This document defines key terms related to income tax in the Philippines, including income, capital, global vs schedular tax systems, and the tax treatment of citizens and aliens. It explains that income tax applies to gains and profits, and outlines the three criteria for something to be considered taxable income. It also summarizes the differences in how resident and non-resident citizens and aliens are taxed based on their status and income sources.

1. Reporter:
Jannus Orlan Taroy
John Paul Tarnate

2.  Income Tax is a tax on a person's income,
emoluments, profits arising from property,
practice of profession, conduct of trade or
business or on the pertinent items of gross
income specified in the Tax Code of 1997 (Tax
Code), as amended, less the deductions if any,
authorized for such types of income, by the Tax
Code, as amended, or other special laws.

3.  Means profit or gains.
 Amount of money coming to a person or
corporation within a specified time, whether as
payment for services , interest or profit from
investment.
 It means cash or its equivalent.
 Can also be thought as a flow of the fruits of
one’s labor.
 Gained derived from labor, capital, or both
including the profit derived from the sale or
exchange of capital asset.

4.  Generally refers to financial wealth,
especially that used to start or maintain a
business.
 Capital is a large sum of money which
you use to start a business, or which
you invest in order to make more money.

5.  CAPITAL is a fund, while INCOME is a
flow.
 CAPITAL is wealth, while INCOME is
the service of wealth.
 CAPITAL is the tree while INCOME is
the fruit
 Return of CAPITAL is not subject to
income tax while INCOME is subject to
income tax

6.  Global Tax System – all items of income earned
during a taxable period is paid under a single
set of income tax rate
 Schedular Tax System – different types of
incomes are subject to different sets of
graduated or flat income tax rates, thus
requiring separate tax returns; tax is computed
on a per return or per schedule basis

7.  Semi-Schedular or Semi-Global Tax System – the
compensation income, business or professional
income, capital gain and passive income not
subject to final tax, and other income are added
together to arrive at the gross income, and after
deducting the sum of allowable deductions from
business or professional income, capital gain and
passive income not subject to final tax, and other
income, in the case of corporations, as well as
personal and additional exemptions, in the case of
individual taxpayers, the taxable income is
subjected to one set of graduated tax rates; method
of taxation under the NIRC.

8. 1. There must be gain or profit;
2. The gain or profit is realized or received,
actually or constructively; and
3. It is not exempted by law or treaty from
income tax.
Income tax is assessed on the income received
from any property, activity or service that
produces the income because the Tax Code stands
as an indifferent neutral party on the matter of
where income comes from.

9.  Knowing how to compute your income tax can
definitely make you understand why you’re
being deducted of that amount. By knowing
this, you’ll not be surprise next time you check
and open your pay slip. And yes, the hard
truth is as your salary goes up so your taxes.
Let see some basic examples on how to
compute income tax in the Philippines.

10.  The amount being deducted in your salary didn’t
come from the thin air. Nor it was not guessed by
the HR or accountant in your company. Basically
they are following rules and guidelines provided
by BIR(Bureau of Internal Revenue) in computing
your taxes. To compute income tax in the
Philippines, BIR tax table is being used. what is
BIR tax table?
 BIR tax table is just a reference of pre-computed
tax amount for each civil status and income
frequency provided by BIR. Here’s the latest BIR
tax table for your reference.

13.  As you can see, each income frequency(daily,
weekly, semi-monthly and monthly) are present
on the table. After determining your salary or
income frequency, you also need to check your
civil status. Each civil status has its own
computation on the table.
 When you got your taxable income computed, In the
row indicating your civil tax status, look for the
highest amount that does not exceed your taxable
income. You can see the fix amount of tax there
PLUS the corresponding percentage you need to
add. That will be your tax deductions. Taxable
income is being computed as:

14.  Taxable income = Monthly Basic Pay + Overtime
Pay + Holiday Pay + Night Differential –
Tardiness- Absences – SSS/ Philhealth/ PagIbig
deductions
 Later, we’ll check how this table is being
used in computing your income tax. You
can see all the status in the “legend” on
the bottom of the slide.

16.  Let say Juan is a father with one child and
working as an I.T. His basic monthly salary is
P25,000. How do we compute Juan’s income
tax? Let see.
 Having a basic salary of P25,000, Juan needs to
pay the following in the Government:
 SSS contribution – P581
 Philhealth contribution – P312
 Pag-ibig contribution – P100

17.  To simplify the computation, let’s say Juan
didn’t have other additional pay such as
holiday pay, night differential and other
deductions like tardiness and absences. Just the
basic salary and the required contributions to
the government. Juan’s taxable income will be
P24,006.20. How? Here’s how it is computed:
 Taxable income = P25,000 – (P581.30 + P312.50
+ P100)
= P25,000 – 993.8
 = P24,006.20

18.  Since Juan is a father with a qualified
depended, his civil tax status will be under
“ME1/S1“. That’s for married employee with
qualified dependent/children. The highest
amount that does not exceed Juan’s taxable
income of P24,006.20 is P17,917 (ME1/S1 row,
Column 6).

19.  After getting the taxable income, as what the
tax table indicates Juan’s tax will be 1,875.00 +
25% over. This can be found at the heading of
each column. For Juan, it’s column 6.
 This means Juan’s tax is P1,875 plus 25% of the
difference of his taxable income (P24,006.20)
and the amount in the table (P17,917).
 Here’s the computation:

20.  Tax = 1,875 + [(24,006.20-17,917) X .25]
= 1,875 + (6,089.2 x .25)
= 1,875 + 1,522.3
 = P3,397.30
 Every month, Juan’s salary will be deducted an
amount of P3,397.30 as his withholding tax.

21.  CITIZENSHIP PRINCIPLE
 RESIDENT CITIZENS; taxable both for income from
sources within and income without the Philippines
 NON-RESIDENT CITIZENS; taxable only for
income from sources within the Philippines
 RESIDENCE PRINCIPLE
 RESIDENT ALIENS; taxable only for incomefrom
sources within the Phil, and exemptfrom sources
outside.

22.  SOURCE PRINCIPLE
 NON-RESIDENT ALIENS; are
subject to Philippine income tax only
on income from sources within the
Philippines
 this is despite of the fact that he never set
foot in the Philippines.

23.  CITIZENS
 RESIDENT-taxable for income from sources within and
without
-all sources inside and outside; net income.
 Engaged in trade or business or profession – entitled
to deductions on his business income and personal
and additional exemptions
 Purely compensation income earners – not entitled to
deductions; only personal and additional exemptions
 NON-RESIDENT; taxable only for income from sources
within the Phil, and exempt for income from sources
outside the Philippines; all sources inside.

24.  ALIENS- gross income
 RESIDENT– all sources inside
 aliens actually present in the Phil who is not mere
transient or sojourner (those who comes to the Phil for
a definite purpose, which in its nature may be promptly
accomplished), but whose purpose is of such nature
that an extended stay may be necessary for its
accomplishment, and to that end the alien makes his
home temporarily in the Philippines
AN ALIEN LOSES HIS RESIDENTSTATUS
~ if he actually leaves the Philippines.

25.  ALIENS- gross income
 NON-RESIDENT-all sources inside
 ENGAGED IN TRADE OR BUSINESSIN
THE PHILIPPINES
 if the aggregate period of his stay in the Phil is
more than 180 days during any calendar year.
 same tax treatment as for income incurred by
Resident Alien; such as
-entitled to deductions and exemptions
-graduated income tax rate of 5%to 32%
-passive investment income 20%FIT

26.  ALIENS- gross income
 NON-RESIDENT-all sources inside
 NOT ENGAGED IN TRADE ORBUSINESS
IN THE PHILIPPINES
 if the aggregate period of his stay is less than 180
days.