Overview on the

Taxes of Contractors
By :
Alina C. Sison, CPA, CIA,MCP
Sison Corillo Parone & Co.
Unit 2005 B West Tower Phil Stock Exchange
Ortigas Center, Pasig City
Tel No. 6876649
Email: acsison@scpph.com

The hardest thing in

the world to
understand is the
income tax.
This is too difficult
for a mathematician.
It takes a
philosopher.
-Albert Einstein

General Information on BIR

Commissioner Kim Jacinto Henares
Responsible for 2/3 of govt income
9Target

Revenue for 2011 P 940 B

9Target Revenue for 2010
860B
9Actual Revenue 2010
822B
Jan Sept. collection 686.26 B

2011 BIRs PRIORITIES

y Exceed BIR revenue target of P940B
y Improve taxpayer satisfaction and

compliance
y Improve taxpayer and taxfiler base

Computer Assisted Audit Tools &

Techniques Systems (CAATTS) laboratory
y Improve BIR core processes

BIRs STRATEGIES TO ACHIEVE

COLLECTION TARGETS
1. Issuance of Letter of Authority (LOA),
Tax Verification Notice (TVN) &
Letter Notices (LN)
a.) Task force to focus on 2008 and prior
years LOAs, LNs, and TVNs
b.) Immediate issuance of final notices and
sub-poena duces tecum

BIRs STRATEGIES TO ACHIEVE

COLLECTION TARGETS
c. Under-declarations of 30% or more
9Temporary suspension or
9closure of a business establishment

2. Re-invigorating the Run After Tax

Evaders Program (RATE)
- NBI, DOJ
3. Oplan Kandado

BIRs STRATEGIES TO ACHIEVE

COLLECTION TARGETS
4. Rest in peace program- estate
taxes audit
5. Tax Compliance Verification Drive
(Tax Mapping)

BIRS STRATEGIES TO ACHIEVE

COLLECTION TARGET
6. Expanded linkage with key institutions
- LTO
- Insurance Commission
- SEC
- LGUs
- BSP
- BOC

BIRS STRATEGIES TO ACHIEVE

COLLECTION TARGET
7. Integrated approach in administering
the large taxpayers
Mandatory use of computerized
accounting system for large tax payers
8. Enhanced and strategic enforcement
approaches

BIRS STRATEGIES TO ACHIEVE

COLLECTION TARGET
9. Focus on big time ticket items
- Transaction of P2ooM up
10. More vigorous third party matching
campaign
11. Effective partnership with
taxpayers and tax practitioners
- Accreditation of Tax Practitioners

BIRS STRATEGIES TO ACHIEVE

COLLECTION TARGET
12. High visibility public awareness
campaign of BIR

Slogan Making the Public Know

Handang Maglingkod Program

Tax Newsletters and Information

dissemination

Tax seminars, dialogues & symposia

Priority in the audit for 2009 & 2010

(RMO 4-2011)

Professionals who render professional

services
-Engineers, lawyers, doctors,
accountants, & others professionals
(All taxpayers are also candidates for
audit)

REGISTRATION
Register your business with:
1. SEC (corp) /DTI (for individual)
2. Brgy & Municipal office
3. BIR
4. SSS
5. PHIC
6. HDMF
7. PCAB

REGISTRATION w/ BIR
On or before the start of business:
1. Register w/ BIR (issuance of TIN)
- BIR Form 1901 for individual
2.

- BIR Form 1903 for Corp & Partnership

Pay the Registration fee (BIR form
1605)

3. Apply to Print Official Receipt /

Invoice (BIR Form 1905)
4. Register your Books of Accounts

BIR REGISTRATION REQUIREMENTS

For Corp./Partnership
1. BIR Form 1903
2. SEC Certificate
3. Articles of Inc./ partnership
4. Mayors permit
5. Sketch of address of taxpayer
6. Contract of lease
7. Registration Fee (BIR Form 1605)

BIR REGISTRATION REQUIREMENTS

For Professionals/individuals
1. BIR Form 1901
2. PTR
3. PRC License
4. Marriage contract/ Birth certificates
of dependents, if applicable
5. Registration Fee (BIR Form 1605)
6. Sketch of address of taxpayer
7. Contract of lease, if any

Tax Mapping Requirements

1. Certificate of Registration (BIR Form
2303)
2. BIR Form 1605 (renew/pay every year on or
before Jan 31)

3. Ask for Receipt Notice

Above should be displayed in conspicuous place in
the registered location of taxpayer

4. Registered Books (w/ entries)

5. OR /Invoice

Invoicing Requirements
1. Issue sequentially an OR for fees
received or Sales Invoice for sale of
goods
2. Each SI shall show the name, address of
client, date of transaction, qty, selling
price per unit, description of
merchandise sold , total amount, VAT, if
applicable.

Invoicing Requirements
3.

OR/SI shall be accomplished in

duplicate
duplicate:
- retained
- preserved in place of business for 3
years from close of taxable year.

Invoicing Requirements
For deductibility of expenses:
Invoice/OR from suppliers should be:
1. Registered w/ BIR
- with TIN No (VAT or NonVAT)
- Name of supplier
2. Should be issued to taxpayers registered
name.
3. Transaction details (amounts, qty,
description)
4. Preserve for 3 years

Types of Books of Accounts

1. Manual
Deadline: before the year-end
2. Loose-leaf
Deadline: every Jan 15 of the ff year
(For year ending Dec 31)
3. Computerized
Deadline: every Jan 30 of the ff year
(For year ending Dec 31)

Bookkeeping Requirements
1. Apply for registration of books of
accounts (30 days from date of registration):
- General Ledger
- Sales Books/ Cash Receipts Books
- Disbursement Books
- General Journal

Bookkeeping Requirements
2. Transactions for the day must be entered
in books on or before 12nn the following
day.
Balances transferred to the Ledger on
day following the end of month
3. Preserved w/in the prescriptive period of 3
yrs

Bookkeeping Requirements
4. Gross receipts exceeding P150k in any
given quarter must be audited by a CPA
duly accredited w/ BIR

Contractors Usual Taxes

1. Local business tax (paid to local govt)
2. BIR
a.) Registration fee- P500 (on or before Jan 31)
b.) Income tax (quarterly & annual)
c.) VAT or Percentage tax (monthly,
quarterly)
d.) Withholding taxes (monthly, quarterly,
annual)
- on Wages
- expanded

Contractors Usual Taxes

e.) Excise tax
f.) Fringe benefits tax
g.) Final taxes

MOST COMMON VIOLATIONS

failure to register ( often captured

thru Tax Mapping)

failure to file return & pay tax due thereon

or supply information at times required by

law

Under declaration / non declaration

income
Invoicing no valid documents
filing a return w/ an RDO other than

those w/ whom return is required to be

filed.

of

INCOME TAX

Income Tax Rates

Individual

(5% - 32%)

Corporation:
Normal Income Tax - 30% of net
income before tax
Minimum Corporate
income tax

2% of gross

Income Tax Due

Income Tax Period
1st to 3rd
Quarter

Annual Return

Dates

Due Date
Individual
45 days after
end of qtr

Due Date
Corporation
60 days after the
end
of the quarter

BIR form 1701Q

BIR form 1702Q

April 15
BIR Form 1701

15th day of the 4th

month after end of acctg
period

Percentage Tax

Gross income < P1.5M

Non-VAT registered
Rate -

3% of gross revenue

Return Period
Monthly (BIR Form 2551M)

Due Date
2oth day ff taxable month

Quarterly (BIR Form 2551Q)

20th day ff the end of qtr

Basics of Value Added Tax

What is VAT?
A

tax on:
- sale
- barter
- exchange
- lease of goods or properties
- services
- importation of goods in the Phils

22

VAT Rates
VAT Transactions :
Regular VAT Taxable Transactions
Zero-Rated Transactions
VAT-Exempt Transactions

VAT Rate
12%
0%
Exempt

Basic Formula of VAT

Output VAT on sales
Less: Input VAT on purchases

P XXX
XXX

Net VAT Payable (Refundable) P XXX

Output VAT - VAT on sale
Input VAT - VAT on purchase

Sources of Input Tax

Purchase or importation of goods
- For sale
- For

conversion into or intended to form

part of a finished product for sale
including packaging materials

-For use as supplies in the course of business

- For use as materials supplied in the sale of
service
29

Sources of Input Tax (cont)

For use in trade or business for which
deduction for depreciation / amortization
is allowed under the Tax Code
Purchase of real properties for which
the VAT was actually paid
Purchase of services for which the
VAT was actually paid
30

Mandatory VAT Registration

Gross sales/receipts > P1.5M for the past
12 months
Update registration from Non-VAT to VAT
using BIR form 1905
If liable to VAT , but fails to register shall
still be liable to VAT but cant claim input tax
Taxpayer may opt to change from VAT to
nonVAT if income < P1.5M

Invoicing
VAT Invoice
- to be issued for every sale, barter or
exchange of goods or properties
VAT OR
- to be issued for every lease of goods
or properties, and every sale, barter or
exchange of services

Invoicing Requirements
TIN must be followed by term
VAT
VAT must be shown as a separate
item in the invoice/OR.
For
sales
to
VAT-registered
persons amounting to P1,000 or
more, indicate the name, business
style (if any), address and TIN of the
purchaser.
Date of transaction, quantity, unit
cost and description of the goods or
properties or the nature of the
services
Authority to print details and serial
number of booklets

Invoicing Requirements
If the sale involves items
which are subject to VAT and
some of which are VAT zerorated or VAT-exempt:
a. the invoice or receipt
shall clearly indicate the
breakdown of the sales price
between its taxable, exempt
and zero-rated components,
and

b. the calculation of the VAT

on each portion of the sale
shall be shown on the invoice
or receipt;

Sample VAT Exempt Transactions

Sale or importation of agricultural and marine
food products in their original state
Lease of residential units with a monthly rental
per unit not exceeding P10,000
Sale or lease of goods, properties or services ,
the gross annual sales and/or receipts do not
exceed P1,500,000

Deadline for Filing and Payment

of Monthly VAT Returns

- Use BIR Form 2550 M

- Shall be filed in triplicate

-Manual Filing
- Not later than the 20th day following the end
of each month
Filing Through EFPS
Group A - 25th
Group B 24th
Group C 23rd

Group D - 22nd
Group E - 21st

Quarterly VAT Declaration

- Use BIR Form 2550Q - Quarterly VAT
Returns
-Shall be filed in triplicate
-Deadline:
-Within twenty five (25) days following the
close of taxable quarter of the taxpayer (both
for manual filing and filing through EFPS)

Filing of SLS/ SLP

Who are
required
Threshold

Quarterly
Summary List of
Sales
VAT Taxpayers

Quarterly
Summary
List of
Purchases
VAT
Taxpayers

P2.5 M quarterly P1M quarterly

total sales
total purchases

Filing of SLS/ SLP

Deadline:
Manual Filing - soft copy submit to BIR on or
before the 25th day of the month following the
close of the taxable quarter.
EFPS - submit thru electronic filing facility on or
before the 30th day of the following month
following the close of the taxable quarter

Filing of SLS/ SLP

Deadline:
Manual Filing - soft copy submit to BIR on or
before the 25th day of the month following the
close of the taxable quarter.
EFPS - submit thru electronic filing facility on or
before the 30th day of the following month
following the close of the taxable quarter

Filing of SLS/ SLP

Penalty for nonsubmission
compromise penalty of P10,000 per failure
administrative penalty of P1,000
aggregate amount shall not exceed P25,000
during the taxable year
in the event that the taxpayer continue not
to comply, such shall be subject to
administrative or/and penal liabilities
11/18/2011

All information presented is proprietary to Aktus Global Training Relevance.

Unauthorized use and reproduction is strictly prohibited.

Basics of
Withholding Tax
at Source

49

Definition of Withholding Tax

A withholding tax is a governments

way to collect taxes in advance to ensure
government funds on its budgets.

Persons required to deduct and withhold

The following persons are designated as withholding
agents.
Corporations, association, partnerships, non-profit
organizations, cooperatives, and other entities
registered with the Securities and Exchange
Commission and other government agencies
mandated to register such entities.

An individual who is engaged in business.

An individual who purchases a piece of real
property.
All government offices including governmentowned or controlled corporations.

Common Types of
Withholding Taxes
Withholding Tax on Compensation

Expanded Withholding Tax

Final Withholding Tax

Common Types of Withholding Taxes

Final Withholding Tax.
Constitutes full and final payment of the
income tax due
The payee is not required to file an income tax
return for the particular income.

Common Types of Withholding Taxes

Creditable Withholding Tax.
Expanded withholding tax and compensation income
are creditable in nature.
The income recipient is still required to file an income
tax return to report the income and/or pay the
difference between the tax withheld and the tax due
on the income.

Time of Withholding
At the time an income payment is paid or
payable, or the income payment is accrued or
recorded as an expense or asset, whichever is
applicable, in the payors books, whichever
comes first. (RR No. 12-01)

Withholding
Tax
on Wages
(on Minimum Wage Earners)

Tax Exemption for

Minimum Wage Earners (MWE)
The following compensation received by
minimum wage earners shall likewise be exempt
from income tax:
9holiday pay
9overtime pay
9night shift differential pay
9hazard pay

NOT MWE & Tax Exempt

An employee who receives additional compensation
other than SMW, holiday pay, overtime, hazard pay,
and night shift differential pay such as:
Commissions
Honoraria
Fringe
benefits
Taxable allowances
And other taxable income

Hazard Pay
the amount paid by the employer to MWEs Actually assigned to danger or strife-torn areas
- Disease-infested places
- Distressed or isolated stations and camps
which exposed them to great danger or
contagion or peril to life
Any hazard pay paid to MWEs which does not
satisfy the above criteria is deemed subject to Tax

Hazardous Employment
y The employer shall attach to BIR Form 1601C for
the months of March, June, Sept., and Dec.
A copy of the List submitted to the nearest DOLE
Regional/Provincial Office showing
the names of the MWEs who received the
hazard pay;
period of employment;
amount of hazard pay per month; and
Justification of payment of hazard pay

Expanded
Withholding Taxes

INCOME PAYMENTS SUBJECT TO EWT

Income payment
a.) Contractors/
Sub-contractor
b.) Professional fees

Rate
2%

15% payees
annual income is > P 720K
10%
c.) Rental
5%
d.) Purchases of top 20K corp
2% - service
1% - goods
NOTE: Pls. refer to the back of BIR Form 1601E
for the complete list of income payments subject
to EWT

Withholding Tax on Govt

Money Payments
5%

Final withholding VAT

2% expanded withholding tax

Final Withholding Tax

Sample Final Withholding Tax

Kind of Withholding Tax

Rate

Interest income in Peso

Bank deposits

20%

interest
income
in
foreign currency deposits

7.5 %

NOTE: Pls. refer to the back of BIR Form 1601F

for the complete list of income payments
subject to final tax

Where & When to File

Where - Authorized bank (w/ payment)

- BIR

(w/o payment)

When - 10th of the following month

- for Dec. January 25 of the ff. year

Withholding Tax Returns

Monthly
1601-E - Monthly Remittance Return of Creditable Income
Taxes Withheld (Expanded)
1601-C

Monthly Remittance Return of Income Taxes

Withheld on Compensation

1601-F - Monthly Remittance Return of Final Income Taxes

Withheld
1602-

Monthly Remittance Return of Final Income Taxes

Withheld (On Interest Paid on Deposits and Yield
on Deposits Substitutes/etc.)

Withholding Tax Returns

Annual
y 1604E

Annual Information Return of Creditable Income

Taxes Withheld (Expanded)/ Income Payments
Exempt from Withholding Tax
y 1604CF
Annual Information Return of Income Taxes
Withheld on Compensation and Final
Withholding Tax

Excise Tax

Excise Tax on Sand and Gravel

Rate 2% based on the actual market value
of the gross output thereof
Due Date at the time of removal

Fringe Benefit Tax

Fringe Benefit
Any good, service or other benefit
furnished or granted by an employer, in
cash or in kind, in addition to basic
salaries, to an individual employee

Tax on Fringe Benefits

Fringe
FringeBenefits
Benefits
Supervisor/
Supervisor/
Managerial
Managerial
Employees
Employees
Compensation
Compensation

Subject
SubjecttotoWithholding
Withholding
Tax
Taxon
onwages
wages

Fringe
FringeBenefits
Benefits

Subject
SubjecttotoWithholding
Withholding
Tax
Taxon
onwages
wages

Compensation
Compensation

Subject
SubjecttotoWithholding
Withholding
Tax
Taxon
onwages
wages

Rank-and-File
Rank-and-File
Employees
Employees

11/18/2011

Subject
SubjecttotoFringe
Fringe
Benefit
BenefitTax
Tax

All information presented is proprietary to Aktus Global Training Relevance.

Unauthorized use and reproduction is strictly prohibited.

Fringe Benefit Tax Structure

Income
Income

Grossed-Up
Grossed-UpMonetary
Monetary
Value
Value
(Fringe
(Fringebenefit
benefitincome
incomeof
of
the
themanager)
manager)
==100%
100%

11/18/2011

Distribution
Distribution

Payment
PaymenttotoManagerial
ManagerialEmployee
Employee
(Cash
(Cashor
ormonetary
monetaryvalue
valueof
offringe
fringebenefit)
benefit)
==68%
68%

Remittance
Remittancetotothe
theBIR
BIR
(Final
Tax
Withheld)
(Final Tax Withheld)
==32%
32%

All information presented is proprietary to Aktus Global Training Relevance.

Unauthorized use and reproduction is strictly prohibited.

Benefits subject to FBT

(1)Housing;
(2)Expense Account;
(3)Vehicle of any kind;
(4)Household personnel;
(5)Interest on loan at less than market rate ;
(6)Membership fees, dues and other expenses borne by
the employer for the employee in social and athletic
clubs/similar organizations;

Benefits subject to FBT

7. Expenses for foreign travel;
8. Holiday and vacation expenses;
9. Educational assistance to the employee or his
dependents;
10.Life or health insurance and other non-life
insurance premiums

Exception:
If the fringe benefits are:
1.) required by the nature of or necessary
to the trade, business or profession of the
employer,
2. ) For the convenience and advantage of
the employer.

WITHHOLDING TAX REMITTANCE

TYPES

FORM

MANUAL FILING/
PAYMENT

COMPENSATION

1601C

10th day of the ff month

except for the month of
December which is due
on the Jan. 15

EFPS FILING

Staggered Filing (RR

262002)

EFPS PAYMENT
15th day of the ff
month except for
the month of
December which is
due on the Jan. 20

EXPANDED

1601E

BANKS

1602

Real Property
(Ordinary
Asset)

1606

10th day of the ff

month

FINAL
OTHER FINAL

1601F

10th day of the ff month Staggered Filing (RR

262002)

15th day of the ff

month

W/TAX ON
VAT &
PERCENTAGE

1600
(ALPHA
LIST)

10th day of the ff month

10th day of the ff

month

10th day of the ff

month

FRINGE
BENEFITS

1603

10th day of the month

following the end of the
qtr.

15th day of the

month ff the end
of the quarter

15th day of the

month ff the end of
the quarter

Not applicable

Not applicable

WITHHOLDING TAX CERTIFICATES

TYPES

FORM

TIME

COMPENSATION 2316

Jan 31 of the ff year

For terminated employees last payment
of salary

EXPANDED

20 days ff. close of the quarter

or upon demand

2304
(Exempt)
2307
(Taxable)

GOVT. MONEY
PAYMENTS

2307

For NonVAT : 10th day of the ff month

2306

For VAT
month

FINAL TAX

2306

Jan. 31 of the following year

FRINGE
BENEFITS

2306

Jan. 31 of the following year

: 10th day on the month ff

ANNUAL RETURNS
TYPE
COMPEN
SATION

FORM

DESCRIPTION

1604 CF Alphalist of employees

TIME
Jan. 31 of
the ff year

Less than 10 employees manual filing

10 employees or more softcopy
eFPS Filer
eattach
EXPANDED

1604E

Alphalist of payees
Less than 10 payees
10 payees or more
eFPS Filer

March 1 of
the ff year
manual filing
softcopy
eattach

Electronic Filing and Payment System (eFPS)

Mandatory Enrolment to and availment of eFPS
facility (RR 692009)
Large Taxpayers
All government Bidders
Corporation with complete computerized system
Taxpayers belonging to the list of Top 20,000 Private
Corporations
Taxpayers belonging to the Top
5,000 individual
taxpayers

UPDATE

REGISTRATION

DATA

Accomplish Form 1905 and submit

to your home RDO for:
Change of registered address
Change of registered activity
Change of tax types (cancellation or
addition)
Additional personal exemption

Stop-filer Cases

When a taxpayer fails to file a tax

return on the
tax types
he
registered, the Integrated Tax
System (ITS) will detect such
failure, thus creating a stop-filer
case for every failure in returns
compliance.

Such stop-filer case shall remain open

until the corresponding return is duly

filed and paid including penalties.

IMPORTANT!

Taxpayer needs to file a return even

when theres no operations or no tax
due to pay for every tax type
registered.

73

Q & A

73

Our trainings:
How to handle BIR Audit
Essentials of Tax (Basic taxes)
Tax updates
Mandatory BIR Reports
Taxes on compensation and
computation of salaries & Wages
73

Our trainings:
Accounting for Non-accountants
Accounting & Finance for nonaccounting executives
Essentials of accounting
Leadership training
Customer service
73

You cannot escape

the responsibility
of tomorrow by
evading it today.
UE$

11/18/2011

PD K 

All information presented is proprietary to Aktus Global Training Relevance.

Unauthorized use and reproduction is strictly prohibited.

/ L ORF Q

Thank you!
By :
Alina C. Sison, CPA, CIA,MCP
Sison Corillo Parone & Co.
Unit 2005 B West Tower Phil Stock Exchange
Ortigas Center, Pasig City
Tel No. 6876649
Email: acsison@scpph.com
09/05/08

All information presented is proprietary to

Aktus Global Training Relevance.
Unauthorized use and reproduction is
strictly prohibited.