Minimum Wage Earner- is an individual recipient of a minimum wage as fixed by the Regional Tripartite

productivity wage and Productivity Bard of the Department of Labor and Employment. A minimum wage
earner is exempt from income tax on the minimum wage including holiday pay, over time pay, night
shift, differential pay and hazard pay.

Barangay Micro-Business Enterprise (BMBE)- is a business entity or enterprise engaged in the

production, processing or manufacturing of products or commodities, including agro-processing, trading
and services, whose total assets including those arising from loans but exclusive of the land on which the
particular business entity’s office, plant and equipment are situated, do not exceed P3,000,000

The term services excludes those rendered by licensed professionals and partnerships and corporations
engaged in consultancy, advisory and similar services which are essentially carried out through licensed
professionals.

A BMBE shall include any individual owning such business entity or enterprise, partnership cooperative,
corporation, association or other entity incorporated and organized and existing under Philippine laws
and registered with the office of the treasurer of a city or municipality.

To qualify as BMBE, an enterprise must not be a branch or subsidiary of a large scale enterprise and its
policies, modus operandi must not be determined by a large scale enterprise such as in the case of
franchise.

To avail of the benefits and privileges of BMBE, an applicant must secure a certificate of authority to
operate as a BMBE from the office of the treasurer of the city or municipality that has jurisdiction.

Tax Exemption on Income from operations

Aside from other incentives afforded by the law, the income of BMBE from these operations is exempt;
hence, excluded from the gross income subject to regular income tax. BMBEs file an Annual information
return in lieu of the income tax return. However, their non-operating, passive and capital gains are
subject the appropriate type of income tax.

The royalty income and dividend income are exclusions in the gross income subject to regular tax but
are inclusions in the gross income subject to final tax.

Revocation of BMBE Tax Exemptions

The income tax exemption of a BMBE may be revoked for any of the following reasons:
1. Transfer of place of business
2. Value of assets exceeds P3,000,000
3. Voluntary surrender of the Certificate of Authority
4. Death of the registered individual owner; violation or non-compliance with the provisions of RA
9178
5. Merger or consolidation with an entity which is not eligible to be BMBE
6. Sale or transfer of the BMBE if a sole proprietorship without prejudice to the transferee applying
for registration
7. Submission of fake or falsified documents
8. Retirement from business, or cessation/ suspension of operation for one year
9. Making false or omitting required declaration or statements
Cooperatives- that transact business purely with members are exempt from the taxes and fees.
Cooperatives that transact business with non-members are likewise exempt from all taxes and fees if
their accumulated reserve and undivided savings do not exceed P10M. Otherwise, the amount of
surplus allocated for interest on capitals is subject to regular tax.

However, the income of any cooperatives from non-related sources is fully taxable to regular tax.

Non-Stock and Non-profit Entities

Non-stock entities that are not organized for profit are exempt from income tax of their income from
operations. However, their income from unrelated sources is taxable.

Qualified Employees’ Trust Fund

An employees’ trust fund which forms part of a pension, stock bonus or providing sharing plan of an
employer for the benefit of some or all his employees is exempt from any income tax under the NIRC.

Conditions for exemptions of employee trust funds

a) Contributions are made to the trust by such employer or employees or both for the purpose of
distributing to such employees the earnings and principal of the fund accumulated by the trust
in accordance with such plan.
b) The asset of the fund shall not be diverted for other purposes other than the exclusive benefit of
the employees.

QUALIFICTAION OF EXEMPTION OF EXEMPT ENTITIES

Tax incentive or exemption is highly disfavored in law. It is not automatic. Tax payers with exemptions or
tax incentives under any existing laws or contracts must be established their entitlement by filing
required documents with BIR. BMBEs need to secure Certificate of Authority; cooperatives need to
secure Certificate of tax exemption/Ruling (CTE). Once exemption is established, it can operate
prospectively

INCOME OF SELF EMPLOYED OR PROFESSIONAL WHO OPTED TO BE TAXED AT 8% INCOME TAX

The income of self-employed and or professionals who opted to be taxed to the 8% income tax shall be
excluded in gross income subject to regular tax. The 8% income tax is in lieu of the 3% percentage tax
and the progressive income tax.

INCOME SUBJECT TO FINAL TAX OR CAPITAL GAINS TAX

Items of income that are subject to final income tax or capital gains tax are not items of gross income
subject to regular income tax. Also, income items that are exempted in the coverage of final tax or
capital gains tax are not taxable to the regular income tax.

EXCLUSIONS VS. DEDUCTIONS

Exclusions from gross income are not included in the amount or reportable gross income in the income
tax return. The amount of deductions is initially included in the amount of gross income but is separately
presented as deductions against gross income in the income tax return.

Note: Exclusion in gross income represents one of the exceptions to the general scope of the regular
income tax.