General Principles of

Income Taxation
(A) A citizen of the Philippines residing therein is
taxable on all income derived from sources within
and without the Philippines;

(B) A nonresident citizen is taxable only on income

derived from sources within the Philippines
•(C) An individual citizen of the Philippines who is
working and deriving income from abroad as an
overseas contract worker is taxable only on income
d e r i v e d f ro m s o u rc e s w i t h i n t h e P h i l i p p i n e s :
Provided, That a seaman who is a citizen of the
Philippines and who receives compensation for
se r vi c e s re n d e re d a b ro a d a s a m e m b e r o f th e
complement of a vessel engaged exclusively in
international trade shall be treated as an overseas
contract worker;

•(D) An alien individual, whether a resident or not of

the Philippines, is taxable only on income derived
from sources within the Philippines;
•(E) A domestic corporation is taxable on
all income derived from sources within and
without the Philippines; and

•(F) A foreign corporation, whether

engaged or not in trade or business in the
Philippines, is taxable only on income
derived from sources within the Philippines
Minimum Wage Earners
Worker in the private sector paid the
statutory minimum wage, or to an employee in
the public sector with compensation income of
not more than the statutory minimum wage in
the non-agricultural sector where he is
assigned.
•exemption covers the holiday pay, overtime
pay, nightshift differential pay and hazard pay.
Marginal Income Earners
Refers to an individual whose business
does not realize gross sales or receipts
exceeding P100,0000 in any 12 month
period.

Shall not include licensed professionals,

consultants, artists. sales agents, brokers
and others similarly situated, inc. all
others subjected to witholding tax.
Alien Taxpayer
• Resident Alien - actually present in the
Philippines who is not mere transient or
sojourner considered primarily on his
intention of stay in the country.
• Non-resident alien engaged in trade or
business - comes and stays in the
Philippines for an aggregate period of
more than 180 days during any calendar
year
• Non resident alien not engaged in trade or
business
Witholding Agent
Any person required to deduct and
withold any tax under the provisions of the
NIRC. A witholding tax is a deduction from
the payment required by the government to
be made by the payer of an item of income of
an amount corresponding to the tax due or a
portion thereof and pay the same to the
government.
 Income
•amount of money derived from labor or
capital or capital or both, either engaged
in trade or business or exercise of
profession and includes the gain derived
from the sale and exchange of capital
assets.
•all the wealth which flows into the
taxpayer other than mere return of
capital.
 Compensation Income
•in general, means all renumeration
for services performed by an employee
for his employer under an employer-
employee relationship, unless
specifically excluded by the Code.
 Mixed Income Earner
•an individual earning compensation
income from employment and income
from business, practice of profession
and/or other sources aside from
employment.
 Taxable Income

•there must be gain

•t h e g a i n m u s t b e r e a l i z e d o r
received
•gain must not be excluded by law or
treaty
Situs of Taxation Income

a. Income which is derived in full from

sources within the Philippines;
b. Income which is derived in full from
sources without the Philippines;
c. Income which is derived partly from
sources within and partly from sources
without the Philippines.
 TRAIN LAW - RA 10963
Fulfillment of the President Duterte's 10-
Point Socio-Economic Agenda:
•institute progressive tax reform and more
effective tax collection indexing taxes to
inflation.
•accelerate annual infrastructure spending
to account for 5% of GDP, with PPP
playing key role
 Legislative History
•House of Representatives: HB No. 5636
vsubstitute bill that consolidated HB
No. 4774 (sponsored by Rep. Cua) and
53 other tax reform bills
vHB no. 5363 was passed on third
reading on May 31, 2016
•SENATE OF THE PHILIPPINES: SB No.
1592
vsubstitute bill consolidating SB No. 1408
(sponsored by Sen. Pimentel) and 30 other
tax reform bills.
vSB No. 1592 was passed on third reading
on 28 November 2016
lB I C A M E R A L C O N F E R E N C E
COMMITTEE
13 December 2017, both Houses of
Congress ratified the Bicameral
Conference Committee Report
 SALIENT FEATURES
•lower personal income tax
•simplified estate and donor's tax
•simplified VAT
•increased excise tax for petroleum
products
•increased excise tax for motor vehicles
•new excise tax on sweetened beverages
Characteristics of Philippine Income
Tax
•Direct Tax
•Progressive - ability to pay principle
•Comprehensive System - Citizenship
Principle, Residence Principle and
Source principle
•Schedular and Semi-globar System
•American in Origin
 Kinds of Income Tax Systems
•GLOBAL - UNITARY - all items of
gross income, deductions, exemptions
are reported inone income tax return and
a single tax is imposed on ALL
INCOME received and earned,
regardless of the activities which
produced the income.
•SCHEDULAR TAX SYSTEM - different
activities are subjected to different types of
tax rates. The tax rates depend on the
classification of the taxable income and the
activities which produced the income.
•SEMI-GLOBAL, SEMI-SCHEDULAR -
certain passive income and capital gains are
subjected to final taxes while other income
are added to arrive at the gross income
(where deductions are used to arrive at
taxable income)
 SCHEDULAR VS. GLOBAL

•Income levels are divided into different

classifications for determining tax rates.

•Income is aggregated from all sources and

then taxed at a single progressive rate.
 REALIZED VS RECOGNIZED
Recognized Income – all income is
recognized if there is a law recognizing or
taxing the same. It should be generally
reflected in books. Not all realized income
is taxable. If the income is not recognized
or is excluded or exempted, it is not taxable
even if realized.
 Test/Doctrines in Determining
Taxable Income

1. Flow of Wealth Test - there is a taxable

income so long as gain has been derived by
the taxpayer from the event or transaction he
has entered into.
2. Realization of Income Test -
a. earning is complete or virtually complete
b. exhange has taken place
RECOGNITION OF “INVISIBLE
INCOME”
•Applicable in cases of remission of debts –
“freeing of assets”
•Not applicable in insolvency cases
 REVALUATION INCREMENT

Booked by an entity when it elects to

revalue premises and offer property and
equipment through appraisal by reputable
experts or specialists and such revaluation
increment when booked increases the
stockholders’ equity.
 Doctrine of Constructive Receipts
Income is deemed received even if not in
taxpayer's possession if:
•credited to taxpayer's account
•set aside for the taxpayer
•made available to the taxpayer's disposal at any
time
•transferred to other party other than the
taxpayer
•offset of an obligation to the taxpayer
 3. CLAIM OF RIGHT
DOCTRINE

Income received without restriction

under a claim of right must be reported
in the year received, even if there is a
possibility that it must be repaid in
later years.
 4. ECONOMIC-BENEFIT
PRINCIPLE ( Doctrine of
Proprietary Interest)
•Any economic or financial benefit
regardless of the form or mode by
which that benefit/enrichment is
conferred.
•anything that benefits a person materially or
economically in whatever way is taxable under
the law
5. Severance Test (Macomber Test)
Income is recognized when there is
separation of a thing which is
exchangeable value thereby supplying
the realization or transmutation resulting
in the receipt of income.
 7. All Events Test

•Fixing of a right to income or liablity

to pay
•The availability of the reasonable
accurate determination of such income
or liablity.
 TYPES OF TAXABLE INCOME

•Compensation Income
•Professional Income
•Business Income
•Passive Income
•Capital Gains
 PASSIVE INCOME
income in which the taxpayer merely
waits for the amount to come in, which
includes, but is not limited to interest
income, royalty income, dividend
income, winnings and prizes.
 SEC. 22 – NIRC - DEFINITIONS

•(A) PERSON to (HH) MINIMUM

WAGE EARNERS

SEC 23. – GENERAL PRINCIPLES

OF INCOME TAXATION
•the place of the signing of a contract is
NEVER an issue or a factor for determining
the source of income.
•it is the place of activity creating the income
which is controlling, and not the place of
business or residence of the taxpayer.
•gains, profits and income derived from
purchase of personal property within and sold
without, or from purchase without and sale
within, are treated as derived entirely from
sources with the country in which it is SOLD.
 RESIDENT ALIEN(Sec.22 (f))
•mere physical or body presence is enough,
not intention to make the country one's abode.
•an alien actually present in the Philippines,
who is not a mere transient or sojourner is a
resident of the Philippines for purposes of
income tax.
 BIR Ruling No. 252-11
•had a special resident retiree's visa
•acquired real property and is actually
present most of the time in the
Philippines; and
•registered as a taxpayer with the BIR
 NON-RESIDENT CITIZENS Sec.
22 (e)
•Immigrant - one who leaves the Philippines
to reside abroad as an immigrant for which a
foreign visa has been secured.
•Permanent Employee- one who leaves the
Philippines to reside abroad for employment
on a more or less permanent basis.
•OCW
KINDS OF INCOME and INCOME
TAX ON INDIVIDUALS
•only resident citizens are taxed on income
derived from abroad.
•a resident citizen, non-resident citizen, a
resident alien and a NRAETB are all subject
to the graduated income tax rates.
•NRAENETB - 25% of the entire or gross
income received from sources within the
Philippines
 GROSS INCOME
Less: Deductions (itemized or
optional standard deduction)
Taxable Income
Tax Rate
Tax Due