Calamba Review Center - Laguna (LCRC)
2F MMCO Building, 8000 Lakeview Ph3 Angela Street, Halang, Calamba City Laguna, Philippines
Tel No. (02) 330-8617, (049) 523-6031; (02) 330-6057
CPA REVIEW (May 2020 Batch)
TAX Mike Cabonse, CPA
Types of Individual Taxpayer – According to Income
1. Purely Compensation Earners - citizens of the Philippines who work and derive income from an employer based within the Philippines.
Minimum wage earner refers to a worker in public or private sector with compensation income not more than or equal to the
statutory minimum wage. They are exempted from income tax on their basic salary, overtime, night shift differential, hazard pay and
holiday pay.
2. Self-employed Individuals/Professionals - persons engaged in trade or business not including performance of services as employee.
3. Mixed Income Earners - persons who are any two of the following: Professionals, Single Proprietors, and Local Employees.
Income Tax Rates on Individual Citizen and Individual Resident Alien of the Philippines
(BEFORE TRAIN)
Annual Income Tax Payable
Not over P 10,000 5%
Over P 10,000 but not over P 30,000 P 500 + 10% of the excess over P 10,000
Over P 30,000 but not over P 70,000 P 2,500 + 15% of the excess over P 30,000
Over P 70,000 but not over P 140,000 P 8,500 + 20% of the excess over P 70,000
Over P 140,000 but not over P 250,000 P 22,500 + 25% of the excess over P 140,000
Over P 250,000 but not over P 500,000 P 50,000 + 30% of the excess over P 250,000
Over P 500,000 P 125,200 + 32% of the excess over P 500,000
(AFTER TRAIN: 2018 to 2022)
Annual Income Tax Payable
P 250,000 to P 400,000 20% of the excess over P 250,000
P 400,000 to P 800,000 P 30,000 plus 25% of the excess over P 400,000
P 800,000 to P 2,000,000 P 130,000 plus 30% of the excess over P 800,000
P 2,000,000 to P 8,000,000 P 490,000 plus 32% of the excess over P 2,000,000
Over P 8,000,000 P 2,410,000 plus 35% of the excess over P 8,000,000
(AFTER TRAIN: 2023 onwards)
Annual Income Tax Payable
P 250,000 to P 400,000 15% of the excess over P 250,000
P 400,000 to P 800,000 P 22,500 plus 20% of the excess over P 400,000
P 800,000 to P 2,000,000 P 102,500 plus 25% of the excess over P 800,000
P 2,000,000 to P 8,000,000 P 402,500 plus 30% of the excess over P 2,000,000
Over P 8,000,000 P 2,205,000 plus 35% of the excess over P 8,000,000
Definition of Taxable Income (Section 31)
NIRC - Means the pertinent items of gross income specified in this Code, less the deductions and/or personal and additional exemptions,
if any, authorized for such types of income by this Code or other special laws
TRAIN - The phrase “and/or personal and additional exemptions” is removed in the definition.
Section 34 (M): Allowable Deduction For Premium Payments On Health and/or Hospitalization Insurance
NIRC - The allowable deduction for premium payments on health and/or hospitalization insurance of an individual taxpayer is ₱2400 per
year or ₱200 per month, subject to a gross family income threshold of ₱250,000.
TRAIN - Allowable deduction for premium payments on health and/or hospitalization insurance of an individual taxpayer is removed.
Section 35: Personal Exemptions
PARTICULARS NIRC TRAIN
Basic Personal Exemption 50,000 Removed
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Additional Exemption 25,000 per qualified dependent Removed
Tax-exempt 13th month pay and 82,000 90,000
other benefits
Section 24: Income Tax Of Self-employed and/or Professionals (SEPs)
NIRC - Graduated Tax Table
TRAIN - For Purely Self-employed and/or Professionals whose gross sales/receipts and other non-operating income do not exceed the
VAT threshold of ₱3M, the tax shall be, at the taxpayer’s option, either:
1. 8% income tax on gross sales or gross receipts in excess of ₱250,000 in lieu of the graduated income tax rates and the
percentage tax under Sec 116; OR
2. Income tax based on the graduated income tax rates for individuals.
Guidelines to avail 8% income tax under RR 8-2018
• Unless the taxpayer signifies in the 1st Quarter ITR the intention to elect the 8% tax, the taxpayer shall be considered as having
availed of the graduated rates. Such election shall be irrevocable for the said taxable year
• At any time during a given taxable year, the taxpayer’s gross sales exceeded the VAT Threshold (₱3,000,000.00), he/she shall
automatically be subjected to the graduated rates.
• If the Vat Threshold is exceeded, the first ₱3,000,000.00 shall be subject to 3% percentage tax while the excess shall be subject to
12% VAT.
Mixed Income Earners
For mixed income earners (earning both compensation income and income from business or practice of profession), their income taxes
shall be:
1. For income from compensation – Graduated income tax rates for individuals, AND
2. a. For income from business or practice of profession - Gross sales/receipts which do not exceed the VAT threshold of ₱3M — 8%
income tax on gross sales/receipts and other non-operating income income OR graduated income tax rates on taxable income, at the
taxpayer’s option
2.b. Gross sales/receipts and other non-operating income which exceeds the VAT threshold of ₱3M — graduated income tax rates for
individuals.
Section 51-A: Substituted Filing Of Income Tax Returns By Employees Receiving Purely Compensation Income From Only One
Employer In The Philippines
Substituted filing of ITRs is available for:
• Individual taxpayers
• Receiving purely compensation income, regardless of amount
• From only one employer in the Philippines for the calendar year
• The income tax of which has been correctly withheld by the employer (i.e. tax due = tax withheld)
The Certificate of Withholding filed by the employers duly stamped “received” by the BIR shall be the substituted filing by such
employers.
Section 56 (A)(2): Installment Payment of Tax Due For Individuals
When tax due exceeds ₱2,000, the taxpayer (other than a corporation) may elect to pay the tax in two equal installments. Payment of
installments:
• First installment — time of filing of return
• Second installment — on or before July 15 following the close of the calendar year. Under TRAIN, the new deadline of payment
of second installment is October 15 following the close of the calendar year.
Illustration 1 Minimum Wage Earner
Mr. CSO, a minimum wage earner, works for G.O.D., Inc. He is not engaged in business nor has any other source of income other than his
employment. For 2018, Mr. CSO earned a total compensation income of Php 135,000.00. He contributed to the SSS, Philhealth, and HDMF
amounting to Php 5,000.00 and has received the 13th month pay of Php 11,000.00. Compute his income tax liability.
Computation:
Total Compensation Income 135,000.00
Page 2 of 6
Less: Mandatory Contributions 5,000.00
Non-taxable benefits 11,000.00 16,000.00
Income 119,000.00
Tax Due Exempt
Illustration 2 Minimum Wage Earner
The following year, Mr. CSO earned, aside from his basic wage, an additional pay of Php 140,000.00 which consists of overtime pay- Php
80,000.00, night shift differential- Php 30,000.00, hazard pay- Php 15,000.00, and holiday pay- Php 15,000.00. He has the same benefits and
contributions, see Illustration 1. Compute his income tax liability.
Computation:
Total Compensation Income Php 135,000.00
Add: Overtime, Night Differential, Hazard Pay and Holiday Pay 140,000.00
Total Income Php 275,000.00
Less: Mandatory Contributions Php 5,000.00
Non-taxable Benefits 11,000.00 16,000.00
Net Taxable Income Php 259,000.00
Tax Due: Exempt
Illustration 3 Self Employed Individual / Engaged in Business or Exercised of Profession
Ms EBQ operates a convenience store while she offers bookkeeping services for her clients. In 2018, her gross sales amounted to Php
800,000.00, in addition to her receipts from bookkeeping services of Php 300,000.00. She already signified her intention to be taxed 8%
income tax in her 1st quarter return. Compute her income tax liability.
Computation :
Gross Sales- Convenience Store 800,000.00
Gross receipts-Bookkeeping 300,000.00
Total Sales 1,100,000.00
Less: Amount Allowed as Deduction Under Sec. 24(a)(2)(b) 250,000.00
Taxable Income 850,000.00
Tax Due (8% 0f Php 850,000.00) 68,000.00
Is Ms EBQ liable to pay percentage tax?
Illustration 4 Self Employed Individual / Engaged in Business or Exercised of Profession
Ms EBQ in previous illustration, failed to signify her intention to be taxed at 8% income tax rate on gross sales in her initial Quarterly
Income Tax Return, and she incurred cost of sales and operating expenses amounting to Php 600,000.00 and Php 200,000.00, respectively,
or a total of Php 800,000.00. Compute her income tax liability.
Computation :
Gross Sales/Receipts 1,100,000.00
Less: Cost of Sales 600,000.00
Gross Income 500,000.00
Less: Operating Expenses 200,000.00
Taxable Income 300,000.00
Tax Due: On Excess (300,000-250,000) x 20% 10,000.00
What business tax is Ms. EBQ liable to pay and how much?
Illustration 5 Self Employed Individual / Engaged in Business or Exercised of Profession
Mr. JMLH signified his intention to be taxed at 8% income tax rate on gross sales in his 1st Quarter Income Tax Return. He has no other source
of income. His total sales for the first three (3) quarters amounted to Php 3,000,000.00 with 4th quarter sales of Php 3,500,000.00.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
8% 8% 8%
Total Sales Php 500,000.00 Php 500,000.00 Php 2,000,000.00 Php 3,500,000.00
Add: Cost of Sales 300,000.00 300,000.00 1,200,000.00 1,200,000.00
Gross Income 200,000.00 200,000.00 800,000.00 2,300,000.00
Less: Operating Expenses 120,000.00 120,000.00 480,000.00 720,000.00
Taxable Income 80,000.00 80,000.00 320,000.00 1,580,000.00
Tax due shall be computed as follows :
Total Sales P 6,500,000.00
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Less: Cost of Sales 3,000,000.00
Gross Income P 3,500,000.00
Less: Operating Expenses 1,440,000.00
Taxable Income P 2,060,000.00
Income Tax Due:
Tax Due under the graduated rates P 509,200.00
Less: 8% income tax previously paid (Q1 to Q3)
(3,000,000-250,000) x 8% 220,000.00
Annual Income Tax Payable 289,200.00
Note : The gross receipts exceeded the vat threshold of Php 3,000,000.00; therefore subject to graduated income tax rates; liable for
business tax-% Tax and VAT, in addition to income tax.
Percentage tax due (P3 million @ 3%) P 90,000.00
Output vat (P3.5 million @ 12%) P420,000.00
Illustration 6 Self Employed Individual / Engaged in Business or Exercised of Profession
Ms RPSV is a prominent independent contractor who offers architectural and engineering services. Since her career flourished, her total
gross receipts amounted to Php 4,250,000.00 for taxable year 2018. Her recorded cost of service and operating expenses were Php
2,150,000.00 and Php 1,000,000.00, respectively.
Computation :
Gross Receipts-Architectural And
Engineering Services On 800,000.00 P 130,000.00
P 4,250,000.00
On excess
Add: Cost of Sales
2,150,000.00 (1,100,000.00 - 800,000.00) x 30% 90,000.00
Gross Income P 2,100,000.00
Less: Operating Expenses 1,000,000.00 Income Tax Due P 220,000.00
Taxable Income P 1,100,000.00
What type of business tax is Ms. RPSV liable to pay? How much?
Illustration 7 Self Employed Individual / Engaged in Business or Exercised of Profession
In 2018, Mr. GCC owns a nightclub and videoke bar, with gross sales/receipts of Php 2,500,000.00. His cost of sales and operating expenses
are Php 1,000,000 and Php 600,000, respectively, and with non-operating income of Php 100,000.00. Computation of his income tax
liability is as follows:
Taxable Income from Business:
Gross Sales P 2,500,000 Tax Due:
Less: Cost of Sales 1,000,000
Gross Income P 1,500,000 On 800,000.00 P 130,000
Less: Operating Expenses 600,000 On excess (1,000,000.00 - 800,000.00) x 30% 60,000
Net Income from Operations P 900,000 Total Income Tax P 190,000
Add: Non-operating Income 100,000
Taxable Income P 1,000,000
Is Mr. GCC liable to pay what type of business tax? How much?
Illustration 8: Mixed Income Earners (Both Compensation and Self Employment)
Mr. MAG, a Financial Comptroller of JAB Company, earned annual compensation in 2018 of Php 1,500,000, inclusive of 13th month and other
benefits in the amount of Php 120,000 but net of mandatory contributions to SSS and Philhealth. Aside from employment income, he owns
a convenience store, with gross sales of Php 2,400,000. His cost of sales and operating expenses are Php 1,000,000 and Php 600,000,
respectively and win non operating income of Php100,000
A. His tax due for 2018 shall be computed as follows if he opted to be taxed at eight percent (8%) income tax rate on his gross sales for his
income from business:
Total Compensation Income P 1,500,000.00
Less: Non-Taxable 13th month pay and other benefits (max) 90,000.00
Taxable Compensation Income P 1,410,000.00
Tax Due on Compensation
On 800,00.00 P 130,000.00
On excess (1,410,000-800,000) x 30% 183,000.00
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Tax due on Compensation Income P 313,000.00
Tax Due On his Business Income:
Gross Sales P 2,400,000.00
Add: Non-operating Income 100,000.00
Taxable Business Income P 2,500,000.00
Multiplied by income tax rate 8%
Tax due on business income P 200,000.00
Total income tax due (compensation and business) P 513,000.00
B. His tax dues for 2018 shall be computed as follows if he did not opt for the eight percent (8%) income tax based on gross sales/receipts
and other non-operating income:
Total Compensation Income P 1,500,000.00
Less: Non-taxable 13th Month Pay And Other Benefits (max) P 90,000.00
Taxable Compensation Income P 1,410,000.00
Add: Taxable Income From Business Gross Sales P 2,400,000.00
Less: Cost of Sales 1,000,000.00
Gross Income P 1,400,000.00
Less: Operating Expenses 600,000.00
Net Income From Operation P 800,000.00
Add: Non-operating Income 100,000.00 900,000.00
Total Taxable Income P 2,310,000.00
Tax Due: First 2 million P 490,000.00
On Excess (2,310,000-2,000,000) X 32%) 99,200.00
Total Income Tax P 589,200.00
Illustration 9 Mixed Income Earner
On February 2019, Mr MAG rendered his resignation to concentrate on his business. His total compensation income amounted to Php
150,000, inclusive of benefits of Php 20,000. His business operations for taxable year 2019 remains the same. He opted for the eight
percent (8%) income tax rate.
Total Compensation Income P 150,000.00
Less: Non-taxable Benefits 20,000.00
Taxable Compensation Income P 130,000.00
1. Tax Due on On Compensation: P -
On 130,000.00 (Not Over Php 250,000.00)
2. On Business Income:
Gross Sales P 2,400,000.00
Add: Non-operating income 100.000.00
Taxable Business Income P 2,500,000.00
Multiplied By Income Tax Rate 8%
Tax Due On Business Income P 200,000.00
Total Income Tax Due (Compensation And Business) P 200,000.00
Mr. MAG is not entitled to claim as deduction from his business the unused exemption from the compensation amounting to P120,000
(P250,000 – P130,000)
Illustration 10 Mixed Income Earner
Mr. WBV, an officer of AMBS International Corp., earned in 2018 an annual compensation of Php 1,200,000, inclusive of 13th month and
other benefits in the amount of Php 120,000. Aside from employment income, he owns a farm, with gross sales of Php 3,500,000. His cost
of sales and operating expenses are Php 1,000,000 and Php 600,000, respectively, and with non-operating income of Php 100,000. His tax
dues for 2018 shall be computed as follows:
Total Compensation Income P 1,200,000.00
Less: Non-taxable 13th month Pay and Other Benefits (Max) 90,000.00
Taxable Compensation Income P 1,110,000.00
Add: Taxable Income from Business Gross Sales P 3,500,000.00
Less: Cost of Sales 1,000,000.00
Gross Income P 2,500,000.00
Less: Operating Expenses 600,000.00
Net Income From Operation P 1,900,000.00
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Add: Non-operating Income 100,000.00 2,000,000.00
Total Taxable Income P 3,110,000.00
Tax Due:
On Php 2,000,000.00 P 490,000.00
On Excess (3,110,000-2,000,000) X 32% 355,200.00
Total Income Tax Due P 845,200.00
Illustration 11 - OSD 40%
Ms. RPSV is a prominent independent contractor who offers architectural and engineering services. Since her career flourished, her total
gross receipts amounted to Php 4,250,000.00 for taxable year 2018. Her recorded cost of service and operating expenses were Php
2,150,000.00 and Php 1,000,000.00, respectively. She opted to avail of the 40% OSD.
OSD will be computed as follows:
Gross Receipts-Architectural and Engineering Services P 4,250,000.00
Multiplied By OSD Rate 40%
Deductible OSD P 1,700,000.00
Net Taxable income will be computed as follows:
Gross receipts-Architectural and engineering services P 4,250,000.00
Less: OSD 1,700,000.00
Net taxable income P 2,550,000.00
Income Tax Liability Will Be Computed As Follows:
On 2,000,000.00 P 490,000.00
On Excess (P 2,550,000-P 2,000,000) X 32% 176,000.00
Income Tax Due P 666,000.00
Illustration 12 – OSD and 8% Income Tax
Ms. MRU operates a convenience store while she offers bookkeeping services to her clients. In 2018, her gross sales amounted to Php
1,800,000.00, in addition to her gross receipts from bookkeeping services of Php 400,000.00. Her recorded cost of goods sold and operating
expenses were Php 1,325,000 and Php 320,000, respectively.
A. Ms. MRU opted to avail of the OSD. The OSD and taxable income shall be computed as follows:
Gross Sales-Convenience Store P 1,800,000.00
Gross Receipts-Bookkeeping 400,000.00
Total P 2,200,000.00
Less: OSD (Php 2,200,000.00) X 40% 880,000.00
Net Taxable Income P 1,320,000.00
Tax Due:
On Php 800,000.00 P 130,000.00
On Excess (P 1,320,000.00-800,000.00) X 30% 156,000.00
Total Tax Due P 286,000.00
Ms MRU is not required to submit her financial statements with her tax return. She is also liable to the 3% Percentage Tax amounting to
P66,000 (P2.2 million @ 3%) in addition to income tax.
B. Ms. MRU’s income tax liability, if she signifies in her 1st quarter return her intention to be taxed at 8% income tax rate, will be computed
as follows:
Gross Sales-Convenience Store P 1,800,000.00
Gross Receipts-Bookkeeping 400,000.00
Total P 2,200,000.00
Less: Amount Allowed As Deduction Under Sec. 24(a)(2)(b) 250,000.00
Net Taxable Income P 1,950,000.00
Tax Due - 8% Of Php 1,950,000.00 P 156,000.00
Ms. MRU is not liable to the 3% percentage tax under Section 116 because the 8% is in lieu of the graduated income tax rate and the 3%
percentage tax under Section 116
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