Taxation – The power by which an independent state, through its 4.
4. Ways which the state interferes with private rights
lawmaking body (congress), raises and accumulates revenues
from its inhabitants to pay the necessary expenses of gov’t.
• As a state power – inherent power of the state
• As a process – process of levying taxes
• As a mode of cost distribution – state allocates tax on
exp. History of taxation:
1. Sultan – buwis (Not Mandatory)
2. Spaniards – tributo/ tribute (Mandatory)
3. Katipunan – cedula (Mandatory)
Theory of Taxation – Symbiotic Relationship (funding system)
PUBLIC SERVICES
GOVERNMENT BASIS OF
PEOPLE
TAXATION
TAXES
3 INHERENT POWERS OF THE STATE:
1. Police Power – enactment of laws for general welfare.
2. Eminent Domain – take private property for GW.
3. Power of Taxation – to enforce contribution.
THEORIES OF COST ALLOCATION:
-How does the state allocate the burden (tax) on its people?
1. Benefit Received Theory – more benefit=more taxes
2. Ability to Pay Theory – capacity to pay of people
regardless of benefits received.
a. Vertical Equity – Base on Gross Income
b. Horizontal Equity – Income net of expenses
THE LIFEBLOOD DOCTRINE (THEORY):
-Tax is the lifeblood of government, without it the gov’t would
be paralyzed.
IMPLICATION OF THE LD:
1. Taxed even without constitutional grant
2. Tax exemption are construed against taxpayers
3. Gov’t reserves the right to choose objects of taxation.
4. Courts are not allowed to interfere in collections of taxes.
5. In INCOME TAXATION:
a. Unearned incomes are taxable
b. Capital expenditures and prepayments are non-deductible
c. Lower amount of deduction is preferred
d. Higher tax base is preferred
PURPOSE OF TAXATION:
1. Raise revenue – fiscal and primary purpose
2. Reduce excessive inequality of wealth
3. Maintain high level of employment
4. Control inflation
5. Implement other inherent powers.
NATURE OR CHARACTERISTICS OF TAXATION
1. Legislative in nature
2. Inherent in sovereignty
3. Subject to inherent and constitutional limitations
• For public purpose
• Territorial in operation
• Tax exemption of gov’t
• Strongest among inherent powers (tax=most important,
police power=most superior)
• Inferior to “Non-impairment Clause” of the
Constitution – if there’s an existing contract, it will have
to be finished first before implementing new tax law. In
short, it is
prospective and not retrospective :))
SIMILARITIES OF 3 INHERENT POWERS:
1. They are all necessary attributes of sovereignty
2. All inherent to the state
3. All legislative in nature
5. All exists independently of the constitution
6. Presuppose an equivalent compensation received
7. The exercise of these powers by LGUs may be limited
SCOPE OF TAXATION POWER:
-Comprehensive, Plenary, Supreme (Generally; unlimited)
INHERENT LIMITATIONS OF TAXATION:
P – Public purpose
E – Exemption of Government
• Exemption: GOCCs -profit generating related
N - Non-Delegation of the taxing power (Congress)
• Exceptions: LGU – Fiscal autonomy (poll tax)
• Exceptions: Tariff and Customs Code – President
• Exceptions: Other cases – for effective administration
T - Territoriality of Taxation
• 2-Fold obligations of taxpayers: (1) Filling of returns
and payment of taxes (2) Withholding of taxes on
expenses and its remittance to the government. These
obligations can only be enforced within the Philippine
jurisdiction with its residents and citizens.
• Resident Citizens and Domestic Corporations are
taxable within and without (INCOME TAXATION)
• Residents and Citizens are taxable on transfers of
properties within or without (TRANSFER TAX)
I – International Comity
CONSTITUTIONAL LIMITATIONS OF TAXATION:
1. Due process of law
• Substantive Due Process – legal basis, for public.
• Procedural Due Process – Assessments- 3 years.
Collection- 5 years after assessment.
2. Equal protection of the law
3. Uniformity rule – same class – taxed the same
4. Progressive system – Tax base increase = Tax rate increase
5. Non-imprisonment for non-payment of poll tax (for basic)
6. Non-impairment of obligations and contract
7. Free worship rule (tax exempt)
8. Exemption of religious or charitable entities
• Properties actually, directly and exclusively used.
Doctrine of use not doctrine of ownership.
9. Non-appropriation of public funds for religions
10. Exemption from taxes for non-profit, non-stock schools
11. Concurrence of majority of all members of the congress
for a law granting tax exemptions
12. Non-diversification of tax collections (Public purpose only)
13. Non-delegation of the power of taxation
14. Non-impairment of the jurisdiction of the Supreme Court
15. Bills should exclusively originate from House of
Representatives
16. Delegation of taxing power to LGUs
STAGES OF THE EXERCISE OF TAXATION POWER:
1. Impact of taxation – Levy or imposition (legislative act)
LEGISLATIVE DISCRETION:
• Determining the object of taxation
• Tax rate or amount to be collected
• Purpose (Public Purpose)
• Kind of tax to be imposed
• Apportionment between national and local gov’t
• Situs of taxation
• Method of collection
2. Incidence of taxation – Assessment and Collection
(administrative act)
SITUS OF TAXATION - Place of taxation
1. Business tax situs – where the business is conducted
2. Income tax situs on services – where they are rendered
3. Income tax situs on sale of goods – meeting of the
minds
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 4. Property tax situs – location (real property tax)
5. Personal tax situs – place of residence (residing)
• Interest Income – Debtor’s Residence
• Royalties – where the intangible is employed
OTHER FUNDAMENTAL DOCTRINES IN TAXATION:
1. Marshall Doctrine – The power to tax involves the
power to destroy. Stop undesirable activities.
2. Holme’s Doctrine – Taxation power is not the power to
destroy while the court sits. Tax incentives.
3. Prospectivity of tax laws – future
4. Non-compensation or set off - except, local taxes
5. Non-assignment of taxes
6. Imprescriptibility in taxation – deadlines
7. Doctrine of Estoppel
8. Judicial non-interference
9. Strict construction of tax laws – Taxation is the rule
exemption is the exception.
• Vague tax laws – no tax law. Construed against the
government, in favor of the taxpayers.
• Vague exemptions laws – no exemption law.
Construed against taxpayers, in favor with
government.
DOUBLE TAXATION – Taxed twice, same taxpayer.
Elements:
1. Same object (Primary element)
2. Same type of tax
3. Same purpose of tax
4. Same taxing jurisdiction
5. Same tax period
Types of Double Taxation:
1. Direct Double Taxation – all elements exist
2. Indirect Double Taxation – at least one (not the primary)
is missing.
Double taxation is not prohibited, but discouraged.
MINIMIZATION OF DOUBLE TAXATION:
1. Provision of tax exemption – 1 taxed, 1 exempt.
2. Allowing foreign tax credit – taxed abroad, taxed here.
3. Allowing reciprocal tax treatment – international comity
4. Entering into treaties or bilateral agreements -
stipulation
ESCAPES FROM TAXATION:
A. Those that result to loss of government revenue:
1. Tax Evasion – tax dodging, illegal.
2. Tax Avoidance – tax minimization, legal.
3. Tax Exemption – tax holiday, immunity.
B. Those that do not result to loss of government revenue:
1. Shifting – transferring tax burden
• Forward Shifting – essentials (food)
• Backward Shifting – non-essentials •
Onward Shifting – mixed, in-betweens.
2. Capitalization – adjustment of the value of assets
3. Transformation – elimination of wastes and losses
TAX AMNESTY – general pardon, absolute forgiveness,
retrospective, civil and criminal liability, clean slate, requires
payment.
TAX CONDONATION – tax remission, prospectively, civil
liabilities, no payment.
TYPES OF TAXATION LAW:
1. Tax Laws – assessment and collection of taxes
a. The NIRC – R.A. 8424
b. The Tariff and Customs Code – R.A. 9135
c. The Local Tax Code
d. The Real Property Tax Code
2. Tax Exemption Laws – certain immunity from tax
a. The Minimum Wage Law
b. The Omnibus Investment Code – E.O. 226, tax
holidays for foreign investors
c. BMBE Law – assets less than 3,000,000
d. Cooperative Development Act SOURCES OF
TAXATION LAWS:
1. Constitution
2. Statutes and Presidential Decrees
3. Judicial decisions and case laws
4. Executive Orders and Batas Pambansa
5. Administrative Issuances
6. Local Ordinances
7. Tax Treaties and conventions with foreign countries
8. Revenue Regulations (AI)
TYPES OF ADMINISTRATIVE ISSUANCES:
1. Revenue Regulations – signed by the Secretary of
Finance, recommended by BIR Commissioner (CIR)
2. Revenue Memorandum Orders (RMOs) – provides
guidelines and procedures in all areas except auditing
3. Revenue Memorandum Rulings (RMRs) – rulings of
CIR
4. Revenue Memorandum Circulars (RMCs) – publish
amplifications of laws by the BIR and other
agencies/offices.
5. Revenue Bulletins (RB) – periodic announcements of
CIR
6. BIR Rulings – queries raised by taxpayers.
TYPES OF RULINGS:
1. Value Added Tax (VAT) Rulings
2. International Tax Affairs Division (ITAD) Rulings
3. BIR Rulings
4. Delegated Authority (DA) Rulings
GAAP vs Tax Laws
For recording transactions – GAAP
Filling of tax return – Tax laws
NATURE OF PHILIPPINE TAX LAWS:
Civil not Political – Justice, not morality.
Not penal – Penalty is for mere compliance
ELEMENTS OF A VALID TAX:
1. Levied (imposed) by the taxing power with jurisdiction
2. Must not violate the inherent & constitutional
limitations
3. Must be uniform and equitable
4. Must be for Public Purpose
5. Must be proportional in character
6. Generally payable in money. CLASSIFICATION OF
TAXES:
a. As to Purpose:
1. Fiscal or Revenue Tax – for general purpose
2. Regulatory – to regulate business and transactions
3. Sumptuary – to achieve social/economic objectives (lux)
b. As to Subject Matter:
1. Personal, Poll or Capitation – residency (people)
2. Property tax – properties
3. Excise or Privilege Tax – enjoyment of privilege
c. As to Incidence:
1. Direct Tax – both impact and incidence rely on the
payor
2. Indirect Tax – withholding. The ST is not the payor.
• Statutory Taxpayer – person named by law to pay tax.
• Economic Taxpayer – person actually pays the tax.
d. As to Amount:
1. Specific Tax – per unit, fixed. (kilo, meter, liter and etc.)
2. Ad Valorem – fixed proportion with the object
e. As to Rate:
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 1. Proportional tax – flat/fixed rate. No Ability to Pay
theory.
2. Progressive or Graduated Tax – both increasing, rate-
base
3. Regressive Tax – inverse relationship, tax base & rate.
4. Mixed Tax – combination of any of the 3.
f. As to Imposing Authority:
1. National Tax – tax imposed by the national government
Example: Income Tax, Estate Tax (mana), Donor’s
tax, VAT, Other Percentage Tax (non-VAT), Excise
Tax (bisyo), Documentary Stamp Tax.
2. Local Tax – tax imposed by local or municipal
government Example: Real Property Tax, Professional
Tax, Business Taxes, fees and charges, Community
Tax, Tax on Banks and other financial institutions
DISTINCTIONS OF TAX AND OTHER SIMILAR ITEMS:
Tax vs Revenue – amount imposed is tax, amount collected is
INCOME TAXATION:
revenue. Tax is part of the revenue of gov’t.
Elements of Gross Income:
Tax vs License Fee – Tax is taxation power and a post-activity
imposition while License Fee is a police power and pre-activity.
Tax vs Toll – Tax is demand of sovereignty; Toll is demand of
ownership (payment for the use of property)
Tax vs Debt – Tax arises from law; Debt arises from private
contracts. Non-payment: Tax, imprisonment; Debt, not. Tax vs
Special Assessment – Tax is imposed upon persons, properties
or privileges while Special Assessments are imposed on the
additional improvements on lands (creating road).
Tax vs Tariff – Tariff is for export and import of commodities
Tax vs Penalty – Penalty is amount imposed to discourage an act
TAX SYSTEM: National & Local Tax Systems
-refers to methods and schemes of imposing, assessing and
collecting taxes.
TYPES OF TAX SYSTEM:
a. As to Imposition:
1. Progressive – imposed on income and transfers of
individuals.
2. Proportional – imposed on corporate income and business
3. Regressive – not imposed in Philippines
b. As to Impact:
1. Progressive System – Direct taxes, impacts upon the rich.
2. Regressive System – Indirect taxes, anti-poor.
TAX COLLECTION SYSTEM:
A. Withholding system on income tax
• Creditable withholding tax
a. Withholding tax on compensation – employer
TYPES OF INCOME TAXPAYERS:
withholds
b. Expanded withholding tax – taxpayers engaged
in business (suppliers withheld)
• Final withholding tax – certain passive income
B. Withholding system on business tax – business to b
(VAT)
C. Voluntary compliance system – self-assessment method
D. Assessment or enforcement system – non-compliant TP
PRINCIPLES OF A SOUND TAX SYSTEM: (Adam Smith)
1. Fiscal Adequacy – funds is sufficient to meet gov’t exp.
2. Theoretical Justice – equity, taxpayer’s ability to pay
3. Administrative Feasibility – efficient & effective
administration.
TAX ADMINISTRATION – management of tax system (BIR)
OTHER AGENCIES:
1. Bureau of Customs (BOC) – regulatory, collection of
tariffs, VAT on imported goods, under supervision of DoF.
2. Board of Investments (BOI) – investments, local and
foreign. Attached in DTI.
3. Philippine Economic Zone Authority (PEZA) –
investments in export-oriented manufacturing in PH. DTI.
4. Local Government Tax Collecting Units – locality.
TAXPAYER CLASSIFICATION (Tax administration):
1. Large Taxpayers – Large Taxpayer Service of BIR N.O.
Criteria: (to be considered large Taxpayers) A.
As to Payment:
a. VAT – At least P200,000 per quarter
b. Excise Tax – 1,000,000/yr.
c. Income Tax – 1,000,000/yr.
d. Withholding Tax – 1,000,000/yr.
e. Percentage Tax – 200,000/quarter
f. Documentary Stamp Tax – 1,000,000/yr.
B. As to Financial Conditions & results of Operation:
a. Gross receipts/Sale – 1,000,000 Annual
b. Net Worth – 300,000,000 / year
c. Gross Purchases – 800,000,000/yr.
d. Top Corporate Taxpayers by SEC
2. Non-Large Taxpayers – Revenue District Office (RDOs)
1. Return ON Capital Not included (return OF
capital: a. Life
b. Health
c. Human Reputation
2. Realized Benefit - realized means earned.
There’s a sacrifice to be entitled of the
benefits.
REQUISITES: (to be realized benefit) a.
Exchange Transaction
TYPES OF TRANSFERS:
o Bilateral Transfers/exchanges –
onerous transactions. (Sale, Barter) [Bi=2]
Income tax, because the benefits received is
realized/earned
o Unilateral Transfers – gratuitous transactions.
(Succession, donation) [Uni=1] Transfer Tax,
because of the absence of earning process.
o Complex Transactions – half/half
b. Transaction involves another entity
c. Increase the net worth of recipient
MODE OF RECEIPTS/REALIZED BENEFITS:
1. Actual Receipt – actual payment of money/property 2.
Constructive Receipt – no actual physical taking
-Offsetting of debt in exchange of service/sale of goods
3. NOT EXEMPTED by law, contract or treaty (to be in Gross
I)
A. INDIVIDUALS
1. Citizen
a. Resident Citizen
b. Non-resident Citizen (abroad 183 days)
2. Alien
a. Resident Alien (1 year in PH)
b. Non-resident Alien Engaged in Trade or business
(more than 180 days)
c. Non-resident Alien Not Engaged in Trade or
business (not more than 180 days, definite purpose)
3. Taxable Estates and Trusts (Juridical personality)
a. Estate – Deceased (extrajudicial; taxable to heirs)
b. Trust – if irrevocable, individual taxpayer.
B. CORPORATIONS
1. Domestic Corporations – Philippine laws
2. Foreign Corporations – Foreign law
a. Resident Foreign Corporations
b. Non-resident Foreign Corporations
3. Other Corporate Taxpayers
a. Partnership – ‘Business’ partnership [not
professional (1 profession)]
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 Joint Venture – particular purpose (exempt; energy
b. FINAL WITHHOLDING TAX RETURN: (BIR Forms)
operations under a service contract with Gov’t) BIR Form 0619F – Monthly remittance return of FIT withheld, 3
c. Co-ownership – joint ownership, reinvests. copies, 1st 2 months of the quarter, on or before 10 th day (2/10) BIR
Special Corporations – domestic/foreign, subject to special tax Form 1601FQ – Quarterly remittance return of FIT withheld, last
ACCOUNTING GENERAL METHOD: day of the month after each quarter. (1/30)
1. Accrual Basis – when - income, earned; expense, incurred.
2. Cash Basis – when – income, received; expense, paid. CAPITAL GAINS TAXATION
FORMULA: CAPITAL ASSETS – Personal assets & Business assets except;
Gross Income xxx inventories, Personal Property (movable) subject to AD, Real Property
Less: Deductions xxx (immovable), all 3 used in business.
Taxable Income xxx -ONLY Sale, exchange and other disposition of CAPITAL
ASSETS result to CAPITAL GAINS.
SCOPE OF CAPITAL GAINS TAXATION:
TAX ACCRUAL BASIS:
1. Sale, exchange and other disposition of Domestic Stock – 15%
Cash Income xxx Cash Expenses x
of net capital gains. Requisites:
x
x a. Capital Asset
Accrued Income xxx Accrued x b. Sold directly to buyers (if not, 6/10 of 1% of SP
Expense x for OPT) If the seller of the DS is a Foreign Corporation the
x CGT is: 5% for the first 100,000 net capital gain 10% in the
Advanced Income xxx Amort./Depre. x excess of 100,000 ncg.
x 2. Sale, exchange and other disposition of Real Property – 6% of
x SP, FV, ZV whichever is higher.
Gross Income xxx Deductions x
Requisites:
x
x a. Capital Asset
TAX CASH BASIS: EXEMPTIONS:
Cash Income xxx Cash Expenses x
1. Sale of Principal Residence Requisites:
x
x a. Utilized proceeds for new principal residence (18
Advanced Income xxx Amort./Depre. x months)
x b. Commissioner is notified (30 days)
x c. Once in every 10 years (1/10yrs)
Gross Income xxx Deductions x d. 6% CGT – deposited an authorized escrow agreement,
x
int.
x
FORMULAS:
If not utilized wholly:
FINAL INCOME TAXATION Tax due = Utilized/Selling Price * CGT due (should be) Tax
-Tax withholding at source, territorial imposition, certain passive inc. due = Utilized/Selling Price * Cost of old house (cost basis) If
PASSIVE INCOMES INDI. CORP. ADJUSTMENTS
Interest income (Short-term) 20% 20% *Interest income on banks only

Interest income (Foreign) 15% 15% ➢ Non-residents are exempt

Interest income (Pre-terminated-less 3 yrs) 20% 20% ➢ 5 years is considered
Interest income (Pre-terminated-less 4 yrs) 12% 20% long-term, therefore,
Interest income (Pre-terminated-less 5 yrs) 5% 20% exempt.
➢ NRA-ETB – 20%
Dividends (Domestic corp.) 10% Exempt
➢ NRFC – 15% (tax sparing rule )

Dividends (Foreign corp.) RIT RIT

➢ 10% of fees collected/1,000,000 - lower
Informer’s Reward 10% 10%
Royalties (literary works, basta sulat) 10% 20%
➢ Cinematographic, NRA
Royalties (other sources, in general) 20% 20%
ETB&NETB, NRFC – 25%

Prizes (exceeding 10, 000) 20% RIT

Prizes (10,000 and below) RIT RIT

Winnings (in general) 20% RIT

Winnings (PCSO/LOTTO exceeding 10, 000) 20% 20%

Winnings (PCSO/LOTTO 10, 000 & below) EXEMPT EXEMPT

➢ NRA-NETB & NRFC – 30%

Dividends (Tax Free Covenant Bonds) 30% RIT
EXEMPT ➢ Preferential Tax rates – 10%
Dividends (Real Estate Investment Bonds) 10%
➢ Non-withstanding, 25% -
30% rule

RIT: EXCLUSIONS
A. Proceeds of life insurance policy
B. Amounts received by the insured as a return of premium
Property Insurance- any excess of the insurance proceed
over the tax basis of the asset is a taxable income.
C. Gift, bequest, devise or descent – transfer not income tax
D. Compensation for personal injuries or sickness
E. Exempt Income under treaty – international comity
GENERAL FINAL TAX RATE: NRA-NETB – 25%; NRFC – 30% utilized wholly:
DON’T FORGET: NRA-NETB – 25%; NRFC – 30% (Unless adjusted :))

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 Cost of new house + cost of old house – SP of old house = new P90k o Gains from sale of bonds, debentures, or
cost certificates of indebtedness with maturity of more than 5
2. Alternative Taxation Rule – eminent domain, taxpayer has years
the option to choose between; 6% CGT or RIT Section 24(A) o Gains from redemption of mutual funds
3. Exempt under Special Laws OTHER EXEMPT INCOME UNDER THE NIRC AND SPECIAL
a. Sale of land to Comprehensive Agrarian Reform Program LAWS:
(CARP) 1. Minimum Wage and certain benefits of minimum wage laws
b. Sale of Socialized Housing Unit by National Housing 2. Income of Barangay Micro-Business Enterprises under the
Authority (NHA) BMBE Act (RA 9178)
INSTALLMENT PAYMENT OF CGT: 3. Income of Cooperatives (RA 9520) – registered operations to
Requisites: non-members not exceeding 10M, unregistered r fully taxable.
1. Sold in installment 4. Income of non-stock non-profit entities
2. Selling Price exceed P1,000 5. Income of qualified employee trust funds – for employee’s
3. Initial Payment does not exceed 25% of SP (1st year benefit only, and; out from entity’s reach.
payments) COMPENSATION INCOME:
FILLING FOR CGT RETURN (Domestic Stocks) Compensation income can only arise from an employer-employee
BIR Form 1707 – 30 days after sale/installment relationship
BIR Form 1707-A – 15th day of the 4th month of next taxable year Types of Employees as to Function:
FILLING FOR CGT RETURN (Real Properties) ▪ Managerial – management
BIR Form 1706 – 30 days after sale/exchange ▪ Supervisory – recommending managerial actions
DOCUMENTARY STAMP: ▪ Rank and file – not managerial and supervisory Types of
1. Domestic Stocks – P1.50/P200 PAR (1st time/original issuance Employees as to Taxability:
– P2.00/200 PAR) ▪ Minimum Wage Earners – exempt
2. Real Property – P15/P1,000 [7.5% = 6% CGT + 1.5% D.S.] ▪ Regular/Ordinary – RIT (progressive) EXEMPT:
REGULAR INCOME TAX: (Compensation Income)
Gross Income – inclusions xxx A. Benefits exempt under NIRC & special laws
Less: Allowable Deductions xxx I. Remuneration received as incidents of employment - RIT:
Taxable Income xxx EXCLUSIONS (F)
II. Employee mandatory contribution: GSIS, SSS, PHIC, HDMF
Compensation Income: &
Gross Compensation Income xxx Union Dues
Less: Non-Taxable compensation xxx III. Minimum Wage Earner
Taxable Compensation Income xxx IV. De Minimis Benefits (FB) w/in threshold
F. Retirement benefits, pensions, gratuities, etc.
Monetized unused vacation leave (private employees) 10 days
a. Retirement benefits (RA 7641) Monetized unused vacation & sick leave (gov’t ) WHOLE
Requisites to be exempted: o At least Medical cash allowance to dependents P3,000/yr.
10 years in service o Employee at least Rice subsidy P2,000/month
50 y/o o Can only be claimed once o Uniform and clothing allowance P6,000/yr.
Retirement Benefit Plan – Trusteed Actual medical allowance P10,000/yr.
Laundry allowance P300/mo. 3,600/yr.
Plan
Achievement award (tangible personal property) P10,000/yr.
b. Separation or Termination benefits Gifts (major celebrations) P5,000/yr.
Requisites to be exempted: Meal allowance (overtime & graveyard) 25% of BMW
o Must be due to job-threatening sickness, death, or CBA and productivity incentive bonus P10,000/yr.
other physical disability V. 13th month pay & other benefits: P90,000
o AND; must be due to beyond the control of the B. Benefits exempt under treaty or international agreements
employee C. Benefits necessary to trade, business, or conduct of profession of the
c. Social Security Benefits, retirement gratuities, and employer – necessity of the employer rule
other similar benefits from foreign government D. Benefits for the convenience or advantage of the employer –
agencies and other institutions, private or public convenience of the employer rule
received by residents and citizens. REGULAR INCOME TAX
d. United States Veterans Administration (USVA) Regular Taxable Compensation Income – Fixed remuneration
e. Social Security Systems (SSS) benefits under RA 8282 a. Basic salary
f. GSIS benefits under RA 8291 G. Miscellaneous Items: b. Fixed allowances every payroll period
o Income in the Philippines of foreign government or i. Cost of living allowance (COLA)
foreign government owned and controlled corporations ii. Housing allowance
o Income of the government and its political subdivision iii. Representation and transportation allowance (RATA)
o Prizes and awards in recognition of religious, iv. Paid Vacation and Sick leave (used)
charitable, scientific, educational, artistic, literary, or * not taxable: Government employee’s RATA and personnel
civic achievements Requisites: economic relief allowance (PERA); (Fees, commission, tips)
a. Pinili ng ‘di nagpilit or walang ginawa c. Excess of de minimis benefits, exceeding 90K threshold (RnF)
b. Wala ng gagawin, tatanggapin lang yung Supplementary Taxable Compensation Income – additional
binigay. performance-based compensations (not-included in 90kk threshold)
o Prizes and Awards in Sports Competition granted to i. Overtime pay, hazard pay, night shift differential, and holiday
athletes - sanctioned by accredited sports associations. pay ii. Commission iii. Fees (including director’s fee if employee)
o Contributions to GSIS, SSS, HDMF, PHIC and union iv. Emoluments and honoraria
v. Taxable retirement and separation pay
dues
vi. Value of living quarters and meals
o Contributions to Personal Equity
vii. Gains on exercise of stock options
Retirement
viii. Profit sharing and taxable bonuses
Account (PERA) o PERA investment income and
PERA distributions o 13th month pay and other benefits
not exceeding WITHHOLDING TAX ON COMPENSATION:
Substituted Filing of Tax Return for Employed Taxpayer
Requisites:

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A. Purely compensation income Inland travel expenses (foreign travel) EXEMPT
B. Only one employer in the Philippines Lodging costs $300/Day – EXEMPT
C. Correct tax withheld Economy and business class ticket EXEMPT
D. Spouse also complies First-class ticket 30% TAXABLE, 70%
E. Employer files 1604-CF (1601C – monthly) EXEMPT
Educational assistance TAXABLE
F. Employer issues 2316: proof if not substituted filing EXCEPTION: for
employer’s convenience
Consolidated / Annual / Adjustment Income Tax Returns
If:
A. Concurrent employment – sabay sabay
B. Successive employment – not sabay, but many
C. Receipts of income subjected to RIT – other than compensation D.
Mixed Income Earners – mixed :))
For A & B: BIR Form 1700, For C & D: BIR Form 1701
Procedure for the Withholding table:
1. Segmentation of incomes, either; Regular TCI, Supplemental
TCI or Nontaxable income
2. Use the computed Regular TCI to find the compensation level
bracket where the compensation belongs.
3. Compute for incremental tax:
Regular TCI
Less: Compensation level
Excess
Multiply by: Rate
Incremental Tax
4. Compute for Total Withholding Tax on Compensation:
Base Tax (given on the table)
Add: Incremental Tax (computed on 3)
Total Withholding Tax on Compensation
INCOME TAX:
Gross Compensation Income
Less: Non-Taxable Income (exempt)
Taxable Compensation Income – subject to progressive tax table

Taxable Compensation Income * Prescribed Rate = Tax due

Income Tax Due
Less: Tax Credit (Withholding Tax on Compensation, #4 computation)
Income tax due and payable

FRINGE BENEFITS TAX:

- Final Withholding Tax
- Imposed on gross-up monetary value
- For managerial and supervisory employees
- Quarterly, BIR Form 1603
- Generally: 35% NRA-NETB: 25%
Fringe Benefits Expense = 35% FBT + 65% Benefits received
= 25% FBT + 75% FB (for NRA-NETB) How
to compute FBT?
1. Compute for gross-up monetary value:
Monetary Value
Divided by: 65% (75% for NRA-NETB)
Gross-up Monetary Value
2. Compute for FBT: Gross-up Monetary Value
Multiply by: 35% (25% for NRA-NETB)
Fringe Benefit Tax

FRINGE BENEFITS:
Fringe Benefits Monetary Value
Given or paid in cash Amount paid
Rental payment of residence 50% of rental payment
Given in kind FV/BV, higher
Usufruct of property (rights to enjoy) 50% of the rental value or
50% of the depreciation
Useful life: Real – 20 yrs. Personal – 5 yrs. value
Aircraft / Helicopter EXEMPT
Yacht depreciation value,
UL of 20 years, NO
50% rule
Household expenses Amount paid
Interest forgone difference between
12% and actual
interest.
Reasonable business expense EXEMPT