CHARACTERISTICS OF THE REGULAR INCOME TAX

1. General in coverage
2. A net income tax
3. An annual tax
4. Creditable withholding tax
5. Progressive or proportional tax

THE REGULAR INCOME TAX MODEL

GROSS INCOME-INCLUSIONS PXX

LESS:ALLOWABLE DEDUCTIONS XX
TAXABLE INCOME XX

Gross Income consists of the major topics:

1. Exclusions of gross income- list of income exempt to regular income tax
2. Inclusions in gross income- list of income subject to regular income tax
3. Special topics- covers income that are either exclusion or inclusion depending on certain
circumstances such as:
A. Fringe benefits
B. Dealings in properties

GROSS INCOME- constitutes all items of income that are neither excluded in gross income nor subjected
to final tax or capital gains tax.
ALLOWABLE DEDUCTIONS- expenses of the conduct of business or exercise of profession. They are
commonly know as business expenses.

For individuals taxpayers, there is a need to note the difference between business expenses and
personal expenses.

Personal expenses- those that an individual spends that are not connected to furtherance, maintenance
or development of his trade, business or profession are non deductible against gross income.

Individuals that are not engage in business cannot claim deductions from gross income. Individuals are
classified as follows:
1. Pure compensation income earner
2. Pure business or professional income earner
3. Mixed income earner- an individual earning both compensation and business or professional
income

PERSONAL EXEMPTION
Upon repeal of Train Law effective January 1 , 2018, the law exempts P250,000 annual income of the
individual income taxpayer from regular income tax. This exemption is embedded in the income tax
table for individual taxpayers.

DETERMINATION OF TAXABLE INCOME

Taxable income of Individual Income Taxpayers
The taxable income of individuals taxpayers is computed using the Classification and Globalization rule.
Classification Rule:
Gross income is first classified into:
a. Compensation income
b. Business or professional income

Compensation income arises from an employer-employee relationship is characterized by a power to

retrench giving the purchaser of the service a terminate the arrangement when he is losing in business.
Business income- arises from selling of goods or rendering of services for a profit.
Other income- neither compensation nor business or professional income.

Taxable income of pure compensation income earner

Taxable compensation income of employees is computed as follows:

Gross compensation income P xxxxxx

Less: Non taxable compensation xxxxxx
Taxable compensation income xxxxxxx

Non taxable compensation includes legally mandated salary deductions and items of compensation
income that are exempted by law, contracts or treaty from income taxation.

Taxable income of pure business or professional income earner

The taxable net income of businessmen or professionals is computed as follows:

Gross Income from business/profession Pxxxxx

Add: Non operating income xxxx
Total Gross income xxxxxx
Less: Allowable deductions xxxxxx
Taxable net income xxxxx

INCOME TAX REPORTING FORMAT

REPORTING FORMAT FOR INDIVIDUALS ENGAGED IN BUSINESS OR PROFESSION

Net Sales/Revenues/Receipts/Fees Pxxxx

Add: Other taxable income from operation not Xxxx
subject to final tax
Total sales/revenues/receipts/fees Pxxxx
Less: Cost of sales or services Xxxx
Gross Income from business/profession Xxxx
Add:Non operating income Xxxx
Total Gross Income Xxxx
Less: Allowable deductions xxxx
Net income P xxxx

Sales, revenues, receipts and fees distinguished

Revenue is a general term which pertains to the gross inflow of benefits arising from the primary
operations of the business.
Sales pertains to revenue from the sale of goods while Fees pertains to revenue from the sale of service.
Receipts pertains to cash collection from the sale of goods or services.

Example: Please refer to the video discussion on how to compute for the taxable income and tax due for
the ff. scenarios.
Case 1 A Case 2 Business Case 3 A mixed Case 4 Mixed
compensation earner income earner with income earner with income earner with
with other income other income other income net loss on business
or professions
Compensation 300,0000 300,000 300,000
income
Non taxable 30,000 30,000 30,000
compensation
Gross business 400,000 400,000 400,000
income
Deductions 250,000 250,000 250,000
Other income 20,000 20,000 20,000 20,000

This Graduated Income tax Table serves

as the basis for the computation of tax
due for individual tax payers.

The Optional 8% Income Tax

Train Law introduced an optional income tax for self employed professional wherein they can opt to be
taxed at 8% of sales or receipt after non operating income.

The 8% income tax shall be in lieu of the:

a. Progressive income tax, computed under individual tax table and
b. 3% percentage business tax on sales or receipts
The 8% incme tax is a form of bundled tax which enables one time compliance for two taxes which
would otherwise require separate filing and payments.

Corporate Income Tax

It is commonly referred to as the regular corporate income tax, is a proportional or flat tax at a rate of
30% on taxable income. This applies to any corporation except:
a. Subject to final tax such as non resident foreign corporation and FCDU interest income not
subject to final tax
b. Special corporations or those subject to preferential tax rate or special regimes
c. Exempt corporations
Individual Income Tax Returns

Tax Return Form Individual taxpayers

Form 1700 Purely employed taxpayer
Form1701A Purely in business or profession, using itemized,
OSD or opting to the 8% optional income tax
Form 1701 Mixed income earners, estates and trusts
Corporate income taxpayers
Form 1702-RT Corporations subject only to the 30% regular
income tax
FORM 1702- MX Corporations subject to special or a combination of
tax rates
Form 1702-EX Corporations that is exempt with no tax due

Deadline of filing of the income tax return

The annual income tax return is due for filling on the 15 th day if the fourth month following the taxable
year of the taxpayer.

Deadline of Quarterly Income Tax Returns

Quarterly Income Tax Returns Taxpayers

Individuals Corporations
1st Quarter May 15, same year 60 days end of 1st Qtr
2nd Quarter August 15, same year 60 days end of 2nd Qtr
3rd Quarter November 15, same year 60 days end of 3rd Qtr