INCOME TAXATION | SPECIAL INCOME typically subject to regular income tax rates
TAXATION rather than capital gains tax rates.
Note: Please be advised that the reviewer
provided may not offer the depth and detail
Capital Gains Tax Rates
found in the book. For those seeking a
rigorous preparation for the qualifying exam, The capital gains tax rates of 5%-10% and 15%
it is recommended to skip this resource. typically apply to the sale of real property in the
However, if you choose to proceed with this Philippines.
reviewer, please note that I have already • 5%-10%: This range may apply to the sale of
issued a caution. residential properties with a net capital gain
-Maxino not exceeding a certain threshold amount.
• 15%: This rate may apply to the sale of other
real properties not classified as residential,
Final Withholding System such as commercial properties or vacant lots.
The Final Withholding Tax (FWT) system is a These rates can vary based on specific
mechanism where the payer of income circumstances, including the nature of the
(employer or entity making payments) withholds property and the duration of ownership.
and remits the tax due on certain types of
income to the government. The tax withheld is
considered a final tax payment for the recipient, Wash Sales Rules
meaning the recipient is not required to report
Wash sales rules are regulations designed to
the income on their annual income tax return.
prevent taxpayers from claiming artificial losses
The payer is responsible for withholding,
for tax purposes by selling and repurchasing the
remitting, and reporting the tax to the Bureau of
same or substantially identical securities within a
Internal Revenue (BIR).
short period. Key aspects of the wash sales rules
include:
Passive Income Subject to Final Tax If a taxpayer sells a security at a loss and
repurchases the same or a substantially identical
1. Interest income from bank deposits and
security within 30 days before or after the sale,
certain investments
the loss may be disallowed for tax purposes.
2. Royalties
3. Prizes and winnings The disallowed loss is added to the cost basis of
4. Cash dividends the repurchased security, which adjusts the
5. Annuities potential gain or loss on future sales.
6. Proceeds from the sale of shares of stock not
Wash sales rules are intended to ensure that
traded on the stock exchange
taxpayers do not manipulate their taxable
7. Rental income from real property
income by generating losses that are not
8. Income from business or practice of
economically realized.
profession of partners in a general
professional partnership
9. Cash and/or property dividends received by
Allowable Deductions
a non-resident alien individual taxpayer from
a domestic corporation Allowable deductions refer to expenses or costs
incurred by taxpayers that are allowed to be
Real Property as Ordinary Assets subtracted from their gross income when
calculating taxable income. These deductions
Real property can be considered ordinary assets
reduce the taxpayer's taxable income, thereby
when it is held for sale or used in the ordinary
lowering the amount of tax owed. Common
course of business. For example, real estate held
examples include business expenses,
by a real estate developer for the purpose of
depreciation, interest on loans, charitable
constructing and selling homes would be
contributions, and certain medical expenses.
considered an ordinary asset. Income or gains
derived from the sale of such property are
Classifications of Individuals Based on Type of Personal Exemptions
Earnings
Amounts deducted from gross income for
a. Pure Compensation Income Earner - oneself, spouse, and dependents, reducing
Individuals who derive income solely from taxable income.
employment or services rendered under an
Substituted Filing
employer-employee relationship. Their
income is typically subject to withholding tax A tax filing system where the employer files the
under the compensation income tax system. employee's income tax return and pays the
b. Pure Business or Professional Income corresponding tax on behalf of the employee.
Earner - Individuals who derive income from
operating a business or practicing a
profession, where the income is not subject Exclusions from Gross Income
to withholding tax but rather reported and
1. Gifts and bequests
taxed based on net income.
2. Life insurance proceeds
c. Mixed Income Earner - Individuals who earn
3. Certain retirement benefits
income from both compensation and
4. Proceeds from qualified scholarships
business/professional activities. They need
5. Compensation for injuries or sickness
to compute and report their income from
6. Income exempt under international
both sources separately for tax purposes.
agreements
Tax Table (2018-2022)
Other Exempt Income under the NIRC and
Starting Jan 1, 2018 - 2022 Special Laws
1. GSIS benefits
2. SSS benefits
Taxable Income (PHP) Tax Rate
3. PhilHealth benefits
Up to 250,000 Exempt 4. Pag-IBIG Fund benefits
5. Certain allowances and benefits for
20% of excess over government employees
250,001 - 400,000
250,000
6. Prizes and awards received by athletes and
artists
30,000 + 25% of excess
400,001 - 800,000
over 400,000
130,000 + 30% of excess
800,001 - 2,000,000
over 800,000
490,000 + 32% of excess
2,000,001 - 8,000,000
over 2,000,000
2,410,000 + 35% of excess
8,000,001 and above
over 8,000,000
Tax Table (2023 onwards)
Minimum Wage Rate of Region 8
The minimum wage rate for region 8 (Eastern
Visayas) is set by the Regional Tripartite Wages
and Productivity Board (RTWPB) and may vary
depending on specific classifications such as non-
agricultural, agricultural, and retail/service
establishments. As of 2024, the minimum wage
rates in Southern Leyte, Philippines, are as
follows:
• Non-Agricultural Sector: PHP 330 per day
• Agriculture: PHP 310 per day
Gross Income Subject to Regular Tax
1. Compensation income
2. Business income
3. Professional fees
4. Rental income
5. Interest income
6. Dividend income
7. Capital gains
8. Annuities
9. Royalties
10. Prizes and winnings
11. Pensions
Creditable Withholding Tax
Creditable withholding tax is a mechanism where
a portion of a taxpayer's tax liability is withheld
or deducted by the payer of income at the time
income is paid or accrued. The withheld tax can
be credited against the taxpayer's final income
tax liability, reducing the amount of tax to be paid
upon filing the income tax return. It ensures that
taxes are paid throughout the year rather than in
a lump sum at the end, improving tax collection
efficiency.
References:
Income Taxation Book - 2019 edition by Rex B.
Banggawan, CPA, MBA
https://www.studocu.com/ph/document/univer
sity-of-northern-
philippines/accountancy/income-taxation-rex-
banggawan/20220953?fbclid=IwZXh0bgNhZW0
CMTAAAR15InadrbGP_utjo1_3nEGElmGR-
1u7TdQRrN6GmiutiqeA_KpYotFEGxc_aem_lRga
KmN4e7eEdLCz-_69-w
