of
50
National Internal Revenue Code of 1997
No existing penalty provisions for offenses
relating to fuel marking
R.A. No. 10963 or TRAIN Law
sales record in excess of the amount
of Fifty million pesos (P50,000,000)
shall be considered as economic
sabotage and shall be punished in
the maximum penalty provided for
under this provision.
Sec. 265-A
1. Any person who is found to be
engaged in the sale, trade,
delivery, distribution or
transportation of unmarked fuel
in commercial quantity held for
domestic use or merchandise
shall, upon conviction, suffer the
penalties of:
• 1st offense: a fine of P2.5 million
• 2nd offense: a fine of P5 million
• 3rd offense: a fine of P10 million
and revocation of license to
engage in any trade or business
2. Any person who causes the
removal of the official fuel
marking agent from marked
fuel, and the adulteration or
dilution of fuel intended for sale
to the domestic market, or the
knowing possession, storage,
transfer or offer for sale of fuel
obtained as a result of such
removal, adulteration or
dilution shall be penalized in the
same manner and extent.
3. Any person who commits any of
the acts enumerated hereunder
shall, upon conviction, be
punished by a fine of not less
than One million pesos
(₱1,000,000) but not more than
Five million pesos (₱5,000,000),
51
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
and suffer imprisonment of not
less than four (4) years but not
more than eight (8) years:
• Making, importing, selling,
using or possessing fuel markers
without express authority;
• Making, importing, selling,
using or possessing counterfeit
fuel markers;
• Causing another person or
entity to commit any of the two
(2) preceding acts; or
• Causing the sale, distribution,
supply or transport of
legitimately imported, in-
transit, manufactured or
procured controlled precursors
and essential chemicals, in
diluted, mixtures or in
concentrated form, to any
person or entity penalized in
Subsections (a), (b), or (c).
4. Any person who willfully
inserts, places, adds or attaches
directly or indirectly, through
any overt or covert act, whatever
quantity of any unmarked fuel,
counterfeit additive or chemical
in the person, house, effects,
inventory, or in the immediate
vicinity of an innocent
individual for the purpose of
implicating, incriminating or
imputing the commission of any
violation of this Act shall, upon
conviction, be punished by a
fine of not less than Five million
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National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
pesos (₱5,000,000) but not more
than Ten million pesos
(₱10,000,000) and suffer
imprisonment of not less than
four (4) years but not more than
eight (8) years.
5. Any person who is authorized,
licensed or accredited to conduct
fuel test, who issues false or
fraudulent fuel test results
knowingly, willfully or through
gross negligence, shall suffer the
additional penalty of
imprisonment ranging from one
(1) year and one (1) day to two (2)
years and six (6) months.
XX. PENALTIES IMPOSED ON PUBLIC OFFICERS
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Violations Committed by Government Enforcement Officers
Sec. 269 Impose a fine of not less than Fifty Added in the list of offenses:
thousand pesos (P50,000) but not more Deliberate failure to act on the
than One hundred thousand pesos application for refunds within the
(P100,000) and suffer imprisonment of not prescribed period provided under
less than ten (10) years but not more than Section 112 of this Act.
fifteen (15) years and shall likewise suffer
an additional penalty of perpetual
disqualification to hold public office, to
vote, and to participate in any public
election for the offenses committed by
Government Enforcement Officers
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XXI. SPECIAL DISPOSITION OF CERTAIN NATIONAL INTERNAL
REVENUE TAXES
National Internal Revenue Code of 1997 R.A. No. 10963 or TRAIN Law
A. Disposition of Incremental Revenue
Sec. 288 Disposition of Incremental For five (5) years from the effectivity
Revenue of this Act, the yearly incremental
revenues generated shall be
automatically appropriated as
follows:
• Not more than-seventy percent
(70%) to fund infrastructure
projects such as the Build, Build,
Build Program and provide
infrastructure programs to
address congestion through
mass transport and new road
networks military
infrastructure, sports facilities
for public schools, and potable
drinking water supply in all
public places
• Not more than 30% to fund: -
Programs supporting the
sugarcane industry - Social
mitigating measures and
investments in education,
health, social protection, and
housing among others. - Social
welfare and benefits programs

Note: This Item has been VETOED

by President Rodrigo R. Duterte.

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