EXAMPLE PROBLEMS: 2022, determine Giannis’

classification and prove your

1.Karl Invoker, a American resident owns
answer by showing computations
a large cafeteria in Espana, Manila since
or reasons.
February 27, 2023.
Answer:
Answer: NRA-ETB (kahit di pa lagpas ng
180 days depende sa intention) January 1, 2022 – April 1, 2022 = 90 days
2. Fredrinn, a Russian jeweler visited the November 6 – December 31, 2023 = 56
Philippines for a week for a jewelry days
assessment seminar and invested a
90 + 56 days = 146 days stay in Philippines
200,000 shares in domestic corporation
= NRA-NETB (his business is investment
during his recent stay in the Philippines
which falls under passive income not ITR)
Answer: NRA-NETB (Dividend or interest
2.
income from investment is a passive
income as final tax and not considered as
returnable income)
3. Gojo Satoru is born as Filipino citizen
migrated in Japan since May 28,2022.
When Yuji (Gojo’s Friend) died, Gojo
decided to go back to the Philippines
and reside permanently on March 1, 2023
Answer: Answer:
May 28, 2022 – December 31, 2022 = Non-
resident citizen
Jan 1 – March 1, 2023 = Non-resident
citizen
March 1 onwards = Resident citizen

1. Giannis Antekounmpo is a Greek-

Nigerian basketball player arrived
in the Philippines on January 1,
2022 and continued to live and
engage in business in the
Philippines. He went on a tour of
India and Pakistan from April 1 to
November 5, 2022. He returned to
the Philippines on November 6,
2022 and stayed until April 15,
2023 when he returned to Greek.
From His investmnets in the
Philippines, he earned a gross
income of 2.5 million. For the year
  Receiving purely
compensation income
THREE TYPES OF INCOME TAX
 Amount of income tax
INCOME TAX RETURN withheld by the employer is
correct (tax due = tax
- Refers to compensation income, withheld)
business income.  Only one employer during
- Ordinary income subject to the taxable year.
graduated tax table (also known as  If married, the employee’s
basic/ normal tax) spouse also complies with all
- May employee-employer three aforementioned
relationship. conditions or otherwise
- Employer ang substituted filling receives no income.
instead na employee ang mag
dedeclare sa BIR. FINAL TAX
- If contractual or by order, employee - Tax on passive income/income
ang rekta sa BIR. without effort.
- Kapag ang earner ay may business - Earned without any further action on
then business ang magdedeclare, the part of taxpayer.
pero if sole proprietorship then yung - Interest income, dividend income,
mismong owner) royalties, prizes, winnings
- Interest income from bank deposit - Are not subject to graduated table as
abroad is not subject to FWT nor this is no longer part of payee’s
CGT hence it is subject to graduated taxable income.
table. - However, passive income from
This includes: sources outside the Philippines are
subject to basic tax.
a. Compensation income from being an - Hindi returnable income
employee - May withholding agent
b. Income from trade business or - Not creditable against the income
practice of a profession. tax due of the payee on income
c. Gain form sale of ordinary assets.
d. Net Capital Gain from sale of “other
capital assets”
e. Other Taxable Income not subject to
FT or CGT.
f. Passive income from abroad
g. Interest income on bank deposits
“OUTSIDE” the Ph
h. Dividend income from foreign
corporation
i. Prizes less than 10,000
j. Prizes outside the Philippines
k. Real property abroad

Subsituted Filling Requirements:

 subject to regular rates of tax for the 1. To be subject to the final withholding
taxable year. tax
a. Income must be taxable by
Example: Lotto worth 1 million x the Philippine government
90% = 900k total lotto prize b. The payor must be under the
jurisdiction of the BIR. This
(yung 100k sa BIR didiretso and ang
means that such income
withholding agent is si PCSO
must be necessarily be
EXAMPLE sourced within the
Philippines.
2. The payor of the income must be
withhold the tax. In the case of
interest income on bank deposit,
bank must withhold the tax.
3. The income subject to final WT is not
returnable. This means that the
interest income in #2 does not have
to be reported or included in the ITR
of the taxpayer.
CREDITABLE WITHOLDING TAX –
method of collecting income tax in advance
from the recipient of income through the
a. Taxable Income payor thereof, which is constituted by law as
the withholding agent of government.

1% = goods
2% = services
5% = rentals

Example: A rent B’s apartment for

100,000
100,000 x 5% = 5,000 CWT
100,000 – 5,000 = 95,000 total na
b. Passive income subject to FT babayaran ni A

POV ni B:
Sales 100,000
Non operating Income -
Net Taxable income 100,000
Tax due (either gr or 8%) 30,000
Previously PT (12,000)
CWT (5,000)___
PASSIVE INCOME SUBJECT TO FINAL Tax Payable 13,000
WITHOLDING TAX
**100,000 yung irereport na sales ni B since to the buyer; hence this are exempt
imaminus din naman yung CWT sa pagkuha to income tax but to percentage or
ng payable. STT 6/10 of 1%)
**ang mag fa-file ng 5k ay si A (withholding  Should not be a dealer in securities
agent) at magbibigay ng Form 2307 si B. (hence this is subject to basic
income tax and VAT)
 Should result to capital gain based
CAPITAL GAIN TAX
on TAX BASE (NOT LOCAL
Subject to ITR: (under non-operating STOCK EXCHANGE)
income)
Selling Price xx
Cost (xx)
Capital Gain xx
Rate 15%
Capital Gain Tax xx

Example: A buys stocks from B

Subject to CGT:
amounting to 100,000. B sells the shares
to C for 120,000
Selling Price (sales) 120k
Cost 100k
Capital Gain 20k
Rate 15%
Capital Gain Tax 3,000
- Arises from:
a. Shares of domestic 20,000 – 3,000 = 17,000 **total na
corporations (provided the marereceive
seller or taxpayer is not a dealer
in securities) **C is the withholding agent and sya ang
b. Real property in the Philippines magfafile ng 3,000
classified as capital asset.
- Unless exempt under law, incomes
not subject to FT and CGT are SHARES TRADED IN LOCAL STOCK
classified as ordinary income (ITR) EXCHANGE
subject to graduated table rate.
- Subject to 6/10 of 1% of gross
 SALE OF SHARES = CGT 15% selling price or gross value in money
(NOT LSE) 6/10 OF 1% (LSE) of the shares of stock sold. IT IS A
BUSINESS TAX. (OPT under
Requisites section 127 of the tax called stock
 Must be from domestic corporation transaction tax or STT)
(foreign corporation is subject to Exemption:
graduated rate or ITR)
 Must not be through local stock 1. Dealers in securities
exchange (it must be made directly
 2. Investors in share of stock in a EXAMPLE #2: Howell Jacinto a cute
mutual fund company motorocycle rider sold his 3,500 shares
3. Exempt from national internal of a domestic corporation in local stock
revenue taxes under existing exchange at P136 per share which he
investment incentives. purchased 6 years ago for P90 per share.
4. Sellers of shares of publicly listed How much is the capital gains tax?
company which is non-compliant
Answer: NOT SUBJECT TO CAPITAL
with the mandatory minimum public
GAINS TAX but OPT (STT 6/10 of 1%)
ownership (MPO) – subject to 15%
capital gains.
EXAMPLE: B buys stocks from Local Assume that Howell Jacinto sold hid
Stock Exchange amounting to 3,500 shares of domestic corporation
100,000. B sells the shares to C for directly to Alvin at P120 per share. How
120,000 much is the capital gains tax?
Selling Price (sales) 120k Answer:
Rate 6/10 of 1% Selling price 420,000
Capital Gain Tax 720 (3.5k x 120)
Cost (315,000)
120,000 – 100,000 = 20,000 net income buo (3.5k x 90)
marereceive since hindi naman sya nitax sa Capital Gain 105,000
15% FINAL TAX CGT. Rate x 15%
Capital Gains Tax P15,750
**B ang magfafile since hindi naman sya
subject sa final tax  SALE OF REAL PROPERTIES =
CGT 6%
= If the real property is sold to government
the taxpayer shall have the option to be
taxed at 6% or graduated rate.

Requisites (regardless if gain/loss)

 Land or building must be capital
asset
 Must be located in Philippines
 TAX BASE = selling price or fair
market value, zonal or accessor
whichever is higher

EXAMPLE #1: Tax Base xx

Rate 6%
CGT xx

Exemptions Requisites:
Sale of principal residence is exempt of 6%
CGT when:
 Proceeds is fully utilized in acquiring
or constructing a new principal
residence within 18 months. If there
s no full utilization, the portion of the
gain shall be subject to capital gain: Purely Compensation Income Earner

Taxable amount = (Ununtilized - Taxable: Compensation, Benefits

Portion/ Gross Selling Price) x Gross (Exceeds 90,000)
Selling Price or FMV - Have Employee-Employer
Relationships
 Historical cost of the real property - May substituted filling.
sold shall be carried over to the new - Tax rate is based on graduated rates
principal residence. only.
 BIR shall been notified within 30 - No option to avail 8%
days from the date of sale.
 Tax exemption can only be availed
once every 10 years.

COMPUTATION OF TAXABLE NET FOR

EMPLOYEES:
1. Get the Net Taxable Income

Example: 100k salvage value of Car A Gross Compensation Income Pxx

sold by 90,000. You also sold a 130,000 Less:
cost Car B by 135,000 Mandatory Contributions (xx)
Non-taxable or Exempt Income (xx)
Selling 90,000 NET TAXABLE INCOME Pxx
S.V (cost) 100,000
Net(Loss) (10,000) 2. Use of Graduated Table for the
Tax Rate based on net taxable
Selling 135,000 income
Cost (130,000)
Net Gain 5,000
**Bawal magkaroon ng net capital loss so ang Non-taxable or Exempt Income:
irereport na loss ay 0.
a. For Minimum Wage Earner:
Statutory Minimum Wage, Holiday
 pay, Overtime pay, Night Shift OR
Differential, Hazard Pay.
8% in lieu of expenses
b. First P90,000 of 13th month pay
and other benefits. (mga 90,000  Kapag More than 3M
below bonuses non-taxable and then Income Tax = Graduated tax
yung excess taxable na sya. Per Business Tax = 12% VAT
year and not accumulated)
c. De Minimis Fringe Benefit
d. Employee’s share of SSS, GSIS, PROFESSIONAL
Philhealth, and PAG-IBIG
- Person formally certified by a
contributions (Deduction)
professional body belonging to a
e. Union Dues (Deduction)
specific profession by virtue of
having completed a required course
of studies and/or practice, whose
Example Problem: competence can usually be
Compensation Income 300,000 measured against an established set
Bonus 50,000 of standards.
Mandatory Contribution 6,000

Answer: GRADUATED RATE:

Gross Compensation Income – Non-
Taxable or Exempt Income
300,000 – 6,000 = 294,000 taxable income

Graduated rate:
(294,000 – 250,000) x 15% =6,600 TAX
DUE

SELF EMPLOYED
- Sole proprietor or an independent
contractor who reports income
earned from self-employment.
- Income is derived purely from the
LESS THAN 3M:
practice of profession not under
employee-employer relationship.

 Kapag not more than 3M

Income Tax = graduated table
Business Tax = 3% OPT
 - Mandatory for employees, optional
for businesses.
- Default option if hindi nag state ang
company what to use before 1st
quarter.

 8% in lieu of expenses
- Tax Base: Net sales
MORE THAN 3M: - Purely Self Employed and Mixed
Earners can avail this.
- Employee earning compensation
income CANNOT avail this.
- Unless the taxpayer signifies his/her 1 st
quarter return of taxable intention to
elect 8% income tax, s/he shall be
considered availed graduated tax.

Net Sales xx
Non-operating income xx
COMPUTATION OF TAXABLE INCOME Gross Income xx
FOR SEP/BUSINESS INCOME: Deductible (250k)
Taxable net income Pxx
STEP 1: Get the Net Taxable Income
Sales xx
This is NOT available to the following
(Discount) (xx)
individual taxpayers:
(Allowances) (xx)
(Return)_____ (xx) 1. VAT – registered taxpayers (exceed
Net Sales xx the 3,000,000 threshold)
Cost of Sales or Cost of Services) 2. Taxpayers subject to Other
Gross Income xx Percentage Tax other than the 3%
Non Operating Income xx OPT under section 116.
(Expenses)______ (xx) 3. Partners of general professional
Taxable Income Pxx partnership (GPP)
4. Individuals enjoying income tax
STEP 2: Find where the taxable income fall exemption or gross sales/receipts
under the graduated table or 8% in lieu of were not derived from VAT-exempt
expenses (whatever is applicable) sales and transactions.
5. Taxpayers who fail to signifiy their
intention to avail of 8% income tax
rate in January Income tax return or
TWO WAYS TO COMPUTE TAX DUE
in the 1st quarter percentage tax
 Graduated rates return, or in the initial quarterly
- Tax Base: Taxable income return of the taxable year upon
 commencement of a new business
or practice of profession.

MIXED INCOME EARNER

- An individual taxpayer if s/he is
:
deriving income from both from self-
employment and compensation.
- First 250k is not deductible for mixed
income earners because of the LONG TERM DEPOSIT
assumption that such exemption - Exemption
was already applied in computing - Certificate of deposit or investment
the tax of income derived from in the form of savings.
employment. - Not less than 5 years maturity period
Employee (compensation income - Issued by banks only to individuals.
portion) = BIR nagfafile = Graduated - For NRA-NEBT subject to Final
Table Witholding Tax (25%)

Business portion= either Graduated If preterminated for 4 years = 5%

Table or 8% (Net sales + Non operating 3 years = 12%
x 8%)
Less than 3 years = 20%

 If NOT more than 3M

REQUISITES/CONDITIONS FOR
Income Tax or Compensation Income = EXEMPTION
Graduated rate
1. The depositor or investor is a
Business Tax = 3% OPT resident, resident alien or NRA-ETB
Or 2. The long-term deposits should be
under the name of the individual and
8% + non operation income in lieu of not under the name of the
graduated rate and OPT corporation or the bank or the trust
department.
 If more than 3M
3. The long-term deposits or
Income Tax = Graduated tax rate investments must be in the form of
savings, common or individual trust
Business Tax = 12% VAT unless funds, deposit substitutes evidenced
engaged in VAT exempt sales and by certificates prescribed by the BIR.
transaction 4. The long-term deposits or
investments must be issued by
banks only and not by other financial
institutions.
5. The long-term deposits or
investments must have a maturity
period of not less than five (5) years.
 6. The long-term deposits or
investments must be in
INCOME TAX DUE OF MARRIED
denominations of Ten thousand
TAXPAYERS
pesos (P10,000) and other
denominations as may be prescribed - Shall compute separately
by the BSP. - If any income cannot be definitely
7. The long-term deposits or identified, the same shall be divided
investments should not be equally between the spouses.
terminated by the original investor
before the fifth (5th) year, otherwise
they shall be subjected to final tax MINIMUM WAGE EARNERS
rates of 5%, 12%, or 20% on interest
income earnings as shown in Table Exempt from income tax on
2-8.
1. Minimum wage
8. Except those specifically exempted
2. Holiday pay
by law or regulations, any other
3. Overtime pay
income such as gains from trading,
4. Night shift differential
foreign exchange gain shall not be
5. Hazard pay
covered by income tax exemption.
Taxable and subject to withholding to
a. Benefits in excess of allowable
statutory amount of 13th month pay
THE FOLLOWING ADDITIONAL of 90,000
CHARACTERISTICS MUST ALL BE b. Income from conduct of businessin
PRESENT: addition to its compensation income.

1. The investment of the individual

investor in the common or individual
trust fund or investment
management account must be
actually held/managed by the bank
for the named individua at least give
(5) years without interruption.
2. The underlying investments of the
common or individual trust account
or investment management
accounts must comply with the
requirements of Section 22 as
amended as well as he requirements
mentioned above;
3. The common or individual trust
account or investment management
account must hold on to such EXAMPLE #1: CLASSIFICATION OF
underlying investment in continuous TAXPAYERS AND TAXABLE INCOME
and uninterrupted period for at least
five years.
 cases, assuming the taxable
compensation income for 2023 is:

a. 200,000 EXEMPT
b. 375,000
a. He is a resident citizen
(375,000 -250,000) x15% = P18,750
Gross Income: 1,500,000 + 3,700,000 +
100,000 + 150,000 = 5,450,000 c. 950,000
Business Expenses: 900,000 + 3,000,000 + (950,000 – 800,000) x 25% + 102,500
30,000 + 100,000 = 4,030,000 =P140,000
5,450,000 – 4,030,000 = P1,420,000 d. 3,300,000
e. (3,300,000 – 2,000,000) x 30% + 402,500
= 792,500
b. Nonresident citizen
1,500,000 + 3,700,000 = 5,200,000
EXAMPLE #3: TAX DUE
900,000 + 3,000,000 = 3,900,000
5,200,000 – 3,900,000 =P1,300,000

c. Resident Alien
Same with letter b.
**correction gross receipts instead na gross sales
d. NRA – EBT since service dapat kasi accountant
Same with letter b.
a. He does not avail the 8% under
e. NRA - NEBT TRAIN Law

**gross income based hindi kasama ang Graduated rate: (800,000 -400,000)
expenses x 20% + 22,500 = 102,500

1,500,000 + 3,700,000 = P5,200,000 OPT (since hindi pa sya vatable):

TAXABLE ON GROSS INCOME 2,500,000 x 3% = 75,000 + 102,500
= P177,500 TAX DUE
5,200,000* 25% = 1,300,000 tax due
(FINAL TAX)
b. He avail 8% tax under TRAIN LAW
(assuming non operating income
EXAMPLE #2: COMPENSATION INCOME of 100k)
AND TAX DUE 2,500,000 + 100,000 = 2,600,000 –
250,000 = 2,350,000 x 8% =
Jose Mari Rempillo and long time
P188,000 TAX DUE
employee in Bureau of Interna Revenue.
Compute the tax due in each of the
 c. Opted to avail 8% tax under 2. Compensation income from being an
TRAIN Law and VAT registered employee is included only in the
annual ITR.
Business income, gain from sale of
8% not allowed since VAT
ordinary assets, net capital gains
registered!
from sale of other taxable income
Graduated rate: (800,000 -400,000) not subject to final tax shall be
x 20% + 22,500 = 102,500 included in all 3 quarterly and annual
ITR
VAT: 2,500,000 x 12% = 300,000 + 3. MANA: 1st quarter = May;
102,500 = P402,500 TAX DUE 2nd quarter = Aug;
3rd quarter = Nov;

d. Assuming his gross sales is Annual Return/Final Adjusted Return/4th

P3,100,000 and opted to avail quarter = April
8%tax under TRAIN LAW FORMULA:

8% not allowed!

3,100,000 – 900,000 – 800,000 =

1,400,000

Graduated rate: (1,400,000 –

800,000) x 25% + 102,500 =
252,500

VAT: 3,100,000 x12% = 372,000 +

252,500 = P626,500 TAX DUE
EXAMPLE: QUARTERLY TAX RETURNS

e. Assuming his gross sales is

3,500,000 and COGS is 3,700,000
and opted to avail 8% tax under
TRAIN LAW

3,500,000 – 3,700,000 – 800,000 =

(1,000,000) LOSS

0 income tax since loss sya wala

syang income pero may vat pa rin
VAT: 3,500,000 x 12%= P420,000
TAX DUE
1st quarter: May
400,000 – 250,000 = 150,000 x 8% =
QUARTERLY TAX RETURNS
P12,000 TAX PAYABLE
1. Cumulative Filling
2nd quarter: August of the threshold shall be subject to
VAT.
400,000 + 600,000 = 1,000,000 – 250,000 =
750,000 x 8% = 60,000
60,000 – (previously tax paid) 12,000 = EXAMPLE: INCOME TAX PAYABLE AND
P48,000 TAX PAYABLE INCOME TAX EXPENSE
Juan is Mixed Income Earner. He is a
self-employed resident citizen and
3rd quarter: November
currently the Finance manager of Omega
400,000 + 600,000 + 2,000,000 = 3,000,000 Corporation. The following data were
provided for 2023 taxable year:
3,000,000 – 250,000 = 2,750,000 x 8% =
220,000
220,000 – 12, 000 – 48,000 = P160,000
TAX PAYABLE

4th quarter: April

Sales 6,500,000
Cost of Sales (1,700,000)
Gross Income 4,800,000
OPEX (1,680,000)
Net Income 3,120,000
1. How much is the income tax
Graduated table: (3,120,000 – 2,000,000) x payable in 2023 assuming he
30% + 402,500 = 738,500 opted to be taxed at 8%?

Previously paid: (12,000 +48,000

+160,000= 220,000) Formula: SEP
Income Tax from SEP opted 8% = (Net
738,500 – 220,000 = P518,500 TAX Sales + Non operating income)x 8%
PAYABLE
2,800,000 x 8% = 224,000

NOTES: Formula: COMPENSATION

Compensation Income = Compensation +
 Taxpayer is required to update his excess of 13th month pay over 90,000
registration from non-vat to vat
taxpayer within the 30 days from the 1,800,000 + (150,000 – 90,000) =
close of the month the vat threshold 1,860,000
was breached.
 Percentage tax or OPT shall sill be Graduated Rate:
imposed from the beginning of the (1,860,000 – 800,000) x 25% + 102,500 =
year until taxpayer is liable to VAT. 367,500
 Percentage tax shall be imposed on
the first P3,000,000 and the excess
224,000 + 367,500 = 591,500 TOTAL TAX
DUE

Total Tax Due P591,500

Less:
Creditable Withholding tax
on compensation income (448,000)
Creditable withholding tax
on sale of goods (28,000)_
INCOME TAX PAYABLE P115,500

2. How much is his total income tax

expense in 2023 assuming he
opted.
MIXED INCOME EARNER
Formula:
Income Tax Expense = Basic Income tax +
FWT on passive Income + CGT

Basic Income Tax P591,500

Final tax on Peso Deposit
(80,000 x 20%) 16,000
Final tax on FSCDS deposit
(120,000 x 15%) 18,000
CGT on real properties
(2M x 6%) 120,000
INCOME TAX EXPENSE P745,000

HOW TO COMPUTE TAX PAYABLE?

PURE COMPENSATION INCOME

EARNER

PURE BUSINESS INCOME EARNER