SCHEDULAR
because…
Categorized into schedules according to the
type of activity which produce them.
Income tax treatment varies depending on the
kind of taxable income of the taxpayer
Different tax treatment (tax %) on different
types of income thus, separate tax return is
required to be filed for each type of income
where tax is computed on per return or per
schedule basis
The schedular system is one where the income
tax treatment varies and is made to depend on
the kind or category of taxable income of the
taxpayer
GLOBAL
Single tax is imposed on all income
received/earned irrespective of the act
Generally treats in common all categories of
taxable income of the taxpayer
Taxpayer is required to lump up all items of
income earned during taxable period and pay
under a single set of income tax rules on these
different items of income
Taxable income is being subjected to a unitary
but progressive, graduated rates
The global system is one where the tax
treatment views indifferently the tax base and
generally treats in common all categories of
taxable income of the taxpayer.
Schedular system vs. global system
1. under the schedular treatment, there are
different tax rates, while under the global
treatment, there is a unitary or single tax rate.
2. Under the schedular treatment, there are
different categories of taxable income, while
under the global treatment, there is no need for
classification as all taxpayers are subjected to a
single rate.
3. The schedular treatment is usually used in
the income taxation of individuals while the
global treatment is usually applied to
corporations.
Approach used in the Philippines
Partly schedular and partly global. The
schedular approach is used in the taxation of
individuals while the global approach is used in
the taxation of corporations.
Not all individuals are taxed at the same rate
Tax rates are higher for higher levels of
income
Variation on an individual’s claim for
additional exemption on dependents
CLASSES OF INCOME TAXPAYERS
Basis of classification of taxpayers
1. Corporations v. individuals
2. Nationality
3. Residence
Classes of income taxpayers
1. CITIZENS
a. Resident citizens
1. Those who are citizens of the Philippines at
the time of the adoption of the Constitution (on
February 2, 1987).
2. Those whose fathers or mothers are citizens
of the Philippines (by birth)
3. Those born before Jan. 17, 1973 of Filipino
mothers who elect Philippine citizenship upon
reaching the age of majority.
4. Those who are naturalized in accordance
with law.
5. Filipino employees in embassy/ consulate
b. Non-resident citizens
1. A citizen of the Philippines who established
to the satisfaction of the Commissioner the fact
of his physical presence abroad with a definite
intention to reside therein.
2. 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.
3.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.
(most of the time = at least 183 days)
 4. A citizen who has been previously considered
as a non-resident citizen and who arrives in the
Philippines at any time during the taxable year
to reside permanently in the Philippines.
5. 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.
c. Resident aliens
An individual whose residence is within the
Philippines and who is not a citizen thereof.
1. An alien who lives in the Philippines with no
definite intention as to his stay;
2.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,
although it may be his intention at all times to
return to his domicile abroad;
3. An alien who has acquired residence in the
Philippines retains his status as such until he
abandons the same and actually departs from
the Philippines.
d. Non-resident aliens
An individual whose residence is not within the
Philippines and who is not a citizen. One who
comes to the Philippines for a definite purpose
which in its nature may be promptly
accomplished.
I. engaged in trade or business in the
Philippines, or
A non-resident alien individual who shall come
to the Philippines and stay therein for an
aggregate period of more than one hundred
eighty (180) days during any calendar year shall
be deemed a non-resident alien doing business
in the Philippines. [Section 25(A)(1), NIRC]
II. not engaged in trade or business in the
Philippines
Less than one hundred eighty (180) days during
any calendar year
2. Corporations
a. Domestic corporations
b. Resident foreign corporations
c. Non-resident foreign corporations
3. Special
a. Proprietary educational institutions and
hospitals that are non-profit
a. Insurance companies
b. General professional partnerships
c. Estates and trusts
Note: Estates and trusts are treated as
individual taxpayers.
General principles of income taxation in the
Philippines
a. A citizen of the Philippines residing therein
is taxable on all income derived from
sources within and without the Philippines.
b. A non-resident citizen is taxable only on
income derived from sources within the
Philippines.
c. An individual citizen of the Philippines who
is working and deriving income from abroad
as an overseas contract 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
shall be treated as an overseas contract
worker.
d. An alien individual, whether a resident or
not of the Philippines, is taxable only on
income derived from sources within the
Philippines.
e. A domestic corporation is taxable on all
income derived from sources within and
without the Philippines.
f. A foreign corporation, whether engaged or
not in trade or business in the Philippines, is
taxable only on income derived from
sources within the Philippines.
Who are taxed on their global income?
1. Resident citizens
2. Domestic corporations
Who are taxed only on their income from
sources within the Philippines?
1. Non-resident citizen
2. Overseas contract workers
3. Alien individual, whether a resident or
not of the Philippines o Income from practice of profession

4. Foreign corporation, whether engaged Note: The term “trade or business” includes
or not in trade or business in the Philippines the performance of the functions of a public
office. [Section 22(S), NIRC]Note: The
Who are taxed based only on their net income?
term “trade or business” includes the
1. Resident and non-resident citizens performance of the functions of a public office.
[Section 22(S), NIRC]
2. Resident alien and non-resident alien
engaged in trade or business in the Philippines b. compensation income
for services in whatever form paid, including,
3. Domestic corporation but not limited to, fees, salaries, wages,
commissions, and similar items;
4. Resident foreign corporation
income arising from personal services under an
employer-employee relationship.
Examples:
Who are taxed based on their gross income? 1. Salaries, Wages, Fees
2. Commission on paid on salesman
1. Non-resident alien not engaged in trade 3. Compensation for service
or business in the Philippines 4. Tips
2. Non-resident foreign corporation
c. passive income
Types of income taxed 1. Passive income from Philippine sources
subject to final tax
1. Items of income included in the gross income
2. Passive income from Philippine sources not
2. Passive income subject to final tax
3. Capital gains from sale of shares of stock not
3. Passive income from sources outside the
traded in the stock exchange
Philippines
4. Capital gains from the sale or exchange of I. Interest income
real property II. Rentals/Leases
III. Royalties
Kinds of taxable income or gain IV. Dividends
V. Annuities and proceeds of life
1. Capital gain insurance/other types of insurance
Capital gains are gains or income from the sale VI. Prizes and winnings, awards, and
or exchange of capital assets. These include: rewards
VII. Gifts, bequests, and devises
o Income from dealings in shares of stock VIII. Other types of passive income
of domestic corporation whether or not
through the stock exchange; d. other income from whatever source
derived i.e. found treasure
o Income from dealings in real property
located in the Philippines; and e. Fringe benefit

o Income from dealings in other capital  Fringe benefit means any good, service
assets other than (a) and (b). or other benefit furnished or granted in
cash or in kind by an employer to an
2. Ordinary gain individual employee, except rank and
Ordinary gains are gains or income from the file employees, such as, but not limited
sale or exchange of property which are not to, the following:
capital assets.
1. Housing;
a. business income 2. Expense account;
3. Vehicle of any kind;
o Income from trading, merchandising,
manufacturing or mining
 4. Household personnel, such as Conditions for allowance:
maid, driver and others; 1. The foreign country of which the NRA-
5. Interest on loan at less than ETB is a subject or citizen has an income
market rate to the extent of the tax law;
difference between the market 2. The income tax law of the NRA-ETB’s
rate and actual rate granted; country allows personal exemptions to
6. Membership fees, dues and citizens of the Philippines not residing
other expenses borne by the therein.
employer for the employee in 3. The NRA-ETB files a true and accurate
social and athletic clubs or return of his income from all sources
other similar organizations; within the Philippines.
7. Expenses for foreign travel;
8. Holiday and vacation expenses; 4. Amount allowed: the lower between
9. Educational assistance to the what is allowed in the NRA-ETB’s country
employee or his dependents; and what is alowed in the Philippines.
and
10. Life or health insurance and
 Additional Exemptions
other non-life insurance
a. Taxpayers allowed additional
premiums or similar amounts in
exemptions.
excess of what the law allows.
1. Resident Citizens;
2. Non-resident Citizens;
 Personal Exemptions
3. Resident Aliens;
Personal Exemptions- are
4. NRA-ETB (subject to reciprocity)
arbitrary amount allowed in the nature
of a deduction from gross or net income
b. Amount of additional exemption
for personal, living or family expenses
-25,000 (old 8,000) per dependent
of the taxpayer. These have been
child.
calculated to be roughly equivalent to
the minimum of subsistence.
c. Maximum number of dependent
 Basic Personal Exemption
children
 Taxpayers allowed to claim basic
- four (4) dependent children.
personal exemption:
1. Resident Citizens;
2. Non-resident Citizens;
d. Dependents for additional
3. Resident Aliens;
exemption.
4. Non-resident aliens doing
1.Legitimate child;
business in the Philippines
2. illegitimate child;
(subject to reciprocity);
3. Adopted child.
5. Estates and trusts.
 Amount of basic personal
e. Requisites or qualifications of a
exemption
dependent child.
1.Single(including married but
1. Chiefly dependent upon the
legally separated ,widow or
taxpayer;
widower), estates and trusts.
2. Living with the taxpayer;
Old- 20,000php
3. Not more than 21 years old;
New-50,000php
4. unmarried;
2.Head of family
5. Not gainfully employed.
Old-25,000php
New-50,000php
f. Proper claimant of additional
3.Married (for each working
exemption
spouse).
- the additional exemption for
Old-32,000php
dependents shall be claimed by only
New- 50,000php
one of the spouses in the case of
 Amount of personal exemption allowed to
married individuals. The HUSBAND is
non-resident alien doing business in the
the proper claimant.
Philippines (non-resident alien engaged in
trade or business.)
 g. Instances when the wife can claim
the additional exemption.
1. When the husband explicitly Over Not Tax Plus Of excess
waives his right to the additional over over
exemption in favor of his wife;
(both must be employed) 10,000 5%
2. When the husband is
unemployed; 10,000 30,000 500 10% 10,000
3. When the husband is a non-
30,000 70,000 2,500 15% 30,000
resident citizen deriving income
from foreign sources. 70,000 140,000 8,500 20% 70,000

h. Claimant of additional exemption in 140,000 250,000 22,500 25% 140,000

case of legally separated spouses.
1. The additional exemption may
be claimed only by the spouse
who has custody of the
Child or children;
2. The total amount of additional
exemption that may be claimed
by both shall not exceed the
maximum additional exemption
allowed.
i. Computation of married individual’s
income tax
1. For married individuals, the
husband and wife, shall compute
separately their individual income
tax based on their respective total
taxable income.
2. If any income cannot be definitely
attributed to or identified as income
exclusively earned or realized by
either of the spouses for the purpose
of determining their respective
taxable income.
250,000 500,000 50,000 30% 250,000
500,000 - 125,000 32% 500,000
Premium payment on health and/or
hospitalization insurance of an individual
taxpayer
 Premium payments should not exceed
P2,400 per family or P200 a month for a
taxable year
 Family has a gross income, of all sources
by all members in nuclear family, of not
more than P250,000 for the taxable
year
 In the case of married taxpayers, only
the spouse claiming the additional
exemption for dependents shall be
entitled to this deduction.

Individual Income Income Basic Additional Gross income (not subject to final tax)
taxpayer within without personal exemption
exemption – is the income reduced by exclusions. In other
1.Resident Taxable Taxable Allowed Allowed words, it is income from taxable sources, legal
Citizen or illegal.
2.Resident Taxable Not Allowed Allowed  all income derived from whatever
Alien Taxable source, legal or illegal, including (but
not limited to) the following items:
3.Non- Taxable Not Allowed Allowed
resident Taxable 1. Compensation for services in whatever
alien form paid, including, but not limited to,
4.Non Taxable Not Allowed Not fees, salaries, wages, commissions, and
resident Taxable (reciprocity) allowed similar items;
alien (ETB)
5.Non Taxable Not Not Not  This means all remuneration for services
resident Taxable allowed allowed performed by an employee for his employer
alien under an employer-employee relationship.
(NETB)
 Compensation may be paid in money or in
some medium
(Bonds, stocks = fair market value) other than
money; compensation subject to withholding
 Living quarters or meals
 If a person receives a salary as a
remuneration for services rendered
and, in addition thereto, living quarters
or meals are provided, the value to such
person of the quarters and meals so
furnished shall be added to the
remuneration paid for the purpose of
determining the amount of
compensation subject to withholding.
 However, if living quarters or meals are
furnished to an employee for the
convenience of the employer, the value
thereof need not be included as part of
compensation income. [Section 2.78.1,
Revenue Regulations 2-98]
 Facilities and privileges of a relatively small
value
 Facilities are not considered as
compensation subject to withholding if
such facilities or privileges are of
relatively small value and are offered or
furnished by the employer merely as a
means of promoting the health,
goodwill, contentment, or efficiency of
his employees. [Section 2.78.1, Revenue
Regulations 2-98]
Convenience of the employer rule
 Under this rule, allowances furnished to
the employee for, and as a necessary
incident to, the performance of his
duties are not taxable.
 Thus, the value of meals and living
quarters given to a driver who is
available any hour of the day when
needed by his doctor-employer is not
considered income of the said driver.
 Additional income subject to
withholding
De minimis benefits (nontaxable)
 These are facilities or privileges
furnished or offered by an employer to
his employees that are of relatively
small value and are offered or furnished
by the employer merely as a means of
promoting the health, goodwill,
contentment, or efficiency of his
employee; are not considered as
compensation subject to withholding
(nontaxable)
 Salaries expense for employer.
Taxation of 13th month pay
13th month pay is exempt from tax, up to a
limit. In 2015, this limit was raised to PHP
82,000. If 13th month pay exceeds this limit, the
excess will be added to the salary of the
employee and included in the income tax
calculation.
Taxation of ‘Other Benefits’
‘Other Benefits’ fall into the same category as
13th month pay and are subject to the same PHP
82,000 limit. In other words, if ‘Other Benefits’
and 13th month pay combined total less than
PHP 82,000, no tax needs to be paid. If the
combination of ‘Other Benefits’ and 13th month
pay exceeds the limit, the excess will be subject
to income tax.
Example:
An employee earns PHP 10,000 in performance
related incentives – no tax is payable on this
bonus.
An employee earns PHP 15,000 in performance
related incentives, as well as PHP 20,000 in
‘Other Benefits’ – no tax is payable.
An employee earns PHP 20,000 in performance
related incentives, as well as PHP 80,000 in
‘Other Benefits’ – tax is payable on the PHP
18,000 excess (20,000 + 80,000 – 82,000).
An employee earns PHP 30,000 in performance
related incentives, as well as PHP 100,000 in
‘Other Benefits’ – tax is payable on the PHP
30,000 bonus, and the PHP 18,000 excess.
1. Monetized unused vacation leave
credits of employees not exceeding ten
(10) days during the year; (RR No. 5-
2011).
2. Monetized value of vacation and sick
leave credits paid to government
officials and employees; (RR No. 5-
2011)
3. Medical cash allowance to dependents
of employees, not exceeding P750 per
employee per semester or P125 per
month; (RR No. 5-2011)
4. Rice subsidy of P1,500 or one (1) sack of
50 kg. rice per month amounting to not
more than P1,500; (RR No. 5-2011)
5. Uniform and Clothing allowance not
exceeding P5,000 per annum; (RR No.
8-2012)
6. Actual medical assistance, e.g. medical
allowance to cover medical and
healthcare needs, annual
medical/executive check-up, maternity
assistance, and routine consultations,
not exceeding P10,000.00 per annum;
(RR No. 5-2011)
7. Laundry allowance not exceeding P300
per month; (RR No. 5-2011)
8. Employees achievement awards, e.g.,
for length of service or safety
achievement, which must be in the
form of a tangible personal property
other than cash or gift certificate, with
an annual monetary value not
exceeding P10,000 received by the
employee under an established written
plan which does not discriminate in
favor of highly paid employees; (RR No.
5-2011)
9. Gifts given during Christmas and major
anniversary celebrations not exceeding
P5,000 per employee per annum; (RR
No. 5-2011)
10. Daily meal allowance for overtime work
and night/graveyard shift not exceeding
twenty-five percent (25%) of the basic
minimum wage on a per region basis;
(RR No. 5-2011)
11. Benefits received by an employee by
virtue of a collective bargaining
agreement (CBA) and productivity
incentive schemes provided that the
total monetary value received from
both CBA and productivity incentive
schemes combined do not exceed
P10,000.00 per employee per taxable
year. (RR No 1-2015)
 Tips and gratuities
 Tips or gratuities paid directly to an
employee by a customer of the
employer which are not accounted for
by the employee to the employer are
considered as taxable income but not
subject to withholding.
 If given to employer; additional income
subject to withholding
 Retirement benefits, pensions, gratuities,
etc.
 Such exclusions include:
1. Retirement benefits under RA No. 7641
or a reasonable private benefit plan
2. Amount received by an official or
employee or by his heirs from the employer due
to separation from the service because of
death, sickness or other physical disability or for
any cause beyond the control of the official or
employee
3. Social security benefits, retirement
gratuities, pensions and other similar benefits
received by resident or non-resident citizens or
resident aliens from foreign government
agencies and other institutions, private or
public
4. Payment of benefits to a resident
person under the United States Veterans
Administration
5. Benefits received from or enjoyed
under the Social Security System
6. Benefits received from the Government
Service Insurance System, including retirement
gratuity received by government officials and
employees
Requisites for exclusion of retirement benefits
1. It must be received under RA 7641 or in
accordance with a reasonable private benefit
plan maintained by the employer.
2. Retiring employee or official 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.
3. Benefits granted under the provision
shall be availed of by an official or employee
only once.
Reasonable private benefit plan
 It 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, or
both, for the purpose of distributing to
such officials and employees the
earnings and principal of the fund thus
accumulated, and wherein it 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.
Separation pay and amounts received due to
involuntary separation
 Any amount received by an official or
employee or by his heirs from the
employer due to death, sickness or
other physical disability or for any cause
beyond the control of the said official or
employee is excluded from gross
income.
Cause beyond the control of the employee
 The phrase “for any cause beyond the
control of the said official or employee”
connotes involuntariness on the part of
the official or employee. The separation
from the service of the official or
employee must not be asked for or
initiated by him. [Section 2.78.1,
Revenue Regulation 2-98] The
separation was not of his own making.
Terminal leave pay
 Commutation of leave credits or
terminal leave pay are given not only at
the same time but also for the same
policy considerations governing
retirement benefits. Thus, not being
part of the gross salary or income but a
retirement benefit, terminal pay is not
subject to income tax. [Commissioner v.
Court of Appeals, 203 SCRA 72]
 Terminal leave pay is exempt from
income tax. [Zialcita case, 190 SCRA
851]
 Fixed or variable transportation,
representation and other allowances
 In general, fixed or variable
transportation, representation and
other allowances which are received by
a public officer or employee or officer
or employee of a private entity, in
addition to the regular compensation
fixed for his position or office, is
compensation subject to withholding.
 Any amount paid specifically, either as
advancements or reimbursements, for
traveling, representation and other
bona fide ordinary and necessary
expenses incurred or reasonably
expected to be incurred by the
employee in the performance of his
duties are not compensation subject to
withholding, if the following conditions
are satisfied:
1. It is for ordinary and necessary traveling
and representation or entertainment expenses
paid or incurred by the employee in the pursuit
of the trade, business or profession; and
2. The employee is required to account or
liquidate for the foregoing expenses in
accordance with the specific requirements of
substantiation for each category of expenses.
The excess of actual expenses over advances
made shall constitute taxable income if such
amount is not returned to the employer.
 Vacation and sick leave allowances
 Amounts of vacation allowances or
leave credits which are paid to an
employee constitutes compensation.
Thus, the salary of an employee on
vacation or on sick leave, which are
paid notwithstanding his absence from
work constitutes compensation.
 However, the monetized value of
unutilized leave credits of ten (10) days
or less which were paid to the
employee during the year are not
subject to income tax.
 Less than 10-20 years = nontaxable;
otherwise taxable
  Deductions made by the employer from
compensation of employee FARMING

Any amount which is required to be deducted

from the compensation of the employee by the
employer including the withheld tax, is
considered a part of employee’s compensation
and is deemed to be paid to the employee as
compensation at the time deduction was made

 Remuneration for services as employee of

a nonresident alien individual or foreign
entity

Any person paying compensation on behalf of a

non-resident alien individual or partnership or
foreign corporation, which is not engaged in
trade or business within the Philippines is
subject to all provisions of law and regulations
applicable to an employer

 Compensation for services performed

outside the Philippines

Remuneration for services provided outside the

Philippines by resident citizen for a domestic or
a resident foreign corporation or partnership, or
for a non-resident corporation or partnership or 3. Gains derived from dealings in property;
for a non-resident foreign individual not
engaged in trade or business in the Philippines  All income derived from disposition of
shall be as compensation which is subject to tax property; real, personal or mixed, for sale-
money or for exchange-exchange or for
A non-resident citizen as defined in the combination of both which will result to
regulations is taxable on Income derived from gain/loss
sources within the Philippines.
Fair market value (old)
In general, the situs of the income whether Acquisition cost (new)
within or without the Philippines is determined
by the place where the place is rendered 4. Interests;

2. Gross income derived from the conduct of Subject to final tax; passive income
trade or business or the exercise of a Taxable
profession; Sources of interest income

 The term trade or business includes the o Interest on bank deposit/deposit

performance of the functions of a public substitutes/trust fund and similar
office arrangement
o interest from lending/interest income from
MANUFACTURING, MERCHANDISING/MINING bonds
o interest on uncollected salary
o interest on foreign bonds/government
bonds
o interest on treasury bills
o interest earned from deposits maintained
under the foreign currency deposit system
o interest income of pawnshop operators
 Interest income earned by non-stock, non-profit
educational institutions
• Interest income shall be exempt only
when used directly and exclusively for
educational purposes. To substantiate this
claim, the institution must submit an annual
information return and duly audited financial
statement. A certification of actual utilization
and the Board resolution on the proposed
project to be funded out of the money deposited
in banks must also be submitted. [Department
of Finance Order 149-95]
5. Rents;
 Operating lease
• An operating lease is a contract under
which the asset is not wholly amortized during
the primary period of the lease, and where the
lessor does not rely solely on the rentals during
the primary period for his profits, but looks for
the recovery of the balance of his costs and for
the rests of his profits from the sale or re-lease
of the returned assets at the end of the primary
lease period.
 Finance lease
• Also called “full payout lease” is a
contract involving payment over an obligatory
period (also called primary or basic period) of
specified rental amounts for the use of a lessor’s
property, sufficient in total to amortize the
capital outlay of the lessor and to provide for
the lessor’s borrowing costs and profits.
• Obligatory period is primary non-
cancelable period of the lease which in no case
shall be less than 730 days.
• Lessee exercises choice over the asset.
6. Royalties;
 payment of any kind received as a
consideration for the use of, or the right to
use, any copyright of literary, artistic or
scientific work including cinematograph
films, or films or tapes used for radio or
television broadcasting, any patent, trade
mark, design, or model, plan, secret formula
or process, or for the use of, or the right to
use, industrial, commercial or scientific
equipment, or for information concerning
industrial, commercial or scientific
experience. The term "use" as contained
herein shall include the reselling or
distribution of software.
 Earnings from copyright. Trademarks,
patents and natural resources (coal, gas, oil,
copper, timber) under lease. Use and
exhaustion of property
7. Dividends;
 “Dividends” means any distribution made by
a corporation to its shareholders out of its
earnings on profits and payable to its
shareholders, whether in money or in other
property.
Kinds of dividend income
1. Cash dividend
2. Stock dividend/stock rights
3. Property dividend
4. Liquidating dividend
5. Scrip dividend
6. Indirect dividends
 Cash dividend
 It is paid to shareholders/ members in
cash and is taxable
 Stock dividend
General rule: Not subject to tax because it does
not constitute income; it represents transfer of
surplus to capital account. (Sec. 73B, 1997 NIRC)
Exceptions:
a. Sec. 73B, 1997 NIRC
(1) there is redemption or cancellation
(2) the transaction involves stock dividends,
and
(3) It is also taxable if it leads to a substantial
alteration in the proportion of tax
ownership in a corporation.
(4) Sold = taxable
(5) of Tax Appeals & ANSCOR, GR No.
108576, Jan. 30, 1999)
b. the recipient is other than the
shareholder (Bachrach vs. Seifert, GR
No. L-2659, October 12, 1950)
c. change in the stockholder’s equity
results by virtue of the stock dividend
issuance.
 Dividends paid in property
 Dividends paid in securities or other
property, in which the earnings of a
corporation have been invested, are
 income to the recipients to the amount
of the full market value of such property
when receivable by individual
stockholders.
 A dividend paid in stock of another
corporation is not a stock dividend, even
though the stock distributed was
acquired through the transfer by the
corporation declaring the dividends of
property to the corporation the stock of
which is distributed as a dividend.
[Section 251, Revenue Regulations 2]
 Paid in property of the corporation such
as bonds, securities/stock investments
held by the corporation and is taxable
at the same rate as cash dividend
 Scrip dividend
 Used in form of a promissory note and is
taxable at the same rate of cash
dividend; consideration to pay interest
 Liquidating dividend
 Where a corporation distributes all its
assets in complete liquidation or
dissolution, the gain realized or loss
sustained by the stockholder, whether
individual or corporation, is a taxable
income or deductible loss, as the case
may be.
 Amount received from the corporation-
cost of the shares surrendered by the
stockholder= taxable gain/loss
 Indirect dividends
 Other payments/ rights received by the
taxpayer
8. Annuities;
 Annuity policies sold by insurance
companies which provide installment
payments for life/ for guaranteed fixed
period of time whichever is longer or for life
and guaranteed fixed period
 Annuity payment return of premium;
nontaxable but interest is taxable
9. Prizes and winnings;
 Prizes over P10,000.00 – 20%
 Note: Prizes less than P10,000.00 are
included in the income tax of the individual
subject to the schedular rate of 5% up to
P125,000 + 32% of excess over P500,000.00)
 PAGCOR, PCSO and lotto winnings are tax
exempt
 Prizes and awards made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary or
civic achievement are nontaxable but only
if:
The recipient was selected without any
action on his part to enter the contest or
proceeding; and the recipient is not required
to render substantial future services as a
condition to receiving the prize or award;
athletes
10. Pensions; and
 Money received in lump sum basis in
consideration of services rendered.
Given after an individual reaches the
age of retirement
11. Partner’s distributive share from the net
income of the general professional
partnership.
Types of income taxed (taxable)
1. Items of income included in the gross
income
2. Passive income
3. Capital gains from sale of shares of
stock not traded in the stock exchange
4. Capital gains from the sale or exchange
of real property
Exclusions from gross income (nontaxable)
1. Proceeds from 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.
1.) Proceeds of life insurance policies
excluded from gross income
• Proceeds life insurance policies paid to
the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise
are excluded from the gross income.
2.) Interest on proceeds is included in the
gross income
• If such proceeds are held by the insurer
under an agreement to pay interest thereon, the
interest payment shall be included in the gross
income.
2. Amount received by insured as return
of premium
Excluded return of premium
The amount received by the insured, as a return
of premium 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.
Excess of premium returned shall be
included in gross income
If the amount, when added to amount received
before the taxable year under such contract,
exceed the aggregate premium paid, whether or
not paid during the taxable year, then the
excess shall be included from the gross income.
Excluded amount from in case of a transfer
for a valuable consideration by assignment
or otherwise, of life insurance
In the case of a transfer of a valuable
consideration by assignment or otherwise, of a
life insurance, endowment or annuity contract
or any interest therein, only the actual value
such consideration and the amount of the
premiums and the sums subsequently paid by
the transferee are exempt from the taxation.
Participating dividend
Participating dividends are not income to be
insured, they are treated as return of capital.
3. Gifts, bequests and devises
Subject to transfer taxes
Gift, bequest and devises are subject to
transfer taxes (estate tax or donor’s tax.)
Income from devise or descent of income
included in gross income
Income from property dividend from the
investment, sale or otherwise shall be
included in the gross income
Gift, bequest, devises or descent of income
included in gross income
Gift, bequest, devises or descent of income
from any property, in cases of transfer of
dividend interest, shall be included in the
gross income.
Alimony or an allowance based on a
separation agreement
Neither alimony nor allowance based on
separation agreement is taxable income.
4. Compensation for injuries or sickness
Excluded compensation for injuries or
sickness
Amount received through accident or health
insurance or under workmen’s compensation
act.
Amount of any damages received, whether by
suit or agreement on account of such injuries or
sickness.
Recoveries of certain damages
Recoveries of damages representing
compensation for personal injuries arising from
libel, defamation, slander, breach of promise to
marry, alienation of affection are not subject to
income tax shall not be included in gross
income.
5. Income exempt under treaty
Income of any kind, to the extent required
by any treaty obligation binding upon the
Government of the Philippines.
1.) Excluded income
• Income of any kind to the extent
required by any treaty obligation binding
upon the government of the Philippines is
exempt from taxation.
2.) Examples of income exempt under
treaty
 • Salaries of officials of the United
Nations assigned in the Philippines if paid
by the united nation and certified by the
secretary general of the united nation.
• Salaries, allowances, fees, or wages
received by the citizens of the United States
of America working in consular offices in
the Philippines are exempt from all taxes.
• Salaries of diplomatic officials and
agent.
6. Retirement benefits, pensions,
gratuities, etc.
Retirement benefits received under Republic
Act No. 7641 and those received by officials
and employees of private firms, whether
individual or corporate
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.
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.
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.
Benefits received from or enjoyed under the
Social Security System in accordance with
the provisions of Republic Act No. 8282.
Benefits received from the GSIS under
Republic Act No. 8291, including retirement
gratuity received by government officials
and employees.
Such exclusions include:
1. Retirement benefits under RA No. 7641
or a reasonable private benefit plan
2. Amount received by an official or
employee or by his heirs from the employer
due to separation from the service because
of death, sickness or other physical disability
or for any cause beyond the control of the
official or employee
3. Social security benefits, retirement
gratuities, pensions and other similar
benefits received by resident or non-resident
citizens or resident aliens from foreign
government agencies and other institutions,
private or public
4. Payment of benefits to a resident
person under the United States Veterans
Administration
5. Benefits received from or enjoyed under
the Social Security System
6. Benefits received from the Government
Service Insurance System, including
retirement gratuity received by government
officials and employees
Requisites for exclusion of retirement benefits
1. It must be received under RA 7641 or in
accordance with a reasonable private benefit
plan maintained by the employer.
2. Retiring employee or official 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.
3. Benefits granted under the provision
shall be availed of by an official or employee
only once.
Reasonable private benefit plan
It 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, or both, for the
purpose of distributing to such officials and
employees the earnings and principal of the
fund thus accumulated, and wherein it 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.
7. 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.
8. Income derived by the Philippine
Government or its political
subdivisions
9. Prizes and awards made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary
or civic achievement but only if:
The recipient was selected without any
action on his part to enter the contest or
proceeding; and the recipient is not required
to render substantial future services as a
condition to receiving the prize or award.
10. Prizes and awards in sports
competitions sanctioned by the
national sports associations; ATHLETES
11. 13th month pay and other benefits not
exceeding P30,000.00
12. GSIS, SSS, Medicare and other
contributions
13. Gains from the sale of bonds,
debentures or other certificate of
indebtedness
14. Gains from redemption of shares in
mutual fund
15. Minimum wage earners
16. Civil indemnity, exemplary and moral
damages
TAX ON INDIVIDUAL CITIZEN (RESIDENT AND
NON-RESIDENT) AND INDIVIDUAL RESIDENT
ALIEN
Items of income included in the gross
income
 A schedular rate of five percent (5%)
to P125,000 + 32% of excess over
P500,000.00 by 01 January 2000 is
imposed on items of income of an
individual citizen and individual
resident alien which are properly
includible in the gross income.
Rates of tax on certain passive income
1. Interest from any currency bank
deposit and yield or any other
monetary benefit from deposit
substitutes and from trust funds and
similar arrangements – 20%
2. Royalties, except on books, as well
as other literary works and musical
compositions – 20%
3. Royalties on books, literary works
and musical compositions – 10%
4. Prizes over P10,000.00 – 20%
Note: Prizes less than P10,000.00 are
included in the income tax of the
individual subject to the schedular
rate of 5% up to P125,000 + 32%
of excess over P500,000.00)
5. Other winnings, except PCSO and
lotto, derived from sources within
the Philippines – 20%
6. Interest income derived by a resident
individual (Note: non-resident citizen
not included) from a depository
bank under the expanded foreign
currency deposit system – 7.5%
7. Interest income from long-term
deposit or investment evidenced by
certificates prescribed by BSP
a. Exempt if investment is held
for more than five years
b. If investment is pre-
terminated, interest income
on such investment shall be
subject to the following rates:
20% - if pre-
terminated in less than 3
years
12% - if pre-
terminated after 3 years to
less than 4 years
5% - if pre-
terminated after 4 years to
less than 5 years
8. Cash and/or property dividends  General professional partnership
formed by persons for the sole
Ten percent (10%) final tax by 01 purpose of exercising their common
January 2000 on the following: profession; no part of the income is
derived from engaging in any trade
a. Cash and or property
dividend actually or or business
constructively received from
 A minimum wage earner or an
a domestic corporation or
from a joint stock company, individual pursuant to the provisions
insurance or mutual fund of the National Internal Revenue
companies and regional Code Section 51 (2)
operating headquarters of
multinational companies  A Non-resident citizen of the
Philippines:
b. Share of an individual in the
distributable net income after 1. who establishes to the satisfaction
tax of a partnership except a of the Commissioner the fact of his
general professional physical presence abroad with a
partnership of which he is a definite intention to reside therein
partner
2. who leaves the Philippines during
c. Share of an individual in the the taxable year to reside abroad,
net income after tax of an either as an immigrant or for
association, joint account, or employment on a permanent basis
a joint venture or consortium
taxable as a corporation of 3. who works and derives income from
which he is a member or a abroad and whose employment
co-venturer thereat requires him to be physically
present abroad most of the time
INDIVIDUALS EXEMPT FROM INCOME TAX during the taxable year
 Non-stock and non-profit 4. who has been previously considered
educational institution and as a non-resident citizen and who
government educational institution arrives in the Philippines at any time
 Non-stock corporation and during the year to reside
organization operated exclusively permanently in the Philippines will
for religious, charitable, scientific, likewise be treated as a non-resident
athletic or cultural purposes citizen during the taxable year in
which he arrives in the Philippines,
 Non-profit civic league or with respect to his income derived
organization from sources abroad until the date
of his arrival in the Philippines.
 Non-profit business league, chamber
of commerce or board of trade  Income from bonds and securities
for sale in the international market
 Cemetery company-owned and
operated exclusively for the benefit  Prizes and winnings from a charity
of its members horse race sweepstakes from the
Philippine Charity Sweepstakes
 Mutual savings bank and Office
cooperative banks without capital
stock and shares organized and  SSS and GSIS Benefits
operated for mutual purposes
without profit, and development  Benefits received from the US
banks government through the US
Veterans Administration
  Annual taxable income of Senior
Citizens or those at least 60 years
old who have income of not more
than P60,000 per year, subject to
review by NEDA
 Exemption for a limited period of
new and necessary industries (RA
No. 901)
 Exemption of pioneer and registered
enterprises under the Investment
Incentives Act (RA No. 5186)
 Overseas contract worker/seaman
 Barangay micro business enterprises
Sources of income
1. Sources within the Philippines
2. Sources without the Philippines
3. Sources partly within and partly without
the Philippines
IMPOSITION OF FRINGE BENEFIT TAX
Fringe Benefit Tax
 -it is a tax on fringe benefits granted by the
employer for the employee.
 Paid by the employee within 30 days after
the end of the month.
 Is a final tax on the grossed-up monetary
value of the fringe benefit being given to a
managerial or supervisory employee. It is
considered a final income tax on the
employee. Regardless of whether the
employer is an individual, partnership, or
corporation, this tax applies
Imposition of fringe benefit tax
 A final tax of 32% effective 01 January
2000 is imposed on the grossed-up
monetary value of fringe benefit
furnished or granted to the employee,
except rank and file, by the employer,
whether an individual or a corporation.
 The fringe benefit tax is paid by the
employer.
 Grossed-up monetary value is acquired
by dividing the actual monetary value of
the fringe benefit by 68% effective 01
January 2000.
Fringe benefit
 is any good, service, or other benefit
furnished or granted by an employer, in
cash or in kind, in addition to basic
salaries
 Fringe benefit means any good, service
or other benefit furnished or granted in
cash or in kind by an employer to an
individual employee, except rank and
file employees, such as, but not limited
to, the following:
1. Housing;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as
maid, driver and others;
5. Interest on loan at less than
market rate to the extent of the
difference between the market
rate and actual rate granted;
6. Membership fees, dues and
other expenses borne by the
employer for the employee in
social and athletic clubs or
other similar organizations;
7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the
employee or his dependents;
and
10. Life or health insurance and
other non-life insurance
premiums or similar amounts in
excess of what the law allows.
Fringe benefits which are not subject to FBT
1. Fringe benefits which are authorized
and exempted from tax under special
laws.
2. Contributions of the employer for the
benefit of the employee to retirement,
insurance and hospitalization benefit
plans.
3. Benefits given to the rank and file  Own And Installment
employees, whether granted under a
collective bargaining agreement or not. FMV of Land/ Acquisition cost xx

Multiply by 5%
4. De minimis benefits.
Value of the Benefit xx
5. Fringe benefit is required by the nature
of, or necessary to the trade, business Multiply by Taxable Portion 50%
or profession of the employer.
Monetary Value xx
6. It is for the convenience or advantage
Divide by 68%
of the employer.
Grossed-up Monetary Value xx
 Two Kinds of Fringe Benefit Multiply Rate of Tax 32%
a.) De Minimis Fringe Benefit Fringe Benefit Tax xx
- It is a not taxable fringe benefit but taxable to
the receiver in excess of the law requires.
 Transfer of ownership
b.) Taxable Fringe Benefit
FMV of CIR and FMV Assessor
- It is subject to fringe benefit
tax paid by the employer. (whichever is higher, minus the

 Two kinds of Employee cost to the employee) xx

a.) Rank and File - it does not require Divide by 68%

managerial decision
(Clerk/Bookkeeper/Accountant). Grossed up monetary Value xx

- They are not subject to fringe benefit tax but Multiply by Rate of Tax 32%
they are subject to De Minimis Benefit.
Fringe Benefit Tax xx
b.) Supervisory or Managerial - it requires
managerial decision (President/CEO/Manager).
Vehicle
- They are subject to fringe benefit tax.
 Purchase or Cash paid
How do you compute for fringe benefits tax?
Monetary Value xx
Housing
Divide by 68%

Grossed-up Monetary Value xx

 Lease
Multiply Rate of Tax 32%
Monthly Rental xx
Fringe Benefit Tax xx
Multiply by Taxable Portion 50%
 Installment
Monetary Value xx
Value of the Benefit xx
Divide by 68%
Divide by 5 yrs.
Grossed-up Monetary Value xx
Monetary Value xx
Multiply Rate of Tax 32%
Divide by 68%
Fringe Benefit Tax xx
Grossed-up Monetary Value xx

Multiply Rate of Tax 32%

Fringe Benefit Tax xx

 Own

Value of the Benefit xx

Divide by 5 yrs.

Value of the Benefit xx

Multiply by Taxable Portion 50%

Monetary Value xx

Divide by 68%

Grossed-up Monetary Value xx

Multiply Rate of Tax 32%

Fringe Benefit Tax xx

 Rental

Value of the Benefit xx

Multiply by Taxable Portion 50%

Monetary Value xx

Divide by 68%

Grossed-up Monetary Value xx

Multiply Rate of Tax 32%

Fringe Benefit Tax xx