INCOME
TAXATION
2024
G R A D U AT E D TA B L E V S 8 % O P T I O N R AT E
• PASSIVE INCOME: Subject to final withholding taxes are certain passive
incomes from sources within the Philippines as enumerated under section 24(B)
of the Tax code. These passive incomes are not subject to graduated tax rate or
basic tax but to specific final withholding tax rates as summarized.
• The specific passive incomes derived from the Philippines sources subject to
final withholding taxes are as follows:
• Interest income
• Dividend income
• Royalties
• Prizes; and
• Other winnings
• “ UNLESS EXEMPT OTHER PASSIVE INCOME DRIVED FROM
PHILIPPINES BUT NOT IN THE LIST (IF ANY) AS WELL AS PASSIVE
INCOME DERIVED ABROAD ARE SUBJECT TO BASIC TAX”.
• INCOME FROM SALE OF CAPITAL ASSETS SUBJECT TO
CAPITAL GAIN TAX (CGT)
• 1. Capital gains from sale of shares of stocks of a domestic corporation
not traded in the local stock exchange [SEC. 24(C) NIRC] and;
• 2. Capital gains from sale of real property in the Philippines [SEC. 24
(D) NIRC].
• “ CAPITAL GAINS NOT SUBJECT TO CAPITAL GAINS TAX ARE
SUBJECT TO BASIC TAX.
SUMMARY OF INCOME AND
APPLICABLE INCOME TAX
TYPE OF INCOME APPLICABLE TAX
REGULAR INCOME GRADUATED RATE
PASSIVE INCOME, PHILS. FINAL WITHOLDING TAX (FWT)
CAPITAL GAIN TAX (CGT) CAPITAL GAINS TAX (CGT)
GUIDE:
• UNLESS EXEMPT UNDER THE LAW, INCOMES NOT SUBJECT TO
THE FINAL WITHOLDING TAX AND CAPITAL GAIN TAX ARE
SUBJECT TO GRADUATED TAX RATE.
• INTEREST INCOME FROM BANK DEPOSIT ABROAD FOR
INSTANCE IS NOT INCLUDED IN THE LIST OF INCOME
SUBJECT TO FWT NOR CGT, HENCE, SUCH INCOME IS
SUBJECT TO BASIC TAX OR GRADUATED TAX RATE.
PRIOR 2017 PRIOR 2018-2022 TRAIN 2023 ONWARDS
INCOME TAX LAW
INCOME TAX TAX
NOT OVER 10K 5% NOT OVER 250K EXEMPT EXEMPT
OVER 10K BUT 500 + 10% IN OVER 250K BUT NOT 20% OF EXCESS 15% OF EXCESS
NOT OVER 30K EXCESS OF 10K OVER 400K OVER 250K OVER 250K
OVER 30K BUT 2,5K + 15% IN OVER 400K BUT NOT 30K + 30% IN 22,500 +20% IN
NOT OVER 70K EXCESS OF 30K OVER 800K EXCESS OF 400K EXCESS OF 400K
OVER 70K BUT 8,500 + 20% IN OVER 800K BUT NOT 130K + 32% IN 102,500 + 25% IN
NOT OVER 140K EXCESS 70K OVER 2M EXCESS OF 800K EXCESS OF 800K
OVER 140K BUT 22,500 + 25% IN OVER 2M BUT NOT 490K + 32% IN 402,500 + 30% IN
NOT 250K EXCESS OF 140K OVER 8M EXCESS OF 2M EXCESS OF 2M
OVER 250K BUT 50K + 30% IN OVER 8M 2,410,000 + 35% IN 2,202,500 + 35% IN
NOT OVER 500K EXCESS OF 250K EXCESS OF 8M EXCESS OF 8M
OVER 500K 125K + 32% IN
EXCESS OF 500K
GRADUATED
TABLE
PURELY COMPENSATION INCOME EARNER
• DETERMINE INCOME TAX DUE ASSUMING THE “TAXABLE
COMPENSATION INCOME FOR 2023 IS 240,000?
• ANSWER? =
• DETERMINE INCOME TAX DUE ASSUMING THE “TAXABLE
COMPENSATION INCOME FOR 2023 IS 300,000?
• FIRST:
• IN EXCESS OF:
• TAX DUE:
• DETERMINE INCOME TAX DUE ASSUMING THE “TAXABLE
COMPENSATION INCOME FOR 2023 IS 1,850,000?
• FIRST:
• IN EXCESS OF:
• TAX DUE:
SELF EMPLOYED OR/PROFESSIONAL
(SEP)
• Case A. PURELY SEP Whose gross sales/receipts or other non-operating income does not exceed
the VAT threshold of 3,000,000.
• Determine the income tax due assuming the gross sales/receipt and other non-operating income
for 2023 is 248,000?
• Using the data below determine the income tax due for 2023.
• Gross sales P 2,800,000 First P P
• Cost of sales (1,500,000) In excess of Pxxx,xxx
• Operating expenses (750,000) (Pxxx x xxx)
• Net taxable income 550,000 Income Tax Due P
• In addition to the income tax computed above, the SEP is still subject to
a business tax. Business taxes are discussed in volume 2 of this book
entitled “Transfer and Business taxation” for purpose of illustration,
assume the taxpayer in the particular case is subject to percentage tax
under Sec. 116 (being a non-VAT registered taxpayer and the gross sales
did not exceed the revised VAT threshold of P3,000,000 the business tax
is computed as follows;
• OPT = P2,800,000 x 8% = 224,000.
• Consequently, the total tax expense income and business tax of the SEP
is P151,500. This tax shall likewise apply in the preceding number
(assumption #1) respective of its exemption from income tax. The basis
of a business tax is not the “income” but the gross sales/receipt and other
non-operating income exclude compensation income.
• In addition, the SEP in this particular case is still subject to a business
tax. Since the gross sales/receipts and other non-operating income
exceeds the VAT threshold, the applicable business tax is 12% VAT
computed as follows:
• VAT = 5,000,000 x 12% = P600,000.00.
• The 8% optional tax rate is not applicable if (a) the gross sales/receipts
and other non-operating income exceeds the VAT threshold or (b) the
SEP is VAT registered.
SELF EMPLOYED OR/PROFESSIONAL
(SEP)
• Case A. PURELY SEP Whose gross sales/receipts or other non-operating
income exceed the VAT threshold of 3,000,000.
• Determine the income tax due assuming the following data for 2023:
• Gross sales P 5,000,000 First: P
• Cost of sales (2,250,000) In excess of
• Operating expenses (1,250,000) (Pxxx x xxx)
• Net taxable income 1,500,000 Income Tax due P
PROBLEM 2
MR. HERRERA IS UNMARRIED WITH TWO LEGAL DEPENDENTS. THE FOLLOWING INFORMATION IS USED TO DETERMINE HIS INCOME TAX. COMPUTE FOR HIS ANNUAL INCOME TAX RETURN FOR THE YEAR 2011:
MONTHLY SALARY 33,000
MONTHLY OVERTIME PAY 3,900
MONTHLY GAS AND FOOD ALLOWANCE 5,000
WITHHOLDING TAX 25,000
Amount Explanation/Calculation
(monthly salary x 12 months) + (monthly allowance x 12
I. Gross Compensation Income 502,800
months) + (monthly overtime pay x 12 months)
I. Less: Personal Exemption 50,000 Compensation for Head of the Family
Additional Exemptions 50,000 2 dependents x 25,000 per dependent
I. Total Exemptions 100,000 Total of Section II
I. Taxable Income 402,800 Section I – Section III
Over 400,000 but not over 800,000
I. Tax Due 30,360
22,500 + 20% of excess over 400,000
I. Less: Tax Withheld 25,000 Given in the problem
Section V – Section VI
I. Tax Payable/Tax Refundable 5,360
TAX PAYABLE
PROBLEM 1.
MRS. JOLIE SY IS EMPLOYED AS A SALES MANAGER. HER HUSBAND IS UNEMPLOYED FOR THREE YEARS NOW. THEY HAVE FOUR CHILDREN; THE ELDEST IS 25 YEARS OLD, THE
SECOND IS 20 YEARS OLD, THE THIRD IS 18 YEARS OLD AND THE YOUNGEST IS 15 YEARS OLD. COMPUTE FOR THE ANNUAL INCOME TAX RETURN FOR THE TAXABLE YEAR 2011 GIVEN
THE FOLLOWING ADDITIONAL INFORMATION:
MONTHLY SALARY 25,000
MONTHLY ALLOWANCE 6,000
ANNUAL COMMISSION 130,000
WITHHOLDING TAX 60,000
Amount Explanation/Calculation
(monthly salary x 12 months) + (monthly allowance x 12
I. Gross Compensation Income 502,000
months) + annual commission
I. Less: Personal Exemption 50,000 Compensation for Married Individuals
Additional Exemptions 75,000 3 dependents x 25,000 per dependent
I. Total Exemptions 125,000 Total of Section II
I. Taxable Income 377,000 Section I – Section III
Over 250,000 but not over 4000,000
I. Tax Due 19,050
127,000 x 15%
I. Less: Tax Withheld 60,000 Given in the problem
Section V – Section VI
I. Tax Payable/Tax Refundable (40,950)
TAX REFUND
