PHILIPPINE INCOME TAXATION ON INDIVIDUALS

LESSON 2: Income Taxation on Individuals

I.                     Classification of Individual Income Taxpayers

1.        Citizens (at the time of 1987 Const./ father & mother are citizens/ born before Jan 17, 1973/ naturalized by law)

a.        Resident Citizen (RC) (permanently resides in the Philippines)

b.        Non-resident Citizen (NRC) (physical presence is abroad MOST OF THE TIME)

2.        Aliens

a.        Resident Alien (RA) (resident but not a citizen)

b.        Non-resident Alien (NRA) (not a resident, not a citizen)

1.        ETB (carrying a business/ stayed more than 180 days)

2.        NETB (stayed 180 days or less)

3.        Employed by:

a.        RAHQ or ROHQ of multinational firms (taxed at 15% of GI)

b.        OBU’s (taxed at 15% of GI)

c.        Petroleum contractors & sub-con.

II.                                                 Sources of Income                            Tax Base                 Tax Rates

1.        RC                            within & without                            Net Income                              Sec. 24(A)

2.        NRC                                within                                      Net Income                              Sec. 24(A)

3.        RA                                  within                                      Net Income                              Sec. 24(A)

4.        NRA-ETB                       within                                      Net Income                              Sec. 24(A)

5.        NRA-NETB                    within                                      Gross Income                          25% FWT

6.        RAHQ or ROHQ           within                                      Gross Income                          15% FWT

7.        OBU’s                            within                                      Gross Income                          15% FWT

8.        Petroleum                        within                                      Gross Income                          15% FWT

III.                 CATEGORIES OF INCOME

1.        Compensation income – “compensation” means all remuneration for services performed by an employee under an employee-employer relationship.

2.        Business Income – arises from self-employment/ exercise of a profession.

3.        Passive Income – are subject to FINAL TAXES from 5% - 25% (see Sec. 24 (B))

4.        Capital Gains on Shares of Stocks

Tax Base: Selling Price less Cost of Stocks = Capital Gains

Incurrence of capital loss is non-taxable but it may be carried over until such capital gain is earned.

5.        Capital Gains on sale of real properties

Tax Base: Selling price/ FMV-market/ FMV-BIR/Sound Value whichever is higher.

6.        Fringe Benefits – means any goods, services or benefits furnished or granted by an employer in cash or in kind in addition to basic salaries.

IV.                ALLOWABLE DEDUCTIONS

1.        For Compensation Income

a.        Personal Exemptions

b.        Premium payments of Health Insurance

2.        For Business Income

a.        Personal Exemptions

b.        Premium payments of Health Insurance

c.        Itemized Deductions

d.        Optional Standard Deduction (40% of GI)

V.                  Individuals EXEMPTED from Income Tax

1.        Non-resident Citizens (Only exempted from Income Tax outside the Philippines)

2.        Overseas Filipino Workers including Seamen

3.        Barangay Micro Business Enterprises (RA 9178 BMBE Law)

4.        Senior Citizens (RA 9257 – Expanded Senior Citizens Act of 2003)

5.        Minimum Wage Earners (RA 9504 SMWE Law)

GRADUATED INCOME TAX SCHEDULE (SEC. 24 (A))

If taxable income is over	But not over	Tax Due is	Plus	Of the excess over
-	10,000.00	5%
10,000.00	30,000.00	500.00	10%	10,000.00
30,000.00	70,000.00	2,500.00	15%	30,000.00
70,000.00	140,000.00	8,500.00	20%	70,000.00
140,000.00	250,000.00	22,500.00	25%	140,000.00
250,000.00	500,000.00	50,000.00	30%	250,000.00
500,000.00		125,000.00	32%	500,000.00

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