GENERAL PRINCIPLES OF TAXATION

TAXATION
- Taxation can be defined as a power, a process, and a mode of cost allocation.

Inherent Powers of the State

1. POLICE POWER - power of the government to regulate property and liberty to promote and protect public welfare. This power involves
the enactment of laws for the general welfare.
2. EMINENT DOMAIN - power to take private property for public use upon payment of just compensation.
3. TAXATION - power to take property for the support of the government and for public purpose.

Aspects of Taxation
Eminent
Distinction Taxation Police Power 1. Levying or Imposition (Impact of Taxation) - this process
Domain
involves the enactment of a tax law by the Congress. It is
Revenue and Protection of Property is taken
also referred to as a legislative act in taxation.
Purpose support of the well-being of the for public use
2. Assessment and Collection (Incidence of Taxation) - the
government people
tax laws are implemented by the administrative branch of
No tangible Just
General benefits the government. It is also referred to as the administrative
benefit is given compensation is
from projects act in taxation.
Benefit to those persons given to owners
and activities of
this power is of property
the government Theories In Taxation
exercised. taken 1. LIFEBLOOD THEORY - taxes are indispensable in the
Can be existence of the state. Without taxation, the state cannot
Only the Only the delegated to raise revenue to support its operation.
Authority government can government can public service 2. ABILITY TO PAY THEORY - taxpayers should
exercise. exercise. companies or contribute based on their relative capacity to sacrifice for
public utilities. the support of the government.
Amount of Unlimited Sufficient to No imposition, 3. BENEFIT RECEIVED THEORY - all taxpayers are
Imposition cover the costs the owner is paid assumed to benefit from the operations of the
of regulation the fair market government, it might not be directly but it is the
value of government’s means to protect the public welfare.
As to
Most important Most superior Important
importance
Purpose of Taxation
1. Primary Purpose – to raise revenue
2. Secondary Purpose

The Theory and Basis of Taxation

Theory - The existence of the government is a necessity and it cannot continue without means to support itself.
Basis - The government and the people have the reciprocal and mutual duties of support and protection.

Scope of Taxation
Taxation is Comprehensive, Unlimited, Plenary and Supreme but subject to limitations.

Nature or Characteristics of Taxation

3. Legislative in nature
4. Inherent in sovereignty
5. Subject to inherent and constitutional limitations

Inherent Limitations
1. Levied for public purpose
2. Exemption of the government from taxation
3. Non- delegation of the legislative power to tax
4. Territoriality
5. International Comity

Constitutional Limitations
1. Due process of the law
2. Equal protection of the laws
3. Non- impairment of obligation of contract
4. Non- imprisonment for non-payment of debt and poll tax.
5. Rule of taxation should be uniform and equitable
6. Promotion of progressive tax system
7. Veto power of the president
8. Absolute majority vote of all members of the congress to enact a law granting exemption
9. Exemption of real property tax of religions/ religious organization
10. Exemption from taxation of non-profit non stock educational institution.

Situs of Taxation - place of taxation. It’s the tax jurisdiction that has the power to levy taxes upon the tax object.
1. Business, Occupation or Transaction
2. Income
3. Gratuitous Transfer Of Properties
4. Real Or Tangible Personal Property
5. Intangible Property
Double Taxation - occurs when the same taxpayer is taxed twice by the same tax jurisdiction for the same thing.
Interpretation Of Tax Laws
GENERAL RULE: Liberally in favor of the tax payer and strictly against the government.
EXCEPTION: In case of tax exemption and deduction, liberally in favor of the government and strictly against the
taxpayer.

Escapes From Taxation

A. Those that results to loss of government revenue
 1. TAX AVOIDANCE (TAX MINIMIZATION) - is the legal or permissible means to reduce tax liability.
These are ways that the laws allow to be used or exercise by the taxpayers as incentives or alternative
choices.
2. TAX EVASION (TAX DODGING) - is the illegal way of escape from taxation. It includes efforts to reduce
tax liability by using illegal schemes or means not in accordance with the rules of Tax laws.
3. TAX EXEMPTION (TAX HOLIDAY) - refers to the immunity, privilege or freedom from being subject to
tax which others are subject to.
B. Those that do not results to loss of government revenue
1. SHIFTING - process of transferring tax burden to other taxpayers.
2. CAPITALIZATION - occurs when the value of assets adjust to accommodate increase in taxes.
3. TRANSFORMATION - occurs when wastes or losses are eliminated by the taxpayers to form savings to
compensate for the tax imposition or increase in taxes.

Tax Amnesty - a general pardon by the government for erring taxpayers to give them a chance to reform and to
enable them a fresh start and to enable them a fresh start to be part of a society with a clean slate.

Tax Condonation (Tax Remission) - forgiveness of the tax obligation of a certain taxpayer under certain justifiable
grounds.

Principles Of A Sound Tax System

1. FISCAL ADEQUACY - revenue must be sufficient to meet government spending
2. EQUALITY or THEORETICAL JUSTICE - progressive or based on taxpayer’s ability to pay
3. ADMINISTRATIVE FEASIBILITY - capable of convenient, just and effective administration.

Essential Characteristics of Taxes

1. Enforced contribution
2. Generally payable in money
3. Proportionate in character
4. Levied on persons, property or exercise of right or privilege by the lawmaking body of the state which has
jurisdiction over the object of taxation

5. Levied for public purpose

Classification of Taxes
A. As to SUBJECT MATTER
1. Personal, Poll or Capitation -imposed on persons residing within a specified territory without regard to their
property or occupation.
2. Property - tax on property whether real or personal.
3. Excise (privilege) - imposed upon the performance of an act, enjoyment of privilege, or engaging in an
occupation.
B. As to WHO BEARS THE BURDEN
1. Direct - demanded from persons who shoulder also the burden of taxation of the tax.
2. Indirect - demanded from persons who shall indemnify himself as the expense of another.
C. As to DETERMINATION OF AMOUNT
1. Specific - fixed amount by the head, number or some standard of weight or measurement.
2. Ad Valorem - fixed proportion of the value of property with respect to which is assessed.
D. As to PURPOSE
1. Revenue - imposed to raise revenue for the general purposes of the government.
2. Special or Regulatory - imposed for special purpose
E. As to IMPOSING AUTHORITY
1. National - imposed by the national government
A. Income - tax on annual income, gains or profit
B. Estate - tax on gratuitous transfer of properties by a deceased upon death
C. Donors - tax on gratuitous transfer of properties by a living donor.
 D. Value Added - consumption tax collected by VAT business taxpayers
E. Other Percentage - consumption tax collected by non-VAT business taxpayers.
F. Excise - tax on sin products and non-essential commodities
G. Documentary Stamp - tax on documents, instruments loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.
2. Municipal or Local - imposed by the local government units

F. As to GRADUATION OF RATE
1. Proportional - based on fixed percentage of property, receipts or other basis to be taxed.
2. Progressive - rate increases as the tax base increases.
3. Regressive - tax rate decreases as the tax base increases.

Classification of Tax System

1. Global - generally treats in common all categories of taxable income of the individual. All types of income are
treated as if they are the same.
2. Schedular - system which itemized the different income and provides from varied percentages of taxes, to be
applied thereto.

Distinction of Taxes with Similar Items

Tax vs. Revenue
Tax - amount imposed by the government for public purpose.
Revenue - all income collection of the government.

Tax vs. License Fee

Tax Taxation Power - imposed to raised revenue
License Fee Police Power - imposed to regulate the exercise of a privilege.
Tax vs. Toll
Tax - levy of government demand of sovereignty

Toll - charge for the use of other’s property demand of ownership

Tax vs. Debt

Tax - arises from law non-payment of taxes may lead to imprisonment
Debt - arises from private contracts non-payment of debts does not lead to imprisonment.

Tax vs. Special Assessment

Tax - amount imposed upon persons, properties or privileges.
Special Assessment - levied by the government to lands adjacent to a public improvement

Tax vs. Tariff

Tax - amount imposed upon persons, properties, transactions or privileges.
Tariff - amount imposed on imported or exported commodities.

Tax vs. Penalty

Tax - amount imposed for the support of the government
Penalty - amount imposed to discourage an act.

TAX LAW
Any law that provides for the assessment and collection of taxes for the support of the government and other
public purposes

Sources of Tax Laws:

 1. Constitution
2. Administrative Issuances or BIR Rulings
3. Statutes and Presidential Decrees
4. Judicial Decisions
5. Executive Orders and Batas Pambansa
6. Local Ordinances
7. Tax Treaties and conventions with foreign countries
8. Revenue Regulation of by the DoF

Revenue Regulation
Formal pronouncement intended to clarify or explain the tax law and carry into effect its general
provisions by providing details of administration and procedure. They have the force and effect of law.

Administrative issuances or BIR Rulings

These are the less general interpretations of the tax laws at the administrative levels, being issued from
time to time by the CIR, to clarify certain provisions of the tax law. They are merely advisory or sort of an
information service to the taxpayer such that, none of them are binding except to the addressee and may be
reversed by the BIR at anytime.

NATURE OF PHILIPPINES TAX LAWS

Philippine Tax Laws are civil and nature and character. They remain effective even in times of war. They
are not penal in nature although penalties are provided for their violation because they do not define crimes
and provide for their punishment.

TAX ADMINISTRATION
 The Bureau of Internal Revenue
The Bureau of Internal Revenue is tasked with tax administration function of the government. Together
with

the Bureau of Customs, they are under the supervision and control of the Department of Finance.

Chief Officials of the Bureau

1. 1 chief officer: The Commissioner of Internal Revenue
2. 4 assistant chiefs: Deputy Commissioners

Powers of the Bureau

1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties, and fines and judgments in all cases decided in its favor by the courts
3. Giving effects to and administering the supervisory and police powers conferred to it by the NIRC and or
other laws
4. Assignment of internal revenue officers and other employees to other duties
5. Provisions and distribution to proper officials of forms, receipts, certificates, stamps; etc
6. Issuances of receipts and clearances
7. Submit annual report, pertinent information to Congress and reports to the Congressional Oversight
Committee in matters of taxation

Classification of Taxpayers

A. Individual
1. Citizen
 Those who are citizens of the Philippines at the time of adoption of the Constitution on February 2, 1987
 Those whose fathers or mothers are citizens of the Philippines
 Those born before January 17, 1973 of Filipino mothers who elected citizenship upon reaching the age of
majority
 Those who are naturalized in accordance with law
a. Resident Citizen - citizen of the Philippines residing therein
b. Non-resident Citizen
 A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to reside therein.
 A citizen of the Philippines who leaves the country during the taxable year to reside abroad, either
as an immigrant or for employment on a permanent basis
 A citizen of the Philippines who works and derives income abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year
 A citizen who has been previously considered as non-resident citizen and who arrives in the
Philippines at any time during the taxable year to reside permanently in the Philippines shall
likewise be treated as non-resident citizen for the taxable year in which he arrives in the Philippines
with respect to his income derived from sources abroad until the date of his arrival in the
Philippines

2. Alien - individuals who are not Filipinos

a. Resident Alien - an individual whose residence is within the Philippines and who is not a citizen
 An alien who lives in the Philippines with no definite intention as to his stay
 One who comes to the Philippines for a definite purpose which in its nature would require an
extended stay and to that end makes his home temporary in the Philippines, although it may be his
intention at all times to return to his domicile abroad
  An alien who has acquired residence in the Philippines retains his status as such until he abandons
the same and actually departs from the Philippines
b. Non-resident Alien - an individual whose residence is not within the Philippines and who is not a citizen
thereon.
i. Engaged in trade or business (NRA-ETB) - aliens who stayed in the Philippines for an aggregate
period of more than 180 days (at least 181 days) during the taxable year.

ii. Not engaged in trade or business (NRA-NETB) - aliens who come to the Philippines for a definite
purpose which in its nature may be promptly accomplished. Aliens who shall come to the
Philippines. Aliens who shall come to the Philippines and stayed therein for an aggregate period of
not more than 180 days during the year are also included in the classification.

3. Taxable estates and trusts

Estate - refers to his properties, rights and obligations of a deceased person not extinguished by his death.
 Estates under judicial settlement are treated as individual taxpayers. The estate is taxable on the income of
the properties left by the decedent.
 Estates under extra-judicial settlement are exempt entities. The income of the properties of the estate under
extra-judicial settlement is taxable to the heirs.

Trust - is an agreement whereby one person (grantor or trustor) transfers of property to another person
(beneficiary), which will be held under the management of a third party (trustee or fiduciary)
 Trusts that are irrevocably designated by the grantor are treated in taxation as if it is an individual taxpayer.
The income of the property held in trust is taxable to the trust.
  Trusts that are designated as revocable by the grantor are not taxable entities and are not considered as
individual taxpayers. The income of properties held under revocable trust is taxable to the grantor, not to the
trust.

B. Corporations

1. Domestic Corporation - is a corporation that is organized in accordance with Philippine Laws

2. Foreign Corporation - is one organized in a foreign law.
a. Resident foreign corporation- foreign corporation which operates and conducts business in the
Philippines through a permanent establishment
b. Non-resident foreign corporation - foreign corporation which does not operate or conduct business in
the Philippines.

Special Corporations - are domestic or foreign corporations.

Ex:
 Regional or Area Headquarters (RHQ) and Regional Operating Headquarters (ROHQ) of multinational
companies
 Offshore banking units (OBU)
 Petroleum service contractors and subcontractors

Partnership - is a business organization owned by two or more persons who contribute their money, property and
industry to a common fund for the purpose of dividing profits among themselves.
Types of Partnership

1. General Professional Partnership (GPP) - is a partnership formed for the exercise of a common profession. All
partners must belong to the same profession. A GPP is not treated as corporation and is not taxable entity, but the
partners are taxable in their individual capacity with respect to their share in the income of the partnership.
2. Business Partnership/ Ordinary Partnership - one formed for profit. It is taxable as a corporation

TAX RATES ON CERTAIN PASSIVE INCOME

INDIVIDUALS
Interest Income from Passive Winn Lotto/ PCSO Dividend(except stock)/ from
Classification Prizes
Bank Deposits Royalties ings Winnings Domestic Corporate Taxpayers
Long-
Foreig term Musical
Prizes Not
n Deposi compositio
In In equal In excee
Local Curren ts/ n artistic Exceeding
gene gene P10,00 gener ding
Currency cy Invest literary P10,000
ral ral 0 or al P10,0
(FCDS ments (books)
less 00
) certific and works
ates*
Part of
Exem
Resident Citizen (RC) 20% 15% Exempt 20% 10% 20% Gross 20% 20% 10%
pt
Income
Part of
Non-resident Citizen Exem
20% Exempt Exempt 20% 10% 20% Gross 20% 20% 10%
(NCR) pt
Income
 Part of
Exem
Resident Alien (RA) 20% 15% Exempt 20% 10% 20% Gross 20% 20% 10%
pt
Income
Non-resident Alien Part of
Exem
engaged in trade or 20% Exempt Exempt 20% 10% 20% Gross 20% 20% 20%
pt
business (NRA-ETB) Income
Non-resident Alien not
Exem
engaged in trade or 25% Exempt 25% 25% 25% 25% 25% 25% 25% 25%
pt
business (NRA-NETB)

* The 5%, 12%, 20% rates will be used if pre-terminated in periods less than 5 years, less than 4 years and less than 3 years
respectively.
TAX RATES ON CERTAIN PASSIVE INCOME

CORPORATIONS
Interest Income from Bank Passive Lotto/ PCSO Dividend (except
Classification Prizes
Deposits Royalties Winnings stock dividends)
Foreign Long-term Not
Local Exceedi From From
Curren Deposits/ exceedin
Curren ng Domestic Foreign
cy Investments g
cy P10,000 Corp. Corp.
(FCDS) certificates P10,000
Part of Part of
Domestic (DC) 20% 15% Exempt 20% Gross Exempt 20% Exempt Gross
Income Income
Part of Part of
Resident Foreign Part of Gross
20% Exempt Exempt Gross Exempt 20% Exempt Gross
(RFC) Income
Income Income
Non-resident
30% Exempt 30% 30% 30% Exempt 30% 10% N/A
Foreign (NRFC)
CAPITAL GAINS TAXATION

Ordinary Assets - includes:

a. Stock in trade
b. Property which would be included in the inventory if on hand at the close of taxable year.
c. Property primarily for sale in the ordinary course of his trade or business.
d. Personal property used in business and subject to allowance for depreciation.

e. Real property used in trade or business (whether subject or not subject to depreciation)

Capital Assets - any other assets that does not fall under the definition of ordinary assets.
Tax Treatment For Ordinary Gains And Losses
1. Ordinary sales are separate items if gross income subject to regular income tax. These are taxable in full.
2. Ordinary losses are items of deduction from the gross income in the determination of net income from business or
profession. These are deductible in full.

Tax Treatment For Capital Gains And Losses

1. Capital losses are deductible only up to the extent of capital gains from dealings in capital assets other than
domestic shares and real properties.
2. Net capital gain is an item of gross income subject to regular income tax.
3. Net capital loss is not an item of deduction against gross income.
4. Rule of holding period does not apply to corporations.
5. Holding period for individual are as follows:
a) Short-term (not more than 12 months) 100%
b) Long- term (more than 12 months) 50%
6. Carryover of capital loss is not allowed for corporations.
7. Rules for carry-over for individual
a) The amount allowed is limited to the net income before capital assets transactions during the year in which
the loss was sustain.
b) Carry-over is good for one year only.

Capital Gains Subject To Capital Gains Tax

A. Capital gains on sale of domestic stocks sold directly to buyers. (subject to 15% capital gains tax)
REQUISITES:
 There is a net gain.
 The capital asset sold is a domestic stock
 The sale is made directly to buyer.
TAX BASE: Net Capital Gain
TAX RATE: 15%

NOTE: The rule on capital gains on sale of domestic stocks directly to buyer is uniform to all income taxpayers
(individual or corporate) regardless of classification.

The rule do not applies to:

1. Gains on sale shares of stock is that is traded in the Philippine Stock Exchange.
2. Gains under similar conditions by security brokers and dealers.

When to file Capital Gains Tax Returns?

1. Per transaction basis: Within 30 days after each transactions
2. Annual basis:
a) Individuals - On or before April 15 of the following year.
b) Corporation - On or before the 15th day of the fourth month following the close of the taxable year.

Deadline of Filing for Capital Gains Tax Return

 BIR FORM 1707 shall be filed within 30 days after each sale, exchange and other disposition of stocks. If
qualified under installment method, the tax is due within 30 days after each installment.
 The annual capital gains tax return (BIR FORM 1707-A) shall be filed on or before the 15 th day of the fourth
month following the close of the taxable year of the taxpayer.

B. Capital gains on sale of real properties not used in business. (subject to 6% capital gains tax)

REQUISITES:
 The real property is located in the Philippines.
 The property is classified as a capital asset.
 The taxpayer is an individual or a domestic corporation.
 The taxpayer is other than a foreign corporation.

TAX BASE: Whichever is higher between:

Selling Price
Fair market value by the commissioner of BIR (Zonal Value)
Fair Market Value as determined by the City or Provincial Assessor (Assessed Value)
TAX RATE: 6%

NOTE: Regular income taxation, being the general rule, applies where the 6% final capital gains tax do not apply.
Under regular income taxation, the actual net gain is subject to regular income tax.

Capital gains realized from sale of PRINCIPAL RESIDENCE* if the following requisites are followed:
a. The proceeds are utilized in acquiring new principal residence within 18 calendar months from the date of
sale.
b. Commissioner is notified within 30 days from the sale.
c. The exemption can be availed of once every 10 years.
d. The 6% CGT due on the presumed capital gains shall be deposited in interest bearing account with an
authorized bank under an escrow agreement.

*Principal Residence - the place where an individual person resides comprising of the house and lot to where it erects.

The following formulas are useful if in case the whole amount of selling price is not utilized:
Unutilized Portion
x Should be CGT
Capital Gains Tax due = Selling Price
 Utilized Portion
x Cost of Principal Residence
Cost Basis = Selling Price
If the whole amount of proceeds is used to acquire new principal residence:
Cost Basis - Cost of the old residence + Cost of the new residence - Selling price of the old residence

Deadline of Filing for Capital Gains Tax Return

The 6% CGT will be filed through BIR Form 1706 and is due within 30 days from the date of sale or exchange.

INSTALLMENT PAYMENT OF TAX

SELLING PRICE - entire amount for which the buyer is obligated to the seller.
Cash received by the seller xx
FMV of the property given by the buyer xx
Evidence of Indebtedness (Installment obligations of buyer) xx
Mortgage assumed by the buyer xx
Selling Price xx

CONTRACT PRICE (only when there is mortgage assumed)

Mortgage exceeds the basis
Selling Price xx
Add: Excess of Mortgage Over Cost xx
Less: Mortgage Assume by the Buyer (xx)
Contract Price xx

Mortgage does not exceeds the basis

Selling Price xx
Less: Mortgage Assume by the Buyer (xx)
Contract Price xx

INITIAL PAYMENT- payments made by the buyer in cash or property, other than evidence of indebtedness, during
the taxable year in which the sale is made.

Mortgage exceeds the basis

Selling Price xx
Add: Excess of Mortgage Over Cost xx
Installment payment received during the year xx
Initial Payment xx

Mortgage does not exceeds the basis

Down payment xx
Add: Installment payment received during the year xx
Initial Payment xx

REGULAR INCOME TAX

Gross Income - includes gains, profits, and income derived from whatever sources, whether legal or illegal not
covered by either final or capital gains taxation.
REGULAR INCOME TAX MODEL
Gross Income xx
Less: Allowable Deductions (xx)
Taxable income xx

Compensation Income - generally comprises all remunerations under an employer- employee relationship, such as the
regular pay of employees every payroll period and other benefits or incentives other than the basic pay which are
commonly known as fringe benefits.

CLASSIFICATION OF EMPLOYEE REMUNERATION

Managerial and
Rank and File
Supervisory
Employees
Employees
Regular Pay Compensation Income Compensation Income
Fringe Benefits Compensation Income Fringe Benefits

*Compensation income is subject to regular income tax. The fringe benefits of rank and file employees are included as
part of compensation income and are subject to regular income tax while the fringe benefits of managerial or
supervisory employees are excluded in compensation income and are subject to a special final tax called fringe benefit
tax.

TAX MODEL ON COMPENSATION INCOME

Gross Compensation Income xx
Less: Non Taxable Compensation (xx)
Gross Taxable Compensation Income xx

EXEMPT BENEFITS UNDER THE NIRC, AS AMENDED, AND SPECIAL LAWS

1. Remunerations received as incident of employment
a. Exempt retirement benefits under RA 7641, including exempt retirement gratuities to government and
employees.
b. Exempt termination fees
c. Benefits from the United States Veterans Administration
d. Social security, retirement gratuities, pensions and similar benefits from foreign government agencies and
other institutions, private or public.
e. Benefits from SSS, under the SSS Act of 1954, as amended.
f. Benefits from GSIS, under the GSIS Act of 1937, as amended.
2. Employee mandatory contributions to GSIS, SSS, Phil health, HDMF and Union Dues.
3. Certain benefits of minimum wage earners.
4. De minimis benefits
5. 13th month pay and other benefits not exceeding P90,000.

EXEMPT BENEFITS OF MINIMUM WAGE EARNERS

1. Basic minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential pay
5. Hazard pay
*to be exempt from regular income tax, a minimum wage earner must not have other items of taxable income
aside from these employee benefits.
Regular Compensation income

The regular compensation income includes fixed remunerations due to be received by an employee every period, such
as:
1. Basic salary
2. Fixed allowances, such as cost of living allowances, fixed housing allowance, representation and other
allowances paid to an employee every payroll period.

Exception rule on the taxability of allowances:

a. If it is an ordinary and necessary travelling, representation or entertainment expense of an employee in the pursuit
of his trade, business and profession.
b. The expense is subject to accounting or liquidation
c. Any excess advances are returned to the employer.

*Variable and liquidated allowances are not subject to tax. However, amounts of allowances that are retained by the
employee for himself shall be considered compensation.

DE MINIMIS BENEFITS
De Minimis Benefits - are facilities or privileges such as entertainment, medical services or courtesy discounts on
purchases that are of relatively small value and are furnished by the employer merely as a means of promoting the
health, goodwill, contentment or efficiency of his employees.

As of January 1, 2018, under the train tax law, the following are:
1. Monetized unused vacation leave credits of private employees not exceeding 10 days during a year.
 2. Monetized value of vacation and sick leave credits paid to government officials and employees
3. Medical cash allowance to dependents of employees not exceeding 1,500 per semester (before was 750.00) or
250.00 per month (before 125.00)
4. Rice subsidy of 2, 000.00 (replaced the amount of 1, 500.00) or one sack of 50 kg. rice per month amount to
not more than 2, 000.00
5. Uniform and clothing allowance not exceeding 6, 000 per year (replaced the amount of 5, 000)
6. Actual medical assistance e.g. medical allowance to cover medical and healthcare needs, annual
medial/executive check-up, maternity assistance, and routine consultations, not exceeding 10, 000 per year.
7. Laundry allowance not exceeding 300 per month
8. Employees achievement awards, e.g. for a length of service or safety achievement, which must be in the form
of a tangible personal property other than cash or gift certificate, with an annual monetary value not
exceeding 10,000 received by the employee under an established written plan which does not discriminate in
favor of highly paid employees
9. Gifts are given during Christmas and major anniversary celebrations not exceeding 5, 000 per employee per
year
10. Daily meal allowance for overtime work and nigh/graveyard shift not exceeding 25% of the basic minimum
wage on per region basis
11. Benefits received by an employee by a collective bargaining annual monetary value received from both CBA
and productivity incentive schemes combined do not exceed 10, 000 per employee per taxable year.

Therefore, all other benefits given by the employer which are not part of the enumerated above will be included as
other benefits which are subject to 90, 000 ceiling amounts. If there are other benefits not listed above, it doesn’t mean
they are already exempted from taxes under this new regulation.

De minimis Benefits subject to New Income Tax Rate

Any benefits given to the employees not listed above are subject to income tax rate. Likewise, any benefits given
beyond the de minimis amount is part of “Other Benefits” which will be subject to a ceiling amount of 90, 000.
Know How to Compute
If you’re employed in a government or private in the Philippines, you must be interested in this simple computation.
Here are some of the steps to identify taxable income:
1. Identify if the benefits are part of the list of De minimis Benefits. Some benefits may vary depending on what
sector you’re employed.
2. In each benefit, compute the excess beyond the de minimis amount and include as other benefits
3. Compute the total amount of “Other Benefits” and deduct from the 90, 000 thresholds.
4. Any excess beyond 90, 000 will be added as taxable compensation income which is subject to Income Tax Rate
Table.
5. If the total taxable income is below 250, 000 it is non-taxable, otherwise be subject to income tax rate under
TRAIN Law.

Mr. B received rice allowance of 2, 500 and clothing allowance of 10, 000 from his employer. Other benefits are 13th-
month pay of 20, 000 and other benefits of 80, 000. Mr. B receives a regular compensation income of 240, 000 per
annum. Is Mr. B subject to income tax?

Steps:
1. Rice allowance and clothing are part of the de minimis benefits.
2. There is an excess of 500 and 4,000 in rice allowance and clothing.
3. (500 + 4, 000 + 100, 000) 104,500 total other benefits which is subject to the threshold of 90, 000
4. 14, 500 is the excess beyond the ceiling amount.
So, therefore, Mr. B is taxable using the income tax table.