INTRODUCTION TO TAXATION
Definition, Nature and Basis of Taxation
Taxation is the process or means by which the sovereign, through its lawmaking body, raises income to defray
the necessary expenses of the government. Taxation, as a power of the State, is inherent in sovereignty.
Taxes are the lifeblood of the government and their prompt and certain availability are an imperious need
(Commissioner vs. Pineda, 21 SCRA 105). A government cannot continue to exist and operate without financial
means. The inherent power gives the government the right to tax citizens and properties within its jurisdiction.
Taxation is indispensable and inevitable price for civilized society; without taxes, the government would be
paralyzed (Commissioner vs. Algue, Inc., L-28896, Feb. 17, 1988, 158 SCRA 9).
Indeed, the collection of taxes remains one of the primary undertakings of any government in order to provide
sufficient funds with which a nation’s economy may be sustained and developed. In this light, it has become the
enduring goal of every tax authority, be it one that serves a developed or a developing nation, to seek and
implement strategies and technologies that shall support the continuing improvement of their collection systems.
In the Philippines, the premier tax agency is the Bureau of Internal Revenue (BIR).
Upon taxation depends the Government’s ability to serve the people for whose benefit taxes are collected (Vera
vs. Fernandez, 89 SCRA 199). The ultimate beneficiaries in the process are both the government and the citizens.
The state collects taxes in the exercise of its sovereign rights for the support of the government, for the
administration of the laws, and as a means for the continued operation of the various legitimate functions of the
state.
Objectives of Taxation
Taxation is much more than just a means of raising revenue for the government. It is also one of the major means
by which the national government attempts to achieve various economic and social objectives. These objectives
include shifting wealth from the rich to the poos, maintaining price stability, stimulating economic growth and
encouraging full employment.
In its efforts to achieve these objectives, Congress tends to use tax provisions in two different ways. First, some
tax rules are enacted for the purpose of mitigating certain undesirable economic and social conditions already
existing. For instance, low-income individuals often pay little or no national income taxes because of the
elaborate system of exclusions, deductions, and credits of current law. Second, other tax rules provide incentives
for certain desirable activities. For instance, business can claim deductions for depreciation of productive assets
much faster that the assets actually wear out. This provides incentive for the business to invest in these assets,
leading to increased employment of low- and middle-income workers.
All too often, incentive and mitigating aspects of various tax provisions work at cross-purposes. Consider the two
examples just mentioned. While the purpose of the rapid depreciation rules may be to increase investments in
productive facilities that will lead to increased employment of low- and middle-income workers, rapid depreciation
rate may also greatly reduce the tax liabilities of wealthy individual business-owners and thus actually increase,
rather then reduce, the concentration of wealth in society.
Perhaps it is because of these conflicting benefits that Congress so often seems to exhibit ‘confused’ behavior
when writing tax rules. When an incentive provision is enacted, numerous limitations and restrictions will usually
prevent its application in many circumstances. There may also be exceptions. Often the congressional process
of fine-tuning incentive tax provisions will create a maze of statutory law under which significant tax savings are
possible, but only if transactions are carefully planned to fit within statutory requirements.
State Powers
1. Taxation. The power of the state by which the sovereign raises revenue to defray the necessary expenses
of the government.
2. Eminent Domain. The power of the state to take private property for public use upon payment of just
compensation.
3. Police Power. The power of the state to enact laws to promote public health, public morals, public safety
and the general welfare of the people.
Aspects of Taxation
1. Levying of the tax. The imposition of tax requires legislative intervention. In the Philippines, it is Congress
that levies; and
2. Collection of the lax levied. This is essentially an administrative function.
Basic Principles of a Sound Tax System
1. Fiscal adequacy. Sources of revenue are sufficient to meet government expenditures.
2. Equality or theoretical justice. The tax imposed must be proportionate to taxpayer’s ability to pay; and
3. Administrative feasibility. The law must be capable of convenient, just and effective administration.
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. Purpose. Taxes may be levied only for public purpose;
2. Territoriality. The State may tax persons and properties under its jurisdiction;
3. International comity. The property of a foreign State may not be taxed by another;
4. Exemption. Governmental agencies performing governmental functions are exempt from taxation.
5. Non-delegation. The power to tax being legislative in nature may not be delegated.
Situs of Taxation
The situs of taxation is the place of taxation. The rule is that the State may rightfully levy and collect the tax
where the subject being taxed has a situs under its jurisdiction. The situs of taxation is determined by a number
of factors:
1. Subject matter – or what is being taxed. He may be a person or it may be a property, an act or activity.
2. Nature of tax – or which tax to impose. It may be an income tax, an import duty or a real property tax;
3. Citizenship of the taxpayer; and
4. Residence of the taxpayer.
The following situs of taxation apply:
1. Persons – Residence of the taxpayer
2. Real property or tangible personal property – Location of the property.
3. Intangible personal property – As a rule, situs is the domicile of the owner unless he has acquired a situs
elsewhere.
4. Income – Taxpayer’s residence or citizenship, or place where the income was earned.
5. Business, occupation and transaction – Place where business is being operated, occupation being
practiced and transaction completed.
6. Gratuitous transfer of property – Taxpayer’s residence or citizenship, or location of the property.
TAXES
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, tallage, gabel, impost, duty, custom, excise, subsidy, aid,
supply, or other name. Tax in its essential characteristics, is not debt (Black’s Law Dictionary).
Essential Characteristics of a Tax
1. It is an enforced contribution;
2. It is levied by the lawmaking body;
3. It is proportionate in character;
4. It is generally payable in money;
5. It is imposed for the purpose of raising revenues; and
6. It is to be used for public purpose.
Types of Tax Rate Structures
Tax systems are often described as either regressive, proportional, or progressive. A tax is said to be regressive
if the average rate decreases as the tax base increases. For proportional taxes (also called flat or uniform taxes),
the average rate of tax remains constant for all levels of the tax base, whereas a progressive tax is one for which
the average rate increases as the amount of the tax bases increases.
Notice that the definitions of regressive, proportional, and progressive are based on the direction of change in
tax rates with respect to an increase in the tax base. The widely held political view that the rich should pay a
larger amount of tax than the poor could be upheld under any of the three rate structures – even a regressive
one.
Before a tax system can be classified as either regressive or progressive, taxes must be expressed as a
percentage of some base amount. In the previous definitions, the base used for this purpose is the base on
which the tax is computed.
Constitutional Provision on Progressive System of Taxation
The Supreme Court declared Republic Act (R.A.) 9337 or the VAT Reform Act constitutional. In the same
decision, it clarified the constitutional provision on progressive system taxation. The increase in corporate income
tax rate and the removal of certain exemptions are meant to distribute the burden of taxation. Although indirect
taxes, e.g., value-added tax (VAT), are regressive by nature, the constitution does not prohibit the imposition of
indirect taxes. When the Constitution mandated Congress to evolve a progressive system of taxation, it simply
meant that direct taxes should be preferred and that the regressive indirect taxes can be minimized with
exemption and differential rates (G.R. 1668056, G.R. 168207, G.R. 168462, G.R. 168463, and G.R. 168730,
Sept. 1, 2005).
Classification of Taxes
1. As to subject matter or object
a. Personal, poll or capitation – Tax of a fixed amount imposed on individuals, whether citizens or not,
residing within a specified territory without regard to their property or the occupation in which they
may be engaged. Example: community tax.
b. Property – Tax imposed on property, whether real or personal, in proportion either to its value or in
accordance with some other reasonable method apportionment. Example: real estate tax.
c. Excise – Tax imposed upon the performance of an act, the enjoyment of a privilege or the engaging
in an occupation. Examples: estate tax, donor’s tax, income tax, value-added tax.
2. As to who bears the burden
a. Direct – Tax demanded from persons who are intended or bound by law to pay the tax. Examples:
community tax, income tax, estate tax, donor’s tax.
b. Indirect – Tax which the taxpayer can shift to another. Examples: customs duties, value-added tax,
some percentage taxes.
3. As to determination of amount
a. Specific – Tax imposed based on physical unit of measurement, as by head or number, weight, or
length or volume. Examples: tax on distilled spirits, fermented liquors, cigars, wines, fireworks, etc.
b. Ad valorem – Tax of a fixed proportion of the value of property; needs an independent appraiser to
determine its value. Examples: real estate tax, certain customs duties, excise taxes on cigarettes,
gasoline and other.
Excise taxes on certain specific goods imposed under the National Internal Revenue Code are either specific or
ad valorem taxes.
4. As to purpose
a. General, fiscal or revenue – Tax with no particular purpose or object for which the revenue is raised,
but is simply raised for whatever need may arise. Examples: income tax, value-added tax.
b. Special or regulatory – Tax imposed for a special purpose regardless of whether revenue is raised or
not, and is intended to achieve some social or economic end. Example: protective tariffs or customs
duties on certain imported goods to protect local industries against foreign competition.
5. As to authority imposing the tax or scope
a. National – Tax imposed by the national government. Examples: internal revenue taxes, tariffs and
customs duties.
b. Municipal or local – Tax imposed by municipal governments for specific needs. Examples: real estate
taxes, municipal licenses.
6. As to graduation or rate
a. Proportional – Tax based on a fixed percentage of the amount of property income or other basis to
be taxed. Examples: percentage taxes, real estate taxes.
b. Progressive or graduated – Tax rate increases as the tax base increases. Examples: income tax,
estate tax, donor’s tax.
c. Regressive – Tax rate decreases as the tax base increases. Example: value-added tax.
TAX LAWS
Sources of Tax Authority
The three branches of the national government are the President and his administration (executive), the
Congress (legislative), and the Courts (juridical). Congress creates statutory law. Republic Act 8424, The
National Internal Revenue Code (NIRC) of 1997, is a statutory law.
The administrative branch of the national government includes the Department of Finance, of which the Bureau
of Internal Revenue (BIR) is a bureau. Two commonly encountered types of administrative tax authorities are
Revenue Regulations and Revenue Ruling. Most Revenue Regulations are administrative interpretations of the
statutes enacted by Congress and tend to be somewhat more detailed than the Code itself. Revenue Rulings
are much more detailed, as they are issued in order to explain the tax results of very specific transactions.
Court decisions occur when the BIR and taxpayer are unable to agree on what constitutes the correct application
of the tax statutes to specific situations. While Congress writes the statutes, an administrative branch implements
them, the judiciary branch has the final say on what the words of the statutes really mean in actual application.
In summary, tax ‘law’ in general, is composed of all three elements: (1) the Code, (2) Regulations and Rulings,
and (3) decisions of various courts that hear tax cases.
Sources of Tax Laws
1. Constitution;
2. Statutes and Presidential Decrees;
3. Revenue Regulations by the Department of Finance;
4. Rulings issued by the Commissioner of Internal Revenue and Opinions by the Secretary of Justice;
5. Decisions of the Supreme Court and the Court of Tax Appeals;
The “rational basis test” is applied to gauge the constitutionality of an assailed law in the face of an
equal protection1 challenge. It has been held that “in areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor infringes constitutional rights must be upheld
again equal protection challenge if there is any reasonable conceivable state of facts that could provide
a rational basis for the classification.” Under this test, it is sufficient that the legislative classification is
rationally related to achieving some legitimate State interest (British American Tobacco vs. Jose Isidro
Camacho, et al, G.R. 163583, Apr. 15, 2009). 1 Equal protection is a constitutional guarantee which means that no
person or class of persons shall be denied the same protection of the laws which is enjoyed by other persons or other classes in like
circumstances in their lives, liberty, property, and their pursuit of happiness. Equal protection, with respect to classification for
taxation purposes, does not require identity of treatment, but only (1) that classification rests on real and not feigned differences,
(2) that the distinction have some relevance to purpose for which classification is made, and (3) that the difference treatments be
no so disparate, relative to difference in classification, as to be wholly arbitrary (Walters vs City of St. Louis, Mo., 347 U.S. 231, 74
U.S. Supreme Court Reporter 505, 509, 98, Lawyer’s Edition 600).
6. Provincial, city municipal, and barangay ordinances subject to limitations set forth in the Local
Government Code; and
7. Treaties or international agreements the purpose of which is to avoid or minimize double taxation.
Interpretation and Construction of Tax Statutes
The recognized rules in statutory construction also apply to tax statues. As in other statutes, the “legislative intent
is the primary concern.’ However, where there is doubt in determining the legislative intent, the doubt must be
resolved liberally in favor of taxpayers and strictly against the taxing authority.
Exemptions in taxation are highly disfavored in law., they are not to be presumed nor implied but must be clearly
expressed. A tax exemption, when granted, shall be strictly construed against the grantee. Thus, he who claims
the tax exemption must be able to justify his claim or right. As decided by the Supreme Court: “The exception
contained in the tax statutes must be strictly construed against the one claiming the exemption because the law
does not look with favor on tax exemptions and that he who would seek to be, thus, privileged must justify it by
words too plain to be mistaken and too categorical to be misinterpreted.” (Commissioner of Internal Revenue vs.
J. Kiener Company, Ltd., 65 SCRA 143).
Philippine Tax Laws and Taxes
1. National Internal Revenue Code of 1997 (P.D. 1158, as amended);
a. Income taxes (individual and corporate);
b. Estate and donor’s taxes;
c. Value-added tax;
d. Other percentage taxes;
e. Excise tax; and
f.
Documentary stamp tax
2. Tariff and Customs Code of 1978 (P.D. 1464, as amended);
a. Import duties; and
b. Export duties
3. Local Government Code of 1991 (R.A. 7160);
a. Real property tax;
b. Business taxes, fees and charges;
c. Professional tax;
d. Community tax; and
e. Tax on banks and other financial institutions
4. Special Laws
a. Motor Vehicle Law (R.A. 4136) – motor vehicle fees;
b. Private Motor Vehicle Tax Law (P.D. 1958) – private motor vehicle tax;
c. Philippine Immigration Act of 1940 (C.A. 613, as amended) – immigration tax; and
d. Travel Tax Law (P.D. 1183, as amended) – travel tax
Tax Laws Versus GAAP and GAAS
All returns required to be filed by the Tax Code shall be prepared always in conformity with the provisions of the
Tax Code, and the rules and regulations issued implementing said Tax Code. Taxability of income and
deductibility of expenses shall be determined strictly in accordance with the provisions of the Tax Code and the
rules and regulations issued implementing the said Tax Code. In case of difference between the provisions of
the Tax Code and the rules and regulations implementing the Tax Code, on one hand, and the generally
accepted accounting principles (GAAP) and the generally accepted auditing standards (GAAS) on the other
hand, the provisions of the Tax Code and the rules and regulations issued implementing the said tax Code shall
prevail (Revenue Memorandum circular 22-04, Apr. 12, 2004).
Internal Revenue Laws
Revenue Law is a law passed for the purpose of authorizing the levy and collection of taxes in some form of
raise revenue. A revenue law is said to be a national revenue law when it is applicable all over the country.
Internal revenue laws are neither political not penal in nature although there are penalties in case of violations.
Tax laws are civil in nature.
The Bureau of Internal Revenue
The Bureau of Internal revenue (BIR) functions under the supervision and control of the Department of Finance
(DOF). The Bureau was created by Commonwealth Act 466, approved by the National Assembly on June 15,
1939, effective July 1, 1939, which revised and codified the then internal revenue laws of the Philippines.
The mission of the BIR is “to collect taxes efficiently and effectively, for and at least cost to the government,
through impartial and consistent enforcement of internal revenue laws, and convenient and honest service to
taxpayers.”
BIR collection accounts for more that 60% of the national government’s total revenues. The BIR carries the bulk
of the burden of solving the country’s budget deficit problem.
Powers and duties of the Bureau of Internal Revenue
The chief officials of the Bureau are the Commissioner, several Deputy and Assistant Commissioners. The
Deputy Commissioners are tasked to handle particular groups within the Bureau such as information systems,
legal and inspection, operations, resource management, tax reforms administration, special concerns and large
taxpayers, its powers and duties follow:
1. Assessment and collection of all national internal revenue taxes, fees and charges;
2. Enforcement of all forfeitures, penalties, and fines;
3. Execution of judgments in all cases decided in its favors by the Court of Tax Appeals and ordinary courts;
and
4. Administration of supervisory and police powers conferred to it.
Powers of the Commissioner
1. Interpret tax laws and decide tax cases;
2. Obtain information, and to summon, examine, and take testimony of persons;
3. Make assessments and prescribe additional requirement for tax administration and enforcement.
4. Delegate powers vested in him by the Code to any subordinate officer with rank equivalent to a division
chief or higher.
5. Suspend business operations of a taxpayer.
6. Compromise, abate and refund or credit taxes.
INCOME AND INCOME TAXES
Income Defined and Distinguished from Capital
Income, in its broad sense, means all wealth, which flows into the taxpayer 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 (Commissioner vs. BOAC, L-65773, Apr. 30, 1987,
citing Madrigal vs. Rafferty, 38 Phil. 14).
Income is also defined as the amount of money coming to a person or corporation within a specified time, whether
as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its
equivalent. Income may also be thought of as a flow of the fruits of one’s labor.
Capital is a fund or property existing at one distinct point of time. Income, on the other hand, denotes a flow of
wealth during a definite period of time. While capital is wealth, income is the service of wealth. In the Madrigal
case, the Supreme Court made an essential distinction between capital and income: “… capital is a fund, while
income is a flow, capital is wealth, while income is the service of wealth; capital is a ‘tree’ and income is the
‘fruit’.”
Income Tax Defined, Base and Nature
Income Tax is a tax on all yearly profits arising from property, profession, trade or business, or is a tax on a
person’s income, emoluments, profits and the like.
Income tax is generally regarded as an excise (privilege) tax. It is not levied upon persons, property, funds, or
profits as such but upon the right of a person to receive income or profits. Income tax is based on income, either
gross or net, realized in one taxable year.
General Procedures in Determining Income Tax
The following is a generalized overview of the computational procedure by which the national income tax is
determined. Being familiar with the basic steps of the tax determination process should help you maintain as you
go on studying the basics of income tax in senior high and in college.
Step 1 is to identify the taxpaying party or “entity’ to which the tax computation formula applies. Some legal
entities are taxed; others are not. Taxpaying entities include individuals, most corporations, private partnerships
and estates. Unincorporated businesses such as proprietorships and general professional partnerships (GPP)
are not taxed, rather, their income is taxed directly to the owners of such businesses. Citizenship and residency
are also considered.
Step 2 is to determine the taxpayer’s “gross income.” Appreciation in market value is not generally regarded as
income for tax purposes unless realized through a sale or exchange. Even if income is realized, the Code
provides for several specific types of income to be “excluded,” that is, not counted for purposes of measuring
gross income. The source of income (whether within the Philippines or without) must also be known.
Step 3 is to determine the expenses and certain other items that can be ‘deducted” in computing the taxpayer’s
“taxable income.”
Step 4 is to apply the appropriate “tax rate” to the taxpayer’s taxable income to find the “tax due.” For any
particular taxpayer, the applicable rate depends on the type of taxpaying entity, type and level of income, and
certain other aspects.
Step 5 is to subtract any applicable “tax credits/ payments” from the taxpayer’s tax due in finding the “tax payable.”
Unlike deductions that reduce taxable income, tax credits/ payments are a direct offset to the tax itself. These
credits are specified for various situations in numerous sections of the Code.
Step 6 is to increase the tax by “penalties and interests” to obtain the “total amount payable.”
CHAPTER 8
INCOME AND BUSINESS TAXATION
The Code directs that a tax shall be imposed on the taxable income of every individual. Our present tax system
imposes progressive rates of income taxes on citizens and resident aliens. This system equitably distributes the
tax burden by recognizing the paying ability of the individual taxpayer.
This chapter has been updated to conform with Republic Act 10963, otherwise known as the “Tax Reform for
Acceleration and Inclusion (TRAIN)” Act.
Likewise, the global treatment in taxing compensation and business income has been restored from the previous
schedular treatment. In a schedular system, the income tax treatment varies depending on the kind of taxable
income of the taxpayer. A schedular system of taxation provides for a different tax treatment of different types of
income so that a separate tax return is required to be filed for each type of income and the tax is computed on a
per return or per schedule basis.
Global treatment, on the other hand, is a system where the tax treatment views indifferently the tax base and
generally treats in common all categories of taxable income of the taxpayer. A global system of taxation is one
where the taxpayer is required to lump up all items of income earned during a taxable period and pay under a
single set of income tax rules on these different items of income. Under this system, the taxable income – which
is the aggregate of the gross compensation income and gross business or professional income less the allowable
deductions – is being subjected to a unitary but progressive, graduated rate.
While all individuals are subject to tax on their respective taxable incomes, they are not all taxed at the same
rate for two reasons. First, tax rates are generally higher for higher levels of income. Second, even at the same
level of income and with the same basic personal exemption of P50,000, tax dues will vary depending on an
individual’s claim for additional exemptions on dependents.
CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS
1. Citizen
a. Resident
b. Non-resident
2. Alien
a. Resident
b. Non-Resident
1. Engaged in trade or business in the Philippines
2. Not engaged in trade or business in the Philippines
3. Employed by
a. Regional or area headquarters (RHQs) and regional operating headquarters (ROHQs) of
multinational entities in the Philippines 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 sub-contractors
Definition of Terms
1. Citizen. The following shall be considered citizens of the Philippines:
•
Those who are citizens of the Philippines at the time of the adoption of the Feb. 2, 1987
Constitution;
•
Those whose fathers or mothers are citizens of the Philippines;
•
Those born before Jan. 17, 1973, the date of the adoption of the 1973 Constitution, of Filipino
mothers, who elect Philippine citizenship upon reaching the age of majority; and
•
Those who are naturalized in accordance with law.
2. Resident Citizen is a Filipino citizen who permanently resides in the Philippines.
3. Non-Resident Citizen means:
•
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 of for employment on a permanent basis.
•
A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically abroad most of the time during the
taxable year. “Most of the time” is interpreted to mean presence abroad for at least 183
days during the taxable year (BIR Ruling 128-99, Aug. 18, 1999).
•
A citizen who has been previously considered as non-resident citizen and who arrives in
the Philippines at any time during the taxable year to reside permanently in the Philippines
shall likewise be treated as a non-resident citizen for the taxable year in which he arrives
in the Philippines with respect to his income derived from sources abroad until the date
of his arrival in the Philippines.
•
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.
4. Resident Alien. Means an individual whose residence is within the Philippines and who is not a citizen
thereof He is one who is actually present in the Philippines and who is not a mere transient or sojourner.
But residence does not mean mere physical presence. An alien is considered a resident of a non-resident
depending on his intention with regard to the length and nature of his stay.
5. Non-Resident Alien. Means an individual whose residence is not within the Philippines and who is not
a citizen thereof.
6. Non-Resident Alien Engaged in Trade or Business (NRA-ETB). Means that the alien is carrying on a
business in the Philippines. It connotes more than a single act or isolated transactions. It involves some
continuity of action. The term trade, business or profession sha not include performance of services by
the taxpayer as an employee but it includes the performance of the functions of a public office.
A non-resident alien who shall come to the Philippines and stay for an aggregate period of more than
180 days during any calendar year shall be deemed doing business in the Philippines. If he stayed for
180 days or less, he is considered a Non-Resident Alien Not Engaged in Trade or Business in the
Philippines (NRA-NETB).
7. OCWs or OFWs refers to Filipino citizens employed in foreign countries who are physically present in a
foreign country as a consequence of their employment thereat. Their salaries and wages are paid by an
employer abroad and are not borne by any entity or persons in the Philippines. To be considered as an
OCW or OFW, they must be duly registered as such with the Philippine Overseas Employment
Administration (POEA), with a valid Overseas Employment Certificate (OFC).
Seafarers or seamen are Filipino citizens who receive compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in international trade. They must be duly
registered as such with the POEA with a valid OEC and Seafarers Identification record Book (SIRB) or
Seaman’s Book issued by the Maritime Industry Authority (MARINA) (Revenue Regulations 1-2011, Feb.
24, 2011).
8. Foreign Currency Deposit System (FCDS) shall refer to the conduct of banking transactions whereby
any person, whether natural or juridical, may deposit foreign currencies forming part of the Philippine
International reserves, in accordance with the provisions of R.A. 6426 entitled “An Act instituting a Foreign
Currency Deposit System in the Philippines, and for Other Purposes.”
9. Foreign Currency Deposit Unit (FCDU) shall refer to that unit of local bank or a local branch of a foreign
back authorized by the Bankgo Sentral ng Pilipinas (BSP) to engage in foreign currency-denominated
transactions, pursuant to the provisions of R.A. 6424, as amended. Local bank shall refer to a thrift bank
or a commercial bank organized under the laws of the republic of the Philippines. Local branch of a
foreign bank shall refer to a branch of a foreign bank doing business in the Philippines, pursuant to the
provisions of R.A. 337, as amended.
10. Offshore Banking System shall refer to the conduct of banking transactions in foreign currencies
involving the receipt of funds principally from external and internal sources and the utilization of such fund
pursuant to Presidential Decree 1034 as implemented by Central bank (now Bangko Sentral ng Pilipinas
(BSP)) Circular 1389, as amended.
11. Offshore Banking Unit (OBU) shall mean a branch, subsidiary or affiliate of a foreign banking
corporation which is duly authorized by the BSP to transact offshore banking business in the Philippines
in accordance with the provisions of Presidential Decree 1034 as implemented by Central bank (now
BSP) Circular 1389, as amended.
12. Deposits, in connection with offshore banking, shall mean funds in foreign currencies which are accepted
and held by an Offshore Banking Unit or Foreign Currency Deposit Unit in the regular course of business,
with the obligation to return an equivalent amount to the owner thereof, with or without interest.
13. Deposit Substitutes shall mean an alternative from of obtaining funds from the public (the term ‘public’
means borrowing from twenty (20) or more individual or corporate lenders at any one time) other than
deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own
account, for the purpose of relending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer. These instruments may include, but need not to be
limited to bankers’ acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or participation and similar instruments with resources:
Provided, however, That debt instruments issued for interbank call loans with maturity of not more than
five (5) days to cover deficiency in reserves against deposit liabilities, including those between or among
bank quasi-banks, shall be considered as deposit substitute debt instruments.
14. Marginal Income Earner refers to an individual whose business does not realize gross or receipts
exceeding P100,000 in any 12-month period.
15. Regional or Area Headquarters (RHQs) shall mean a branch established in the Philippines by
multinational companies and which headquarters do not earn or derive income from the Philippines and
which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or
branches in the Asia-Pacific Region and other foreign markets.
16. Regional Operating Headquarters (ROHQs) shall mean a branch established in the Philippines by
multinational companies which are engaged in any of the following services: general administration and
planning, business planning and coordination; sourcing and procurement of raw materials and
components; corporate finance advisory services; marketing control and sales promotion; training and
personnel management; logistic services; research and development services and product development;
technical support and maintenance; data processing and communications; and business development.
Definition of terms per Revenue Regulations 8-2018:
17. Compensation Income, in general, means all renumeration for services performed by an employee for
his employer under an employer-employee relationship, unless specifically excluded by the Code.
The name by which the renumeration for services is designated is immaterial. Thus, salaries, wages,
emoluments and honoraria, allowances, commissions (e.g., transportation, representation, entertainment
and the like); fees including director’s fees, 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 the fringe
benefits tax under Sec. 33 of the Code and the allowable “de minimis” benefits; taxable pensions and
retirement pay, and other income of a similar nature constitute compensation income.
18. Compensation Income Earners are individuals whose source of income is purely derived from an
employer employee relationship.
19. Employee refers to an individual performing services under an employer-employee relationship. The
term covers all employees, including officers and employees. Whether elected or appointed, of the
Government of the Philippines, or any political subdivision thereof or any agency or instrumentality.
20. Employer refers to any person for whom an individual performs or performed any service, of whatever
nature, under an employer-employee relationship. It is not necessary that the services be continuing at
the time the wages are paid in order that the status of employer may exist. Thus, for purposes of
withholding, a person for whom an individual has performed past services and from whom he is still
receiving compensation is an “employer.”
21. Employer and Employee relationship exists when a person for whom services were performed
(employer) has the right to control and direct an individual who performs the services (employee), not
only as to the result of the work to be accomplished but also as to the details, methods and means by
which it is accomplished. An employee is subject to the control of the employer not only as to what shall
be done, but how it shall be done. It is not necessary that the employer actually exercises the right to
direct or control the manner in which the services are performed. It is sufficient that there exists a right to
control the manner of doing the work.
22. Fringe Benefits means any good, service or other benefit furnished or granted in cash or in kind other
that the basic compensation, by an employer to an individual employee (except rank-and-file employee
as defined herein) such as, but not limited to the following:
a. Housing;
b. Expense Account;
c. Vehicle of any kind;
d. Household personnel, such as maid, driver and others;
e. Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted.
f.
Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations;
g. Expenses for foreign travel,
h. Holiday and vacation expenses,
i.
Education assistance to the employee of his dependents; and
j.
Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.
23. Gross Receipts refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services, and deposits and advance payments actually or constructively received during the taxable
period for the services performed or to be performed for another person, except returnable security
deposits for purposes of these regulations. In the case of VAT taxpayer, this shall exclude the VAT
component.
24. Gross Sales refers to the total sales transactions net of VAT, if applicable, reported during the period,
without any other deduction. However, gross sales subject to the 8% income tax rate option shall be net
of the following deductions:
a. Sales returns and allowances for which a proper credit or refund was made during the month or
quarter to the buyer for sales previously recorded as taxable sales; and
b. Discounts determined and granted at the time of sale, which are expressly inclined in the invoice, the
amount thereof forming part of the gross sales duly recorded in the books of accounts. Sales discount
indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening
of a future event, may be excluded from the gross sales within the same month/ quarter it was given.
25. Minimum Wage Earner (MWE) refers to a worker in the private sector who is paid with a statutory
minimum wage (SMW) rates, or to an employee in the public sector with compensation income or not
more than the statutory minimum wage rates in the non-agricultural sector where the worker/ employee
is assigned. Such statutory minimum wage rates are exempted from income tax. Likewise, the exemption
covers the holiday pay, overtime pay, night shift differential pays, and hazard pay earned by an MWE.
26. Mixed Income Earner refers to an individual earning compensation income from employment, and
income from business, practice or profession and/or other sources aside from employment.
27. Rank and File Employee refers to an employee holding neither managerial nor supervisory position as
defined under existing provisions of the Labor Code of the Philippines, as amended.
28. Self-Employed refers to a sole proprietor or an independent contractor who reports income earned from
self-employment. S/he controls who s/he work for, how the work is done and when it is done. It includes
those hired under a contract of service or job order, and professionals whose income is derived purely
from the practice of profession and not under an employer=employee relationship.
Professional is a person formally certified by a professional body belonging to a specific profession by
virtue of having completed a required examination or course of studies and/or practice, whose
competence can usually be measured against an established set of standards. It also refers to a person
who engages in some art or sport for money, as a means of livelihood, rather than as a hobby. It includes
but is not limited to doctors, lawyers, engineers, architects, CPAs, professional entertainers, artists,
professional athletes, directors, producers, insurance agents, insurance adjusters, management and
technical consultants, bookkeeping agents, and other recipients of professional, promotional and talent
fee.
29. Taxable Income refers to the pertinent items of gross income specified in the Code, less deductions, if
any, authorized fur such types of income by the Code or other special laws.
30. VAT Threshold refers to the ceiling fixed by law to determine VAT registrable taxpayers. The VAT
threshold is currently set at three million pesos (P3,000,000) and the same shall be used to determine
the income tax liability of self-employed individuals and/or professionals under Sections 24(A)(2)(b) and
24(A)(2)(c) of the Tax Code, as amended.
Illustrations:
1. A British computer expert was hired by a Philippine corporation to assist in its computer system for which
he had to stay in the Philippines for 6 months. Is he a resident alien?
Answer: One who comes to the Philippines for a definite purpose which in its nature would require an
extended stay and to that end makes his home temporarily in the Philippines, becomes a resident, though
it may be his intention at all times to return to his domicile (place of habitual or permanent residence)
abroad when the purpose for which he came has been accomplished.
2. A British cultural performer was engaged to perform in the Philippines for two weeks after which he
returned to his country. Is he a resident alien?
Answer: No. One who comes to the Philippines for a definite purpose which in its nature mare be
promptly accomplished is a transient.
3. An alien owns shares of stock in the Philippines. Is he considered as engaged in business or trade in the
Philippines?
Answer: No, mere ownership of shares of stocks in the Philippines is not enough to constitute as
engaging in trade or business in the Philippines.
4. An alien temporarily serves as executive manager of an airline in Manila. Is he considered engaged in
trade or business in the Philippines?
Answer: Yes, because he is performing the function of a public office.
5. A resident alien left the Philippines and abandoned his residency thereof without any intention of returning.
May he still be considered a resident alien?
Answer: No, because he has no intention at all to return to the Philippines.
6. A resident alien left the Philippines with a re-entry permit. Is he still a resident alien?
Answer: Yes, his re-entry permit proves that he has not abandoned his residence in the Philippines.
7. A non-resident citizen went to Manila under the Balikbayan Program. Does his return to Manila interrupt
his residence abroad?
Answer: No, his trip to Manila did not interrupt his residence aboard. The phrase “uninterrupted period”
should not be interpreted literally. His trip to Manila did not affect the continuity of his residence abroad.
SOURCES OF INCOME
Source of income is not a place but the property, activity or service that produced the income. In the case of
income derived from labor, it is the place where the labor is performed; in the case of income derived from the
use of capital, it is the place where the capital is employed; and in the case of profits from the sale or exchange
of capital assets, it is the place where the sale of transaction occurs.
It is important to know the source of income of an individual taxpayer – whether from within the Philippines or
without – because not all individual taxpayers are taxed on all their income. The following rules apple:
1. Resident citizens are taxable on all income derived from sources within and without.
2. Non-resident citizens and alien individuals – resident and non-resident – are taxable only on income
derived from sources within the Philippines. An overseas contract worker is taxable only on his income
from sources within.
Individual
Source of Income
Within the Philippines
Without the Philippines
Resident Citizen
✓
✓
Non-Resident Citizen
✓
Resident Alien
✓
Non-Resident Alien
✓
DEFINITION OF GROSS INCOME
Gross income as define in Section 32 of Republic Act 8424 or the Tax Reform Act of 1997 (amending the National
Internal Code or the Tax Code), 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 from 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 a general professional partnership.
GRADUATED INCOME TAX RATES PER TRAIN
For Individual Citizen and Individual Resident Alien of the Philippines. In general, the income tax on the
individual’s taxable income shall be computed based on the following schedules as provided under Sec. 24(A)(a)
of the Tax Code, as amended:
Effective Jan. 1, 2018 until Dec. 31, 2022:
RANGE OF TAXABLE INCOME
OVER
NOT OVER
TAX DUE = a + (b * c)
BASIC AMOUNT
ADDITIONAL
OF EXCESS
(a)
RATE (b)
OVER (c)
-
250,000.00
-
-
250,000.00
400,000.00
-
20%
250,000.00
400,000.00
800,000.00
30,000.00
25%
400,000.00
800,000.00
2,000,000.00
130,000.00
30%
800,000.00
2,000,000.00
8,000,000.00
490,000.00
32%
2,000,000.00
8,000,000.00
-
2,410,000.00
35%
8,000,000.00
Effective Jan. 1, 2023 and onwards:
RANGE OF TAXABLE INCOME
OVER
NOT OVER
TAX DUE = a + (b * c)
BASIC AMOUNT
ADDITIONAL
OF EXCESS
(a)
RATE (b)
OVER (c)
-
250,000.00
-
-
250,000.00
400,000.00
-
15%
250,000.00
400,000.00
800,000.00
22,500.00
20%
400,000.00
800,000.00
2,000,000.00
102,500.00
25%
800,000.00
2,000,000.00
8,000,000.00
402,500.00
30%
2,000,000.00
8,000,000.00
-
2,202,500.00
35%
8,000,000.00
For Non-Resident Alien Engaged in Trade or Business (NRA-ETB) within the Philippines. In general, the
income tax rates applicable to this taxpayer shall be the rates imposed on individual citizen and a resident alien
individual on the taxable income derived within the Philippines Sec. 25(A)(1) of the Tax Code.
CATEGORIES OF INCOME AND TAX RATES
1. Compensation Income. Individuals earning purely compensation income shall be taxed based on
the graduated income tax rates (from 20% to 35% effective Jan. 1, 2018 to Dec. 31, 2022; from 15% to
35% effective Jan. 1, 2023 onwards) prescribed under Sec. 24(A)(2)(a) of the Tax Code.
Taxable income for compensation earners is the gross compensation income less non-taxable income/
benefits such as but not limited to the 13th month pay and other benefits (subject to limitation of P90,000),
de minimis benefits, and employee’s share on the SSS, GSIS, PHIC, Pag-IBIG contributions and union
dues.
Husband and wife shall compute their individual income tax separately based on their respective taxable
income; if any income definitely attributed to of identified as income exclusively earned or realized by
either of the spouses, the same shall be divided equally between the spouses for the purpose of
determining their respective taxable income.
Minimum wage earners shall be exempt from the payment of income tax based on their statutory
minimum wage rates. The holiday pay, overtime pay, night shift differential pay and hazard pay received
by such earner are likewise exempt.
Gross Compensation Income
Pxxx
Less: Non-Taxable/ Exempt Compensation
xx
Gross Taxable Compensation Income
Pxxx
2. Business Income arises from self-employment or practice of profession. This shall not include income
from performance or services by the tax payer as an employee.
Individuals earning income purely from self-employment and/or practice of profession whose gross
sales/ receipts and other non-operating income (GSRONDI) do not exceed the P3.0M VAT threshold,
shall have the option to avail of:
a. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended, or
b. 8% tax of GSRONOI in excess of P250,000* in lieu of the graduated income tax rates under Section
24(A)(2)(a) and the percentage tax under Section 116 all under the Tax Code, as amended.
Gross Sales/ Receipts
Pxxx
Less: Cost of Sales
Gross Income
xx
Pxxx
Less: Operating Expenses
Taxable Income (if graduated rates)
•
xx
Pxx
The P250,000 mentioned is not applicable to mixed income earners since it is already
incorporated in the first tier of the graduated income tax rates applicable to compensation income.
3. Mixed Income Earners. There are individuals earn income both from compensation and from selfemployment (business or practice profession). They shall be subject to the following taxes:
a. On compensation income – at graduated rates; plus
b. On income from business or practice of profession shall be subject to the following:
b.1. If GSRONOI do not exceed the VAT threshold
o
Either at graduated rates or
o
8% of GSRONOI in lieu of graduated rates and percentage tax, at the option of the
taxpayer.
b.2. If GSRONOI exceed the VAT threshold – at graduated rates
4. Passive Income. Passive Income is subject to a separate and final tax. Examples of passive income
are interests, royalties, prizes, winnings, and dividends. A table showing the passive income and the
corresponding tax rates is provided later.
Illustration: Helena Dela Cruz, a single and a resident citizen, has the following passive income for the
year 2018:
Interest from BRI Savings Deposit
P 75,000
Royalty from Invention
80,000
Prize in a Painting Competition
50,000
Dividends Received from a Domestic Corporation
30,000
Computation of Final Tax:
Interest (75,000*20%)
P 15,000
Royalty (80,000*20%)
16,000
Prize (50,000*20%)
10,000
Dividends (30,000*20%)
TOTAL
3,000
P 44,000
For this illustration, it is assumed that the passive income are all gross of final taxes (FT) or final
withholding taxes (FWT).
Final tax imposed on income or gain shall no longer be included as taxable income subject to the
graduated rates. The final tax is imposed without any deduction and is withheld at source. The amount
received by passive income earner is net of the final tax. The final tax on passive income is remitted by
the payor who serves as the withholding agent1 to the BIR. For example, if the prize in a painting
competition is P50,000, the amount to be received by the winner will only be P40,000. 1 <any person required
to deduct and withhold any tax under the provision of Sec. 57 of the Tax Code.
5. Capital gains from Sale of Shares of Stock, Not Traded through the Local Stock Exchange. Taxed
at 15% final tax on a per transaction basis.
Illustration: In 2018, Uri Dangal, a resident citizen, owns and holds as capital assets, shares of stocks
of Prudential Guarantee and Assurance, Inc., a domestic corporation, costing P40,000. He sold all the
shares directly to Lilibeth Buen for P160,000. How much final tax must be paid?
Selling Price
Cost
P160,000
40,000
Capital Gains
P120,000
Capital Gains Tax (120,000*15%)
P 18,000
6. Capital Gains from Sale of Real Property. Taxed at 6% final tax on the gross selling price or current
fair market value at the same time of sale, whichever is higher.
Illustration: In 2018, Nicos Luna, a resident citizen, sold his residential house and lot in Singalong,
Manila for P2,500,000. The cost of the house and lot three years ago when he acquired the property was
P1,500,000 and the fair market value at the time of sale is P2,300,000. How much is the capital gains
from the sale?
Selling Price
P 2,500,000
Tax Rate
6%
Final Tax
P150,000
7. Fringe Benefits. Means any good, service, or other benefit furnished or granted by an employer in cash
or in kind in addition to basic salaries, to an individual employee (except rand-and-file employee) under
and employer-employee relationship.
Taxed at 35% final tax based on the grossed up monetary value granted to employee beginning Jan. 1,
2018. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual
monetary value of the fringe benefit by 65%. The grossed up monetary value is not to be included in the
gross income of the taxpayer for purposes of computing the income tax liability under Section 24(A). The
tax imposed is payable by the employer.
Illustration: In June 2018, Borris Del Pilar, a resident citizen, received from his employer, fringe benefit
of P65,000. This fringe benefit is subject to the fringe benefit tax. Compute the tax that shall be paid by
Boris’ employer.
Monetary Value of the Fringe Benefit
Divide by
P65,000
65%
Grossed-up Monetary Value
P100,000
Multiply by
35%
Fringe Benefit Tax
P 35,000
The categories of income and the tax rates applicable for each type of individual taxpayer are presented below:
INCOME
RESIDENT
NON-RESIDENT
RESIDENT
Citizen
Citizen
Alien
ON TAXABLE INCOME
NON-RESIDENT ALIEN
Engaged
Not Engaged
As defined in
Sec. 31 the tax
20% to 35%
computer under
(effective Jan. 1, 2018 to Dec. 31, 2022)
the revised Sec.
15% to 35%
24(A),
except
20% to 35%
FT 25%
(effective Jan. 1, 2023 onwards)
15% to 35%
20%
20%
FT 25%
10%
20%
FT 25%
for NRA-NETB
ON PASSIVE INCOME
In
general,
interests,
royalties, prizes
and
other
winnings.
Cash
and/or
property
dividends.
ON CAPITAL GAIN
Sale of shares
of
stock
not
traded in stock
15%
15%
6%
6%
exchange.
Sale
of
real
property.
NOTES:
1. The taxable income referred to in the table (no.1) is discussed later in this chapter. From here on, any
reference to Section 24(A) means the revised Section 24(A)(2)(a) per R.A. 10963 or TRAIN Law for
simplicity.
2. All income received by a non-resident alien not engaged in trade or business in the Philippines (NRANETB) except capital gains (from sales of shares of stock not traded in stock exchange and of real
property) are included as gross income taxed at 25% final tax or final withholding tax (FT or FWT).
3. Before TRAIN, all income received by a non-resident alien employed by:
a. Regional or area headquarters (RHQs) and regional operating (ROHQs) of multinational companies
in the Philippines, which are engaged in international trade with affiliates and subsidiary branch offices
in the Asia-Pacific region and other foreign markets,
b. Offshore banking units (OBU),
c. Petroleum service contractors and sub-contractors (PSS),
Are included as gross income taxed at 15% final tax. This same tax treatment shall apply to a Filipino
employed by such firms. But such Filipinos have the option to be taxed at either 15% or under Section
24(A).
Preferential tax treatment will no longer apply for employees of RHQ, ROHQ, OBU, and PSS beginning
Jan. 1, 2018.
PASSIVE INCOME
Passive Income is subject to a separate and final tax at fixed rates. They are not included in the computation
of taxable income form compensation or business/professional income, the tax due on which computed in
accordance with Section 24(A).
ON PASSIVE INCOME
•
Resident Citizen
•
Non-Resident
Engaged in Trade or
Citizen
Business
Resident Alien
Philippines (NRA-ETB)
•
•
Non-Resident
Interests
Interest from any currency bank deposit and
yield or any other monetary benefit from deposit
20%
20%
substitutes and from trust funds and similar
arrangements.
Interest income from a depository bank under
15% (TRAIN)
the Expanded Foreign currency Deposit System
Non-resident citizen is
(FCDS)
Exempt
tax exempt
Interest income from long-term deposit or
investment in the form of savings, common or
Exempt
Exempt
4 years to less than 5 years
5%
5%
3 years to less than 4 years
12%
12%
Less than 3 years
20%
20%
20%
20%
individual
trust
funds,
deposit
substitute,
investment management accounts (IMA) and
other investments evidenced by certificates in
such form prescribed by the BSP with five-year
term or longer.
If deposit is pre-terminated before the fifth
year, the corresponding final tax shall be:
Royalties
Royalties, in general
Alien
in
the
Royalties on books, literary works and musical
10%
10%
20%
20%
20%
20%
composition
Prizes and Winnings
Prizes, in general
Prizes amounting to P10,000 or less are subject
to the graduated income tax schedule in Sec.
24(A).
Winnings, in general
PCSO and Lotto winnings PCSO and Lotto winnings are
amounting to P10,000 or tax exempt.
less
shall
exempt
(TRAIN).
Cash and/or Property Dividends
Actually, or constructively received from a
domestic corporation, joint stock company,
insurance, mutual fund companies and regional
operating
headquarters
of a
multinational
company or
Share of an individual in the distributable net
10%
20%
income after tax of a partnership (except a
general professional partnership) or
Share of an individual in the net income after tax
of an association, joint account or a joint venture
or consortium taxable as a corporation of which
he is a member or co-venturer.
ALLOWABLE DEDUCTIONS
Allowable Deductions are items or amounts, which the law allows to be deducted from gross income in order
to arrive at the taxable income.
1. From compensation income – no deduction shall be allowed. Effective Jan. 1, 2018, basic personal
and/or additional exemptions; and premium payments on health and/or hospitalization insurance are no
longer applicable.
2. From business income
a. Itemized deductions under the Tax Code (Sec. 34):
•
Expenses: ordinary and necessary trade, business or professional expenses like:
o
Salaries, Wages and Allowances
o
SSS, GSIS, PhilHealth, HDMF and other contributions
o
Fringe Benefits
o
Transportation and Travel
o
Rental
o
Entertainment, Amusement and Recreation
o
Janitorial and Messengerial Services
o
Professional Fees
o
Security Services
•
Interest
•
Taxes and Licenses
•
Losses
•
Bad Debts
•
Depreciation
•
Depletion
•
Charitable and other contributions
•
Research and Development
•
Pension Trusts
b. Optional Standard Deduction. In place of the itemized deductions, the individual taxpayer, other
than a nonresident alien, may opt for the optional standard deduction (OSD) not to exceed 40% of
his gross sales or gross receipts, as the case may be.
If the individual is on the accrual basis of accounting for his income and deductions, the OSD shall
be based on the gross sales during the taxable year. On the other hand, if the individual employs the
cash of accounting for his income and deductions, the OSD shall be based on his gross receipts
during the taxable year.
Note that cost of sales in case of individual seller of goods, or cost of services in the case of individual
seller of services, are not allowed to be deducted for purposes of determining the basis of the OSD.
c. No deduction shall be allowed to those who opted to be taxed at 8% income tax rate on their income
from business/ practice of profession. Note that tax base is gross sales/ receipts and other nonoperating income (GSRONO).
TAXABLE INCOME AND TAX DUE
Taxable income is defined as the pertinent items of gross income less the deductions, if any, authorized for
such types of income, by the Tax Code or other special laws. Taxable income is the amount or tax base upon
which tax rate is applied to arrive at the tax due.
Individuals Earning Purely Compensation Income
Gross Compensation Income
Pxxx
Less: Non-Taxable/ Exempt Compensation
xx
Gross Taxable Compensation Income
Pxxx
Illustration: Mr. Juan Malaya, a minimum wage earner, works for GreartWorld Inc. He is not engaged in
business nor has any other source of income other than his employment. For 2018, Mr. Juan Malaya earned a
total compensation income of P135,000.
a. The taxpayer contributed the SSS, PhilHealth, and HDMF amounting to P5,000 and has received 13th
month pay of P11,000. His income tax liability will be computed as follows:
Total Compensation Income
Less: Mandatory Contributions
Non-Taxable Benefits
P135,000
P 5,000
11,000
16,000
Taxable Income
P119,000
Taxpayer is exempt since he is considered a minimum income earner.
b. The following year, Mr. Juan Malaya earned, aside form his basic wage, additional pay of P140,000 which
consists of the overtime pay – P80,000, night shift differential – P30,000, hazard pay – P15,000, and
holiday pay – P15,000. He has the same benefits and contribution as above.
Total Compensation Income
P135,000
Add: Additional Pay
140,000
Total Income
Less: Mandatory Contributions
Non-Taxable Benefits
Net Taxable Income
Tax Due
P275,000
P5,000
11,000
16,000
P259, 000
EXEMPT
Taxpayer is tax exempt as an MWE. The statutory minimum wage as well as the holiday pay, overtime
pay, night shift differential pay and hazard pay received by such MWE are specifically exempted from
income tax under the law.
Self-Employed Individuals Earning Income purely from Self-Employment or Practice of Profession
Where gross sales/receipts and other non-operating income (GSRONOI) do not exceed the P3.0M VAT
threshold, they shall have the option to avail of:
a. The graduated rates under Section 24 (A)(2)(a) of the Tax Cade, as amended; or
b. 8% tax of GSRONOI in excess of P250,000 in lieu of the graduated income tax rates under Section
24(A)(2)(a) and the percentage tax under Section 116 all under the Tax Code, as amended.
Gross Sales/ Receipts
Less: Cost of Sales
Gross Income
Less: Operating Expenses
Taxable Income (if graduated rates)
Pxxx
xx
Pxxx
xx
Pxx
Where gross sales/ receipts and other non-operating income (GSRONOI) exceeded the P3.0M VAT
threshold, they shall be subject to the graduated rates under Section 24(A)(2)(a) of the Tax Code, as
amended.
Taxable income for individuals earning income form self-employment/ practice of profession shall be the net
income, if taxpayer opted to be taxed at graduated rates or has failed to signify the choses option. However, if
the option availed of is the 8% income tax rate, the taxable base is the gross sales/receipts and other nonoperating income.
The taxpayer shall be considered as having availed of the graduated rates under Sec. 24(A)(2)(a) of the Tax
Code unless otherwise signified in the return. Such election shall be irrevocable and no amendment of option
shall be made for the said taxable year.
Even if the flat 8% income tax rate option is initially selected, when the taxpayer’s GSRONOI exceeded the VAT
threshold during the taxable year then the taxpayer shall automatically be subject to the graduated rates under
Sec. 24(A)(2)(a) of the Tax Code.
The option to be taxed at 8% income tax rate is not available to a VAT-registered taxpayer and to a taxpayer
who is subject to Other Percentage Taxes.
Illustration: Ms. Femia Magayon operates a convenience store while she offers bookkeeping services to her
clients. In 2018, her gross sales amounted to P800,000, in addition to her receipts from bookkeeping services of
P300,000. She already signified her intention to be taxed at 8% income tax rate in her 1 st quarter return. Her
income tax liability for the year will be computed as follows:
Gross Sales – Convenience Store
Gross Receipts – Bookkeeping
Total Sales/ receipts
P800,000
300,000
P1,100,000
Less: Amount Allowed as Deduction Sec. 24(A)(2)(b)
250,000
Taxable Income
850,000
Tax Due
8% x P850,000
•
P68,000
The total of gross sales and gross receipts is below the VAT threshold of P3,000,000.
•
Taxpayer’s source of income is purely from self-employment, thus she is entitled to the amount allowed
as deduction of P250,000 under Sec. 24 (A)(2)(b) of the tax Code, as amended.
•
Income tax imposed herein is based on the total of gross sales and gross receipts.
•
Income tax payment is in lieu of the graduated income tax rates under Section 24 (A)(2)(a) and
percentage tax due, by express provision of law.
Illustration: Ms. Femia Magayon above, failed to signifiy her intention to be taxed at 8% income tax rate on
gross sales in her initial Quarterly Income Tax Return, and she incurred cost of sales and operating expenses
amounting to P600,000 and P200,000 respectively, or a total of P800,000; the income tax shall be computed as
follows:
Gross Sales/ Receipts
Less: Cost of Sales
Gross Income
P1,100,000
600,000
P500,000
Less: Operating Expenses
200,000
Taxable Income
300,000
Tax Due
On excess (P300,000-P250,000) *20%
•
P10,000
Aside from income tax, Ms. Femia Magayon is likewise liable to pay business tax.
Illustration: Ms. Daphne Rizal opted to avail of the Optional Standard Deduction (OSD). The OSD and taxable
income shall be computed as follows:
Gross Sales – Convenience Store
Gross receipts – Bookkeeping
Total
Less: OSD (P2,200,000 * 40%)
Net Taxable Income
P1,800,000
400,000
P2,200,000
880,000
1,320,000
Tax Due:
On P800,000
On excess (P1,320,000 – P800,000) * 30%
Total Tax Due
•
P130,000
156,000
286,000
The taxpayer elected OSD in the computation for her taxable income, thus the graduated income tax rate
shall be applied.
•
The election of OSD is irrevocable for the taxable year for which the return is made.
•
Taxpayer is not required to submit her financial statements with her tax return
•
Taxpayer is liable for business tax – Percentage Tax, in addition to income tax.
Individuals Earning Income Both from Compensation and from Self-Employment
They shall be subject to the following taxes:
a. On compensation income – at graduated rates; plus
b. On income from business or practice of profession shall be subject to the following:
b.1. If GSRONOI do not exceed the VAT threshold –
•
Either at graduated rates or
•
8% of GSRONOI in lieu of graduated rates and percentage tax, at the option of the taxpayer.
b.2. If GSRONOI exceed the VAT threshold – at graduated rates.
Illustration: Mr. Bai Biore, a financial comptroller of BSA Corp., earned annual compensation in 2018 of
P1,500,000, inclusive of 13th month and other benefits in the amount of P120,000 but net of mandatory
contributions to SSS and PhilHealth. Aside from employment income, he owns a convenience store with gross
sales of P2,400,000. His cost of sales and operating expenses are P1,000,000 and P600,000 respectively, and
with non-operating income of P100,000.
a. His tax due for 2018 shall be computed as follows if he opted to be taxed at 8% income tax rate on his
gross sales for his income form business:
Total Compensation Income
th
Less: Non-Taxable 13 Month Pay and other benefits
Taxable Compensation Income
P1,500,000
90,000
P1,410,000
Tax Due:
On Compensation:
On P800,000
On Excess (P1,410,000-P800,000) * 30%
Tax Due on Compensation Income
P130,000
183,000
P313,000
On Business Income:
Gross Sales
Add: Non-Operating Income
Taxable Business Income
P2,400,000
100,000
P2,500,000
Multiplied by Income tax Rate
8%
Tax Due on Business Income
P200,000
Total income Tax Due (Compensation and Business)
P513,000
•
The option of 8% income tax rate is applicable only to taxpayer’s income form business, and the
same is in lieu of the income tax under the graduated income tax rates and the percentage tax
under Section 116 of the Tax Code, as amended.
•
The amount of P250,000 allowed as deduction under the law for taxpayers earning solely from
self-employment/ practice of profession, is not applicable for mixed income earner under the 8%
income tax option.
•
The P250,000 mentioned above is already incorporated in the first tier of the graduated income
tax rates applicable to compensation income.
b. His tax due for 208 shall be computed as follows if he did not opt for the 8% income tax based on gross
sales/receipts and other non-operating income:
Total Compensation Income
P1,500,000
Less: Non-Taxable 13th month pay and other benefits
90,000
Taxable Compensation
P1,410,000
Add: Taxable Income form Business
Gross Sales
P2,400,000
Less: Cost of Sales
Gross Income
Less: Operating Expenses
Net Income from Operation
Add: Non-Operating Income
Total Taxable Income
1,000,000
P1,400,000
600,000
P800,000
100,000
900,000
P2,310,000
Tax Due:
On P2,000,000
On excess (P2,310,000 – P2,000,000) * 32%
Total Income Tax Due
•
P490,000
99,000
P589,200
The taxable income form both compensation and business shall be combined for purposes of
computing the income tax due if the taxpayer chose to be subject under the graduated income
tax rates.
•
In addition to the income tax, Mr. Bai Biore is likewise liable to pay percentage tax of P72,000,
which is 3% of P2,400,000.
SUMMARY OF INCOME TAX RATES ON INDIVIDUAL CITIZEN AND RESIDENT ALIEN UNDER THE TRAIN
LAW
•
In Lieu of Sec. 24 (A) nad Percentage Tax under Sec. 116 of the Tax Code, as amended. The 8% is not
available to:
o
VAT registered taxpayers; and
o
Taxpayers subject to Other percentage Taxes except those under Sec. 116.
INDIVIDUALS EXEMPT FROM INCOME TAX
1. Non-resident Citizen who is:
a. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact that his
physical presence abroad with a definite intention to reside therein.
b. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either
as an immigrant of for employment on a permanent basis.
c. A citizen of the Philippines who works and derives income form abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year.
d. 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 form sources abroad until the date of his arrival in the Philippines.
2. Overseas Contract Worker, Including Overseas Seaman
An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
contract worker is taxable only on income form sources within the Philippines. 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 contract
worker.
3. Barangay Micro Business Enterprises (R.A. 9178 or BMBE Law)
BMBE refer to any business enterprise engaged in the production, processing or manufacturing of
products or commodities, including agro-processing, 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, should not be more the P3 million. Services shall exclude the practice of a
licensed profession.
It is believed the BMBEs like small sari-sari store, bakeries, and handicraft shops will boost the economic
development of the country, hence BMBEs are granted incentives and benefits. One incentive is the
exemption form income tax on income arising from the registered BMBEs operations. The Act also
exempts interest, commissions and discounts derived form loans by credit institutions to BMBEs form the
gross receipts tax (GRT).
All the BMBEs need to do is to register as a BMBE with the Office of the City or Municipal Treasurer. The
certificate of authority issued to the BMBE is valid for two years and may be renewed for the same period.
4. Expanded Senior Citizen Act of 2010
The exemption from the payment of individual income taxes is available to senior citizens who are
considered to be minimum wage earners in accordance with Republic Act 9504. Senior citizens are also
exempted from value-added tax (VAT) on certain good and services.
DECLARATION OF INCOME TAX FOR INDIVIDUALS
Self-employed individuals are required to file a declaration of their estimated income for the current taxable year
on or before May 15 of the same taxable year. This estimated tax shall be paid in four installments as follows:
Installment
Date
First
May 15
Second
August 15
Third
November 15
Fourth
April 15
The final adjusted income tax return is supposed to be filed and paid in time for the fourth installment on or before
April 15 of the following calendar year. In the quarterly and final returns, gross income and deductions shall be
computed on a cumulative basis. Financial statements are not required submissions on the 1 st, 2nd, and 3rd
installments.
Estimated tax means the amount which the individual declared as income tax in his final adjusted and annual
income tax return for the proceeding taxable year minus the credits allowed. If, during the current taxable year,
the taxpayer reasonably expects to pay a bigger income tax, he shall file an amended declaration during any
interval of installment payment dates. The return shall be filed with and the income shall be paid in the accredited
bank in the city or municipality where the principal place of business is located.
Non-resident Filipino citizens, with respect to income from without the Philippines, and non-resident aliens not
engaged in trade or business in the Philippines (NRA-NETB), are not required to render a declaration of
estimated income tax.
Installment Payment of Individual Income Tax – When the tax due is in excess of P2,000, the individual may
elect to pay the tax in two equal installments, in which case, the first installment shall be paid at the time the
annual income tax return is filed and the second installment paid on or before October 15 following the close of
the calendar year. If any instalment is not paid on or before the date fixed for its payment, the whole amount of
the unpaid tax becomes due and payable, together with the delinquency penalties to be reckoned on the original
date when the tax is required to be paid.
Illustration: Ms. Nadine Reid, a popular actress, received talent fees from JJ Brothers Promotion amounting to
P20,000,000 for 2018. The creditable taxes withheld form the talent fees amounted to P1,600,000. She incurred
costs and expenses amounting to P5,000,000. Her income tax shall be computed as follows:
Gross Receipts
Less: Costs and Expenses
Taxable Income
P20,000,000
5,000,000
P15,000,000
Tax Due and Payable
On P8,000,000
On excess (P15,000,000 – P8,000,000) * 35%
Total Tax Due
Less: Creditable Taxes Withheld
Net Tax Payable
P2,410,000
2,450,000
P4,860,000
1,600,000
P3,260,000
•
Taxpayer is required to file quarterly and annual income tax returns.
•
The creditable tax withheld is deductible form the income tax due.
•
Taxpayer is allowed to pay in two equal installments since the tax due is more than P2,000.
•
As a professional actress, taxpayer is also liable to pay business tax.
SUMMARY OF BIR FORMS: INCOME TAX RETURNS FOR INDIVIDUALS
Income tax return is a sworn statement or declaration in which the taxpayer discloses the nature and extent of
his tax liability by formally making a report of his income and allowable deductions for the taxable year in the
prescribed form.
BIR FORM No. 1700
Annual Income Tax Return for Individuals Earning Purely Compensation
Jan. 2018
Income (Including Non-Business/Non-Profession Income)
Description:
This return shall be filed by every resident citizen deriving compensation income
from all sources, or resident alien and non-resident citizen with respect to
compensation income from within the Philippines, except the following:
1. An individual earning purely compensation income whose taxable income
does not exceed P250,000.
2. An individual receiving purely compensation income, regardless of amount,
from only one employer in the Philippines for the calendar year, the income
tax of which has been withheld correctly by the said employer (tax due
equals tax withheld): Provided, that an individual deriving compensation
concurrently from two or more employers at any time during the taxable
year shall file an income tax return.
3. A minimum wage earner or an individual who is exempt from income tax.
4. An individual whose sole income has been subjected to final withholding tax
(FWT).
Filing Date:
This return is filed on or before April 15 of each year covering income for the
preceding taxable year.
SUBSTITUTED FILING OF INDIVIDUAL ITR
Substituted filing is when the employer’s Annual Information Return of Income Tax Withheld on
Compensation and Final Withholding Taxes (BIR Form 1604-CF) is considered as the “substitute” Income
Tax Reform (ITR) of the employee inasmuch as the information provided in his income tax return (BIR Form
1700) would exactly be the same information contained in the employer’s annual return (BIR Form 1604-CF).
BIR Form No. 1701
Annual Income Tax for Self-Employed Individuals, Estates and Trusts
Jan. 2018
Description:
BIR Form No. 1702 shall be filed by individuals who are engaged in
trade/business or the practice of profession including those mixed income (i.e.,
those engaged in the trade/business or profession who are also earning
compensation income) in accordance with Sec. 51 of the Code, as amended.
The annual income tax return summarizes all the transactions covering the
calendar year of the taxpayer.
This return shall be filed by the following individuals regardless of amount of
gross income.
1. A resident citizen engaged in trade, business, or practice of profession
within and without the Philippines.
2. A resident alien, non-resident citizen or non-resident alien individual
engaged in trade, business or practice of profession within the
Philippines.
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. An individual engaged in trade or business on in the exercise of their
profession and receiving compensation income as well.
Filing Date:
This return is filed on or before April 15 of each year covering income for the
preceding year.
Marries individuals shall file a return for the taxable year to include the income of both spouses, computing
separately their individual tax based on their respective total taxable income. Where it is impracticable for the
spouses to file one return, each spouse may file a separate return of income, if any income cannot be definitely
attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be
divided equally between the spouses for the purpose of determining their respective taxable income.
If the taxpayer is unable to make his own return, the return may be made by his duly authorized agent or
representative or by the guardian, or other person charged with the care of his person or property. The principal
and his representative or guardian shall assume the responsibility of making the return and incurring penalties
for erroneous, false or fraudulent returns.
BIR From No. 1701A
Annual Income Tax Return for Individuals Earning Income PURELY from
Jan. 2018
Business/ Profession (Those under the graduated income tax rates with OSD
as mode of deduction OR those who opted to avail of 8% flat income tax rate).
Description:
The return shall be filed by individuals earning income PURELY from trade/
business or from the practice of profession, to wit:
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 shall only be used by said individuals as follows:
a. Those subject to graduated income tax rates and availed of the optional
standard deduction as method of deduction, regardless of the amount of
sales/ receipts and other non-operating income, OR
b. Those who availed of the 8% flat income tax rate whose sales/ receipts
and other non-operating income do not exceed P3M.
Filing Date:
This return is filed on or before April 15 of each year covering income for the
preceding taxable year.
BIR Form No. 1701Q
Quarterly Income Tax Return for Individuals, Estates and Trusts
Jan. 2018
Description:
This return shall be filed in triplicate by the following individuals regardless of
amount of gross income:
1. A resident citizen engaged in trade, business, or practice of profession
within and without the Philippines.
2. A resident alien, non-resident citizen or non-resident alien individual
engaged in trade, business or practice of profession within the Philippines.
3. A trustee of a trust, guardian of a minor, executor/ administrator of an
estate, or any person acting in any person, where such trust, estate minor,
or person is engaged in trade or business.
Filing Date:
First Quarter
On or before May 15 of the current taxable year
Second Quarter
On or before August 15 of the current taxable year
Third Quarter
On or before November 15 of the current taxable year
BIR FORM 1700 and 1701 – When and Where to File and Pay
1. For electronic Filing and Payment System (eFPS) Taxpayer
The return shall be e-filed and the tax shall be e-paid on or before the 15th day of April of each year
covering income for the preceding taxable year using the eFPS facilities thru the BIR website,
http://www.bir.gov.ph.
2. For Non-Electronic Filing and Payment System (non-eFPS) Taxpayer
The return shall be filed and the tax shall be paid on or before the 15th day of April of each year covering
income for the preceding taxable year with any Authorized Agent Bank (AAB) located within the territorial
jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered. In places where there
are no AABs, the return shall be filed and the tax shall be paid with the concerned Revenue Collection
Officer (RCO) under the jurisdiction of the RDO.
Non-eFPS tax filer may opt to use the electronic format under “eBIRForms” (refer to www.bir.gov.ph) for
the preparation, generation and submission and/or payment of this return with greater ease and accuracy.
In case of “no payment returns”, the same shall be filed with the RDO where the taxpayer is registered/
has his legal residence or place of business in the Philippines or with the concerned RCO under the same
RDO.
3. For Non-Resident Taxpayer – In case taxpayer has no legal residence or place of business in the
Philippines, the return shall be filed with the Office of the Commissioner or Revenue District Office No.
39, South Quezon City.
eFPS and eBIRForms
There are two BIR electronic platfors available for filing tax returns:
1. eFPS or the Electronic Filing and Payment System is the electronic processing and transmission of tax
return information including attachments, and taxes due thereon to the government made over to the
internet through the BIR website.
2. eBIRForms or the Electronic Bureau of Internal Revenue Forms (eBIRForms) refers to the two types of
electronic services (e-Serivces) provided by the BIR for the preparation, generation, and submission of
tax return, which are the following:
a. Offline eBIRForms Package – is a tax preparation software that allows the taxpayer and Accredited
Tax Agent (ATA) to accomplish or fill out tax forms offline. It is an alternative mode of preparing tax
returns that deviates from the conventional manual process of filling out tax returns on pre-printed
forms, which is highly susceptible to human error. Taxpayers/ ATAs can directly encode data, validate,
edit, save, delete, view and print the tax returns. The form package has automatic computations and
has the capability to validate information inputted by the taxpayers/ ATAs. After filling out the forms
in this package, taxpayers/ATAs can submit it to the onlife eBIRForms System.
b. Online eBIRFOrms System – is a filing infrastructure that accepts tax returns submitted online and
automatically computes penalties for tax returns submitted beyond due date. The System creates
secure user accounts thru enrollment for use of the online system, and allows ATAs to file on behalf
of their clients. The System also has a facility for Tax Software providers (TSPs) to test and certify
the data generated by their tax preparation software (certification is by form). It is capable of accepting
returns data filed using certified TSP’s tax preparation software.
The following are mandated to use eFPS:
1. Taxpayer Account Management Program (TAMP) Taxpayers;
2. Accredited and prospective importers required to secure the BIR Importer’s Clearance Certificate (BIRICC) and BIR Broker’s Clearance Certificate (BIR-BCC);
3. National Government Agencies (NGAs);
4. All Licensed Local Contractors;
5. Enterprises enjoying fiscal incentives (PEZA, BOI, Various Zone Authorities, etc.);
6. Top 5,000 Individual Taxpayers;
7. Corporation with Paid-Up Capital Stock of P10 Million and above;
8. Corporations with a complete computerized accounting system (CAS);
9. Procuring Government Agencies with respect to Withholding of VAT and Percentage Taxes;
10. Government Bidders;
11. Insurance companies and stock brokers;
12. Large Taxpayers;
13. Top 20,000 private corporations
The following are mandated to use eBIRForms and eFile:
1. Accredited tax agents, practitioners and all their client-taxpayers who have authorized them to file on
their behalf;
2. Accredited printers of principal and supplementary receipts/ invoices;
3. One-Time Transaction (ONETT) taxpayers;
4. Those engaged in business, or those with mixed income (both compensation and business income) who
shall file a “No Payment’ Return;
5. Government-Owned or Controlled Corporations (GOCCs);
6. Local Government Units (LGUs), except barangays;
7. Cooperative, registered with national Electrification Administration (NEA) and Local Water Utilities
Administration (LWUA).
Client-Taxpayers refers to taxpayers who are otherwise authorizing their tax agents or practitioners to file on
their behalf. Thus, client-taxpayers whose tax agents/ practitioners only sign the audit certificate but have no
authority to file the returns on their behalf are not covered by the mandatory requirement to use eBIRForms.
Only taxpayers previously enumerated are required to file electronically. Other taxpayers, such as Micro Small
Medium Enterprises (MSMEs), which are filing their own return and have tax payments due are not required to
file electronically, but can voluntarily enroll and file using either the eFPS/eBIRForms electronic platforms of the
BIR.