Module 1
History/ Basic Concepts in Phil Taxation
Taxation is the inherent power by which the sovereign state imposes financial burden upon persons and
property as a means of raising revenues in order to defray the necessary expenses of the government.
Taxation is the imposition of financial charges or other levies, upon a taxpayer (an individual or legal entity)
by a state such that failure to pay is punishable by law.
It is a mode by which government make exactions for revenue in order to support their existence and carry
out their legitimate objectives
It is the most pervasive and the strongest of all the powers of the government. Taxes are the lifeblood of
the government, without which, it cannot subsist.
History of Taxation
•
The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC in the first
dynasty of the Old Kingdom.
•
In Biblical times, tax is already prevalent. According to Genesis 47:24:
"But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the
fields and as food for yourselves and your households and your children".
•
Earliest taxes in Rome are called as portoria were customs duties on imports and exports
•
Augustus Caesar introduced the inheritance tax to provide retirement funds for the military. The
tax was five percent on all inheritances except gifts to children and spouses .
•
In England, taxes were first used as emergency measures.
History of Taxation in the Philippines
The pre-colonial society, being communitarian, did not have taxes.
During the Spanish Period, new income-generating means were introduced by the government such as the:
•
Manila-Acapulco Galleon Trade was the main source of income for the colony during its early
years. The Galleon trade brought silver from Nueva Castilla and silk from China by way of Manila
•
Polo Y Servicio is the forced labor for 40 days, of men ranging from 16 to 60 years of age who were
obligated to give personal services to community projects. One could be exempted from the polo
by paying a fee called falla (which was worth one and a half real).
•
Bandala is one of the taxes collected from the Filipinos. It comes from the Tagalog word mandala,
which is a round stock of rice stalks to be threshed.
•
Encomienda System are large tracts of land given to a person as reward for a meritorious act. The
encomenderos were given full authority to manage the encomienda by collecting tribute from the
inhabitants and govern people living on it.
•
Tribute was the residence tax during the Spanish times. It may be paid in cash or kind, partly, or
wholly. But in 1884, the tribute was replaced by the cedula personal or personal identity paper,
equivalent to the present community tax certificate.
That in the 19th century, the “cedula” served as an identification card that had to be carried at all times. A
person who could not present his or her cedula to a guardia civil could then be detained for being
“indocumentado”.
Andres Bonifacio and other Katipuneros tore their cedulas in August 1896, signaling the start of the
Philippine Revolution.
The Development of the Community Tax
The cédula was imposed by the Americans on January 1, 1940, when Commonwealth Act No. 465 went
into effect, mandating the imposition of a base residence tax of fifty centavos and an additional tax of one
peso based on factors such as income and real estate holdings.
The payment of this tax would merit the issue of a residence certificate. Corporations were also subject to
the residence tax.
What is a “cedula”?
Also known as a “residence certificate”, is a legal identity document in the Philippines.
Issued by cities and municipalities to all persons that have reached the age of majority and upon payment
of a community tax, it is considered as a primary form of identification in the Philippines and is one of the
closest single documents the Philippines has to a national system of identification, akin to a driver's license
and a passport.
The Four R’s of Taxation
Revenue
The taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect government
functions like market regulation or legal systems.
Redistribution
This refers to the transferring wealth from the richer sections of society to poorer sections.
Repricing
Taxes are levied to address externalities; for example, tobacco is taxed to discourage smoking, and a
carbon tax discourages use of carbon-based fuels.
Representation
As what goes with the slogan "no taxation without representation", it implies that: rulers tax citizens, and
citizens demand accountability from their rulers as the other part of this bargain.
Purpose of Taxation
The main purpose of taxation is to accumulate funds for the functioning of the government machineries.
No government in the world can run its administrative office without funds and it has no such system
incorporated in itself to generate profit from its functioning.
The government’s ability to serve the people depends upon the taxes that are collected. Taxes are
indispensable in the government operation and without it, the government will be paralyzed.
The Philippine Tax System
Tax law in the Philippines covers national and local taxes. National taxes refer to national internal revenue
taxes imposed and collected by the national government through the Bureau of Internal Revenue (BIR) and
local taxes refer to those imposed and collected by the local government. The 1987 Philippine Constitution
sets limitations on the exercise of the power to tax. The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation. (Article VI, Section 28, Paragraph 1).
The Branches of Government vis-à-vis the Tax Law
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government (Article VI, Section 28, Paragraph 2).
The President shall have the power to veto any particular item or items in an appropriation, revenue, or
tariff bill, but the veto shall not affect the item or items to which he does not object (Article VI, Section 27,
Paragraph 2).
The Supreme Court has the power to: review, revise, reverse, modify, or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders of lower courts in “all cases involving
the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto” (Article VIII,
Section 5, Paragraph 2b).
The Forms of Taxes Imposed on Persons and Property
A. Personal, capitation or poll taxes
These are taxes of fixed amount upon residents or persons of a certain class without regard to their
property or business
B. Property taxes
1. Real Property Tax - an annual tax that may be imposed by a province or city or a municipality on real
property such as land, building, machinery and other improvements affixed or attached to real property.
2. Estate Tax (Inheritance Tax) - a tax on the right of transmitting property at the time of death and on the
privilege that a person is given in controlling to a certain extent the disposition of his property to take
effect upon death.
3. Gift or Donor’s Tax - a tax on the privilege of transmitting one’s property or property rights to another or
others without adequate and full valuable consideration.
4. Capital Gains Tax - tax imposed on the sale or exchange of property . Those imposed are presumed to
have been realized by the seller for the sale, exchange or other disposition of real property located in the
Philippines, classified as capital assets.
C. Income Taxes
Taxes imposed on the income of the taxpayers from whatever sources it is derived. Tax on all yearly
profits arising from property, possessions, trades or offices.
D. Excise or License Taxes
Taxes imposed on the privilege, occupation or business not falling within the classification of poll
taxes or property taxes. These are imposed on alcohol products; on tobacco products; on petroleum
products like lubricating oils, grease, processed gas etc; on mineral products such as coal and coke and
quarry resources; on miscellaneous articles such as automobiles.
Under these lies two other taxes:
1. Documentary Stamp Tax - a tax imposed upon documents, instruments, loan agreements and papers
and upon acceptance of assignments, sales and transfers of obligation and etc.
2. Value added tax- is imposed on any person who, in the course of trade or business sells, barters,
exchanges, leases, goods or properties, renders services, or engages in similar transactions.
Who Should Pay Taxes?
1. Individuals
a. Resident Citizen
b. Non-resident Citizen
c. Resident Aliens
d. Non-resident Aliens
2. Corporations
a. Domestic Corporations
b. Foreign Corporations
3. Estate under judicial settlement
4. Trusts irrevocable both as to the trust property and as to the income.
Who (or What) are those exempted in paying taxes?
The Constitution expressly grants tax exemption on certain entities/institutions such as:
1. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and
nonprofit cemeteries and all lands, buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes (Article VI, Section 28, Paragraph 3).
2. Non-stock non-profit educational institutions used actually, directly, and exclusively for educational
purposes. (Article XVI, Section 4 (3)).
3. Exempted to tax as stated in the Article 283 of Rules and Regulations Implementing Local
Government Code of 1991 (RA 7160):
4. Local water districts
5. Cooperatives duly registered under RA 6938, otherwise known as the Cooperative Code of the
Philippines
6. Non-stock and non-profit hospitals and educational institutions
7. Printer and/or publisher of books or other reading materials prescribed by DECS (now DepEd) as
school texts or references, insofar as receipts from the printing and / or publishing thereof are
concerned.
Tax Evasion vs Tax Avoidance
Tax evasion happens when there is fraud through pretension and the use of other illegal devices to lessen
one’s taxes, there is tax evasion, under-declaration of income, and non-declaration of income and other
items subject to tax, Under-appraisal of goods subject to tariff, and over-declaration of deductions
Tax avoidance -refers to the use of legal methods to minimize the amount of income tax owed by an
individual or a business. This is generally accomplished by claiming as many deductions and credits as are
allowable. This is the use of tax-saving devices within the means sanctioned by law and where the taxpayer
acts in good faith and at arm's length
Community Tax (Cedula)
A community tax, also called a residence tax or poll tax, is imposed on all the inhabitants of the community
who are eighteen years old and above as well as to juridical persons, like corporations, doing business in
the community or whose office or establishment is located in the community. The term inhabitant of the
Philippines means a person who stayed in the Philippines for more than three months. Therefore the
community taxpayers are classified into individuals and corporations.
Individuals – the following individuals are required by the law to pay community tax:
1. Eighteen years old (18) and above;
2. Regularly employed on a on a wage or salary basis for at least thirty consecutive working days
during any calendar year; or
3. Engaged in trade, business or occupation; or
4. Owner of property with an aggregate assessed value of one thousand pesos (P1,000.00) or more; or
5. Required by law to file an income tax return (ITR)
Corporations – every corporation, no matter how it was created or organized, domestic or foreign,
engaged or doing business in the Philippines.
Exempt from Community Tax – Persons exempt from the payment of community tax:
1. Diplomatic and consular representatives
2. Transient visitors when their stay in the Philippines does not exceed three month.
COMMUNITY TAX RATES
TAX TYPE
Basic Community Tax
(Minimum)
Additional Community Tax
Maximum Community Tax
INDIVIDUALS
Five Pesos (P5.00)
CORPORATIONS
Five Hundred Pesos (P500.00)
Two (P2.00) pesos for every P5,000 of:
One (P1.00) peso for
every P1,000 of
1. Assessed value of real property in the
income from
Philippines owned by a corporation
business, exercise of
profession or from
property which in 2. Gross receipts or earnings from business in
the Philippines by a corporation
no case shall exceed
P5,000
Maximum additional community tax for a
corporation shall not exceed P10,000.00
Five Thousand Five
Ten Thousand Five Hundred Pesos
Pesos (Php5,005.00)
(Php10,500.00)
Activity Exercises:
1. Individual Earning Pure Compensation Income: Mr. Sid Gwapodaw, a resident citizen of the Philippines,
earned pure compensation income from his employer amounting to 10,000.00 a month with an aggregate
earnings for the preceding year of 130,000 which includes his 13th month pay. Compute the community
tax due for Mr. Gwapodaw
2. Individual Earning Mixed Income and Owns Real Properties: Mr. Ty Cuy is a businessman and resident
citizen of the Philippines. In the preceding year his gross receipts includes business income earned in China
amounting to 300,000, business income earned in the Philippines amounting to 200,000. He also acquired
a real property in China with a value of P3,000,000 and a land here in the Philippines amounting to
2,500,000.00. He also earned a compensation income from part-time teaching in a university amounting to
100,000. Compute the community tax due
3. CTC of a Domestic Corporation: ABC Corporation is a domestic corporation in the Philippines and earned
a gross receipts of 100,000,000.00. Compute the community tax due
Legal Basis Collect Community Tax
Commonwealth Act No. 465 is the law that imposes the payment of residence tax for individual and
corporations. The community tax shall be paid in the place of residence of the individual; or the place
where the principal office of the corporation (or other juridical entity) is located. The liability to pay the
community tax is due on the last day of February. Payments of community tax later than February is
subject to interest.
" SECTION 139. Professional Tax
(a) The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession
requiring government examination as such amount and reasonable classification as the Sangguniang Panlalawigan may
determine but shall in no case exceed Three hundred pesos (P300.00)
(b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he
practices his profession or where he maintains his principal office in case he practices his profession in several places:
Provided, however, That such person who has paid the corresponding professional tax shall be entitled to practice his
profession in any part of the Philippines without being subjected to any other national or local tax,license, or free for the
practice of such profession.
(1) Any individual or corporation employing a person subject to professional tax shall require payment by that person of
the tax on his profession before employment and annually thereafter.
(2) The professional tax shall be payable annually on or before the thirty first (31st) day of January must, however, pay the
full tax before engaging therein. A line of profession does not become exempt even if conducted with some other
profession for which the tax has been paid. Professionals exclusively employed in the government shall be exempt from the
payment of this tax.
(3) Any person subject to the professional tax shall write in deeds, receipts, prescriptions,reports, books of account, plans
and designs, surveys and maps, as the case may be,the number of the official receipt issued to him. "
(Source: Local Government Code of the Philippines)
Receipt for 2019
What to bring:
For new application:
1. PRC ID
2. Authorization letter (if representative will appear on behalf of the applicant)
For renewal application:
1. Original previous receipt
2. PRC ID.
2. Authorization letter (if representative will appear on behalf of the applicant)
Fees:
Every month of January - PhP 300
For payments made later than January, surcharge and penalty applies
Penalties - PhP 75 + (2% of PhP 375) x number of months
Module 2
Concept, Nature and Characteristics of Taxation and Taxes.
HANDOUTS 1
Taxation is the inherent power of the state, acting through the legislature, to impose and collect revenues
to support the government and its recognized objects. Simply stated, taxation is the power of the State to
collect revenues for public purpose.
Primary Purpose - is to provide funds or property with which the government discharges its appropriate
functions for the protection and general welfare of its citizens.
Non Revenue Objectives
Aside from purely financing government operational expenditures, taxation is also utilized as a tool to carry
out the national objective of social and economic development.
1. to strengthen anemic enterprises by granting them tax exemptions or other conditions or
incentives for growth;
2. to protect local industries against foreign competition by increasing local import taxes;
3. as a bargaining tool in trade negotiations with other countries;
4. to counter the effects of inflation or depression;
5. to reduce inequalities in the distribution of wealth;
6. to promote science and invention, finance educational activities or maintain and improve the
efficiency of local police forces;
7. to implement police power and promote general welfare.
NATURE OF THE POWER OF TAXATION
1. Legislative- this power can only be exercised by the law making body (Congress) not the executive
or the judicial branch of the government, except when delegated by the national legislative body to
a local legislative body or to the executive branch, subject to limitations as may be provided by law;
2. Inherent in sovereignty- the power exists as an incident or attribute of sovereignty, as it is essential
to the existence of every government. The power can therefore be exercised even without the
constitution or any law expressly conferring such power.
Scope of the Power of Taxation
It is comprehensive, unlimited, supreme and plenary, but subject to constitutional and inherent limitations.
ASPECTS OF TAXATION
1. Levying of the tax- The imposition of tax requires legislative intervention. In the Philippines, it is
Congress that levies the tax;
2. Collection of the tax levied. This is essentially an administrative function.
The two processes together constitute the taxation system.
BASIC PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate needs of
government expenditures. The sources of revenue should be sufficient and elastic to meet the demands of
public expenditures;
2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his ability to
pay.
3. Administrative Feasibility- The tax system should be capable of being properly and efficiently
administered by the government and enforced with the least inconvenience to the taxpayer.
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.
Tax in a 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, impost, duty, custom, excise, subsidy, aid,
supply or other name. Tax, in its essential characteristics , is not a debt.
Essential characteristics of tax.
1. it is an enforced contribution
2. it is generally payable in money.
3. It is proportionate in character, usually based on the ability to pay
4. it is levied on persons and property within the jurisdiction of the state
5. it is levied pursuant to legislative authority, the power to tax can only be exercised by the law making
body or congress
6. it is levied for public purpose
7. it is commonly required to be paid a regular intervals.
Tax distinguished from other fees.
1. From TOLL. Toll is a sum of money for the use of something, generally applied to the consideration
which is paid for the use of a road, bridge or the like, of a public nature.
A toll is a demand of proprietorship, is paid for the use of another’s property and may be imposed
by the government or private individuals or entities; while a tax is a demand of sovereignty, is paid
for the support of the government and may be imposed only by the State.
2. From PENALTY. Penalty is any sanction imposed as a punishment for violation of law or acts deemed
injurious. Violation of tax laws may give rise to imposition of penalty.
A penalty is designed to regulate conduct and may be imposed by the government or private
individuals or entities. Tax, on the other hand, is primarily aimed at raising revenue and may be
imposed only by the government.
3. From SPECIAL ASSESSMENT. Special Assessment is an enforced proportional contribution
from owners of lands for special benefits resulting from public improvements.
Special Assessment is levied only on land, is not a personal liability of the person assessed, is based
wholly on benefits and is exceptional both as to time and place. Tax is levied on persons, property,
or exercise of privilege, which may be made a personal liability of the person assessed, is based on
necessity and is of general application.
4. From PERMIT or LICENSE FEE. Permit or License Fee is a charge imposed under the police power for
purposes or regulation.
License fee is imposed for regulation and involves the exercise of police power while tax is levied
for revenue and involves the exercise of the taxing power. Failure to pay a license gee makes an act
or a business illegal, while failure to pay a tax does not necessarily make an act or a business illegal.
5. From DEBT. Debt is generally based on contract, is assignable and may be paid in kind while a tax is
based on law, cannot generally be assigned and is generally payable in money. A person cannot be
imprisoned for non-payment of debt while he can be for non-payment of tax except poll tax.
A tax is considered a debt for purposes of remedies for its enforcement;
6. From REVENUE. Revenue is broader that tax since it refers to all funds or income derived by the
government taxes included. Other sources of revenues are government services, income from
public enterprises and foreign loans.
7. From CUSTOM DUTIES. Custom duties are taxes imposed on goods exported from or imported to a
country. Custom duties are actually taxes but the latter is broader in scope.
Classification of taxes
1. As to subject matter or object
A. personal, poll or capitation- tax of a fixed amount on individuals residing within a specified territory,
without regard to their property, occupation or business. Ex. Community tax (basic)
B. property- imposed on property, real or personal, in proportion to its value, or in accordance with some
reasonable method or apportionment. Ex. Real estate Tax
C. Excise- imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an
occupation, profession or business. Ex. Income tax, VAT, Estate Tax, Donor’s Tax
2. As to who bears the burden of the tax
a. Direct- the tax is imposed on the person who also bears the burden thereof
Ex. Income tax, community tax, estate tax
b. Indirect – imposed on the taxpayer who shifts the burden of the tax to another, Ex. VAT, customs duties.
3. As to determination of amount
a. specific – imposed and based on a physical unit of measurement as by head number, weight, length or
volume. Ex. Tax on distilled spirits, fermented liquors, cigars
b. Ad Valorem of a fixed proportion of the value of the property with respect to which the tax is assessed.
Ex. Real estate tax, excise tax on cars, non essential goods.
4. As to purpose
A. general, fiscal, or revenue- imposed for the general purpose of supporting the government. Ex. Income
tax, percentage tax
B. special or regulatory- imposed for a special purpose, to achieve some social or economic objective. Ex.
Protective tariffs or custom duties on imported goods intended to protect local industries.
5. As to scope or authority imposing the tax
a. national- imposed by the national government ex. NIRC, custom duties
b. municipal or local- imposed by municipal corporations or local governments ex. Real estate tax,
6. As to graduation of rates.
a. proportional- based on a fixed percentage of the amount of the property, receipts or on other basis to
be taxed ex. Real estate tax, VAT
b. progressive and graduated- the rate of the tax increases as the tax base or bracket increases ex. Income
tax, estate tax, donor’s tax
c. regressive- the rate of tax decreases as the tax base or bracket increases.
d. degressive- increase of rate is not proportionate to the increase of tax base.
MODULE 2 TAXATION
HANDOUTS 2
Limitations on The Power of Taxation The power of taxation, is however, subject to constitutional and
inherent limitations.
Constitutional limitations are those provided for in the constitution or implied from its provisions, while
inherent limitations are restrictions to the power to tax attached to its nature.
The following are the inherent limitations.
1.
2.
3.
4.
5.
Purpose. Taxes may be levied only for public purpose;
Territoriality. The State may tax persons and properties under its jurisdiction;
International Comity. The property of a foreign State may not be taxed by another.
Exemption. Government agencies performing governmental functions are exempt from taxation
Non-delegation. The power to tax being legislative in nature may not be delegated. (subject to
exceptions)
Constitutional limitations.
1. Observance of due process of law and equal protection of the laws. (sec, 1, Art. 3) Any deprivation
of life, liberty or property is with due process if it is done under the authority of a valid law and
after compliance with fair and reasonable methods or procedure prescribed. The power to tax, can
be exercised only for a constitutionally valid public purpose and the subject of taxation must be
within the taxing jurisdiction of the state. The government may not utilize any form of assessment
or review which is arbitrary, unjust and which denies the taxpayer a fair opportunity to assert his
rights before a competent tribunal. All persons subject to legislation shall be treated alike under like
circumstances and conditions, both in the privileges conferred in liabilities imposed. Persons and
properties to be taxed shall be group, and all the same class shall be subject to the same rate and
the tax shall be administered impartially upon them.
2. Rule of uniformity and equity in taxation (sec 28(1)Art VI) All taxable articles or properties of the
same class shall be taxed at the same rate. Uniformity implies equality in burden not in amount.
Equity requires that the apportionment of the tax burden be more or less just in the light of the
taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec. 20, Art III) A person cannot be imprisoned for
non-payment of community tax, but may be imprisoned for other violations of the community tax
law, such as falsification of the community tax certificate, or for failure to pay other taxes.
4. Non-impairment of obligations and contracts, sec 10, Art III . The obligation of a contract is
impaired when its terms and conditions are changed by law or by a party without the consent of
the other, thereby weakening the position or the rights of the latter. IF a tax exemption granted by
law and of the nature of a contract between the taxpayer and the government is revoked by a later
taxing law, the said law shall not be valid, because it will impair the obligation of contract.
Mod2
5. Prohibition against infringement of religious freedom Sec 5, Art III, it has been said that the
constitutional guarantee of the free exercise and enjoyment of religious profession and worship,
which carries the right to disseminate religious belief and information, is violated by the imposition
of a license fee on the distribution and sale of bibles and other religious literatures not for profit by
a non-stock, non-profit religious corporation.
6. Prohibition against appropriations for religious purposes, sec 29, (2) Art. VI, Congress cannot
appropriate funds for a private purpose, or for the benefit of any priest, preacher or minister or for
the support of any sect, church except when such priest, preacher, is assigned to the armed forces
or to any penal institutions, orphanage or leprosarium.
7. Exemption of all revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes from income, property and donor’s taxes and
custom duties (sec. 4 (3 and 4) art. XIV.
8. Concurrence by a majority of all members of Congress in the passage of a law granting tax
exemptions. Sec. 28 (4) Art. VI.
9. Congress may not deprive the Supreme Court of its jurisdiction to review, revise, reverse, modify or
affirm on appeal or certiorari, final judgments and orders of lower courts in all cases involving the
legality of any tax, impost, assessment or any penalty imposed in the relation thereto.
REMEDIES OF THE TAXPAYER
1. Where the tax has not been paid
a. Dispute the assessment administratively- file with the BIR a request for reconsideration of the
assessment. If the BIR decides against the taxpayer, he may appeal to the Court of Tax Appeals.
b. Appeal to the CTA- within 30 days from receipt of the decision of the CIR on the disputed assessment,
the taxpayer may appeal the decision to the CTA. Refunds for internal revenue taxes, fees or other charges,
penalties imposed in relation thereto are also appealable to the CTA.
The appeal taken to the CTA shall not suspend the payment, levy, distraint and/or sale of any property of
the taxpayer for the satisfaction of his tax liability. However, if in the opinion of the CTA the collection of
the tax may jeopardize the interest of the government or the taxpayer, the Court at any stage of the
proceeding may suspend the collection of tax and require the taxpayer to deposit the amount claimed, or
file a surety bond for not more than double the amount with the court.
c. Appeal to the Supreme Court
2. Where the tax has been paid- Claim for a refund
Grounds for claiming refund or tax credit
a. the tax has been erroneously or illegally assessed or collected;
b. the penalty had been collected without authority
c. any sum which have been excessive or in any manner wrongfully collected
d. the tax was paid by mistake.
Remedies of the Government in the Collection of Taxes
1. ADMINISTRATIVE
a. Distraint of personal property;
b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds
f. Requiring proof of filing income tax returns
g. Deportation of aliens
h. Inspection of books of accounts.
2. JUDICIAL
a. ordinary civil action
b. criminal action
DISTRAINT- seizure by the government of personal property, tangible or intangible, to enforce the
payment of taxes to be followed by its public sale if the taxes are not voluntarily paid.
Kinds of Distraint
a. Actual- there is taking of possession of the personal property out of the taxpayer into that of the
government;
b. Constructive- the owner is merely prohibited from disposing of his property.
LEVY- A summary administrative remedy, seizure of real property to enforce payment of taxes.
A written notice of levy, containing a description of the property upon which levy is made, the name of the
taxpayer and the amounts of the tax and penalty due from them is served upon the taxpayer.
FORFEITURE- a divestiture of property without compensation, in consequence of a default or offense. In
case of chattels and removal of fixtures of any sort, forfeiture is enforced by seizure and sale or destruction
of the specific forfeited property. The forfeiture of real property is enforced by a judgment of
condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.
TAX LIEN- a legal claim or charge on property either real or personal established by law as a security in
default of the payment of taxes. The tax, together with interest, penalties and cost that may accrue in
addition thereto is a lien upon all property and rights to property belonging to the taxpayer. The lien
however, shall not be valid against any mortgagee, purchaser or judgment creditor until legal notice of
such liens should be filed by the Commissioner of internal revenue in the Office of the Register of Deeds of
the province or city where the property of the taxpayer is located. The lien attaches when the taxpayer
neglects or refuses to pay the tax after demand, but relates back from the time when assessment was
made by the Commissioner.
REQUIRING THE FILING OF BONDS- Filing of performance bond to secure the payment of taxes or
compliance with certain provisions of tax laws and regulations. This may be required by the BIR for the
issuance of a tax clearance.
REQUIRING PROOF OF FILING INCOME TAX RETURNS. – Before a license to engage in trade or business or
occupation or to practice a profession can be issued to a person, partnership, association or corporation,
he must submit to the officer issuing such license or permit, proof that he has filed his income tax return
during the preceding year and that income taxes due have been paid thereon.
DEPORTATION OF ALIENS- any alien who
1. knowingly and fraudulently evades the payment of any internal revenue tax or
2. willfully refuses to pay such tax and its accessory penalties after the decision on the tax liability rendered
by the Commissioner of Internal Revenue, or the CTA or any competent judicial tribunal shall have become
final and executor, is subject to deportation. The penalty of deportation is not a bar to any proceeding
taken by the government to enforce collection of tax delinquency.
INSPECTION OF BOOKS OF ACCOUNTS
The government thru its authorized agency may inspect the books of accounts of the taxpayers provided
that it follows the necessary legal procedures. There should be a letter of authority to be issued before any
inspection can be facilitated
JUDICIAL ACTION
1. Civil Action- After the assessment made by the Commissioner of Internal Revenue has become final and
executory for failure of the taxpayer to dispute the same and appeal the disputed assessment to the Court
of Tax Appeals, the government may institute civil actions to collect internal revenue taxes in the Regional
Trial Court and the Metropolitan Trial Court, City and municipal courts.
2. Criminal Action- maybe pursued by the authorities for the collection of delinquent taxes. An assessment
of a tax deficiency is not necessary to a criminal prosecution for tax evasion. The crime is complete when
the violator has knowingly and willfully filed a fraudulent return or neglected to file a return with intent to
evade the tax. If the taxpayer is acquitted, the government may still collect the tax in a civil action, because
the payment of a tax is an obligation imposed by statute and does not arise from a criminal act.
FORMS OF ESCAPE FROM TAXATION/ EXEMPTION FROM TAXATION
FORMS OF ESCAPE FROM TAXATION
1. Shifting
2. Capitalization
3. Transformation
4. Avoidance
5. Exemption
6. Evasion
Shifting- process by which tax burden is transferred from statutory taxpayer to another without violating
the law.
Kinds of Shifting
1. Forward shifting- when burden of tax is transferred from a factor of production through the factors of
distribution until it finally settles on the ultimate purchaser or consumer
2. Backward shifting – when the burden is transferred from consumer through factors of distribution to the
factors of production;
3. Onward shifting- when the tax is shifted 2 or more times either forward or backward.
Capitalization- is the reduction in the price of the taxed object equal to the capitalized value of the future
taxes which the purchaser expects to be called upon to pay.
Transformation- the manufacturer or producer upon whom the tax has been imposed, fearing the loss of
his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving
his process of production thereby turning out his units at a lower cost.
Tax avoidance- exploitation by the taxpayer of legally permissible alternative tax rates or methods of
assessing taxable property or income, in order to avoid or reduce tax liability.
Tax Exemption- grant of immunity to particular persons or corporations of a particular class from a tax
which persons and corporations generally within the same state or taxing district are obliged to pay.
Basic Principles Regarding Tax Exemptions
1. Exemptions are highly disfavored by law and he who claims an exemption must be able to justify his
claim by the clearest grant of law.
2. He who claims tax exemption should prove by convincing proofs that he is exempted
3. Tax exemptions should be strictly construed against the person claiming it.
4. Taxation is the rule and exemption Is the exception
5. Constitutional grant of tax exemptions are self-executing
6. In the same way that taxes are personal, tax exemptions are also personal
7. Deductions for income tax purposes partake of the nature of tax exemptions, therefore deductions
should also be construed strictly against the taxpayer.
Tax evasion- use of taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.
Indicia of Fraud in tax evasion
1. Failure to declare for taxation purposes true and actual income derived from business for 2 consecutive
years;
2. Substantial under declaration of income tax returns of the tax payer for 4 consecutive years coupled
with intentional overstatement of deductions.
Role of the Judiciary in Taxation
The power of taxation is based on the reciprocal obligation of protection by the State of its citizens and the
support by such citizens of the State to give funds to provide them protection.
Consequently, the citizen has a right to have a sympathetic and vigilant court or tribunal to check whatever
injustices or abuses that may be committed by the administrative agents of the state in the exercise of the
power of taxation.
TAX EVASION VS. TAX AVOIDANCE
Tax Evasion occurs when the taxpayer resorts to unlawful means to lessen or to get away with his tax
liability. This is also known as tax dodging.
Tax Avoidance happens when the taxpayer minimizes his tax liability by taking advantage of a legally
available tax planning opportunities. This is otherwise known as tax minimization.
Distinction between Tax Evasion and Tax Avoidance
1. Tax avoidance is legal and not subject to criminal penalty WHILE tax evasion is illegal and subject to
criminal penalty.
2. Tax avoidance is minimization of taxes WHILE tax evasion always results in absence of tax
payments.
3.
Double and Multiple Taxation
Double taxation- both taxes where imposed in the same year for the same purpose, upon property owned
by the same person and by the same taxing authority.
Kinds:
Direct duplicate taxation- the same property is taxed twice when it should only be taxed once.
Indirect duplicate taxation- not prohibited and usually allowed provided no violation of equal protection
and uniformity clauses in the constitution.
Remedies of Double or Multiple Taxation
1. Provide for exemption;
2. Allowance for tax deduction
3. Allowance for tax credit for foreign taxes
4. Enter into treaties with other states
5. Allowance of the principle of reciprocity.
Situs of Taxation
SITUS OF TAXATION- literally means the place of taxation, or the country that has jurisdiction to levy a
particular tax on persons, property, rights or business.
Basis: Symbiotic relationship. The jurisdiction, state or political unit that gives protection has the right to
demand support.
The situs of taxation is determined by a number of factors
a. Subject matter- or what is being taxed. He may be a person or it may be a property, an act or activity;
b. Nature of tax- or which tax to impose. It may be an income tax, an import duty or a real property tax;
c. Citizenship of the taxpayer
d. Residence of the taxpayer.
SITUS OF PERSONS
1. Residence tax- place where the person resides
2. Income Taxa. citizenship, or the country of which he is a citizen
b. legal residence
c. place where the income is derived.
3. Estate Tax- residence of the decedent at the time of his death
4. Donor’s Tax- residence of the donor at the time of donation
5. Business/occupation tax- where the business is done or the occupation is engaged in;
SITUS OF TAXATION OF PROPERTY
1. Real Property- location of the property
2. Tangible personal property- location of the property
3. Intangible personal property- domicile or residence of the owner
Income Tax Description
Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax
Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income, by
the Tax Code, as amended, or other special laws.
Who are Required to File Income Tax Returns?
Individuals



Resident citizens receiving income from sources within or outside the Philippines
o Employees deriving purely compensation income from two or more employers, concurrently
or successively at any time during the taxable year
o Employees deriving purely compensation income regardless of the amount, whether from a
single or several employers during the calendar year, the income tax of which has not been
withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or
refundable return
o Self-employed individuals receiving income from the conduct of trade or business and/or
practice of profession
o Individuals deriving mixed income, i.e., compensation income and income from the conduct
of trade or business and/or practice of profession
o Individuals deriving other non-business, non-professional related income in addition to
compensation income not otherwise subject to a final tax
o Individuals receiving purely compensation income from a single employer, although the
income of which has been correctly withheld, but whose spouse is not entitled to
substituted filing
Non-resident citizens receiving income from sources within the Philippines
Aliens, whether resident or not, receiving income from sources within the Philippines
Non-Individuals




Corporations including partnerships, no matter how created or organized.
Domestic corporations receiving income from sources within and outside the Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business
Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/NonProfession Related Income)
BIR Form 1700 - Annual Income Tax For Individuals Earning Purely Compensation Income (Including NonBusiness/Non-Profession Related Income)
Documentary Requirements
1.
2.
3.
4.
Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
Duly approved Tax Debit Memo, if applicable
Proofs of Foreign Tax Credits, if applicable
Income Tax Return previously filed and proof of payment, if filing an amended return for the same
taxable year.
Deadline on or before the 15th day of April of each year covering taxable income for calendar year 2018
and thereafter
Annual Income Tax For Individuals, Estates, and Trusts
BIR Form 1701 - Annual Income Tax Return Individuals, Estates and Trusts
Documentary Requirements
1.
2.
3.
4.
5.
6.
Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable
Certificate of Income Payments Not Subjected to Withholding Tax (BIR Form 2304), if applicable
Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
Duly approved Tax Debit Memo, if applicable
Proof of Foreign Tax Credits, if applicable
Income Tax Return previously filed and proof of payment, if filing an amended return for the same
year
7. Account Information Form (AIF) or the Certificate of the independent Certified Public Accountant
(CPA) with Audited Financial Statements if the gross annual sales, earnings, receipts or output
exceed three million pesos (P3,000,000.00)
8. Account Information Form or Financial Statements not necessarily audited by an independent CPA
if the gross annual sales, earnings, receipts or output do not exceed P3,000,000.00 and is subject to
graduated income tax rates under Section 24(A)(2)(a)
9. Proof of prior year’s excess tax credits, if applicable
Deadline Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of each
year covering income for calendar year 2018 and thereafter
Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those With
Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession)
BIR Form 1701 AIF - Account Information Form for Self-Employed Individuals, Estates and Trusts (Including
those with Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of
Profession) and Estates and Trusts (Engaged in Trade or Business)
NOTE: Pursuant to Sec. 71 of RA 10963, otherwise known as Tax Reform Acceleration and Inclusion Act,
amending Sec. 232 of the Tax Code, as amended, in relation to Revenue Memorandum Circular No. 6 –
2001, corporations, companies or persons whose gross annual sales, earnings, receipts or output exceed
P3,000,000 may not accomplish this form. In lieu thereof, they may file their annual income tax returns
accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties
and the corresponding income therefrom, and other relevant statements duly certified by an independent
CPA.
Documentary Requirements: None
Deadline: Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering
taxable income for calendar year 2018 and thereafter
Quarterly Income Tax For Individuals, Estates And Trusts Including Those With Mixed Income, i.e.,
Compensation Income and Income from Business and/or Practice of Profession
BIR Form 1701Q - Quarterly Income Tax Return For Individuals, Estates and Trusts
Documentary Requirements
1.
2.
3.
4.
Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
Duly approved Tax Debit Memo, if applicable
Proof of other payment/s made, if applicable
Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax at
Source (SAWT), if applicable
Deadlines



May 15 of the current taxable year– for the first quarter
August 15 of the current taxable year – for the second quarter
November 15 of the current taxable year – for the third quarter
Annual Income Tax For Corporations And Partnerships
BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)
Documentary Requirements
1.
2.
3.
4.
5.
Certificate of Income Payments Not Subjected to Withholding Tax (BIR Form 2304), if applicable
Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
Duly approved Tax Debit Memo, if applicable
Proof of Foreign Tax Credits, if applicable
Income tax return previously filed and proof of payment, if amended return is filed for the same
taxable year
6. Account Information Form (AIF) or the Certificate of the independent CPA with Audited Financial
Statements, if the gross annual sales, earnings, receipts or output exceed P3,000,000.
7. Proof of prior year’s excess tax credits, if applicable
Deadline Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of the fourth
month following the close of the taxpayer’s taxable year
Account Information Form For Corporations And Partnerships
BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships)
NOTE: Pursuant to Sec. 71 of RA 10963, otherwise known as Tax Reform Acceleration and Inclusion Act,
amending Sec. 232 of the Tax Code, as amended, in relation toRevenue Memorandum Circular No. 6 –
2001, corporations, companies or persons whose gross annual sales, earnings, receipts or output exceed
P3,000,000 may not accomplish this form. In lieu thereof, they may file their annual income tax returns
accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties
and the corresponding income therefrom, and other relevant statements duly certified by an independent
CPA.
Documentary Requirements: None
Deadline: Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the
close of the taxpayer’s taxable year
Quarterly Income Tax For Corporations And Partnerships
BIR Form 1702Q- Quarterly Income Tax Return (For Corporations and Partnerships)
Documentary Requirements
1. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable
2. Duly approved Tax Debit Memo, if applicable
3. Previously filed return, if an amended return is filed for the same quarter
Deadline Corporate Quarterly Declaration or Quarterly Income Tax Return - On or before the 60th day
following the close of each of the quarters of the taxable year
Improperly Accumulated Earnings Tax For Corporations
BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations)
Documentary Requirements
1. Photocopy of Annual Income Tax Return (BIR Form 1702) with Audited Financial Statements and/or
Account Information Form of the covered taxable year duly received by the BIR; and
2. Sworn declaration as to dividends declared taken from the covered year's earnings and the
corresponding tax withheld, if any.
Deadline: Within fifteen (15) days after the close of the taxable year
Annual Income Information Form for General Professional Partnerships
Sec. 55. Returns of General Professional Partnership (Tax Code of 1997, as amended)
Every general professional partnership shall file, in duplicate, a return of its income, except income exempt
under Section 32 (B) of this Title, setting forth the items of gross income and of deductions allowed by this
Title, and the names, Taxpayer Identification Numbers (TIN), addresses and shares of each of the partners.
Income Tax Rates
I.
For Individual Citizens and Resident Aliens Earning Purely Compensation Income and Individuals
Engaged in Business and Practice of Profession
A. Graduated Income Tax Rates under Section 24(A)(2) of the Tax Code of 1997, as amended
by Republic Act No. 10963
Amount of Net Taxable Income
Over
But Not Over
P250,000
P250,000
P400,000
P400,000
P800,000
P800,000
P2,000,000
P2,000,000
P8,000,000
P8,000,000
Rate
0%
20% of the excess over P250,000
P30,000 + 25% of the excess over P400,000
P130,000 + 30% of the excess over P800,000
P490,000 + 32% of the excess over P2,000,000
P2,410,000 + 35% of the excess over
P8,000,000
B.
For Purely Self-Employed Individuals and/or Professionals Whose Gross Sales/Receipts and
Other Non-Operating Income Do Not Exceed the VAT Threshold of P3,000,000, the tax shall
be, at the taxpayer’s option:
1. 8% Income Tax on Gross Sales or Gross Receipts in Excess of P250,000 in Lieu of the
Graduated Income Tax Rates and the Percentage Tax; Or
2. Income Tax Based on the Graduated Income Tax Rates
C.
For Individuals Earning Both Compensation Income and Income from Business and/or
Practice of Profession, their income taxes shall be:
1. For Income from Compensation: Based on Graduated Income Tax Rates; and
2. For Income from Business and/or Practice of Profession:
a.
If the total Gross Sales/Receipts Do Not Exceed VAT Threshold of P3,000,000,
the Individual Taxpayer May Opt to Avail:
i. 8% Income Tax on Gross Sales/Receipts and Other Non-Operating
Income in Lieu of the Graduated Income Tax Rates and the
Percentage Tax; Or
ii. Income Tax Based on Graduated Income Tax Rates
b.
If the total Gross Sales/Receipts Exceed VAT Threshold of P3,000,000
i. Income Tax Based on Graduated Income Tax Rates
D.
On Certain Passive Income of Individual Citizens and Resident Aliens
Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes
2. Royalties (on books as well as literary & musical compositions)
- In general
3. Prizes (P10,000 or less )
Tax Rate
20%
10%
20%
Graduated
Income Tax
Rates
- Over P10,000
20%
4. Winnings (except from PCSO and Lotto amounting to P10,000 or less ) 20%
- From PCSO and Lotto amounting to P10,000 or less
exempt
5. Interest Income from a Depository Bank under the Expanded Foreign 15%
Currency Deposit System
6. Cash and/or Property Dividends received by an individual from a
10%
domestic corporation/ joint stock company/ insurance or mutual fund
companies/ Regional Operating Headquarter of multinational
companies
7. Share of an individual in the distributable net income after tax of a
partnership (except GPPs)/ association, a joint account, a joint venture
or consortium taxable as corporation of which he is a member or coventure
8. Capital gains from sale, exchange or other disposition of real property
located in the Philippines, classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the stock
exchange
10. Interest Income from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced by
certificates in such form prescribed by the BangkoSentral ng Pilipinas
(BSP)
10%
6%
15%
Exempt
Upon pre-termination before the fifth year, there should be imposed
on the entire income from the proceeds of the long-term deposit based
on the remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years
- Three (3) years to less than four (4) years
- Less than three (3) years
II.
5%
12%
20%
For Non-Resident Aliens Not Engaged in Trade or Business
A. Tax Rate in General – on taxable income from all sources within
the Philippines
B. Certain Passive Income
1. Interest from currency deposits, trust funds and deposit substitutes
2. Royalties (on books as well as literary & musical compositions)
- In general
3. Prizes (P10,000 or less )
same manner
as individual
citizen and
resident alien
individual
Tax Rates
20%
10%
20%
Graduated
Income Tax
Rates
20%
20%
exempt
20%
- Over P10,000
4. Winnings (except from PCSO and Lotto)
- From PCSO and Lotto
5. Cash and/or Property Dividends received from a domestic
corporation/ joint stock company/ insurance/ mutual fund companies/
Regional Operating Headquarter of multinational companies
6. Share of a non-resident alien individual in the distributable net
20%
income after tax of a partnership (except GPPs) of which he is a partner
or from an association, a joint account, a joint venture or consortium
taxable as corporation of which he is a member or co-venture
7. Interest Income from long-term deposit or investment in the form of Exempt
savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced
by certificates in such form prescribed by the BangkoSentral ng
Pilipinas (BSP)
Upon pre-termination before the fifth year, there should be imposed
on the entire income from the proceeds of the long-term deposit
based on the remaining maturity thereof:
Holding Period
- Four (4) years to less than five (5) years
- Three (3) years to less than four (4) years
- Less than three (3) years
8. Capital from the sale, exchange or other disposition of real property
located in the Philippines classified as capital asset
9. Net Capital gains from sale of shares of stock not traded in the Stock
Exchange
- Not over P100,000
- Any amount in excess of P100,000
III.
25%
6%
5%
10%
For Alien Individuals Employed by Regional Headquarters (RHQ) or Area Headquarters and
Regional Operating Headquarters (ROH) of Multinational Companies, Offshore Banking Units
(OBUs), Petroleum Service Contractor and Subcontractor
On the gross income consisting of salaries, wages, annuities,
compensation, remuneration and other emoluments, such as
honoraria and emoluments derived from the Philippines
V.
5%
10%
For Non-resident Aliens Not Engaged in Trade or Business
1. Gross amount of income derived from all sources within the Philippines
2. Capital gains from the exchange or other disposition of real property located
in the Philippines
3. Net Capital gains from the sale of shares of stock not traded in the Stock
Exchange
- Not Over P100,000
- Any amount in excess of P100,000
IV.
5%
12%
20%
6%
Graduated
Income Tax
Rates
For General Professional Partnerships
Net Income of the Partnerships
0%
VI.
For Domestic Corporations
Rates of Tax on Certain Passive Income of Corporations
Tax Rate
1. Interest from currency deposits, trust funds, deposit substitutes and
similar arrangements received by domestic corporations
2. Royalties from sources within the Philippines
3. Interest Income from a Depository Bank under Expanded Foreign
Currency Deposit System
4. Cash and Property Dividends received by a domestic corporation
from another domestic corporation
5. Capital gains from the sale, exchange or other disposition of lands
and/or building
6. Net Capital gains from sale of shares of stock not traded in the stock
exchange
20%
20%
15%
0%
6%
15%
VII.
*Beginning on the 4th year immediately following the year in which such corporation
commenced its business operations, when the minimum corporate income tax is greater than the
tax computed using the normal income tax.
VIII.
For Resident Foreign Corporation
1) a. In General – on taxable income derived from sources within the
Philippines
b. Minimum Corporate Income Tax – on gross income
c. Improperly Accumulated Earnings – on improperly accumulated
taxable income
2) International Carriers – on gross Philippine billings
3) Regional Operating Headquarters of Multinational Companies– on
taxable income
4.) Regional or Area Headquarters of Multinational Companies
5) Corporation Covered by Special Laws
6) Offshore Banking Units (OBUs)
In general – Income derived by OBUs from foreign currency
transactions with non-residents, other OBUs, local commercial banks
and branches of foreign banks authorized by BSP
On interest income derived from foreign currency loans granted to
residents other than offshore banking units or local commercial banks,
local branches of foreign banks authorized by BSP to transact business
with OBUs
7) Income derived under the Expanded Foreign Currency Deposit
System
Interest income derived by a depository bank under the expanded
foreign currency deposit system.
30%
2%
10%
2½%
10%
exempt
Rate specified
under the
respective
special laws
10%
Exempt
10%
7½%
On Income derived by depository banks under the expanded foreign
currency deposit systems from foreign currency transactions with nonresidents, OBUs in the Philippines, local commercial banks including
branches of foreign banks that may be authorized by BSP
On interest income derived from foreign currency loans granted by
depository banks under the expanded foreign currency deposit
systems to residents other than offshore banking units in the
Philippines or other depository banks under the expanded system
8.) Branch Profit Remittances – on total profits applied or earmarked
for remittance without any deduction for the tax component thereof
(except those activities which are registered with the Philippines
Economic Zone Authority)
9.) Interest from currency deposits, trust funds, deposit substitutes and
similar arrangements
10. Royalties derived from sources within the Philippines
exempt
10%
15%
20%
20%
INCLUSIONS AND EXCLUSIONS FROM GROSS INCOME
Section 32 (A) - INCLUSION, meaning they are part of the gross income and are hence taxable:
Under Section 32 (A), Except when otherwise provided in this Title, 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.
Thus, the pertinent items of gross income when earned by an RC (within and without), NRC (within), RA
(within), NRAETB (within) shall be reported and shall form part of their income. Please take note that Tax
Code did not distinguish the source of the income. The definition did simply provide for WHATEVER
SOURCE. So this means that the income even proceeding from illegal sources like illegal gambling, bribes,
kickbacks is still taxable and needs to be reported in the Income Tax Return.
Important points to remember:
Item 1 - Compensation - the designation of the income is immaterial, the employer and employee may call
the salary/wage as anything but LOVE is not significant. The same being considered as compensation.
Item 2 - Gross income under this item means Gross Sales less Cost of Sales (for seller of goods) or Gross
Receipts less Cost of Service (for seller of service). Of course, after considering the discounts, allowances
or returns.
Item 3 - The gains that forms part of the gross income are those earned from the sale or disposition of
ordinary assets. The gains from the sale of capital assets are therefore not included because the same are
subjected to final tax. Please see Section 39 and Revenue Regulations 7-2003 for reference. My Take shall
on Ordinary vs. Capital Assets is somewhere buried elsewhere.
Item 4 - Those interests that were NOT subjected to final tax are part of the gross income. (The interest
earned on the "pautang" of the Bumbay from the madalang people is taxable. On the other hand, the
interest earned by the Bumbay on his bank deposits are NOT part of the gross income - already subjected
to final tax)
Item 5 - Of course, the rents form part of the gross income. In this case, it should be gross rentals less cost,
e.g. depreciation, salaries, maintenance, etc.
Item 6-10 - Those income that were not subjected to final tax forms part of the gross income. This is tricky
though and you should be analytical and very careful. The status of the taxpayer should be taken into
consideration. Example: If AA is a RC (income within and without) receives royalty from abroad, earns
interest income from his loan extended to non-residents, and the other income whether or not subjected
to final tax if the same is from abroad forms part of the gross income. On the other hand, if such were
earned by the NRC, RA, NRAETB, the income therefore are not taxable (since they are taxable only on the
income earned within. So in essence, the source should always be considered and who is the taxpayer.
Item 11 - Since the general professional partnership (GPP) as a rule is exempt, the income of the GPP
distributed to the partners will be reported by such partners in their separate and distinct capacity. The
share therefore of the partners is the Item 11 to be reported in the gross income of each partner.
SECTION 32 (B) - EXCLUSIONS FROM GROSS INCOME (exempt from taxation)
(1) Life Insurance. - The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death
of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an
agreement to pay interest thereon, the interest payments shall be included in gross income.
(2) Amount Received by Insured as Return of Premium. - The amount received by the insured, as a return
of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or
at the maturity of the term mentioned in the contract or upon surrender of the contract.
(3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest, devise, or descent:
Provided, however, That income from such property, as well as gift, bequest, devise or descent of income
from any property, in cases of transfers of divided interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. - amounts received, through Accident or Health Insurance or
under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amounts
of any damages received, whether by suit or agreement, on account of such injuries or sickness.
(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation
binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.(a) Retirement benefits received under Republic Act No. 7641 and those received by officials and
employees of private firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the
service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the
time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be
availed of by an official or employee only once. For purposes of this Subsection, the term 'reasonable
private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an
employer for the benefit of some or all of his officials or employees, wherein contributions are made by
such employer for the officials or employees, or both, for the purpose of distributing to such officials and
employees the earnings and principal of the fund thus accumulated, and wherein its is provided in said
plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any
purpose other than for the exclusive benefit of the said officials and employees.
(b) Any amount received by an official or employee or by his heirs from the employer as a consequence of
separation of such official or employee from the service of the employer because of death sickness or
other physical disability or for any cause beyond the control of the said official or employee.
(c) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement
gratuities, pensions and other similar benefits received by resident or nonresident citizens of the
Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies
and other institutions, private or public.
(d) Payments of benefits due or to become due to any person residing in the Philippines under the laws of
the United States administered by the United States Veterans Administration.
(e) Benefits received from or enjoyed under the Social Security System in accordance with the provisions of
Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by
government officials and employees.
(7)Miscellaneous Items. (a) Income Derived by Foreign Government. - Income derived from investments in the Philippines in loans,
stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i)
foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign
governments, and (iii) international or regional financial institutions established by foreign governments.
(b) Income Derived by the Government or its Political Subdivisions. - Income derived from any public utility
or from the exercise of any essential governmental function accruing to the Government of the Philippines
or to any political subdivision thereof.
(c) Prizes and Awards. - Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement but only if:
(i) The recipient was selected without any action on his part to enter the contest or proceeding; and
(ii) The recipient is not required to render substantial future services as a condition to receiving the prize or
award.
(d) Prizes and Awards in sports Competition. - All prizes and awards granted to athletes in local and
international sports competitions and tournaments whether held in the Philippines or abroad and
sanctioned by their national sports associations.
(e) Thirty thousand pesos (P30,000) which shall cover:
13th Month Pay and Other Benefits. - Gross benefits received by officials and employees of public and
private entities: Provided, however, That the total exclusion under this subparagraph shall not exceed
(i) Benefits received by officials and employees of the national and local government pursuant to Republic
Act No. 6686;
(ii) Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum
Order No. 28, dated August 13, 1986;
(iii) Benefits received by officials and employees not covered by Presidential decree No. 851, as amended
by Memorandum Order No. 28, dated August 13, 1986; and
(iv) Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling
of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary
of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the
same of the inflation rate at the end of the taxable year.
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig contributions, and
union dues of individuals.
(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the
same or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity
of more than five (5) years.
(h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon redemption of
shares of stock in a mutual fund company as defined in Section 22 (BB) of this Code.
1) What is income?
Income means all wealth which flows into the taxpayer other than as a mere return of capital.
2) What is Taxable Income?
Taxable income means the pertinent items of gross income specified in the Tax Code as amended, less the
deductions, if any, authorized for such types of income, by the Tax Code or other special laws.
3) What is Gross Income?
Gross income means all income derived from whatever source.
4) What comprises gross income?
Gross income includes, but is not limited to the following:











Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages,
commissions and similar items
Gross income derived from the conduct of trade or business or the exercise of profession
Gains derived from dealings in property
Interest
Rents
Royalties
Dividends
Annuities
Prizes and winnings
Pensions
Partner's distributive share from the net income of the general professional partnerships
5) What are some of the exclusions from gross income?
o
o
o
o
o
o
o








Life insurance
Amount received by insured as return of premium
Gifts, bequests and devises
Compensation for injuries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc.
Miscellaneous items
Income derived by foreign government
Income derived by the government or its political subdivision
Prizes and awards in sport competition
Prizes and awards which met the conditions set in the Tax Code
13th month pay and other benefits not exceeding P90,000
GSIS, SSS, Medicare and other contributions
Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of
more than five (5) years
Gains from redemption of shares in mutual fund
6) What are the allowable deductions from gross income?
a) *Optional Standard Deduction - an amount not exceeding 40% of the gross sales/receipts for individuals
and gross income for corporations; or
b) Itemized Deductions which include the following:
- Expenses
- Interest
- Taxes
- Losses
- Bad Debts
- Depreciation
- Depletion of Oil and Gas Wells and Mines
- Charitable Contributions and Other Contributions- Research and Development
- Pension Trusts
* Not allowed to non-resident alien individual
* A General Professional Partnership (GPP) may avail of the OSD only once, either by the GPP or the
partners comprising the partnership
7) Who are not required to file Income Tax returns?
a. An individual earning purely compensation income whose taxable income does not exceed P250,000.00
b. An individual whose income tax has been withheld correctly by his employer, provided that such
individual has only one employer for the taxable year
c. An individual whose sole income has been subjected to final withholding tax or who is exempt from
income tax pursuant to the Tax Code and other special laws.
d. An individual who is a minimum wage earner
e. Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the
following requirements are present:
- the employee received purely compensation income (regardless of amount) during the taxable year;
- the employee received the income from only one employer in the Philippines during the taxable year;
- the amount of tax due from the employee at the end of the year equals the amount of tax withheld by
the employer;
- the employee’s spouse also complies with all 3 conditions stated above;
- the employer files the annual information return (BIR Form No. 1604-CF); and
- the employer issues BIR Form No. 2316 (Oct 2002 ENCS version) to each employee.
8.) Who are exempt from Income Tax?
a. Income from abroad of a non-resident citizen who is:
i. 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
ii. 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
iii. 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
iv. A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a
non-resident citizen during 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.
b. Overseas Filipino Worker, including overseas seaman
An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
Filipino worker is taxable only on income from sources within the Philippines; provided, that a seaman who
is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of
the complement of a vessel engaged exclusively in international trade will be treated as an overseas
Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine
Embassy/consulate is not treated as a non-resident citizen; hence, his income is taxable.
c. General Professional Partnership
d. Government Service Insurance System (GSIS)
e. Social Security System (SSS)
f. Philippine Health Insurance Corporation (PHIC)
g. Local Water Districts (LWD)
9) What are the procedures in filing Income Tax returns (ITRs)?
a. For “with payment” ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704)
File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized
Agent Bank (AAB) of the place where taxpayer is registered or required to be registered. In places where
there are no AABs, file the return directly with the Revenue Collection Officer or duly Authorized Treasurer
of the city or municipality in which such person has his legal residence or principal place of business in the
Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.
b. For “no payment” ITRs -- refundable, break-even, exempt and no operation/transaction, including
returns to be paid on 2nd installment and returns paid through a Tax Debit Memo(TDM)
File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered.
However, "no payment" returns filed late shall not be accepted by the RDO but instead, they shall be filed
with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal Treasurer (in places where
there are no AABs), for collection of necessary penalties.
10) How is Income Tax payable of individuals (resident citizens and non-resident citizens) computed?
A. Based on Graduated Income Tax Rate
Gross Income
P ___________
Less: Allowable Deductions (Itemized or Optional)
___________
Net Taxable Income
P ___________
Multiply by Tax Rate (0% to 35%)
____________
Income Tax Due
P ___________
Less: Tax Withheld (per BIR From 2316)
____________
Income Tax Payable
P____________
B. Based on Preferential Tax Rate of 8%
i. Taxpayers source of income is purely from self-employment
Gross Sales/Receipts
P ___________
Add: Non-operating Income
____________
Gross Taxable Income
P ___________
Less: Amount allowed as deduction under Sec. 24 (A)(2)(b) of NIRC, as
amended
Net Taxable Income
Multiply by Tax Rate
250,000.00
P ___________
8%
Income Tax Due
P ___________
Tax Withheld (per BIR From 2307)
____________
Income Tax Payable
P ___________
ii. Mixed Income Earner
On Compensation
Total Compensation Income
P ___________
Less: Non-taxable Income
____________
13th month pay and other benefits (max)
90,000.00
Taxable Compensation Income
P ----------------
Multiply by Tax Rate (0% to 35%)
____________
Tax Due on Compensation
P ___________
On Business Income
Gross Sales/Receipts
P ___________
Add: Non-operating Income
____________
Taxable Business Income
P ___________
Multiply by Tax Rate
8%
Tax Due on Business Income
P ___________
Total Income Tax Due (Compensation + Business)
P ___________
Tax Withheld (per BIR From 2316/2307)
____________
Income Tax Payable
P ___________
11) How is Income Tax Paid?
A. Through withholding
a. Individual Payee:
If the gross annual business or professional income did not
exceed P3,000,000.00
If the gross annual business or professional income is more than
P3,000,000.00
b. Non-individual Payee
If the gross annual business or professional income did not
exceed P720,000.00
If the gross annual business or professional income is more than
P720,000.00
Rate
5%
10%
Rate
10%
15%
B. Pay the balance as you file the tax return, computed as follows:
Income Tax Due
P ___________
Less: Withholding Tax
___________
Net Income Tax Due*
P ___________
*Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the
first installment to shall be paid at the time the return is filed and the second installment on or before
October 15 following the close of the calendar year to the Authorized Agent Bank (AAB) within the
jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered
12) Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income tax?
No, the MCIT is not an additional tax. An MCIT of 2% of the gross income as of the end of taxable year
(whether calendar or fiscal year, depending on the accounting period employed) is imposed on a
corporation taxable under Title II of the Tax Code, as amended, beginning on the 4th taxable year
immediately following the taxable year in which such corporation commenced its business operations
when the MCIT is greater than the regular income tax. The MCIT is compared with the regular income tax,
which is due from a corporation. If the regular income is higher than the MCIT, then the corporation does
not pay the MCIT but the amount of the regular income tax.
13) Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the regular income tax.
The term “regular income tax” refers to the regular income tax rates under the Tax Code. Thus,
corporations which are subject to a special corporate tax or to preferential rates under special laws do not
fall within the coverage of the MCIT.
For corporations whose operations or activities are partly covered by the regular income tax and partly
covered by the preferential rate under special law, the MCIT shall apply the regular income tax rate on its
operations not covered by the tax incentives. Newly established corporations or firms which are on their
first 3 years of operations are not covered by the MCIT.
14) When does a corporation start to be covered by the MCIT?
A corporation starts to be covered by the MCIT on the 4th year following the year of the commencement
of its business operations. The period of reckoning which is the start of its business operations is the year
when the corporation was registered with the BIR. This rule will apply regardless of whether the
corporation is using the calendar year or fiscal year as its taxable year.
15) When is the MCIT reported and paid? Is it quarterly?
The MCIT is paid on an annual basis and quarterly basis. The rules are governed by Revenue Regulations
No. 12-2007.
16) How is MCIT computed?
The MCIT is 2% of the gross income of the corporation at the end of the taxable year.
The computation and the payment of MCIT, shall likewise apply at the time of filing the quarterly corporate
income tax as prescribed under Section 75 and Section 77 of the Tax Code, as amended. Thus, in the
computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higher than the
quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the
quarterly income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end
of the taxable quarter.
“Gross income” means gross sales less sales returns, discounts and cost of goods sold. Passive income,
which have been subject to a final tax at source do not form part of gross income for purposes of
computing the MCIT.
Cost of goods sold includes all business expenses directly incurred to produce the merchandise to bring
them to their present location and use.
For trading or merchandising concern, cost of goods sold means the invoice cost of goods sold, plus import
duties, freight in transporting the goods to the place where the goods are actually sold, including insurance
while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold means all costs of production of
finished goods such as raw materials used, direct labor and manufacturing overhead, freight cost,
insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.
For sale of services, gross income means gross receipts less discounts and cost of services which cover all
direct costs and expenses necessarily incurred to provide the services required by the customers and
clients including:
o
o
o
Salaries and employees benefits of personnel, consultants and specialists directly rendering
the service;
Cost of facilities directly utilized in providing the service such as depreciation or rental of
equipment used;
Cost of supplies
Interest Expense is not included as part of cost of service, except in the case of banks and other financial
institutions.
“Gross Receipts” means amounts actually or constructively received during the taxable year. However, for
taxpayers employing the accrual basis of accounting, it means amounts earned as gross income.
17) What is the carry forward provision under the MCIT?
Any excess of the MCIT over the normal income tax may be carried forward and credited against the
normal income tax for the three (3) immediately succeeding taxable years.
18) How would the MCIT be recorded for accounting purposes?
Any amount paid as excess minimum corporate income tax should be recorded in the corporation’s books
as an asset under account title “Deferred charges-MCIT”
19) How long can we amend our income tax return?
There is no prescription period for amending the return. When the taxpayer has been issued a Letter of
Authority, he can no longer amend the return.
20) Can a benefactor of a senior citizen claim him/her as additional dependent in addition to his/her 3
qualified dependent children at Php25,000 each?
No, pursuant to Revenue Regulations 2-94, the benefactor of a senior citizen cannot claim the additional
exemption. Further, additional exemptions of individual taxpayers are removed under RA 10963 (Tax
Reform for Acceleration and Inclusion).
What is OSD (Optional Standard Deduction)?
OSD stands for Optional Standard Deduction. Instead of tracking all your expenses to get your net expense,
with OSD, you can simply declare that 40% of your income is your expense. That means 60% of your
income is taxable. An added advantage of using OSD is that you don't need to file any audited financial
statements.
The difference between the standard deduction and itemized deduction comes down to simple math. The
standard deduction lowers your income by one fixed amount. On the other hand, itemized deductions
are made up of a list of eligible expenses. You can claim whichever lowers your tax bill the most.
In lieu of reporting the individual/itemized deductions, the current law allows the taxpayer to elect a
standard deduction (of 40%) in the computation of net taxable income. This option is usually referred to as
the optional standard deductions or OSD.
Based on the amendment of Republic Act No. 8424 introduced by Republic Act No. 9337 (RA 9337), OSD is
now applied at forty percent (40%) of net sales without deducting cost of sales or service for individuals, or
forty percent (40%) based on gross profit after deducting cost of sales or service for corporations. This type
of deduction shall not be allowed for non-resident aliens engaged in trade or business.
OSD vs Itemized Deductions
The rule to follow: If your Expenses > 40% of your income, Itemized is the more tax efficient choice. If
your Expenses <= 40% of your income, OSD is the more tax efficient choice. In this case, OSD is clearly the
better option.
To benefit from tax savings under the OSD, a taxpayer must have a profit margin of more than 60%.
Hence, taxpayers with much smaller profit margins, usually those engaged in trading or manufacturing,
will not choose OSD
Who can avail of the 8% Income Tax Rate on Gross Sales/Receipts?
Any self-employed individual whose gross sales/receipts for the year does not exceed P3,000,000 (aka
the VAT Threshold) can avail of the 8% Income Tax Rate on Gross Sales/Receipts.
The provision under Section 24(A)(2)(b) of the Tax Code, as amended, which allows an option of 8% income
tax rate on gross sales/receipts and other non-operating income in excess of P250,000.00 is available only
to self-employed individuals earning income purely from self-employment and/or practice of profession.
Partners of a general professional partnership are not allowed to avail of the 8% tax, as their distributive
share from the general professional partnership is already net of cost and expenses. To avail of the 8% tax,
the taxpayer must first cancel his VAT registration or his percentage tax registration.
Annual Income Tax Return
When you submit a tax return to BIR, you're disclosing your earnings, spending, and other important
financial data. Returns for taxes are used to assess a taxpayer's tax burden, schedule tax payments, or
obtain a refund for an overpayment of tax. Tax returns are required to be submitted on a yearly basis
in the Philippines.
BIR Form No. 1701: Annual Income Tax Return For Individuals (including MIXED Income
Earner), Estates and Trusts
In line with Section 51 of the Code, as amended, people having mixed income (i.e., th ose engaged in
trade/business or profession but also receiving compensation income) must submit BIR Form No.
1701. In order to file an annual income tax return, a taxpayer must include all of their financial
transactions for the previous calendar year.
The following people, regardless of their gross income, are required to complete this form:
1. A Filipino citizen engaged in commerce, trade, or profession both within and outside of the
country.
2. Any foreign national or non-citizen resident working in the Philippines in the course of his or her
profession, whether as an employee or as a company owner.
3. A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting
in any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade
or business.
4. A person who is involved in a trade or company or profession and is also earning compensation
money.
Filing date: Taxpayers are required to submit this form on or before April 15 of each year, which
covers the preceding taxable year's income.
BIR Form No. 1701A: Annual Income Tax Return for Individuals Earning Income PURELY
from Business/Profession
Individuals using the flat 8 percent income tax rate and those who fall within the gradu ated income
tax rates with OSD as a method of deduction. Individuals who make their money solely via trade,
commerce, or the practice of the profession are required to submit a tax return.
1.
A
resident
citizen
(within
and
without
the
Philippines)
2. A resident alien, non-resident citizen or non-resident alien (within the Philippines)
The return may only be utilized by the following individuals:
 individuals whose subject to graduated income tax rates and who use the standard deduction as a
strategy of tax planning, whether or not they have any sales or receipts or other non-operational
revenue; OR
 anybody earning less than Php 3 million in sales/receipts or other non-operating income but who
took advantage of the 8% flat income tax rate
Filing date: Taxpayers are required to submit this form on or before April 15 of each year, which
covers the preceding taxable year's income.