Quick notes in Income Taxation authored by Tabag

QUICK NOTES IN INCOME TAXATION
CJB (@CPAriaaa) not for sale

GENERAL PRINCIPLES
Purpose of Taxation
1. Primary: to raise revenues
2. Secondary
a. Regulatory
b. Compensatory
Inherent Powers of the State
1. Taxation
2. Eminent Domain
3. Police
Theory and Basis of Taxation
1. Lifeblood theory
2. Necessity theory
3. Benefits-Protection theory
Principles of Sound Tax System
1. Fiscal Adequacy
2. Administrative Feasibility
3. Theoretical Justice
Characteristics of Tax
1. Forced contribution
2. Generally payable in money
3. Levied for public purpose
4. Exclusively levied by legislature
5. Levied within territorial and legal jurisdiction of the state
6. Proportionate in character
Classification of Taxes
1. As to Subject
a. Personal, poll, capitation tax
b. Property tax
c. Excise tax
2. As to burden
a. Direct
b. Indirect
3. As to authority
a. National
b. Local
4. As to determination of amount
a. Specific
b. Ad Valorem
5. As to graduation/ rate
a. Proportional
b. Progressive
c. Regressive
Inherent Limitations
1. Territoriality
2. International comity
3. Public Purpose
4. Exemption of Government
5. Non-Delegation of taxing power
Constitutional Limitations
1. Due process of law
2. Equal protection of law
3. Uniformity in taxation
4. Progressive system
5. Non-imprisonment for non-payment of poll tax
6. Non-impairment of obligations and contracts
7. Free worship clause
8. Exemption of religious, charitable,non-profit cemeteries
and churches and mosque from property taxes
9. Exemptions from taxes of the revenues and assets of
non-profit, non-stock educational institutions

10. Non-appropriation of public funds or property for the
benefit of any church, sect, religion
11. No money shall be paid out of Treasury except in
pursuance of an appropriation
12. Concurrence of majority of all the members of the
Congress for the passage of law granting tax
exemption
13. Non-diversification of tax collections
14. Non-impairment of the jurisdiction of the Supreme
Court to review tax cases
15. Non-delegation of taxing power
16. The President shall have the power to veto any
particular item(s) in an appropriation, revenue or tariff
17. LGUs can create its own sources of revenues
(delegation of taxing power to LGUs)
Taxpayer Classification
1. Micro – less than 3 Million
2. Small – 3million to less than 20M
3. Medium – 20M to less than 1Billion
4. Large – 1Billion or more
TAX AMNESTY – Retrospective, forgiving past tax due.
TAX CONDONATION – Prospective, forgiving future and current
tax due.
Vague Tax Laws Vague Tax Exemption
construed against the
government and in favor of
the taxpayer
construed against the
taxpayer and in favor of
the government
CLASSIFICATION OF TAXPAYER
Individual Corporation
a. RC
b. NRC – at least 183 days
c. RA – more than 1 year
d. NRAETB – more than
180 days
e. NRANETB
f. Trust
g. Estate
a. DC
b. RFC
c. NRFC
d. Partnership
e. Joint Venture
f. Co-Ownership
Tax Imposed Situs Rule
Business Tax place where the business is
conducted
Income Tax on
SERVICE
where service is rendered
Income Tax on Sale
of GOODS
place of sale
Property Tax taxable in their location
Personal Tax place of residence
Interests Income debtor’s place of residence
Royalties Where intangible is employed
Rent Income Location of property
Domestic Securities Presumed earned within
Dividend Income From Domestic – earned within
From RFC – pre-dominance
From NRFC – earned without
With Loss of
Government Revenue
Without Loss of
Government Revenue
Tax Evasion Shifting
Tax Avoidance Capitalization
Tax Exemption Transformation

NON-TAXABLE (Considered return of capital)
1. Life
2. Health
3. Moral
• Damages for the above are non-taxable, except
interest of the damages.
• Payment for Lost Profit is Taxable
Tax Treatment of Increase in the Value of Property – NOT
TAXABLE
a. Investments in equity or debt securities
b. Real properties held (revaluation increment)
c. Foreign currencies held or receivable.
d. Decrease in value of foreign currency denominated debt by
virtue of favorable fluctuation in exchange rates
e. Birth of animal offspring,fruits
f. Increase in value of land due to the discovery of mineral
reserves.
Gain from Related Party Transactions – taxable, except
intercompany sales of home office and branch, not taxable.
TAX ACCRUAL BASIS VS. TAX CASH BASIS
Income from Leasehold Improvement
1. Outright Method
2. Spread-Out Method
Cost of Improvement
x remaining useful after lease term
/ total useful life of improvement
= Depreciated Value
/ Remaining Lease Term
= Income to Recognize every year
Return of Capital Return on Capital
maintains net worth-
not taxable
Increases net worth -
taxable
Recovery of lost
capital
Recovery of lost profits
Non Taxable Taxable
Line Item Tax Accrual Basis Tax Cash Basis
Cash Income Add Add
Accrued Income Add Ignore
Advanced Income Add Add
Gross Income xxx xxx
Cash Expenses Deduct Deduct
Accrued Expenses Deduct Ignore
Amortization of
Prepayments
Deduct Deduct
Depreciation Deduct Deduct
Net Income xxx xxx

Installment Method
1. Dealers of personal property on the sale of properties
they regularly sell.
2. Dealers of real properties, only if their initial payment
does not exceed 25% of the selling price.
3. Casual sale of non-dealers in property, real or personal,
when their selling price exceeds P1,000 and their initial
payment does not exceed 25% of the selling price.
Individual Not Required To File
1. Taxable income does not exceed 250,000
2. Purely compensation income earner of one
employer & employer withheld correct income tax
3. Sole income is subject to FWT
4. Minimum Wage Earner
5. OFW, OCW
Modes of Filing Income Tax Returns
1. Manual Filing System
2. eBIR Forms
3. Electronic Filing Payment System (eFPS)
Penalties for Late Filing or Payment of Tax
❖ Surcharge
a. 25% of the basic tax for failure to file or pay
deficiency tax on time
b. 50% for willful neglect to file and pay taxes
❖ Interest
a. December 2017 downward – 20% per
annum
b. January 2018 onward – 12% per annum
❖ Compromise
Installment Payment of Tax – available only for tax due more
than 2,000 pesos. First payment on filling of return and another
payment on or before October 15.
Steps for Instalment Method Formula
Step 1: Evaluate the seller It it’s under 1, 2, or 3 above
Step 2: Compute for the
Selling Price
Cash Consi + FV on non-cas
consi, + Mortgage Assumed
Step 3: Check if the
Mortgage/Indebtedness
assumed exceeds the tax
basis of the asset
Mortgaged Assumed
(Tax Basis)
= Excess Mortgage
Step 4: Compute for the Initial
Payment
Downpayment + other payment
made during the yr + excess
mortgage
Step 5: Compute for the IP/SP
Ratio
Initial Payment / Selling Price
ratio exceeds 25%, the instalment
method is not allowed
Step 6: Compute for the
Contract Price
Selling Price – Mortgage
Assumed + Excess Mortgage
Step 7: Compute for the Gross
Profit
Selling Price – Tax Basis
Step 8: Compute for the Gross
Income for each collection
Gross Profit x collection / contract
price = GI for that collection

FINAL INCOME TAX RATES – INDIVIDUAL
ROYALTIES
Passive Royalties RC, RA, NCR,
NRAET
NRAETB
Literary, Book,
Musical
Composition
10% 25%
Others 20% 25%
INTEREST
Interest Income RC, RA
NRC,
NREAET
NRANETB
Long term Exempt Exempt Exempt
Holding Period:
4 yrs to less than
5 yrs
5% 5% 25%
3 yrs to less than
4 yrs
12% 12% 25%
Less than 3 yrs 20% 20% 25%
Bank Deposit,
Time Savings,
Substitute, Trust
fund, Gov Sec
20% 20% 25%
FCDU 15% Exempt Exempt
OTHERS
1. Informer Tax Reward – 10% of tax reward
a. Reward – lower between 10% of tax recovered or 1
Million.
DIVIDENDS
Dividends RC, RA, NRC NRAET NRAETB
Domestic 10% 20% 25%
Share in Income
after Tax in
Taxable
Partnership, Joint
Venture/ Accounts
Association
10% 20% 25%
REIT
10% - RC,
RA
WINNINGS & PRIZES
RC, RA,
NRC
NRAET NRAETB
Winnings
Regardless of
amount
20% 20% 25%
PCSO
10k or less exempt exempt 25%
More than 10k 20% 20% 25%
Prizes
More than 10k 20% 20% 25%
Not more than
10k
RIT RIT RIT
2. Interest on Tax Free Covenants – 30% for all
individual taxpayer, DC and RFC (Interest income
received is assumed net of FWT)
3. Amounts withdrawn from decedent’s deposit
account – 6% of amount withdrawn

FINAL INCOME TAX – CORPORATION
DC RFC NRFC
Interest
Interest
Income
20% 20% 25%
FCDU 15% 15% Exempt
Dividend
From DC exempt exempt 25/15 * tax
sparing
From RFC
Sources PH
Sources
without
Exempt
RIT, may be
exempt
certain
condition
RIT
N/A
25%
N/A
From NRFC RIT N/A N/A
From REIT 10% 10%
OTHER ITEMS SUBJECT TO FINAL TAX
Branch Profit Remittance of Corporation 15%
Gross Rentals, Lease, Charter Fees derived by
non-resident owner or lessor of foreign vessel
4.5%
Gross Rentals, Lease, Charter Fees derived by
non-resident lessor of aircraft, machineries,
equipment
7.5%
Payments to oil exploration services
contractors/sub-contractors
8%
Payments to non-resident/foreign
cinematographic film owners, lessor or distributris
25%
CAPITAL GAINS TAX RATES
Real Property Domestic
Stock
Rate 6% 15%
Tax Base Higher between FMV &
SP
Net Gain
DST P15 /1,000 P1.5/200
par
Other
Info
-Alternative Taxation Rule
-Exemption for principal
residence
-Exempt by special laws
-Wash
Sale
Alternative Taxation Rule - option to be taxed at either 6%
capital gains tax or regular income tax. If seller is Individual, and
buyer is the Government.
Exemption To The 6% Capital Gains Tax – for RC/RA, principal
residence, escrow account, BIR notified within 30 days from sale,
can only be availed once per 10 years.
Exempt By Special Laws- Comprehensive Agrarian Reform
Program, Socialized housing units by the National Housing
Authority.
Wash Sales – non-dealer acquired and sell securities within 30
days before or after, the loss if any is not deductible against
capital gain.

REGULAR INCOME TAX RATES
INDIVIDUAL
1. Graduated Tax Table
2. 8% Optional Tax on Gross Sale
a. Purely self-employed – Gross Sales less 250,000
b. Mixed Income Earner – use GTT for
compensation, use 8% only for Gross Sale
3. NRANETB – 25% final tax on gross income.
CORPORATION
1. RCIT – 25% of Taxable Income for DC, RFC/ 25% of
Gross Income for NRFC
2. MCIT – 2% on Gross Income (1% July 1, 2020 – June
30, 2023),
a. Exempt – REIT, Subject to Special tax, NRFC
b. Timing – X + 4th
year
c. Excess MCIT carryover for next 3 years
d. Relief – prolonged labor dispute, force majeure,
Legitimate Business reverses.
3. MSME’s – 20% on Taxable Income, MCIT applicable.
For DC only.
4. Educational Institution & Hospital
School Hospital
Private 1%/10% 25%
Non-Profit exempt 1%/10%
Government exempt exempt
*subject to pre-dominance test
*1% from July 1, 2020 – June 30, 2023
5. International Carriers – 2.5% on Gross PH billing, subject to
48-hour rule.
6. OBU’s – RCIT/MCIT
7. FCDU’s – RCIT/MCIT
8. ROHQ – 10%, starting January 1, 2022 RCIT.
9. GOCCs – RCIT/MCIT, except: GSIS, SSS, Pag-
Ibig/HDMF/PhilHealth, Local Water District
10. COOPERATIVE
a. Transacting to Member only – taxable only to unrelated
b. Transacting to Non-Member
1. Reserved at most 10M – taxable only to
unrelate
2. Reserved more than 10M – taxable to unrelated
+ related sale to non-member
SPECIAL TAXPAYERS
1. ESTATE – income distribution to heirs is not taxable to
the estate. Corpus distribution is not deductible.
2. TRUST - income distribution to heirs is not taxable to
the trust.
3. PARTNERSHIP – taxable except GPP
4. JOINT VENTURE – taxable except purpose of
undertaking construction, engaging in petroleum,
pursuant to an operating consortium agreement under
a service contract with the government.
5. CO-OWNERSHIP – exempt, taxable if income from co-
owned is reinvested to other income producing
properties or venture.

GRADUATED TAX TABLE
Taxable Income
Basic Tax
(2023)
Basic Tax
(2022) Additional Tax
(2023)
Additional Tax
(2022)
Over But Not Over
0 250,000 - - - -
250,000 400,000 - - 15% of excess
over 250,000
20% of excess
over 250,000
400,000 800,000 22,500 30,000 20% of excess
over 400,000
25% of excess
over 400,000
800,000 2,000,000 102,500 130,000 25% of excess
over 800,000
30% of excess
over 800,000
2,000,000 8,000,000 402,500 490,000 30% of excess
over 2,000,000
32% of excess
over 2,000,000
8,000,000 - 2,202,500 2,410,000 35% of excess
over 8,000,000
35% of excess
over 8,000,000

THE REGULAR INCOME TAX MODEL
Gross Income xx
Allowable Deductions (xx)
Taxable Income xx
Tax Due xx
Tax Credits (xx)
Tax Payable/(Overpayment) xx
GROSS INCOME
EXCLUSION FROM GROSS INCOME
1. Proceed of Policies
2. Gifts, Bequest and Devises
3. Compensation for Damages
4. Income Exempt Under Treaty
5. Retirement Benefit (RA 7641)
6. Separation And Termination Benefit
7. Social Security Benefits
8. USVA Benefits
9. Income From Domestic Securities on Deposits In
Bank Derived From Foreign Government
10. Government Income
11. Mandatory Payroll Deductions
12. PERA
13. 13th
Month Pay and Other Benefits
14. Gains On Sale of Long-Term Indebtedness
15. Gain On Redemption of Shares In A Mutual Fund
Company
16. Prizes Or Awards without action
17. Prizes For Sports Competition
18. Benefits Given to Frontline During Covid 19
19. Minimum Wage Earners
20. Barangay Micro-Business Enterprise (BMBE)
21. Non-Stock and Non-Profit Entities
22. Qualified Employees’ Trust Fund
23. Sale of gold
24. Other Income Subject To FWT/CGT
INCLUSION FROM GROSS INCOME
1. Compensation For Services
2. Business Income
3. Dealings From Properties
4. Interest Income
5. Rent Income
6. Active Royalties
7. Dividends
8. Prizes And Winnings
9. Annuities
10. Pension
11. Share In Net Income of Special
Corporations/Partnership
12. Income Distributions from Taxable Estates and Trusts
13. Recoveries Of Bad Debts
14. Tax Refunds
15. Reimbursements Of Expenses
16. Cancellation Of Indebtedness

DEDUCTIONS
CLASSIFICATION OF DEDUCTIONS
1. COST OF SALES or COST OF SERVICES
2. REGULAR ALLOWABLE ITEMIZED DEDUCTIONS
3. SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS
4. NET OPERATING LOSS CARRY OVER (NOLCO)
a. GR: 3 years
b. 2020-2021: 5 years (Bayanihan Act)
LOAN PRINCIPLE – Legitimate, Ordinary, Actual, Necessary
REGULAR ALLOWABLE ITEMIZED DEDUCTIONS
1. Interest Expense – limit (20% x interest income)
2. Losses – losses without insurance
3. Taxes – non-income taxes
4. Bad Debts
5. Depreciation
6. Depletion
7. Charitable And Other Contributions – limit (5%
individual/ 10% corporation x taxable income)
8. Pension Expense – with requisites
9. Research And Development Costs
10. Entertainment, Amusement, And Recreation
(EAR) Expense – 1% Net Revenue/.5% of Net
Sales
11. Wagering Losses – up to extent of gain only
SPECIAL ALLOWABLE ITEMIZED DEDUCTIONS
1. Income Distributions Made by Taxable Estates
and Trusts
2. Transfer To Reserve Funds of Insurance
Companies
3. Dividend Distribution of A Real Estate
Investment Trust – min of 90%
4. Transfer To Reserve Fund of Cooperatives
5. Special Deductions Related to Senior Citizens
And Persons With Disability – 20% discount.
15% SC, 25% PWD on salaries expense.
6. Jewelry Industry Development Act Of 1998 –
50%
7. Adopt-A-School Act Of 1998 – 50%
8. Expanded Breastfeeding Promotion Act Of
2009 – 100%
9. Free Legal Assistance – Net Revenue x 10% vs.
should be income from free assistance given
10. Productivity Incentive Act Of 1990 – 50%
11. Labor Training Expenses – 50%
12. Net Operating Loss Carryover
OPTIONAL STANDARD DEDUCTIONS
➢ Gross Sale/ Receipt + other operating income -
Individual
➢ Gross Income (including other non-operating) -
Corporation
*all net of discount, allowances, return

Income Distribution
Treatment To Beneficiary
Co-ownership
Taxable
Non-Taxable -----
Dividend Income (10%
FWT)
Regular Income (15%
CWT)
Estate
Judicial
ExtraJudicial
-preservation
- more than
preservation
Allowable
Deduc
-----
Regular Income (15%
CWT)
Regular income (15%
CWT)
Dividend Income (10%
FWT)
Trust
Irrevocable
(donors tax on
investment)
Revocable
(donors tax on
income
distribution)
Allowable
Deduc
Taxable
to grantor
Regular Income
(15%CWT)
Income Received not
taxable, income of
income received is
taxable as regular
income.
TAX CREDIT
➢ Expanded Withholding Tax
➢ Foreign Tax Paid claimed as credit
➢ Withholding tax on compensation
➢ Excess Credits from previous taxable year
➢ Payment from previous quarter

EXPANDED WITHHOLDING TAX
Item of Income Payment Rate
Professional Fees
Professional entertainer
Professional athletes
All directors and producers involved in
movies, stage, television and musical
productions
Management and technical consultants
Business and Bookkeeping agents and
agencies
Insurance agents and insurance
adjusters
Other Recipients of Talent Fees
Gross Commission of brokers, fees of
agents of professional entertainers and
real estate service practitioners
Professional fees paid to medical
practitioners by hospitals
& clinics or paid directly by HMO
5%
for non-VAT
individuals,
10%
for VAT
individuals and
corporations with
Gross Income
not exceeding
P720,000,
15%
for corporations
with gross
income
exceeding
P720,000
Payment by the General Professional
Partnerships to its partners
10%
for corporations
with Gross
Income not
exceeding
P720,000,
15%
for corporations
with gross
income
exceeding
P720,000
Fees of Director who are not employees
of the company
5%
for non-VAT
individuals,
10%
for VAT
individuals
Income payments made by credit card
companies
0.5%
Income Payment made by NGAs, LGU,
& etc and top withholding agents to its
local/resident suppliers of goods other
than those covered by other rates of
withholding tax
Gross payments to embalmers by
funeral parlors
Payments made by pre-need companies
to funeral parlors
Income payments made to suppliers of
agricultural
1%

supplier products in excess of
cumulative amount of P300,000 within
the same taxable year
Income payments on purchases of
minerals, mineral products and quarry
resources by Bangko Sentral ng
Pilipinas (BSP) from gold
miners/suppliers
Income payments received by Real
Estate Investment
Trust
Income payments on locally produced
raw sugar
Income payments to certain contractors
Income Payment made by NGAs, LGU,
& etc and top withholding agents to its
local/resident suppliers of services
other than those covered by other
rates of withholding tax
2%
Gross rental or lease for the continued
use or possession of personal
property in excess of P10,000 annually
and real property used in business
which the payor or obligor has
not taken title
Cinematographic film rentals and other
payments to resident individuals and
corporate cinematographic film
owners, lessors and distributors
Tolling fees paid to refineries
5%
Income payments on purchases of
minerals, mineral products and quarry
resources
Income payments made by political
parties and candidates of local and
national elections on all their
purchases of goods and services
related to campaign expenditures
5%
On gross amount of interest on the
refund of meter deposits
10%
Income distribution to the beneficiaries
of estate and trusts
Additional Income Payments to
government personnel from importers,
shipping and airline companies or their
agents for overtime services
On gross amount of refund given by
MERALCO to
customers with active or terminated
contracts
Interest income denied from any other
debt instruments not within the
coverage of deposit substitutes
15%

COMPENSATION INCOME
Regular Supplementary Exempt
*Basic Salaries
*Representation
*Transportation
*COLA
*Fixed
Allowances
*Paid Absences
*Holiday, Hazard, Overtime,
Night Shift
Taxable
*13th
-Month Pay
*Commissions, Emoluments,
Honoraria
*Living Quarter or Meal
*Stock Option Plans
*Fees
*Taxable Retirement and
Separation
*Profit Sharing or Taxable Bonus
*BHHON of
MWE
*13th
-month pay
and other
benefits
*De Minimis
Benefit
*SSS, GSIS,
PAGIBIG, HDMI,
Union Dues
*Other forms of
compensation
not taxable
Excess De Minimis Benefits & Other Taxable DMNM
Function Treatment
Managerial or Supervisory Subject to Fringe Benefit Tax (Final Tax)
Rank-and-File Part of 13th Month Pay and Other Benefits
13th Month Pay and Other Benefits
1. 13th month pay, 14th month pay, 15th month
2. Christmas bonus of private employees
3. Cash gifts other than Christmas or Anniversary gifts of private employees
4. Additional Compensation Allowance (ACA) of government employees
5. Other fringe benefits of rank-and-file employees
a. Taxable de minimis benefits
b. Personal expenses shouldered by the employee
*First 90,000 exempt, excess is part of Supplementary Compensation
De Minimis Benefit
De Minimis Benefit Limit
Monetized unused vacation leave
credits of private employees
10 days per year
Monetized unused vacation and sick
leave credits of government
employees
-no limit-
Medical Cash allowance to
dependents
P1,500 per
semester
Rice subsidy P2,000 per month
Uniform and Clothing Allowance P6,000 per year
Actual Medical Assistance P10,000 per year
Laundry Allowance P300 per month
Employee Achievement Award, in
the form of non-cash tangible
property
P10,000 per year
Christmas and Anniversary gifts P5,000 per year
Daily meal allowance for overtime
work and night or graveyard shift
25% of minimum
wage
Benefits received under Collective
Negotiation
Agreement/Collective Bargaining
Agreement and Productivity
Enhancement Incentive schemes
P10,000 per year

FRINGE BENEFIT TAX
PROCEDURE FOR COMPUTATION
Step 1: Determine the monetary value.
Step 2: Determine the fringe benefit tax rate applicable for the
taxpayer.
Step 3: Determine the gross-up rate.
Step 4: Determine the grossed-up monetary value.
Step 5: Determine the fringe benefit tax.
FRINGE BENEFITS
1. Insurance Premiums – Excess of What Law Allows
2. Expenses -Personal/Household/Membership
Expenses
3. Foreign Travel – Only in Excess Of $300/Day Hotel
Cost, 30% Cost of First-Class Plane Ticket.
4. Interest On Loan at Less Than Market Rate
5. Holiday And Vacation Expenses
6. Educational Assistance – Only If Not Related to
Business, No Written Contract and Not Granted
Through Competitive Scheme
7. Housing Privilege only if not for armed forces of PH,
not situated to premises of factory (max 50m), not a
temporary housing (3month max)
8. Motor Vehicle
HOUSING PRIVELEGE
Housing Privilege Monetary Value
Lease of residential property for
residential use of employees
50% of rental payments
Assignment of residential
property for use of employees
5% x 50% x higher
between Assessed
Value and Zonal Value
Purchase of residential property
on instalment basis for the use
of employees (exclusive of
interest)
5% x 50% x Acquisition
Cost
and ownership is transferred in
the name of employee
Higher between
Acquisition Cost and
Zonal Value
and ownership is transferred in
the name of employee for less
than adequate consideration
Higher between Fair
Value and Zonal Value
less Consideration Paid

MOTOR VEHICLE DEALINGS IN PROPERTIES
Tax Treatment of Ordinary Gains and Losses
➢ Ordinary Gain - Fully Taxable
➢ Ordinary Loss - Fully Deductible
Tax Treatment of Capital Gains and Losses
➢ Capital Gain - Capital Loss
= Net Capital gain - taxable
= Net Capital loss - not deductible
CORPORATE TAXPAYERS
Capital gains are fully recognized by corporate taxpayers while
capital losses are recognized only to the extent of capital gains.
In short, only net capital gains are recognized, net capital losses
are not deductible.
INDIVIDUAL TAXPAYER
➢ Holding Period- If the capital gains or losses arose
from capital assets which were held for more than one
year, the amount for the capital gain or loss is reduced
by half.
➢ Net Capital Loss Carryover (NCLCO)- Net capital
loss (combined, short & long) from previous year can
be claimed as deduction on the following year (1 year
only).
Lower of:
o Net Capital Loss;
o Net Income in the year the net capital loss
happened; and
o Net capital gain in the following year.
Motor Vehicle Privilege Monetary Value
Purchase of motor vehicle in the
name of employee
Acquisition Cost
Cash is given to employee for the
purchase of vehicle, ownership is
placed in the name of the employee
Cash received by the
employee
However, if the cash given
is subjected to WTC, it shall
not be subject to FBT
anymore.
Purchase of car on instalment basis
the ownership of which is placed in
the employee (exclusive of interest)
Acquisition Cost ÷ 5
Employer shoulders a portion of the
purchase price, the ownership is
placed in the name of employee
Portion shouldered by
the employer
Employer owns and maintains a
fleet of motor vehicles for the use of
the business and the employees
Acquisition Cost x
20% x 50%
Employer leases and maintains a
fleet of motor vehicles for the use of
the business and the employees
50% x Rental
Payments
Aircrafts Not applicable
Yachts Acquisition Cost x 5%

QUICK NOTES IN TRANSFER TAX

GROSS ESTATE FORMULA:
(A) Inventory of Properties at point of death xx → income earned after death is deducted,
(B) Less: Exempt Sales expenses paid after death is added back
(C) Properties not owned (xx)
(D) Properties owned but excluded by law (xx)
Inventory of taxable present property xx
(E) Taxable Transfer xx
Gross Estate xx
✓ Merger of the
usufruct in the owner
of the naked title.
✓ The transmission or
delivery of the
inheritance or legacy
by the fiduciary heir
or legatee to the
fideicommissary
✓ Special power of
appointment
✓ Proceed of
irrevocable life
insurance policy
payable to the
beneficiary other
than estate,
executor/
administrator
✓ Properties held in
trust by the
decedent.
✓ Separate properties
of surviving spouse.
✓ Transfer by way of
bona fide sales.
✓ Proceeds of group insurance taken out by
a company for its employees
✓ Proceeds of GSIS policy or benefit from
GSIS
✓ Accruals from SSS
✓ United States Veterans Administration
(USVA) benefit – RA 136
✓ War damage payments
✓ All bequests, devises, legacies or transfer
to social welfare, cultural and charitable
institutions, no part of net income of which
inures to the benefit of any individual, not
more than 30% of donation shall be used
by such institutions for administration
purposes.
✓ Acquisitions and/ or transfer expressly
declared as non-taxable by law
✓ Bank deposits withdrawn from the
decedent account during the settlement of
the estate
✓ Transfer in contemplation of death
✓ Revocable transfer, including
conditional transfer – unless
waived the right to revoked before
death
✓ Property under general power of
appointment
✓ Proceed of revocable life
insurance and insurance for
executors
✓ Claims against insolvent person
✓ Prior interest
✓ Transfer for insufficient
consideration

ESTATE TAX MODEL SUMMARY OF DEDUCTION RULES
RC, RA,
NRC
NRA
Losses YES Pro-
rated
amount
Claims against
estate
YES
Indebtedness YES
Taxes YES
Transfer for Public
Use
YES YES
Vanishing
Deductions
YES YES
Family Home YES NO
Standard
Deductions
YES YES
RA 4917 YES NO
Share of surviving
spouse
YES YES
Tax Credit YES NO
Exclusive Common Total
Gross Estate xx xx xx
Less: Ordinary Deductions
a. Claims Against the Estate (xx) (xx) (xx)
b. Claims Against Insolvent
Persons
(xx) (xx) (xx)
c. Unpaid Mortgages (xx) (xx) (xx)
d. Property Previously Taxed (xx) (xx) (xx)
e. Transfer For Public Use (xx) (xx) (xx)
f. Others (xx) (xx) (xx)
Estate after deductions xx xx xx
g. Family Home (xx)
h. Standard Deductions (xx)
i. Others/ Ra 4917 (xx)
Net Estate xx
Less: Share of Surviving Spouse in
Common
(xx)
Net Taxable Estate xx
Multiply by Estate Tax Rate 6%
Estate Tax Due xx
Tax Credit (xx)
Estate Tax Payable XX

DONOR’S TAX MODEL
Gross Gift xxx,xxx
Less: Deduction (xxx,xxx)
Net Gift - current xxx,xxx
Add: Prior NG during the year xxx,xxx
Total Net Gift xxx,xxx
Less: Exempt Donation (250,000)
Net Gift subject to tax xxx,xxx
Donor’s Tax Rate x 6%
Donor’s tax Due xxx,xxx
Less: Donor’s tax paid during the year (xxx,xxx)
Less: Foreign tax credit (xxx,xxx)
Donor’s Tax Payable/ (Overpayment) xxx,xxx
✓ Donation To Exempt Donee
✓ Donation for Election Campaign
✓ Transfer For Insufficient Consideration of Real
Property Classified as Capital Asset
✓ General Renunciation of Inheritance
✓ Donation With Reserved Powers
✓ Donation to the Government for Public Use
✓ Donation to Accredited Non-Profit Institution
✓ Quasi-Transfers
✓ Void Donations
✓ Foreign Donations of Non-Resident Alien
Donors
✓ Donation of Property Exempt Under Reciprocity
✓ Condonation/ Forgiveness of Debt

PROPERTY VALUATION

PROPERTY REGIMES

TRANSFER TAX – gratuitous transfer of property,
right and obligations.
Types of Transfer
1. Sale/Barter/Onerous
2. Unilateral/Gratuitous
3. Complex/Mixed
Nature of Transfer tax
1. Privilege
2. Ad Valorem
3. National
4. Direct
5. Fiscal
Purpose of Transfer Tax
1. Benefit Received Theory
2. State Partnership Theory
3. Ability to Pay Theory
4. Redistribution of Wealth Theory
5. Tax Evasion/Minimization Theory
6. Tax Recoupment Theory
3 Types of Taxpayer
1. Resident/Citizen
a. RC
b. NRC
c. RA
2. NRA
3. Juridical
a. Domestic
b. Foreign
NON-TAXABLE TRANSFERS

EXCEPTIONAL RULES ON TRANSFER

QUICK NOTES IN BUSINESS TAX

CONSUMPTION TAX
Business Tax VAT on
Importation
Exportation Final
Withholding
VAT
As to Buyer Business/Not Business/Not - Business
As to Seller Business Business/Not Business Presumed
Business
Tax Base Gross Sale Dutiable Value +
Custom Duty +
Excise Tax +
In-land Cost
Gross Sale Contract Price
Tax 12% 12% 0% 12%
Payable To BIR BOC - BIR
Business Tax – resident buyer buys to resident seller.
VAT on Importation – resident buyer buys goods to non-resident seller.
Exportation – non-resident buyer buys goods to resident seller.
Final Withholding VAT– resident buyer buys service to non-resident
seller. seller.

BUSINESS TAX
VAT PAYABLE FORMULA
Output VAT xx - vat imposed on sale
Less: Input VAT (xx) – vat on purchase
VAT Due xx
Less: Tax Credit (xx)
VAT Payable xx
Is the seller a
Business?
NO
YES
Exempt
Vatable
Percentage Tax
Exempt Sale
Excise Tax
3% Other
Percentage Tax
12% Value
Added Tax
Those who did not exceed the 3M
threshold and did not opt to
register.
Gross sale exceed 3M in the past 12
months, believes gross sale will
exceed 3M (10M for radio), and
those opt to register.
TYPES OF
INPUT VAT
Monthly VAT Credits
Creditable VAT withheld.
Advanced VAT for sugar/flour
VAT paid on amended return
5% CWT from Government
Regular Input VAT
Transitional Input VAT
Presumptive Input VAT
Deferred Input VAT
Input VAT Carry Over
Purchases x 12%
Higher or 2% of beginning inventory
& actual input VAT
4% of SAMAMICOPARE
Amortize over 60 months or actual if life is
lesser, MAAC should be > 1M and only until
Dec 31, 2021
Refined Sugar – 12% x 1,400
for every 50kg or 168/50kg.
Flour 12% x 75% x 105% x (a+b)
Imported by miller – invoice
price + custom duties + other
charges
Purchase by miller – invoice
price + freight
Naturally Grown/Timber
Products
Sale of jewelry, gold, metallic
minerals
INSTALLMENT REPORTING OF OV
Received Payment
Contract Price
x Output VAT
TRANSACTION
DEEMED SALE
Distribution to Creditors, Shareholders, own use.
Domestic Consignation not sold within 60 days.
Retirement/Cessation of Business (lower of AC & MV)
Transmission of properties to trustee (MV @ time of transaction)
MIXED
TRANSACTION
S
Exempt Sale – cannot claim input vat (expense)
0% Rated Sale – can claim input vat or refund
Sale to Government – 5% CWT, can claim input vat
Regular Sale – can claim input Vat
Input Vat not attributed to any
sales should be pro-rated
based on total gross sale.

ERRONEOUS
TAXABLE
SALES
DETERMINATION
OF VAT
Timely VAT
Registration
Not Timely
RIT *liable to VAT
from month of
registration
(can avail
input vat)
*subject to vat starting
the month following the
month of breach (can’t
avail input vat- can only
avail input vat starting
from month of
registration)
*GPT paid during month
that should be 12% is
credit/refunded.
8%
Optional
Tax
* Pay GPT
from start of
taxable year
up to month
of breach
*Liable to VAT
from month of
registration
(can avail
input vat)
*Pay for GPT from start
of taxable year up to
month of breach
*subject to vat starting
the month following the
month of breach (can’t
avail input vat- can only
avail input vat starting
from month of
registration)
ZERO-RATED SALE – input VAT here is creditable!
GOODS
Direct Export – acceptable foreign currency, accordance with BSP.
Indirect Export – sale to registered export enterprise, used directly.
International Carriers – should be use for outbound transfer.
Sale to specific customer – required approval of BIR if without
approval – exempt not 0% rated.
SERVICES
Service to specific customer.
Sale to non-resident – should be performed in PH,
acceptable currency/ BSP.
Indirect Export – services to REE.
Rendered to International Carriers for international carriers.
Outbound transport of passenger/cargo of domestic carriers.
Sale of power/fuel from renewable sources.
VAT TRANSITION
VAT Registrable = output vat (no input vat)
Non-VAT Taxpayer issues VAT invoice = percentage tax + OV
+ 50% surcharge on OV
Exempt Sale billed as regular = OV less IV
Error in computation of VAT = invoice price + VAT paid /
112% x 12% less input vat
Specific Customers:
-Asian Development Bank
-Intl Rice Research Ins
-United State agency for intl dev
-Embassies -UN
-Phil National Redcross
-PAGCOR -PEZA
-SBMA - REE
X 12%
/112% X 12%
VAT Reporting – Quarterly
2550Q – 25th
day after the taxable quarter
Summary List: Purchases, Sale, Importation
Renewable
Sources: Biomass,
Solar wind,
hydropower,
geothermal,
steam, ocean
energy, fuel cell,
hydro fuel.

EXEMPTION TO BUSINESS TAX
A. Basic Human & Related Products
a. Agricultural marine food products
b. Livestock, Poultry
c. Breeding Stock & Genetic Materials
d. Fertilizers, Seeds, Seedlings, Fingerlings
e. Ingredients use in manufacture of finished feeds.
*Should be in original state: preparation, preservation, packaging
B. Quasi-Importation
a. Personal Household Effects
b. Professional Instrument of overseas Filipinos to settle in the PH
i. Must accompany 90 days before or after arrival
ii. Proof of change of residence
iii. Not for commercial purpose
C. Agricultural Services – by agricultural contract grower and milling.
*Palay into rice, corn into grits, sugar cane into raw sugar
D. Health
a. Medical/Dental/Hospital/Veterinary Services
b. Medicine for certain Illnesses
i. Diabetes v. Mental Illnesses
ii. High Cholesterol vi. Kidney Diseases
iii. Hypertension vii. Tuberculosis
iv. Cancer
NRC coming to resettle in PH
Exempt form custom duties
E. Employment – employer – employee relationship
F. Crude Oil – intended to be refined at local refinery.
G. Education
a. School – accredited by DEPED, CHED, TESDA
b. Educational materials – not for advertisement, compliance with
national book development board requirement.
H. Export Sale
a. VAT registered – 0%
b. Non-VAT – exempt
I. Sale Tor Senior Citizen & PWD
a. Drugs, vaccine & foods for special medical
b. Vitamins and mineral supplements*
c. Accessories and equipment*
d. Casket/Urn/Theater/Cinemas
*for senior citizen only
J. Regional Area Headquarters – supervisory, communication, coordinating
centers of a foreign company.
K. Sale of Gold to BSP
L. Association Dues/Membership of
M. Services Specifically Subject to Percentage Taxes
N. Association Dues/ Membership of homeowner’s association

O. Domestic or International Carriers
Sale Importation or Lease of Passenger or Cargo vessel/aircraft, engine. Equipment, spare parts – exempt:
→ use for domestic/international operation.
→ restriction of MARINA: retirement
Passenger/Cargo vessel – 15 yrs
Tankers – 10 yrs
Highspeed passenger crafts – 5 yrs
Importation of fuel goods and supplies by shipping /air transport.
PH → PH PH → Abroad Abroad → PH
Pass Cargo Pass Cargo Pass Cargo
Domestic Land 3% CCT 12% - - - -
Air/Sea 12% 12% 0% 0% Exempt Exempt
International Land 12% 12% - - - -
Air/Sea 12% 12% Exempt 3% ICT Exempt Exempt
Before
2021
After 2021
Socialized Housing Units
House & Lot 450k 450k
Residential Lot only 180k 180k
Low-cost housing 750k Vatable
Residential lot 1,919,500 Vatable
Residential house & lot 3,199,200
3,199,200
*3.6M starting 2024
Lease of Residential
Unit
15k/month 15k/month
Q. Real Property Sale or Lease by a Realty Dealer
Lease of Residential Unit: if more than 15k/month:
➔ Annual receipt of <= 3M, use GPT
➔ Annual receipt > 3M, 12 VAT
Sale of adjacent lot within 12 months → aggregated.
P. Cooperative – must be registered with CDA.
a. Agricultural Cooperative d. Other Cooperative
i. own produce (exempt) i. transacting only with members &
ii. other product transacting with non-members with acc
*to member – exempt reserve <= 10M
* to non-member – vatable *registered product – exempt
b. Credit or Multi-purpose * not registered – vatable
i. Lending (exempt) ii. transacting with non-members with acc
ii. non-lending (vatable) reserve > 10M
c. Electric Cooperative – vatable *registered or not- vatable

SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAXES
A. Common Carriers Tax – 3%
B. International Carriers Tax – 3%
C. Franchise Tax – 3% Radio, 2% Water/Gas
D. Overseas Communication Tax - 10%
E. Gross Receipt Tax – 1/5/7%
F. Amusement Tax – Boxing 10%, BB 15%, Cockpit/NDC 18%, Jai-alai 30%
G. Premiums Tax on Domestic – 2%
H. Premiums Tax on Foreign – 4% agents, 5% direct owners
I. Winnings Tax – horse/jai-alai 10%, combination bets 4%, owner of horse 10%
A. Common Carriers Tax
➔ passenger via land
➔ except: banca, two wheeled animal drawn
➔ Transportation network companies (grab)
--) TNC/Partner driver should have “certificate of public convenience”
– otherwise, vatable.
--) Tax base is base on “Receipt Theory”
B. International Carriers Tax
➔ Air/shipping carriers owned by foreign corporations
doing business in the PH in their export of goods.
Base on Gross Sale.
Base on Gross Receipt.
Other Percentage Tax/General Percentage Tax
– vatable sale of non-vat.
-3% (1% July 1, 2020 – June 30, 2023)
C. Franchise Tax – public franchise of:
→ Radio/Television/Broadcasting
--) VAT registered/ exceed threshold >10M – 12% VAT
--) Otherwise – 3% franchise tax
→ Gas /Water Utilities – 2% franchise tax
→PAGCOR franchise tax – 5% in lieu of all local/national tax
D. Overseas Communication Tax
→ caller should be from PH
→caller should be the payor of service
→outgoing call (PH → Abroad)
→except: PH embassies, PH government, International
organization, news services

E. Gross Receipt Tax
Pre-termination: Holding Period – recompute the should be percentage tax base on
pre termination date as new date.
Net Trading Loss can be carried over for the next quarter but cannot carry
over on net taxable year.
F. Amusement Tax
Boxing 10%
Professional Basketball 15%
Cockpit, Cabarets, Clubs 18%
Jai-Alai, Racetracks 30%
*Boxing exemptions requisites:
1. World/oriental championship
2. One contender is FILIPINO
3. Promoter FILIPINO citizen or corporation 60% owned by FILIPINO.
Bank/
Quasi-Bank
Non-Bank
Gross Receipt from Lending Activities
5 yrs or less 5% 5%
More than 5 yrs 1% 1%
Dividends and equity share of subsidiaries 0% n/a
Royalties, rental of property 7% n/a
Net trading Gain on foreign currency debt 7% n/a
All other items 7% 5%
G. Premiums tax on Domestic Insurance
→ life/health insurance
→total premiums collected, money, notes, credits
→pre-issuance fees, reinstatement fee, renewal fee,
penalties
→investment income realize from investment
H. Premiums Tax On Foreign Insurance
→ non-life insurance (fire, marine, or miscellaneous)
→through agents – 4%
→owners directly obtaining insurance to NRFC – 5%
I . Winnings Tax
→Horse Race/Jai- alai 10% net winnings
→Combination Bet 4% net winnings
→Owners of winning horse 10% of winnings

QUICK NOTES IN
PREFERENTIAL TAXATION

STRATEGIC INVESTMENT PRIORITIES PLAN
➢ Formulated by BOI, FIRB, IPA.
➢ Approved by the President.
➢ Validity: 3 years
➢ Contents:
✓ Priority projects or activities
✓ Location and Industry tiers
✓ Terms and conditions
➢ Power to grant tax incentives.
✓ Investment Capital more than 1B – FIRB
✓ Investment Capital at most 1B – IPA
QUALIFIED BUSINESS ENTERPRISE
a. Export enterprises
b. Domestic market enterprises
FISCAL INCENTIVES – start of availment is the start of
commercial operation (operation should start within 3 years
from date of registration).
a. Income Tax Holiday
b. Special Corporate Income Tax
c. Enhanced Deductions
INCOME TAX HOLIDAY

2 ADDITIONAL YEARS ITH (EXTENSION) – areas
recovering from armed conflict. Added after the ITH period.
3 ADDITIONAL YEARS ITH (RELOCATION) – relocating
from NCR to other areas. Added after exhaustion of all
incentives.
SPECIAL CORPORATE INCOME TAX
➢ five percent (5%) effective July 1, 2020, based on the
gross income earned, in lieu of all national and local
taxes is available for registered export enterprises.
➢ Available for ten years.
➢ Irrevocable choice between enhance deduction or
SCIT.
ENHANCED DEDUCTION
✓ Qualified Capital Expenditure
o Building – 10% additional depreciation
expense
o Machinery & Equipment – 20% additional
depreciation expense
✓ Additional 50% labor expense, Power expense,
Domestic Input, Reinvestment Allowance
✓ Additional 100% training expense
✓ 5 years Enhanced Net Operating Loss Carryover –
for net loss in the first 3 years of operation.
OTHER INCENTIVES
a. DUTY EXEMPTION
➢ Importation of Capital Equipment, Raw Mat, Spare
Parts, accessories used directly in registered project
and not produced domestically in sufficient quantity,
with approval of IPA.
➢ Subsequent sale or transfer within 5 years from
importation needs approval from IPA, and is only
allowed to certain circumstances:
✓ Enterprise with duty exemption
✓ Enterprise without duty exemption – upon
payment of duties (based on net book value)
✓ Required for pollution abatement and control
✓ Technical obsolescence
✓ Donated to TESDA, SUCs, DEPED or CHED
schools.
➢ Without approval from IPA, RBE and buyer
SOLIDARILY liable twice the amount of duties
that should be paid during importation.

b. VAT EXPOSURE
c. IMPORTATION OF COVID 19 VACCINES
➢ exempt from import duties, taxes and other fees
with required approval or licenses issued by the
DOH or FDA. Should Not be intended for resale.
d. IMPORTATION OF PETROLEUM PRODUCTS
➢ When importing crude oil for local refining, no
duties and taxes are imposed initially.
➢ The duties and taxes on petroleum products
derived from refining will only be paid when
these products are lifted or taken out for use.
CANCELLATION, SUSPENSION, OR WITHDRAWAL OF
THE ENJOYMENT OF TAX INCENTIVES
a. Non-compliance with the agreed performance
targets or material violation of any of the
conditions imposed.
b. Material misrepresentation of information.
c. Non-compliance of with the reportorial
requirements.
RULES ON TRANSITION
1. Granted an income tax holiday only →
Allowed to continue with the availment of the
income tax holiday for the remaining period of
the income tax holiday.
2. Currently availing of the 5% gross income
tax on gross income earned → Allowed to
continue availing the 5% GIT for 10 years.
3. Granted an income tax holiday and entitled
to the five percent tax on gross income
earned after the ITH period → allowed to
exhaust unused income tax holiday and
continue availing the 5% GIT, both for a total of
ten years.
PURCHASES
REE 0% VAT (17 years)
RDME 12% VAT
SALES
Existing 5%
GIT
VAT Exempt (regardless who is the
buyer)
Existing ITH 12% VAT (if buyer is from transitioning
& RDME)
0% VAT (if buyer is REE)
REE/RDME 0% VAT (if seller is on ITH period)
VAT Exempt (if seller is on SCIT
period)
12% VAT (if buyer is RDME)

Registered business enterprises with incentives granted prior
to the effectivity of the CREATE shall be subject to the
following rules. (Create starts at 2021)
➢ Pioneer PEZA - 6 yrs ITH, 5% GIT
➢ Non-pioneer PEZA - 4 yrs ITH, 5% GIT
➢ BCDA - 5% GIT
➢ Pioneer BOI - 6 yrs ITH
➢ Non-pioneer BOI- 4 yrs ITH
Exempt only from Local
Business Tax only
during period of ITH.
Exempt to all local
taxes during period of
GIT.

QUICK NOTES IN OTHER SPECIAL
TAXPAYER

BARANGARY MICRO BUSINESS
ENTERPRISE (BMBE) RA 9178
BMBE is a business entity 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, do not exceed P3,000,000.
CERTIFICATE OF AUTHORITY – issued by office of the
treasurer of city or municipality. 2 years of effectivity,
renewable.
REVOCATION OF BMBE TAX EXEMPTION
• Transfer of place of business
• Value of total assets exceeds P3,000,000
• Voluntary surrender of the Certificate of Authority
• Death of the registered individual owner
• Violation or non-compliance with the provisions of RA 9178
• Merger or consolidation with an entity which is not eligible to
be a BMBE
• Sale or transfer of the BMBE, if a sole proprietorship without
prejudice to the transferee applying for registration
• Submission of fake or falsified documents
• Retirement from business, or cessation/suspension of
operations for one year
• Making false or omitting required declarations or statements
INCENTIVES
a. REGULAR INCOME TAX EXEMPTION from
income arising from operation of the enterprise.
• But still subject to business taxes, VAT, Percentage
Tax, Withholding Tax, FWT, CGT, Annual
Registration Fee.
• Required to file an Annual Information Return,
together with an Account Information Form, or its
equivalent, containing data lifted from audited
financial statements and a sworn statement of
assets owned and/or used in business.
• Deadline for filing the same is the 15th
day of the
fourth month following the close of the taxable year,
similar to an Annual Income Tax Return.
b. EXEMPTION FROM COVERAGE OF MINIMUM
WAGE LAW – but BMBE employee is still required
to receive SSS and Health Care Benefit.
c. PRIORITY TO SPECIAL CREDIT WINDOW SET-
UP -specifically for financing requirements of the
BMBE.
d. TECHNOLOGY TRANSFER, PRODUCTION &
MANAGEMENT TRAINING & MARKETING
ASSISTANCE PROGRAM.
e. EACH LGU ARE ALSO ENCOURAGE TO EITHER
REDUCE THE AMOUNT OF LOCAL TAXES, FEES
AND CHARGES IMPOSE OR EXEMPT THE
BMBE.
✓ LGU may charge fee not more than 1,000.

SENIOR CITIZEN/ PERSONS
WITH DISABILITY
➢ 20% Discount and VAT EXEMPTION/3% OPT to the
ff:
✓ Medicine
✓ Professional Fees for Doctors, Licensed
Health Workers
✓ Medical and Dental fee, Laboratory, Diagnostic
✓ Actual fair for Land Transportation, Domestic
Air and Sea shipping
✓ Hotels, lodging establishment, restaurant.
✓ Theater, Cinema, Concerts, Circuses,
Carnivals
✓ Funerals and Burial Services
➢ 5% SPECIAL DISCOUNT TO PWD & SC on regular
retail of basic and prime commodities- limited to
purchase worth 1,300 per week any unused cannot be
carried over.
➢ VIOLATIONS FOR NON-COMPLIANCE
✓ 1st
Violation – Fine – 50,000 to 100,000;
Imprisonment – 2 to 6 years; or both
✓ Subsequent Violation – Fine – 100,000 to
200,000; Imprisonment – 2 to 6 years; or both
Additional Incentives
1. 5% Discount on monthly consumption of water and
electricity – should be in the name of SC.
Limit: 100kw/h electricity, 30cm water
2. Exemption from training fees for socio-economic
program.
3. Free vaccination for indigent senior citizen.
4. Educational assistance to SC and PWD.
5. Express lanes for SC and PWD in all commercial
and government establishment.
6. Death benefit assistance of minimum of 2,000 for
SC.
SOLO PARENT
• 10% discount on goods bought for child (infant to 6
years old)
• Exemption to VAT

QUICK NOTES IN LOCAL TAXATION

16TH
CONSTITUTIONAL LIMITATION
ON THE POWER OF TAXATION
Each LGU shall exercise the power to create its own sources
of revenue and shall have a just share in the national taxes.
LIMITATIONS
1. shall not be unjust, excessive, shall not be enacted
without any prior public hearing.
2. Income tax (except levied on bank/ financial
institution), DST, Transfer Taxes, Excise Taxes,
Percentage Tax, VAT.
3. Fees on Customs duties, registration fees vessels
and wharfage (except wharfage on wharves
constructed and maintained by LGU)
4. Toll, Fees, Taxes on goods carried into or out of, or
passing through, the territorial jurisdictions in the guise
of charges for wharfage
5. agricultural and aquatic products when sold by
marginal farmers or fishermen.
6. enterprises certified to by the Board of Investments
7. contractors and persons engaged in the
transportation of passenger
8. premium paid on insurances
9. registration of motor vehicle /issuance of all kinds of
licenses for driving, except tricycles.
10. Philippine products exported,
11. Countryside and Barangay Business Enterprises and
cooperatives registered in cooperative code of the
Philippines
12. Taxes on National Government, its agencies and
instrumentalities, and local government units
FUNDAMENTAL PRINCIPLE
➢ Uniform, equitable, public purposes, in no case
collection be let to any private person, revenue
collected inure solely to the benefit of the local
government unit levying the tax, fee, charge, or other
imposition and use of progressive system of taxation.
TAXING AUTHORITY
✓ Legislative (Sangguniang Bayan) – power to
impose tax, fee, or charge
✓ Executive (Mayor/Treasurer)- collection
PROCEDURE FOR APPROVAL AND EFFECTIVITY
Public hearings → question for validity within 30 days from
effective date → Secretary of justice render decision within
60 days from receipt of appeal → file appropriate
proceedings with a court of competent jurisdiction within 30
days from lapse period or from decision.
*such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied.

Publication
➢ Within ten (10) days after their approval, three (3)
consecutive days in a newspaper posted in at least
two (2) conspicuous and publicly accessible places.
➢ Furnishing of Copies - furnished the respective
local treasurers for public dissemination.
Attempt to Enforce Void or Suspended Tax Ordinances
and Revenue Measures
The enforcement of any tax ordinance or revenue measure
after due notice of the disapproval or suspension thereof shall
be sufficient ground for administrative disciplinary action
against the local officials and employees responsible therefor.
Authority to Adjust Rates of Tax Ordinances
Local units shall have the authority to adjust the tax rates as
prescribed herein not oftener than once every five (5) years,
but such adjustment should not exceed ten percent (10%)
of the rates fixed under the LGC. (Maximum adjustment).
Tax Period and Manner of Payment
The tax period of all local taxes, fees and charges shall be the
calendar year. Such taxes, fees and charges may be paid in
quarterly installments (every last day of quarter)
Time of Payment
➢ First twenty (20) days of January or of each
subsequent quarter. The Sanggunian concerned may,
extend the time of payment of but only for a period
not exceeding six (6) months.
• Wala kang interest kung magbabayad ka within 20
days or within 6 months (kung in-impose ni LGU na
pwede)
• Kung ma de-delay ka ng bayad, example feb 1 ka
na nagbayad (walang 6 months extension) may
surcharge & interest ka from jan1
• Kung made-delay ka ng bayad example, july 30 ka
na nagbayad (merong 6 months extension) may
surcharge & interest ka from jan 1 since lagpas ka
na for 6 months.
Surcharges and Penalties on Unpaid Taxes, Fees, or
Charges
➢ Surcharge - (25%) of the amount of taxes, fees or
charges not paid on time (except real property taxes)
➢ Interest - (2%) per month of the unpaid taxes, fees or
charges including surcharges (maximum of 36 months
interest/ 72%)

Tax Discount for Advanced Prompt Payment
➢ If the basic real property tax and the additional
taxes are paid in advance in, the Sanggunian
concerned may grant a discount not exceeding
twenty percent (20%) of the annual tax due.
SITUS OF LOCAL BUSINESS TAX
➢ With Sales Outlet/Branch - 100% on the sales of SO
is taxable on place of SO.
➢ With Factories and/or Plantations
• 30% of all sales of principal office is taxable in the
place where PO is located.
• 70% of all sales recorded in the principal office shall
be taxable where the factory, project office, plant, or
plantation is located
o In case of a plantation and factory is in
different places: Sixty percent (60%) where
the factory is located; and & Forty percent
(40%) where the plantation is located.
o In case that the business has 2 or more
factories the 70% shall be proportion to all
the factories according to the volume of
production
MUNICIPAL TAX
Business Tax
✓ Manufacturer and wholesalers – progressive tax
table.
✓ Retailers – 2% with gross sale of 400k or less, 1% if
more than 400k gross sales
✓ Manufacturers, Wholesalers, retailers of essential
products – 1/2 of the above rates.
✓ Contractors – progressive tax table
✓ Banks and financial institutions – 0.5% on gross
receipts
✓ Peddlers – 50php annually
✓ Other businesses – 2% of gross sales or receipt in
preceding year
Municipalities within the Metropolitan Manila Area – may
exceed the maximum by not more than 50%
Fees and Charges
Municipality can collected fee on business and occupation
except Professional Taxes, on the practice of any profession.
Fees for Sealing and Licensing of Weights and Measures
Sealing and licensing of weights and measures at such
reasonable rates. Penalized any fraudulent practices.
Settlement may be mad upon payment of penalty not less than
P200 (not involving commission of fraud)

Object Rate Note
Transfer of Real Property
Ownership
50% of 1% based on Selling Price
or FMV if SP is not substantial
Payable w/in 60 days from execution of deed of
sale or death (duty of seller, transferor, executor)
Business of Printing and
Publication
existing business - 0.5% of Gross
Receipt last yr
new business - .05% of Capital
Investment
Exempt: reading materials prescribed by the
Department of Education, Culture and Sports
Franchise Tax existing business - 0.5% of Gross
Receipt last yr
new business - .05% of Capital
Investment
franchises here are those rights or privileges
affecting public interest which is conferred upon
private persons or corporation (kuryente, tubig
etc)
Sand, Gravel and Other Quarry
Resources
10% of FMV per cubic of extracted Allocation:
30% Province
30% Municipality
40% Barangay
Professional Tax 300 per year/per profession In case he practices his profession in several
places – tax in the province where his principal
office is located. Due: Jan 31
Tax on Delivery Truck or Van 500 annually/ per truck
Amusement Tax 10% from Gross Receipt Allocation:
50% province
50% municipality
Except: operas, concerts, dramas, recitals,
painting and art exhibitions, flower shows,
musical programs, literary and oratorical
presentations
PROVINCIAL TAXES

BARANGAYS
Taxes
Stores or retailers with fixed business establishments with
gross sales or receipts of the preceding calendar year of:
➢ 50,000 or less (cities) - 1%
➢ 30,000 or less (municipality) - 1%
Service Fees or Charges
Barangays may collect fees or charges for services with the
regulation or the use of Barangay owned properties or service.
Barangay Clearance
Sangguniang Barangay may impose a reasonable fee on
Barangay Clearance. Acted upon within seven (7) working
days from the filing thereof. In the event that the clearance is
not issued within the said period, the city or municipality may
issue the said license or permit.
Other Fees and Charges
The Barangay may levy reasonable fees and charges:
1. On commercial breeding of fighting cocks, cockfighting
and cockpits;
2. On places of recreation which charge admission fees;
and
3. On billboards, signboards, neon signs, and outdoor
advertisements.
COMMUNITY TAX – for municipalities/ cities
✓ Philippine Resident aging 18year old – 5 basic
tax + 1 peso additional tax for every 1,000 of
income (not to exceed 5,000)
✓ Corporations – 500 basic tax + 2 pesos
additional tax for every 5,000 worth of real
property and gross receipt (not to exceed
10,000)
Exemption
1. Diplomatic and consular representatives
2. Transient visitors when their stay in the Philippines does not
exceed three (3) months.
A community tax certificate may also be issued to any person
or corporation not subject to the community tax upon payment
of One peso (P1.00).
CITIES
Cities, may levy the taxes, fees, and charges which the province
or municipality may impose: May exceed the maximum rates
allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement
taxes.

Time for Payment
Accrue on the first (1st) day of January of each year which
shall be paid not later than the last day of February of each
year. Should the taxpayer turn 18 years, lose its exempt status
or come to reside in the Philippines at the middle of the year,
the figure below will determine its taxability.
Penalty for Delinquency
If the tax is not paid within the time prescribed above, there
shall be added to the unpaid amount an interest of twenty-four
percent (24%) per annum from the due date until it is paid.
REAL PROPERTY AND RELATED TAXES
Real Property Tax
Procedures for Computation:
Step 1: Determine the Fair Market Value
Step 2: Determine the Assessment Level
Step 3: Determine Assessed Value (FMV x Assessment Level)
Step 4: Determine the Tax Rate (Province 1%; Cities &
Municipalities within Metro manila 2%)
Step 5: Determine the Real Property Tax (Assessed Value x
Tax Rate)
Additional Levy for Special Education Fund (mandatory)
(1%) on the assessed value of real property which shall be in
addition to the basic real property tax.
Socialized Housing Tax (optional)
Additional one-half percent (0.5%) tax on the assessed value
of all lands in urban areas in if value of land is more than
50,000.
Tax on Idle Lands
annual tax on idle lands at the rate not exceeding five percent
(5%) of the assessed value of the property which shall be in
addition to the basic real property tax.
Coverage
If one-half of the land type stated below remain uncultivated,
unutilized or unimproved, considered as an idle land.
Agricultural More than one hectare
Non-Agricultural More than one thousand square
meters
IDLE LANDS EXEMPT FROM ADDITIONAL TAX
May exempt idle lands from the additional levy by reason of
force majeure, civil disturbance, natural calamity
ESSENTIAL COMMODITIES (Business Tax in Municipalities)
1. Rice and corn
2. Wheat or cassava flour, meat, dairy products,
preserved food, sugar, salt and other
agricultural, marine, and fresh water products
3. Cooking oil and cooking gas
4. Laundy soap, detergents, and medicine;

5. Agricultural implements, equipment and post
harvest facilities, fertilizers, pesticides,
insecticides, herbicides and other farm inputs;
6. Poultry feeds and other animal feeds;
7. School supplies
8. Cement
PUBLIC UTILITY CHARGES- fix the rates for the imposition
of toll fees or charges for the use of any public road, pier or
wharf, waterway, bridge, ferry or telecommunication system
funded and constructed by the local government unit
concerned:
Exempt from toll fees:
1. officers and enlisted men of the Armed Forces
of the Philippines
2. members of the Philippine National Police on
mission
3. post office personnel delivering mail,
4. physically handicapped,
5. disabled citizens who are sixty-five (65) years or
older.
PRINTING OF COMMUNITY TAX CERTIFICATES &
DISTRIBUTION OF PROCEEDS
➢ The BIR shall be the one to print CTT and distribute to
cities and municipalities treasurer. Proceed shall
accrue all to municipalities and city except some
portion will have to remit to the National to cover
expenses of printing and distribution of forms and CTT.
Remittance shall be made 10 days after the end of
each quarter.
➢ Municipal treasurer shall deputize the Barangay
treasurer to collect the community tax in their
respective jurisdictions.
o Proceed of community tax directly collected by
the city or municipal treasurer shall accrue
entirely to the general fund of the city or
municipality
o proceeds of the community tax collected
through the Barangay treasurers shall be
apportioned as follows:
▪ 50% municipality
▪ 50% barangay
SUMMARY OF PENALTY FOR LATE PAYMENTS
Subject Interest Surcharge
Community Tax 24% per annum x
Real Property Tax 2% per month,
max of 36 months
x
All other local
taxes, fee &
charges
2% per month,
max of 36 months
(add surcharge to
the base)
25%

Quick notes in Income Taxation authored by Tabag

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Quick notes in Income Taxation authored by Tabag