tax tax tax

fringe benefit tax

● proposed to enhance the progressivity of the income tax & to broaden the tax base
○ its bc the only forms of employee income that were effectively taxed were those which
were given in cash. this was bc an income tax was automatically withheld & collected
at source by the govt.
○ additional compensation which was given in the forms of perks and other non-cash
benefits were untaxed, and this give rise to inequity in the distribution of the tax
burden
○ and these untaxed perks became a popular means of tax avoidance
○ meaning naisasama sa expenses ng business, tapos nababawasan tax

compensation
● monetary payment given to an individual in exchange for their services
● salaries, wages, emoluments & honoraria, allowances, commissions, etc.
○ ALL CASH INVOLVED

fringe benefit
● any goods, service, or other benefits furnished or granted by an employer in cash or in kind
OTHER THAN THE BASIC COMPENSATION BY AN AN EMPLOYER TO AN INDIVIDUAL
EMPLOYEE (except rank-and-file employee)
● may be property, services, cash or cash equivalent to supplement a stated pay for the
performance of services
● fringe benefits subject to FBT cover only those fringe benefits given or furnished to a
managerial or supervisiory employee

tax treatment of fringe benefits

fringe benefits part of taxable subject to basic subject to FBT
given to: compensation tax & cwt on
compensation
rank & file yes yes no
supervisory/ no no YES
managerial
 ● taxable compensation - refers to all forms of compensation income which are subject yo
graduated tax rate or basic income tax
● FBs given to managerial & supervisory employees is subject to FBT, a final withholding tax
(FWT), not the graduated tax rate for compensation income

managerial employee
● one who is vested with powers of prerogatives to lay down and execute management policies
and/or to hire, transfer, suspend, lay off, recall discharge? assign or discipline employees
○ all employees not falling within this definitoon are considered rank-and-file employees

nature of a fringe benefit tax

● the fbt is a final tax imposed on the employee withheld by the employer, computed at 35% on
the grossed up monetary value (GUMV) of the fringe benefit granted by the employer to an
employee who holds a managerial position
● being a final tax, the fbt is collected or withheld at source by the employer
○ meaning, at the first firm’s level rather than at taxpayer’s level to facilitate tax
administration
● it is effective regardless of whether the employer is an individual, professional partnership, or
a corporation, the government or its instrumentalities
● shall be withheld and remitted by the employer to the BIR not later than the last day of the
month following the close of the quarter which withholding was made

items of fringe benefits subject to tax

. housing
. expense account
. vehicle of any kind
. household personnel (maid, driver, etc.)
. interest on loan at less than market rate to the extent of the difference between the market
rate & actual rate granted
. membership fees, dues, and other expense borne by the employer for the employee in social
and athletic clubs and similar organizations
. expenses for foreign travel
. holiday & vacation expenses - vacation over 10 days for private employees is subject to FBT,
however it is exempt for government employees regardless of the number of days
. educational assistance to the employee or his dependents
. life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows

tax exempt fringe benefits

 . contributions for gsis and sss
. if the fb is required by the nature of, or necessary to the trade, business, or profession of the
employer
. de minimis benefits
. if the grant of benefits is for the convenience or advantage of the employer

computation of fringe benefit tax

● in general, fbt rate is 35%. however, rate for nra-netb is 25%. the computation. of the fbt is
done by:
○ determining the monetary value
○ determining the proportion or percentage (gross monetary factor) of the benefit which
is subject to fbt
○ determining the GUMV of the FB by dividing the MV of the GB by the GMV factor; and
○ multiplying the GUMV by the FBT rate

fringe benefit tax base & rate

classification of tax CIT, RA, NRAET NRA-NETB
payers
MV Pxx Pxx
divide by GMV factor 65% 75%
GUMV Pxx Pxx
x FBT rate 35% 25%
FBT Pxx Pxx

valuation of fringe benefits

● if granted in money, the value is the amount granted
● if granted in property and ownership is transferred to the employee, the value is the fair
market value of the property
● if granted in property but ownership is not transferred to the employee, the value is equal to
the depreciation value of the property

de minimis benefits
● facilities and privileges such as entertainment, medical services, or so called “courtesy”
discount on purchases
● exempt from withholding tax on compensation and fbt regardless of the position of the
employee who received such benefit(s)
●
employee who received such benefit(s)

. monetized unused vacation leave credits of private emloyees not exceeding 10 days during
the year - P90,000 ceiling
. monetized value of vacation and sick leave credits paid to govt officials and employees
. medical cash allowance - 250/ month
. rice subsidy - 2,000/month or 1 sack (50kg)/ month
. uniforms < 6,000/annum
. actual medical assistance < 10,000/annum
. laundry allowance < 300/month
. employee achievement awards < 10,000
. gifts < 5,000 per employee/annum
. daily meal allowance for ot work/graveyard shift < 25% of the basic minimum wage on a per
region basis
. benefits by an employee by virtue of a collective bargaining agreement (cba) & productivity
incentive scheemes provided that the total AMV received from two (2) items above
combined, do not exceed 10,000 per employee per taxable year
.

income tax on corporations

● corporation - is an artificial being created by operation if law, having the right of succession
and the powers, attributes, and properties expressly authorized by law or incident to its
existence.
○ shall include:
◆ opcs - corporation with single stockholder
◆ partnerships
◆ joint stock companies
◆ joint accounts
◆ associations
◆ insurance companies
○ does not include:
◆ general professional partnership - formed by persons for the sole purpose of
exercising their common profession
◆ joint venture or consortium - formed for the purpose of undertaking construction
projects

joint venture or consortium

● commercial undertaking by two or more persons, differing from a partnership in that it relates
to the disposition of a single lot of goods or the completion of a single project
● joint ventures involving foreign contractors may also be treated as non-taxable corporation
○ contractor is covered by a special license by the PCAB
○ construction project is certified by the appropriate tendering agency (govt office) that
the project is foreign financed/internationally funded

joint stock companies/joint accounts

● joint stock companies - group of individuals acting jointly, establish, and operate business
enterprise under an artificial name w an invested capital divided into transferable shares
● joint accounts - when one interests himself in the business of another by contributing
thereto, and sharing in the profits or losses in the proportion agreed upon

three types of income tax

. regular corporate income tax (rcit) or basic income tax
. final withholding tax (fwt)
 . final withholding tax (fwt)
. capital gains tax (cgt)

types of corporations
. domestic (dc) - taxable on their income derived from sources within and without the
philippines
. resident foreign (rfc) - within
. non-resident foreign (nrfc) - within

types of income
. ordinary or regular - derived from the regular conduct of trade or business income (basic
income tax)
. passive income - interest, royalties
. , and dividends (fwt)
. capital gains - sale of capital assets (cgt)

micro small and medium enterprises (msme)

● rcit for dcs is 25% of net income
● rcit for dcs-msme is 20% of net income
● dcs are classified as msme if both of the following conditions are met:
○ net taxable income is NOT more than P5,000,000
○ assets is NOT more than P100,000 (excluding the land)
● not applicable to foreign corporations

REMEDIES