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TAXATION
COMPREHENSIVE
HANDOUT
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Nature, scope, classification, and essential characteristics of Taxation

Taxation is the exercise of the sovereign power to

Stages/Coverage of Taxation
raise revenues through its lawmaking body for the
expenses of the government. It is an inherent power
1.​ Levying or Passage of tax laws, a
of the State as part of its sovereignty.
imposition of legislative act
●​ General rule (GR): Taxation is presumed
tax
●​ Exception (XPN): Tax exemption is strictly
By whom: Congress
construed against taxpayer
2.​ Assessment Determination of the
Objectives of Taxation
correct amount of tax due
1.​ Revenue Generation: Primary means of funding
government activities. Executive or
administrative in nature
2.​ Economic and Social Objectives:
●​ Wealth Redistribution: Shifting resources By whom: BIR
from the rich to the poor.
●​ Price Stability: Managing inflation and 3.​ Collection and ​ Act of compliance w/ tax
Payment law by the taxpayer
deflation.
●​ Economic Growth: Stimulating the
Executive or
economy. administrative in nature
●​ Employment: Encouraging full employment
through fiscal policies. By whom: BIR

Characteristics of Taxation

I Inherent Taxation is an essential and far-reaching power of the State, often seen as an
“awesome power to destroy” due to its broad impact.

L Ledged with The power to impose taxes rests with Congress (legislature)​
Legislature ​ Lower House 250 House of Representatives ​
​ Upper House 24 Senators

T Taxation Limits ubject to limitations (Constitutional, Contractual, and Inherent)

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Scope — While taxation is unlimited, taxes are limited by law and must meet specific legal criteria.​
Non-impairment Clause: laws must be given future applications because it may impair existing obligations
arising from consummated contracts

3 INHERENT POWERS TAXATION POLICE POWER EMINENT DOMAIN

Purpose The State’s power to The authority to enact The right to take private
raise revenue to cover laws for public health, property for public use with
government expenses. safety, morals, and the just compensation.
general welfare.

Amount of Exaction No limit Limited to cost of No exaction but private

regulation, issuance of property is taken for public
the license, and/or use
surveillance.

Benefits received Indirect: General Indirect: Healthy Direct: Form of just

benefit of protection of economic standard of compensation to the
person, property, and society. property owner.
the promotion of
general welfare.

. Non-impairment of Tax exemptions Obligations in Obligations in contracts

contracts bilaterally agreed upon contracts may be may be impaired by the
between the gov’t and impaired by the government.
taxpayer cannot be government.
withdrawn (obligations
may not be impaired
by the state)

Transfer of Property Taxes paid become No transfer, but Transfer is effected in favor
Rights part of public funds restraints in the of the State
exercise of property
rights
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Scope All persons, property, All persons, property, Only upon specific
rights and privileges rights, privileges, and properties
liberties

Authority which Government of its Government of its Public service corporations

exercises the power political subdivision political subdivision OR private entities
operating public utilities, if
granted by law

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

Fiscal Adequacy revenue ≥ expenditures

Equality/Theoretical tax imposed must be proportionate to taxpayer’s ability to pay

Justice

Administrative tax laws are capable of convenient, just, and effective administration
Feasibility

Essential Elements/Characteristics of Tax

THEORY / BASIS OF TAXATION
1.​ Enforced contribution
2.​ Exacted pursuant to legislative authority
Life-blood Theory Importance of taxation
3.​ For raising revenue for public needs
Necessity Theory Theory of taxation 4.​ Proportionate in character or uniform
5.​ Payable in money
Benefits-protection/ Basis of taxation 6.​ Imposed within the state’s jurisdiction
Symbiotic 7.​ Personal to the taxpayer
Relationship:
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SCOPE of TAXATION POWER (CUPS)

Comprehensive Covers all persons, businesses, activities, professions, rights, and privileges.

Unlimited Boundless, unless limited by law or the Constitution.

Plenary Complete power; BIR can use various remedies to collect taxes.

Supreme Ultimate authority in choosing what to tax.

Taxation is CUPS: it 4, boundless, complete, and holds the supreme power to select tax subjects

CLASSIFICATION OF TAXES

As to Subject Matter / Object

Personal ​ Fixed tax on individuals regardless of property or occupation​

(Poll / Capitation) e.g. community tax

Property Tax on property (real or personal), often based on value​

e.g. real estate tax

Excise Tax on acts, privileges, or occupations

e.g. estate tax, donor's tax, income tax, VAT

As to who bears the burden As to amount determination

Direct Paid by the person legally required to do Specific Based on a physical unit (e.g.,
so​ weight, volume, length)
e.g. community tax, income tax, estate e.g. Tax on distilled spirits, cigars,
tax, donor's tax fireworks

Indirect Tax shifted to another​ Ad Valorem Based on property value, requiring

e.g. customs duties, VAT, some an appraiser
percentage taxes e.g. real estate tax, excise taxes on
cigarettes, gasoline
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As to purpose As to authority / scope

General For general needs with no specific National Imposed by the national
(Fiscal/​ purpose government
Revenue) e.g. income tax, VAT e.g. internal revenue taxes, tariff,
customs duties

Special​ For specific purposes Municipal/ Imposed by local governments for

(Regulatory) (social/economic ends) Local specific needs
e.g. protective tariffs, customs e.g. real estate taxes, municipal
duties licenses

As to Graduation / Rate

Proportional Fixed percentage based on income, property, or other bases​

e.g. percentage taxes, real estate taxes

Progressive / ↑ Rate, ↑ Tax Base

Graduated e.g. income tax, estate tax, donor's tax

Regressive ↓ Rate, ↑ Tax Base

e.g. VAT
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FORMS OF ESCAPE FROM TAXATION​

SCATTE (as if “scatter” to avoid)

1.​ Shifting Transferring the tax burden to another party.

2.​ Capitalization Holding onto assets to avoid paying taxes on

●​ S - Shifting (pass the tax),
potential gains
●​ C - Capitalization (hold
gains),
3.​ Transformation Making cost-cutting changes to cover the tax paid.
●​ A - Avoidance (legal
4.​ Tax Exemption Specific exemptions granted by law to particular reduction),
persons, transactions, or organizations. ●​ T for Transformation (cut
costs),
5.​ Tax Avoidance Using legal means to minimize taxes, e.g. tax ●​ TE for Tax Exemption (free of
incentives, deductions, or legal provisions tax) and Tax Evasion (illegal
avoidance).
6.​ Tax Evasion Illegal actions (fraud, deceit) to evade or reduce
taxes owed.
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Tax Avoidance vs. Tax Evasion​

"LAWS" (Legal vs. Illegal, Approach, Willfulness, Steps)

Tax Avoidance Tax Evasion

“tax minimization” / “tax planning” “tax dodging”

Legality Legal: Uses allowed methods to minimize tax. Illegal: Violates tax laws to reduce or avoid tax.

Approach Planning: Arranging affairs to reduce tax Dodging: Concealing or falsifying information.
legally.

Willfulness Good Faith: No intent to deceive; lawful Bad Faith: Willful, deliberate intent to deceive.
strategy.

Steps Involved Lawful actions, e.g. taking deductions, tax Unlawful actions, e.g. underreporting income,
credits, or changing business structure. falsifying expenses, or backdating documents.

REMEMBER: Tax Avoidance is smart planning, Tax Evasion is unlawful scheming.

SITUS OF TAXATION
Situs of Taxation is the place of taxation. Taxes are collected by the state where the taxed subject has a
legal presence or jurisdiction.

Key Factors for Determining Situs

1.​ Subject Matter: What’s being taxed (person, property, action, or activity).
1.​ Nature of Tax: Type of tax (e.g., income tax, import duty).
2.​ Taxpayer’s Citizenship: Nationality of the taxpayer.
3.​ Taxpayer’s Residence: Where the taxpayer lives.

Tax Type Situs (Place of Taxation)

Persons Residence of the taxpayer
Real Property or Tangible Property Location of the property
Intangible Property Domicile of the owner (unless situs is acquired elsewhere)
Income Earned Residence/Citizenship of taxpayer or income source
Business, Occupation, Transaction Location where activity takes place
Gratuitous Property Transfer Residence/Citizenship of taxpayer or property location
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DOUBLE TAXATION

Double Taxation occurs when the same subject (income/property) is taxed twice, which may lead to an
unfair tax burden or legal objections if it meets specific conditions. While not outright forbidden, double
taxation is legally objectionable when it becomes direct double taxation (DDT) because it can be
oppressive.

TYPES OF DOUBLE TAXATION

Direct Double Taxation Indirect Double Taxation

Same subject taxed twice for the same purpose by Same income taxed by different taxing
the same authority within the same jurisdiction authorities in different jurisdictions,
and for the same period

Considered oppressive and inequitable; can be Not necessarily unconstitutional, but generally
legally challenged avoided to prevent taxpayer injustice.

International Context
When income is taxed in both the Philippines and another country, it is classified as indirect double
taxation. This is not prohibited as different authorities impose the taxes.

Methods to Avoid Double Taxation

1.​ Reciprocal Exemptions: Established by law or treaty.
2.​ Tax Credit: Allowing credit for foreign taxes paid.
Eligibility for Tax Credits:
a. Philippine Citizens, ​​ ​ ​ d. Enter into treaties with other states,
b. Domestic Corporations, ​ ​ ​ e. Allowance on the principle of reciprocity
c. Provide for exemption,
3.​ Tax Deduction: Allowing deduction for foreign taxes paid.
4.​ Reduced Tax Rate: Lowering the Philippine tax rate.
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Doctrines on Double Taxation

1.​ Direct Double Taxation (DDT) – Not allowed, as it may equate to property confiscation without due
process.
2.​ Equal Protection Violation – Taxpayers can challenge double taxation if it breaches equality or
uniformity in taxation.
3.​ Presumption in Favor of Taxpayer – Ambiguities in double taxation cases are usually resolved for the
taxpayer’s benefit.

LEGISLATION OF TAX LAWS

Philippine Tax Law Legislation & Sources of Tax Authority

Branches Involved in Tax Law Creation:

1.​ Legislative (Congress): Enacts tax laws, e.g., Republic Act (RA) 8424, the National Internal Revenue Code (NIRC)
of 1997.
2.​ Executive: The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) enforce and interpret tax
laws.
3.​ Judiciary: Courts resolve disputes and determine the legal meaning of tax laws in real situations.

Sources of Tax Laws

The foundational authority of all laws, including tax law.
1.​ Constitution
Key statutes like the National Internal Revenue Code (NIRC) and
2.​ Statutes & Presidential Decrees
Presidential Decrees.

Administrative interpretations of statutes by the Department of Finance

3.​ Revenue Regulations (DOF)
and the Bureau of Internal Revenue (BIR).

Issued by the Commissioner of Internal Revenue (CIR) and the Secretary

4.​ Rulings & Opinions
of Justice.

Supreme Court and Court of Tax Appeals decisions interpreting tax law in
5.​ Court Decisions
specific cases.

Local taxes authorized by the Local Government Code (1991), e.g.,

6.​ Local Ordinances
property and business taxes.

Aimed at avoiding or minimizing double taxation.

7.​ Treaties & International Agreements
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Key Tax Legislation

Law Tax Types/Features

1.​ National Internal Revenue Code

Income, estate, VAT, excise, percentage, and documentary stamp taxes.
(NIRC) of 1997 (RA 8424)

2.​ Tariff and Customs Code (P.D. 1464) Import and export duties.

Real property tax, business tax, community tax, professional tax, and
3.​ Local Government Code (RA 7160)
taxes on financial institutions

- Motor Vehicle Law (RA 4136): motor vehicle fees.

4.​ Special Laws
- Immigration Act (CA 613): immigration tax.
- Travel Tax Law (PD 1183): travel tax

Key Principles in Tax Law Interpretation

1.​ Legislative Intent: Interpreting laws according to the intention of Congress.

2.​ Strict Interpretation Against Taxing Authority: Doubts favor the taxpayer.
3.​ Strictness on Exemptions: Tax exemptions are not presumed; they must be explicitly stated in clear terms.

Court of Tax Appeals (CTA) – Republic Act 9282

Expanded Jurisdiction of the CTA (effective April 22, 2004):
●​ Structure: Presiding Justice + 5 Associate Justices, divided into two divisions.
●​ Exclusive Original Jurisdiction: Cases with taxes, fees, or charges over PHP 1 million.
●​ Appellate Jurisdiction: Reviews CIR decisions on disputed tax assessments, penalties, and claims for tax refunds.
●​ Limitations: CTA cannot rule on the constitutionality of laws or regulations; only regular courts can.

Guidelines for Tax Laws vs. GAAP/GAAS

●​ Tax Code Compliance: Returns must follow the Tax Code and BIR regulations.
●​ Tax Code Supremacy: In case of conflict with GAAP/GAAS, the Tax Code and BIR regulations prevail.
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Internal Revenue Law

1.​ Definition: Law that authorizes tax levies and collections.
2.​ Nature: Civil, not penal; revenue-focused and not political, although penalties apply for violations.
3.​ History:
1904: Act 1189, the first Philippine Internal Revenue Law.
1939: National Internal Revenue Code as Commonwealth Act 466.
1997: RA 8424 – Tax Reform Act of 1997, amending the NIRC to promote equity and economic growth.

NATURE OR CONSTRUCTION OF TAX LAWS

1.​ Tax laws are prospective, generally, but can have retrospective application (if expressly declared by tax laws or
necessarily implied from the language used). ​
​ ​ Payment of tax ​​ ​ civil liability ​
​ ​ Nonpayment of tax ​ ​ criminal liability
2.​ A statute will not be construed as imposing a tax unless it does so clearly, and unambiguously. In case of
doubt, statutes imposing a tax are construed most strongly against the government, and liberally in favor of
citizens.
3.​ Tax exemptions are to be construed strictly against the taxpayer.
4.​ Revenue laws are not political in nature.
5.​ Legislative intention must be considered.
6.​ Tax laws are special laws, and prevail over general laws.

TAX ADMINISTRATION
The system involving assessment, collection, and enforcement of taxes, including the execution of
judgment in all taxes decided in favor of the BIR by the courts

POWER AND DUTIES OF THE BIR

1.​ Assessment and collection of all NIR taxes, fees, & charges
2.​ Enforcement of all forfeitures, penalties, and fines connected therewith
3.​ Execution of judgments in all cases decided in its favor by the Court of Tax Appeals, and the ordinary courts
4.​ Giving effect to and the administering of the supervisory and police power conferred to it by the Tax Code or
other laws
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POWER AND DUTIES OF THE CIR

1.​ Power to interpret tax laws subject to review by the Secretary of Finance
2.​ Power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties
imposed in relation thereto
3.​ Power to examine any book, paper, record, or other data which may be relevant or material to a tax inquiry
4.​ Power to obtain information from any person other than the person whose internal revenue tax liability is
subject to audit or investigation or from any office or officer of the national or local governments, government
agencies and instrumentalities
5.​ Power to summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other accounting
record
6.​ Power to take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry
7.​ Power to make assessments
8.​ Power to prescribe real property values by dividing the country into different zones and determining the FMV
of real properties located in each zone
9.​ Authorized to inquire into the bank deposits and other related information held by financial institutions of:
(a)​ A decedent to determine his gross estate;
(b)​ Applicant for compromise of tax liability due to financial incapacity
(c)​ A taxpayer who is subject of a request for the supply of tax information from a foreign tax authority
pursuant to an international agreement or treaty.
10.​ Authority to accredit and register individuals and general professional partnerships (GPPs) and their
representatives who prepare and file tax returns, statements, reports and other papers, or who appear before
the BIR, for taxpayers
11.​ Power to prescribe additional procedural or documentary requirements in connection with the submission
or preparation of financial statements accompanying the tax returns.
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Tax Remedies are methods by which a cause of IMPORTANCE

action can be enforced by law or equity. It is a
procedure which may be availed of as the 1.​ To enhance and support the government’s tax
collection;
means to obtain the relief desired.
2.​ To safeguard taxpayer’s rights against arbitrary
action

GOVERNMENT TAXPAYER

1.​ Assessment Before payment:

1.​ Administrative Remedies
2.​ Collection a.​ Protect against assessment
A.​ Summary Proceedings b.​ Enter into compromise
1.​ Distraint, ​ 2.​ Judicial Remedies
Levy,​ c.​ Appeal to CTA
Garnishment d.​ Appeal to SC
2.​ Tax Lien
3.​ Forfeiture
4.​ Compromise, and After payment:
5.​ Suspension of Business Operations a.​ Claim Tax Credit
6.​ Informer’s reward b.​ Claim Tax Refund
7.​ Surcharges and Penalties

B.​ Judicial Proceedings

8.​ Civil Action
9.​ Criminal Action
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REMEDIES OF THE GOVERNMENT

ASSESSMENT
-> The notice given to TP that the correct taxes have not been paid. To be valid:
(a)​State the facts and the law on which its conclusion is based;
(b)​Include or contain a computation of the tax liabilities, and
(c)​Contain a demand for payment within a specified period.

Time of Assessment
GR: 3 years from deadline of filing or from date of filing, whichever is later
XPN: 1. False of fraudulent return 10 years after discovery of fraud or falsity
2. Failure or omission to file return 10 years after discovery of failure or omission
3. Any period agreed upon by TP and CIR (entered into before the expiration of 3-year period.)

COLLECTION
1.​ By distraint (seizure) of personal property May be pursued simultaneously

2.​ By levy of real property

3.​ By court action

(a)​ Civil action – collection of taxes filed within 5 years of assessment

-​ Regular courts​ ​ ​ principal amount (exc. of penalties)​ < Php 1M​ ​
-​ Court of Tax Appeals​ ​ principal amount (exc. of penalties)​ ≥ Php 1M

(b)​ Criminal action – enforcement of penal provisions

Time of Collection
1.​ 5 years following the assessment
2.​ Period agreed upon by the TP and CIR before expiration of 5-year period
3.​ Within 10 years after the discovery of fraud, falsity, or omission in filing a return even without assessment thru
a proceeding in court

Tax Lien: legal claim placed by the BIR on properties of the TP w/ unpaid taxes
Notice of Tax Lien: prevents the TP from disposing properties to other parties other than the BIR
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SUSPENSION OF RUNNING OF STATUTE OF LIMITATIONS:

(a)​ For the period during which the Commissioner is prohibited from making the assessment or beginning
distraint or levy or proceeding in court and for sixty (60) days thereafter;
(b)​ When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
(c)​ When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being
assessed or collected.
(d)​ When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located
(e)​ When the taxpayer is out of the Philippines

GR: No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue
tax, fee, or charge imposed by the Tax Code ​
XPN: The CTA can grant a Temporary Restraining Order (TRO)/Injunction when:
(1)​ The collection of the tax may jeopardize the interest of the government or of the taxpayer, or both;
(2)​ The amount claimed is deposited with the court, or a surety bond for not more than double the amount of the
tax is filed with the court;
(3)​ The appeal is not frivolous nor dilatory

REMEDIES OF THE TAXPAYER

LETTER OF AUTHORITY (LOA):

-> empowers or enables said revenue officer to examine the books of accounts and other accounting records

NOTICE OF DISCREPANCY (formerly known as Notice for Informal Conference):

-> written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and
accounting records indicate that additional taxes or deficiency assessments have to be paid. ​
* TP has 30 days from receipt of NOD to explain his side (Discussion of Discrepancy)

PRELIMINARY ASSESSMENT NOTICE (PAN):

-> shows in detail the facts and the law or jurisprudence on which the proposed assessment is made; mandatory
requirement for the issuance of Formal Letter of Demand or Final Assessment Notice (FLD/FAN) ​
* TP is given 15 days from receipt of PAN

FINAL ASSESSMENT NOTICE (FAN):

-> state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the
assessment shall be void.
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REMEDIES AGAINST ASSESSMENT

1.​ Before Payment (Where Tax Has Not Been Paid

Receipt of FLD/FAN

↓ within 30 days
Protest by Filing with the CIR [Note (a)]

Request for Reconsideration OR Request for Reinvestigation

↘ ↓ within 60 days
Submission of all relevant
supporting documents

↘↙ within 180 days

Protest is denied or Not acted upon

within 60 days ↙ ↓ within 30 days within 30 days ↓ ↓

Request for Await the decision:
Reconsideration Protest is eventually
with the CIR denied by the CIR
(Administrative
Appeal) [Note (b)]

↓ ↓ ↙ within 30 days
Appeal to the CTA Appeal to the CTA
[Note (b)]

Notes:
(a)​ Contents of the Protest (must all be present, otherwise void)
-​ Nature of the protest, whether it is a request for reconsideration or reinvestigation.
-​ Newly discovered or additional evidence the taxpayer intends to present if it is a request for reinvestigation
-​ Date of the assessment notice or letter of demand
-​ The applicable law, rules and regulations, or jurisprudence on which the protest is based

(b)​ The Motion for Reconsideration (administrative appeal) shall not toll the 30-day period to appeal to the CTA.
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2. After Payment (Where Tax Has Been Paid)

Remedy: Claim for refund

Date of payment of tax

↓ ↓ within 2 years
File claim for refund with
the Commissioner

within 2 years ↓ ↓
Denial of Claim

↓ ↓ within 30 days

Appeal to the CTA

Notes:
(a)​ The filing of the claim for refund with the Commissioner and the institution of judicial action with the Court of Tax
Appeals to recover the tax can be done either simultaneously or one after the other within the 2-year period to
protect the interest of the taxpayer.
Note: However, the claim for refund with the Commissioner must be filed first before any institution of judicial action
with the CTA.

(b)​ If the tax is paid in installments, the 2-year prescriptive period within which to file both administrative and judicial
claims for refund shall be counted from the date of the final payment.
(c)​ No interest is paid by the government in tax refunds unless directed by law.
(d)​ Even without a claim for refund, the Commissioner of the BIR may award a refund or credit if on the face of the
return the payment was erroneous.

3. File a criminal action against the erring or abusive BIR official

4. Apply for a TRO or injunction with the CTA.

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REMEDIES AVAILABLE TO THE GOVERNMENT AND TAXPAYER

A.​ COMPROMISE: mutual concession or settlement; called a compromise penalty if paid in lieu of
criminal prosecution

Grounds for Compromise:

1.​ Reasonable doubt as to the validity of the claim against the taxpayer​
Min.: 10% of the basic tax as assessed.
2.​ Financial inability of the taxpayer to pay (accompanied by a waiver—Secrecy of Bank Deposit Law) ​
Min.: 40% of the basic tax assessed

Approval of the Compromise:

1.​ Basic tax involved > 1M
2.​ Settlement offered is less than prescribed minimum rates—subject to approval of the National
Evaluation Board (composed of Commissioner and 4 deputies)

Cases Which May Not Be Compromised:

1.​ Withholding taxes, in general
2.​ Criminal tax fraud cases confirmed
3.​ Criminal violations already filed in court
4.​ Delinquent accounts with duly approved schedule of installment payments
5.​ Cases where final reports of reinvestigation or reconsideration have been issued resulting to
reduction in the original assessment, and the taxpayer is agreeable to such decision by signing the
required agreement form for the purpose
6.​ In general,
(a) cases which have become final and executory (except where compromise is requested on the
ground of financial incapacity) and
(b) estate tax cases (except where compromise is requested on the ground of doubtful validity of
the assessment).

B.​ ABATEMENT OR CANCELLATION OF A TAX LIABILITY

Grounds for Compromise:

1.​ The tax or any portion thereof appears to be unjustly or excessively assessed.
2.​ The administration and collection costs involved do not justify the collection of the amount due
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Income Taxation

➔​ A tax on all yearly profits arising from

property, professions, trades, or offices, or NATURE:
➔​ A tax on a person’s income, emoluments, ●​ National Tax
profits, and the like ●​ Excise Tax
➔​ It may be succinctly defined as a tax on
●​ Direct Tax
income, whether gross or net, realized in one
taxable year. ●​ General Tax

TAXATION ON INDIVIDUALS

CHARACTERISTICS OF PH INCOME TAX

1.​ National Tax 5. Progressive Tax for Individual Taxpayer
2.​ General Tax 6. Income tax system is a comprehensive syste7
3.​ Excise Tax 7. Semi-global or semi-scheduler
4.​ Direct Tax (a)​ Global tax system/Net income tax system
(b)​ Schedular tax system/Gross Income Tax

REQUISITES FOR TAXABILITY OF INCOME

1.​ Gain on profit (cash or its equivalent)

2.​ Gain must be realized or received
3.​ Gain must not be excluded by law or international treaty from taxation

HOW TO DETERMINE INCOME WITHIN AND INCOME WITHOUT

INCOME TEST SOURCE

1.​ Interest Income Residence of the debtor

2.​ Service Income Place of Performance

3.​ Rent Location of property

4.​ Royalty Place of use of intangible

5.​ Gain on sale of real property Location of property

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6.​ Gain on sale of personal property Place of sale

7.​ Dividend

●​ Domestic Corp Income within

●​ Foreign Corp Income within

XPN: If >50% of gross income for preceding 3
years was derived within PH, then part of dividend
is income within

8.​ Sale of domestic share Income without

9.​ Sale of foreign shares Income without

10.​ Income from transpo and other services Partly within and partly without
rendered partly within and partly without

TYPES OF TAXABLE INCOME

Passive Income ​ Capital Gains ​

Returnable Income
(Final Tax) (Capital Gains Tax)

1.​ Compensation income from Earned without any further Arise from the sale of 2 types of
employment action on the part of the capital assets, namely:
2.​ Income from trade, taxpayer. ​
business, or practice of ​ a) Real property in the
profession ​ Philippines classified as capital
3.​ Gain from sale of ordinary Ex. dividends, interest income on asset; and
assets bank deposits b) Shares of domestic
4.​ Net capital gain from sale of corporations (provided the seller
“other capital assets” or taxpayer is not a dealer in
5.​ Other taxable income not securities)
subject to FT or CGT

Income Tax Return (ITR) Final Tax Final Tax (CGT)

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GENERAL CATEGORIES OF INDIVIDUAL TAXPAYERS

Resident Citizen ●​ Citizen at time of adoption of 1987 Constitution; or

●​ Fathers and mothers are citizen; or
●​ Born before January 17, 1973 of Filipino mothers, and who elect PH
citizenship upon reaching 18
●​ Naturalized in accordance w/ law AND
●​ Residence is within the PH

Non-Resident ●​ Citizen who has physical presence abroad with definite intention to reside
Citizen therein
●​ Citizen who leaves for abroad (as immigrant/employment) on a
permanent basis
●​ Citizen who derives income from abroad which requires him to be
physically present abroad most of the time (≥ 183 days) during the year

OCW/OFW ●​ Citizen working or deriving income from abroad (registered with POEA)
●​ Seaman who is a citizen and works as a member of the complement of a
vessel engaged exclusively in international trade

Non-resident ●​ Not a citizen, not a resident of the PH

alien
A.​ ETB ●​ Stay in the PH for >180 days during the year
B.​ NETB ●​ Stay in the PH for ≤ 180 days during the year

Special ●​ NRA cinematographic film owner, lessor, or distributor

Individual ●​ Subcontractors, of service contractors engaged in petroleum operations
Taxpayers (exc. NRANETB)
●​ Alien individual employed by offshore gaming licensees or their service
providers
●​ Qualified individuals availing of the Income Tax Holiday under special laws
or under Section 294 of the Tax Code
●​ Qualified individuals availing of the 5% gross income tax (GIT) incentive
under special laws or under Section 294 of the Tax Code
●​ Individual registered as a BMBE
22

MWEs ●​ Worker, whether in the public or private sector, who is paid not more than the
statutory minimum wage

I.​ RETURNABLE INCOME

Individual Source of Type of Returnable Tax Base Tax Rate

Taxpayer Taxable Income Income

1.​ Resident Within and Taxable Graduated Rates

citizen Without Compensation
Compensation Income (a)
2.​ Non-resident Within Income
citizen Taxable Net
Income (b) Graduated rates
3.​ OCWs/OFWs Within
OR
4.​ Resident Alien Within Income from Business, Gross Sales/ 8%
Trade, or Practice of Receipts +
5.​ Non-resident Within Profession Non-Op
alien ETB Income (c), (d)

6.​ Non-resident Within Gross Income 25% FT

alien NETB (e)

NOTES:
a)​Taxable Compensation Income = Gross Compensation Income — Non-taxable/Exempt Income​

1.​ SMW, holiday pay, OT pay, NSD, hazard pay of an MWE

2.​ First P90,000 of 13th Month Pay and other benefits
3.​ De minimis fringe benefits
4.​ Employee’s share of SSS, GSIS, Philhealth, and PAG-IBIG contribution
5.​ Union Dues
23

b)​Sales Receipts (net of returns, allowances, discount) xxx​

Less: COS xxx ​
Gross Income from operations xxx ​
Less: Itemized Deductions or OSD xxx ​
Net Income for Operations xxx​
Add: Non-operating income/Share in GPP net income xxx​
Taxable Net Income XXX​

c)​Purely self-employed and mixed earners can avail of the 8% income tax rate if gross
sales/receipts + non operating income <P3M. It is lieu of (1) graduated tax rates and (2) the OPT
under Section 116 of the Tax Code.
However, this option is not available to the following individual taxpayers:
(1)​ VAT-registered taxpayers;
(2)​ Taxpayer subject to OPT other than the 3% OPT under Section 116
(3)​ Partners of GPPs
(4)​ Individuals enjoying income tax exemption (e.g., those registered as BMBEs)
(5)​ Taxpayers who fail to signify their intention to avail of the 8% income tax rate in the First
(1st) Quarter ITR or in the First (1st) Quarter Percentage Tax Return, or in the initial quarterly
return of the taxable year upon the commencement of a new business or practice of
profession​

d)​ Net of ₱250,000 if an individual taxpayer is a self-employed individual earning income purely
from self employment or practice of profession. Mixed income earners are not allowed this
₱250,000 deduction.​

e)​ The NRANETB does not have to file a PH ITR because the tax on the income received is
considered paid, said tax having been deducted by the payor of the income (withholding
agent).
24

7. Special Individual Taxpayers Type of Income Tax Base Tax Rates

(a)​NRA cinematographic film Income from film leasing Gross Income 25% FT
owner, lessor or distributor and distribution within PH
(including royalties)

(b)​Subcontractor, whether citizen, Income from contract with Gross Income 8% FT

resident alien, or NRAETB, of a service contractor
service contractors engaged engaged in petroleum
in petroleum operations operations in PH

(c)​Alien individual employed by Income received from Gross 25% FT

offshore gaming licensees offshore gaming licensee compensation
(POGOs), or their service or service provider income
providers

(d)​Qualified individuals availing Income from registered Exempt

of the Income Tax Holiday activities
(“ITH”) under special laws and
Section 294 of the Tax Code

(e)​Qualified individuals availing Income from registered Gross Income 5%

of 5% gross income tax (GIT) activities
incentive under special laws
and Section 294 of the Tax
Code

(f)​ Individual registered as a BMBE Income arising purely from Exempt

its operations as a BMBE

8. MWEs SMW inc. holiday pay, OT Exempt

pay, NSD pay, and hazard
pay

SPECIAL INDIVIDUAL TAXPAYERS:​

25

1.​ BOI-Registered Filipinos Availing of ITH—engaged in a preferred area of investment

PERIOD OF AVAILMENT: New-registered pioneer firms 6 years from commercial operation​
New-registered non-pioneer firms 4 years from commercial operation
Expanding firms 3 years from commercial operation

*Additional period of availment: max of 8 years for pioneer firms

2.​ PEZA-registered enterprises in ECOZONEs

(a)​ITH
(b)​5% on Gross Income Tax (GIT): avail upon expiry of ITH; paid and remitted as follows ​
- 3% to the National Government ​
- 2% to the Treasurer’s Office of municipality it’s located

Tax Incentive Regime Prior After Transition

Transition Period
to April 11, 2021 Period

ITH only ITH for period specified in registration RCIT

ITH but entitled to 5% GIT after ITH for period specified in registration; then 5% RCIT
ITH expires SCIT for 10 years

5% GIT 5% GIT for 10 years; then 5% SCIT for 10 years RCIT

(for exporters)

3.​ Registered individuals subject to ITH under Sec. 294 of Tax Code (NEW) ​
DURATION: 4 to 7 years depending on location and industry priorities ​

4.​ Registered individual taxpayers subject to the 5% GIT under Sec. 294 of Tax Code (NEW)​

Registered Export 5% SCIT or EDs for

ITH for 4-7 years then then RCIT
Enterprises (REEs) 10 years

Enhanced
Domestic Market
ITH for 4-7 years then deduction (EDs) then RCIT
Enterprises (DMEs)
for 5 years
26

5.​ Alien Individuals Employed by Offshore Gaming Licensees (POGOs) and Service Providers (NEW)
MINIMUM: P12,500 ​

6.​ Individuals registered as Barangay Micro Business Enterprises (BMBEs) ​

TOTAL ASSETS (EXC. LAND): not more than P3M ​
FISCAL INCENTIVES: (a) Income tax exemption from income arising from operation
(b) Exemption from the coverage of the Minimum Wage Law ​
(c) Priority to a special credit window
(d)Tech, transfer, production, mngt. training and mktg. assistance programs ​

7.​ Minimum Wage Earners (MWEs)

II.​ PASSIVE INCOME SUBJECT TO FINAL WITHHOLDING TAX (FWT)

NRA-NETB
Generally, 25% of gross income received from all sources within the Philippines as interest, dividends,
rents, salaries, premiums, annuities, compensation etc.​

Passive Income Citizen and RA NRA-ETB

a) Interest from any currency bank deposit in ₱ 20% 20%

b) Yield or monetary benefit from deposit substitutes, trust funds, 20% 20%
and similar arrangements (Note 1)

c) Royalties ​ 20% 20%

​
Except royalties on books, literary works, and musical composition 10% 10%

d) Prizes of more than ₱10,000 ​ 20% 20%

​
Except prizes of ₱10,000 or less Basic tax Basic tax

e) Winnings ​ 20% 20%

Philippine Charity Sweepstakes and Lotto winnings Exempt < 10k Exempt < 10k
27

f) Interest from a depositary bank under the expanded foreign 15% ​ Exempt
currency deposit system (NRC exempt)

g) Interest income from long term deposit or investment of 5 years Exempt Exempt
or more (Note 2)

h) Cash or property dividend received from a domestic corporation, 10% 20%

or regional operating headquarter of an MNC

i) Share of an individual partner in the after-tax net income of a 10% 20%

business partnership, or an organization, JV, or consortium taxable
as a corporation

NOTES:
1.​ Deposit substitutes—alternative form of obtaining funds from the public (20 or more lenders at
any one time)

2.​ Long-term deposit or investment certificate (maturity of/held for at least 5 years issued by a
bank) ​
PRE-TERMINATION OF INVESTMENT: ​
Less than 3 years 20% ​
3 years to less than 4 years 12% ​
4 years to less than 5 years 5%

DIVIDENDS RECEIVED FROM A FOREIGN CORPORATION

If received by:

RC NRC, RA, NRA-ETB NRA-NETB

GR: Such dividend is Basic tax Exempt Exempt

income without

XPN: When dividend is 100% included in ITR Part without—exempt Part without—exempt Part
sourced partly within and Part within—ITR within—25% FT
partly without
28

III.​ CAPITAL GAINS SUBJECT TO FINAL TAX (CAPITAL GAINS TAX) ​

A.​SALE OF DOMESTIC SHARES OF STOCK

1.​ Not traded in the stock exchange ​
TAX BASE: Net capital gain (Selling Price minus basis or adjusted basis of the share) ​
TAX RATE: 15%
2.​ Listed and traded thru local stock exchange ​
TAX BASE: Gross Selling price or gross value in money ​
TAX RATE: 6/10 of 1% ​
KIND OF TAX: business tax (Stock Transaction Tax) ​
FILING: Within 5 banking days from date of collection

B.​ SALE OF REAL PROPERTY CLASSIFIED AS CAPITAL ASSETS​

TRANSACTION SUBJECT: Sale/transfer of real property located in PH, classified as capital assets,
including pacto de retro sales and other forms of conditional sales ​
TAX BASE: Gross selling price or current fair market value, whichever is higher ​
TAX RATE: 6% ​
FORCED SALE TO THE STATE UNDER EMINENT DOMAIN: Option of either taxed in ITR or CGT​
​
EXEMPTIONS FROM CGT:
1.​ Sale of raw lands used for socialized housing project or sold under Community Mortgage
Program
2.​ Land transfers under the Comprehensive Agrarian Reform Law of 1988
3.​ Sale of principal residence, and subsequent acquisition or construction of another
REQUISITES:
1.​ Sale by natural individual of his PR in the PH
2.​ Proceeds fully utilized in acquiring/constructing a new PR within 18 calendar months
3.​ Historical cost or adjusted basis of real property sold shall be carried over to new PR
4.​ Notify the Commissioner within 30 days from sale of his intention to avail tax exemption
5.​ Available only once every 10 years
PROCEEDS NOT FULLY UTILIZED
Taxable Portion = Unutilized Amount x Higher of GSP or FMV
Gross Selling Price
29

FINAL TAX ON INFORMER’S REWARD

Reward = LOWER of
(a)​10% of the revenues, surcharge, or fees recovered, or value of confiscated goods
(b)​1,000,000 per case Final tax = 10% of the reward
Final tax = 10 % of the reward

GRADUATED TAX RATES

Effective January 1, 2018 to December 31, 2022

Over Not over Basic amount Addt’l Rate Of excess over

- 250,000 - -

250,000 400,000 - 20% 250,000

400,000 800,000 30,000 25% 400,000

800,000 2,000,000 130,000 30% 800,000

2,000,000 8,000,000 490,000 32% 2,000,000

8,000,000 2,410,000 35% 8,000,000

Effective January 1, 2023 onwards

Over Not over Basic amount Addt’l Rate Of excess over

- 250,000 - -

250,000 400,000 - 15% 250,000

400,000 800,000 22,500 20% 400,000

800,000 2,000,000 102,500 25% 800,000

2,000,000 8,000,000 402,500 30% 2,000,000

8,000,000 2,202,500 35% 8,000,000

30

INCOME TAX OF CORPORATIONS

1.​ Net Income Tax (on Ordinary Income)

2.​ Final Withholding Tax (on Passive Income) Standard Income Tax

3.​ Capital Gains Tax (on Capital Gains)

4.​ Capital Gains Tax (on Capital Gains) Penalty Income Tax
5.​ Branch Profits Remittance Tax (BPRT) Special Income Tax

DEFINITION: Shall include Does not include:

a)​ One-person corporations; a)​ GPPs
b)​ partnerships, no matter how created or organized; b)​ Joint venture/consortium
formed for the purpose of
c)​ joint stock companies -​ undertaking construction
project
d)​ joint accounts (cuentas en participacion); -​ engaging in energy operations
under a service contract with
the government
e)​ associations; or
f)​ insurance companies.

CLASSIFICATION OF CORPORATIONS​

1.​ Domestic Corporation

(a) In general
(b) GOCCs EXC: SSS, GSIS, HDMF (Pag-Ibig), PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions/Non-profit hospitals;
(e) FCDUs of domestic banks
(f) Service contractors/subcontractors engaged in petroleum operations
(g) Ecozone enterprises and Enterprises qualified for the 5% SCIT
(h) Microfinance NGOs
(i) Philippine-Based Offshore Gaming Licensees
31

2.​ Resident Foreign Corporations

(a) In general ​
(b) Resident international carriers ​
(c) RHQs of MNCs ​
(d) Service contractors/subcontractors engaged in petroleum operations ​
(e) Ecozone enterprises / Enterprises qualified for the 5% SCIT ​
(f) Foreign-Based Offshore Gaming Licensees

3.​ Non-resident Foreign Corporations ​

(a) In general ​
(b) Non-resident owners/lessors of vessels chartered by Philippine nationals​
(c) Non-resident owners/lessors of aircraft, machineries, and other equipment;
(d) Non-resident cinematographic film owner, lessor, or distributor;

4.​ Exempt Corporations

ORDINARY INCOME (in ITR)

Corporate TP Source of Income Tax Base Tax Rates

Domestic Within & Without Net Income (a) 25%/20% beg. July 1, 2020 (b)

RFC Within Net Income (a) 25% beg July 1, 2020

NRFC Within Gross Income FWT of 25% beg Jan. 1, 2021

Notes: ​
(a) Format in the ITR
Sales xxx
Less: COGS/COS xxx
Gross Income from Operations xxx
Add: Taxable income not subject to FT xxx
Total Gross Income xxx
Less: Itemized Deductions or OSD xxx
Net Taxable Income xxx
Multiply by: Rate 25%/20%
Regular Corporate Income Tax (RCIT) XXX

​
32

(b) Effective July 1, 2020

TOTAL NET ASSETS (EXC. LAND) NET TAXABLE INCOME TAX RATE

P100M and below P5M and below 20%

ALL OTHER DOMESTIC CORPORATIONS 25%

PASSIVE INCOME

DC and RFC NRFC

Interest on currency bank deposit 20% 25%

Yield or any other monetary benefit from deposit 20% 25%

substitutes, trust funds, and similar arrangements

Royalties 20% 25%

Interest from a depositary bank under the 15% Exempt

expanded foreign currency deposit system

Prizes/Winnings ITR 25%

33

INTERCORPORATE DIVIDEND

PAYOR RECIPIENT TAX

Domestic Corporation DC Not Taxable

Domestic Corporation RFC Not Taxable

Domestic Corporation NRFC 25% FWT

Foreign Corporation DC ITR, except if all req. of Sec 27(D)(4) are met

Foreign Corporation RFC GR: Not taxable ​

EXC: If part of the dividend is sourced within the
Philippines, such part shall be taxable and shall be
included in the ITR of the recipient

Foreign Corporation NRFC GR: Not taxable

EXC: If part of the dividend is sourced within the
Philippines, such part shall be taxable and shall
be subject to a 25% FT.

CAPITAL GAINS TAX ON CAPITAL GAINS

1.​ Sale, exchange, or other disposition of domestic shares of stock ​
NOT TRADED AT THE STOCK EXCHANGE
Net Capital Gain 15%
SHARES LISTED AND TRADED AT THE STOCK EXCHANGE
Gross Selling Price 6/10 of 1% (0.006)
Note: FT on capital gains on the sale of shares of stock applies to all corporate taxpayers.

2.​ Sale of Real Property Classified as Capital Asset

SELLER IS:
A.​ DC 6% of higher bet. Gross selling price or FMV (Commissioner or assessor’s value
B.​ RFC 25% normal tax rate (returnable)
C.​NRFC 25% FT
34

DOMESTIC COMPANIES SUBJECT TO SPECIAL TAX RATES​

PROPRIETARY EDUCATIONAL INSTITUTIONS

TAX RATE 10%
1% (July 1, 2020 to June 30, 2023)
TAX BASE Gross income from unrelated business < 50% of total gross income from all sources
REQ Otherwise, subject to normal tax rate, applied on the entire taxable income

NON-PROFIT HOSPITALS
TAX RATE 10%
1% (July 1, 2020 to June 30, 2023)
TAX BASE Taxable net income within and without PH

NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS

TAX RATE 10%
1% (July 1, 2020 to June 30, 2023)
TAX BASE Taxable net income within and without PH
​
NOTE: This 3rd type of institution is not included in Section 27(B) of Tax Code, but is added by RR. No. 3-
2022.

FT ON INCOME OF A FOREIGN CURRENCY DEPOSIT UNIT (FCDU) OF LOCAL BANK UNDER EXPANDED FOREIGN
CURRENCY DEPOSIT SYSTEM (FCDS)
Foreign currency loans granted to PH residents
Interest income from foreign currency interbank deposits
Income from foreign currency transaction w/ non-residents,
OBUs, local commercial banks, branches of foreign banks
Authorized to transact business under the FCDS
SERVICE CONTRACTORS/SUBCONTRACTORS ENGAGED IN PETROLEUM OPERATIONS
TAX RATE 8%
TAX BASE Gross income derived from petroleum operations
35

ECOZONE ENTERPRISES
TAX RATE 5%
TAX BASE Gross income on registered activities
REMITTANCE 3% to National Government
2% to city/municipality where it is located

TOURISM ENTERPRISES REGISTERED WITH THE TOURISM INFRASTRUCTURE AND ENTERPRISE ZONE
AUTHORITY (TIEZA)
TAX RATE 5% (in lieu of all national and local taxes except real estate taxes)
TAX BASE Gross income on registered activities
REMITTANCE 1/3 proportionately allocated among affected cities/municipalities
1/3 to National Government
1/3 TIEZA

CORPORATIONS SUBJECT TO SPECIAL CORPORATE INCOME TAX (SCIT) UNDER SEC. 294 OF TAX CODE
(NEW): Effective July 1, 2020
TAX RATE 5% (in lieu of all national and local taxes)
TAX BASE Gross income
REQ Comply with reqs. Of Section 304 of Tax Code; must be export enterprises

MICROFINANCE NGO
TAX RATE 2%
TAX BASE Gross receipts from microfinance operations

PHILIPPINE-BASED OFFSHORE GAMING LICENSEE (NEW)

TAX RATE 5% Gaming Tax
TAX BASE higher bet. gross gaming revenue or receipts (gross wagers less payout), or the agreed
predetermined minimum monthly gaming revenue or receipts
​
NOTE: Non-gaming revenue subject to 25% of taxable income (within and without PH)
36

RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES

INTERNATIONAL CARRIERS DOING BUSINESS IN THE PH

TAX RATE 2.5%
TAX BASE Gross PH billings (originating from PH; continuous and uninterrupted flight)

OFFSHORE BANKING UNITS (OBU)

BEFORE APRIL 11, 2021
Income from foreign currency loans granted to PH residents 1.0% FT
Interest income from foreign currency interbank deposits 1.0% FT
Income from foreign currency transaction w/ non-residents, Exempt
OBUs, local commercial banks, branches of foreign banks
Authorized to transact business under the FCDS
Note: Effective April 11, 2021, taxed as any other RFC.

REGIONAL OR AREA HQS AND REGIONAL OPERATING HQ OF MULTINATIONALS

RHQS Exempt IT
ROHQs—before Jan 1, 2022 10%
Beg. Jan. 1, 2022 25% RCIT

SERVICE CONTRACTORS/SUBCONTRACTORS ENGAGED IN PETROLEUM OPERATIONS

TAX RATE 8%
TAX BASE Gross income derived from petroleum operations

ECOTOURISM ENTERPRISES REGISTERED WITH THE TOURISM INFRASTRUCTURE AND ENTERPRISE ZONE
AUTHORITY (TIEZA)
TAX RATE 5% (in lieu of all national and local taxes except real estate taxes)
TAX BASE Gross income on registered activities
REMITTANCE 1/3 proportionately allocated among affected cities/municipalities
1/3 to National Government
1/3 TIEZA
37

CORPORATIONS SUBJECT TO SPECIAL CORPORATE INCOME TAX (SCIT) UNDER SEC. 294 OF TAX CODE
(NEW): Effective July 1, 2020
TAX RATE 5% (in lieu of all national and local taxes)
TAX BASE Gross income
REQs Comply with reqs. Of Section 304 of Tax Code; must be export enterprises

PHILIPPINE-BASED OFFSHORE GAMING LICENSEE (NEW)

TAX RATE 5% Gaming Tax
TAX BASE higher bet. gross gaming revenue or receipts (gross wagers less payout), or the agreed
predetermined minimum monthly gaming revenue or receipts
NOTE: Non-gaming revenue subject to 25% of taxable income (within PH)

NON-RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES

IN GENERAL, a non-resident foreign corporation is subject to a FWT of 25% (beginning January 1, 2021)
based on enumerated gross income from all sources within the Philippines, except:

RATE AND BASE

Non-resident cinematographic film owner, lessor, or 25% FT on its gross income from all sources within
distributor

Non-resident owner or lessor of vessels chartered 4.5% FT on gross rentals or charter fees from leases
by PH nationals or charters

Non-resident owner or lessor of aircraft, 7.5% Ft on gross rentals or fees

machineries, and other equipment

Interest on foreign loans contracted on or after 20% FT on the amount of interest

August 1, 1986
38

PENALTY TAXES IMPOSED ON CORPORATIONS​

MINIMUM CORPORATE INCOME TAX (MCIT)

SUBJECT DC and RFC subject to RCIT

RATE 2%

BASE Gross Income

Note: 1% MCIT effective July 1, 2020 to June 30, 2023.

EFFECTIVITY 4th taxable year ff. the year of commencement

CARRY FORWARD OF EXCESS MIN. TAX credited against RCIT for 3 immediately succeeding years

RELIEF FROM MCIT Prolonged labor dispute due to force majeure or

legitimate business reverses

​
Rules in Computation ​

1.​ Excess MCIT, computed annually in the annual return.

2.​ Quarterly tax shall be higher of the RCIT or MCIT
3.​ IF quarterly tax due is MCIT, excess MCIT from prev. taxable years not allowed to be credited. The
ff. are allowed credits against the quarterly MCIT due
-​ CWT
-​ Quarterly income tax payments paid in the prev. quarters
-​ Excess tax credits of the prior year
4.​ IF quarterly tax due is the RCIT, the ff. are allowed credits
-​ excess MCIT from previous taxable years
-​ CWT
-​ Quarterly income tax payments paid in the prev. quarters
-​ Excess tax credits of the prior year
39

IMPROPERLY ACCUMULATED EARNINGS TAX (REPEALED BY RA NO. 11524 EFFECTIVE APRIL 11, 2021)
➔​ Additional tax to the RCIT; starting Jan. 1, 1998 ​

SUBJECT Closely-held DC (at least 50% in value or voting power is owned directly and
indirectly by or for not more than 20 individuals)

RATE and BASE 10% of Improperly accumulated taxable income

FORMULA

. Current Year’s Taxable Income

Add: Final Taxes (income) xxx

Excluded in gross income xxx

NOLCO deducted xxx

CGT (income) xxx

Exempted income xxx

Less: Retention for reasonable needs, or 100% of paid up capital (higher) xxx

Dividends actually/constructively paid xxx

Income tax paid xxx

Improperly Accumulated Earnings XXX

ENTITIES EXEMPTED FROM IAET: (PIPE JoB)

●​ Publicly-held corporations
●​ Insurance companies
●​ Partnerships
●​ Enterprises registered with PEZA/BCDA/TIEZA
●​ Joint ventures that are exempted
●​ Banks and other financial intermediaries
40

SPECIAL INCOME TAXES​

BRANCH PROFITS REMITTANCE TAX (BPRT)

SUBJECT profit remitted by a branch of a foreign corporation to its head office

RATE 15%

BASE Total profits applied or earmarked for remittance, except activities

registered with PEZA, SBMA, CDA, TIEZA

GROSS INCOME TAX (GIT) (REPEALED BY RA. 11534 EFFECTIVE APRIL 11, 2021)
CORP GIVEN THE OPTION DC and RFC

REQUISITE CONDITIONS

1.​ .Tax ratio effort of 20% of GNP

2.​ Income tax collection to total tax revenues ratio of 40%

3.​ VAT tax effort of 4% of GNP

4.​ 0.9% ratio of the Consolidated Public Sector Financial Position (CPSFP) to GNP

5.​ COGS to Gross sales/receipt ratio of <55%

PERIOD OF IRREVOCABILITY 3 consecutive taxable years

RATE 15%

BASE Gross income

41

​ SUMMARY OF CHANGES IN THE CORPORATE INCOME TAX RATES UNDER CREATE LAWS

REGULAR TAX RATES MCIT

RATE EFFECTIVITY RATE EFFECTIVITY

DOMESTIC CORPORATIONS

DC, in general 25% July 1, 2020 1% July 1, 2020 to June

30, 2023​
​
2% July 1, 2023

DCs with net taxable income ≤ ₱5 Million 20% July 1, 2020 1% July 1, 2020 to June
AND total assets ≤ ₱100 Million (excluding 30, 2023​
land on which the office, plant, equipment ​
are situated) 2% July 1, 2023

Proprietary educational institutions and 1% July 1, 2020 to Not Applicable

non -profit hospitals June 30, 2023​
​
2% July 1, 2023

FOREIGN CORPORATIONS

RFC in general 25% July 1, 2020 1% July 1, 2020 to June

30, 2023​
​
2% July 1, 2023

OBUs 25% Upon effectivity 1% April 11, 2021 to June

of CREATE (April 30, 2023​
11, 2021) ​
2% July 1, 2023

ROHQs 25% January 1, 2022 1% January 1, 2022 to

June 30, 2023​
​
2% July 1, 2023

NRFCs 25% January 1, 2022 Not Applicable

42

DEDUCTIONS

SUMMARY OF ALLOWABLE DEDUCTIONS (AFTER TRAIN)

DEDUCTIONS INDIVIDUALS ESTATES TRUSTS CORP PS

Self-employed taxed under

graduated rates

1. Itemized Deductions or OSD ✔ ✔ ✔ ✔ ✔

2. Income distributed to ✔ ✔
heirs/beneficiaries

​
OPTIONAL STANDARD DEDUCTION (OSD)
➔​ In lieu of both ordinary and special ID

Who may claim?​

1.​ Individuals

a.​ Citizens
Who compute their income tax under the
b.​ Resident aliens graduated rates *NRAETBs cannot claim
the OSD
c.​ Estates and Trusts

Amount of OSD 40% of [Gross Sales, net of returns, allowances, and discount
(accrual basis) + other taxable income from operations not subject
to FTs] ​
​
OR ​
​
40% of [Gross Receipts, net of returns, allowances, and discounts
(cash basis) + Other taxable income from operations not subject to
FTs)

NOTE: For individuals, OSD is in lieu of COGS/COS + Itemized deductions

43

2.​ Corporations

a.​ DC
Subject to 25% / 20% of net taxable income
b.​ RFC

Amount of OSD 40% of [Gross income (Sales/Receipts net of returns, allowances

and discounts LESS COGS/COS) + Other taxable income not subject
to FTs]

NOTE: For corporations, OSD is in lieu of the ID only.

ITEMIZED DEDUCTIONS (IDs)

Who may claim?

1.​ DC, including partnerships and GOCCs
2.​ RFC
3.​ Individuals engaged in trade, business, profession
4.​ Estates and trusts

Items of IDS Business expenses Depletion of oil and gas wells

Interest expense Charitable and other contributions
Deductible taxes Research and development expenses
Losses Pension trust contributions
Bad debts
Depreciation

ORDINARY ITEM DEDUCTIONS

​
BUSINESS EXPENSES
REQUISITES
1.​ Ordinary and necessary for the business
2.​ Incurred or paid during the taxable year
3.​ Connected with the trade, profession, or business of the taxpayer
4.​ Reasonable expenses of the business
5.​ Substantiated by official receipts/record
6.​ The withholding tax required to be withheld has been withheld and remitted to the BIR
44

1.​ Compensation expenses (of employer) for personal services actually rendered. ​
*Additional deduction of 1/2 of the value of labor training expenses incurred for skills development
of enterprise-based trainees enrolled in public senior high schools, public higher education
institutions, or public technical and vocational institutions and duly covered by an apprenticeship
agreement under the Labor Code. IT shall not exceed 10% of the direct labor wage.
2.​ Travelling expenses (must be incurred while away from home “tax home”
3.​ Entertainment, Amusement, and Recreational Expense (EAR)​
CEILING: ½ of 1% of net sales for TP engaged in the sale of goods and properties​
1% of net income for TP engaged in the sale of services/leasing of properties
4.​ Materials and supplies actually consumed in business
5.​ Maintenance and repairs which do not add to the value of the property nor appreciably prolong
its life
6.​ Rental expense (of the lessee) of property used in business ​
*Advance or prepaid rentals are not allowed to be deducted in the year of payment. Instead,
advance rentals shall be apportioned over the term of the lease. ​
*Taxes and other obligations of the lessor which are paid by the lessee, are allowable deductions
of the lessee. ​
*Depreciation of leasehold improvement is available as deduction to the lessee.
7.​ Advertising and other selling expenses
8.​ Operating expenses of transportation equipment used in the trade, profession, or business
9.​ Insurance premiums against fire, storm, theft, accident, or other similar losses in the trade or
business
10.​ Miscellaneous expenses
a)​ Amortization of pre-operating expenses, which are treated as deferred expenses, for not
more than 60 months;
b)​ Costs of suits (litigation) are allowed as deductions;
c)​ Judgments against the taxpayer less any amount compensated for by insurance or
otherwise;
d)​ Amortization of the discount upon issuance of a corporation’s bonds; e) Loss upon a
corporation’s retirement of its own bonds.
11.​ Special Expense Allowed to Private Educational Institutions under Sec. 27(B)
45

INTEREST EXPENSE
REQUISITES
1.​ Must be connected with the trade or business of the taxpayer;
2.​ There must be a liability to pay interest; stipulated in writing and must be legally due
3.​ Must be paid or accrued within the taxable year
4.​ Interest expense must be the obligation of the taxpayer
5.​ Interest payment must not be between related taxpayers described in Sec. 36(B) of NIRC
6.​ Must not be incurred to finance petroleum operations.
7.​ Interest must not be capitalized if such interest was incurred in acquiring property used in the
trade, business, or profession of the taxpayer.

ALLOWABLE DEDUCTIONS
Beginning January 1, 2009 33% of interest income subject to FT
Beginning July 1, 2020 20% of interest income subject to FT for corpo subject to 25% rate
0% of interest income subject to FT for corpo subject to 20% rate

WHEN INTEREST EXP. DEDUCTIBLE IN FULL

➔​ If TP has no interest income subject to FT
➔​ Interest on all unpaid business-related taxes
➔​ Interest payments of an occupant of a socialized housing project incurred for the construction or
purchase of the house
➔​ If taxpayer is a DC, and the RCIT is 20%

NON-DEDUCTIBLE INTEREST
1.​ Interest paid in advance (thru discount) by a cash-basis taxpayer (deducted only in the year debt
is paid)
2.​ Interest Paid Between Members of a Family or Related Taxpayers under Section 36(B)
3.​ Debt incurred to finance petroleum exploration
4.​ Interest expense attributable to income without the Philippines of an alien or foreign corporation
5.​ Interest on preferred stock which is actually a dividend
6.​ Interest on debt incurred to purchase a tax-exempt security
7.​ Interest which is not stipulated in writing
46

DEDUCTIBLE TAXES
REQUISITES
1.​ Paid or incurred within the taxable year
2.​ Must be connected with the profession, trade, or business of the taxpayer
3.​ Is directly imposed on the taxpayer

NOTES
(a)​VAT is non-deductible except input VAT allocated to exempt sales (which is deductible).
(b)​Fines and penalties imposed due to late payment of tax are not deductible. But interest imposed
due to the same is deductible.
(c)​OPTs, except the stock transaction tax under Sec. 127, are deductible.
(d)​Tax benefit rule applies to refund of deductible taxes.

LOSSES (ORDINARY) ​

1.​ Casualty Loss—due to mishap, accident, fortuitous event, embezzlement of property used in the
trade, profession, or business of the taxpayer.
REQUISITES:
1)​ Must involve ordinary properties;
2)​ Actually sustained;
3)​ Not claimed as a deduction for estate tax purposes;
4)​ Not compensated for by insurance or by other forms of indemnity;
5)​ Must be reported to the BIR within 45 days from the date of loss.
IF total loss, deductible loss = BV– insurance proceeds/compensation received
IF partial loss, deductible loss = lower bet. Replacement cost or BV

2.​ Business losses— losses incurred in the trade, profession, or business of the taxpayer
(a)​ Losses from sale of ordinary assets
(b)​Partner’s share in the losses of a GPP
(c)​A denied VAT refund claim
(d)​Destruction or disposal of inventories, machineries or equipment which have been declared
as waste or obsolete due to spoilage13 , deterioration14 , obsolescence15 , expiration

3.​ Net Operating Loss Carry-Over (“NOLCO”) - excess of allowable deductions over gross income in
a year TP NOT ENTITLED TO NOLCO
1)​ OBUs (before April 11, 2021) and FCDUs of domestic or foreign banking corporations;
2)​ PEZA, SBMA, CDA, etc. registered enterprises with respect to their registered businesses;
3)​ Foreign corporations engaged in international shipping or air carriage business in the
Philippines.
47

DURATION 3 consecutive taxable years (2020-2021: 5 years) ​

For mines, other than oil and gas wells (no incentives from Omnibus Investment Code):
5 years, in any of the first 10 years of operation
For Registered Tourism enterprise: 6 consecutive taxable years

NOTES:
1.​ can’t enjoy NOLCO if subject to MCIT during the year
2.​ Allowed if there has been no substantial change (≥ 75%) in ownership of the business

​
LOSSES (SPECIAL) ​

a)​ Loss of income which was previously reported under the accrual method.
b)​ Wagering losses – deductible only to the extent of gains or winnings
c)​ Voluntary removal of old buildings or old machinery
d)​ Loss of Useful Value (Amount of Loss = Acq. Cost– Accum. Depn.– Salvage Value)
e)​ Securities, shares of stock, classified as ordinary assets, becoming worthless (AOL = Cost/basis of
share)
f)​ Abandonment Losses in Petroleum Operations (All accum. Exploration & dev’t. exp, unamortized
costs, undepreciated costs of equipment)
g)​ Losses from Sale of Shares of Stock Where the Seller is a Dealer in Securities

BAD DEBTS
REQUISITES
a)​ Valid and subsisting debt owed the TP
b)​ Connected with trade, business or profession
c)​ Ascertained to be uncollectible
d)​ Charged off within the taxable year

DEPRECIATION/DEPLETION
REQUISITES
a)​ asset is used in trade, business, profession
b)​ asset has limited useful life
c)​ allowance for depreciation must be reasonable
d)​ charged off during the taxable year
48

DEP’N IN PETROLEUM OPERATIONS

Directly used Useful life: 10 years or shorter

Indirectly used Useful life: 5 years

DEP’N RATE FOR MINING OPERATIONS

Exp. Life of >10 years can be depreciated over any number bet. 5 years and exp. Life
Exp. life of ≤ 10 years normal rate of depreciation

NO DEP’N FOR Yachts, helicopters, airplanes/aircraft, land vehicle w/ value >P2.4M

​
CHARITABLE CONTRIBUTIONS
REQUISITES 1.​ Actual delivery

2.​ Given to entities specified by law

3.​ Recipient is non-profit

4.​ TP making the charitable contri must be engaged in trade, business, or

profession

VALUATION Net book value of property (as reflected in the FS of donor)

NOT SUBJECT TO LIMIT (deductible in full): Donations to

1.​ Government/GOCCs for priority activities
2.​ Foreign institutions and organizations pursuant to treaties or agreements
3.​ Those specified by special laws (eg. SUCs, CCP, Nat’l Commission for Culture and the Arts, IBP, IRRI,
PH Red Cross)
4.​ Accredited NGOs
SUBJECT TO LIMIT: Donations to
1.​ Government/GOCCs for public purposes but not for priority activities
2.​ Accredited DC or associations organized and operated exclusively for religious, charitable,
scientific, youth and sports development, cultural, educational, or the rehabilitation of veteran
3.​ Social welfare institutions
4.​ NGOs
49

LIMIT OF CONTRIBUTION
Corporation: 5% of taxable income derived from trade, business, profession
Individual: 10% without the benefit of charitable deductions

RESEARCH AND DEVELOPMENT EXPENDITURES

➔​ must be connected with trade, business or profession
​
OPTIONS OF TP
1.​ Deduct as ordinary and necessary expenses. However, the taxpayer cannot use this option if the
expenditure is
a)​ for the acquisition of land or improvement of property which is subject to depreciation or
depletion;
b)​ for the ascertaining the existence of location, extent, quality of a deposit ore or other
mineral
2.​ Treat as deferred expense and amortize over a period ≥ 60 months beginning in the month that
benefits are first realized from the expenditure

FOREIGN INCOME TAXES PAID TAKEN AS DEDUCTIONS BY RC OR DC ​

Note: No deduction shall be allowed for any taxes of foreign countries paid or incurred by a domestic
corporation in relation to exempt foreign-sourced dividends

ENHANCED DEDUCTIONS (EDs)​

Upon effectivity of CREATE

SUBJECT DC and RFC (in relation to their registered projects or activities)

1.​ Additional depreciation allowance of qualified capital expenditures

Buildings 10%
Machineries/Equipment 20%
2.​ Labor Expense 50%
3.​ Research and dev’t. expense 100%
4.​ Training expense 100%
50

5.​ Domestic input expense 50%

6.​ Power expense 50%
7.​ Reinvestment allowance to mnfg. industry 50%
8.​ Enhanced NOLCO NOL during the first 3 years from start of
operation, not prev. deducted from gross
income, may be carried over as deduction within
next 5 years ff. such loss

PERIOD OF AVAILMENT

For Exporter’s Activities ITH (4-7 years) afterwards 5% SCIT of EDS (10 yrs.)
For Domestic Market Activities ITH (4-7 years) afterwards EDS (5 years)

SPECIAL ITEMIZED DEDUCTIONS (UNDER SPECIAL LAWS)

SPECIAL DEDUCTIONS OF INSURANCE COMPANIES

1.​ Net additions made within the year to reserve funds.
2.​ Sums paid within the year on policy and annuity contracts including matured endowments,
payments on installment policies and surrender values actually paid.

SPECIAL DEDUCTIONS OF REAL ESTATE INVESTMENT TRUSTS (REITs)

➔​ Dividends paid by REIT
REQUISITES
1.​ Shares must be traded in the stock exchange
2.​ Maintain minimum public ownership of 40% for first 2 years, and 67% on or before the 3rd year and
thereafter
3.​ Must distribute at least 90% of its distributable income

DEDUCTIONS OF ESTABLISHMENTS GRANTING SALES DISCOUNTS TO PWDs ​

REQUISITES
1.​ Claimed tax deductions must be included in gross sales/receipts
2.​ SD deducted after deducting the COGS
3.​ Not exceed 20% of gross selling price/gross receipts
4.​ Exclusively used, consumed, or enjoyed by the PWD
51

NOTE: PWD is entitled to at least 20% discount and a VAT exemption on payments Also entitled to a
special discount of 5% off the regular price of basic necessities and prime commodities (not avail. as
special deduction)

NO DOUBLE DISCOUNT.

TAX INCENTIVES FOR EMPLOYERS OF PWDs

1.​ 25% of the total amount paid as salaries and wages (additional)
2.​ 50% of the direct cost of the improvement or modifications of physical facilities to accommodate
PWDs

TAX INCENTIVES FOR ESTABLISHMENTS GRANTING SALES DISCOUNTS TO SENIOR CITIZEN

GR: 20% discount
XPN: Public utilities 5% on monthly bill
Public utilities giving services to SC Centers run by gov’t of NPO 50%

NOTE: Discount not as a reduction of sales, but as a deduction from gross income Also entitled to
a special discount of 5% off the regular price of basic necessities and prime commodities
(not available. as a special deduction) SC who qualifies as Solo Parent is also entitled to
10% discount on purchases of baby’s milk, food, supplements, medicines, and diapers.
(available as special deduction)
-​ items must be purchased from birth until 6 years of age
-​ SC must be earning >250,000 annually

NO DOUBLE DISCOUNT.

ADDITIONAL DEDUCTION FROM GROSS INCOME OF PRIVATE ESTABLISHMENTS FOR COMPENSATION PAID TO
SENIOR CITIZENS
➔​ 15% of total amount paid as salaries and wages

REQUISITES
1.​ Employment shall continue for at least 6 months
2.​ Annual taxable income of SC does not exceed the poverty level determined by NEDA
52

TAX INCENTIVES FOR ESTABLISHMENTS GRANTING DISCOUNTS TO NAT’L ATHLETES AND COACHES (20%)

TAX INCENTIVES FOR ESTABLISHMENTS AND INSTITUTIONS WITH ROOMING-IN AND BREASTFEEDING
PRACTICES:
➔​ Up to 2x the actual amount incurred; must secure a Working Mother-Baby-Friendly Certificate

TAX INCENTIVES FOR LAWYERS or GPPs RENDERING FREE LEGAL SERVICES

➔​ Lower of
-​ amount that could have been collected for the actual free legal service
-​ 10% of the gross income derived from the provision of legal services
Note: shall not include the minimum 60-hour mandatory legal aid services rendered to indigent litigants

TAX INCENTIVES FOR ESTABLISHMENTS PARTICIPATING IN THE DUAL TRAINING SYSTEM UNDER REPUBLIC
ACT NO. 7686
➔​ 50% of the system expenses paid to the accredited educational institution for its trainees
➔​ Expenses shall not exceed 5% of the establishment’s direct labor expenses; Max: 20M a year
➔​ Up to 2x the actual amount incurred; must secure a Working Mother-Baby-Friendly Certificate

DONATION TO PUBLIC SCHOOLS

➔​ IF PRIORITY PROJECT, actual amount of donation + 50% of said donation can be deducted
➔​ IF NOT PRIORITY, lower of 5% of net income of corporation (10% if individual) before charitable
contributions or actual contribution + 50% of donation can be deducted

QUALIFIED EMPLOYER’S CONTRIBUTION TO EMPLOYEE’S PERSONAL EQUITY AND RETIREMENT ACCOUNT

(PERA)
➔​ Deduction: actual amount of its or his contribution that would complete the maximum allowable
PERA contribution of an employee (200,000 per year for overseas Filipino and 100,000 for
non-overseas)

TAX INCENTIVES GRANTED TO REGISTERED TOURISM ENTERPRISES (“RTEs”) IN TOURISM ENTERPRISE ZONES
(“TEZs”) UNDER REPUBLIC ACT NO. 9593
➔​ 50% of the cost of environmental protection activities, cultural heritage preservation activities, and
sustainable livelihood programs for local communities surrounding the area
53

TAX INCENTIVES GRANTED TO QUALIFIED JEWELRY ENTERPRISES (“QJEs”) UNDER R.A. NO. 8502
➔​ 50% of the expenses incurred in training schemes

TAX DEDUCTION FOR HOSPITALS OR MEDICAL CLINICS UNDER R.A. NO. 10932 (ANTI-HOSPITAL DEPOSIT)
➔​ Expenses incurred in providing basic emergency care to poor and indigent patients, which are not
reimbursed by PhilHealth, is tax deductible

DEDUCTION OF PRIVATE FILIPINO SEED PRODUCERS UNDER R.A. NO. 7308

➔​ 200% deduction for the first 5 years of operation

DEDUCTION OF BUSINESS ENTERPRISES THAT GENERATE AND SUSTAIN GREEN JOBS

➔​ 50% of the total expenses for skills training and research development expenses which is over and
above the allowable ordinary and necessary business deductions for said expenses

TAX INCENTIVES FOR PUBLIC TRANSPORTATION UTILITY OPERATORS GRANTING FARE DISCOUNTS TO
STUDENTS UNDER R.A. NO. 11314 (20%)

TAX INCENTIVE FOR CERTAIN ESTABLISHMENTS GRANTING A 10% DISCOUNT ON CERTAIN PURCHASES OF
SOLO PARENTS
➔​ Drugstores, pharmacies, grocery stores, and similar establishments
➔​ 10% discount and VAT exempt
➔​ Goods: Baby’s milk, food, supplement, diaper, medicines and vaccines
➔​ items must be purchased from birth until 6 years of age; earning >250,000 annually

NON-DEDUCTIBLE ITEMS

1.​ Personal, living, and family expenses

2.​ Expenditures which are capitalized, except intangible drilling and development costs incurred in
petroleum operations which may be deducted in full
3.​ Premiums paid by an employer covering the life of an employee and the beneficiary is the
employer (deductible if the beneficiary is the employee)
4.​ Losses from sales/exchange of property, interest expense, bad debts between related parties.
5.​ Fines and penalties due to late payment of tax.
6.​ Foreign taxes paid or incurred by a domestic corporation in relation to exempt foreign-sourced
dividends.
7.​ Purchases made from a Cannot be Located (“CBL”) taxpayer
54

FOREIGN INCOME TAX CREDITS

LIMITATIONS ON TAX CREDIT

1. 1st Limitation
Taxable Income (per foreign country) x Philippine = LIMIT
Total Taxable Income Income Tax

2. 2nd Limitation
Taxable Income (all foreign country) x Philippine = LIMIT
Total Taxable Income Income Tax

Rules in the Application of Limits Formula:

(1)​ If there is one foreign country involved, use only the formula for the first limitation.
(2)​If there are two or more foreign countries involved, use both formulas.
(3)​In case both formulas are used, two tax credits will be computed. One based on the first limit, and
the other based on the second limit. The final tax credit is whichever is the lower between the two
amounts.
55

GROSS INCOME

Gross income as defined in the Tax Code means all income derived
TAX TREATMENT
from whatever source including but not limited to the following
➔​ Gross income can be referred to
items:
as gross taxable income for
1.​ Compensation for services, in whatever form paid, including
corporations or gross taxable
but not limited to fees, salaries, wages, commissions and similar
business/professional income for
item
individual taxpayers.
2.​ Gross income derived from the conduct of trade or business
➔​ Passive incomes subject to final
or from the exercise of a profession
tax are excluded from gross
3.​ Gains derived from dealings in property
income when computing taxable
4.​ Interests
income (i.e., gross income minus
5.​ Rents
allowable deductions).
6.​ Royalties
➔​ According to Section 44 of the Tax
7.​ Dividends
Code, all items of gross income
8.​ Annuities
must be included in the taxable
9.​ Prizes and winnings
year they are received, unless
10.​ Pensions
different accounting methods
11.​ Partner's distributive share from the net income of a general
apply as permitted under Section
professional partnership. (applies to individual taxpayers only.)
43.

EXCLUSIONS FROM GROSS INCOME

1.​ Proceeds of Life Insurance Upon Death of the Insured

➔​ Proceeds are treated as indemnity for the life lost, instead of gain
2.​ Amount Received by Insured as Return of Premium
➔​ Excess of proceeds received over the premiums paid is included in GI
➔​ Participating dividends are excluded (return of overpaid premiums)
3.​ Gifts, Bequests, and Devices
4.​ Compensation for Injury or Sickness
5.​ Income Exempt Under Treaties
56

6.​ Retirement Benefits, Pensions, Gratuities, Separation Pay Which Are Exempt From Income Tax​
GR: These are taxable​
XPN: Excess of proceeds received over the premiums paid is included in GI ​
Participating dividends are excluded (return of overpaid premiums)
A.​ Retirement benefits and/or pensions which are exempt from income tax
➔​ RA No. 7641 (Retirement Pay Law): if no retirement plan for employees, employers are
required to pay retirement benefit of at least 1/2 month salary for every year of
service
REQUISITES FOR EXEMPTION:
1.​ Employee is 60-65 years old;
2.​ Served for at least 5 years in the same establishments
➔​ Tax Code
REQUISITES FOR EXEMPTION:
1.​ Employer maintains a reasonable private benefit plan;
2.​ In service of the same employer for at least 10 years
3.​ Retiring employee is not less than 50 years old
4.​ Benefits of exemption is available only once
B.​ Separation Pay Due to a Cause Beyond the Control of the Employee (Death, sickness,
physical disability, retrenchment/redundancy, etc.)
C.​ Social security benefits, retirement gratuities, pension received by RC, NRC, or RA, from
foreign agencies and other institutions private or public.
D.​ Payment of benefits due or to become due to any resident of the PH under the laws of the
United States administered by the United States Veteran Administration.
E.​ Benefits received from or enjoyed under the Social Security System (SSS) in accordance
with the provisions of R.A. No. 8282
F.​ Benefits received from the GSIS under R.A. No. 8291, including retirement gratuity received
by government officials and employees.
G.​ Maternity benefits advanced by the employer to the employee.
H.​ Retirement benefits received from June 5, 2020 to December 31, 2020. (exempt from
taxation) - Reemployment in the same firm within the succeeding 12 month period shall
be considered proof of non-retirement. The, such benefits shall be subject to appropriate
taxes
57

7.​ Miscellaneous Items

A.​ Income derived by foreign governments from (1) loans, stocks, bonds, or other domestic
securities, (2) sale of investments in the Philippines, or (3) interest on deposits in a bank in the
Philippines.
B.​ Income Derived by the Philippine Government or its Political Subdivisions from the exercise of
any governmental function
C.​ Prizes and awards primarily in recognition of religious, charitable, scientific, educational,
artistic, literary, or civic achievement but only if:
-​ recipient was selected without any action on his part
-​ recipient is not required to render substantial future services as a condition
D.​ Prizes and awards granted to athletes (local and international competition/s) and
sanctioned by their national sports association
E.​ First ₱90,000 of the 13th Month Pay and Other Benefits received by officials and employees of
public and private entities
F.​ Compulsory or mandatory contributions of employees to GSIS, SSS, Medicare (PHIC), and
PAGIBIG, and union dues of individuals. (actually deductions but labelled as exclusions in the
Tax Code)
G.​ Gains from the sale, exchange or retirement of bonds, debentures, or other certificate of
indebtedness with a maturity of more than 5 years.
H.​ Gains from Redemption of Shares in a Mutual Fund
I.​ Income of non-residents from transactions with Domestic Depository Banks and OBUs Under
the Expanded Foreign Currency Deposit System
J.​ Personal Equity and Retirement Account (“PERA”) – voluntary retirement account QUALIFIED
PERA DISTRIBUTION:
-​ at least 5 years of contribution (need not be consecutively made)
-​ contributor reaches 55 years old
-​ death of contributor, irrespective of age or number of yearly contributions
K.​ Representation and transportation allowances (RATA) to certain officials and employees of
the government from the rank of Department Secretaries to Division Chiefs
L.​ Personnel Economic Relief Allowance (“PERA”) granted to all employees of the government
and its instrumentalities
M.​ Capital contributions to corporations/partnerships
N.​ Project-related income from the development of socialized housing sites.
58

O.​ Income from the commercialization of technologies developed by local inventors or

researchers under R.A. No. 7459 during the first ten (10) years from the date of the first sale.
P.​ Homeowners’ Association (HOA) dues or contributions but only when the LGU having
jurisdiction over the HOA certifies the lack of resources of the HOA to render its services.
Q.​ Proceeds which constitute a fund held in trust by the taxpayer, and which do not redound to
the benefit of the taxpayer
R.​ Income from the sale of gold pursuant to R.A. No. 7076 (the People’s Small-Scale Mining Act
of 1991) - sale to BSP
S.​ Compensatory interest
T.​ The wage subsidy given to employees under the Small Business Wage Subsidy Measure
(“SBWS”) - NEW
U.​ COVID-19 Special Risk Allowance of Health Workers (NEW)
V.​ Compensation to Health Workers Contracting COVID-19 in the Line of Duty
W.​ Active hard duty pay received by temporary Human Resources for Health (HRH) medical and
allied staff serving at the front lines during the State of National Emergency declared by the
President.

INCLUSIONS OF GROSS INCOME

GROSS INCOME: gains, profits, and income derived from whatever sources (legal or illegal)
1.​ Compensation For Services
A.​ Compensation Income
-​ Cash
-​ Allowances
-​ Property (FMV)
-​ Employer’s Stock (FMV @ time the services were rendered)
-​ Promissory notes (fair discounted value @ time of receipt)
-​ Forgiveness of debt for services rendered to a creditor
-​ Income tax of the employee assumed or paid by the employer
-​ Pensions and retiring allowances
-​ Equity based compensation (stock options and restricted stocks)
B.​ Stock Options — FMV of stock options at time the service was rendered
-​ IF employee pays the exercise price (equity-settlement option), the additional income
(higher bet. BV or FMV minus exercise price) is subject to CWT, thus taxable
59

-​ IF grantor (corpo) simply pays the difference between FMV and exercise price (cash
settlement option), the same rule applies
C.​ Fringe benefits s given to employees for the convenience of the employer, or if incurred by th
employee in the pursuit of the trade, business, or profession of the employer and is liquidated
and accounted for by the employee; De minimis fringe benefits; and other FB tax-exempt by
law
D.​ Salaries and Allowances During Leaves of Absence
E.​ Separation Pay NOT Due to a Cause Beyond the Control of the Employee
F.​ Fees (director’s fees, per diems, allowances)
G.​ Dismissal Payment (involuntary separation)
H.​ Tips and Gratuities paid directly to an employee which are not accounted for by the
employee to the employer are considered (but not subject to withholding tax)

2.​ Gross Income from Business

A.​ In general, Sales less COGS plus income from investments and incidental operations or
sources
B.​ Income from Long-Term Contracts (longer than 1 year) - percentage of completion basis
C.​ Gross Income from Farming
THREE METHODS
1.​ Cash Basis/Receipts and Disbursement Basis—No inventory is used to determine profits ​
Cash from sales of livestock and other products raised in the farm ​
+ Value of property received from sales ​
+ Profits/Gains from the sale of livestock or other items purchased ​
+ Gross income from all other sources ​
TOTAL GROSS INCOME
2.​ .Accrual basis—inventory is used to determine profits Cash from sales of livestock Sales
xxx​
Ending Inventory xxx​
Less: Beg. Inv. xxx​
Purchases xxx (xxx)
GROSS INCOME xxx
3.​ Crop basis — —used when n producing crops which take more than (1) year from the time
of planting to the time of gathering and disposing of the crop
-​ Entire cost of producing the crop must be taken as a deduction in the year in which
the gross income from the crop is realized
60

D.​ Gross Income From Petroleum Operations

E.​ Gross Income of Social Media Influencer (NEW)

3.​ Payments Made by a GPP to a Partner, and the Distributive Share of Partners in the Net Income
of a GPP

4.​ Rent or Lease Income Income from Business

A.​ Cash, at stipulated price
B.​ Obligations of the lessor to third persons paid or assumed by the lessee
C.​ Advance payment which must be pre-paid rentals (reported in FULL in the year of receipt)
D.​ Leasehold improvement
INCOME AND DEDUCTION FROM LEASEHOLD IMPROVEMENT
1.​ Income of Lessor: methods
●​ Outright Method—reports as income the FMV of the improvement in the year of
completion.
●​ Spread out Method
Cost of leasehold improvement xxx
Less: Depn for remaining term of lease xxx
Book Value, end of lease XXX

Book value, end of lease = Income per year

Remaining term of lease

2.​ Deduction of Lessee (Depreciation expense)

-​ remaining term of the lease or the life of the improvements, whichever is shorter
3.​ Computation of Income from Leasehold Improvement Arising from the Pre-termination of
Lease Contract
BV of Leasehold Improvement @ termination of lease xxx
Less: Amounts of income previously recognized xxx
Additional income in year of termination XXX
61

4.​ Loss of Lessor if Leasehold Improvement is Destroyed Before Termination of Lease

Income on leasehold improvement already reported xxx
BV of Leasehold Improvement @ termination of lease xxx
Total Loss xxx
Less: Compensation received:
(a) from insurance xxx
(b) Others xxx ( xxx )
Loss on destruction of Leasehold Improvement XXX

5.​ Annuities and Life Insurance Policies

A.​ Annuities—paid in excess of the consideration paid
B.​ Life Insurance Policies—where insured outlives the term of policy;

6.​ Gains Derived From Sales of Property ​

THREE TYPES OF PROPERTIES
-​ Ordinary asset—100% of gain/loss recognized in ITR
-​ Capital asset—subject to capital gains tax
-​ Other Capital asset—holding period of the asset shall be taken into consideration if the seller
is an individual, and only the net capital gain shall be included in the ITR.
A.​ Sale of Tangible Assets
B.​ Sale of Intangible Assets (ex. patents, copyrights, and goodwill)
C.​ Corporate Sinking Fund
D.​ Sale of Real Property (classified as ordinary assets)​

7.​ Interest Income—as a rule is taxable income included in ITR ​

8.​ Royalties—sources without the PH (ITR)ends​

9.​ Dividends
A.​ Generally, cash and/or property dividends received by RC or DC from a foreign corporation
B.​ Liquidating Dividend ​
Liquidating dividend xxx​
Less: Cost of stock investment or other basis xxx ​
Capital gain or capital loss xx XXX
62

10.​ Prizes and Winnings

A.​ Prizes amounting to ₱10,000 or less received by a citizen, resident alien, or NRAETB
B.​ Prizes received by domestic corporations
C.​ Prizes received by RFCs within the Philippines
D.​ Prizes and winnings received by resident citizens from sources without the Philippines

11.​ Income From Other Sources

A.​ Recovery of damages representing compensation for loss of profits or income are includible
in gross income
B.​ Recovery of Bad Debt Previously Deducted (Tax Benefit Rule)
C.​ Refund of Deductible Tax (claimed and deducted in a previous year)
D.​ Tournament Prizes - Cash prizes won by local players/participants in tournaments are not
passive income inasmuch as participating in such tournaments is their profession and/or
occupation - Cash prizes of foreign players/participants, shall be subject to a final tax of 25%
E.​ Forgiveness of Indebtedness - When a creditor cancels a debt as part of a business
transaction, or in consideration of personal services of the debtor - If a creditor merely desires
to benefit a debtor, and without any consideration therefor cancels the debt, the amount of
the debt is a gift from the CR to DR (subject to donor’s tax)
F.​ Income from Illegal Sources
G.​ Unutilized/Excess Campaign Funds
H.​ Early Withdrawals from a Personal Equity and Retirement Account (“PERA”) which do not
qualify for exclusion from taxable gross income
I.​ Gain in the Sale or Retirement by a Corporation of Its Own Bonds (corpo can buy back its own
bonds for less than the value of such bond’s reflected in the book)
J.​ If bonds are issued by a corporation at a premium, the net amount of such premium is gain or
in come which is prorated or amortized over the life of the bond
K.​ Stock options granted to a supplier of goods or services
L.​ Gambling gains (net of gambling losses)
63

Transfer taxes are excise taxes imposed upon the privilege of gratuitously transmitting one’s property to
another. There are two (2) transfer taxes in the National Internal Revenue Code.

Estate Tax A tax imposed upon the right of transmitting property at the time of death and the
privilege of controlling the disposition of one’s property to take effect upon death.

Donor’s Tax A tax on the privilege of transmitting one’s property to another during his lifetime
without adequate and full valuable consideration

ESTATE TAX

GROSS ESTATE
Tangible Personal Intangible Personal
Donor Real Property
Property Property

Within Without Within Without Within Without

Resident Donor:
1.​ Citizen ✔ ✔ ✔ ✔ ✔ ✔

2.​ Resident Alien ✔ ✔ ✔ ✔ ✔ ✔

Non-Resident Donor ✔ ✔
3.​ Non-resident alien ✔ ✘ ✘ ✘ (with ✘
reciprocity)
64

Intangible personal property

➔​ incorporeal property; without physical form, but represents rights and privileges

Intangible Property Situs

1.​ Receivable (promissory note) Residence of debtor

2.​ Bank Deposit Location of bank

3.​ Other IP
Franchise, patent, copyrights, trademark Where property is used
Investment in partnership Where partnership is established
Shares of stocks, bonds, corporate obligations
(a)​ Domestic Corporation Within PH
(b)​ Foreign Corporation Without PH
XPN: If ≥ 85% of business is in the Philippines Within PH
If shares/bonds acquired a business situs in PH Within PH

PROPERTIES INCLUDED IN THE GROSS ESTATE OF THE DECEDENT:

1.​ Properties owned by the decedent and physically present in his estate at the time of death.
2.​ Interest (whether legal or beneficial) in property owned or possessed by the decedent at the time
of death
3.​ Taxable Transfers—made during lifetime, but are in the nature of testamentary dispositions (mortis
cause in substance)
(a)​Transfers in Contemplation of Death
-​ No transfer of title or ownership to the donee
-​ The donor retains ownership (either legal or beneficial) and remains in full control
-​ The transfer is revocable by the donor at will during his lifetime
-​ The transfer is void if the donee dies first
(b)​Revocable Transfers
(c)​Transfer with retention or reservation of certain rights over the income or enjoyment of the
property transferred;
4.​ Property passing under a general power of appointment (“GPA”)
-​ The decedent is the donee
-​ The (appointed) property comes from a donor (of the power) with a GPA for the donee (of the
power). A GPA makes the appointed property, for all purposes, the property of the donee of
the power of appointment
65

5.​ Transfer for insufficient consideration (excess of the FMV of the property @ time of death over the
value of consideration received by the decedent)
6.​ Proceeds of Life Insurance IF
(a)​His estate, his executor or administrator is the beneficiary; whether nor not the designation of
the beneficiary is revocable
(b)​The beneficiary is any other person, but the decedent retains the power to revoke the
designation
Not Included IF:
(a)​Beneficiary is other than the estate, his executor or administrator, and designation is
irrevocable
(b)​Proceeds of a group insurance policy
(c)​Benefits from the GSIS, SSS, accruing by reason of death
7.​ Claims against Insolvent Person: At full amount less bad debts
(a)​His estate, his executor or administrator is the beneficiary; whether nor not the designation of
the beneficiary is revocable
(b)​The beneficiary is any other person, but the decedent retains the power to revoke the design
8.​ Conjugal/community properties, if decedent was married.
NOTE: Proceeds of Life Insurance are:
(a)​Conjugal/Community—money used to pay premium came from conjugal funds
(b)​Exclusive—if came from exclusive property of decedent
(c)​Partly—if the premiums were paid partly also

PROPERTIES OF SPOUSES

PROPERTY REGIMES:
1)​ Absolute Community of Property (“ACP”);
2)​ Conjugal Partnership of Gains (“CPG”);
3)​ Separation of Property

In the absence of a marriage settlement, the property relations shall be governed by:
a)​ the CPG for those married before August, 3, 1988; or
b)​ the ACP for those married on or after August 3, 1988.
​
66

CONJUGAL PARTNERSHIP OF GAINS (CPG)

EXCLUSIVE PROPERTIES:
1)​ Property owned before marriage;
2)​ Property acquired during the marriage by gratuitous title (by inheritance or donation);
3)​ Property acquired with the exclusive money of the husband/wife, or exchanged for exclusive
property of the husband/wife.
4)​ Property designated as exclusive in a marriage settlement

CONJUGAL PROPERTIES:
1)​ Properties acquired by onerous title using the common funds (even if the property is only for one
of the spouses);
2)​ Properties obtained from the labor or work of the spouses during marriage;
3)​ Properties acquired by chance such as winnings from gambling or betting. (However, losses
therefrom shall be borne exclusively by the loser-spouse).
4)​ Fruits (natural or civil) and income of the conjugal properties;
5)​ Fruits (natural or civil), and income of the exclusive properties of each spouse

ABSOLUTE COMMUNITY OF PROPERTY (ACP)

EXCLUSIVE PROPERTIES:
1)​ Property acquired during the marriage by gratuitous title (by inheritance or donation) UNLESS
the donor or testator expressly provides that the property shall form part of the community
property
2)​ Fruits and income of exclusive properties;
3)​ Properties for the personal or exclusive use of the husband/wife except jewelry;
4)​ Property acquired before marriage by the husband who has legitimate descendants from a
previous marriage.
5)​ Property designated as exclusive in a marriage settlement.

CONJUGAL PROPERTIES:
1)​ ALL properties owned by the spouses at the time of the marriage (except (4) above).
2)​ ALL properties acquired thereafter.
3)​ Fruits and income of community properties.
67

ACQUISITIONS OR TRANSMISSIONS WHICH ARE NOT INCLUDED IN THE GROSS ESTATE

(a)​Merger of the usufruct in the owner of the naked title to the property;
(b)​Fideicommissary substitution – where the inheritance or legacy is delivered or transmitted by the
fiduciary heir or legatee to the second heir (fideicommissary);
(c)​The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance
with the desire of the predecessor;
(d)​All bequests, devises, legacies, or transfers to social welfare, cultural, and charitable institutions, no
part of the income of which inures to the benefit of any individual
(e)​Proceeds of life insurance and benefits received by members of GSIS
(f)​ Benefits received by members from the SSS by reason of death
(g)​Amounts received from the Philippine and United States governments for war damages
(h)​Amounts received from the United States Veterans Administration
(i)​ Retirement benefits of employees of private firms from private pension plans approved by the BIR
(j)​ Intangible personal property located in the Philippines of a non-resident alien decedent under the
principle of reciprocity
(k)​Personal Equity and Retirement Account (“PERA”) assets including Qualified PERA contribution
(l)​ Proceeds of life insurance when the beneficiary is not the estate, the executor, or the administrator,
and the designation is irrevocable
(m)​ Bank deposit in the name of the decedent on which the 6% estate tax has been withheld and
remitted by the bank to the BIR upon withdrawal by the heirs.
(n)​1M received, in case of death of a health worker, public or private, who contracted COVID-19 in the
line of duty (n from February 1, 2020 and during the state of national emergency due to COVID-19)
68

PROPERTY VALUATION

Usufruct, use, habitation, annuity based on the probable life of the beneficiary in
accordance with the latest Basic Standard
Mortality Table

Real Property FMV which is the higher of the zonal value or the
assessor’s value

Personal Property Generally, FMV at the time of death of the

decedent

Stocks listed in the stock exchange Average of the lowest and highest quotes on the
valuation date (date of death) or day nearest to
the valuation date

Stocks not listed in any local exchange Common share: Book value ​
Preferred Share: Par value

Notes; accounts receivable FMV is the discounted amount of the unpaid

principal plus interest

Units of participation in any association, FMV is the bid price on the date of death or
recreation, or amusement club nearest the date of death published in any
newspaper or publication of general circulation.

Cash in bank in local or foreign currency The peso value of the balance at the date of
death.

DEDUCTIONS FROM THE GROSS ESTATE​

I. ORDINARY DEDUCTIONS
A.​ CLUT (Claims, Losses, Unpaid Mortgages, Taxes, etc.)
1.​ Claims against the estate: bona fide unpaid personal obligations of the decedent of a
pecuniary nature; except unpaid obligations incurred incidental to his death such as funeral
or medical expenses
2.​ Claims against insolvent persons: included first in the gross estate; portion that can’t be
collected is deductible
3.​ Unpaid Mortgages ​
​
69

4.​ Income taxes and property taxes: unpaid income taxes due or received before the death;
real property taxes accrued prior to the death (RPT accrue at beginning of the year)
5.​ Casual Losses:
REQUISITES
a)​ The loss is not compensated for by insurance or otherwise;
b)​ The loss is not claimed as a deduction in an income tax return;
c)​ The loss must occur not later than the last day for payment of the estate tax (generally,
within 1 year after death).

Note: For NRA, allowable CLUT deduction shall be prorated based on the size of gross estate:

Philippine Gross Estate

—----------—--------------------- x CLUT​
Worldwide Gross Estate

B.​ TRANSFERS FOR PUBLIC USE

1.​ To government and political subdivisions for public use
2.​ Transfers to social welfare, cultural, and charitable institutions, provided:
a)​ No part of its net income inures to the benefit of any individual; and
b)​ ≤ 30% of the bequest, devise, or legacy is used for administrative purposes.

C.​VANISHING DEDUCTION (Property-Previously Taxed—PPT)

Conditions for Allowance of the Vanishing Deduction:

1.​ Acquired the property by inheritance or donation within 5 years prior to his death
2.​ It formed part of the gross estate of prior decedent, or part of taxable gift of donor
3.​ Prior estate tax or donor’s tax is paid
4.​ Estate of prior decedent has not previously availed of the vanishing deduction
70

Percentage of Vanishing Deductions:

More Than Not More Than Percentage

1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%
5 years

Procedure in Computing VD:

(a)​ Determine the lower value of the PPT xxx ​
FMV of the PPT in the estate of the prior decedent, or FMV of the PPT ​
in the estate of the present decedent, if PPT was inherited. ​
​
FMV of the PPT at the date of donation, or FMV of the PPT ​
in the estate of the present decedent if the PPT was donated.

(b)​ Deduct any mortgage or lien on the PPT which was paid by the present (xxx)
decedent where such mortgage or lien was used as a deduction in the
computation of the estate tax of the prior decedent, or as a deduction
in determining the donor's tax —---------------------

NET VALUE OF PPT XXX

(c)​ Prorate the ordinary deductions and subtract from the net value​
​
Net Value of PPT ​
—---------------------------- x Ordinary deductions (xxx)​
Gross Estate (exc. VD) ​
​

FINAL BASIS

(d)​ Apply the rate of Vanishing Deduction Rate (based on number of years interval) %​
—---------------------​
VANISHING DEDUCTION XXX​
​
​
​
​
​

​
71

II. SPECIAL DEDUCTIONS:

A.​ FAMILY HOME: Lower of
1.​ FMV of the family home if
(A)​Family Home is exclusive property of decedent FMV
(B)​Family Home is conjugal property FMV/2
(C)​Family land is exclusive while the family house is conjugal FMV of land +​
FMV of house/2
(D)​If family land is conjugal while family house is exclusive FMV of land/2 +
FMV of house
OR
2.​ Php 10 000 000

B.​ STANDARD DEDUCTION

1.​ Citizen and Resident Aliens 5 000 000
2.​ Non-resident Aliens 500 000
3.​ Substantation not required

C.​AMOUNTS RECEIVED BY HEIRS

➔​ Must be included first in the gross estate before the same can be deducted (NOT APPLICABLE
TO NRA)

III. SHARE OF THE SURVIVING SPOUSE IN THE NET CONJUGAL PROPERTIES

Amount of deduction = Conjugal properties - conjugal deductions / 2

ESTATE TAX RATE: 6%

72

EXCLUSIVE P CONJUGAL P TOTAL

A.​ CLUT ✔ ✔

B.​ Transfer for Public Use ✔

C.​ Vanishing Deduction ✔ ✔

Net Estate before special deduction XXX XXX XXX

D.​ Family Home ✔

E.​ Standard Deduction ✔

F.​ Amounts received by heirs under RA ✔

4917

G.​ Share of surviving spouse in conjugal ✔

net assets

NET ESTATE XXX

CREDIT FOR FOREIGN ESTATE TAX PAID

➔​ incorporeal property; without physical form, but represents rights and privileges
➔​ Subject to limit

Limits:

(A)​ Net Estate (per Foreign Country)

–—------------------------------- x PH Estate Tax
Entire net estate

(B)​ Net Estate (all Foreign Country)

–—------------------------------- x PH Estate Tax
Entire net estate
73

RULES:
1.​ If there is only one (1) foreign country, only Limit (A) is used.
2.​ If there are ≥ two (2) foreign countries, use both Limits

Formula

Donor’s tax paid in Country 1 Lower (1)

Limit A (Country 1)
+
Donor’s tax paid in Country 2
Limit A (Country 2) Lower (2) Limit A
—-----------------
Sum of donor’s taxes paid in
Countries 1 and 2 Lower Limit B
Limit B

ESTATE TAX RETURN

Required in the ff cases:

a)​ When the transfer is subject to estate tax; or
b)​ When the gross estate includes properties for which clearance from the BIR (Certificate
Authorizing Registration (CAR)) is needed before transfer of ownership to the transferees/heirs
can be effected (regardless of the value of the gross estate).

Filed by executor/administrator/legal heirs

Time of Filing 1 year from death of decedent (can be extended another 30 days)

Where 1.​ Resident decedent: register and secure a new TIN from RDO where decedent
was domiciled. File estate tax return with: AAB, RDO, Collection officer, treasurer
of city/municipality.

2.​ Non-resident decedent— TIN is secured from and estate tax return shall be filed
with AAB. , RDO, Officer of Commissioner (RDO No. 39, South Quezon City), if no
executor/administrator. ​

3.​ In case of “No Payment Return” - RDO, or Office of the Commissioner (RDO No.
39, South Quezon City) if the decedent has no legal residence in the PH .
74

Payment of estate tax:

WHEN: pay as you file (may extend not to exceed 5 years if settled thru court; 2 years if extrajudicial)
➔​ Any amount paid after the statutory due date of the tax, but within the extension period, shall be
subject to interest but not to surcharges.

PAYMENT BY INSTALLMENT
1.​ Cash installment: made within 2 years from date of filing
➔​ In case of the lapse of 2 years without the entire estate tax due being paid, the remaining
balance thereof shall be due and demandable subject to the applicable penalties and
interest reckoned from the prescribed deadline for filing the return, and payment of the
estate tax.
2.​ Partial Disposition of Estate and Application of its Proceeds to the Estate Tax Due
➔​ computed estate tax due shall be allocated in proportion to the value of each property
estate shall pay to the BIR the proportionate estate tax due of the property intended to be
disposed of In case of failure to pay the total estate tax due out of the proceeds of the
said disposition, the estate tax due shall be immediately due and demandable subject to
the applicable penalties and interest reckoned from the prescribed deadline for filing
the return and payment of the estate tax.

Who pays estate tax: executor/administrator (severally liable); heir subsidiarily liable to the extent of
share
Payment of Estate Tax as a Prerequisite to Distribution and Transfer of Shares, bonds, and rights:
estate tax clearance/Certificate Authorizing Registration (CAR) ​
Payment of Tax as a Requirement for Withdrawal from Bank Account: 6% FWT, withdrawal within 1 year
from date of death
75

COMPLIANCE REQUIREMENTS

(a)​Notice of death shall be given when the value of the gross estate exceeds P 20,000
(b)​The executor, administrator or any of the legal heirs shall file the notice of death within 2 months
after the decedent's death or within 2 months after the executor or administrator has qualified.
(c)​The estate tax return shall be filed within 1 year after the decedent's death, but may be
extended to not exceeding 30 days if authorized by the BIR Commissioner
(d)​When the estate tax return shows a gross value exceeding P 5,000,000, it shall be supported
with a statement duly certified by a CPA.
(e)​The payment of estate tax shall be made at the time the return is filed. However, the CIR may
allow an extension of up to 5 years if settled judicially or 2 years if settled extra-judicially.
76

BUSINESS TAXES

Nature

1.​ Business tax (sales tax) Value-Added Tax (VAT)

2.​ Indirect tax
3.​ Imposed on the gross selling price/receipts, or on the total Value-added tax (VAT) is a tax on
value or landed cost if importation of goods, whether or not the value added to the purchase
in the course of business price or cost in the sale or lease of
4.​ Computed through Tax Credit Method (output tax - input goods, property, or services in the
tax) course of the trade or business.

​
PERSONS SUBJECT TO VAT

Under Republic Act 9337 (Value-Added Tax Reform Act), any person or entity engaged in commercial
activity may be subject to VAT if they meet certain conditions.

VAT Eligibility: BI-GLOBE

1.​ Businesses with Gross Sales Above P3 Million
●​ Those who sell, barter, lease, or render services with total gross
1.​ Businesses > P3M sales
sales/receipts over P3,000,000 are VAT liable.
●​ Previous thresholds were P1,919,500 and P1,500,000 (before
2.​ Importers
CREATE and TRAIN amendments). 3.​ Government entities ​
2.​ Importers of Goods (if trading)
3.​ “In the Course of Trade/Business” 4.​ Local gov't without
4.​ Government Entities auto-exemption
5.​ Exemptions for Subsistence/Livelihood Activities 5.​ Organizations, non-profits ​
●​ Small businesses or individuals with sales below P100,000 in a (if commercial)
12-month period are not considered “in the course of business” 6.​ Below 100k = Exempt
and thus, exempt from VAT. 7.​ Economic activity, regular
77

SUMMARY OF TAX CONSEQUENCES

KIND OF TRANSACTIONS TAX CONSEQUENCES

A.​ VAT-Taxable 1.​ Sale or leases taxed at 12% (a)​ Seller is subject to VAT at 12%;
(b)​ Seller is entitled to input tax credit;
(c)​ Seller pays excess of output tax over input
tax to the BIR;
(d)​ Seller can carry-over excess input taxes to
succeeding quarters.

2.​ Sales or leases taxed at 0% (a)​ Seller is subject to VAT at 0%;

(b)​ Seller is entitled to input tax credit;
(c)​ Seller can claim refund or tax credit for input
taxes;

B.​ Exempt (a)​ Seller is exempt from VAT;

(b)​ Seller cannot separately bill output tax to his
customers;
(c)​ Seller is not entitled to input tax credit;
(d)​ Seller shall be liable to VAT if he issues VAT
invoice or receipt, but without the benefit of
input tax credit.
78

TRANSACTIONS SUBJECT TO 12%

VAT-TAXABLE SALE OF GOODS AND PROPERTIES

OUTPUT VAT

VATable Sales 1.​ Real property for sale or lease in trade/business 12% on GSP – gross selling price
(Tangible and 2.​ Rights to use patents, copyrights, trademarks, net of sales discounts, sales
Intangible Goods) etc. returns, and allowance ​
3.​ Industrial, commercial, or scientific equipment ​
rights * inclusive of excise tax
4.​ Motion picture films, tapes, discs
5.​ Radio, TV, satellite, cable time

Transactions 1.​ Transfer, use, or consumption not in the course 1-3) Based on market value at
Deemed Sale of business for goods initially meant for sale/use transaction time.
in business​
4. The lower of acquisition cost or
2.​ Distribution or transfer to: current market price.
a)​ Shareholders or investors as share in the profits
of the VAT-registered persons; * If gross selling price is >30%
b)​ Creditors in payment of debt or obligation​ below fair market value: Adjust to
the actual market value.
3.​ Consignment of goods with no sale within 60
days​ Note: If the government is involved,
output VAT is based on actual
4.​ Retirement/cessation of business selling price.
79

VAT-TAXABLE SALE OF REAL PROPERTIES (Based on New Thresholds)

OUTPUT TAX RATE

Sale of Residential -​ Exceeds P1,919,500: Residential lots sold for more than this amount 12%
Lots are subject to VAT​

Effective January 1, 2021: All residential lots, regardless of selling

price, are subject to VAT per TRAIN Law (R.A. 10963, Sec. 34).

Sale of Residential -​ Exceeds P3,199,200: Residential house and lot or similar dwellings 12% ​
House and Lot sold above this amount are subject to VAT (or 10% before 2012)

* Instruments Executed on/After January 1, 2012: ​

12% VAT applies.

Prior Threshold: If between Nov. 1, 2005, and Jan. 1, 2012, apply 10% VAT
if above P2,500,000 (RR 3-2012, RR 16-2011).

SALE OF ADJACENT PROPERTIES 12%

- Sale of two or more adjacent lots (or house & lot) to the same
buyer within 12 months, if combined value exceeds P1,919,500 for
lots or P3,199,200 for house and lot.

Includes cases of multiple deeds or tax declarations when sold to

one buyer as a single residential area.

Installment Sale of - Exceeds P1,000,000: For installment-based residential house/lot 12%

Residential Units sales over this threshold.

Real Estate - REIT companies are subject to VAT on gross sales from any real 12%
Investment Trust property disposal. (RR 13-2011)
(REIT)
80

INPUT VAT: same rules as output VAT, but to purchases

NOTES:​
Cash Sale: ​
VAT = 12% of highest of (SP, zonal value, or assessor’s value)
Deferred-payment basis not on the installment plan:
VAT = 12% of highest of (SP, zonal value, or assessor’s value)
On Installment plan:
VAT payments = 12 % of installment payments BUT
where GSP = zonal or assessor’s value

Actual collection (exclusive of VAT) Higher of Zonal or​

—------------------------------------- x Assessor’s Value = TAX BASE​
Agreed consideration (exclusive of VAT)​

Tax Base x 12% = VAT

VAT-TAXABLE SALE OF GOODS AND PROPERTIES

REQUISITES:
1.​ Conducted in the ordinary course of trade or business
2.​ Leased or used in the PH
3.​ VAT-registered, or if not with more than 3M gross receipts during the year or in any 12-month period
4.​ IN case of lease of residential unit, monthly rental must exceed 15,000, and the aggregate annual receipts
exceed 3M

Taxable Services: All kinds of services in the Philippines for a consideration, as long as it is not exempted
by law.

NOTES:
1.​ The universal charge passed on and collected by distribution companies and electric cooperatives shall be
excluded from the computation of the gross receipts.
2.​ PAGCOR is not subject to VAT on the sale of its services
3.​ Insurance and reinsurance commissions, whether life or non-life, are subject to VAT.
4.​ GROSS RECEIPTS FOR:
(a)​ Non-life insurance: premiums collected whether paid in money, notes, credits, or any substitute
(Excluding premiums from crop insurance, reinsurance premiums, returned premiums, DST)
(b)​ Dealers in securities: GSP less cost of securities sold
(c)​ Pre-need companies: premiums or payments received from plan holders
(d)​ HMO: enrollment fees + other charges received from members
81

ZERO-RATED VAT Transactions

➢​ 0% VAT Rate: No output VAT is charged on the sale, but input VAT can be claimed as a credit or as a
refund, IF taxpayer is registered.
➢​ If NOT registered, the sales of the taxpayer will be considered VAT-exempt sales.

ZERO-RATED SALES OF GOODS

1.​ Export Sales of Goods
➔​ Includes the sale and shipment of goods from the Philippines to a foreign country, paid in foreign currency
and compliant with BSP rules.
➔​ Also covers goods/supplies/equipment/fuel sold to entities in international shipping/air transport directly
to/from a foreign port without other Philippine stops.
2.​ Effectively zero-rated sales
➔​ Local sales by VAT-registered persons to persons or entities deemed tax-exempt under a special law or
international agreement.
3.​ Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods to a
registered export enterprise to be used directly and exclusively in its registered project or activity.
➔​ Local sales by VAT-registered persons to persons or entities deemed tax-exempt under a special law or
international agreement.
4.​ Sale s to offshore gaming licensees (OGLs) subject to gaming tax
➔​ Apply only if the OGL is paying the 5% gaming tax and the goods supplied are used for gaming operations.

ZERO-RATED SALES OF SERVICES

1.​ Services other than those in processing, manufacturing, or repacking rendered to a non-resident
person, and which are paid for in acceptable foreign currency.
2.​ Services rendered to persons/entities whose exemption under special laws or international
agreements effectively subjects the supply of such services to a 0% rate
3.​ Sale of services to a registered export enterprises to be used directly and exclusively in its registered
project or activity
4.​ Sale of services to persons engaged in international shipping/air transport operations
5.​ Transport of passengers and cargo by domestic air/sea carriers from the Philippines to a foreign
country .
6.​ Sale of power or fuel generated through renewable sources of energy (inc. ancillary services)
7.​ Sale of services rendered to offshore gaming licensees (OGLs) subject to the gaming tax

VAT-EXEMPT Transactions

➢​ Not subject to output tax, and any Input Tax Credit is not allowed
➢​ Seller cannot bill any output VAT to his customers
➢​ If the seller issues a VAT invoice or receipt without being VAT-registered, he shall be liable to the
output VAT without the benefit of any ITC.
82

VAT EXEMPTIONS UNDER SEC. 109 OF THE TAX CODE:

1.​ Sale or importation of (a) agricultural and marine food products in their original state, (b) livestock or poultry of a
kind generally used as, or yielding or producing foods for human consumption; and (c) breeding stock and
genetic materials therefor
2.​ Sale or importation of (a) fertilizers; (b) seeds, seedlings, and fingerlings; (c) fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds
3.​ Importation of personal and household effects belonging to the residents of the Philippines returning from
abroad, and non-resident citizens coming to the Philippines
4.​ Importation of (a) professional instruments and implements; (b) tools of trade, occupation or employment; (c)
wearing apparel; (d) domestic animals; and (e) personal household effects belonging to overseas Filipinos, for
their own use
5.​ Services subject to percentage tax (Sec. 116-127)
6.​ Services by agricultural contract growers and milling for others
7.​ Medical, dental, hospital, and veterinary services except those rendered by professionals (sale of medicines by a
drug store inside a hospital to in-patients is VAT-exempt)
8.​ Educational services rendered by private educational institutions
9.​ Services rendered by individuals pursuant to an employer-employee relationship
10.​Services rendered by RHQs established in the PH, which is not earning/deriving income from the PH.
11.​ Transactions which are exempt under international agreements or special laws
12.​ Sales by agricultural cooperatives to their members and non-members; and their importation of direct farm
inputs, machineries and equipment used directly and exclusively in the production.
13.​ Gross receipts from lending activities by credit or multi-purpose cooperative
14.​Sales by non-agricultural, non-electric, and non-credit cooperatives (share capital contri is ≤15,000.
15.​Export sales by persons who are not VAT-registered
16.​Sale of real properties not primarily held for sale/lease (not used in trade); Sale of real properties utilized for
low-cost housing and socialized housing ; House and lot with selling price of ≤3,199,200.
17.​ Lease of a residential unit with monthly rental ≤15,000 (If exceeds 15,000, placed in the same category with
commercial or industrial rental properties)
18.​Sale, importation, printing, or publication of books and any newspaper, or any such educational reading material
covered by the UNESCO Agreement on the Importation of Educational, Scientific, and Cultural Materials, including
the digital or electronic format thereof.
19.​Transport of passengers/cargo by international carriers
20.​ Sale, importation, or lease of passenger or cargo vessels and aircraft for domestic or international transport
operations
21.​ Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations.
22.​ Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other nonbank
financial intermediaries
23.​ Sales or lease of goods and services to Senior Citizens and PWDs subject to a discount
24.​ Transfer of property pursuant to Section 40(C)(2) of the Tax Code
25.​ Association dues, membership fees, and other assessments and charges collected by homeowners’
associations, condominium corporations, and recreational clubs
26.​ Sale of gold to the BSP
83

27.​ Sale or importation of prescription drugs and medicines for:

(a) Diabetes, high cholesterol, and hypertension beg. January 1, 2020 ​
(b) Cancer, mental illness, TB, and kidney diseases beg. January 1, 2021 ​
(c) Drugs, vaccines, medical services directly used for COVID-19 treatment from January 1, 2021 to December
31, 2023
28.​ Sale or importation of capital equipment necessary for the production of PPE , for COVID-19 prevention beginning
January 1, 2021 to December 31, 2023.
29.​ Sale or lease of goods or properties or the performance of services, the gross annual sales/receipts do not
exceed 3M.

VAT EXEMPTIONS UNDER SEC. 295 IN TITLE XIII OF THE TAX CODE:
1.​ VAT exemption on importation, and VAT zero-rating on local purchases shall only apply to goods and services
directly and exclusively used in the registered project or activity by a registered business enterprise.
2.​ The importation of COVID-19 vaccines shall be exempt from import duties, taxes, and other fees
3.​ Crude oil that is intended to be refined at a local refinery

VAT EXEMPTIONS UNDER SPECIAL LAWS/REGULATIONS/RULINGS:

1.​ Fees, per diems, allowances, and other income received by corporate directors from corporations of which they
are not employees
2.​ Sales and importation by PEZA and other ecozone registered enterprises which are taxed under the 5% GIT
(directly attributable to and exclusively used in the registered project or activity )
3.​ Sales of services by professionals and other suppliers of services hired under a contract for service or job order
with the departments and agencies of the government. (provided they derive not more than 250,000 in any
12-month period; such incomes are received from a LONE PAYOR; such professionals have no other source of
income)
4.​ Amounts of money received in trust which do not belong and redound to the recipient.
5.​ Services rendered within intra-company divisions
6.​ Importation of personal computers, laptops, tablets, or similar equipment appropriate for use in schools, which
are donated for distribution to public schools
7.​ VAT-exemption of certain sales to Solo Parents under R.A. No. 8972

INPUT TAX CREDIT

➢​ Also called as input VAT

➢​ VAT due or paid on the importation of goods or VAT paid by a purchaser on the local purchases of
goods in the course of trade or business
➢​ Includes transitional input tax and the presumptive input tax.
84

Sources/Classification of ITC:
1.​ VAT paid to supplier or vendor (local purchase) and VAT paid to BIR (importation)
2.​ ITC from transactions “deemed purchase”
3.​ Transitional input tax= Higher of (2% of value of beg. Inventory or the actual input VAT paid)
4.​ Presumptive input tax = 4% of gross value in money of purchases or primary agri products w/c are exempt from
VAT, and w/c are used as inputs in production (available to firm engaged in processing of sardines, mackerel,
and milk, and in the manufacturing of refined sugar, cooking oil, and packed noodlebased instant meals.
5.​ Input tax on depreciable goods (deferred input tax credits): depreciable capital goods > ₱1M exc. of VAT in a
calendar month
Useful life of ≥ 5 years ITC spread over 60 months beg. on the month when it is acquired ​
Useful life of < 5 years ITC spread evenly by dividing input tax by actual useful life (in months)

* If sold within a 5-year period, the entire unamortized input tax can be claimed as ITC. ​
NOTE: amortization of ITC shall only be allowed until DECEMBER 31, 2021.​

6.​ Input tax on Construction in Progress (CIP): not depreciated until asset is placed in service; ITC recognized on the
month payment is made
7.​ Ratable portion of any input tax which cannot be directly attributed to either taxable or exempt activity
8.​ Issuance of a VAT invoice by a non-VAT person – provided the requisite information is shown on the invoice or
receipt
9.​ Issuance of a VAT invoice on an exempt transaction by a VAT-registered person

HOW IS AN ITC USED?​

1.​ Used as credit against output tax

2.​ Excess ITC shall be carried over to succeeding period
3.​ Input tax attributed to 0-rated sales option: ​
(a) Applied against out VAT from sales of a VATable line of business ​
(b) Carried over to succeeding period ​
(c) Apply for refund or tax credit certificate (TCC)
4.​ Input tax attributable to VAT-exempt sales are expensed.
5.​ Input taxes on the purchase of the non-depreciable vehicles and all input taxes on the maintenance expenses
are expensed.
85

REFUND OR TAX CREDIT OF INPUT TAX

LIMITATIONS:
1.​ Must not have been applied against output taxes
2.​ Shall not include transitional input tax
3.​ Export sales—payments in acceptable foreign currency
4.​ Only proportionate share of input taxes allocated to 0-rated sales can be claimed as refund

Time for Filing Claim for Refund or Tax Credit:

1.​ Zero-rated: within 2 years after close of taxable quarter when such sales were made
2.​ Unused input taxes: within 2 years from date of cancellation of VAT registration

Place of Filing Application or Claim ​

GR: BIR Office or RDO having jurisdiction ​
XPN: direct exporters file claims with VAT Credit Audit Division (VCAD)

PERIOD WITHIN WHICH REFUND OR TAX CREDIT OF INPUT TAXES SHALL BE ACTED UPON

Close of the Taxable Quarter​

(or Date of Cancellation of
Registration)
​
​
within 25 days ↙ ↘​
(or within 25 days from the ​
end of the month when
registration was canceled) ​
↙ ↘ within 2 years

Date of filing the Quarterly VAT Date of Filing Application for

Return (or Final VaT Return) Refund or TCC with Submission
of Complete Documents in
Support of the Application

within 2 years ↓ ↙ within 90 days ↘

Application is Application is
fully or partially granted
denied

↓ ↙ within 30 days
Appeal to the Court of
Appeals
​
86

FILING OF VAT RETURN AND PAYMENT OF VAT

1.​ Monthly VAT Return or Declaration

BIR Form 2550M not later than the 20th day ff. the end of each taxable month​

2.​ Quarterly VAT Return or Declaration

BIR Form 2550Q not later than the 25th day ff. the end of each taxable quarter​

3.​ Returns under the EFPs

Within 21-25 days ff. End of each month, depending on industry classification
Payment of tax 5 days later than the deadline for filing

NOTE: Beg. January 1, 2023, filing and payment of VAT shall be done within 25 days ff. the close of each taxable
quarter. No prescribed deadline for monthly filing.

4.​ Advance Payment of VAT: : the following are subject

(a)​ Withdrawal of refined sugar from the mill/refinery by the owner/seller (except if cooperative)
(b)​ Sale of flour
(c)​ Transport of naturally grown and planted timber products
(d)​ Sale of jewelry, gold, and other metallic minerals to (1) Non-resident individuals not engaged in business and
(2) Non-resident foreign corporations ​

5.​ Short Period Return

(a)​ Any person who retires from business with due notice to the BIR office b) Any person whose VAT registration
has been cancelled.

All persons liable for VAT are required to submit a quarterly Summary List of Sales, and a quarterly
Summary List of Purchase; recorded using the BIR’s Reconciliation of Listing for Enforcement (“RELIEF”)
System application (compact disc-recordable or “CDR”)
87

WITHHOLDING OF VAT

MANDATORY WITHHOLDING OF VAT

1.​ By the government or any of its instrumentalities

➔​ Deduct and withhold a final VAT of 5% of the gross payments thereof

5% Final VAT
7% of the gross payment represents the input tax for the sales to the government in lieu of the actual input
VAT directly attributable to such sales.

(i) If the actual input VAT exceeds the 7% of gross payments, such excess may form part of the seller’s
expenses. ​
(ii) If the actual input VAT is less than the 7% of gross payments, the difference must be closed to expenses
(decrease expense).

2.​ A resident payor (government or private) shall withhold the twelve percent (12%) VAT with respect to
payments for:
(a)​ the lease or use of properties or property rights owned by non-residents; and
(b)​ other services rendered in the Philippines by non-residents
➔​ Remitted within 10 days ff. The end of the month the withholding was made.
​

3.​ Optional Withholding of VAT

88

BUSINESS TAXES

Percentage Tax Characteristics of OPT

Percentage tax is a national tax levied as 1.​ It is imposed on business transactions

a specific percentage of the gross selling 2.​ It follows the consumption/destination principles
price, gross value, or gross receipts from 3.​ Indirect Tax
the sale of goods and services by non-VAT 4.​ Privilege tax
registered entities or specified 5.​ Ad valorem tax
transactions.

SCOPE
Services Subject to Specific Rates Specific services taxed at varied rates, depending on industry

Sales of Goods/Other Services General percentage tax of 3% applies if not exempted

WHO PAYS
Specific Percentage Tax VAT-registered and non-VAT registered taxpayers

General Percentage Tax Only non-VAT registered taxpayers

89

Section 116: Tax on Persons Exempt from VAT (3%)

Persons subject:
Persons who engage in VATable sales or leases of properties, or services in the course of trade or
business:
a)​ Gross sales or receipts ≤ ₱3,000,000; AND
b)​ not VAT-registered

Tax: 3% of quarterly gross sales/receipts (Gross Receipts Tax)

1% July 1, 2020 to June 30, 2023

Persons exempt from 3% GRT:

a)​ Self-employed individuals and professionals availing of the 8% tax rate
b)​ Cooperatives, except:
1. Transacting w/ non-members; and ​
2. Accumulated reserves and undivided net savings >10M
c)​ Fees, per diems, allowance, and other income received by corporate directors of which they are
not employees

d)​ Marginal income earners who are self-employed and deriving gross sales/receipts of ≤ ₱100,000
during any 12-month period
e)​ Persons who are VAT-registered, regardless of level of sales.
f)​ Persons whose line of business is non-exempt (from VAT) and are NOT VAT-registered, but whose
gross annual sales or receipts > ₱3,000,000

Section 117: Common Carrier’s Tax (3%)

➔​ % tax on domestic carriers and keepers of garages

Persons subject:
a)​ Lessors of cars for rent or hire driven by the lessee
b)​ Transportation contractors including persons who transport passengers for hire
c)​ Other domestic carriers by land for the transport of passengers
d)​ Keepers of garages

Exempted Persons:
a)​ Banca owners
b)​ Owners of animalu7-drawn two-wheeled vehicles

Tax: 3% of quarterly gross receipts from the transport of passengers with gross receipts of ≥ minimum
levels provided by law
90

Domestic Carrier Sec. 117 R.A. 8424 RR9-2007 RR9-2007

Quarterly Quarterly Monthly

Jeepney for hire:

1.​ Manila and other cities Php 2 400 Php 65 700 Php 21 900
2.​ Provincial 1 200 32 900 10 967

Public utility bus:

1.​ ≤ 30 passengers Php 3 600 Php 98 600 Php 32 867
2.​ > 30 to 50 passengers 6 000 164 200 54 733
3.​ > 50 passengers 7 200 197 100 65 700

Taxis:
4.​ Manila and other cities Php 3 600 Php 98 600 Php 32 867
5.​ Provincial 2 400 65 700 21 900

Car for hire (w/ chauffeur) Php 3 000 Php 82 100 Php 27 367

Car for hire (w/o chauffeur) Php 1 800 Php 49 300 Php 16 434

Section 118: International Carriers (3%)

Persons subject:
International air and shipping carriers doing business in the Philippines

Tax: 3% of quarterly gross receipts s from the transport of cargo from the Philippines to another country

RULES
LAND AIR SEA

Domestic Passenger OPT 117 VAT VAT

Carriage
Cargo VAT VAT VAT

International Passenger Domestic Corp: 0% Domestic Corp: 0%

Carriage VAT, No OPT VAT, No OPT

Foreign Corp: Foreign Corp:

VATexempt, No OPT VATexempt, No OPT

Cargo Domestic Corp: 0% Domestic Corp: 0%

VAT, No OPT VAT, No OPT

Foreign Corp: OPT 118 Foreign Corp: OPT 118

91

Section 119: Franchise Tax (3%, 2%)

Persons subject:
6.​ Radio and/or television broadcasting companies with annual gross receipts of ≤10M, and not
VAT-registered
7.​ Gas and water utilities

Tax:
FRANCHISE OPT

Radio or television broadcasting with gross annual receipts ≤ ₱10 M 3% of gross receipts

Gas and water utilities 2% of gross receipts

Section 120: Overseas Communications Tax (10%)

➔​ Tax on overseas dispatch, message, or conversation originating from the Philippines by telephone,
telegraph, telewriter exchange, wireless, and other communication equipment or service.

NOTE: All domestic calls are subject to VAT

Persons subject: ​
Payor of the service (payee collects and remits the tax within 20 days after each qtr.)​
​
Tax: 10% of the amount paid for the service

Exemptions:
1.​ Government
2.​ Embassies or consular offices of a foreign government
3.​ International organizations pursuant to international agreements
4.​ News services (The messages must deal exclusively with the collection or dissemination of news
items.)

Section 121: ​
Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions

Persons subject:
a)​ Banks (Note: BSP is not a bank nor a non-bank financial intermediary)
b)​ Non-bank financial intermediaries performing quasi-banking functions
92

Tax:
On interest, commissions, discounts from lending activities as well as income from financial leasing, on
the basis of the remaining maturities of instruments from which such receipts are derived: ​
Maturity period of 5 years or less ​ 5% ​
Maturity period more than 5 years 1%

On dividends and equity shares and net income of subsidiaries 0%

On royalties, rentals of property (real or personal), profits from exchange, and all other items treated as 7%
gross income

On net trading gains within the taxable year on foreign currency, debt securities, derivatives, and other 7%
similar financial instruments

Section 122: ​
Tax on Finance Companies

Persons subject:
a)​ Finance Companies
b)​ Other non-bank financial intermediaries not performing quasi-banking functions, doing business
in the Philippine (pawnshop and non-stock savings and loan assoc)
Tax:
On interest, commissions, discounts from lending activities as well as income from financial leasing, on
the basis of the remaining maturities of instruments from which such receipts are derived: ​
Maturity period of 5 years or less ​ 5% ​
Maturity period more than 5 years 1%

On gross receipts derived from interest, commissions, discounts, and all other items treated as gross 5%
income

Section 123: Tax on Life Insurance Premiums or Premium Tax (2%)

Persons subject: ​
Any person/entity offering life insurance in the Philippines, except purely cooperative companies or
associations. ​
​
Tax: 2% of gross premiums collected

Exemptions:
1.​ Premiums received by purely cooperative companies or associations;
2.​ Premiums refunded within six (6) months after payment on account of rejection of risk, or returned for
any other reason to a person insured;
3.​ Premiums paid upon reinsurance by a company that has already paid the tax;
4.​ Premiums collected by any branch of a DC doing business outside PH on account of any life
insurance of a non-resident, if a tax is already imposed by the foreign country where the branch is
established; ​
​
​
93

5.​ Premiums collected on account of any reinsurance, if the insured resides outside the PH, if a tax is
already imposed by the foreign country where original insurance has been issued.
6.​ Portion of premiums collected by insurance companies on variable contracts in excess of the
amounts necessary to insure the lives of the variable contract owners.
7.​ income earned by the life insurance company from services which can be pursued independently of
the insurance business activity
8.​ Investment income earned by the life insurance company from investing the premium

Section 124: Tax on Agents of Foreign Insurance Companies

Persons subject:
(a)​Every authorized fire, marine, or miscellaneous insurance agent
(b)​Owners of property who obtain insurance directly with foreign companies.

Tax:
1.​ For fire, marine, or miscellaneous insurance agent 4% of premiums collected

2.​ For owners of property who obtain insurance directly with foreign 5% of premiums paid
companies

Exemptions: Reinsurance premiums

Section 125: Amusement Taxes

Persons subject:
Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional
basketball games, jai-alai, and race tracks

Tax base: Gross Receipts

Tax rate:
Cockpits 18%
Cabarets 18%
Night or day clubs 18%
Boxing exhibitions 10%
Professional basketball games 15%
Jai-alai 30%
Race tracks 30%

Exemptions:
Boxing exhibition where:
1.​ The world or oriental title is at stake
2.​ One of the contenders is a Filipino citizen; and
3.​ Is promoted by a Filipino citizen, or by a corporation/association which is ≥ 60% owned by Filipinos
94

Section 125-A: Gaming Tax of Offshore Gaming Licensees (5%)

Persons subject:
Offshore gaming licensees

Tax:
5% of the entire gross gaming revenue or receipts or the agreed pre-determined minimum monthly
gaming revenue or receipts, whichever is higher. (directly remitted not later than 20th day ff. the end of
each month)

NOTES:
●​ Gross gaming revenue = Gross wagers less payouts
●​ Non-gaming revenues subject to 25% of taxable income plus VAT or OPT

Section 126: Winnings from Horse Races

Persons subject:
a)​ Person who win horse races
b)​ Owners of winning horse races

Tax:
Winnings in horse races 10% of winnings or
dividends

Winnings from double, forecast/quinella, and trifecta bets in horse 4% of winnings or

races dividends

Owners of winning race horses 10% of the prizes

NOTE: The tax in first 2 categories is based on the actual amount paid for every winning ticket less cost of
ticket

Section 127: Stock Transaction Tax (6/10 of 1%)

A. Sale, Barter, or Exchange of Shares Listed and Traded Through the Local Stock Exchange
Persons Subject:
Seller or transferor except:
1.​ Dealers in securities
2.​ Investors in shares of stock in a mutual fund company upon redemption
3.​ Other person specifically exempt from NIRC under existing investment incentives

Rate and Base of the Tax: 6/10 of 1% of the gross selling price
95

B. Sale or Exchange Through Initial Public Offering (“IPO”) of Shares of Stock in Closely-Held
Corporations
Persons Subject:
1.​ Issuing corporation in a primary offering
2.​ Selling shareholder of the shares in secondary offering during an IPO

Rate and Base of the Tax:

1.​ Gross selling price or gross value in money of the shares of stock sold
2.​ accordance with the proportion of shares of stock sold to the total outstanding shares of stock after
the listing in the local stock exchange

Up to 25% 4%
>25% to 33 1/3% 2%
Over 33 1/3% 1%

Who pays the tax?

1.​ Primary Offering—corporate issuer (within 30 days from date of listing of the shares)
2.​ Secondary offering—stockbroker who effected the same (within 5 banking days from date of
collection)

NOTE: STT is not deductible for income tax purposes

FILING AND PAYMENT OF PERCENTAGE TAXES

GR: Use BIR Form No. 2551Q​

When: 25 days after end of each taxable quarter

XPN: 1.​ Overseas Communication Tax—within 20 days after end of each quarter
2.​ Amusement Tax—20 days after end of each quarter
96

The ff. TP required to file monthly return BIR Form No. 2551M: (not later than 20th day ff. end of each
month)
a)​ Taxpayers whose gross annual sales and/or receipts do not exceed ₱3,000,000, and who are not
VATregistered taxpayers;
b)​ Domestic carriers and keepers of garages;
c)​ Operators of international air and shipping carriers doing business in the Philippines;
d)​ Franchise grantees of gas or water utilities;
e)​ Franchise grantees of radio and/or television broadcasting companies whose gross annual
receipts of the preceding year do not exceed ₱10,000,000, and are not VAT-registered taxpayers;
f)​ Banks, non-bank financial intermediaries, and finance companies;
g)​ Life insurance companies;
h)​ Agents of foreign insurance companies.
i)​ Offshore gaming licensees

Person retiring from Business: ​

Notify the nearest internal revenue officer, file his return, and pay the tax due thereon within 20 days after
closing his business. ​
​
The following percentage taxes have filing and payment rules which differ from the above mentioned
rules:
1.​ Tax on Winnings under Sec. 126—withheld by operator/manager and remit within 20 days from date of
withholding
2.​ STT—withheld by stockbroker and remit to bank or RDO within 5 banking days from date of collection
3.​ TP required to withholding OPT shall withhold and remit taxes on monthly basis using BIR Form No.
1600- PT on or before the 10th day of the month ff. the month withholding was made

Advance OPT:
1.​ Sale of Sugar (other than raw cane sugar) w/ gross annual sales ≤3M and not VAT-registered Rate: 3%
of gross monthly sales/receipts paid in advance by owner/seller before any warehouse receipts or
quedans are issued, or before the sugar is withdrawn from any sugar refinery or mill.
2.​ Transport of naturally grown and planted timber products Rate: 3% on the value per cubic meter of diff
species
3.​ Sale of jewelry, gold, and other metallic minerals to non-resident individuals not engaged in business
in the Philippines and/or NRFC.
97

CHANGE IN STATUS

1.​ VAT to OPT tax accrue from date of cancellation

2.​ OPT ​ Update registration within the month ff. the month he exceeded the VAT
(choose 8% tax rate) threshold; liable to VAT prospectively Pay OPT covering the sales/receipts
to VAT from beg. of taxable year until the time the TP become liable to VAT

WITHHOLDING OF OPT:
1.​ By the Government
➔​ required return shall be filed and payments made within 10 days following the end of the month
the withholding was made or the withholding tax has accrued.

2.​ Optional Withholding of OPT

➔​ Those who are subject to OPT under Section 116
➔​ Manifested by filing the Notice of Availment of the Option to Pay the Tax Through the Withholding
Process w/c must be furnished to the payor and the RDOs of both payor and payee
➔​ Remitted by payor using BIR Form no. 1600-PT

VAT Effects of the Expanded Senior Citizens Act of 2010

R.A. 9994, also known as the Expanded Senior Citizens Act of 2010 aims to enhance benefits and privileges
for Filipino senior citizens, including tax privileges.

Legal Framework and Implementing Rules

●​ Revenue Regulations 7-2010: Issued on July 21, 2010, specifying rules and guidelines for tax privileges
under R.A. 9994
●​ Revenue Memorandum Circular 38-2012: Issued on August 3, 2012, providing further clarification on
the implementation of RR 7-2010.

VAT Exemptions and Discounts for Senior Citizens

●​ 20% Discount Requirement: Establishments must grant a 20% discount on specified goods and
services for senior citizens.
●​ VAT Exemption: In addition to the discount, transactions for qualified goods and services are exempt
from VAT, provided they meet eligibility.
98

Conditions for Availment

●​ Exclusive to Personal Consumption: The benefit applies only to items for the senior citizen’s own use,
not for companions or shared consumption.
●​ Establishments are required to verify eligibility and apply the discount and VAT exemption accordingly.

The following rules shall be observed in granting the discount of 20% + VAT Exemption:

1.​ Medicines, including influenza and pneumococcal vaccines, and such other essential medical
supplies, accessories and equipment to be determined by the Department of Health (DOH).
a.​ Medicine and drug purchases
Medicines, including influenza and pneumococcal vaccines, essential medical supplies

-​ Applies to generic/branded medicines, vitamins, and mineral supplements if medically prescribed.

-​ Applies to purchases from drugstores, hospital pharmacies, medical clinics, and non-traditional
outlets.

b.​ Essential Medical Supplies, Accessories, and Equipment

Medicines, including influenza and pneumococcal vaccines, essential medical supplies

-​ includes eyeglasses, hearing aids, dentures, prosthetics, bone replacements, walkers, crutches,
canes, geriatric diapers, etc.
-​ Must be purchased by or for senior citizens.

c.​ Medical and Dental Services (Private Facilities)

Medicines, including influenza and pneumococcal vaccines, essential medical supplies

-​ Covers diagnostic and laboratory tests (e.g., X-rays, CT scans, blood tests) if prescribed by a
physician.
-​ Only applicable in private facilities and for the diagnosis/treatment of illness or injury.

2.​ Professional fees of attending physician/s in all private hospitals, medical facilities, outpatient
clinics and home health care facilities. The discount shall be based on the compensation for services
charged to the senior citizen.​

3.​ Professional fees of licensed health workers providing home health care services, as endorsed by
private hospitals or employed through home health care employment agencies. The burden of the
discount shall be borne solely by the employment agency, given the health worker's very minimal
share compared to the agency fee.

4.​ Medical and dental services, diagnostic and laboratory fees in all private hospitals, medical
facilities, outpatient clinics, and home health care services, in accordance with the rules and
regulations to be issued by the DOH in coordination with PHILHEALTH.
​
​
​
​
​
99

5.​ Actual fare for land transportation, travel in public utility buses (PUBs), public utility jeepneys
(PUJs), taxis, Asian Utility Vehicles (AUVs), shuttle services and public railways, including Light Rail
Transit (LRT), Mass Rail Transit (MRT), and Philippine National Railways (PNR).​
NOTE: Taxi fares are subject to the 20% senior citizen discount. The Land Transportation and
Franchising Regulatory Board (LTFRB) has issued a guideline on this matter.​

6.​ Actual transportation fare for domestic air transport services and shipping vessels and the like,
based on the actual fare and advance booking.
a.​ Air and sea transportation privileges​
Fare for domestic air and sea travel, booking, including advance booking, if applicable;

b.​ Public and land transportation privileges

Fare in public railways, including LRT, MRT, and PNR, fares in PUBs, PUJs, and AUVs, if applicable.

7.​ Services in hotels and similar lodging establishments, restaurants and recreation centers.
a.​ Hotels and Similar Lodging Establishments

➔​ Applies to: Room rates and amenities, such as hotel-based parlors, barbershops, restaurants, spas,
gyms, swimming pools, KTV bars, internet, and food/drinks.
➔​ Establishments Included: Hotels, beach and mountain resorts, tourist inns, apartelles, motorist
hotels, pension houses, and lodging houses.

b.​ Restaurants
➔​ Applies to: all food, drinks, desserts, and other consumable items, including value and promotional
meals. No cap on the discount; it must be at least 20% of the pre-VAT selling price.

●​ Billing for Senior Citizens in Groups:

-​ If dining in a group, divide the total bill (exclusive of VAT) by the number of diners.
-​ Formula:

Total Bill
—--------------------- Less 12% VAT x 20% = Senior Citizen Discount
Number of Customers

●​ Meal Sharing/Set Meals:

-​ Single-serving meals (like individual set meals) qualify for the discount.
-​ For shared meals (like whole cakes or pizzas), use the group billing formula above.

●​ Pasalubong (Takeout) Items::

-​ Solo meals or single-serving items for the senior citizen’s personal use are eligible for the
discount.
-​ Bulk items not exclusively for senior use (e.g., gift boxes) do not qualify.

●​ Alcoholic Beverages::
-​ Senior citizens get a 20% discount on a single serving, though these items are VAT-exempt and
subject to an 18% amusement tax.

●​ Cigarettes: Not eligible for discount or VAT exemption.​

​
​
​
​
100

c.​ For dine-in services of hotels, similar lodging establishments and restaurants.

➔​ Applies only if the senior citizen personally avails of the dine-in services. No proxies or
authorizations allowed for another person to claim the discount on behalf of the senior citizen.
➔​ Excludes children's meals and pre-contracted party packages

d.​ Food, drinks and other consumable items in hotels, similar lodging establishments and
restaurants purchased by the senior citizen

●​ Separate Billing: Senior citizen purchases of food, drinks, and consumables should be processed as
independent transactions from those of non-eligible companions.

●​ Group of Senior Citizens: If the dining group consists solely of senior citizens, each with a valid ID,
each member is eligible for the 20% discount and VAT exemption on their individual orders.

e.​ Take-Out/Drive-Thru Orders & Leftovers (excluding bulk orders)

➔​ Applies to take-out, take-home, and drive-thru orders if:

-​ The senior citizen is personally present to place the order.
-​ A valid senior citizen ID card is shown.

●​ Leftovers from Dine-In:

-​ If a senior citizen takes home unfinished dine-in food, the discount still applies as long as it is
not part of a bulk order.

f.​ Delivery Orders (excluding bulk orders)

➔​ Applies to delivery orders (excluding bulk orders) if: take-out, take-home, and drive-thru orders if:
-​ Senior citizen ID number is provided during the phone order.
-​ Senior citizen card is presented upon delivery for verification.

●​ Delivery Fees::
-​ If the delivery fee is not billed separately, it is subject to the 20% discount.
-​ If the delivery fee is billed separately, it is not eligible for the discount and is subject to VAT.

g.​ Most Expensive Meal Combination (MEMC)

➔​ Applies to delivery orders to food purchases by senior citizens in take-out, take-home,

drive-thru, and delivery orders.

NOTE: MEMC refers to the most expensive and largest single-serving meal with a beverage served at a
quick-service restaurant.

h.​ Recreation Centers

➔​ Applies to fees, charges, and rental for sports facilities or equipment. This includes rentals such as
golf carts, green fees, ballroom venues, yoga spaces, badminton/bowling lanes, tennis courts,
gyms, and martial arts facilities.​
101

i.​ Private Golf and Country Clubs

➔​ Exempt from the 20% senior citizen discount if they are non-profit, stock, exclusive clubs.
​
Must be closed to the general public and restricted to members only, verified through SEC
registration.

j.​ Restaurants and Food Establishments in Private Clubs

NOTE: If restaurants or food establishments within private golf or country clubs operate as
concessionaires and their food is not included under club membership dues, they must grant the
20% senior citizen discount.

8.​ Admission fees charged by theaters, cinema houses and concert halls, circus carnivals and other
similar places of culture, leisure and amusement, such as museums and parks.

9.​ Funeral and burial services for the senior citizen.

➔​ Who can claim: Beneficiaries or anyone responsible for paying the funeral costs, upon presentation of the
deceased senior citizen’s death certificate.

●​ Covered Expenses:
-​ Casket or urn
-​ Embalming or cremation costs
-​ Viewing or wake services
-​ Transporting the body from hospital or place of origin

●​ Exclusions::
-​ Obituary publications
-​ Cost of the memorial lot

10.​On basic necessities and prime commodities.

●​ Eligibility:
-​ Senior citizens are entitled to a 5% discount on the regular retail price of b5t tax.

VAT Exemption of Sales to Senior Citizens

●​ VAT Exemption: Sales of goods and services to senior citizens are exempt from VAT.
●​ Invoicing Requirements: Sales must comply with the invoicing requirements set out in RMC 16-2005.
●​ Input Tax: Sellers cannot claim input tax credits for exempt sales; these should be recorded as costs or
expenses.
●​ Percentage Tax: Senior citizens are not exempt from percentage tax if the seller is subject to it due to
gross sales below ₱3,000,000. Discounts apply only to the total cost exclusive of any taxes.​
102

Magna Carta for PWDs (R.A. 10754)

R.A. 9994, also known as the Expanded Senior Citizens Act of 2010 aims to enhance benefits and privileges
for Filipino se

Qualified PWD shall be entitled to claim at least 20% discount from the following establishments relative to
the sale of goods and services, for their exclusive use and enjoyment or availment of the PWD:

A.​Hotels and similar lodging establishments; restaurants and recreation centers;

B.​ Theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture,
leisure and amusement.
C.​All drugstores regarding purchase of generic and branded medicine
D.​Medical and dental services including diagnostic and laboratory fees (e.g. x-rays, computerized
tomography scans and blood tests) and professional fees of attending doctors in all government
facilities or all private hospitals and medical facilities.
E.​ Domestic air and sea transportation based on the actual fare.
F.​ Land transportation privileges based on the actual fare.
G.​Funeral and burial services for the death of the PWD

All other goods and services not specifically listed above do not qualify for the 20% discount, even if
intended for the exclusive use of the PWD.
103

DOCUMENTARY STAMP TAX

Documentary Stamp Tax (DST) is the tax on documents, loan agreements, and papers evidencing the
acceptance, assignment, sale, or transfer of an obligation, right or property incident thereto.

KEY CHARACTERISTICS of DST

Aspect Description

Tax Type Excise tax (not on the business itself, but on the privilege to engage in
certain transactions)

Purpose Raises revenue for the government

Applicability Applies to transactions within the Philippines

Tax Basis Can be a fixed tax or an ad valorem tax based on the value or face
amount of the document

Scope Levied on documents related to transactions like sales, transfers,

assignments, and confirmations of rights or obligations

Due Timing Tax becomes due when the document is notarized or legally executed

Nature and Characteristics of DST

1.​ Excise Tax on Privilege

○​ DST is not a tax on the business itself but on the opportunity or privilege to engage in
specific legal transactions.
○​ Applies to the exercise of rights or privileges given by law, such as creating or modifying
legal relationships through documents.
2.​ Transactional Nature
○​ DST is imposed on the transaction or privilege, not directly on the document itself.
○​ Relevant to transactions creating, revising, or ending legal relationships.
3.​ Application to Documents
○​ Applies to documents that evidence transactions within the Philippines, including property
or rights based in the country.
○​ Examples include documents for sales, transfers, obligations, assignments, and
acceptances.
104

Documents subject to DST

DST Rates ●​ All documents not exempted by law are subject to DST, including
electronic documents;
●​ Rates apply to all non-exempt documents, whether physical or
electronic;
●​ Electronic documents are subject to the same DST as written
documents due to R.A. 8792 (Electronic Commerce Act), which
gives them legal equivalency.

R.A. 8792, otherwise known as ●​ Treats electronic documents as equivalent to written documents.
the Electronic Commerce Act ●​ DST applies to electronic documents as if they were paper
documents.

DST levied upon issuance of ●​ Independence of Transaction’s Legal Status: DST is levied upon the
documents issuance of the document, regardless of whether the underlying
transaction is void, voidable, unenforceable, or rescissible.
●​ Payment Required on Issuance: Payment is due upon the issuance
of the document, independent of its enforceability or validity.

Who is liable?

1.​ Primary Liability

●​ The person who is making, signing, issuing, accepting, or transferring the document is generally liable.
●​ Either party in a transaction can be held responsible; however, practice often places responsibility on the
benefiting party (e.g., the one gaining the most from the transaction).
2.​ Agreement Between Parties
●​ Parties may agree on who pays DST, but if one fails to pay, the other party can be held accountable by the
government.
3.​ Exemptions and Shared Liability
●​ General Rule (GR): Any party to a taxable transaction is responsible for the full tax.
●​ Exemption (XPN): If one party is exempt from DST, the non-exempt party is fully liable for the tax.
105

DOCUMENTS/TRANSACTIONS TAX RATE

Original Issue of Shares of Stocks 2/200

Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of 1.50/200

Shares or Certificates of Stock with par value

In case Stock without par value 50% of DST paid on original issue

Bonds, Debentures, Certificates of Stock or Indebtedness issued in Foreign Same tax rate on similar instrument
Countries

Certificates of Profits or Interest in Property or Accumulations 1/200

Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and Other 3/piece of check, draft, certificate, etc.
Instruments

Original issue of all Debt Instrument 1.50/200 of issue price or fraction of 365
days for instruments w/ term of less
than 1 year

Acceptance of Bills of Exchange or Order drawn in a Foreign Country but 0.60/200

payable in the Philippines

Foreign Bills of Exchange and Letters of Credit 0.60/200

Life Insurance Policies amount: ​

Does not exceed P 100,000 ​ Exempt
>100,000 to 300,000 ​ 20
>300,000 to 500,000 ​ 50
>500,000 to 750,000 ​ 100
>750,000 to 1,000,000 ​ 150
>1,000,000 200

Policies of Insurance upon Property 0.50/4

Fidelity Bonds and Other Insurance Policies 0.50/4

Policies of Annuities 1/200 of the premium or installment

payment on contract price collected

Pre-need Plans 0.40/200 of premium collected

Indemnity Bonds 0.30/4

Certificates (Sec. 188 of the Tax Code) 30 per certificate

106

Warehouse Receipts 30 w/ value above 200

Jai-alai, Horse Race Tickets, Lotto, or Other Authorized Number Games 1.00 below 0.20
Above 1.00 0.20/1.00

Bills of Lading or Receipts 100 to 1,000 2.00

Above 1,000 20.00

Proxies for Voting at Any Election 30/issued proxy

Powers of Attorney 30/power of atty.

Leases and Other Hiring Agreements 1st 2,000 6.00 ​

In excess 2.00/1,000

Mortgages, Pledges and Deeds of Trust 1st 5,000 40.00 ​

In excess 20.00/5,000

On Assignments & Renewals of Certain Instruments Same rate as original instrument

Bills of Exchange or Drafts 0.60/200

On Deeds of Sale, Conveyances, and Donations of Real Property 1st 1,000 15.00
In excess 15.00/1,000

Charter Parties and Similar Instrument if gross tonnage of the Ship, Vessel 1st 6 months 1,000
or Steamer is: 1,000 tons and below In excess +100/mo

1,001 to 10,000 tons 1st 6 months 2,000

In excess +200/mo

Over 10,000 tons 1st 6 months 3,000 ​

In excess +300/mo

Modes of Payment:
1.​ Tax due is paid at the time the return is filed.
2.​ May be paid through purchase and actual affixture of the DSTs on the document
3.​ By imprinting the DSTs, through a DST metering machine, on the taxable document
4.​ For certificates issued by government agencies and instrumentalities (GAs), the tax shall be paid to the GA which
amount shall be indicated in the government official receipt. Such receipt shall be attached to the certificate as
proof of payment of the DST.

Time of Filing and Payment: within 5 days after the close of the month when the document was made
107

Place of Filing and Payment: Authorized Agent Bank (AAB) within territorial jurisdiction of the RDO; Revenue
district officer, collection agent, duly authorized treasurer of the city/municipality.

Effect of Failure to Stamp a Document

1.​ Shall not be recorded;
2.​ Shall not be admitted or used in evidence in any court;
3.​ The notary public shall not add his jurat or acknowledgement to the document

KEY PRINCIPLES OF DOCUMENTARY STAMP TAX

Principle Details

1.​ One Transaction, One Tax Each transaction incurs its own DST, even if multiple
documents are involved.

2.​ Scope of Taxable Transactions DST applies if rights/obligations arise from the
Philippines or property is located in the Philippines.

3.​ Invalidity of Contract DST is owed regardless of the contract’s legal status
(whether voidable, void, or unenforceable); no refunds
for canceled contracts.

4.​ Specific Transactions Taxable Only transactions explicitly mentioned in the law are
subject to DST.

Who shall file the documentary stamp tax return?

Mode of Payment Person liable who file

Loose stamps or actual affixture Revenue collection officer who sold the stamps

Machine Imprinted Stamps Imprinting Machine User

Constructive Affixture The person making, signing, issuing, accepting or

transferring document

Attachment to the documentary stamp tax return

1.​ Photocopy of the document
2.​ Proof of payment of the documentary stamp tax
3.​ A schedule showing the details of the usage or consumption of documentary stamps
108

EXCISE TAX
PURPOSES
Excise Tax is a hybrid consumption tax with a
regulatory overture. It is imposed only on certain 1.​ To raise revenue;
goods or services. 2.​ To curtail the consumption of certain
commodities;
As a consumption tax, it normally applies when the 3.​ To protect domestic industries;
goods are intended for domestic consumption.
Hence, it taxes goods domestically produced or
imported for domestic use and exempts goods
produced for export.

NATURE OF EXCISE TAX

Nature Description

Excise tax as an regulatory tax 1.​ Environmental Tax: levied on environmentally harmful goods;
otherwise known as green tax.
2.​ Sumptuary Tax: levied to restrain luxury or extravagance;
otherwise known as vanity tax.
3.​ Sin Tax: Imposed on health-risk products; otherwise known as
health tax.

Excise tax as an indirect tax Paid by producers/importers but passed on to consumers.

Excise tax as a consumption tax Primarily imposed at production/import point, except on minerals and
cosmetic surgery.

Excise tax as an additional Excise tax is on top of VAT or percentage tax based on business type.
business tax

Excise tax as specific and ​ Specific (fixed per unit) or ad valorem (percentage of value) depending
ad valorem tax on the product/service.
109

CHARACTERISTICS OF EXCISE TAX

-> In addition to VAT or OPT ​

-> Taxes which apply to certain goods manufactured or produced in the Philippines for domestic sale or
consumption, and to things imported. ​
-> Also apply to certain services performed in the Philippines
-> Deductible for income tax purposes

TYPES OF EXCISE TAX

Specific Tax​ Ad Valorem Tax

based on weight or volume capacity based on the selling price or value of goods
(exclusive of VAT, tariff, and custom duties)
Note: In computing VAT on importation, excise tax, tariff,
and custom duties are included in tax base.

ALCOHOL PRODUCTS DISTILLED SPIRITS,

●​ Distilled spirits (inc. proof spirits) CIGARS,
●​ Wines AUTOMOBILES, excluding:
●​ Fermented liquor (exc. Tuba, pasi, tapuy) ●​ Buses, trucks
●​ Cargo vans
TOBACCO PRODUCTS ●​ Jeepneys/jeepney substitutes
●​ Tobacco products (exc. stemmed leaf tobacco or ●​ Single cab chassis
tobacco by-products) inc. tobacco for chewing ●​ Special-purpose vehicles
●​ Heated tobacco products ●​ Automobiles used exclusively within the Freeport
●​ Vapor products zones
●​ Cigars and cigarettes Note:
-​ Purely electric vehicles and pick-ups are exempt
PETROLEUM PRODUCTS from excise tax
●​ Lubricating oils and greases -​ Hybrid vehicles: 50% of applicable excise tax
●​ Processed gas
●​ Waxes and petrolatum NON-ESSENTIAL GOODS
●​ Denatured alcohol to be used for motive power ●​ Jewelry, pearls, precious and semi-precious stones
●​ Naphtha, regular gasoline, and other similar (real or imitation)
products of distillation ●​ Goods made of or ornamented, mounted or fitted
●​ Leaded and unleaded premium gasoline with precious metals or imitations thereof or ivory
●​ Aviation turbo jet fuel Except:
●​ Asphalts (a)​ surgical and dental instruments
●​ Kerosene and Diesel Fuel Oil (b)​ silver-plated wares, frames, or mountings for
●​ Liquefied petroleum gas spectacles or eyeglasses
●​ Bunker fuel oil (c)​ dental gold or gold alloys and other precious metals
used in filling, mounting, or fitting the teeth
●​ Opera glasses and lorgnettes
●​ Perfumes and toilet waters
●​ Yachts and other vessels intended for pleasure or
sports
110

MINERAL PRODUCTS MINERAL PRODUCTS

●​ Coal and Coke ●​ Non-metallic minerals and quarry resources
●​ Metallic minerals (copper, gold, chromite)
SWEETENED BEVERAGES — per liter of volume capacity ●​ Indigenous petroleum including locally-extracted
The ff. are exc. from excise tax on sweetened beverages: mineral oil, hydrocarbon gas, bitumen, crude asphalt,
●​ All milk products mineral gas. Except: locally-extJewelry, pearls,
●​ 100% natural fruit juices precious and semi-precious stones (real or imitation)
●​ 100% natural vegetable juices Except locally-extracted natural gas and liquefied
●​ Meal replacement and medically indicated natural gas
beverage
●​ Coffee NON-ESSENTIAL SERVICES – 5% on gross receipts; derived
from the performance of invasive cosmetic surgeries,
procedures, and body enhancements for
aesthetic/cosmetic purpose.

PERSONS SUBjECT TO EXCISE TAX:

1.​ Domestic Product
A.​ Generally, manufacturer or producer
B.​ Owner of person having possession of domestic products
C.​ First purchaser or transferee for local sale or transfer (indigenous petroleum, natural gas, liquefied natural
gas)
2.​ Imported Products
A.​ Importer
B.​ Person w/ possession of articles which are exempt from excise taxes other than those legally entitled to
exemption

CREDIT FOR EXCISE TAXES ON GOOD ACTUALLY EXPORTED:

➤ Credited/refunded upon submission of proof of actual exportation and upon receipt of foreign exchange
payment
➤ Excise tax on mineral products (except coal and coke) shall not be creditable nor refundable even if the
mineral products are actually exported

CHANGES UNDER THE TRAIN:

1.​ Cigarettes packed by hand, and packed by machines follow the same schedule of specific excise taxes
2.​ Excise taxes on the following products were increased:
(a) Cigarettes packed by hand, and cigarettes packed by machine;
(b) Manufactured oils and other fuel oils;
(c) Locally manufactured and imported automobiles;
(d) Domestic or imported coal and coke;
(e) Non-metallic and metallic minerals;
(f) Indigenous petroleum.
111

EXEMPTIONS FROM THE EXCISE TAX

1.​ Naptha and pyrolysis gasoline used as raw material in the production of petrochemical products or in the refining
of petroleum products, or as replacement fuel for natural gas-fired-combined cycle power plan
2.​Production of petroleum products, whether or not they are classified as products of distillation, and for use solely
for production of gasoline
3.​LPG when used as a raw material in the production of petrochemical products
4.​Petroleum coke, when used as feedstock to any power generating facility
5.​Purely electric vehicles, and pick-ups In addition to VAT or OPT
6.​Under special laws:
A.​ Importation of critical or needed healthcare equipment or supplied to combat COVID-19 public health
emergency (March 25, 2020 to December 19, 2020)
B.​ Importation of waste management equipment (June 25, 2020 to December 19, 2020)
C.​ Importation of personal computers, laptops, tablets, or similar equipment appropriate for use in schools,
which are donated for distribution to public schools (September 15, 2020 to December 19, 2020)
D.​ The importation of COVID-19 vaccines (must be free to persons to be vaccinated)
E.​ Crude oil that is intended to be refined at a local refinery

Tax Base
●​ Gross Selling Price (GSP): Price at which goods are sold wholesale at the place of production or
through sales agents, excluding VAT.

Basis of Ad Valorem Tax for Locally Produced Goods

Excludes VAT and uses the wholesale price at the place of

GSP for Locally Produced Goods
production.

If the goods are sold wholesale at another establishment

Alternative Selling Establishment owned by the manufacturer, the wholesale price at that location
is used as GSP.

If wholesale price is below manufacturing cost + expenses, a

Minimum Profit Margin
10% profit margin (or more) must be added to set the GSP.

NOTE: Gross Selling Price of Good Subject to Ad Valorem Tax

1.​ The price, excluding the VAT, at which the goods are sold at wholesale or through sales agents;
2.​ If the manufacturer also sells the goods at wholesale in another establishment of which he is
the owner, the wholesale price is the latter establishment shall be the gross selling price;
3.​ If the price is less than the cost of manufacturing plus expenses, the gross selling price shall
equal such cost + expenses + a proportionate margin of profit (≥10% of the cost + expenses)
112

Manufacturer’s Sworn Statement

●​ Requirement: Manufacturers/producers must file a sworn statement with the Commissioner of

Internal Revenue (CIR).
●​ Contents: Statement should include:
○​ Products manufactured or produced.
○​ Selling price or market value of goods.
○​ Cost of manufacturing/production plus any incurred or future expenses until sale.

Excise Tax Credit for Exported Goods

●​ Eligibility: Excise tax can be credited/refunded when locally produced/manufactured goods are
exported (either in their original form or as components of other products).
●​ Conditions:
1.​ Submit proof of exportation.
2.​ Foreign exchange payment must be received.

Tax-Free Importation

●​ Applicability: For tax-exempt goods imported into the Philippines by exempt persons/entities.
●​ Tax Liability Upon Transfer: If these goods are sold, transferred, or exchanged to non-exempt
persons/entities, the buyer/recipient becomes the importer and is liable for:
○​ Any duty and internal revenue tax on the importation.
113

TAXATION UNDER THE LOCAL GOVERNMENT CODE

Local taxes are taxes that are

The LGC of 1991 governs the tax power as well as other revenue raising
imposed and collected by the
powers exercised by:
local government units in order
1.​ Provinces;
to raise revenues to enable them
2.​ Cities;
to perform the functions for
3.​ Municipalities;
which they have been
4.​ Barangays
organized.

NATURE OF TAXING POWER

1.​ Not Inherent:
●​ Unlike sovereign states, LGUs do not inherently possess the power to tax.
●​ LGUs can only tax if the power is delegated by the national legislature or provided by the Constitution.

LIMITATIONS ON LOCAL TAX POWER (Sec. 5, RA 7160)

1.​ The taxpayer will not be overburdened with unreasonable impositions.
2.​ Local taxation is to be uniform and just.
3.​ Each LGU will have its fair share of available resources.

Limitations on LGU Taxing Power (Sec. 133, RA 7160)

LGUs cannot impose taxes on:
a.​ Income tax (except on bank and financial entities)
b.​ DST
c.​ Estate and Donor's taxes
d.​ Customs Duties
e.​ Taxes on goods passing through the LGU
f.​ Taxes on agricultural and aquatic products sold by marginal farmers and fisherman
g.​ Taxes on BOI-registered enterprises
h.​ Excise taxes on articles under the Tax Code and taxes on petroleum products
i.​ Percentage tax and VAT
j.​ Taxes on gross receipts of transportation contractors
k.​ Taxes on premium paid by way of reinsurance
l.​ Taxes on registration of motor vehicles
m.​ Taxes on Philippine products actually exported
n.​ Taxes on Countryside and Barangay Business Enterprises and cooperatives
o.​ Taxes and fees on the National Government
As provided in SECTION 186, LGUs cannot impose taxes that are specifically enumerated or taxed under the
provisions of the Tax Code.
114

Enactment and Effectivity of Local Tax Ordinances

Stage Description

1.​ Passage Tax ordinance is deliberated by the Sanggunian; requires a public hearing before
enactment.

2.​ Approval Signed by the local chief executive. If vetoed, can be overridden by a 2/3 vote of
Sanggunian members.

3.​ Effectivity Ordinance takes effect 10 days after posting, unless stated otherwise.

ASPECTS OF LOCAL TAXATION (SCOPE)

Local Government Taxation Real Property Taxation

Purpose Covers license taxes, fees, and other Levy on real property (nationwide), allowing
impositions including the community tax. local government rate adjustments within
(Sections 128-196, LGC) set limits. (Sections 197-283, LGC)

Fundamental 1.​ Uniformity​ 1.​ Appraisal: ​

Principles Taxes must be uniform within each Local Real property should be appraised at its
Government Unit (LGU).​ current and fair market value.​

2.​ Equitability & Fairness 2.​ Classification: ​

●​ Based on Ability to Pay: Taxes, fees, and Classification for assessment is based
charges should be fair and reflective of on the property’s actual use.​
the taxpayer's financial capacity.
●​ Public Purpose: All taxes are for the 3.​ Uniform Assessment: ​
benefit of the community and must serve Real property should be assessed
a public purpose. uniformly within each local government
●​ Non-Excessive: Taxes must not be unjust, unit (LGU).​
excessive, oppressive, or confiscatory.
●​ Legally Compliant: Taxes must not conflict 4.​ Public Responsibility: ​
with law, public policy, economic policy, Appraisal, assessment, levy, and
or restrict trade. collection of real property taxes cannot
be delegated to private persons.​
3.​ No Private Control Over Levy and Collection​
The authority to levy and collect taxes 5.​ Equitability: ​
cannot be granted to private individuals or Appraisal and assessment should be
entities.​ equitable for all properties.

4.​ Revenue for LGU​

Taxes must benefit the LGU imposing the
tax. Exceptions:
-​ Sand, Gravel, Quarry Tax
-​ Amusement Ta
-​ Community Tax
115

5.​ Progressive Taxation ​

LGUs must implement a progressive tax
system, where tax rates increase based on
income or wealth.

6.​ Territoriality

Taxing Authority: Sanggunian of the LGU thru

appropriate ordinance

LOCAL GOVERNMENT TAXATION

​
-> Power to levy other taxes, fees, or charges (must have public hearing; otherwise void)

PROVINCES
1.​ TAX ON TRANSFER OF REAL PROPERTY OWNERSHIP

Tax imposed on sale, donation, barter, or on any other mode of transferring ownership or title of real
property

Tax Base Higher between total consideration and FMV

Tax Rate Not more than 50% of 1%

Time of payment Transferor: Within 60 days from date of execution of deed or from the date of
decedent’s death

Exemption Real property pursuant to RA No, 6657 (Comprehensive Agrarian Reform Law of
1988)

2.​ TAX ON BUSINESS OF PRINTING AND PUBLICATION

Tax imposed on business of persons engaged in the printing and/or publication of books, cards,
posters, leaflets, handbills, certificates, receipts, pamphlets, and others

Tax Rate and (a) Newly-started: not exceed 1/20 of 1% of capital investment
Base (b) Succeeding years: not exceed 50% of 1% of gross annual receipts for the
preceding year

Exemption Receipts from the printing and/or publishing of books or other reading materials
prescribed by Dep’t of Education, culture & sports as school texts or references
116

3.​ FRANCHISE TAX

Tax imposed on Businesses enjoying a franchise

Tax Rate and Base (a) Newly-started: not exceed 1/20 of 1% of capital investment ​
(b) Succeeding years: not exceed 50% of 1% of gross annual receipts for the
preceding year

4.​ TAX ON SAND, GRAVEL, AND OTHER QUARRY RESOURCES

Tax imposed on Ordinary stones, sand, gravel, earth, and other quarry resources, extracted from: ​
(a) public lands or ​
(b) the beds of seas, lakes, rivers, streams, creeks, and other public waters
within the territorial jurisdiction of the province.

Tax Base FMV in the locality

Tax Rate Not more than 10%

5.​ PROFESSIONAL TAX

Tax imposed on Person engaged in the exercise or practice of his profession requiring government
examination (Bar or exam conducted by PRC)

Tax Not more than P300.00

Place of payment Province, city, or municipality where principal office is situated or where he
practices

Time of payment Annually: on or before January 31 If TP begins practice after month of January: After
January 31

Exemption Professionals exclusively employed in the government

6.​ AMUSEMENT TAX

Tax imposed on Proprietors, lessees, or operators of (a) theaters, (b) cinemas, (c) concert halls, (d)
circuses, (e) boxing stadia, and (f) other places of amusement

Tax Base Gross receipts from admission fees

Taxe Rate Not more than 10%

Exemption Operas, concerts, dramas, recitals, painting and art exhibitions, flower shows,
musical programs, literary and oratorical presentation except Pop, rock, or similar
concerts

NOTE 1.​ 15% OPT for professional basketball games precludes the province from
imposing a local tax thereon
117

2.​ Sale of movie tickets is subject to the local amusement tax, and not to VAT

7.​ ANNUAL FIXED TAX FOR EVERY DELIVERY TRUCK OR VAN OF MANUFACTURERS OR PRODUCERS,
WHOLESALERS OF, DEALERS, OR RETAILERS IN, CERTAIN PRODUCTS

Tax imposed on Used in delivery or distribution of distilled spirits, fermented liquors, soft drinks,
cigars and cigarettes, and other products to sales outlets, or consumers, whether
directly or indirectly, within the province

Tax Do not exceed P500.00

MUNICIPALITIES

1.​ TAX ON BUSINESS (LOCAL BUSINESS TAX)

(a)​On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines
➔​ Tax per annum is fixed that increases with TP’s domestic gross sales/receipts
➔​ IF receipt is ≥ 6.5M, tax rate is not exceeding 37.5% of 1%
(b)​On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature
➔​ Tax per annum is fixed that increases with TP’s domestic gross sales/receipts
➔​ IF receipt is ≥ 2M, tax rate is not exceeding 50% of 1%
(c)​On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of essential commodities
➔​ Rate not more than 1/2 rates prescribed under subsection (a), (b) and (d) of Section 143 of
the LGC
➔​ Essential commodities are:
(1) Rice and corn; ​
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or
preserved food, sugar, salt and other agricultural, marine, and fresh water products, in
their original state or not; ​
(3) Cooking oil and cooking gas; ​
(4) Laundry soap, detergents, and medicine; ​
(5) Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides,
insecticides, herbicides and other farm inputs; ​
(6) Poultry feeds and other animal feeds; ​
(7) School supplies; and ​
(8) Cement ​
​
​
​
118

(d)​ On retailers
➔​ Sales not exceeding 400,000
➔​ In excess of first 400,000
➔​ Barangays shall have the exclusive power to levy taxes on gross sales/receipts of
preceding calendar year of 50,000 or less, in the case of barangays in cities; and 30,000 or
less in case of brgy. in municipalities.
(e)​On contractors and other independent contractors
➔​ Tax per annum is fixed that increases with TP’s domestic gross sales/receipts
➔​ IF receipt is ≥ 2M, tax rate is not exceeding 50% of 1%
(f)​ On banks and other financial institutions
➔​ Rate not exceeding 50% of 1% on the gross receipts of the preceding calendar year derived
from interest, commissions and discounts from lending activities, income from financial
leasing, dividends, rentals on property and profit from exchange or sale of property, and
insurance premium.
(g)​ On peddlers engaged in sale of any merchandise or article of commerce
➔​ Not exceeding P50.00 per peddler annually
(h)​ On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax.
➔​ For business subject to the excise tax, VAT or OPT, rate shall not exceed 2% of gross
sales/receipts of the preceding year

NOTES:
➔​ Where the taxpayer has a factory, project office, plant, or plantation, and all sales are recorded
in the principal office, the following sales allocation shall apply:

30% taxable by city/municipality where principal office is located

70% taxable by city/municipality where the factory, project office, plant, or plantation
is located

➔​ In case of a plantation located at a place other than the place where the factory is located, 70%
is divided as follows:
60% city or municipality where the factory is located
40% city or municipality where the plantation is located.
119

2. FEES AND CHARGES

(a)​Permits/Licenses—only be commensurate to the cost of issuing the license or permit, and the
expenses incurred in the conduct of the necessary inspection or surveillance
➔​professional who has paid his professional tax shall be exempt from the payment of the
business permit fee in the operation of his clinic or office (still need to secure business permit
but w/ no cost)
(b)​Fees for Sealing and Licensing of Weights and Measures
(c)​Fishery Rentals, Fees, and Charges—municipalities shall have the exclusive authority to grant
fishery privileges

Additional Taxing Power of Municipalities Within the Metropolitan Manila Area (“MMA”):
➔​ May levy and collect the taxes which may be imposed by the province at prescribed rates

CITIES

(a)​levy the taxes, fees, and charges which the province or municipality may impose
➔​ Tax rates may exceed the maximum rates allowed by not more than 50% except rates of
professional and amusement taxes

(b)​ Percentage tax on any business—not exceeding 3% of gross sales/receipts (c) Collect from the
same manufacturers, producers, wholesalers, retailers, and dealers using route trucks, a mayor’s
permit fee

BARANGAYS
A.​ TAX OF STORES/RETAILERS

Tax imposed on Stores or retailers with fixed business establishments with gross sales or receipts of
the preceding calendar year of: ​
(a) Not more than ₱50,000 for stores in a barangay within a city; ​
(b) Not more than ₱30,000 for stores in a barangay within a municipality

Tax Base Gross sales or receipts

Tax Rate Not more than 1%

B.​ SERVICE FEES OR CHARGES

➔​regulation or the use of barangay-owned properties or service facilities such as palay, copra, or
tobacco dryers
120

C.​ BARANGAY CLEARANCE

➔​Imposed by sangguniang bayan
➔​ Application for clearance shall be acted upon within 7 working days from filing.

D.​ OTHER FEES AND CHARGES

(1)​ On commercial breeding of fighting cocks, cockfights and cockpits;
(2)​On places of recreation. That charges admission fees
(3)​On billboards, signboards, neon signs, and outdoor advertisements

EXEMPTIONS​

A.​ FROM BUSINESS PERMIT (MAYOR’S PERMIT)

➔​ Professional who paid his professional tax (exempt in payment ONLY)
➔​ Service contractors providing temporary and/or outsourced services to clients outside the
LGU where it maintains its principal office, branch office, and administrative office, are not
required to secure a mayor’s/business permit in those areas

B.​ FROM LOCAL TAXES

➔​ BOI-registered business enterprises availing of the ITH
➔​ PEZA-registered enterprises under the ITH, except for: (a) RPT on land and buildings; and (b)
the RPT on machinery and equipment after the 3-year exemption from such RPT
➔​ PEZA-registered business enterprises enjoying the 5% gross income tax in lieu of all other
taxes, except for RPT on land owned by developers
➔​ Special Economic Zones
➔​ Businesses engaged in the production, manufacturing, refining, distribution, or sale of oil,
gasoline, and other petroleum products.
➔​ All cooperatives duly registered with CDA
➔​ Non-stock, non-profit educational institutions.

COLLECTION OF LOCAL TAXES

Tax Period and Manner of Payment: not exceeding 25% of unpaid amount

Accrual of Tax:

Time of Payment: not exceeding 2% per month of unpaid amount inc.

surcharge​

​
121

* For new taxes/fees: accrue on the 1st day of the quarter ff.
the effectivity of ordinance

PENALTIES​

1.​ Surcharge on Unpaid Taxes​ not exceeding 25% of unpaid amount ​

Interest on Unpaid taxes: not exceeding 2% per month of unpaid amount inc.
surcharge ​
​
* Limit: not exceed 36 months

2.​ Penalties for Violation of Tax Ordinances:

SANGGUNIAN OF LGU
Fines 1,000 to 5,000
Imprisonment 1 month to 6 months
Both
SANGGUNIANG BARANGAY
Fine 100 to 1,000

(1)​ PROTEST OF ASSESSMENT

Receipt of Assessment

↓ within 60 days
File Protest with Local Treasurer

↓ within 60 days
Protes is denied OR Not Acted Upon

↓ within 30 days
Appear to Regional Trial Court

↓
122

Appeal denied by RTC

↓ within 15 days
Appeal to Court of Tax Appeals
​
​

(2)​ INJUNCTION AGAINST THE COLLECTION LOCAL TAXES

REQUISITES
1.​ Such a suit is not forbidden by law
2.​ Ground for issuing it is to prevent the collection of wrongful taxes
3.​ No other adequate remedy to redress the injury to property w/ would be inflicted

(3)​ CLAIM FOR REFUND OR TAX CREDIT

Payment of the tax, fee, or charge

↓ ↓ within 2 years
File Claim for Refund or Tax
Credit with the Local Treasurer

↓ ↓
Denial of Claim

↓ ↙ within 30 days

Appeal to Regional Trial Court

↓
Appeal is denied by the RTC

↓ within 15 days

Appeal to Court of Tax Appeals

123

CIVIL REMEDIES FOR COLLECTION OF REVENUES

Local Government's Lien: Local taxes, fees, charges and other revenues constitute a lien, superior to all
liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or
judicial action.

1.​ Assessment: within 5 years from the date they become due ​
Within 10 years from discovery of fraud or intent to evade payment

2.​ Collection: within 5 years from date of assessment by administrative or judicial action ​
Civil Remedies:
(1)​ By administrative action thru: ​
(a) Distraint of personal property ​
(b) Levy upon real property
(2)​By judicial action: case is filed by the local treasurer
​
*Either of these remedies or all may be pursued concurrently or simultaneously

Personal Property Exempt from Distraint or Levy

(a)​Tools and implements necessarily used by the delinquent taxpayer in his trade or employment
(b)​One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select,
and necessarily used by him in his ordinary occupation
(c)​His necessary clothing, and that of all his family
(d)​Household furniture and utensils necessary for housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value not exceeding P10,000
(e)​Provisions, including crops, actually provided for individual or family use sufficient for 4 months
(f)​ The professional libraries of doctors, engineers, lawyers and judges
(g)​One fishing boat and net, not exceeding P10,000, by the lawful use of which a fisherman earns his
livelihood
(h)​Any material or article forming part of a house or improvement of any real property

Suspension of the Running of the Prescriptive Period:

(1)​ The treasurer is legally prevented from making the assessment or collection;
(2)​The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of
the period within which to assess or collect; and
(3)​ The taxpayer is out of the country or otherwise cannot be located.
124

REAL PROPERTY TAX

Real Property Defined

●​ Local Government Code (LGC) doesn’t define "real property" but references land, buildings,
machinery, and improvements.
●​ The Civil Code outlines "real property" as immovable assets, per Article 415.

Real Property Tax

Definition Real property tax (RPT) is an ad valorem tax on land, buildings, and other
improvements. It’s paid annually based on a fixed percentage of the property’s value.

Purpose Designed to raise revenue for local government units (LGUs).

Nature Direct tax on property ownership, payable regardless of usage.

RPT System Components

●​ Tax Mapping: Graphically maps properties; assigns unique IDs.

●​ Tax Assessment: Appraises properties at market value, applies uniform assessment level.
●​ Tax Records Management: Monitors assessment changes via tax declarations.
●​ Tax Collection: Ensures collection of all RPTs and enforces tax laws.

TAX RATES AND LEVIES

1.​ Basic Real Property Tax

○​ Province Rate: ​ ​ ​ Max of 1% of assessed value.
○​ City/MMA Rate: ​ ​ ​ Max of 2% of assessed value.
2.​ Special Levies
○​ Education Fund (SEF): ​ ​ Annual 1% of assessed value for education.
○​ Idle Land Tax: ​ ​ ​ Max of 5% of assessed value.
○​ Public Works Tax: ​ ​ ​ Max of 60% of actual project cost for lands​
​ ​ ​ ​ ​ benefiting from LGU projects.
125

​
Computation of Real Property Tax​
The determination of real property tax involves three (3) main steps:

1.​ Appraisal: The Local Assessor appraises the property at its fair market value.
2.​ Assessment: The fair market value is multiplied by the appropriate assessment level to obtain the
assessed value of the property.
3.​ Tax Calculation: The assessed value is then multiplied by the applicable rate of levy to determine the
amount of tax due from the taxpayer.

The formula for the computation of real property tax follows:

Fair Market Value Pxxx

Multiply by: Assessment Level x%
Assessed Value Pxxx
Multiply by: Tax Rate x%
Real Property Tax Pxxx

Exemptions from Real Property Tax

The following properties are exempt from real property tax:

1.​ Government Property: Real property owned by the Republic of the Philippines or its political subdivisions, unless
the beneficial use is granted to a taxable person.

2.​ Religious and Charitable Organizations: Properties owned by charitable institutions, churches, parsonages or
convents, mosques, nonprofit or religious cemeteries, and lands, buildings, and improvements used exclusively for
religious, charitable, or educational purposes.

3.​ Local Water Districts: Machinery and equipment used exclusively by local water districts and
government-owned or controlled corporations for water supply, distribution, or electric power generation and
transmission

4.​ Registered Cooperatives: All real property owned by duly registered cooperatives under R.A. 6938.

5.​ Pollution Control Equipment: Machinery and equipment used for pollution control and environmental
protection.

Note: Following the enactment of the Local Government Code of 1991, exemptions previously granted to all
persons, including government-owned or controlled corporations (GOCCs), have been withdrawn.
126

Date of Accrual of Real Property Tax

Accrual Date Real property tax accrues on the 1st day of January each year.

Lien Status -​ Creates a lien on the property that is superior to any other lien, mortgage, or
encumbrance.
-​ The lien is extinguished only upon payment of the delinquent tax.

Distinction -​ Accrual of Tax: The tax becomes due when it accrues.

-​ Time of Payment: There is a designated time period for payment without penalty.

Payment of Real Property in Installments

Lump Sum Installment

-​ Basic real property tax and additional tax for Special -​ Taxpayers may opt to pay without interest in four
Education Fund (SEF) can be paid in full on or before (4) equal quarterly installments.
March 31.

Installment On or Before
1st Installment March 31
2nd Installment June 30
3rd Installment September 30
4th Installment December 31

The date for the payment of any other tax, without interest, shall be prescribed by the sanggunian concerned.

Payment Application
Prior Years’ Payments Current Period Payments

-​ Payments are first applied to any delinquencies, -​ Only after settling prior delinquencies will tax
interests, and penalties from prior years. payments be credited to the current period.

Tax Discount for Advance and Prompt Payment

Advance Payment Prompt Payment

Discount Made before the tax accrual date ​ Made on or before the payment deadline (after
Eligibility (before January 1) January 1), but after the tax has accrued.

Discount Rate Up to 20% Not eligible for discount

127

Discount on Tax Payments:​

The sanggunian can grant a discount of up to 20% on the annual tax due for:

●​ Basic Real Property Tax

●​ Additional Tax for the Special Education Fun (SEF)

Requirement The taxpayer must pay the disputed tax amount before filing a protest.

Filing Period The protest must be filed within 30 days of payment, in writing, with the provincial, city, or
municipal treasurer.

Resolution The treasurer has 60 days to decide.

If in favor of the taxpayer, the amount may be either:

1.​ Refunded, or
2.​ Credited against current or future tax obligations

Appeals Process If denied or unresolved after 60 days, the taxpayer can appeal to:
1.​ Local Board of Assessments Appeal (LBAA)
2.​ Central Board of Assessments Appeal (CBAA)

Interest on Unpaid Real Property Tax

Interest Rate 2% per month, capped at 36 months.

Installment Taxes can be paid in four equal installments; delinquency starts only if an installment is
missed.
Payments

Interest Calculation For first quarter non-payment: Interest is charged starting from January 1, based on the total
annual amount.

For other quarters: Interest is calculated on the unpaid portion only.

Compromise Local treasurers may negotiate installment agreements for settling delinquent taxes, with a
maximum installment period of 36 months.
Agreements
128

COLLECTION PERIOD FOR REAL PROPERTY TAXES

Standard Collection Period Extended Period for Fraud Cases

Real property taxes must be collected within 5 years If there is fraud or intent to evade taxes, the collection
period extends to 10 years from the discovery of the fraud.
from the due date. After this period, the right to collect
expires.

SUSPENSION OF COLLECTION PERIOD

The 5-year period can be paused in certain situations:

1.​ Legal Prevention: If the local treasurer is legally barred from collecting.
2.​ Reinvestigation Request: If the property owner or interested party requests a reinvestigation and signs a written
waiver before the expiration of the collection period.
3.​ Absence of Owner: If the property owner or interested party is out of the country or cannot be located.

REMEDIES FOR COLLECTING REAL PROPERTY TAXES

Local governments can collect unpaid real property taxes through administrative or judicial actions. These
remedies can be used simultaneously or independently.

Judicial Action Administrative Remedies

Initiated through the court with appropriate jurisdiction. ●​ Levy on Real Property: A claim placed on the
property.​

●​ Public Auction Sale: Selling the property in a

public auction to recover tax dues.

NOTE:
●​ Cumulative and Simultaneous: Both remedies can be pursued together or separately.
●​ No Formal Demand Needed: Only a notice of delinquency (as per Section 254 of the LGC) is required; a formal
demand for payment is not necessary.
129

General Revision of Property Assessments and Classification

The general revision of real property assessments aims to keep property valuations up-to-date. It allows
assessors to:

●​ Rediscover properties omitted from the assessment roll,

●​ Remove properties that were doubly assessed,
●​ Exclude properties that have been destroyed.

Frequency of General Revision

●​ Initial Revision: Within 2 years of the Local Government Code's (LGC) effectivity.
●​ Subsequent Revisions: Every 3 years.

Process of Revision

1.​ Ordinance Requirement: The revision begins upon the enactment of an ordinance by the
sanggunian adopting the updated fair market values schedule.
2.​ Timing: Must begin within two years of the LGC's effectivity, with regular revisions every three years
thereafter.​

ASSESSMENT LEVELS

The assessment levels determine the assessed value of a property by applying a rate to its fair market
value. These levels are set by ordinances from the sangguniang panlalawigan, sangguniang panlungsod,
or sangguniang bayan within the Metropolitan Manila Area, and must adhere to maximum rates as outlined
below.

(a)​On Lands

Class Assessment Levels

Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
130

(b)​On Buildings and Other Structures

1.​ Residential

Fair Market Value (FMV) Assessment

Over Not Over Levels
P 175 000 0%
P 175 000 300 000 10%
300 000 500 000 20%
500 000 750 000 25%
750 000 1 000 000 30%
1 000 000 2 000 000 35%
2 000 000 5 000 000 40%
5 000 000 10 000 000 50%
10 000 000 60%

2.​ Agricultural

Fair Market Value (FMV) Assessment

Over Not Over Levels
P 300 000 25%
300 000 500 000 30%
500 000 750 000 35%
750 000 1 000 000 40%
1 000 000 2 000 000 45%
2 000 000 50%

3.​ Commercial/Industrial

Fair Market Value (FMV) Assessment

Over Not Over Levels
300 000 30%
300 000 500 000 35%
500 000 750 000 40%
750 000 1 000 000 50%
1 000 000 2 000 000 60%
2 000 000 5 000 000 70%
5 000 000 10 000 000 75%
10 000 000 80%
131

4.​ Timberland

Fair Market Value (FMV) Assessment Levels

Over Not Over

P 300 000 45%

300 000 500 000 50%
500 000 750 000 55%
750 000 1 000 000 60%
1 000 000 2 000 000 65%
2 000 000 70%

(c)​ On Machineries

Class Assessment Levels

Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80%

(d)​On Special Classes: The assessment levels for all lands, buildings, machineries, and other improvements

Actual Use Assessment Levels

Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
GOCC engaged in the supply and distribution of 10%
water and/or generation and transmission of
electric power
132

PREFERENTIAL TAXATION

Preferential Taxation in the Philippines is a system designed to provide lower tax rates or special tax
benefits to specific groups or sectors.

SPECIAL ECONOMIC ZONE "The Special Economic Zone Act of 1995

Special Economic Zone (SEZ)

➔​ A designated area within a country with distinct economic regulations aimed at promoting
development in industrial, commercial, tourism, or investment sectors.

CLASSIFICATION OF ECOZONES IN THE PHILIPPINES

Industrial Estates Tracts of land developed with infrastructure and facilities for
industrial use.

Export Processing Zones Areas outside customs territory focused on export-oriented

industries.

Free Trade Zones Secured areas near ports or airports for storing and manipulating
imported goods without immediate customs duties.

Tourist/Recreational Centers Areas within SEZs that provide tourist accommodations and
recreational facilities for both local and foreign visitors.

INCENTIVES TO ECOZONES ENTERPRISES

➔​ 5% Gross Income Taxation: Enterprises are taxed 5% on gross income, replacing other national and
local taxes (e.g., corporate income tax).
➔​ Training Expense Deduction: 50% of training costs for skill development and management training
can be deducted from the government’s share

In the Philippines, the 5% Gross Income Taxation incentive for Ecozone enterprises is divided as follows:
●​ 3% - National Government
●​ 2% - Local Government Unit (LGU) where the Ecozone is located.
133

The Training Expense Deduction allows enterprises to claim half of their training expenses, which can be
deducted from the National Government's 3% share under the 5% Gross Income Tax.

So, while enterprises pay a 5% tax on gross income, 3% supports national funds and 2% supports local
funds in exchange for other waived taxes. This structure provides a simplified tax regime and encourages
investment in training.

★​ Incentives to Ecozone Developer/Operators

a)​ Tax Exemptions
●​ Gross receipts tax
●​ VAT
●​ Ad valorem and excise taxes
●​ Franchise and common carrier taxes
●​ Other percentage taxes on public services/utilities
5% Gross Income Final Tax: In place of the exemptions above, developers/operators pay a
5% final tax on gross income instead of traditional taxes.
b)​ Training Expense Deduction
●​ Additional deduction: 50% of training expenses for workforce development.​
NOTE: This deduction applies only up to the National Government’s 3% share of the 5%
tax.
★​ Additional Incentives for New or Expanding ECOZONE Export Free Trade Enterprises
1.​ Exemption from Duties and Taxes on Merchandise
2.​ Exemption from National and Local Taxes and Licenses
3.​ Tax Credit for Import Substitution
4.​ Exemption from Wharfage Dues, Export Tax, Impost or Fee
5.​ Additional Deduction for Training Expenses
6.​ Incentives Under Presidential Decree 66

★​ Other Incentives under the Code

1.​ Income Tax Holiday
2.​ Tax Credit on Domestic Capital Equipment
3.​ Importation of Breeding Stocks and Genetic Materials
4.​ Tax Credit on Domestic Breeding Stock and Genetic Materials
5.​ Additional Deduction for Labor Expense
6.​ Unrestricted Use of Consigned Equipment
134

★​ Non-Fiscal Incentive
1.​ Immigration Benefits
Permanent Resident Status:
●​ Investors with an initial investment of at least $150,000 are eligible for permanent
resident status.​

●​ This status extends to the investor's spouse and dependent children under 21 years of
age.
●​ Residents enjoy freedom of ingress and egress to/from the ECOZONE without needing
special authorization from the Bureau of Immigration.
2.​ Employment of Foreign Nationals
Positions Allowed:
●​ Foreign nationals can be employed in:
➢​ Executive Positions: Limited to president, vice-president, treasurer, general manager,
or equivalents.
➢​ Supervisory, Technical, and Advisory Positions:
○​ The percentage of foreign nationals in these roles must not exceed 5% of the total
workforce.
○​ Exceptions require explicit authorization from the Secretary of Labor and
Employment.
○​ Employment in these positions is allowed only if certified by the Department of
Labor and Employment (DOLE) that no Filipino worker possesses the required
technical skills.

DEFINITIONS

➔​ Customs Territory​
Refers to the national territory of the Philippines outside the ECOZONE boundaries, excluding areas
designated as special economic zones or free ports by other laws.
➔​ Negative List​
A regularly updated list by the Philippine Economic Zone Authority (PEZA) indicating industries that
cannot sell products within the customs territory
135

➔​ Certificate of Registration​
The official document issued by PEZA to an ECOZONE enterprise upon registration

➔​ Registration Agreement​
The final agreement between PEZA and the ECOZONE enterprise detailing the terms and conditions
for business operations within the ECOZONE.
➔​ Date of Registration​
The date indicated on the Certificate of Registration​

➔​ Start of Commercial Operations​

Defined for income tax holiday purposes as:
○​ The date specified in the Registration Agreement or
○​ The date the ECOZONE export enterprise begins production of the registered product for
commercial purposes, whichever is earlier
➔​ Gross Income: For tax computation, gross income consists of:
○​ Gross sales or revenues from business activities within the ECOZONE, net of discounts, returns,
and allowances.
○​ Excludes administrative expenses and incidental losses for the taxable period.
○​ Allowable deductions are outlined in Section 2, Rule XX of the relevant regulations.

Bases Conversion and Development Act (BCDA)

Bases Conversion and Development Authority (BCDA)

➔​ Established: Under RA 7227 (1992); amended by RA 7917 (1995) and RA 9400 (2007)
➔​ Purpose: Transform former military bases to boost economic growth and modernize the Armed
Forces
➔​ Core Mission: Create dynamic business centers, sustainable communities, and vital infrastructure
BCDA Group & Special Economic Zones
➔​ Subsidiaries: Clark Development Corporation, Clark International Airport Corporation, Poro Point
Management, John Hay Management, North Luzon Railways
➔​ Economic Focus: Expanding opportunities through special economic zones
136

Powers under RA 7227

➔​ Corporate Powers:
●​ Development Planning: Balanced conversion of Clark and Subic bases
●​ Private Sector Partnerships: Promote active private involvement
●​ Project Management: Handle projects beyond special economic zones

➔​ Special Powers:
●​ Public Utilities & Infrastructure: Build, own, operate facilities
●​ Reclamation Projects: Land reclamation near BCDA territories
●​ Investment and Eminent Domain: Manage assets, exercise eminent domain rights
●​ Oversight: Monitor special economic zones under BCDA.
137

REFERENCES

Ballada, W., & Ballada, S. (2023). Income Taxation Made Easy - 2023 Issue, 19th Edition. DomDane
Publishers.

Ballada, W., & Ballada, S. (2023). Transfer and Business Taxation Made Easy - 2024 Issue, 19th Edition.
DomDane Publishers.

Donor's Tax Lecture Notes and Reviewer (Compiled notes sourced from an anonymous user).

Estate Tax Summary Handout (Compiled notes sourced from an anonymous user).

Excise Tax Summary Handout (Compiled notes sourced from an anonymous user, referred to as
Hercules).

Income Taxation Notes (Compiled notes sourced from an anonymous user).

Introduction to Donor's Tax (Compiled notes sourced from an anonymous user).

Introduction to Transfer Taxes (Compiled notes sourced from an anonymous user).

Local Government Taxation Summary Handout (Compiled notes sourced from an anonymous user,
referred to as Hercules).

Preferential Taxation Notes (Compiled notes sourced from an anonymous user, referred to as Hercules).

Preferential Taxation Notes - Handout (Compiled notes sourced from an anonymous user, referred to as
Hercules).

Preferential Taxation Summary - Notes (Compiled notes sourced from an anonymous user, referred to as
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Stamp Tax (Compiled notes sourced from an anonymous user, referred to as Hercules).

Summary Notes on Percentage Tax (Compiled notes sourced from an anonymous user).

Tax Remedies Notes (Compiled notes sourced from an anonymous user).

138

Tax Remedies Summary (Compiled notes sourced from an anonymous user).

TAXATION Compiled (Compiled notes sourced from an anonymous user, referred to as Hercules).

Taxation Law Reviewer from San Beda College of Law (Compiled notes sourced from an anonymous
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Taxation Law Summer Reviewer from Ateneo Central Bar Operations (2007) (Compiled notes sourced
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Taxation under Local Government from Far Eastern University – Manila (Compiled notes sourced from an
anonymous user, referred to as Hercules).

TAX Reviewer: Law on Basic Taxation in the Philippines by Benjamin B. Aban (Compiled notes sourced
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VAT Summary Notes - Business Taxation (Compiled notes sourced from an anonymous user).