CHAPTER 2

TAX Amount imposed by the govt for public purpose

REVENUE Income collections(taxes,tariff,licenses,toll penalties)

TAX Imposed after the commencement of a business/profession

Eminates from taxation power
Post- activity imposition
LICENSE Imposed to regulate the exercise of a privilege/before engagement in
FEE those activities
Eminates from police power
Pre-activity imposition

TAX Levy of the government; demand of sovereignty

Depends upon the needs of the government
Private entities cannot impose taxes
TOLL Charge for use of others property; demand of ownership
Depends upon the value of the property leased
Both govt and private entities

TAX Arises from law

Non-payment :imprisonment
not subject to set-off
generally payable in money
draws interest when taxpayer is delinquent
DEBT Arises from private contracts
Non-payment :does not
Can be subject to set-off
Can be paid in any kind (dacion en pago)
Draws interest when stipulated by contracting parties

TAX Amount imposed upon people, properties, privileges

BASIS: levied without expectation of a direct proximate benefit
Non-payment: imprisonment
SPECIAL Levied by the govt in lands adjacent to public improvement
ASSESSMENT BASIS: benefit in terms of the appreciation in land value
Attaches to land; it will not become a personal obligation of the land
owner
Non-payment: not result to imprisonment

TAX Amount imposed upon people, properties, transactions, privileges

TARIFF Amount imposed on imported/exported commodities
 TAX Imposed to support the govt
Arises from law
PENALTY Imposed to discourage an act
May be imposed on both the govt and private individuals
May arise both from law or contract

CHAPTER 3

Selling price(TOTAL CONSIDERATION RECEIVED) xxx (TOTAL RETURN)

Cost ( VALUE OF INVENTORY FORGONE) xxx (*RETURN OF CAPITAL) cost
Mark up(GROSS INCOME) xxx (**RETURN ON CAPITAL)

*merely maintains net worth; not taxable

**increases net worth; subject to income tax

DEEMED A RETURN OF CAPITAL

1. Life
2. Health
3. Human reputation
o Oral defamation/slander
o Alienation of affection
o Breach of promise to marry

INDIVIDUAL INCOME TAXPAYERS

CITIZENS
1. Citizens of the Phil. At the time of the constitution on Feb.2, 1987
2. Fathers or mothers are citizens of the Philippines
3. Born before 1/17/1973 of Filipino mothers elected Filipino citizenship upon age of
majority
4. Naturalized in accordance with the law

CLASSIFICATIONS:
CITIZENS
I. RESIDENT Filipino citizen residing in the Phil.
CITIZEN
II. NON- a) Establishes to the satisfaction of the commissioner the fact of
RESIDENT his physical presence abroad with a definite intention to
CITIZEN reside
b) Leaves the Phils. During the taxable year to reside abroad,
either an immigrant or for permanent employment
c) Works and derives income abroad
d) Arrives in the Phils. At anytime during the taxable year to
reside permanently in the Phils.
 ALIENS
III. RESIDENT Residing in the Phil. But not a citizen
ALLIEN a) Lives without a definite intention as to his stay
b) Comes with a definite purpose who requires an extended
stay and make Phils. Temporarily his home; may return to
his domicile abroad
IV. NON- Not residing and not a citizen
RESIDENT a) NRA-ETB-stayed for not more than 180 days during the year
ALLIEN b) NRA-NETB-comes with a definite purpose;promptly
accomplished
-comes for an aggregate period not more than
180 days during the year

*LENGTH OF STAY
Citizens staying abroad for at least 183 days are non-residents
Aliens who stayed in the Phil for more than 1 year at the end of taxable year is
considered resident
Aliens staying for not more than 1 yr but more than 180 days are NRA-ETB
Aliens who stayed for not more than 180 days are NRA-NETB

CORPORATE INCOME TAXPAYERS

V. DOMESTIC Organized in accordance with Phil law
CORPORATION
VI. FOREIGN One organized under a foreign law
CORPORATION a) Resident Foreign Corporation(RFC)- operates and conducts
through permanent establishment
b) Non-Resident Foreign Corporation(NRFC)- does not
operate or conduct bus.
*foreign corp. that transacts bus. with residents through resident branch is TAXABLE on such
transaction through its branch;if it transacts directly outside the branch,it is taxable as NRFC.

GENERAL RULES OF INCOME TAXATION

Taxable on income earned
INDIVIDUAL TAXPAYERS Within Without
Resident Citizen
Non-resident
Resident Alien
Non-resident Alien

CORPORATE TAXPAYERS
Domestic Corporation
RFC
NRFC
SITUS OF INCOME

Types
1. Interest Income-debtors residence
2. Royalties- where the intangible is employed
3. Rent Income- location of property
4. Service income- place where service is rendered

OTHER INCOME SITUS RULES

A. GAIN ON SALE OF PROPERTIES
1. Personal property
Domestic securities- presumed earned within Phil
Other personal properties- earned in the place where the prop is sold
2. Real property- earned where the property is located
B. DIVIDEND INCOME
1. Domestic Corporation- earned within
2. Foreign corporation
a) RFC
Pre-dominance test (3 yr period)
50% of Phil gross income ratio is earned within
Less than 50%, entire dividend received is earned abroad
b) NRFC- earned abroad
C. MERCHANDISING INCOME- earned where the property is sold
D. MANUFACTURING INCOME
Operations
Production Distribution
In In
Out Out
In Out
Out In

CHAPTER 4
3 INCOME TAXATION SCHEMES:
a) Final income taxation
b) Capital gains taxation
c) Regular income taxation

ACCOUNTING PERIOD
1) Regular accounting period- 12 months
a) Calendar-starts with 1/1 ends with 12/31
Useful when:
Taxpayers annual acctg period is other than fiscal year
Has no annual acctg period
Does not keep books
An individual
 b) Fiscal- begins with any day other than 1/1

*deadline of filing the income tax return is on the 15th of the fourth month ff. the
close of the taxable year

CASH BASIS INCOME:

Cash income xxx
Advanced income xxx
Gross income xxx
CASH BASIS EXPENSE:
Cash expenses xxx
Amortization of prepayments & depreciation of capital expenditures xxx
Deductions xxx

RATES:
1) SURCHARGE
25%-deficiency to pay tax on time
50%-willful neglect
2) INTEREST-20% per annum
Delay Period factor
For every day # of days/365 days
For every month* # of months/12
For every year 1
*period factor shall be multiplied by 20% interest rate multiplied to tax due to
compute for interest penalty
*30-day is considered 1 month

CHAPTER 5

NON-RESIDENT PERSON NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES

GENERAL
FINAL TAX
RATE
NRA-NETB 25%
NRFC 50%
INTEREST INCOME/YIELD
RECIPIENT
INDIVIDUAL CORPORATION
Short term deposits 20% 20%
Long term exempt 20%
deposits/investment certs
PRE-TERMINATION OF LONG TERM DEPOSITS OF INDIVIDUALS
HOLDING PERIOD FINAL TAX
Less than 3 yrs 20%
3 yrs to less than 4 yrs 12%
4 yrs to less than 5 yrs 5%
5 yrs or more -

FOREIGN CURRENCY DEPOSIT(FOREIGH DEPOSITORY BANKS)

TAXPAYER INDIVIDUALS CORPORATIONS
Residents 7.5% 7.5%
Non-residents exempt exempt

DIVIDEND TAX RULES

INDIVIDUALS CORPORATIONS
Domestic corp 10% final tax Exempt
Foreign corp Regular tax Regular tax

HISTORICAL DIVIDEND TAX RATES

SOURCE FINAL TAX
Earnings before 1/1/1998 exempt
Earnings from 1998 6%
Earnings from 1999 8%
Earnings from 2000 and thereafter 10%

ROYALTIES
INDIVIDUALS CORPORATIONS
Books,literary 10% final tax 20% final tax
works,musical compositions
others 20% final tax 20% final tax

TAXABLE PRIZES
INDIVIDUALS CORPORATIONS
Prizes exceeding 10,000 20% final tax Regular tax
Prizes not exceeding 10,000 Regular tax Regular tax

WINNINGS
INDIVIDUALS CORPORATIONS
PCSO/ lotto winnings Exempt Exempt
Others in general 20% final tax Regular tax

TAX INFORMERS REWARD- 10% final tax