Chapter 7: Taxable Bases and Tax Rates

TAX BASES
Compensation income, business and/or professional income, capital gains, passive income and other
income not subject to withholding taxes follow the global tax system
Allowable deductions as well as personal and additional exemptions are deducted from gross
income. The resulting figure is net taxable income
Noted: there are no deductions are allowed by law to be deducted from the gross compensation
income of an individual.
Gain from Sale of Property
Basis of taxes:
The cost, if acquired by purchase
The fair market value or value as of the date of acquisition if the it is acquired by inheritance
Fair market value or the value when it got into the hand of the donor, if its by donation or gift
Zonal Value at the time of transfer by way of purchase or donation
Whichever is the highest among the values above becomes the basis of the tax.
Nature of Asset or Property
a. Ordinary asset assets that are sold in the normal business. Examples is when Real Properties
are being sold by Real Estate developers. House and Lot becomes part of their inventory, then it
is subject to an ordinary asset. Cost is deducted to get the basis of computing tax.
b. Capital Asset in general, all real property not classified to be ordinary asset. Capital gains tax is
computed at 6% of the actual consideration, fair market value of the real property determined
by the commissioner, or which ever is higher.
Passive investment incomes
Incomes subject to withholding taxes are taxed on the gross amount, which means no
deductions of cost and expenses of sale.





TAX RATES
Graduated income tax rates on taxable income of individuals normally this is the rate being followed
by employees (no deductions are allowed except personal and additional exemptions) and also for self
employed individuals or businessman whom is allowed to have deductions related to their business or
profession.

Schedule
Not over P10,000 5%
Over P10,000 but not over P30,000 P500 + 10% in excess of P10,000
Over P30,000 but not over P70,000 P2,500 + 15% of the excesss over P30,000
Over P70,000 but not over P140,000 P8,500 + 20% in excess of P70,000
Over P140,000 but not over P250,000 P22,500 + 25% in excess of P140,000
Over P250,000 but not over P500,000 P50,000 + 30% in excess of P250,000
Over P500,000 P125,000 + 32% (beg yr 2000) in excess of P500,000

Note: This is the point of controversy in the congress were they are clamoring for ammendments

Compensation income of alien and Filipino employees of regional area headquarters, regional operating
headquarters, offshore banking units and foreign petroleum service contractors and sub-contractors,
are tax at the rate of 15% of gross income from sources within the Philippines.

Capital gains tax from shares of stocks
1. Shares of stocks of a domestic corporation listed and traded in a local stock exchange
Gross selling price P xxxx
Multiplied by rate of tax x of 1%
Stock transaction tax P xxxx

2. Unlisted shares of stocks (all normal corporations not traded in Phil Stock Exchange)

Gross selling price P xxxx
Less: Cost xxxx
Gain xxxx
Multiplied by rates of tax x 5%/10%
First P100,000 5% xxxx
In excess of P100,000 10% xxxx
Total tax xxxx




3. Share of stock of a foreign corporation held for more than 12 months

Gross selling price P500,000
Less: Cost 300,000
Gain P 200,000
Taxable gain (50%) P 100,000
Multiplied by rate of tax 5% - 3%
Ordinary income tax P 14,500


Interest Royalties Prizes and winnings:

Tax rates (20%) for interest from any currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and other similar arrangements, royalties prizes and other
winnings received by resident alien.

Exceptions
o Interest income from expanded foreign currency 7.5%
o Interest from long term deposit exempt
o Royalty on books as well as literary works and 10%
Musical composition
o Prizes amounting to less than P10,000 subject to graduated tax rate
o Winnings from PCS Lotto exempt

Cash and property dividends

Tax Rate: 10%

Sales of real property tax classified as capital asset

Tax Rate: 6% of cost or FMV or zonal Value (whicher is higher)

Noted: Zonal value and Fair market value is established by the commissioner of the Bureau of
Internal Revenue.


Sale of principal residence

Tax rate is 6%, but shall be exempt from 6% if proceeds of sale is fully utilized in acquiring or
constructing a new principal residence within 18 calendar months from the date of sale or disposition
and notified the commission within 30 days from the date of disposition of his intention to avail of the
tax exemption and it is availed only once every 10 years.

Regular corporate income tax (RCIT)

Tax rate: controversial 32%


Minimum Corporation income tax
The minimum tax of existing corporation for more than 3 years. The minimum tax is 2% of its
Gross Income (Gross Sales less Cost of Sales)

Domestice Corporations subject to preferential tax rates (Special rates)

a. Proprietary education institutions and hospital 10% except for those items in
letter d
b. Foreign currency deposit unit of a local uni or com bank 10%
c. Firms tax at special rate like PEZA SBCDA 5% final tax on gross income
d. Private education institutions exempt
Non stock non profit education institutions
e. Hospitals exempt

Inter corporate dividends / Resident foreign corporations

Not subject to tax

Resident foreign corporations
a. Internationsl carriers by air or water 2-1/2 % on Phil billings
b. Offshore banking units 10%
c. Regional operation headquarters 10% of their net taxable income
From sources w/in Phils
d. Foreign currency deposit unit in the phil of a foreign bank 10%
e. Branch of foreign corporations registered with PEZA, SBMA,
CDA, CJHHDA exempt
f. Qualified service contractor and sub-contractor engaged in petroleum 8%

Income of a domestic corporation or resident foreign corporation: 30%

Income of non resident foreign corporation subject 25% of its gross income
from sources w/in Philippines.

With Preferential rates:
a. Non resident cinematographic film owner 25% of gross income
b. Non-resident owner or lessor or vessel chartered by
Phil nationals 4-1/2% of gross rentals
c. Non resident owner or lessor of aircraft 7-1/2% of gross rentals or fees
d. Interest income on foreign loans 20%
e. Cash and/or property dividends 15%








Chapter 8: Ordinary Assets and Capital Assets and Tax Free Exchanges