Income

Tax
Definition

Income Taxation is taxation on the exercise of privilege to earn yearly

profits from various sources (Domondon, 2013).

Income Tax - a tax on all yearly profits arising from property, profession,
trade, or business, or a tax on person’s income, emoluments, profits and
the like (Fisher v. Trinidad, G.R. L-19030, October 20, 1922).

Income – any wealth which flows into the taxpayer other than a mere
return of capital.

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Gross Income
Except when otherwise provided, gross income means all income derived from whatever
source, including (but not limited to) the following items:
1. Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;
2. Gross income derived from the conduct of trade or business or the exercise of a
profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
9. Prizes and winnings;
10. Pensions; and
11. Partner's distributive share from the net income of the general professional
partnership (NIRC, Sec. 32 [A]).

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Exclusions from Gross Income
1. Life Insurance
2. Amount Received by Insured as Return of Premium
3. Gifts, Bequests, and Devises
4. Compensation for Injuries or Sickness
5. Income Exempt under Treaty
6. Retirement Benefits, Pensions, Gratuities
7. Miscellaneous Items
a) Income Derived by Foreign Government
b) Income Derived by the Government or its Political Subdivisions
c) Prizes and Awards
d) 13th Month Pay and Other Benefits
e) GSIS, SSS, Medicare and Other Contributions
f) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness
g) Gains from Redemption of Shares in Mutual Fund (NIRC, Sec. 32 [B]).

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Taxable Income

The pertinent items of gross income specified in the NIRC, less the
deductions and/or personal and additional exemptions, if any, authorized
for such types of income by the NIRC or other special laws.

Gross Income
-
Allowable Deductions and/or Exemptions
___________________________________
Taxable Income

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Itemized Deductions
Except for taxpayers earning compensation income arising from personal services
rendered under an employer-employee relationship where no deductions shall be allowed
other than premium payments on health and/or hospitalization insurance, in computing
taxable income subject to income tax there shall be allowed the following deductions
from gross income:
1. Expenses
2. Interest
3. Taxes
4. Losses
5. Bad Debts
6. Depreciation
7. Depletion of oil and gas wells and mines
8. Charitable and other contributions
9. Research and Development
10. Contributions to Pension Trusts (NIRC, Sec. 34).

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Expenses
Requisites:
1. Paid or incurred during the taxable year;
2. The expense must be substantiated by proof;
3. The expense must be incurred in trade or business carried on by the
taxpayer (must be directly attributable to the development,
management, operation, and or conduct of trade or business of the
taxpayer, or in the exercise of the taxpayer’s profession);
4. The expense must be reasonable;
5. The expense must be ordinary and necessary;
6. If subject to withholding taxes, proof to payment to BIR; and
7. Expense must not be against public policy, public moral or law such
bribes, kickbacks, for immoral purposes.

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Losses
Requisites:

1. Loss belongs to the taxpayer;

2. Actually sustained and charged off during the taxable year;
3. Evidenced by a closed and completed transaction;
4. Not compensated by insurance or other forms of indemnity;
5. Not claimed as a deduction for estate tax purposes in case of individual
taxpayers;
6. Must be connected with taxpayer’s trade, business or profession or
incurred in any transaction or incurred by an individual in any
transaction entered into for profit though not connected with his
trade, business or profession; and
7. If it is casualty loss, it is evidence by a declaration of loss file within 45
days with the BIR.

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Bad Debt
Requisites:
1. The debts are uncollectible despite diligent effort exerted by the
taxpayer;
2. Existing indebtedness subsisting due to the taxpayer which must be
valid and legally demandable;
3. Connected with the taxpayer’s trade, business or practice of
profession;
4. Actually charged off in the books of accounts of the taxpayer as of the
end of the taxable year;
5. Actually ascertained to be worthless and uncollectible as of the end of
the taxable year; and
6. Must not be sustained in a transaction entered into between related
parties.

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Optional Standard Deduction
It is a fixed percentage deduction which is allowed to certain taxpayers without
regard to any expenditure. This is in lieu of the itemized deductions.

The Optional Standard Deduction (OSD) is an amount not exceeding:

1. 40% of the gross sales or gross receipts of a qualified individual taxpayer; or
2. 40% of the gross income of a qualified corporation (NIRC, Sec. 34 [L]).

- It requires no proof of expenses incurred unlike Itemized deductions.

- The election to claim either the OSD or Itemized Deductions must be signified in
the income tax return filed for the first quarter of the taxable year. Once the
election is made, the same type of deduction must be consistently applied for all
succeeding quarters and in the annual income tax return. The choice is
irrevocable for the taxable year for which the return is made.

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Income Tax on Individuals
Classes of Individual Taxpayers:
1. Citizen
a. Resident Citizen (RC)
b. Non-Resident Citizen (NRC)
i. Overseas Contract Worker (OCW)
ii. Seaman
2. Aliens
a. Resident Alien (RA)
b. Non-Resident Alien (NRA)
i. Engaged in Trade or Business (NRA-ETB)
ii. Not Engaged in Trade or Business (NRA-NETB)
c. Special Aliens

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Special Classes of Aliens

Individuals with managerial/highly technical positions working in:

1. Regional or Area Headquarters and Regional Operating Headquarters of
multinational companies established in the Philippines;
2. Offshore Banking Units (OBU) established in the Philippines. OBUs are
foreign banks allowed to operate in the Philippines and to conduct
foreign currency transactions; and
3. Petroleum Service Contractors and Sub-Contractors in the Philippines.

Old Rule – preferential tax rate of 15% apply to their compensation

income.
Under TRAIN Law – removed the preferential tax rate of 15%.

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General Principles and Applicable Tax Rates
Income Derived From Gross or Net Rate
Sources
Individual Within the Outside the Gross Income Taxation (GIT)
Taxpayer Philippines Philippines Net Income Taxation (NIT)
RC ✔️ ✔️ Employee: GIT 0-35%
Businessman: NIT
NRC ✔️ ❌ NIT 0-35%
OCW/ ✔️ ❌ NIT 0-35%
Seaman
RA ✔️ ❌ NIT 0-35%
NRA-EBT ✔️ ❌ NIT 0-35%
NRA-NEBT ✔️ ❌ GIT 25%
Special ✔️ ❌ GIT 0-35%
Alien

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For Compensation Income Tax Earners
Personal Income Tax (PIT) under NIRC Personal Income Tax (PIT) under TRAIN Law

Annual Salary Tax Schedule Annual Salary Tax Schedule Tax Schedule
(2018-2022) 2023 onwards

Not over P10,000 5% Not over 250,000 0% 0%

Over P10,000 but not over P500 + 10% of the excess
P30,000 over P10,000
Over P30,000 but not over P2,500 + 15% of the excess
P70,000 over P30,000
Over P70,000 but not over P8,500 + 20% of the excess
P140,000 over P70,000
Over P140,000 but not over P22,500 + 25% of the excess
P250,000 over P250,000
Over 250,000 but not over P50,000 + 30% of the excess
P500,000 over P250,000
Over P500,000 P125,000 + 32% of the
excess over P500,000
Over P250,000 20% of the excess 15% of the excess
but not over over P250,000 over P250,000
P400,000
Over P400,000 P30,000 + 25% of P22,500 + 20% of
but not over the excess over the excess over
P800,000 P400,000 P400,000
Over P800,000 P130,000 + 30% of P102,500 + 25% of
but not over P2 the excess over the excess over
Million P800,000 P800,000
Over P2 Million P490,000 + 32% of P402,500 + 30% of
but not over P8 the excess over the excess over
Million P2 Million P2 Million
Over P8 Million P2,410,000 + 35% P2,202,500 + 35%
of the excess of the excess
over P8 Million over P8 Million

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For Self-employed and Professionals

Gross Sales / Receipts Tax Schedule

Not Exceeding P3 Million Option 1: Regular PIT rates
or
Option 2: 8% of gross
sales/receipts in excess
P250,000 *in lieu of income
and percentage tax
Above P3 Million Regular PIT Rates

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For Mixed Income Earners

Type of Income Tax Schedule

Compensation Income Regular PIT rates
Income from business or practice
of profession:

a. Gross sales/receipts not Option 1: Regular PIT rates or

exceeding P3 Million Option 2: 8% of the gross
sales/receipts *in lieu of income
and percentage tax
b. Gross sales/receipts above P3
Million Regular PIT rates

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Inclusions and Exclusions in Compensation Income
Overtime, De Minimis Other Benefits
Holiday, Within the In excess of Not In excess of
Kinds of Basic Pay Hazard & limit the limit exceeding P90,000
Employees Night Shift P90,000
Differential
Pay
Managerial Subject to Not Exempted Add to other Exempted Subject to
& NIT Applicable benefits Fringe
Supervisory Benefit Tax
Rank and Subject to Subject to Exempted Add to other Exempted Subject to
File NIT NIT benefits NIT

Minimum Exempted Exempted Exempted Add to other Exempted Subject to

Wage benefits NIT
Earners

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De Minimis Benefits
Updated by RR No. 11-2018 (IRR of TRAIN Law)
• Monetized unused vacation leave credits of private employees not
exceeding 10 days during the year;
• Monetized value of vacation and sick leave credits paid to government
employees and officials;
• Medical cash allowance to dependents of employees, not exceeding
P1,500 per employee per semester or P250 per month;
• Rice subsidy of P2,000 or 1 sack of rice 50 kg per month amounting to
not more than P2,000
• Uniform and clothing allowance not exceeding P6,000 per annum;
• Actual medical assistance, not exceeding P10,000 per annum;

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De Minimis Benefits
Updated by RR No. 11-2018 (IRR of TRAIN Law)
• Laundry allowance, not exceeding P300 per month;
• Employees achievement awards, with an annual monetary value not
exceeding P10,000 received by employee under an established written
plan which does not discriminate in favor of highly paid employees;
• Gifts made during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum
• Daily meal allowance for overtime work and night/grave shift not
exceeding 25% of the basic minimum wage on per region basis;
• Benefits received by an employee by virtue of a Collective Bargaining
Agreement (CBA) and productivity incentives schemes provided that the
total monetary value received form both CBA and productivity incentive
schemes does not exceed p10,000 per employee per taxable year.

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Fringe Benefits
- any good, service, or other benefit furnished or granted by an employer, in cash or in
kind, in addition to basic salaries, to an individual employee such as, but are not limited
to the following:
• Housing;
• Expense account;
• Vehicle of any kind;
• Household personnel, such as maid, driver and others;
• Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted;
• Membership fees, dues and other expenses borne by the employer for the employee in
social and athletic clubs or other similar organizations;
• Expenses for foreign travel;
• Holiday and vacation expenses;
• Educational assistance to the employee or his dependents; and
• Life or health insurance and other non-life insurance premiums or similar amounts in
excess of what the law allows (NIRC, Sec. 33).
*Any amount in excess of P90,000.00 is subject to 35% Fringe Benefits Tax.
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Income Tax on Corporations
A corporation for income tax purposes shall:
1. Include:
a. Partnerships
b. Joint Stock Companies
c. Joint Accounts
d. Associations
e. Insurance Companies
2. Not include:
a. General Professional Partnerships (GPP)
b. A joint venture or consortium formed for purposes of undertaking
construction projects
c. or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service
contract with the government (NIRC, Sec. 22 [B]).

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Income Tax on Corporations
Classes of Corporate Taxpayers:
1. Domestic Corporation (DC)
2. Resident Foreign Corporation (RFC)
3. Non-Resident Foreign Corporation (NRFC)
4. Special Types of Corporation
a. Special RFC
i. Domestic depositary banks
ii. International carriers
iii. Offshore Banking Units
iv. Regional or Area Headquarters and Regional Operating
Headquarters of Multinational Companies
b. Special NFRC
i. Non-resident cinematographic film owners, lessors or distributors
ii. Non-resident owners or lessors of vessels chartered by Philippine
Nationals
iii. Non-resident lessors of aircraft, machinery and other equipment

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General Principles and Applicable Tax Rates
Taxability of Income Derived
From Sources Gross or Rate
Corporate Taxpayer Within the Outside the Net
Philippines Philippines
DC ✔️ ✔️ NIT 30%
RFC ✔️ ❌ NIT 30%
NRFC ✔️ ❌ GIT 30%
Special Domestic Corp.
1. Proprietary educational institutions 10%
XPN: Those whose gross Income
from unrelated sources exceed ✔️ ✔️ NIT
50% of their total gross income
2. Non-profit hospitals 10%
3. Govt. owned or controlled corp. 30%
4. Exempt govt. institutions Tax-exempt

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 General Principles and Applicable Tax Rates
Taxability of Income
Derived From Sources Gross Rate
Corporate Taxpayer Within the Outside the or Net
Philippines Philippines
Special Resident Foreign Corp.
1. International Carrier 2 1/2 % of Gross Phil. Billings
2. Offshore Banking Units 10% of Gross Billings
3. Branch Profit Remittances ✔️ ❌ GIT 15% of Remittances
4. Regional Area Headquarters Tax-exempt
5. Regional Operating Headquarters 10%
Special Non-Resident Foreign Corp.
1. Cinematographic film owner / 25% of gross income
lessor / distributor
2. Lessor of machinery, equipment, ✔️ ❌ GIT 7 ½% of gross income
aircraft and others
3. Lessor of vessels chartered by 4 1/2% of gross income
Phil. nationals
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Tax on Proprietary Non-Profit Educational
Institutions and Non-Profit Hospitals
30% 10% Exempt
Private, non-profit hospitals and Private, non-profit hospitals and Organized and operated
educational institutions whose educational institutions whose exclusively for charitable
gross income from unrelated gross income from unrelated purposes and no part of its net
trade, business or other activity trade, business or other activity income or asset shall belong to
exceeds 50% of total gross does not exceed 50% of total or inure to the benefit of any
income from all sources. gross income from all sources. member, organizer, officer or
any specific person.
Hospitals and educational
institutions claiming to be
proprietary non-profit but do
not meet the definition
thereof.

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Proprietary Educational Institution
- It is any private school maintained and administered by private
individuals or groups with an issued permit to operate from the
DepEd, CHED, or the TESDA.
- Taxed at preferential rate of 10% on their taxable income (NIRC,
Sec.27 [B]).

Non-stock Non-profit Educational Institution

- Exempt from tax on its revenues and assets actually, directly and
exclusively used for educational purposes ( 1987 Constitution, Art. XIV,
Sec. 4) (NIRC, Sec. 30).

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Proprietary Non-Profit Hospitals

- Proprietary means private

- Non-profit means no net income or assets accrues to or benefits any
member or specific person, with all the net income or asset devoted to
the institution’s purposes and all its activities conducted not for profit
(CIR v. St. Lukes Medical Center, Inc. G.R. No. 195909, 195960, Sept. 26,
2012.

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Non-Profit Hospital

- Operated for charitable and social welfare purposes

- Exempt from income tax (NIRC, Sec. 30 [E] and [G]
- Must satisfy the following in order to be entitled to the exemption from
income tax as provided in St.Lukes Medical Center, Inc. v. CIR (2011):

1. It is a non-stock corporation;
2. It is operated exclusively for charitable purposes; and
3. No part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person.

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Minimum Corporate Income Tax (MCIT)
It is equal to 2% of the gross income of the corporation at the end of the
taxable quarter, except income tax and income subject to final
withholding tax.

Being a minimum income tax, a corporation should pay the MCIT whenever
its normal corporate income tax (NCIT) is lower than the MCIT, or when the
firm reports a net loss in its tax return. Conversely, the NCIT is paid when
it is higher than the MCIT (Justice Dimaampao, 2015).

Therefore, the taxable due for the end of the taxable year will be NCIT
(30% of taxable income) or MCIT (2% of gross income), whichever is
HIGHER.

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Minimum Corporate Income Tax (MCIT)

Imposed on the beginning of the fourth taxable year immediately following

the year in which the corporation commenced its business operations. For
purposes of MCIT, the taxable year in which the business operations
commenced shall be the year in which the corporation registered with the
Bureau of Internal Revenue (BIR), regardless of whether the corporation is
using the calendar or fiscal year.

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Improperly Accumulated Earnings of
Corporation
Domestic Corporations and closely-held corporations are subject to 10%
improperly accumulated earnings tax on their improperly accumulated earnings.

Improperly Accumulated Earnings – profits of a corporation that are accumulated,

instead of distributing them to its shareholders, for the purpose of avoiding the
income tax with respect to its shareholders or the shareholders of another
corporation (Sec. 2, R.R. 2-2001).

If the failure to pay dividends is due to some other causes, such as the use of
undistributed earnings and profits for the reasonable needs of the business, such
purpose would not generally make the accumulated or undistributed earnings
subject to the tax.

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Exemptions from Tax on Corporations (NIRC,
Sec. 30)
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without
profit;
(C) A beneficiary society, order or association, operating fort he exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or mutual aid
association or a nonstock corporation organized by employees providing for the payment
of life, sickness, accident, or other benefits exclusively to the members of such society,
order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans,
no part of its net income or asset shall belong to or inures to the benefit of any member,
organizer, officer or any specific person;
(F) Business league chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inures to the benefit of any private stock-holder, or
individual;

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Exemptions from Tax on Corporations (NIRC,
Sec. 30)
(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely local
character, the income of which consists solely of assessments, dues, and fees collected
from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales agent for
the purpose of marketing the products of its members and turning back to them the
proceeds of sales, less the necessary selling expenses on the basis of the quantity of
produce finished by them;
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax.

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Tax on General Partnerships
General Professional Partnership (GPP) Business Partnership / General Partnership
Formed by persons for the sole purpose of Formed by persons for the sole purpose of
exercising their common profession, no part of engaging in any trade or business.
income of which is derived from engaging in any
trade or business.
Not taxable entity. Considered as a corporation hence a taxable
entity and its income is taxable as such.
The distributive share of the partners in the net The share of an individual in the distributable
income is reportable and taxable as part of the net income after tax of a general partnership is
partner’s gross income subject to the scheduled subject to a final tax.
rates.
No need to file an income tax return but an Must file an income tax return.
information return.
Not subject to double taxation being taxed only Taxed once on its income and again when the
once. share in the profits of the partners is distributed
similar to dividends.
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Filing of Returns and Payment of Income Tax

Income Tax Return (ITR) – A report made by the taxpayer to the BIR of all
gross income received during the taxable year, the allowable deductions
including exemptions, the net taxable income, the net taxable income,
the income tax rate, the income tax due, the income tax withheld, if any,
and the income tax still due to be paid or refundable (Domondon, 2013).

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Periods to File Income Tax Return
Basic Tax – the return of any individual required to file the same shall be filed on
or before April 15th day of each year covering income for the preceding taxable
year.
Individuals who are self-employed or in practice of a profession are required to
file and pay estimated income tax every quarter as follows:
1. 1st quarter return – May 15
2. 2nd quarter return – August 15
3. 3rd quarter return – November 15
4. Final adjusted (annual) return – April 15 of the succeeding year
DC and RFC
1. 1st, 2nd, and 3rd quarter returns – 60 days after the close of each of the first 3
quarters of the taxable year
2. Final adjusted return – on or before April 15 following the taxable year.

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Periods to File Income Tax Return
Final Withholding Tax on Passive Income (Manual filing)
1. January to November – 10th day of the month following the month the
withholding was made
2. December – January 15 of the succeeding year

Capital Gains Tax

a. Shares of stock
1. Ordinary return – 30 days after each transaction
2. Final consolidated return – on or before April 15 of the following
year
b. Real property – 30 days following each sale or other disposition
(NIRC, Sec. 51 [C] [2]).

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Persons Liable to File Income Tax Return
Individual Taxpayers
1. Every Filipino Citizen residing in the Philippines;
2. Every Filipino Citizen residing outside the Philippines, on his income from
sources within the Philippines;
3. Every alien residing in the Philippines, on income derived from sources within
the Philippines; and
4. Every nonresident alien engaged in trade or business or in the exercise of
profession in the Philippines (NIRC, Sec 51 [A] [1]).
5. A citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippines, regardless of the amount of
gross income;
6. An individual deriving compensation concurrently from two or more employers
at any time during the taxable year; and
7. An individual whose pure compensation income derived from sources within
the Philippines exceeds P60,000.00

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Persons Not Required to File Income Tax
Return
1. An individual whose gross income does not exceed his total personal
and additional exemptions for dependents;
2. Individual taxpayer receiving purely compensation income, regardless
of amount, from only one employer in the Philippines for the calendar
year, the income tax of which has been withheld correctly by said
employer;
3. An individual whose sole income has been subjected to final
withholding tax; and
4. A minimum wage earner or an individual who is exempt from income
tax (NIRC, Sec. 51 [A] [2]).

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Substituted Filing

1. The employee received purely compensation income (regardless of the

amount) during the taxable year;
2. The employee received the income from only one employer in the
Philippines during the taxable year;
3. The amount of tax due from the employee at the end of the year
equals the amount of tax withheld by the employer;
4. The employer files the annual information return (BIR Form No. 1604-
CF); and
5. The employer issues BIR Form No. 2316 to each employee.

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Persons Liable to File Income Tax Return

Corporate Taxpayers

GPP – shall file in duplicate, a return of its income, except items excluded
from gross income, setting forth the items of gross income and the
deductions allowed, and the names, TIN, addresses and shares of each of
the partners (NIRC, Sec. 55).

Corporation – render a return which shall be filed by the President, Vice

President or other principal officer, and shall be sworn to by such officer
and by the treasurer or assistant treasurer (NIRC, Sec. 52).

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Returns of Corporations Contemplating
Dissolution or Reorganization
Within 30 days after the adoption of a resolution or plan for its dissolution,
or for the liquidation of the whole or any part of its capital stock,
including a corporation which has been notified of possible involuntary
dissolution by the SEC or for its reorganization, shall render a correct
return to the CIR, verified under oath, setting forth the items of such
resolution or plan and such other information (NIRC, Sec. 52 [C]).

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Where to File Income Tax Return
Any of the following:
1. Authorized Agent Bank;
2. Revenue District Officer;
3. Collection Agent or
4. Duly authorized City or Municipal Treasurer in which such person has his legal
residence or principal place of business, or if there is no legal residence or
principal place of business, with the Office of the Commissioner.

For Non-Resident Citizens:

1. Philippine Embassy;
2. Nearest Philippine Consulate, or
3. Be mailed directly to the CIR (NIRC, Sec. 51 [B]).

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Penalties for Non-Filing of Returns

There shall be imposed, in addition to the tax required to be paid, a

penalty equivalent to:

25% of the amount due

- failure to file any return on the date prescribed
- filing of return with an internal revenue officer other than those
with whom the return is required to be filed

50% of the tax due

- willful neglect to file the return within the period prescribed

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Withholding Tax
Person Required to Withhold taxes
The withholding taxes shall be withheld by the person having control over
the payment and who at the same time claims the expenses. The following
persons are constituted as withholding agents:
1. Juridical person (whether or not engaged in trade or
business)
2. Individuals (Must relate to his trade or business)
3. Individual buyers (whether or not engaged in trade or
business insofar as taxable sale, exchange or transfer of real
property is concerned)
4. All government offices

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Kinds of Withholding taxes

1. Final withholding tax (FWT)

• The amount of tax withheld is full and final

• The liability for payment of the tax rests primarily on the
withholding agent as payor
• In case he fails to withhold, the withholding agent will be
liable for the deficiency
• The payee is not required to file any income tax return for
the particular income
• The finality of the withheld tax is limited to that particular
income and will not extend to the payee’s other tax liability

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Income Payments to Individuals that are
Subject to Final Withholding Tax (FWT)

46
Income Payments to Individuals that are
Subject to Final Withholding Tax (FWT)

47
Income Payments to Corporation that are Subject to
Final Withholding Tax

Note: Cash/Property Dividends to Corporation refers to payments to NRFC.

48
Income Payments to Corporation that are
Subject to Final Withholding Tax

49
Income Payments on Interest Paid to Bank Deposits,
Amount withdrawn on Decedent’s Deposit Account, etc.

50
Income Payments from the Government that are
Subject to Withholding of 5% to 12% VAT and 3%
Percentage Tax

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Kinds of Withholding taxes
2. Creditable Withholding Tax (CWT)

• Taxes withheld on certain income payments are intended to equal or

at least approximate the tax due of the payee on said income
• Creditable tax must be withheld at source, but should still be
included in the tax return of the recipient
• The liability to withhold arises upon the accrual, not upon the actual
remittance

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Three types of CWTs:
a. Expanded Withholding Tax (EWT)- a kind of withholding tax which is prescribed only
for certain payors and is creditable against the income tax due of the payee for the
taxable quarter year.

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Expanded Withholding Tax (EWT)

54
Expanded Withholding Tax (EWT)

55
Expanded Withholding Tax (EWT)

56
Expanded Withholding Tax (EWT)

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Three types of CWTs:

b. Withholding Tax on Compensation (WTC)- applies to all employed

individuals whether citizens or aliens deriving income from compensation
for services rendered in the Philippines.

The BIR has circularized the Revised Withholding Tax Table which should be
used in computing the tax to be withheld on every payment of
compensation to employees. The Table is effective from January 1, 2018
to December 31, 2022. Under the TRAIN law, there will be revised rates of
the individual income tax effective on January 1, 2023.

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Withholding Tax on Compensation
In the revised withholding tax table, the employees receiving salaries not
exceeding the following amounts shall be exempt from withholding tax:
a. P685 daily wage
b. P4,808 weekly wage
c. P10,417 semi-monthly wage
d. P20,833 monthly wage

However, since the withholding tax table is only for purposes of estimating
the tax due, it is possible that some of these employees may still be liable
to income tax if they receive additional taxable compensation or bonuses
during the year. The tax-exempt threshold for 13th month pay and bonuses
is now at P90,000. On the other hand, the tax-exempt bracket in the
schedule of income tax rates is P250,000.

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 Withholding tax on compensation table
Daily 1 2 3 4 5 6
Compensation
685 and below 685 1,096 2,192 5,479 21,918
Level (CL)
Prescribed
82.19 + 25% 356.16 + 30% 1,342.47 + 32% 6,602.74 + 35%
Minimum _ 20% over CL
over CL over CL over CL over CL
Withholding Tax
Weekly 1 2 3 4 5 6
Compensation
4,808 and below 4,808 7,692 15,385 38,462 153,846
Level (CL)
Prescribed
576.92 + 25% 2,500 + 30% 9,423.08 + 32% 46,346.15 + 35%
Minimum _ 20% over CL
over CL over CL over CL over CL
Withholding Tax
Semi-Monthly 1 2 3 4 5 6
Compensation 10,417 and
10,417 16,667 33,333 83,333 333,333
Level (CL) below
Prescribed
1,250 + 25% 5,416.67 + 30% 20,416.67 + 32% 100,416.67 +
Minimum _ 20% over CL
over CL over CL over CL 35% over CL
Withholding Tax
Monthly 1 2 3 4 5 6
Compensation 20,833 and
20,833 33,333 66,667 166,667 666,667
Level (CL) below
Prescribed
2,500 + 25% 10,833.33 + over 40,833.33 + 32% 200,833.33 +
Minimum _ 20% over CL 60
over CL CL over CL 35% over CL
Three types of CWTs:

c. Withholding Tax on Government Money Payments

Withholding Tax on Government Money Payments (GMP) - Percentage Taxes

- is the tax withheld by National Government Agencies (NGAs) and
instrumentalities, including government-owned and controlled
corporations (GOCCs) and local government units (LGUs), before making
any payments to non-VAT registered taxpayers/suppliers/payees.

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Withholding Tax on Government Money
Payments
Description Rate
Applicable to Government Withholding Agent Only
VAT withholding on Purchase of Goods 5%
VAT Withholding on Purchase of Services 5%
Applicable to Both Government and Private Withholding Agents
VAT Withholding from non-residents (Government Withholding
12%
Agents)
VAT Withholding from non-residents (Private Withholding Agents) 12%
VAT Withholding on Purchases of Goods (with waiver of privilege
12%
to claim tax credit) creditable
VAT Withholding on Purchases of Goods (with waiver of privilege
12%
to claim input tax credit) final
VAT Withholding on Purchases of Services (with waiver of
12%
privilege to claim input tax credit) creditable
VAT Withholding on Purchases of Services (with waiver of
12% 62
privilege to claim input tax credit) final
Withholding Tax on Government Money Payments
Applicable to Government Rate
Tax on Carriers and Keepers of Garages 3%
Franchise Tax on Gas and Utilities 2%
Franchise tax on radio & TV broadcasting companies whose annual gross receipts do not exceed P10M & who are not-
3%
VAT registered taxpayer
Tax on Life insurance premiums 2%
Tax on Overseas Dispatch, Message or Conversation from the Philippines 10%
Business tax on Agents of Foreign Insurance companies - Insurance Agents 4%
Business tax on Agents of Foreign Insurance companies - owner of the property 5%
Tax on international carriers 3%
Tax on Cockpits 18%

Tax on amusement places, such as cabarets, night and day clubs, videoke bars, karaoke bars, karaoke televion,
18%
karaoke boxes, music lounges and other similar establishments

Taxes on Boxing exhibitions 10%

Taxes on professional basketball games 15%
Tax on jai-alai and race tracks 30%
6/10 of
Tax on sale barter or exchange of stocks listed and traded through Local Stock Exchange
1%
Tax on shares of stocks sold or exchanged through initial and secondary public offering - Not over 25%
- Over 25% but not exceeding 33 1/3% - Over 33 1/3%
4% 2% 1% 63
Withholding Tax on Government Money Payments
Tax on Banks and Non-banks Financial Intermediaries Performing Quasi
Rate
Banking Functions
A. On interest, commissions and discounts from lending activities as well as
income from financial leasing on the basis of the remaining maturities of
instruments from which receipts are derived
5%
- Maturity period is five years or less
1%
- Maturity period is more than five years
B. On dividends and equity shares and net income of subsidiaries 0%
C. On royalties, rentals of property, real or personal, profits from exchange
7%
and all other items treated as gross income under the Code
D. On net trading gains within the taxable year on foreign currency, debt
7%
securities, derivatives and other similar financial instruments
Tax on Other Non-Banks Financial Intermediaries nor performing Quasi-Banking
Functions
A. On interest, commissions and discounts from lending activities as well as
income from financial leasing on the basis of the remaining maturities of
instruments from which such receipts are derived
5%
- Maturity period is five years or less
1%
- - Maturity period is more than five years
B. On all other items treated as gross income under the Code 5% 64
Withholding Tax on Government Money
Payments

Applicable to Both Government and Private Withholding Agents Rate

Persons exempt from VAT under Sec. 108BB (creditable) Government

3%
Withholding Agent

Persons exempt from VAT under Sec. 108BB (creditable) Private

3%
Withholding Agent

Persons exempt from VAT under Section 109BB (Section 116 applies) 3%

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Capital Gains Tax (CGT)

Capital Gains Tax is a tax imposed on the gains presumed to have been
realized by the seller from the sale, exchange, or other disposition of
capital assets located in the Philippines, including pacto de retro sales and
other forms of conditional sale.

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Capital Gains Realized from the Sale, Exchange or
Disposition of Lands and/or Buildings.
Under Section 24(C) and 27(D) of the Tax Code, a final tax 6% is hereby
imposed on the gain presumed to have been realized on the sale,
exchange or disposition of lands and/or buildings which are not actually
used in the business and are treated as capital assets, based on the gross
selling price of fair market value as determined in accordance with
Section 6(E) of the tax code, whichever is higher, of such lands and/or
buildings.

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Exception to CGT (For Filipino Citizens Only)
• Capital gains presumed to have been realized from the sale or disposition of their
principal residence;
• The proceeds of which is fully utilized in acquiring or constructing a new principal
residence 18 calendar months from the date of sale or disposition;
• The historical cost or adjusted basis of the real property sold or disposed shall be
carried over to the new principal residence built or acquired;
• The Commissioner shall have been duly notified by the taxpayer within 30 days from the
date of sale or disposition through a prescribed return of his intention to avail of the
tax exemption;
• The said tax exemption can only be availed of once every 10 years; and
• If there is no full utilization of the proceeds of sale or disposition, the portion of the
gain presumed to have been realized from the sale or disposition shall be subject to
capital gains tax (NIRC, Sec. 24 D [2]).

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Capital Gains from Sale of Shares of Stock not
Traded in the Stock Exchange
A final tax at the rates prescribed below is hereby imposed upon the net
capital gains realized during the taxable year from the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation,
except shares sold, or disposed of through the stock exchange.

Effective January 1, 2018 to present (TRAIN Law)

 For Individual - 15 %
 For Corporation
• Domestic - 15 %
• Foreign:
-Not Over P100,000 - 5%
-On any amount excess of P100,000 - 10 %

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