BASIC INCOME TAX (part 2)
COMPUTATION OF TAXABLE NET INCOME AND TAX LIABILITY
PURELY COMPENSATION INCOME EARNER
Gross taxable compensation income xx
Less: Non-taxable compensation income
13th month pay (limit 90k) xx
De minimis benefits xx
SSS, GSIS, PHIC, Pag-ibig, & Union dues xx xx
Net taxable compensation income xx
Illustration 1
Jane presented the following data for the current taxable year:
Monthly basic salary P65,000
13th month pay, Christmas bonus, productivity pay, 145,000
and other fringe benefits
Mandatory contributions 23,000
Required: Compute the following
1. Taxable compensation income 2. Tax due
Compensation income (P65,000 x 12) P780,000
Add: other compensation income
(**13th month pay and others) P145,000
Less: limit allowed by law 90,000 55,000
Total 835,000
Less: mandatory contributions 23,000
Taxable compensation income P812,000
**inadd yung 13th month pay kasi nag exceed siya sa limit allowed by law (in other words, this is taxable na), the limit is not taxable, if
exceeded magiging taxable na siya.
Answer: Using the graduated tax rates, tax due is as follows:
On P800,000 P102,500
On excess (P812,000 – P800,000) x 25% 3,000
Tax due P105,500
PURELY SELF-EMPLOYED/ PROFESSIONAL INDIVIDUAL
o Gross Sales/Receipts Do Not Exceed VAT Threshold
When the gross sales/receipts purely from self-employment or practice of profession and other non-
operating income do not exceed the value-added tax (VAT) threshold of P3,000,000, the taxpayer has the
option to avail of the following:
1. The graduated tax rates
2. An 8% tax on gross sales/receipts and other non-operating income in excess of P250,000 in lieu of the
graduated tax rates and the percentage tax
When using the 8% tax rate; the Taxpayer should comply with the following requisites:
a. The taxpayer should be subject to 3% other percentage tax under section 116.
Ganito kasi ‘yon, ang isang self-employed/professional individual is subject to both income tax and business
tax.
Additional information: VAT (12%)
o There are two types of business tax
PERCENTAGE TAX
So, if a taxpayer is subject to percentage tax, particularly other percentage tax (3%) under section 116,
he/she may avail the 8% option income tax.
Therefore, instead of paying both income tax and business tax taxpayer may opt to avail the 8% tax.
Kaya nga “in lieu of graduated tax rate and OPT”. Oki? Klarado?
b. Must not be a VAT-registered or gross sales/receipts do not exceed the VAT threshold of P3M.
c. Taxpayer signified in the 1st quarter that he/she will be taxed at 8% tax rate.
d. Of course, not subject to Sec. 117 onwards
Sec. 117 onwards this includes:
Sec 117 – Percentage Tax on Domestic Carriers and Keepers of Garages; Sec 118 – Percentage tax on International Carriers; Sec 119 – Tax on
Franchises; Sec 120 – Tax on Overseas Dispatch, Message, or Conversation Originating from the Philippines; Sec 121 – Tax on Banks, and Non-
bank Financial Intermediaries Performing Quasi-Banking Functions; Sec 122 – Tax on Other Non-Bank Financial Intermediaries; Sec 123 – Tax on
Life Insurance Premiums; Sec 124 – Tax on Agents of Foreign Insurance Companies; Sec 125 – Amusement taxes; Sec 126 – Tax on Winnings;
Sec. 127 – Stock transaction tax
Note: Relaks! Wag ma overwhelmed. Additional information lang ‘to. Mag emote ka nanaman kesyo .info overload. May separate discussion for this.
Pag mag 4th year na kayo under Business Taxes. My point here is, if subject to sec 117 onwards ang isang taxpayer then hindi siya pwedeng maka
avail sa 8% income tax. Oki? Pero you read lang Sec 117 onwards.
COMPUTATION OF NET TAXABLE BUSINESS/PROFESSIONAL INCOME
using GRADUATED TAX RATES: using 8% TAX RATE:
Gross Sales/Receipts xx Gross Sales/Receipts xx
Less: Cost of Sales xx + Non-operating income xx
Gross Income xx Gross income xx
Add: Other income xx Less: allowable deductions P250,000
Total gross income xx Net taxable business/prof. income xx
Less: Allowable deductions xx x 8%
Net taxable business/professional income xx Tax Due xx
and apply the graduated tax rates to derive the tax due
Illustration 2:
Ivy operates a convenience store in Davao City and, at the same time, provides consultancy services to her clients.
She provided the following information during the current taxable year:
Gross sales – convenience store P1,200,000
Cost of sales 720,000
Allowable operating expenses 200,000
Income from consultancy services 800,000
Required: Compute the amount of taxable income and tax due under the following cases:
Case 1: The taxpayer signified her intention to be taxed at the 8% income tax rate at her 1 st quarter income tax return.
Gross sales – convenience store P1,200,000
Add: income from consultancy services 800,000
Total gross sales and other income P2,000,000
Less: amount allowed 250,000
Net taxable business/prof. income P1,750,000
X 8%
Tax due P 140,000
Case 2:: The taxpayer failed to signify her intention to be taxed at the 8% income tax rate in her first quarter income tax
return.
Gross sales – convenience store P1,200,000
Less: cost of sales 720,000
Gross income P 480,000
Less: allowable operating expenses 200,000
Net taxable income from business P 280,000
Add: income from consultancy services 800,000
Tax due P 1,080,000
Using graduated tax rates, the amount of tax due is determined as follows:
On P800,000 P102,500
On excess (P1,080,000 – P800,000) x 25% 70,000
Tax due P172,500
MIXED INCOME EARNER
For Compensation Income:
Computation of Net Taxable Compensation Income
Gross taxable compensation income xx
Less: Non-taxable compensation income
13th month pay (limit 90k) xx
De minimis benefits xx
SSS, GSIS, PHIC, Pag-ibig, & Union dues xx xx
Net taxable compensation income xx
For Business or Professional Income:
Gross Sales/Receipts and Other Non-operating Income Do Not Exceed VAT Threshold (3M)
When the gross sales/receipts purely from self-employment or practice of profession and other non-operating
income do not exceed the value-added tax (VAT) threshold of P3,000,000, the taxpayer has the option to avail of the
following:
1. The graduated tax rates
2. An 8% tax on gross sales/receipts and other non-operating income in excess in lieu of the graduated
tax rates and the percentage tax. The allowable deduction of P250,000 cannot be availed this time.
using GRADUATED TAX RATES: using 8% TAX RATE:
Gross Sales/Receipts xx Gross Sales/Receipts xx
Less: Cost of Sales xx + Non-operating income xx
Gross Income xx Gross income xx
Add: Other income xx x 8%
Total gross income xx Tax Due xx
Less: Allowable deductions xx
Net taxable income xx
Gross Sales/Receipts and Other Non-operating Income Exceed VAT Threshold (3M)
Computation of Total Net Taxable Income
Gross taxable compensation income xx
Less: Non-taxable compensation income
13th month pay (limit 90k) xx
De minimis benefits xx
SSS, GSIS, PHIC, Pag-ibig, & Union dues xx xx
Net taxable compensation income xx
+ Taxable business/professional income:
Gross sales/receipts xx
Less: cost of sales xx
Gross income xx
Less: operating allowable expenses xx
Net income before other non-operating income xx
Add: other non-operating income xx xx
Total net taxable income xx
Illustration 3
Princess, a mixed income earner, presented the following information during the current taxable year:
Annual basic salary P1,800,000
13 month pay and other benefits
th 250,000
Mandatory contributions 80,000
Gross sales from business 2,300,000
Cost of sales 1,380,000
Allowable operating expenses 560,000
Other non-operating income 150,000
Required: Compute the total taxable income and income tax payable under the following cases:
Case 1: The taxpayer signified her intention to be taxed at the rate of 8%
Compensation income P1,800,000
Add: other compensation income
(13th month pay and others) P250,000
Less: limit allowed by law 90,000 160,000
Total 1,960,000
Less: mandatory contributions 80,000
Taxable compensation income P1,880,000
Business Income
Gross sales P2,300,000
Add: other non-operating income 150,000
Taxable business income P2,450,000
On Compensation Income
On P800,000 P102,500
On excess (P1,880,000 – P800,000) x 25% 270,000
Tax due P372,500
On Business Income
Total business income P2,450,000
Multiply: tax rate 8%
Tax due P196,000
Case 2: The taxpayer did not signify her intention to be taxed at the rate of 8% tax rate
Compensation income P1,800,000
Add: other compensation income
(13th month pay and others) P250,000
Less: limit allowed by law 90,000 160,000
Total 1,960,000
Less: mandatory contributions 80,000
Taxable compensation income P1,880,000
+ Taxable business income
Gross sales/receipts P2,300,000
Less: cost of sales 1,380,000
Gross income 920,000
Less: operating allowable expenses 560,000
Net income before other non-operating income 360,000
Add: other non-operating income 150,000 510,000
Total net taxable income P2,390,000
The amount of tax payable using the graduated tax rates is as follows:
On P2,000,000 P402,500
On excess (P2,390,000 – P2,000,000) x 30% 117,000
Tax due P519,500
