chapter 5 Items and concept of income Definition of income Definition of income tax fication of income tax cation of income taxpayers General definition Self-help income Compensation paid in kind Compensation paid in promissory note Tips and gratuities Tr RATA, PERA and ACA granted to government employees »sportation, representation and other allowances Vacation and sick-leave allowances Forgiveness of indebtedness Remuneratory donations Recovery of bad debts previously deducted 130 130 131 132 1334 Remedies) ~ Amy, Ong, any on mutn Tan. paneiel 4 direct 1; 2 inpre cots ty “4 Y Nea F mannractacie cle, "4p one yn caren ‘ iG Is S4 given Ha qe aiviene \ , ¢ ward 1 uu My diye geil (jue hon 14 wor fulse Quesvens ' . eiple Clwice TEED hye uy tiple & Hote 1h 4, Tix penelil Rule 156 0 peanehold jmprovemnents '5K vy pied by promissory note 190 lo Og y, service Case studychapter 5 - lhoms anid Concept of Income 125 pefinition of income Income means all wealth wach tens inte. the larpayer other than a more folure of capital Iincludes the forms of income specitically descritad as yan derived from Iho Sal oF other disposition of capital (Sec 96. Regs) Although the tern is not speciically defined in the tax law, does not jnclude income from any source Thus, in the case of the sale of property only tho gain nol ho anlire sales procoods, 16 viewod as ineoine This v8 6Aerd to tho solo Of Inventory, where the gross profit is viewed as income as uppuned 10 10 8alo PILE Also, whore a ravanpl is oftewt by a debt. out a6 i the case of borrowed funds, there is no income (Phipps & Krarner eders! Taration 1990p 2-3) For lar purposes income is defined as the amount of money coming to iy potsnt! oF Corpor anor withvny fed lime whether as payment tor services, INtFaBL, OF Profits [OI INvESIMaN (Fishery Tamdad 49 Phils 973) Mh includes earnings, lawlully ‘or unlawfully acquired, without consens: facogniion, oxpress or Implied, of an obligation to repay and without rastriction av to their disposition (James va US, 3668 713) Gross income 1s income reduced by exclusions In other words, i 16 incom from laxable sources (op cit) ‘Taxable Income refers to the peninent items of gross income spécified in tho Code, loss deductions, any authorized for such types of income by the Code oF othor spacial tas 1118 the amount of income that 19 taxed Definition of income tax Income tax in referred to ax tax on all yearly profits ansing from propeny professions, trades oF offices, oF as a lax on @ person's income. emoluments profits and the like (61 CJS. 1569) {Wis @ tax basod on income, gross or net (27 Am Jur 308) Income tax classified In the Philippines, our income tax is classified as o Anational tax b. An excise taxect general income taxpayers mmayoe cassified int 0 individual, » Corpor: tio, n, ciassiicatl Income '2 nd rusts Rs, 0 uc ee isnee sn s einer resi a aitnership 0 matter how created ” tang entas en participacion) o orga, i SSC a4 8K non includes conor ne int accounts (cu stock COMPRA gres DU Noes not include general ure OF consomtium focmed for the Hrofess, Ong ging 19 petrol Dui long: ging 9 petroleum gearnerose 2! Tha, _ OF projects oF enUA ent to an operating OF CONSOrtium Agree, a roe ral jn a ast with the government (Sec 22[B). 10.) foe ley mt under 2 esiate to all the properly. nghts and obligations of a pe, by his death and also those which have ac SON wh, 6 791. CCP). To be subject to a singh come 1. ° shed recession (At oo a | settlement therwise, it is . not si ax Ubject ts ng of the Su is-be under judicial the of an esiate ineome (ax ingement created by will or an agreement und servation or investment with the invhich ‘Om Trust 'S an arta hi for to anotl yer for Con ft prone e corpus (PNG y 1S pass ‘rom ana utmately I pal) to be distnbuted in ace of the creator aS express CCOrdan, Hag ‘ed in the governing instrume, nt «nerel with the directions A trust 10 DE taxable, must be an imevocable trust both as to corp income us ang General definition Gross income means all income derived from whatever inotuding (but not \ymited to) the follawing items. Source + Compensaton for services 1n whatever form paid, including, missions. and similar items: Dut not ges, com limited to fees, salanes, wat the conduct of trade or busi USINeSS oO; r. the 2. Gross income derived from exeraise of a profession. Gans derived from dealings in property: 4 Interestshapter 5 — Items and Concept of Income 127 Rents Royalties Dividends Annuities Prizes and winnings Pensions, and Partner's distributive share from the net income of the general professional partnership. 2Se0anon “Income trom whatever source derived’ means all income not expressly excluded or exempted from {he class of taxable income, irrespective of the voluntary or involuntary action of the taxpayer in producing the income Thus, income from illegal activities such as extortion illegal gambling bribery, graft and corruption, kidnapping, racketeering, drug peddling, etc fall within the ambit of “income from whatever source derived” subject to income tax. Self-help income Although the concept of self-help income is accepted by economists, it is not accepted by accountants, the internal revenue code, or the courts. Thus, if an individual painted his own residence, he would not be treated as having income. However, if a taxpayer hires someone else, the taxpayer would have to earn income, pay a tax. and use the after tax income to pay the hired painter In either situation, the taxpayer receives the same economic benefit, but no tax is imposed when the economic’ benefit is derived from self-help Taxpayers, of course, commonly. perform household chores, repair their own automobiles, mow their own lawns, and perform a myriad of other self-help activities. This should be contrasted with taxablé exchanges of services. A carpenter might agree to repair’a painter’s house in exchange for the painter's promise to paint the carpenters home. In this instance, where the parties exchange services, each party realizes income equal to the’ value of the services he receives. If each did his own work (i.e. the painter fixed his own house and the carpenter paints his own home). neither would have to report any income (Philipps vs. Kramer, supra).pic ME TALA TiO compensator paid in kind Compensauin may be pad in money or mm om money 2517 EXITE, HOKE bonds or other forms Fete om oper 6 y ne payment 1s Made 1 cash ine whole amount a T thay, However wirnsans tax required by law to be deducted by the Subject tg Srmperaanion of an ETPlOYeS, 'S ‘considered a3 part of the og eover le Mpengo™ Satie, in kind the following rules shait app y y reo income SIG 10 12% wine compensation 1s Pad 4 i servces are pard fOr 10 3 mequm other than money. the fair of the thing taken in payment is the amount 10 be inciuded as oat vat MPErys, Ne Sation, ated price in the absence of & gumed 10 be the far market vapen® Blue oy of income. 5 are rendered at a stipul such price will be Pre’ 0 ts employees its Own stock as remui uch Temuneration 1s the for eration ces were rendered (Sec 27 {parker Rev if ine service: to ne conuary the remuneration rece! ved cM the corporation transfers | for services rendered, the amount of Ss! value of Ine stock al the time the servi Reg 2-98) id in promissory note received in payment of services constitute income t, lo rket value at the time of receipt Compensation pai 9 a discounting of noles, the fair market value is Promissory notes the extent of their fair Ma} If the note 1s subjected t the fair discounted value Dlustration 5-1 In 2016, Samar received from Balay a promissory note with a face value of The note will mature after one year. At the time k at a discount of 18%. Balay paid the P100,000 for services rendered. of receipt in 2016 the note was sold ‘o a banl note upon maturily in 2017. a. How much income is subject to tax in 2016?129 Face value Less: Discount (P100.000 x 18%) 18,000 . Taxable income 82,000 How much income is subject to tax in 20177 e Anwen Face value P 195.000 Less: Amount already declared as income $2,000 18,000 Income subject to tax and gratuities Tes ard grafuubes pad drectly to an employes by a customer Of De Temployer which are not accounted for by te employes to We SmI Se Sr eed os taxable wcome of the employes Dut not subject 19 wannoldng tox 2 They pre ordinary and necessary expenses. b mourred ahd peed ee Settee Se oret Seis c The employee is required to accounViiquidate the foregoing a accordance with the specific requirements of ee soee CokINCOME. TAXATION pith Tax Baneiples & Remedies) ~ A, = Ampon inces made fan over actual expenses sn, 13 0 all excess of advar ple income If such amount IS not returned to the employ 1 reasonable amounts Of rermbursemenvadvance ver constitu, which are pre-computed on a daily for tray . ee while he 1s on an assignment or duty nex y basis angio a and to withholding (ib%a), ed not be Ga’? pad taxal © Subjegaie RATA, PERA and ACA gran Representation 3 officers and employees Economic Relief Allowance taxable compensation income 1 Compensation Allowance (ACA CA) granteg ang is and employees of the National Govei se unwersives and colleges (SUCS), governma genes Mations (GOCCS), goverment financial tactic 2s Units (GUS) IS part of Other Bor At Stitutions | ety thousand (P90,000) pesos S Which ig ad Transportation Allowance (RAT. A under the General Appropriations ) granteg to Cl and Pg, Public ted to | government employee, | (PERA) granted to governmen| : 9 jt Personnel are one Non. 7 tne Aggitiona ation and sick leave allowances vacation allowances OF sick leave credits which are paid to an ey constitute compensation Thus, the salary of an employee on vacation Plovee ick leave which are paid notwithstanding his absence from work const fe tute compensation However the mon Jess which were o income tax becau pt from income tax (ibid ) vac tized value of unutilized vacation leave credits days paid to the employee of private firms during he, ten aye not subject se they are classified as de m year anafits which are exer INUMIs Wystrations-2 2 two (2) day official business i i h ial t in Mai ever expenses he will incur in sonnadtion Naga City, he liquidated the following Wanda wis sent by his manager for Hews gioen Proooo to answer for what salt his travel, When he retumed back to eens Bsr (ag by toM: 7 y to Manila and bac! Natl ewarmntion shah) P2,000 2,000napter 5 — Items and Concept of Income 131 Meals 1,500 One night hapi-hapi with his barkada in Manila 500 Total 6,000 A day after his arrival, he had a flu and was lorced to go on leave for two (2) weeks. Despite his absence, he was paid a complete salary and other allowances for that month in the amount of P13,000. Based on the above information and assuming that the unspent portion of the cash advance had been returned to the employer, how much income is subject 0 WX? | Answer: a Amount spent with burkada Salary and other allowances Income subject to tax .’ The bus fare, hotel accommodation and’meal expenses are not taxable to Manda because they were incurred in the pursuit of the business of the employer. Moreover, these expenses had been subjected to liquidation. ‘The expenses of P500 for havi-havi with friends is not connected with the business of his employer. » 3. The salary received while on a two-week sick leave is taxable. Hence, the entire salary received by him is subject to tax. Forgiveness of indebtedness If the creditor condones the indebtedness of the debtor, the following rules shall apply: a On account of debtor's services to the creditor, the same is taxable income to the debtor. ‘ b. If no services were rendered but the creditor simply condones the debt, it is taxable gift not taxable income. c If the creditor is a corporation and the debtor is a stockholder, the forgiveness of indebtedness has the effect of a payment of dividend.graces 5— Noms end Concept ot income __ 133 Aner x Yes, this is a case of a remuneratory donation which is subject to Income ux ps without doing anything, Berganio received P50,000 from Buenale doe purely to the liberality of the latter. Is the P50.000 ambience? go Anomere No. The situation does not concern remuneratory donation anymore. The couse of the gift is purely the liberality of Berganio. Hence, it is not considered as 4 taxable income recovery of bad debts previously deducted When bad debls are ascertained o be worthless and charged-off dunnig tne year they are allowed as deductions from the gross income of the taxpayers, whether individual or corporate ‘There are situations, however, where bad debts that have been legally aimed as deductions from gross income are recovered by the taxpayer ine periods. In this case, recovery of bad debts previously allowed as in the preceding years shall be included as part of the gross income Goth year of recovery (0 the extent of the mcome tax Denefit of said deduction (tax benefit ule) (See AE, 1]. NIRC). There is tax benefit when the taxpayer realized a tax reduction of the income tax due on account of said bad debt deduction from gross income Interest on the amount recoveredis @ taxable income and is nol covered by the tax benefit rule. Dlustration 5-5 Indicate the amount-of taxable income or following independent cases: 2017 Caser Casez2 Case Income/loss before write-off P.60,000 (30,000) +P 60,000 Less: Bad debt written off 10,000 10,000 100,000 deductible loss in each of thethe following data in 2017: before deduction of taxes had eincomey~ » a a hepiar § —Htems and Concept of income ___ 135 Local business taxes 10,000 Donor’s lax 6,000 “These taxes have been refunded to her in 2018 How much is the taxable income of Sol Dranto in 2018 if her income before ww refund is P200,000? Answer, i Taxable income before tax refund P 200,000 Add: Common carrier's tax P 15,000 Local business taxes 19,000 °25,000 225,000 Taxable income Note: The refund of the income tax and donor's tax are not taxable because they are not deductible for purpdses of computing the taxable income. refund of Indirect tax If the tax is an indirect tax, the proper party to question, of seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is 'sed by law and who paid the same even if he shifts the burden thereof to i another (Silkair vs. CIR, G.R. Nos. 171383 & 172379, Nov. 14, 2008). Mlustration 5-7 Bart Company purchased from Grace Gasoline Station 100,000 liters of aviation fuel from January to December 2017. Such product is subject to excise tax (an indirect tax) which is added to the price it paid to the gasoline station. If Bart Company is exempt from excise tax, who is entitled to daim refund on the excise taxes erroneously paid to the government - Bart Company or Grace Gasoline Station? re Answer: In the refund of indirect taxes, the statutory taxpayer (Grace Company) is the proper party who can claim the refund. In indirect taxation, the purchaser and end consumer ultimately bears the tax burden, but this does not transform his status into a statutory taxpayer.INCOME TAXATION Wn Tex ORS Ree Apo ong “te Company should invoke its tax exemption i! te Grace 1 SAscline 36 "ation cart y st before buying the aviation fuel- Leasehold improvements 'A lease contract is a consensual, bilateral, contract by which one person binds himself to grant tomeaand = (a or tho rendering of some Service to another who undertarly, the yestStive rent, vor price (4 Sanchez Roman 736, cited in Paras ‘Pay ore the Prd Vo! 5) Ss. Caney Some When the lessee makes useful improvement to the | such as the construction of fence or building, the following fiieaee Premi said improvements are relinquished to the lessor without 2"! VSes, reimbursement of its value demana?,| i | 1. The consideration for the use of income to the lessor, by the lessee on behalf of the lessor for 2 business vito aed and constitutes income taxable to the lessor, Property are rovements on leased premi When the lessee makes imp! Premises improvements will belong to the lessor upon the termination of the Saig the lessor may at his option report income as follows: lease, | - as income the fair market vah UE Of the ¢ method - report 0 inthe year of completion, f property paid by the lessee jg fos ‘Able n improvernents D spread-aut method - spread over the remaining term of the lease sax vaue of such improvements at the termination of the leas computed 2s follows: Cost of leasehold improvements Pxx Less: Accumulated depreciation xX Book value, end of lease xx Dinde by remaining term of the lease xx Annual income xx 4 Deduction of lessee The lessee may claim deprecation of the improvements over the retaining ‘em of the lease oF the le of the improvements, whichever is — ii,napter 5 — Items and Concept of income 137 5; Premature termination of lease - Income to be reported by the lessor shall be computed as follows Book value upon termination Pxx Less Amount already reported as income xx Income in the year of completion xX iustration 5-8 ‘Tony, lessor, leased a lot to Aljon. lessee. for 20 vears beginning January 1 soit. subject Lo the following terms and eanditienis a. Lessee will pay rental of P30,000 per month. p. Lessee will pay the real estate tax on the land of P10.000 a year «© Lessee will construct a building on the lot to be owned by the lessor when the Jeage expires Cost of building completed. July 1, 2018) P 2,800,000 Life of building: 25 years REQUIRED: 1. Compute the taxable income of Tony for 2018. Use spread-out method of determining income on leasehold improvements. » Determine deductible expenses of Aljon for 2018. 3. Assume that due to the fault of the Aljon. the lease was terminated on January 1. 2021. Compute the income of Tony for the year 2021, Compute the income to be reported by Tony in 2018 using Outright Method. - Answer: e 1. Income of lessor Tony in 2018 using spread-out method. Rent (30,000 x 12) P. 360,000 ‘Tax paid by lessee 10,000 Income on leasehold improvement: Cost P2.800,000 Less: Depreciation for 17.5 years (2,800,000/25) x 17.5, 1,960,000, Book value, end of lease 240,000 (840,000/17.5) x 6/12 ~24,000 394,0002. Expense of lessee Tony for 2018. Rent . 360, sation-leasehold pepmgon.000/175) “a *0;800 3. Income of lessor Tony for the Year 2021. el os P 2,800, Less: Depreciation for 2.5 years (2,800,000/25) = 000 Book value upon termination /25)X2.5 280.000 Lass: Income already reported 2,520,000 2018 24,000 2019 (840,000/17-5) 48,000 3020 (840.000/17.5) 48.009 _120.000 2490,000 + naome of lessor in 2038 using Outright Method Rent (P34.000 ¥ 12) P_ 360,000 Ts ; 10,000 Leasehold improvement 2,890,000 3.120,000 income from manufacturing, Gros thandising or mining business manfectting, merchandising, or mining business, “gross inc 7 ean to Bal S865, 1955 the cost OF goods SHG Pls any income from ivesmess and from inadental or outside operations or sources (Sec 49 Regs 2 ; ineweminng the gross income, subtractions should not Be made for . oF losses, or for items not ordinarity deprecaion depletion, $219 used in compuang te cost of goods sold (ibe) Problem 5-9 erchandising business. It is engaged in the business Gibsons Company is a.m of selling schoo! and office supplies, no’ income and expenses during the year are as follows: welties and gift items. The summary of itsChapter S — Items and Concept of income _ 139 Sales Soles returns and allowances P 850,000 Cost of sales 45,000 Rent income (net of 5% withholding tax) 450,000, Income on sale of capital assets 79,800 Deductible expenses cee How much is the . ross income Company? and the taxable income of Gibsons Answer: ue Answer P.850.000 Sales returns and allowances 45,000 Net sales 815,000. Less: Cost of sales 350,000 Gross profit 165,000 Add: Other income ee Rent (79,800 / 95%) P 84,000 Gain on Sale of capital assets 29,000 104,000 Gross.income 569,000 Less: Deductible expenses 230,000 ‘Taxable income 339,000 Gross income from farming The term farm embraces the farm in the ordinary accepted sense, and includes stock, dairy, poultry, fruit and truck farms, also plantations, ranches, and all lands used for farming operations (Sec. 45, Regs.) Farmers are individuals, partnerships or corporations that cultivate, operate or manage farms for gain or profit either as owners or as tenants (ibid) However, persons cultivating of operating a farm for recreation or pleasure, the result of which is a continual loss from year-to year are not regarded as farmers (id) : The following are the prescribed methods of reporting gross income from farming a. Cash basis or receipts and disbursements basis. Under this method, no inventory is used to determine profits.Problem 5-10 ‘pha following data pertains eginning inventory:, Fann products Livestock ‘Bading inventory: Farm products Livestock sale of products raised in the farm Gale aflivestock = Gain on sale of farm equipment farm equipment Rent income of .ss income of Boquiren if he is How much is the gro: a. Cash method p. Accrual meth ge Answer: a. Taxpayer is using cash method of accounting: Sale of farm products Sale of livestock ‘Total Add; Other income Gain on sale of farm equipment P 40,000 Rent income of farm equipment _2,000 Gross incomeIncome. 141 apter 5 —ltems and Concep' ae AL p.Tare er is using accrual method of accounting; Ending inventory Farm products P 20,000 Livestock 34,000 P 54,000 sale of farm products 450,000, ale of livestock 425,000 ‘Total 829,000 Less: Beginning inventory Farm products P 30.000 Livestock 425,000 35,000 Net 774.000 Add) Other income 40.000 Gain on sale of farm equipment 7,000 47,000 Gross they 841,000, Receipt of dividends For income tax purposes, the term ‘dividends’ means any distribution made by a corporation to its shareholders oul of its earnings or profits and payable to its shareholder, whether in money or in other property (Sec. 73/4). NIRC). The more common forms of dividends are. Cash dividend It 1s a form of dividend which is paid in cash tc shareholders The income 1s measured by the amount of cash received > Stock dividend It is a distribution by a corporation to its shareholders of * the corporation's own stock A stock dividend representing the transfer of surplus to capital account shall not be subject to tax unless (Sec 73/Bu) ibid ) a These shares are later redeemed for a consideration by the corporation or otherwise conveyed by the stockholder to the: extent of such consideration, b. The recipient is other than a stockholder, or cc. A change in the stockholders’ equity results by virtue of the stock dividend issuance. When a stockholder receives a stock dividend which, is a taxable income, the measure of income is the fairmarket value of the stocks received.a le: pegies)—Amponaan 4 ~~ ‘FQ th INC! yi TAX Th mtustratio” su ara, Barbers criselda, Dian? and Ely; are the ro. Barbar of them Overs 000 shart wiee Doane ojon stock divide uring the vol & o yek Bo re to the shuireholders? e2r, the ds received are m ca xo. The ot taxable ine v dene taxable. Moreover f income senerally OKC a er, the proporti bee; Fine ayrenotders i” ends net assets of (RE ‘corporation Pe bined ‘Spuse . E chant Share meet: receipt of PhESe dividends shall be recor hanged, ™ wants PI sm engorancir” end only orded in he terest of the stockholders. diet Divina Percent proportionate inl Stock Shares sal ‘Percent Dividend 20% 100 1,100 20% 100 1,100" poe 20% 100 1,100 ook 20% 100 1,100 20% 20% 100 1,100 20% 100% 500 5,500 100% rs am option to choose he stockholde dividends and Ara, Criselda and Elle: n yme to Barbara and Dian ited to a change in the ould be taxable inco! ‘ock dividends resu ‘The stock dividends W © he receipt of the proportionate interest of the stockholders. because143 chapter 5 — Items and Concept of Income ‘To illustrate: Case 2: There is change in the proportionate interest of the stockholders. Before Dividend Stock —_- After Dividend Stockholder Shares Percent Dividend Shares Percent Ara 1,000. 20% - 1,000 19.23% Barbara 1,000 20% 100 1,100 21.15% Criselda 1,000, 20%, = 1,000 19.23%. Diana \ 4000 20% = 100 4,100 21.15% Ellen Soda) | 20 ce 1.000 Total 5,000 100% 200 5,200 99.99%" * The difference of 01% is the result of the rounding off of figures. 3 Property dividend. It is a dividend paid in shares of stock of another corporation or other property ofthe corporation. The measure of income on property dividend is the fair market value of the property received al the time of receipt or distribution. A distribution of treasury stock is taxable as a distribution of property dividend. 3 1ntercorporate dividends There is intercorporate dividend when a dividend is declared by one corporation and received by another corporation which isa stockholder to the former 8 5 In case there is an intercorporate dividend, the following rules shall apply for taxation purposes: Dividends received by a domestic: corporation from another domestic corporation shall not be subject to tax (Sec. 27/D] [4]. N1RC); b Dividends received by a resident foreign corporation from. a domestic corporation shall not be subject to lax (Sec. 28 [7] [d), ibid), A final withholding tax at a rate of fifteen percent (15%) shall be imposed on cash and/or.property dividends received from a domestic corporation, are subject to 15% tax provided that the 15% (30% - 15%) difference. between the usual corporate income tax is allowed as a tax credit by the country a °INCOME TAXATI ith Tax Principles & Remea, 5 oo ree AmwonaAN where the recipient corporation 1s domiciled credit) (PIS IS known a tag S ta 4 Dividends received by a domestic comporation trom * Bring Shall be subject 10 @ regular corporate income tax of as foreign « . an idends received by @ foreign corporation « e Ow tse fro ™m yn shall no! subject to tax anothe, corporatior summary of rules on taxability of dividends Inc reat ome tax treau, ma Not taxable “me Not taxable Dividends received by Domestic corporation 1. Domestic yrporalen: Resident foreign corp on BH Ord Non-resident foreign corporation General rule: 30! withholding Exception: 15% j iS Lax sparin, Domestic corp 30% Normal income | o, Resident foreign ; & | corporation Foreign corporation Nottaxable Domestic corp go% Normal income ta ax |. Nonresident foreign Foreign corporation Not toxable qoaporation Tax informer’s reward 1 equivalent to fen per cent (10%), bul not exceedin or fees recovered and/or fine on wed and collected shall be given as reward to persone discovery of violations of the provisions of the internal An amour 1,000,000, of the revenues, surcharges penalty pe instrumental in the ¢ covonuo laws (Soe. 202(A). ibid ) Howover, the following are disqualified to avail of the informer's reward 1A BIR offical or omployee or any other incumbent public official or employee, 2 Rolative within the sith (6") civil doqree of ce | sonsanguinily of a BIR of employes, of other public official or employee, and ” ontcralchapter § —\tems and Concept of income 145 3. Though already relired or otherwise separated from service, BIR officials or employees or other public officials who acquired the information in the course of the performance of their duties during their incumbency A final withholding tax al a rate of ten per cant (10%) shall be imposed on rewards collected from persons who give definite and sworn information jeading to the disoovery of frauds, revenues and fees, or discovery and the seizure of smuggled goods, or which resulted to the conviction of the guilty party, OF the imposition of fine or penally, or a compromise has been reached iustration § +12 Hecause of the documents submitted by Jude to the Bureau of Internal ie, [he government was able to seize and confiscate smmugaled wouds (ort a tpaver—\ eutupromise way reached and the taxpayer paid a penalty P100,000,000 Rev How much reward will Jude receive from the government? How much is the taxon the reward? wer! ge Ans Compromise penalty 100,000,000 x Rate — 10% Beyond the maximum 10,000,000 ‘To Jude (maximum) 1,000,000 x tox . = »hO% Vinal withholding tax 100,000