The document outlines the principles and processes of income and business taxation in the Philippines, governed by the National Internal Revenue Code of 1997. It details who is required to pay income tax, sources of gross income, and the tax obligations for employed individuals and businesses. Additionally, it explains the progressive nature of individual income tax and the requirements for tax payment and filing for businesses.

1. Income and Business
Taxation
Prepared by:
RICHPHER G. GAGALAC
Subject Teacher

2. CONTENT STANDARD
•In this lesson you will demonstrate an
understanding of the sound principles of
taxation, its purpose, and preparation of
forms and payment of taxes.

3. PERFORMANCE STANDARD
•You shall be able to accomplish the BIR
(Bureau of Internal Revenue) forms

4. LEARNING COMPETENCIES
•We expect that you will demonstrate the following
learning outcomes:
•1. define income and business taxation and its
principles and processes (ABM_FABM12- IIh-j-15)
•2. explain the principles and purposes of taxation
(ABM_FABM12- IIh-j-15)

5. Principles of Taxation
• Governing tax law in the Philippines is the
National Internal Revenue Code of 1997.
• The Bureau of Internal Revenue (BIR) is the
primary implementing agency of this law.
• Taxation is the process by which the government
collects revenue in order to pay for its expenses.
• Income tax is defined as the tax on the net
income or the entire income realized in one
taxable year.

6. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

7. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

8. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

9. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

10. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

11. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

12. RR.NO.
8-2018 –
INCOME
TAX
• SECTION 2 : DEFINITION OF TERMS

13. Who are
required to
pay income
tax in the
Philippines?
• (Section 23 of the National Internal Revenue Code [NIRC]
of 1997)
A citizen of the Philippines, living in the Philippines, is
taxable on all income earned inside and outside the
Philippines
A non-resident citizen is taxable only on income earned in
the Philippines
An OFW is taxable only on income earned in the Philippines.
A foreigner living in the Philippines is taxable only on
income earned in the Philippines.
A domestic corporation is taxable on all income derived
from sources inside and outside the Philippines; and
A foreign corporation is taxable only on the income derived
inside the Philippines

14. II. List of
sources of
gross income:
(NIRC 1997
Chapter 6
Section 32 A)
Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items
Gross income derived from the conduct of trade or
business or the exercise of a profession
 Gains derived from dealings in property; (Note: subject
to 6% capital gains tax for individuals and for corporation
if land and building is not used in business)
Interests; (Note: generally subject to 20% final
withholding tax)
Rents
Royalties; (Note: generally subject to 20% final
withholding tax,10% if from books and literary works)

15. II. List of
sources of
gross income:
(NIRC 1997
Chapter 6
Section 32 A)
• Dividends; (Note: generally subject to 10% final
withholding tax for individuals, tax exempt for
corporation)
• Annuities
• Prizes and winnings; (Note: generally subject to 20%
final withholding tax, except those that are tax exempt
based on specific criteria in the law)
• Pensions; and
• Partner's distributive share from the net income of the
general professional partnership.

16. III. Compensation Income
• Employed individuals that earn compensation income pay their income taxes
monthly. Employers withhold the income tax of their employees from their
monthly gross income and remit these sums to the BIR.
• Philippine individual income tax is progressive. The tax rate increases as the
tax base increases which means that tax payers with more capacity to pay will
pay more taxes.

17. IV. Business Income
• The tax payments of a business organized as a sole proprietorship are
made in the name of its owner. The owner is considered an
individual taxpayer who derived income from business. He is
required to file BIR Form 1701.
• Businesses may settle their income tax liabilities and submit their
income tax returns (tax form) to the government three months and
fifteen days from the close of the year. For a business that follows a
calendar year, the date of settlement is April 15.

18. IV. Business Income
• Some businesses pay income tax on a quarterly basis based on
their quarter-end income. Quarterly payments are due sixty days
following the close of the first three quarters of the year.
• When the tax due is in excess of ₱ 2,000, the individual taxpayer
may elect to pay the tax in two equal installments. The first
installment shall be paid at the time the return is filed and the
second installment is paid on or before July 15 following the close
of the calendar year.

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