CHAPTER II
NATIONAL TAXES
Kinds of taxes under existing laws:
1. National taxes – those imposed by the National Government under the National Internal Revenue Code and other laws particularly the Tariff and Customs Code,
2. Local taxes – Those imposed by the local governments to meet particular needs under the Local Government Code, such as real property tax and community tax (formerly
residence tax)
KINDS/TYPES
RELATED DEFINITIONS
Income Tax
Income (for tax purposes) means all
wealth which flows into the taxpayer
other than as a mere return on capital.
Income tax is a tax on a person’s
income, profits, and the like, realized
in one taxable year imposed at a
progressive or graduated rate.
Gross income is all income but not
including exempt income and income
subject to final income tax.
Taxable income is gross income less
deductions allowed by law, including in
the case of individuals, the allowable
personal and additional exemptions.
Deductions are items or amounts
which the law allows to be deducted
from gross income to arrive at a
taxable income.
Tax return is a sworn statement
wherein the taxpayer states the facts
as to the nature and extent of his tax
liability for the taxable year.
Head of the family is an individual who
actually supports and maintain in one
household, one or more individuals
who are closely connected with him by
blood relationship, by marriage or
adoption.
Recognized natural child is one born
outside of wedlock between a man
and wife, who, at the time of the
conceptions of the child, were legally
free to marry each other, and is
recognized by one or both parents.
NATURE AND
PURPOSE
Its nature is
generally regarded
as a privilege tax
since a person
earns an income
and not a tax on
property.
Its purpose is to
raise revenue.
RATE AND BASES OF TAX
Royalties – 10%
Interest in bank deposits and other
related income – 20%
Prizes amounting to P10,000 or
less – 20%
Cash and property dividends – 6%
to 8%
Net capital gains from sale of
stocks:
P100,000 – 5%
> P100,000 or excess – 10%
Capital gains from sale of property
– 6%
EXEMPTIONS
Winning of
PSC and lotto
Life insurance
proceeds
SSS/GSIS
benefits
Charitable
activities
Educational
Sports and
cultural
competitions
Prizes and
awards
PERSONS
TO FILE
Every
resident,
nonresident,
resident
aliens, and
non resident
aliens
WHEN TO
FILE
On or before
April 15 of
each year,
or in
meritorious
cases, within
the
extension
that may be
granted by
the
Commission
er of Internal
Revenue
WHERE TO
FILE
Revenue
district
officer,
revenue
collection
officer, or
any
authorized
agent bank,
or duly
authorized
treasurer of
the city or
municipality
where such
person has a
legal
residence.
KINDS/TYPES
RELATED DEFINITIONS
Estate Tax
Estate (inheritance) tax is a tax on the
right of the deceased person to
transmit his estate to his lawful heirs or
beneficiaries.
Net estate means gross estate less
allowable deductions and specific
exemptions.
Specific exemptions are those which
are declared by law as expressly
exempt from the tax such as bequests
to charitable institutions, subject to
certain conditions.
Allowable deductions consist of the
amounts permitted by law to be
deducted from the value of the gross
estate.
Donor’s Tax
Donation is an act of liberality whereby
a person disposes gratuitously of a
thing or right in favor of another who
accepts it.
Donation is inter vivos if made
between living persons, to take effect
during the lifetime of the donor, and
mortis causa, if made in the nature of
testamentary disposition, that is, is
shall take effect upon the death of the
donor.
Gift tax is a tax imposed on the
transfer without consideration of
property or money between two or
more persons who are living at the
time the transfer is made.
Donor’s tax or the tax levied on the act
of giving. Donee’s tax or the tax levied
on the act of receiving.
Net gift means the total amount of gifts
less the allowable deduction and
exemptions provided by law.
NATURE AND
PURPOSE
It is not a direct
tax on property,
nor a capitation
tax; that is, laid
neither on the
property nor on
the transferor or
the transferee. In
other words, it is a
privilege tax.
It is a type of
death taxes. It was
imposed at high
rates to help
reduce undue
concentration of
wealth in society
to which the
receipt of
inheritance is a
contributing factor.
The nature of gift
tax is a privilege
tax.
The purpose of gift
tax is intended to
supplement the
estate taxes by
preventing their
avoidance by
those who gave
away money and
property in
anticipation of
death. It is also
intended to
prevent the
avoidance of
income tax
through the device
of splitting income
from numerous
donees.
RATE AND BASES OF TAX
Funeral, judicial, and medical
expenses – 5% (if not exceeding
P500,000)
For losses, indebtedness, taxes, an
amount equivalent to the fair
market value of decedent’s family
home not exceeding P1,000,000,
and the amount of all transfers to or
for the use of the Government or
any political subdivisions are
subjected in standard deductions
as prescribed by law.
EXEMPTIONS
The first
P200,000
value of the
estate is
exempted.
PERSONS
TO FILE
Heirs or
beneficiaries
WHEN TO
FILE
If the gross
estate
exceeds
P20,000, it
must be filed
within 6
months from
the
decedent’s
death and
the tax due
thereon paid
at the same
time
WHERE TO
FILE
Revenue
district
officer,
revenue
collection
officer, or
any
authorized
agent bank,
or duly
authorized
treasurer of
the city or
municipality
where the
decedent
was residing
at the time of
his death.
Donor or
donee
Donor’s tax
must be files
within 30
days after
the gift is
made and
the tax
thereon paid
at the same
time.
Revenue
district
officer,
revenue
collection
officer, or
any
authorized
agent bank,
or duly
authorized
treasurer of
the city or
municipality
where the
donor was
residing at
the time of
the donation.
Where the decedents was married,
only ½ forms part of the gross
estate for the other ½ belong to the
surviving spouse.
Donor’s tax is computed upon the
basis of total net gifts during the
calendar year, in accordance with
the schedule provided by law.
Net gifts of the
amount of
P100,000 or
less are
exempted.
KINDS/TYPES
RELATED DEFINITIONS
Value-Added
Tax
Value-added tax (VAT) is a
percentage tax imposed on every sale,
barter, exchange, or lease of goods of
or properties or sale of services in the
course of trade or business, and on
every importation of goods, whether or
not in the course of trade or business,
based on the gross selling price or
value, or the gross receipts, payable
by the seller, thereferor, lessor, or
importer.
NATURE AND
PURPOSE
VAT is a privilege
tax used to raise
revenue.
Percentage
Taxes
EXEMPTIONS
Sales of goods and services – 10%
of the gross selling price or gross
value in money of the goods or
properties sold or barter.
No exemptions
PERSONS
TO FILE
Taxpayer
WHEN TO
FILE
The
quarterly
VAT return
must be filed
within 25
days
following the
end of each
quarter.
Taxpayers
The
quarterly
VAT return
must be filed
within 25
days
following the
end of each
quarter.
Importation of goods – 10% of the
total value used by the Bureau of
Customs
Sale of services – 10% of the gross
receipts derived by any person
engaged in the performance of
services.
Gross selling price is the total amount
of money or its equivalent or its
equivalent which the purchaser pays
or is obligated to pay the seller.
Gross receipts means the total amount
of money or its equivalent representing
the contract price or fee for the service
performed or to be performed for
another person.
Percentage taxes are based on certain
percentage of the gross selling price or
gross value in money of goods sold,
bartered, exchange, or imported, or
gross receipts or earning derived by a
person engaged in the sales of
services.
RATE AND BASES OF TAX
VAT (output tax) is computed by
multiplying the total amount
indicated in the VAT invoice or
receipts by 1/11 which amount is
deemed to include already the 10%
VAT.
Percentage taxes
are used to raise
revenue.
 Small businesses (<P550,000 annual
income) – 3% of gross quarterly sales
or receipts.
 Domestic carriers by land, air or water –
3% of gross receipts.
 International carriers – 3% of gross
quarterly sales or receipts.
 Franchise holders or grantees (<P10M
of annual gross receipts) – 3% of gross
of receipts.
 Senders of overseas messages – 10%
of the amount paid for the service.
 Bank and non-bank financial
intermediaries – for <5 years is 5%, 1%
if >5 years.
 Royalties, rentals on property, and other
gross income and net trading games –
5% of gross receipts.
 Life insurance companies – 5% of gross
premium collected.
 Agent foreign insurance companies –
10% of the total premium received.
 Proprietors, lessees, or operators of
amusement places – 15%, 18%, or 30%
of gross receipts.
 Winner in horse races – 10%of the
winnings or dividends.
 Sellers of shares of stocks – 0.5%, 4%,
2%, and 1% of gross selling price or
gross value of the shares.
 Overseas communication tax – 10% of
the amount paid or receipts.
As prescribed
by law
WHERE TO
FILE
Revenue
district
officer,
revenue
collection
officer, or
any
authorized
agent bank,
or duly
authorized
treasurer of
the city or
municipality
where the
taxpayer is
registered as
a VAT
registered
person or
required to
register.
Revenue
district
officer,
revenue
collection
officer, or
any
authorized
agent bank,
or duly
authorized
treasurer of
the city or
municipality
where the
business or
principal
place of
business of
the taxpayer
is located.
KINDS/TYPES
Excise Tax
RELATED DEFINITIONS
Excise taxes are taxes imposed on
certain specified goods manufactured
or produced in the Philippines for
domestic sale or consumption or for
any other disposition and on goods
imported into the Philippines.
NATURE AND
PURPOSE
Naturally, excise
tax is taxes on
property.
Documentary
Stamp Tax
Custom Duties
Custom duties are taxes levied by a
government on the importation or
exportation of goods in or out of the
country.
Tariff means a book of rates, a
schedule of fees imposed on goods
imported into a country.
EXEMPTIONS
Goods manufactured or produced
in the Philippines, goods imported
from foreign countries, alcohol
products, tobacco products,
petroleum products, and
automobiles, non-essential goods
such as jewelry, pearls, perfume,
and vessels for pleasure or sports,
and mineral products.
As prescribed
by law
It is a privilege tax
for the purpose of
raising revenue
and not to
invalidate the
contract.
Original issue of shares of stocks,
sales, agreements, bonds and
alike, certificates of profits, debt
instruments, bills of exchange or
drafts, insurance policies,
certificates, warehouse profits, bill
of ladings or receipts, proxies and
power of attorney, lease,
mortgages, pledges, deeds of sale,
charter parties and assignment or
renewal of certain instruments.
For government
revenue
Dumping duty an amount lower
than their home market price.
Insurance
policies or
annuities to
members of
fraternal
societies;
certificates of
oath
administered
by government
officials;
affidavits of
poor person;
and certificates
of assessed
value
<P200.00
Non imported
goods
Specific tax or one imposed and based
on weight, volume capacity, length,
number, or any other physical unit of
measurement.
Ad valorem tax or one imposed and
based on the selling price and other
specified value of the article.
Documentary stamp tax is a tax on
documents, instruments, and papers
evidencing the acceptance,
assignment, sale or transfer of an
obligation, right or property incident
thereto.
RATE AND BASES OF TAX
Countervailing duty is equal to the
ascertained or estimated amount of
the bounty or subsidy given.
Marking duty imposed on imported
articles and containers which have
not been properly marked in any
official language in the Philippines.
Retaliatory or discriminatory duty is
imposed upon articles of foreign
country which discriminates against
Philippines commerce.
PERSONS
TO FILE
Taxpayers
WHEN TO
FILE
Before the
removal of
domestic
products
from the
place of
production
or before the
release of
the custom
house.
Person who
issue the
document
and person
to whom it is
issued.
10 days after
the close of
the month
when the
taxable
document
was signed,
issued,
accepted or
transferred.
Taxpayers
Before the
removal of
custom
duties before
the release
of the
custom
house.
WHERE TO
FILE
Revenue
collection
officer, or
duly
authorized
treasurer of
the city or
municipality
where the
taxpayer has
his/its legal
residence or
principal
place of
business.
Revenue
collection
officer, or
duly
authorized
treasurer of
the city or
municipality
where the
taxpayer has
his/its legal
residence or
principal
place of
business.
Revenue
collection
officer, or
duly
authorized
treasurer of
the city or
municipality
where the
taxpayer has
his/its legal
residence or
principal
place of
business.
KINDS/TYPES
RELATED DEFINITIONS
Travel Tax
Travel tax was imposed to a particular
travel.
NATURE AND
PURPOSE
To provide
adequate funds
for government
programs.
RATE AND BASES OF TAX
P2,700 – on passengers traveling
under first class passage.
P1,620 – on passengers traveling
under economy class passage.
P1,350 (1st class) and P810 (for
economy class) persons 2-12 years
old, accredited Filipino journalist,
those authorized by the President
for national interest.
Energy Tax
Motor Vehicle
User’s Charge
Energy tax is imposed on energy
(electric, fuel and alike) consumption.
Motor vehicle user’s charge is
imposed on motor vehicle.
To conserve
energy and
promote efficient
utilization thereof.
To provide and
ensure the
adequate
maintenance of
national and
provincial roads
through sufficient
funding for the
purpose.
On aircraft – based on weight
EXEMPTIONS
Foreign
diplomatic and
consular
officials, crew
members of
ships;
airplanes flying
international
routes; infants
below 2 years
old; Filipino
OFW, UNO
officials, nonresident
Filipino
citizens;
bonafide
students with
government
approved
scholarships
As prescribed
by law.
PERSONS
TO FILE
All Filipino
citizens;
permanent
resident
aliens; and
nonimmigrant
aliens.
WHEN TO
FILE
Upon
leaving the
country
WHERE TO
FILE
Immigration
All
consumers
Upon
payment of
consumed
energy.
Accredited
agencies or
collectors
Owner of the
vehicle
Upon
registration
Land
Transportation Office
On watercraft – based on length
Electric power consumption –
based on kilowatt hour (KWH)
Private passenger vehicles – 25%
(1st year); 50% (2nd year); 75% (3rd
year); and 100% (4th year onwards)
Sports utility vehicles – 15%
Motorcycles with sidecars shall not
pay more than P300
No exemptions
COMPUTATION OF THE INDIVIDUAL INCOME TAX
For resident citizens, non-resident citizens and overseas contract workers, resident aliens, and non-resident aliens:
Gross income from all sources (within and/or outside the Philippines)
Less: Allowable itemized deductions (or 10% Optional Standard Deductions (OSD)
-----------------------------------------------------------------------------------------------------------= Net income from all sources
Less: Deductions
-----------------------------------------------------------------------------------------------------------= Taxable income
Less: Exemptions
-----------------------------------------------------------------------------------------------------------= Amount of income tax due and payable
Graduated tax rate since 2008 (Republic Act 9504 – Tax Relief for Minimum Wage Earners Act):
Over
Over
Over
Over
Over
Not over P50, 000
P50,000
P70,000
P140,000
P250,000
P500,000
but not over
but not over
but not over
but not over
but not over
P70,000
P140,000
P250,000
P500,000
Tax Exempted
P2,500 + 15% of the excess over P30,000
P8,500 + 20% of the excess over P70,000
P22,500 + 25% of the excess over P140,000
P50,000 + 30% of the excess over P250,000
P125,000 + 34% of the excess over P500,000
Amounts of personal and additional exemptions allowable to individuals:
1.
2.
3.
4.
P20,000 – for single individual or married individual judicially decreed as legally separated with no qualified dependents.
P32,000 – for each married individuals (husband or wife); or a total of P64,000 in case both spouses earn income.
P25,000 – for unmarried individuals who is “head of the family” depending upon him or her support.
P25,000 – for each “recognized natural child” and siblings but not exceeding 4 dependents may be claimed by one of the spouses in the case of married individual.
Therefore, a family with four children will have a maximum exemption of P200,000. It is a substantial increase from the previous P96,000 per family with four children. In
theory, a family with four children earning exactly or below P200,000 per year will not be subject to income tax.
Sample Computation: