LECTURE 1: Basic Principles in
Taxation
Taxation – is the process or means by which
the sovereign, through its law-making body
imposes burdens upon subjects and objects
(person, property and privileges) within its
jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of
government. Taxation, as a power of the
state, is inherent in sovereignty.
Aspects of Taxation (Steps)
1. Levying
 Legislative - Senate
 Imposing of taxes by lawmaking bodies such as
legislative.
 Imposing of taxes do not just
come from the national
government but also from
local government like from
municipal, provincial and
barangay.
2. Assessment
 Executive - BIR
 Determine the amount and it
can be computed/determined
because of the imposed
rulings from the law-making
bodies.
3. Collection
 Executive – BIR
 After computing the amount for
tax, the next step is collections.
Payment of tax due.
 Collector – BIR/Custom if national
level.
Treasurers
if
local
government.
Purpose of Taxation (Objective)
Primary Purpose: Raise Revenue/Fiscal

To provide funds or property with
which to promote general welfare
and the protection of its citizens
and to enable it to finance its
multifarious activities.
Secondary
Purpose:
Sumptuary/ Compensating
Regulatory/
1. Promotion of General Welfare –
power to destroy, to regulate.
2. Reduction of Social Inequality – To
balance the social status. Like estate
tax.
3. Economic Growth – To stimulate
economic growth, regulatory.
Social and Economic: Objective of
Taxation
1. Shifting of wealth from rich to poor
– regulate the value of tax to impose.
Iba ang value ng tax kapag mayaman
ka at mahirap. Kung mayaman, mas
malaki ang tax. Example, property
tax.
2. Maintaining price stability – control
the
price
of
commodities.
Pagpapataw ng mataas na tax sa mga
sin products or pagpataw ng tax sa
mga imported goods para makasabay
ang mga local producers.
3. Stimulating economic growth – Ex.
Pag-aayos ng mg aini-imposed na
taxes kagaya sa mga call centers.
Government control or will impose
low taxes sa mga call centers para
mas ma-engganyo ang mga foreign
investors na magpasok pa ng call
centers sa bansa.
4. Encouraging full employment –
Create more jobs to lessen
unemployment rate.
LECTURE 2: Fundamental Doctrines in
Taxation
1. The Lifeblood Doctrine
 National government cannot
survive without taxation. It can’t
do multifarious activities without
revenues.
 Therefore, taxation is the
blood/life of the government.
2. Benefits Received Theory
 Theory of cost allocation.
 The higher the benefit you get
from the government, the
higher you pay the tax.
3. Ability to Pay Theory
 Theory of cost allocation.
 If you have higher privilege,
more ability to pay, the higher
you pay the tax.
4. Marshall Doctrine
 “The power to tax involves
the power to destroy.”
 To protect the general
welfare.
5. Holme’s Doctrine
 “Taxation power is not the
power to destroy while the
court sits.”
 Incentives to still or lower the
taxes imposed to a certain
field.
 Opposite
of
Marshall
Doctrine.
6. Prospectivity of Tax Laws
 When the tax laws will take
effect.

When the tax law enacted
now, it will take effect now
and future, not the past.
7. Non-Compensation or Set-Off
 Cannot be offset. Unless
exempted.
 Payment of taxes are
obligation,
even
the
government also has an
obligation to you, you cannot
offset the payment of tax.
8. Non-Assignment of Taxes
 Non-Assignment – the tax of
an individual can’t be pass to
other.
 Taxpayers are not allowed to
make a contract that the
purpose is to transfer to other
individual the tax burden.
9. Imprescriptibility in Taxation
 Prescription is the lapsing of
a right due to passage of time.
 Example: Person A did not
pay his taxes for 3-years,
because of imprescriptibility,
even it is years ago, you are
still obliged and liable to pay
that tax.
10. Doctrine of Estoppel
 Based upon the grounds of
public policy, fair dealing,
good faith and justice, and its
purpose is to forbid one to
speak against its own act,
representations,
or
commitments to the injury of
one to whom they were
directed and who reasonably
relied thereon.
11. Judicial Non-Interference
 It can never remove the tax
laws because taxation is
inherent power of the state.

The judicial court is not
allowed to impose a law to
stop collecting taxes.
12. Strict Construction of Tax Laws
 Income Tax Acts in particular,
the language imposing the tax
must
receive
a
strict
construction.
 Vague Tax Laws – in favor to
the taxpayers
 Vague Exemption Laws – in
favor to the government
13. Double Taxation
 Direct Duplicate Taxation
(Oppressive) - the same
subject is taxed twice when
it should be taxed but once,
in a fashion that both taxes are
imposed for the same purpose
by the same taxing authority,
within the same jurisdiction or
taxing district, for the same
taxable period and for the
same kind or character of tax.
14. Escape from Taxation
 NO COLLECTION
 Tax Avoidance – Legal.
Minimization tax in legal
way. Example, magkakaroon
lamang ng tax kapag
lumagpas ang donation mo ng
200k for this year so kung
magdo-donate kang 250k
pwedeng sa Dec. mag-donate
ka ng 125k then sa Jan. is
125k ulit.
 Tax Evasion – Illegal.
Intentional non-payment of
tax/tax dodging.
 Tax Exemption - The right to
exclude all or some income
from taxation by federal or
states governments.
 COLLECTED
BUT
IN
DIFFERENT WAY
 Shifting - A kind of economic
phenomenon in which the
taxpayer transfers the tax
burden to the purchaser or
supplier by increasing the
sales price or depressing the
purchase price during the
process
of
commodity
exchange. Example, VAT.
 Capitalization - How asset
value is changed when the
cash flow is changed by an
increase or decrease in the tax
liability for that asset.
 Transformation - A form of
digital transformation that
integrates processes, people,
technology, and data to
understand tax liabilities and
forecast how decisions will
impact them.
 Tax
Amnesty
An
opportunity for people who
owe back taxes to pay some or
all of what they owe, often
with some penalties and
interest waived.
 Tax Condonation - Or
remission when the State
desists or refrains from
exacting,
inflicting
or
enforcing something as well
as to restore what has already
been taken. The condonation
of a tax liability is equivalent
to and is in the nature of a tax
exemption. Thus, it should be
sustained
only
when
expressed in the law.
LECTURE 3: Inherent Powers
of the State
Inherent Powers - are powers of
a state or branch of government
that are not expressly written in a
constitution.
Inherent Powers of the State
1. Taxation
 Power of the state to enforce
obligation for a civilized
society.
2. Police Power
 The power of the state to
enact laws for the general
welfare or well-being of the
citizen.
3. Eminent Domain
 Power of the state to take
private properties for public
use with just compensation.
Limitations of Taxation Power
A. Inherent Limitation
1. Territoriality of Taxation
 Taxation in the Philippines
will only be enacted and
imposed in the Philippines
and its citizens.
2. International Comity
 Mutual agreement between
the state/countries.
3. Public Purpose
 Taxation is the lifeblood of
the government to function
or provide the welfare of its
people. Therefore, the
revenue from the taxation
should use only for public
purpose.
4. Exemption of the Government
 Government will not pay
tax.
5. Non-delegation of the Taxing Power
 The legislative cannot pass
the responsibility or
regulations to other branch
of the government such as
judiciary and executive.
B. Constitutional Limitation
1. Due Process of Law
 Substantive - The notion
that due process not only
protects certain legal
procedures, but also
protects certain rights
unrelated to procedure.
 Procedural - The
constitutional requirement
that when the federal
government acts in such a
way that denies a citizen of
a life, liberty, or property
interest, the person must be
given notice, the
opportunity to be heard,
and a decision by a neutral
decisionmaker.
2. Equal Protection of the Law
 Equal and balance
imposition of tax to
taxpayers.
3. Uniformity Rule in Taxation
 Relative Equality – if A and
B has the same situation,
therefore they have similar
tax but if A and B are not the
same, therefore their taxes is
not the same.
4. Progressive System of Taxation
 The higher benefit received,
the higher the income, the
higher the tax.
5. Non-Imprisonment for NonPayment of Debt or Poll Tax
 Poll tax – personal or
community tax
6. Non-Impairment of Obligation
and Contract
 Kapag may transaction ka sa
government, bawal gamitin
ng government na “hindi na
kita babayaran since may tax
ka rin namang babayaran.”
7. Free Worship Rule
 Walang tax ang mga
collections from religious
institutions.
8. Exemptions of Religious or
Charitable Entities, Non-Profit
Cemeteries, Churches and
Mosques from Property Taxes
 Hindi kailangan magbayad
ng mga religious institutions
and non-profit organizarions
ng property tax kung ang
gamit nito ay non-profit o
religious activities.
9. Non-Appropriation of Public
Funds or Property for the Benefit
of any Church, Sect or System of
Religion
 Hindi pwedeng gamitin ang
revenue from tax to churches
and even other sect dahil
hindi naman ito nagcontribute at hindi rin naman
ito for public purpose.
10. Exemptions from Taxes of the
Revenues and Assets of NonProfit, Non-Stock Educational
Institutions
 Like foundation schools na
ang mga profit nila ay
napupunta sa charity or their
foundation to help their
targets like poor people,
homeless and others.
11. Concurrence of a Majority of All
Members of Congress for the
Passage of Law Granting Tax
Exemptions
 Kapag mag-iimpose ng tax
exemption ang legislative
dapat ay majority to all of
the members of congress ang
in favor doon.
12. Non-Diversification of Tax
Collections
 Related in public purpose.
 Bawal mong ilihis o ibahin
ang paggamit ng tax
collections, only for public
purpose.
13. Non-Delegation of the Power of
Taxation
 Related in non-delegation of
taxing power.
 Bawal ilipat ng congress sa
ibang bahagi ng government
ang pagre-regulate ng tax
laws.
 Ang maaari lamang gawin
ng other branches such as
BIR ay revenue regulations
or mga implementing
guidelines.
14. Non-Impairment of the
Jurisdiction of the Supreme Court
to Review Tax Cases
 A supreme court is the
highest court within the
hierarchy of courts in many
legal jurisdictions.
 Kung sa tingin mo unjust
ang decision pwede mo pang
itaas ang decision to
Supreme Court.

Pero ang huling pag-dispute
ng tax cases ay sa supreme
court, kapag ang supreme
court na ang nagbigay ng
decision, bawal nang ibahin
at wala nang iba pang pagaappeal-an.
15. The Requirement that
Appropriations, Revenue or
Tariff Bills Shall Originate
Exclusively in the House of
Representatives
16. The Delegation of Taxing Power
to Local Government Units
 Pwedeng gumawa ng batas
about tax ang mga LGU only
applicable sa lugar na
nasasakupan nila like city,
provincial, municipal,
barangay or community.
LECTURE 4: Situs of Taxation
Taxes – are enforced proportional
contributions from persons and property
levied by the lawmaking body of the state by
virtue of its sovereignty for the support of the
government and all public needs.
Essential Characteristics of a Tax
1. It is an enforced contribution
 Kailangan magbayad ng tax
sa ayaw at sa gusto mo dahil
bahagi ka ng gobyerno.
2. It is levied by the lawmaking body
 Pinagmulan ng pagpataw ng
buwis ay ang kongreso.
3. It is proportionate in character
 Ability to pay principle
 Kung mas malaki ability mo
na magkapagbayad ng tax,
mas malaki tax mo.
4. It is generally payable in money
 The mode of payment of tax
is in monetary system.
 Most of the time, money is
used but there are times that
taxpayer can pay in noncash/non-monetary payment
such as property.
5. It is imposed for the purpose of
raising revenue
 Lifeblood of the Government
6. It is used for public purpose
Situs of Taxation
 Place of taxation.
 It is important to know because
the state can only impose taxes to
its territory.
Factors in Determination of Situs
of Taxation
1. Subject Matter
 Ano ang tina-tax? Tao,
property, activity or
what?
2. Nature of Tax
 Ano ang tax na iniimpose? Income,
Business, Property, Poll
or what?
 Anong klase ng tax?
3. Citizenship of Taxpayer
 Nationality like Pilipino
4. Residence of Taxpayer
 Where do you stay? Live?
In the Philippines
Application of Situs of Taxation
1. Person – Residence of the
Taxpayer.
2. Real Property or Tangible
Personal Property – Location of
the property.
 Real Property - Those are
properties that attached to
the soil with permanence
such as house and
building.
 Personal Property –
Properties that can be
removed such as furniture,
vehicle, jewelry and such.
3. Intangible Personal Property –
Domicile of the owner unless he
acquired a situs anywhere. Like
copyrights.
 Domicile means kung
saan nakatira (permanent)
‘yung owner ng intangible
personal property.
4. Income – Taxpayer’s residence or
citizenship, or place where the
income was earned.
5. Business,
Occupation
and
Transaction – Place where
business is operated, occupation
being practice and transaction
completed.
6. Gratuitous
Transfer
of
Property – Taxpayer’s residence
of citizenship, or location of the
property.
LECTURE 5: Philippine Tax Laws
Sources of Tax Laws
1. Constitution
 The fundamental law of the land.
 Legislative
2. Statutes and Presidential Decrees
 Executive
3. Revenue Regulations by the
Department of Finance
 Executive
4. Rulings Issued by the Commissioner
of Internal Revenue and Opinions by
the Secretary of Justice
 Executive
5. Decisions of the Supreme Court and
Court of Tax Appeal
 When open for interpretation,
 When the law is vague, the decision of
SC or CTA may be tax law.
6. Provincial, City, Municipality, and
Barangay Ordinances Subjected to
Limitations Set Forth in the Local
Government Code
 When making local taxes.
7. Treaties or International Agreements
the Purpose of Which is to Avoid or
Minimize Double Taxation
“Tax, in general sense, is any contribution
imposed by the government upon individuals,
for the use and service of the State, whether
under the name of toll, tribute, tallage, gabel,
impost, duty, custom, excise, subsidy, aid,
supply, or other name. TAX IS NOT A
DEBT.”
Philippine Tax Laws and Taxes
1. National Internal Revenue Code of
1997 (P.D. 1158, as amended)
 NIRC or Tax Code
a. Income Taxes
b. Estate and Donor’s Taxes –
Gratuitous Transfer and Onerous
Transfer
c. Value Added Tax - Business Tax,
Tax Shifting
d. Other Percentage Tax – Business
Tax
e. Excise Tax – Sin Tax or tax for
non-essential goods
f. Documentary Stamp Tax – in
diploma, or official papers.
2. Tariff and Customs Code of 1978 (P.D.
1464, as amended)
a. Import Duties
b. Export Duties
3. Local Government Code of 1991 (P.A
7160)
a. Real Property Tax
b. Business Taxes, Fees and Charges
c. Professional Tax
d. Community Tax
e. Tax on Banks and Other Financial
Institutions
4. Special Laws
a. Motor Vehicle Law – Motor
vehicle fees
b. Private Motor Vehicle Tax Law –
Private motor vehicle tax
c. Philippine Immigration Act of
1940 – Immigration tax
d. Travel Tax Law – Travel tax
TAXATION OF INDIVIDUALS
LECTURE 6: Classification of taxes
Basic Principles of Sound Tax System
FAT – A good and sound tax system must
be FAT.
1. Fiscal Adequacy – Sources of revenue
are sufficient to meet government
expenditures.
 Sapat dapat ang collections ng
government para sa kaniyang
expenses or expenditures.
 Adecuacy means satisfaction for
the general.
2. Administrative Feasibility – The law
must be capable of convenient, just and
effective administration.
 Paano maayos na ima-manage,
ico-collect at idi-distribute ng
government ang tax collections.

Kung sakaling gagawa ng batas
ay dapat maayos ito at posibleng
mapatupad.
3. Theoretical Justice or Equality – The
tax imposed must be proportionate to
taxpayer’s ability to pay.
Classification of Taxes
1. As to subject matter or object
 Personal, poll or
capitalization – Sedula,
personal o tao
 Property – ‘yung ari-arian
 Excise – privilege or act
2. As to who bears the burden
 Direct – kung sinong
intended by the law, they are
the one who will pay tax like
income tax.
 Indirect – tax shifting like
VAT.
3. As to determination of amount
 Specific – physical unit of
measurement like width,
length, height, volume, area
and quantity.
 Ad Valorem – it means it
based in value.
4. As to purpose
 General, Fiscal or Revenue
– walang specific ‘yung
paggagamitan o purpose ng
tax collection but rather for
general use.
 Special or Regulatory –
merong special purpose like
protective tariff or kapag mas
mababa ang price ng mga
imported goods kaysa sa mga
local goods so magdadagdag
ng tariff para makasabay sa
market ang local goods.
5. As to authority imposing the tax or
scape
 National - NIRC
 Municipal or Local – Local
government code
6. As to graduation or rate
 Proportional – The tax base
remains the same.
 Progressive or Graduated –
As the level of income
increases, the tax increases as
well.
 Regressive – when the tax
bases increases, the tax rate
decreases. (Opposite)

LECTURE 1: Classification of Individual
Income Taxpayers - Citizens

Why do we need to classify taxpayers?





Because each classification of
individual taxpayers is taxed
differently.
In taxation, taxpayers are divided in
to two, generally, natural beings and
artificial beings.
Artificial beings are partnership and
corporations. They are created by
operation of law.
Natural beings, natural person, human
beings.
Note: Generally, individual taxpayers are
divided into two; citizen and aliens.
Taxpayer
Resident
Citizen
NonResident
Citizen
Taxable
Source
Within
and
Without
the PH
Net
Graduated Within
Income
only
Resident
Alien
NonResident
Alien
–
ETB
NonResident
Alien
–
NETB
Special
Employees
Net
Graduated Within
Income
only
Net
Graduated Within
Income
only
Gross
Final Tax Within
Income (25%)
only
-
-
-
Citizen of the Philippines

Citizens of the PH at the time of adoption
of the Feb. 2, 1987 constitution.
Those whose fathers or mothers are
citizens of the PH.
Those born before Jan. 17, 1973 of
Filipino mothers, who elected Phil.
Citizenship.
Those who are naturalized in accordance
with law.
Non-Resident Citizen
Note: Taxable year is calendar year or from
Jan. 1 to Dec. 31.


Tax
Tax Rate
Base
Net
Graduated
Income

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 Philippines during the taxable year to
reside abroad, either as an immigrant or
for employment on a permanent basis.
o When the reason of going abroad
is to reside there permanently or
employed permanently.
A citizen of the Philippines who works
and derives income from abroad and
whose employment thereat requires him


to be physically present abroad most of
the time during the taxable year.
o Because of the employment only.
o If a citizen goes abroad without
the reason of employment, even if
it is most of the time during
taxable year, that citizen is still a
resident citizen because of its
reason going abroad is not
employment.
A citizen who has been previously
considered as nonresident 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 a nonresident
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.
o This is partial or half. The time
that this citizen is not in the PH,
he is a Non-Resident Citizen. But
at the time of his arrival in the PH
with the reason of residing again
in the PH permanently, he will be
resident citizen again.
o Ex. Jan. 1 to Sept. 30, this citizen
is in abroad and he decided to go
back to PH and reside
permanently on Oct. 1. Therefore,
he is Non-Resident Citizen from
Jan. 1 to Sept. 30 and he is
Resident Citizen on Oct. 1 until
the end of taxable year.
The taxpayer shall submit proof to the
Commissioner to show his intention of
leaving the Philippines to reside
permanently abroad or to return to and
reside in the Philippines as the case may
be for purpose of this Section.
LECTURE 2: Classification of Individual
Income Taxpayers – Aliens
Alien – Is a foreign-born person who is not
qualified to acquire Philippine citizenship by
birth or after birth.
Resident Alien
A resident alien (RA) is an individual who is
residing in the Philippines but is NOT a
Filipino citizen.



Physically present and are not mere
transients or sojourners (staying for a
short duration);
o Pupunta sa Pilipinas para
manirahan.
Living in the country with no definite
intention as to stay;
Requires an extended stay to
accomplish the purpose for which
he/she came.
Non-Resident Alien
A non-resident alien (NRA) is an
individual who is NOT (residing) in the
Philippines and is NOT a Filipino citizen.


May come to the Philippines with a
definite purpose that may be promptly
accomplished;
o Kapag may purpose ka at
natapos mo na ang purpose mo
(mabilis) ay aalis ka rin sa
Pilipinas.
Mere transients or sojourners.
Two Different Types of NRA
Non-Resident Alien
Engaged in Trade
Not Engaged in
or Business
Trade or Business
Aliens who stayed Aliens who stayed
in the Philippines in the Philippines
for an aggregate
(total) period of
more than 180
days during the
taxable year; and/or,
Aliens who have
business
income
derived
in
the
Philippines.

Aliens who have no
business
income
derived
in
the
Philippines.
Special Employees
a. Regional or area headquarters
(RHQs) and regional operating
headquarters
(ROHQs)
of
multinational entities in the PH that
are engaged in international trade
with affiliates and subsidiary branch
offices in the Asia-Pacific region.
b. Offshore banking units
c. Petroleum contractors and subcontractors
Taxpayers and Source of Income
(ILLUSTRATIONS)
The applicable taxes and tax rates for
individuals depend on several factors such as
but not limited to:



for 180 days or less;
or,
Classification of Taxpayers
 Resident Citizen
 Non-Resident Citizen
 Resident Alien






Non-Resident Alien – ETB
Non-Resident Alien - NETB
Sources of Income
Income within
Income without
Types of Income
Ordinary or Regular
Passive
Capital Gains
Classifying taxpayers is important for proper
tax treatment as better illustrated in the table
below:
Taxpayer
Sources of Tax Base
Taxable
Income
RC
Within and Net Income
without
NRC, RA, Within only Net Income
NRA-ETB
NRA-NETB Within only Gross
Income
Sample Problem:
Prior Computation for Net Income:
Tax Base if Resident Citizen:
Tax Base if Non-Resident Citizen,
Resident Alien and Non-Resident AlienEngaged in Trade and Business:
Tax Base if Non-Resident Alien – Not
Engaged in Trade and Business:
LECTURE 3: Individuals Exempt from
Income Tax
1. Non-Resident Citizen
2. Overseas Contract Workers, including
Overseas Seamans (OFWs) – only
income derived outside the Philippines
are exempted.
3. Barangay Micro Business Enterprise
(BMBE) – Any business entity or
enterprise engaged in the production,
processing or manufacturing of products
or commodities, including agroprocessing, trading and services, whose
total assets including those arising from
loans but exclusive of the land on which
the particular business entity’s office,
plant and equipment are situated, shall
not be more than Three Million Pesos
(P3,000,000.00). Such as sari-sari
stores, bakeries, and handicraft shops.
o Ang mga included lang sap agcompute for 3M ay ‘yung
produktong binibenta at mga
pera/asset galing sa loans.
o Even exempted in tax, they
still need to get certification
from treasurer of local
community or government that
they are valid to be exempted
in tax.
4. Personal Equity and Retirement
Account (PERA) - A voluntary
retirement
saving
program
that
supplements the existing retirement
benefits from Social Security System,
Government Service Insurance System
and employers.
5. Philippine Nationals and Alien
Individuals Employed by Foreign
Governments, Embassies, Diplomatic
Missions,
and
International
Organizations
Situated
in
the
Philippines
6. Minimum Wage Earners – On their
statutory minimum wage rate. Holiday
pay, overtime pay, night shift differential
pays, and hazard pay, if any, are also
exempted.
o COLA – Cost of Living
Allowance; also exempted in tax.
o Even the minimum wage earner
has two jobs with minimum wage
rate, both incomes are still subject
to the exemption in tax.
LECTURE 4: Categories of Income
Income – In its broad sense, means all
wealth, which flows into taxpayers other than
a mere return of capital. It is the return in
money from one’s business, labor, or capital
invested.

E.G., gains, profits, salary and wages.
The words “income from any source
whatever” disclose a legislative policy to
include all income not expressly exempted
from the class of taxable income under our
laws.

Para ma-express o ma-treat ang isang
income as exempted in tax, dapat
dinisclose o sinabi mismo na ito ay
exempted. If not disclose or if silent,
that income is subjected to tax.
Income Tax – Is a tax on yearly profits
arising from property, profession, trade or
business, or is a tax on a person’s income,
emoluments, profits and the like.

Categories of Income
1. Compensation Income – Are salaries
from labor.
 Income Tax
2. Business Income – Are salaries from
business activity.
 Income Tax
3. Mixed Income – From two different
income like business income and
compensation income.
 Income Tax
4. Passive Income – Income from doing
nothing like lotto winnings.
 Final Tax
5. Capital Gains from Sale of Share of
Stocks, not Traded thru Local Stock
Exchange – There is an income from
sales.
 Capital Gains Tax
6. Capital Gains from Sale of Real
Properties – Income from sales but not
ordinary asset but a capital asset.
 Capital Gains Tax
7. Fringe Benefits - Benefit of an
employee.
 Fringe Benefit Tax**
Hindi totally tina-tax ang property,
profession, trade or business mo but
rather, ang tina-tax diyan ay ‘yung
kita or profit mula roon.
Type of Income
Regular or Ordinary
Income
Passive
Income,
Philippines
Capital Gains
Applicable Tax
Graduated Rate**
Final Withholding
Tax (FWT)
Capital Gains Tax
(CGT)
** Unless exempt under the law, income not
subject to FWT and CGT are classified as
ordinary income and are subject to graduated
tax rate.
INCOME
Active
Compensation,
Business and
Profession
Passive
Capital
Gains
Interest and
Winnings
Shares and
Lands
Final Tax
Capital
Gains Tax
Income Tax
**Fringe Benefit is also taxable but the
taxpayer who pays it is not the employee or
who received the benefit but rather the
employer or the one who gave the benefit.
NOTE: If you are subjected in income tax,
you are not be subjected to other tax like final
tax and capital gains tax.

Example, nagbenta ng lupa. Dahil
subject na ‘yon sa CGT, hindi na
‘yung ita-tax pa sa income and final
tax.
LECTURE 5: Passive Income (Income
Subject to Final Tax)
Passive Income – Earned with very minimal
involvement from the taxpayer and is
generally irregular in timing and amount.
“Their existence can be difficult to predict
while their actual amount may be difficult
to determine. Thus, the final withholding at
source is the most favored scheme is taxing
items of passive income.”
Final Tax or Final Withholding Tax – Tax
withheld at source. The amount of income tax
that is withheld by a withholding agent is
constituted as full and final payment of the
income tax due from the payee on said
income.


The moment you realized there is
passive income, it also comes with tax
and that tax is final. Unlike in active
income that you will be tax after you
gain the income. In passive income,
because it is irregular income, the
moment you saw that there is an
income, it will also be taxed and paid
immediately.
There are parties involve in payment
of tax:

This also has territoriality. Passive
income that can be subjected in final
withholding tax are passive income
derived only from the Philippines.
Passive Income
RC/RA
/NRC
NRAETB
NRANETB
Interest
Yields
Royalties
20%
Prizes
Winnings
Dividends
Share in Net
Income
20% 25%**
 Partnership
(General)
10%
 Association
 Joint
Account
 Joint
Venture
**The 25% is not only for passive
income of NRA-NETB but also its active
incomes and that tax is called “FINAL
WITHHOLDING TAX”
Rulings
1. Interest
 This is not when you lend
some of your money to other
people or mga bumbay.
 The only interest applicable
here are the interest arises
from deposits.









Another exemption if you are
NRC and NRA is if you have
interest from FCDS (Foreign
Currency Deposit System);
But if the person who gained
interest from FCDS is RC
and RA, it is subjected to
final tax with 15%.
If short term interest – 20%
If long term interest – 0% or
exempted;
Less than 3 years – 20%
3 years to > 4 years – 12%
4 years to > 5 years – 5%
5 years or more – 0%
THESE
RATES
ARE
APPLICABLE FOR BOTH
INTEREST AND YIELDS
2. Yields
 The same with interest,
applicable yields are only
from deposits or investment in
treasury yields in financial
institutions.
3. Royalties
 Payment from using things
like copyrights, trademark,
watermarks, and patent.
Intellectual property.
 Example, nag-subscribe ka to
use a book and you pay for its
copyright. Syempre, dahil
tapos na ang book, walang
nang ginagawa si author kaya
ang income na made-derived
from it is a passive income
which is subjected to final tax
of 20%.
 But if a royalty is from an art
like music composition,
literary, it is subject in final
tax but only in 10%.
4. Prizes
 There is an effort like joining
and winning a contest.
 10k or less – subject in
Income Tax under Sec. 24 (A)
8% and this is applicable for
all exempt to NRA-NETB.
 There are prizes that are
EXEMPTED
if
from
religious, charity, artistic,
educational, civic and other.
 And if your prizes are from
competition under National
Athlete/Sport Association, it
is exempt like Olympics.
5. Winnings
 Just from LUCK. Tumama sa
lotto.
 PCSO or Lotto winnings –
10k or less – exempted but
only
applicable
to
RC/RA/NRC
 But if NRA-ETB, in any
amount of winnings, they are
EXEMPTED.
 But if your winnings are not
from PCSO or in government,
it is TAXABLE in any
amount.
6. Dividends
7. Share in Net Income
LECTURE 6: Compensation Income
Compensation – All remuneration for
services performed by an employee for
his employer under employer-employee
relationship,
unless
specifically
excluded by the code. The term used to
designate the renumeration is immaterial.
Thus, salaries, wages, emoluments, and
honoraria, allowance, commission (e.g.,
transportation,
representation,
entertainment and the like) fees including
director fee, if the director is, at the same
time,
an
employee
of
the
employer/corporation; taxable bonuses
and fringe benefits except those which are
subject to fringe benefit tax; taxable
pensions and retirement pay; and other
income of similar nature constitute
compensation income.

Hindi importante kung anong
term ang ginamit whether salary,
wages, honoraria or allowance,
that is compensation income.
The timing or the basis upon which the
renumeration is paid is immaterial in
determining whether the renumeration
constitutes compensation. Thus, it may be
paid on the basis of piece-work, or a
percentage of profits; and may be paid
hourly, daily, weekly, monthly or annually.

Hindi mahalaga kung kailan ka
binayaran o babayaran, kahit pa
lingguhan o buwanan; ang
mahalaga ay lahat ng ‘yan ay
compensation.
Forms of Compensation

1.
2.
3.
4.
5.
6.
7.
8.
Not in all situation the employee
will receive compensation in cash
or in monetary. There are other
forms of compensations and
generally, they are all taxable.
Compensation paid in kind
 Example is asset like computer.
And the measurement is in fair
market value.
Living quarters and meals
 Bahay o bayad sa upa at
allowance sa pagkain
 But if the convenience is for
employer,
that
is
not
compensation income, therefore
that is not taxable.

Facilities and privileges of relatively
small values (de minimis benefits)
 Separate discussion**
Tips and Gratuities
Pensions, retirement and separation
pay
 Pension and retirement received
when
your
contract
or
employment is terminated.
 These can be taxable unless the
employer has formal arrangement
and acknowledgement from BIR
that these are not taxable.
 In separation pay, if it is given out
of the employee’s desire such as
death, sickness, and/or disability,
it can be also exempted.
Fixed or variable transportation,
representation and other allowances
 Exempted if the convenience is
for the employer or the business.
Vacation and sick leave allowances
Deductions made by employer from
compensation of employee
9. Renumeration for services as employee
of NRA individual/foreign entity
 Whether you are employee of
ETH
or
NETB,
your
compensation is still taxable
because you are still an
EMPLOYEE.
10. Compensation for services performed
outside the Philippines
 Applicable for resident citizen.
(TAXABLE)
LECTURE 7: De Minimis Benefits
(Taxation of Individuals)
De Minimis Benefits – facilities or privileges
furnished or offered by an employer to
his/her employees that are relatively small
value and are offered or furnished by the
employer merely as a means of promoting
the health, goodwill, contentment, or
efficiency of his/her employees.
1.
2.
3.
4.
5.
6.
 This is not required by the law.
 These are tax exempt;
 But there is P90,000 ceiling
Monetized unused vacation leave credits
of private employees not exceeding ten
(10) days during the year;
Monetized value of vacation and sick
leave credits paid to government officials
and employees;
Medical cash allowance to dependents of
employees, not exceeding P750 per
employee per semester or P125 per
month;
Rice subsidy of P1,500 or one (1) sack of
50 kg. rice per month amounting to not
more that P1,500;
Uniform and clothing allowance not
exceeding P5,000 per annum; (last
amended by RR No. 8, 2012)
Actual medical assistance, e.g., medical
allowance to cover medical and health
care needs, annual medical/executive
check-up, maternity assistance, and
routine consultations, not exceeding
P10,000 per annum;
7. Laundry allowance not exceeding P300
per month;
8. Employees achievement awards, e.g., for
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 P10,000 received by the
employee under an established written
plan which does not discriminate in favor
of highly paid employees;
9. Gifts given during Christmas and major
anniversary celebrations not exceeding
P5,000 per employee per annum;
10. Daily meal allowance for overtime work
and night/graveyard shifts not exceeding
twenty-five percent (25%) of the basic
minimum wage on a per region basis;
11. Benefits received by an employee by
virtue of a collective bargaining
agreement (CBA) and productivity
incentive scheme provided that the total
annual monetary value received from
both CBA and productivity incentive
scheme combined do not exceed ten
thousand pesos (P10,000) per employee,
per taxable year.