Page 1 of 7 | TAX 06

TAXATION
REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

REX B. BANGGAWAN, CPA, MBA
REGULAR INCOME TAXATION

Features of the Regular Income Tax

1. General coverage

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2. Net income tax
3. Annual tax that is paid in quarterly estimated payments
4. Advanced payment through creditable withholding taxes

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TYPES OF REGULAR INCOME TAX
1. Progressive Income Tax

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This is applicable to individuals, taxable estates and trusts.
Tax rates for Year 2018 to 2022
TAXABLE INCOME PER YEAR INCOME TAX RATE

P250,000 and below

Above P250,000 to P400,000

0% R
20% of the excess over P250,000
PA
Above P400,000 to P800,000 P30,000 + 25% of the excess over P400,000

Above P800,000 to P2,000,000 P130,000 + 30% of the excess over P800,000

Above P2,000,000 to P8,000,000 P490,000 + 32% of the excess over P2,000,000

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Above P8,000,000 P2,410,000 + 35% of the excess over P8,000,000

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2. Corporate Income Tax: 25% of 20% on taxable income

This is applicable to corporations, partnership and joint venture.

GROSS INCOME
Gross income includes gains, profits, and income derived from whatever sources, whether legal or illegal not covered by
either final taxation or capital gains taxation.
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EXCLUSIONS FROM GROSS INCOME:

1. Proceed of a Life Insurance policy
2. Amount received by the insured as a return of premium
3. Gifts, Bequests, and Devises or Descent
4. Compensation for injuries and sickness
5. Income exempt under treaty
6. Retirement Benefits, Pensions, Gratuities, etc.
7. Separation or Termination

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 Page 2 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

8. Retirement Gratuities, Social Security Benefits and Other similar benefits from foreign government agencies
and other institutions, private or public, by resident or non-resident citizens or aliens who come to settle permanently
in the Philippines
9. United States Veterans Administrations - administered benefits under the laws of the United States received by
any person residing in the Philippines
10. SSS benefits under RA 8282 received or enjoyed
11. GSIS benefits under RA 8291 and including retirement gratuity received by government officials and employees
12. Investment Income in the Philippines in loans, stocks, bonds, or other domestic securities, or form interest on
deposits in banks in the Philippines by:
a. Foreign governments
b. Financing institutions owned, controlled, or enjoying refinancing from foreign government

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c. International or regional financial institutions established by foreign governments
13. Income of the government and its political subdivisions from
a. any public utility or

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b. exercise of essential government function
14. Prizes and Awards in recognition of religious, charitable, scientific, educational, artistic, literary, or civic
achievements but only if:

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a. the recipient was selected without any action on his part to enter the contest or proceeding; and
b. the recipient is not required to render substantial future services as a condition to receiving the prize or award
15. Prizes and Awards in Sports Competitions granted to athletes:
a. in local or international competitions and tournaments
b. whether held in the Philippines or abroad; and
c. sanctioned by their national sports associations
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16. 13th Month Pay and Other Benefits – provided not to exceed the P92,000 ceiling (non-adjustable to inflation).
17. Contributions for GSIS, SSS, PhilHealth, HDMF and Union Dues - these are deducted from the relevant income to
which they relate; for example, they are netted with the compensation income of employees
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18. Gains from Sale of bonds, debentures or other certificate of indebtedness with a maturity of more than 5 years.
19. Gains realized from redemption of shares in mutual fund by the investor.
20. Certain benefits of minimum wage earners (HHON)
21. Income exempt under special laws or subject to special tax rules
a. Income of BMBE
b. Income on sale of gold to the BSP
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c. Income of BOI-registered entities under ITH

SOURCES OF GROSS INCOME:

A. Compensation for services in whatever form paid, including but not limited to fees, salaries, wages, commissions,
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and similar items

B. Trade, Business or Exercise of a Profession, except self-employed and or professionals opting to the 8% commuted
tax under TRAIN law
C. Gains derived from dealings in property (Please read separate handout)
D. Interests – these refers to interest other than those subject to final taxes, except:
1. Interest income under the land reform earned by the landowner to which the tenant-purchaser pays him
2. Imputed interest
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E. Rents
F. Royalties
G. Dividends
H. Annuities
I. Prizes and winnings
J. Pensions; and
K. Partner’s distributable share in the net income of the general professional partnership and exempt joint venture

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 Page 3 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

OTHER SOURCES OF GROSS INCOME:

A. Farming
B. Tax Benefits
1. Bad debt recovery
2. Tax refund
3. Unamortized cost of property abandoned and written off but was subsequently re-entered into use
Requisites in the taxability of expense recoveries
1. The expense is claimed as deduction against gross income in previous year/s.
2. The expense resulted in tax benefit to the taxpayer

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C. Cancellation of indebtedness
a. in consideration of service – treated as compensation income
b. with no consideration – not an income but a gift taxable under Donor’s Taxation
c. by a corporation in favor of a shareholder - treated as declaration of dividend subject to final tax

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d. as capital transaction such as forfeiting the right to receive dividend in exchange of the debt – treated as dividends
and is subject to dividend taxation rules

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D. Damage recovery
a. Compensatory Damages - this constitute return of capital and hence, not taxable. For example: moral damages
from personal action such as libel, slander; and breach of promise to marry.
b. Recovered Damages – this constitute taxable income since they are recoveries of lost profit. For example: damages
recovered from patent infringement suit

ILLUSTRATION: EXCLUSIONS IN GROSS INCOME

A. Check the items of income that are taxable.
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1. Novel prize received for achievement civic achievements.
2. Prizes and awards in sports competition, not sanctioned by their respective national association accredited by POSC.
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3. World Bank’s income earned in the Philippines.
4. Cost of Living Allowance.
5. Union due Contribution.
6. Proceeds of from life insurance policy, revocable designation of beneficiary.
7. Pensions, in general.
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8. Income of PAGCOR, a GOCC.

9. Income of government from holders of public utility franchise.
10. Interest income.
11. Board of director’s fee.
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12. Mandatory retirement pay

13. Professional athlete’s salary.
14. Winnings from Philippine Sweepstakes or Lotto.
15. Income derived from smuggling.
16. Interest received from life insurance’s annuity.
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17. Hazard pay received by MWE.

18. Gains from redemption of shares in mutual fund.
19. Magsaysay awards.
20. GSIS Retirement benefits.
21. Cash surrender value received from insurance in excess of premium paid.
22. Proceeds from life insurance of a deceased employee received by the employer.
23. Dividend income derived in the Philippines by the Taiwan Government.
24. Gains from the sale of bond with a maturity of three years.

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 Page 4 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

25. Cancellation of debt in lieu to services rendered.

26. Share in net income of unincorporated partnership or joint venture
27. Share in net income of associate or subsidiary
28. Foreign branch profit of a domestic corporation
29. Foreign branch profit of a resident foreign corporation
30. Foreign sourced dividends

B. Mr. A donated his business to his son B in the middle of the year. The business has a net worth of P2,000,000 at the
start of the year. It earned P300,000 in during first half of the year and P200,000 for the rest of the year.

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Required: Determine the following
a. Reportable income of Mr. A and his Son B
b. Net taxable gift of A

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C. Mr. Pacquiao, a national athlete, received the following during the year:

Ramon Magsaysay award P 50,000

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Athlete of the year award 100,000
Prize – SM Raffle 10,000
Prize for winning the gold Olympic medal 500,000
Car from Nissan as a gift 1,200,000
Winnings – Philippine Sweepstake 150,000
Casino winning, net of 200,000 losses
Winnings, from horse race
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Required: Determine the total exclusions in gross income.
300,000
100,000
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D. Mr. De Silva had the following income during the year:

Returns from life insurance (P40K annual premium for 15 years) P 800,000
Proceeds of father’s life insurance (P 600,000 premium paid) 1,000,000
Rent income from house worth P1M he inherited 400,000
C

Proceeds of redemption of mutual funds held 2 years (10,000 units bought at P10/unit) 140,000
Proceeds on sales of 10-year bonds bought P1M inclusive of P40,000 accrued interest 1,100,000
Interest on government securities 40,000
Damages awarded by the court (40% for unrealized profits) 500,000
20,000,000
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Prize for winning “Mr. Olympia” in Las Vegas, Nevada, USA

Required: Determine the following

a. Total exclusions in gross income
b. Total inclusions in gross income

E. Mrs. Calderon retired from ABS Corp. effective at the end of 2022. She received the following form ABS Corp:
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Compensation, net of P50,000 withholding tax, P50,000 SSS, P20,000 PHilhealth

P20,000 HDMF and P10,000 union dues P 1,050,000
Year-end fair value of ABS stocks acquired under ESOP 1,200,000
13th month pay 100,000
Retirement benefit 8,000,000
De minimis benefits 20,000

The employee’s required contributions for SSS, PhilHealth and HDMF were P10,000, P8,000 and P7,000, respectively.

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 Page 5 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

The employee stock options plan requires at least 15-year residency. Mrs. Calderon exercised the stock option during
the year by purchasing P1,000,000 worth of stocks for P600,000.

Required: Determine the following

a. Total inclusion in gross income
b. Total exclusion in gross income

F. BT, Inc. received the following refunds during the taxable year:

Licensing fee P 200,000

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Registration fees of delivery trucks 40,000
Donor’s tax 50,000
Real estate tax 30,000

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Community tax 10,000
Special assessment 20,000
Corporate income tax 300,000
Foreign income tax previously claimed as tax credit 50,000

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Foreign income tax previously claimed as deduction 100,000
Value-added tax 150,000

Required: Compute the taxable tax benefit.

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G. An individual taxpayer received the following income in 2022:

Compensation income, net of P2,500 SSS, P2,100 PhilHealth,

P1,800 HDMF and 5% withholding tax
Philippines

P 190,000
Abroad
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Business profit on sale of Bagoong 300,000 P 200,000
Dividend from domestic corporation 40,000 -
Dividend from foreign corporation - 30,000
Interest income from bank deposit 18,000 40,000
Winnings from raffle 10,000 20,000
Gain on sale of bonds with 5 year maturity 50,000 -
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Prizes in a singing competition 80,000 100,000

Interest income from loans to OFWs 80,000 -
SSS benefits received 20,000 -
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Required:
1) Compute the total income to be reported assuming the taxpayer is a resident citizen.
2) Compute the total income to be reported assuming the taxpayer is a non-resident citizen.

H. Cavite, Inc. had the following income in 2022:

Philippines Abroad
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Rent income P 10,000,000 P 12,000,000

Dividend – domestic 50,000 -
Royalties 80,000 200,000
Prizes 20,000 30,000
Business expenses 8,700,000 9,800,000
Required: Compute the taxable income if the taxpayer is
1. a domestic corporation
2. a resident foreign corporation.
3. a non-resident foreign corporation.

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 Page 6 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

I. Jeff disclosed the following income in 2022:

Dividends from domestic corporation P 200,000
Dividends from a resident corporation (85% of income in the 3 prior years is 100,000
from the Philippines)
Rent income, net of 5% withholding tax 237,500
Dollar interest income from Bank of Tokyo, Japan (peso equivalent) 120,000
Dollar interest income under the Expanded Foreign Currency Deposit System 80,000
Compensation, net of 15% withholding tax, P2,000 SSS, P1,500 PhilHealth, 170,000
P1,000 Pag-Ibig and P500 union dues
Professional fees, net of 10% withholding tax 90,000

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Required:
Assuming Jeff is a

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Determine the following: Resident citizen Non-resident citizen Resident alien
Reportable income
Final tax

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J. Mabaca Corporation, a taxpayer under accrual basis, had the following write-off and recoveries of receivables:

2021 2022
Net income before write-off P 400,000 P 900,000
(Bad debts write-off) / Recovery

Required: Determine the following

1. Taxable recovery in 2022 based on the given facts
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650,000 400,000
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2. Taxable recovery in 2022 assuming Mabaca is a BOI registered enterprise enjoying ITH in 2021
3. Answer No. 1 and No. 2 assuming Mabaca is under the cash basis

K. During the period, Mr. X earned P800,000 compensation income. Mrs. X also earned P1,200,000 from her professional
practice. The spouses also rented a portion of their residential house which earned them P400,000. They also have a
savings bank account which earned P24,000 in interest.
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Required: Determine the reportable income of the spouses.

L. A certain taxpayer had the following income during the year:

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1. Dividends from domestic corporations:

- B Corp, 40% of income earned in the Philippines in the last 3 prior years 100,000
2. Dividends from a foreign corporations
- Z Corp, 50% of income earned in the Philippines in the last 3 prior years 200,000
3. Interest on long-term deposits
- from domestic banks 150,000
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- from foreign banks abroad 100,000

4. Interest on long-term foreign currency deposits
- From domestic banks 120,000
- From foreign banks abroad 180,000
5. Prizes on a web design competition
- Held in the Philippines 15,000
- Held abroad 7,000
6. Lotto winnings
- Philippine Charity Sweepstakes Office 500,000

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 Page 7 of 7 | TAX 06

REX B. BANGGAWAN, CPA, MBA

REGULAR INCOME TAXATION

- US Super Lotto 1,000,000

7. Profits from merchandising
- Philippine outlets trading breads (20% from export sales) 600,000
- Foreign outlets trading machineries (10% exported to Philippine residents) 400,000
8. Gain on sale of domestic stocks
- To Philippine buyers 300,000
- To foreign buyers 200,000
9. Gain on sale of a vacant and unused condominium unit
- Located in the Philippines to non-resident Filipino buyer (cost = P400,000) 500,000
- Located abroad to Philippine buyers (cost = 1,500,000) 400,000

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10. Gain on sale of a commercial building
- Located in the Philippines to non-resident buyers (cost = 600,000) 600,000
- Located abroad to Philippine resident buyers (cost = 700,000) 300,000

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Required: Compute the following requirements assuming the taxpayer is a:
Non-resident Domestic Resident foreign

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Resident citizen citizen corporation corporation
a. Final tax
b. Capital gains tax
c. Taxable income

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----- END OF HANDOUTS -----
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