INCOME TAXATION

Sectors:
1. Government - BIR (agent of executive branch)
2. Education/Academe (Higher educational institution)
3. Private/Commerce & Industry
4. Public

Branches of the government:

1. Executive - headed by the president; administration/collection of taxes (DOF-BIR)
2. Legislative - senate and congress; levy of tax laws
3. Judiciary

Penalties of the BIR: (no filing/late filing; no payment/late payment)

1. Interest - 12% annual (prorated)
2. Surcharge - 25% (fixed) - 50% willful act/intention
3. Compromise penalty - minimum of 1,000 per form/tax return and per month

0 tax - file only need; ex: minimum wage earner, below 250,000 annual compensation

Statement of Management Responsibility - signed by the president/chairman (if magkaiba, dapat both) & treasurer; fs is
the responsibility of the steward of the business/management

70% understated - negligence of the auditor

Self-assessment - system of tax in the Philippines; individuals declare and assess their taxes > pay

Tax map - surprise audit of the BIR, pupunta sa lugar to check documents; penalty if nahuli (pupunta sa revenue district
office 21A, 21B, 21C)

30 days allowance - to register a business (permit then BIR)

Permit - sinasabi if business is legal; closure if nahuli

Wrong venue - nagfile sa maling lugar; equivalent to no filing

INCOME TAXATION OVERVIEW

Classification of taxes:
1. As to subject matter
a. Personal tax - poll tax or cedula/community tax certificate or capitation tax (pag di binayad, di pwedeng
makulong kase di required and immaterial)
b. Property tax - real estate tax or amilyar
c. Excise tax - privilege tax
i. Privilege to do business - business tax
ii. Privilege to earn income - sales/revenue - costs - administrative & general expenses = net
income
2. As to incidence
a. Direct
b. Indirect - VAT (passed-on tax)
3. As to imposing authority
a. National - paid to BIR
b. Local - paid to barangay

Receipt should have:

1. Trade name; Proprietor
2. Complete address
3. VAT/Non-VAT
4. TIN

Sales invoice - goods

Official receipt - service

Income tax
1. Privilege tax
2. Direct tax
3. National tax

Statutory taxpayer - stated in the statute of the law

Economic taxpayer - shoulder the burden

Types of taxpayer according to BIR:

1. Individual - proprietor/employee/professional
2. Non-individual - corporation

INDIVIDUAL
SYSTEM OF progressive - the higher the taxable income,
TAXATION the higher the tax rate, thus the higher the tax
0%-35% - January 1, 2018 to December 31,
2022 (TRAIN: Tax Reform for Acceleration and
Inclusion Law)
annual taxable income >250,000 or below = no
income tax
NON-INDIVIDUAL
fixed - proportionate (basta may net income)
old rate 30% of taxable net income (RCIT: Regular
Corporate Income Tax)
new rate - July 1, 2020 (retrospective)
25% (general)
20% - total asset < 100million (excluding land); annual
net taxable income < 5million
MCIT: Minimum Corporate Income Tax - old rate: 2%
of taxable gross income
new rate 1% - July 1, 2020 to June 30, 2023

CREATE: Corporate Recovery and Tax Incentives for

Enterprises
effectivity (general provision): April 11, 2021 (15 days
from date of publication)
signed March 26, 2021
published March 27, 2021
repeal of IAET (improperly accumulated earnings tax)
SOURCES Compensation income - employee-employer Business income
OF relationship; with 13th month pay
INCOME
Business income - customers, clients, and
suppliers; professional fees

Purely earning compensation income - one

employer (BIR Form 2316); two or more
employees

Purely earning business income

Mixed-income earner
ANNUAL BIR Form 1700 - purely earning compensation BIR Form 1702RT (regular tax) - 25% RCIT; 2% MCIT
INCOME income of more than one employer whichever is higher
TAX consolidation of income
RETURN BIR Form 1702Mx (mixed) - special tax rates
BIR Form 1701A - 40% OSD; 8% GIT (in lieu of PEZA; if meron CORTE (Certificate of Registered
RT 0% - 35% and percentage tax Tax Exempted Activity)
Annex - indicate assets, liabilities, equity, 5% of gross income
income, revenue, expenses
BIR Form 1702Ex (exempted) - file only
BIR Form 1701 - itemized deduction
(graduated rate) (attachment of FS or AFS)
default 4 pages

Components of complete audited annual financial statements: -available to all stakeholders

1. Balance Sheet or Statement of Financial Position
2. Statement of Comprehensive Income - results of operation
3. Statement of Changes in Equity
4. Cash Flows Statement
5. Notes to Financial Statement

Minimum Corporate Income Tax (MCIT) - imposed on the 4th year following the 1st year of operations of the business

Sole proprietorship - ease of formation (DTI); unlimited liability for the sole; no business entity concept

Corporation - too many requirements (SEC - Online Submission Tool); limited liability for stockholders; business entity
concept - artificial or judicial being (law)

One Person Corporation (OPC) - exception sa 5 to 15 incorporators

Components of equity:
1. Share capital
2. Share premium
3. Retained earnings - unappropriated if silent

Schemes of taxation
1. Regular taxation - ordinary or nominal income (ITR)
2. Final taxation - passive income; bago makuha pera, naless na ung tax
a. Is Interest income
b. Your Yields
c. Relative Royalties
d. Playing Prizes - effort
e. With Winnings - luck
f. Dota/ Dividend income
g. Solitaire Share of Partner
3. Exempt taxation - non-profit non-stock

BIR Form 2303 - certificate of registration; crucial information about the taxpayer
Revenue District Office (RDO) - top
RDO 21A - North Pampanga (Angeles, Porac, Mabalacat; office: sindalan (right)
RDO 21B - South Pampanga (San Fernando, San Simon); office: sindalan (left)
RDO 21C - Clark Freeport Zone

General ways to file

1. Manual filing - mano mano susulatan and ssubmit sa office ng BIR (8am-5pm)
2. eBIRForm program - downloadable (www.bir.gov.ph)
3. Electronic filing and payment system (EFPS) - option to enroll or mandated (TAMP: withholding agent, top
corporations, special tax, bid for government); highest level for filing; di na pede gumamit ng ibang filing unless
may problem > magpareceive ng letter sa RDO tas request magpaalam na eBIR > attach the letter kapag inaudit
ni BIR para iwas penalty

TIN - 9 digits; last 3 numbers branch; isang tin sa buong lifetime

Trade name, address, name - basis: articles of incorporation (corporation); DTI certificate (sole)

BIR Form 2316

- ginagawa ng employer so no need to file
- under substituted filing (no need to register and file > may magssubstitute)
- filed by the employer sa Alphalist
- submitted manually sa BIR
- deadline: February 28 of the following year

4 pages - default ITR

File name sa nareceive na email - tin-bir form-date covered

April 15 - deadline of ITR default

BUSINESS TAXATION

Business Taxation - based on the privilege of the taxpayer to do business

- STATUTORY TAXPAYER: Seller

SELLER CAN BE EITHER: (BIR Form 2303)

1. Vat-registered Value Added Tax - 12%
Annual revenue or sales threshold: 3,000,000 (if below, the seller will have the option to
choose between VAT or percentage)
Continuous, di na pede magdowngrade
2. NONVAT-registered Percentage tax - previously 3%; CREATE reduced to 1% from July 1, 2020
to June 30, 2023
Sales = Invoice price

VALUE ADDED TAX (passed-on tax) PERCENTAGE TAX

VAT Payable = Output VAT - Input VAT (Balance Sheet Percentage Tax Payable = Sales * PTR
Accounts) (Taxes and Licenses Expense)

Output VAT - liability Input VAT - asset

For calendar year: quarterly BIR Form 2551Q
monthly BIR Form 2550M (deadline: 20 days after the
month)
January, February, April, May, July, August, October, &
November
quarterly BIR Form 2550Q (deadline: 25 days after the
month)
1st Qtr (March), 2nd Qtr (June), 3rd Qtr (September), &
4th Qtr (December)

For fiscal year:

monthly - first 2 months of each quarter

VAT threshold - 3 million anually

TRANSACTIONS IN BUSTAX IN GENERAL

1. Vatable Sales 12% Output VAT on Vatable Sales - 12% Input VAT on Vatable Purchases
2. Zero-Rated Sales Export Sales; 0% Output VAT - 12% Input VAT on Vatable Purchases (excess input can be
refunded from BIR 3 years from the date of payment)
3. Exempt Sales Zero (not part of BusTax but is a part of InTax return in computing net income)

Withholding tax payable - 10th of the following month (deadline)

NOTES (STRATEGIES)
1. Barangay Micro Business Enterprises (BMBEs)
Total assets (excluding land) will not exceed 3 million
Nature of business: service or trading, not practice of profession
Exempted from income tax
Exemption coverage of minimum wage law (employees still need to receive SSS, PhilHealth, and Pag-ibig
benefits)
Special credit window financing
Training and assistance program

2. Maximize de minimis (BIR Form 1601C - withholding tax on compensation of employees filed by the employer)
and 90,000 exempted 13th month pay and other benefits

3. Substantiation of allowable deductions

Expense must be needed in the ordinary course of the business; related to business; receipted
Proper receipt: Official receipt (authority to print); Sales Invoice
Complete details: Name, TIN, Address, Business Style
Withholding tax expanded payable (BIR Form 0619E and 0619EQ): Rental 5%; Agency Fee 2%;
Professional 10%

4. For NONVAT individual, consider exploring options

Itemized deduction (default)
1st quarter of the taxable year: 40% OSD on sales/revenue in lieu of itemized deduction
8% GIT in lieu of RT and percentage tax

5. Follow up on 2307: income tax or 2306: business tax (tax credit: binabawas sa tax due)

6. Be mindful of limits for deductability

Interest expense (interest arbitrage) - allowable deduction for IE shall be reduced by an amount equal to
20% of international income subject to final income

Bad debts - deductible when written off subject to certain requirements

Charitable contributions - ordinarily may not exceed 5% of taxable income; however, contributions to
certain institutions are 100% deductible subject to certain conditions
Entertainment expenses - shall not exceed ½% or 0.005 of net sales (goods) or 1% or 0.01 for net
revenue (services)
Special deductions - CREATE for some registered entities additional 50% for training expenses (direct
related to operations with certain conditions)
Fines and penalties - interest penalties are deductible; surcharge and compromise penalties imposed for
non-payment or late payment of taxes are not deductible
NOLCO - 3 consecutive taxable years; RA 11494 or Bayanihan to Recover as one Act (NOLCO for TY 2020
and 2021) may be carried over for the next 5 consecutive taxable years following such loss
ILLUSTRATION 1: MWE
Individual taxpayer - minimum wage earner - exempt from income tax (basic, holiday, night differential, overtime,
hazard)

a) SSS, PhilHealth, and Pag-ibig Employee share -

nontaxable
13th month pay and other benefits - 90,000 threshold
De minimis benefits - exempt from income tax
Basic pay (MWE) -exempted
b) Basic pay and additional pay (MWE)

ILLUSTRATION 2: INDNIVIDUAL; NONVAT (LESS THAN 3 MILLION SALES OR RECEIPTS FOR THE YEAR)
OPTION 1: Graduated rate + Percentage OPTION 2: 8% GIT

OPTION 3: 40% OSD + Percentage

ILLUSTRATION 2-A: INDNIVIDUAL; NONVAT (LESS THAN 3 MILLION SALES OR RECEIPTS FOR THE YEAR)
OPTION 1: Graduated rate + Percentage OPTION 2: 8% GIT

OPTION 3: 40% OSD + Percentage