The Tax Aspect of

Kinds of Educational
Institutions

Proprietary Educational
Institutions
2. Non-stock, Non-Profit
Educational Institutions
1.

A
Proprietary
educational
institution is any private school
maintained and administered
by private individuals or groups
with an issued permit to
operate from the Department
of Education, Culture and
Sports
(DECS),
or
the
Commission
on
Higher
Education (CHED), or the
Technical Educational and Skills
Development
Authority
(TESDA)

Proprietary Educational
Institutions
Proprietary

Education Institutions
Proprietary educational institutions
shall pay a tax often percent (10%)
on their income. Provided, that if
the gross income from unrelated
trade, business or other activity
fifty percent (50%) of the total
gross income derived by such
educational tax should be 30% on
the net income.

Kinds of Income Tax

Exemption
Express

income tax exemptions

Intentional income tax
exemptions
It could be express or implies
immunity, to particular persons
or corporations, or to persons or
corporations of a particular class.

CONSTITUTIONAL
EXEMPTION:
ARTICLE XIV Sec 4 (3):
SECTION 4(3) All revenues and
assets
of
non-stock,
non-profit
education institutions used actually,
directly
and
exclusively
for
educational
purposes
shall
be
exempt from taxes and duties.

Art. XIV Sec. 4 par. (4) Subject to

conditions prescribed by law all grants,
endowments, donations or contributions
used actually, directly and exclusively for
educational purposes shall be exempt
from tax.

Proprietary educational
institutions
including
those
cooperatively
organized
may
likewise
be
entitled
to
such
exemptions
subject
to
the
limitations provided by law including
restrictions
on
dividends
and
provisions for reinvestments.

Tax Exemptions Granted to NonStock, Non-Profit Educational

Institutions

All revenues and assets of

non-stock, non-profit
educational institutions
used actually, directly and
exclusively for educational
purposes shall be exempt
from taxes and duties.

Department Order No.

137-87 (DOF)
Non-stock,non-profit
educational
institutions are exempt from tax on
all revenues derived in pursuance of
its purpose as an educational
institution
and
used
actually,
directly
and
exclusively
for
educational.

They shall, however, be subject

to internal revenue taxes on
income from trade, business or
other activity the conduct to
which is not related to the
exercise or performance by such
educational institution of its
educational purpose or function.

DECS ORDER NO. 137-87

The implementing regulations of DECS Order No.
137-87 dated December 16, 1987
1.The exemption granted refers to internal
revenue taxes and customs duties imposed by
the National Government on all revenues and
assets of non-stock, non-profit educational
institutions.
2.The exemption is not only limited to revenues
and assets derived from strictly school operations
like income from tuition and other miscellaneous
fees such as matriculation, library, ROTC, etc., but
also extends to incidental income derived from
canteen, bookstore and dormitory facilities.

3.

4.

5.

In this case, however, of incidental income,

the facilities mentioned must not only be
owned and operated by school itself but
such facilities must be located inside the
school campus. Canteens operated by mere
concessionaries are taxable.
Income which is unrelated to school
operations like income from money market
placements are taxable.
The use of the schools income or assets
must be in consonance with the purposes
for which the school is created; in short, the
use must be school-related like the grant of
scholarship, faculty equipment,
establishment of professional chairs, etc.

Their interest income from currency

bank deposits and yield from
deposit substitute instruments used
actually, directly and exclusively in
pursuance of their purposed and an
educational institution, are exempt
from the 20% final tax and 7 1/2%
tax on interest income under the
expanded foreign currency deposit
system imposed under Section 27
(D) (1) of the Tax Code of 1997.

DECS Recognition vs
Government Permit
DECS

RECOGNITION is
permanent, no need to
renew, while
GOVERNMENT PERMIT is
temporary this is the reason
why some schools

Income Tax
Is

a tax all yearly profits arising

from property, professions, trades
or offices, or as a tax on a
persons income, emoluments,
profits. Income tax is a direct tax
on actual or presumed income
(gross or net) of a taxpayer
received, accrued, or realized
during the taxable year.

PROPRIETARY EDUCATIONAL
INSTITUTIONS Proprietary
educational institutions pay on Income
tax of ten percent (10%) on their
taxable net income except:
Interests from deposits/deposit
substitute/trust funds/royalties
* 20% (peso)
* 7.5 (under the Expanded FCD
system)

LIMITATIONS:
- if the gross income from the
unrelated trade, business or other
activity exceeds fifty (50%) of
the total gross income derived by
such educational institutions from
all sources, the tax to be applied
and used shall be 35% on the
entire taxable income.

Income from School

Activities
1. Related

School

Income
2. Unrelated School
Income

Related School Income

A. Related School Activities
1. Tuition Fee
2. Registration Fee
3. Laboratory Fee
4. Entrance Fee
5. Identification Card Fee
6. Comprehensive Examination Fee
7. Internet Fee
8. Practicum Fee
9. Internship Fee
10. Graduation Fee

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Medical and Dental Fee

Proceeds from School Uniforms
Proceeds from Yearbook
Proceeds from Field Trip
Retreat Fee
Canteen Operation
School Bus Operation
Bookstore Operation
Dormitory Operation
Other Related Income

Unrelated trade, business

or other Income any
trade, business or other
activity, the conduct of which
is not substantially related to
the exercise or performance
by
such
educational
institutions.

UNRELATED SCHOOL INCOME

1. Lease of Properties
2. Lease of Gym, Auditorium,
Football
field and other related facilities
3. Printing Press Operation
4. Parking Fee
5. Consultancy Fee
6. Commission from Group Life and
Accident Insurance Policies
procured
by the school for the students
and

7. Sales of Stickers, gifts, souvenirs

and
other items donations
8. Donations
9. Investments in shares of stocks
10. Money market placements
11. Catering Services
12. Other unrelated income

Non-Stock, Non-Profit
Educational Institutions

The exemption of non-stock, non-profit educational institutions

refers to internal revenue taxes imposed by the National
Government on all revenues and assets used actually, directly
and exclusively for educational purposes.
Revenues derived from assets used in the operation of
cafeterias / canteens and bookstore are exempt from taxation
provided they are owned and operated by the educational
institution as ancillary activities and the same are located
within the school premises.
They shall be subject to internal revenue taxes on income from
trade, business or other activity, the conduct of which is not
related to the exercise or performance by such educational
institutions of their educational purposed or functions (Sec. 2,
Finance Department Order No. 137-87, as amended by Finance
Department Order No. 92-88), i.e., rental payment from their
building/premises.

Unlike non-stock, non-profit corporation, their

interest income from currency bank deposits
and yield from deposit substitute instruments
used actually, directly and exclusively in
pursuance of their purposes as an educational
institution, are exempt from the 20% final tax
and 7 % tax on interest income under the
expanded foreign currency deposit system
imposed under Section 25 (D) (1) of the Tax
Code of 1997, subject to compliance with that
as a tax-exempt educational institution, they
shall on annual basis submit to the Revenue
District Office concerned an annual information
return and duly audited financial statement
together with the following:

i.

ii.
iii.

Certification from the depository banks as to the

amount of interest income earned from passive
investment not subject to the 20% final withholding
tax and 7 % tax on interest income under the
expanded foreign currency deposit system imposed
by Section 27 (D)(1) of the Tax Code of 1997.
Certification of actual utilization of the said income;
and
Board Resolution by the school administration on
proposed projects (i.e., construction and/or
improvement of school buildings and facilities,
acquisition of equipment, books and the like) to be
funded out of the money deposited in banks or
placed in money markets on or before the 14 th day
of the fourth month following the end of its taxable
year (Sec. 3, Finance Department Order No. 13787)

Withholding Tax
The exemption does not cover
withholding taxes as an educational
they are constituted as withholding
agents for the government required
to withhold the tax on compensation
income of their employees or the
withholding tax on income payments
to persons subject to tax pursuant to
Section 57 of the Tax Code of 1997.

Government Educational
Institution

UP (Act No. 1870, as amended) is

subject to 20% final tax. Other
government educational institutions
are likewise subject thereto. Reason:
Income from properties, real or
personal or from any their activities
conducted fro profit, regardless of
the disposition made of such income
shall be subject to tax (BIR Ruling
21-90, 28 February 1990)

REVENUE
REGULATIONS
NO. 5-2012

Binding effect of rulings issued prior to Tax

Reform Act of 1997

29

All rulings issued prior to January 1,

1998 shall no longer have any binding
effect.
Consequently, these rulings
cannot be invoked as basis for any
current business transaction/s. Neither
can these rulings be used as basis for
securing legal tax opinions/rulings.

30

BOOKEEPING RULES
AND
REGULATIONS OF
EDUCATIONAL
INSTITUTION

REGISTRATION REQUIREMENTS
Every person subject to any internal
revenue tax shall register once with
the appropriate Revenue District
Officer:
- Within ten (10) days from date of
employment or
- On or before the commencement of
business or
- Before payment of any tax due or
- Upon filing of a return statement or
declaration.

DATA NEEDED FOR THE REGISTATION

The registration shall contain
1) the taxpayers name and
TIN
2) style of Business
3) place of business
A person maintaining a head
office branch or facility shall
register with the Revenue District
Officers having jurisdiction over
the head office, branch or facility.

ANNUAL REGISTRATION FEE

Five hundred pesos (P500) for every
separate or distinct establishment or
place of business, including facility types
where sales transaction occur, shall be
paid upon registration and every year
thereafter on or before the last day of
January:

KEEPING OF BOOKS OF
ACCOUNTS
1.

2.

Corporation,companies,
partnership
or persons are required to keep books
of accounts.
Quarterly sales, earnings receipts do
not exceed P50,000 use SIMPLIFIED
Set of Bookkeeping Records

KEEPING OF BOOKS OF
ACCOUNTS
3.

4.

Quarterly sales, earning receipts

exceed P50,000 Journals and
Ledger.
Corporations, partnerships or
persons whose gross quarterly
sales, earnings, receipts exceed
P150,000 shall have their Books
of
Accounts
audited
by
independents Certified Public
Accountants.

PRESERVATION OF BOOKS OF
ACCOUNTS AND OTHER
ACCOUNTING RECORDS
All the books of accounts,
including the subsidiary books and
other
accounting
records
of
corporations, partnerships or persons,
shall be preserved for a period of three
(3) years beginning from the last entry
in each book.

PRINTING RECEIPTS OF
COMMERCIAL OR SALES
INVOICES

All persons who are engaged in

business shall secure from the Bureau
of Internal Revenue an authority to print
receipts or sales or commercial invoices
before a printer can print the same.

PRINTING OF RECEIPTS OR
COMMERCIAL OR SALES
INVOICES

No authority to print receipts or sales or

commercial invoices shall be granted
unless the
receipts or invoices to be
printed are serially numbered and shall
show, among other things, the name,
business style, Taxpayer Identification
Number (TIN) and business address of the
person or entity.

PENALTY
For failure to issue a receipt or
invoices shall be fine P1,000 but not
more than P50,000 and imprisonment
of not less than 2 years but not more
than than 4 years upon conviction for
every violation.

VIOLATIONS RELATED TO THE

PRINTING OF RECEIPTS OR
INVOICES

Any person who commits any of

these acts enumerated there
under shall be fined not less
than P1,000 but not more
P50,000 and imprisonment of
not less than two years but not
more than four (4) years.

REVENUE
MEMORANDUM
CIRCULAR NO. 69-2009
Mandatory Enrollment to and
Availment of the Electronic
Filing Payment System (eFPS)
Facility for Selected Taxpayers

42

1.
2.
3.

4.

5.

Large taxpayers pursuant to Revenue

Regulations (RR) No. 2-2002;
All Government bidders pursuant to RR
No. 3-2005
Corporations with paid-up capital stock
of Ten Million Pesos (P10,000,000.00)
pursuant to RR No. 10-2007
Corporations with complete
computerized system pursuant to RR
No. 10-2007
Taxpayers belonging to the list of the
Top 20,000 Private Corporations under
Section 2.57.2(M) of RR No. 2-98, as
last amended by RR No. 14-2008, in

43

INCOME TAX
DEDUCTIONS FROM
GROSS INCOME
a.
b.
c.

The itemized deduction

The optional standard deduction
The special deductions and in special
laws like the BOI law (E.O. 226)
44

Deductions from Gross

Income
Deductions are items or amounts which the law
allows to be deducted from the gross income.

Time for availing

deductions
A taxpayer has the right to deduct all
authorize expense for the taxable year.
He can not deduct them from the
income of the next or any succeeding
year.
45

Kinds of deductions
1. Deductions
from
compensation
income of individual taxpayers.
2. Deductions from business and / or
professional income of individual
taxpayers.
3. Deductions from corporate income.
4. Special deductions.

46

BUSINESS EXPENSES
1.
2.
3.

4.
5.

It must be ordinary and necessary;

It must be paid or incurred during the
taxable year;
It must be paid on incurred in carrying on
or which are directly attributable to the
development,
management,
operation
and/or conduct of trade, business or
exercise of profession;
It must be supported by adequate invoices
or receipts;
The tax required to be withheld on the
47
expense paid or payable.

A.

Connected with the taxpayers

trade or business (business
related deductions).

1.

Expenses
Interest
Taxes
Losses
Bad Debts
Depreciation
Research and Development
Contributions to pension trusts

2.
3.
4.
5.
6.
7.
8.

48

B. Not connected with the taxpayers

trade of business (non-business
deductions).

10. Charitable and other contributions

11. Optional standard deduction
12. Premium payment on health and/or
hospitalization insurance.

49

ITEMIZED DEDUCTION
There shall be allowed as deduction
from gross income all the ordinary
and
necessary
expenses
paid
incurred during the taxable year in
carrying on or which are directly
attributable to, the development,
management,
operation
and/or
conduct of the trade, business or
exercise of a profession including a
reasonable allowance for salaries,
travel, rental and entertainment

50

Requisites for deductibility

The expense must be ordinary and
necessary. There is no hard
and fast
rule on the matter.
It depends upon particular facts
such as, the type of business
(custom),
intention
of
the
taxpayer,
time,
place
and
prevailing circumstances.
The
Supreme
Court
has
never
attempted to define with precision

51

GUIDING PRINCIPLES
Ordinary,
when
it
is
normal
(common or usual) in relation to the
business of the taxpayer and the
surrounding circumstances.
Necessary, where it is appropriate
and helpful in the development of
the taxpayers business.
It is
intended to realize a profit or to
minimize a loss (Visayan Cebu
Terminal Co. V. Collector, CTA Case
No. 28, 29 June 1957).

52

Expenses are considered ordinary

and necessary if they are directly
attributable
to
development,
management, operation, and or
conduct of the trade or business of
the taxpayer, or in the exercise of
the taxpayers profession.
The expenses must be incurred in
trade or business carried on by the
taxpayer This means that the
same is not incurred in the trade or
business of another.
53

The expenses must be substantiated by

proof
Receipts are the best proof. Burden
of proof lies upon the taxpayer.
Even if no records/receipts are
available, the oral testimony of a
CPA, if not contradicted by the
government is sufficient (Basilan
Estates v. Com., G.R. No. L22494, 5
September 1967).
54

Paid or incurred during the taxable

year
Cash basis method deducts
expenses in the year in which
they are paid.
Accrual
basis
method

recognizes expenses in the

year they accrue.
55

Seller of services:
Gross receipts
Less
Sales discounts
Cost of services
Gross Income

xxx
(x x)
(x x)
xx

56

Gross
receipts
means
amounts
actually
or
constructively
received
during the taxable year.
However,
for
taxpayers
engaged as seller of services
but employing the accrual
basis of accounting for their
income, the term gross
receipts shall mean amounts

57

Cost of services means all direct costs

and expenses necessarily incurred to
provide the services required by the
customers and clients including:
1)Salaries and employee benefits of
personnel, consultants and specialists
directly rendering the services, and
2)Cost of facilities directly utilized in
providing
the
service
such
as
depreciation or rental of equipment used
and cost of supplies.
Provided, however, that cost of
services shall not include interest
expense except in the case of banks and 58

Expenses Must be
Reasonable

A reasonable allowance for

salaries, wages and other forms
of compensation for personal
services actually rendered
2. A reasonable allowance for
travel expenses, here and
abroad, while away from home
in the pursuit of trade, business
or profession
1.

Expenses Must be
Reasonable

A reasonable allowance for

rentals and/or other payments
4. A reasonable allowance for
entertainment, amusement and
recreation expenses during
taxable year
3.

The expenses must not be

contrary to public policy,
BRIBES, KICKBACKS AND OTHER
such
as:

PAYMENTS MADE DIRECTLY OR

INDIRECTLY TO AN OFFICIAL OR
EMPLOYEE OR THE NATIONAL OR
LOCAL GOVERNMENT
BRIBES OR KICKBACKS PAID TO A
PRIVATE CORPORATION, GENERAL
PROFESSIONAL PARTNERSHIP, OR
SIMILAR ENTITY

Representation Expenses
Refers to expenses incurred by a
taxpayer in connection with the
conduct of his trade, business or
exercise of profession, in
entertaining, providing amusement
and recreation

Requisites of Deductibility of
Entertainment, Amusement
and
Recreation
Expenses

It must be paid or incurred during

the taxable year;
It must be:

Directly connected to the development

Management and operation of the
trade, business or profession of the
taxpayer; or
Directly related to or in furtherance of
the conduct of his or its trade, business
or exercise or a profession;

Requisites of Deductibility of
Entertainment, Amusement
and Recreation Expenses

It must not be contrary to law,

morals, good customs, public
policy or public order;
It must be duly substantiated by
adequate proof

CEILING ON ENTERTAINMENT,
AMUSEMENT, AND RECREATION
EXPENSE
Actual entertainment, amusement and
recreation expenses paid or incurred
within the taxable year by the taxpayer,
but in no case shall such deduction
exceed of 1% of net sales (i.e., gross
sales less sales returns/allowances and
sales discounts) for taxpayers engaged in
sale of goods or properties; or 1% of net
revenue
(I.e.,
gross
revenue
less
discounts) for taxpayers engaged in sale
65

APPORTIONMENT FORMULA:
NET SALES/NET REVENUE
EXPENSE

ACTUAL

TOTAL NET SALES AND NET REVENUE

66

ILLUSTRATION:
ERA Corporation is engaged in the
sale of goods and services with net
sales/net revenue of P200,000 and
P100,000, respectively. The actual
entertainment,
amusement
and
recreation expense for the taxable
quarter totaled to P3,000.

67

*Appointment Formula
Sales of Goods (P200,000 x 0.50%)
Sales of Services (P100,000 x 1%)
**Maximum Percentage Ceiling
Sale of Goods (P200,000 x 0.50%)
Sale of Services (P100,000 x 1%)
68

INTEREST EXPENSE
REQUISITES for DEDUCTABILITY
A. These must be an indebtedness;
B. There should be an interest expense
paid
or
incurred
upon
such
indebtedness;
C. The indebtedness must be that of the
taxpayer;
D. The indebtedness must be connected
with the taxpayers trade, business or
exercise of profession;
E. The interest expense must have been
paid or incurred during the taxable
year;

69

F.

The interest must have been

stipulated in writing;
G. The interest must be legally due;
H.
The
interest
payment
arrangement must not between
related taxpayers;
I. In case of interest incurred to
acquire property used in trade,
business or exercise of profession,
the same was not treated as a
capital expenditure.
70

INTEREST
In General
The amount of interest paid or
incurred within the taxable year on
indebtedness in connection with the
taxpayer
profession,
trade
or
business
shall
be
allowed
as
deduction
from
gross
income:
Provided,
however,
that
the
taxpayers
otherwise
allowable
deduction for interest expense shall
be reduced by an amount equal to
the 33%of the interest income

71

Example:
Assume that a taxpayer incurred in 2010,
interest expense amounting to P100,000.
This
is
OTHERWISE
ALLOWABLE
DEDUCTION FOR INTEREST EXPENSE but
it will be reduced by an amount equal to
the prescribed percentage of interest
income subjected to the final tax. Thus, if
in 2010, the taxpayer received P60,000
interest income on which the final tax was
withheld and remitted to the BIR by the
payor of such income, then the deductible
amount of interest will be computed as
follows:

72

Total interest expense

P100,000
Less: 33% of P60,000
19,800
AMOUNT DEDUCTIBLE

P 80,20

73

TAXES
All taxes are deductible except:
1. Income
2. Estate Tax
3. Energy Tax
4. Special Assessment Tax
5. Value Added Tax
6. Amnesty Tax
7. 10% Penalty Tax on undue
accountabilities of profit
8. Penalty (25% surcharge, 50%
surcharge compensation
payment)
74

LOSSES
Requisites for the deductibility of a loss.
1. The loss must be incurred in trade,
profession, or business of the taxpayer, or
any transaction entered into for profit;
2. It must be actually sustained within the
taxable year;
3. It must be evidenced by a closed and
completed transaction;
4. It must not be compensated for by
insurance or other form of indemnity; and
5. The taxpayer has filed a sworn declaration
of loss within 45 days after the date of the
occurrence of casualty or robbery, theft, or
embezzlement.

75

Requirement for the substantiation of a

loss.
The taxpayer bears the burden of proving
and substantiating his claim for deduction
for loss and should com,ply with the
following substantiation requirements:
1. A sworn declaration of loss must be
filed within the period prescribed; and
2. Proof of the elements of the loss
claimed, such as the actual nature and
occurrence of the event and the amount
of the loss
76

Bad
Debts
The requisites
deductibility of bad debts are:

for

1. There must be an existing indebtedness

due to the taxpayer which must be valid
and legally demandable;
2. The same must be connected with the
taxpayers trade, business or practice of
profession;
3. The same must not be sustained in
transaction entered into between related
parties;

77

4. The same must be actually charged off

the books of accounts of the taxpayer as
of the end of the taxable year;
5. The same must be actually charged off
the books of accounts of the taxpayer as
of the end of the taxable year;
* Debt is charged-off within the taxable
year. Partial writing-off is not allowed, it
must be charged-off in full or not at all.
(Fernandez
Hermanos.
Inc.
vs.
Comm.2DCRA552)
78

DEPRECIATION
Requisites that must concur the deduction
or Depreciation from Gross Income
The allowance for depreciation must be
reasonable;
It must be for property used in the trade
or business;
It must be charged off during the
taxable year; and
A statement on the allowance must be
attached to the return.

79

Expenses Allowable to Private

Educational Institutions In
addition to the expenses allowable as
deductions a private education
institution may at its option elect
their: (a) to deduct expenditures
otherwise considered as capital
outlays of depreciable assets incurred
during the taxable year for the
expansion of school facilities or (b) to
deduct allowance for depreciation.

RESEARCH AND DEVELOPMENT

EXPENDITURES
Methods of treating research and
development
The Taxpayer has the option to treat
research and development expenditures
under one of the following two methods
1. Currently deductible as ordinary and
necessary expense
Research or Development expenditures
paid or incurred by a taxpayer during the
taxable year in connection with his trade,
business or profession and are not
81

2. Treatment as deferred expenses

Deferred expenses are allowable as
deduction ratably over a period of no
less than 60 consecutive months
beginning with the month in which the
taxpayer first realizes benefits from the
expenditures.

82

CHARITABLE AND OTHER

CONTRIBUTION
Corporation or association to whom
contributions or gifts may be made
or paid and claimed as deduction,
the amount of which is subject to
limitations.
The limitation is 10% for individual
and 5% for corporations, of the
taxable income derived from trade,
business or profession.

83

CONTRIBUTION DEDUCTIBLE IN FULL

1. Donation to the Government
2. Donation to Certain Foreign
Institutions
or
International
Organizations
3.
Donation
to
Accredited
Nongovernment organization

84

ITEMS NOT DEDUCTIBLE

1. Personal, living or family expenses;
2. Any amount paid out for new building or
for
permanent
improvements,
or
betterment made to increase the value of
any property or estate;
3. Any amount expanded in restoring
property or in making good the
exhaustion
thereof
for
which
an
allowance is or has been made; or
4. Premiums paid on any life of any officer
or employee, or of any person financially
interested in any trade or business
carried on by the taxpayer, individual or

85

REVENUE REGULATION
NO. 2-2011

Filing of Income Tax Return

and/or Annual Information
Return by Individuals, including
Estates and Trusts
86

RETIREMENT PLAN
Benefit received as a result of
voluntary resignation are taxable.
Reason: It is a cause within the
control of the said official or
employee.
The exemption holds regardless of
the employees age and length of
service.
The law does not require that the
exclusion be enjoyed once.
Separation of employee due to
dissolution of a law firm is cause

87

Compulsory retirement caused

beyond
the
control
of
the
employee.
Terminal leave pay is excluded from
gross
income.
Compulsory
retirement may be considered as a
cause beyond the control of the
said
official
employee.
Consequently, the amount received
by way of commutation of his
accumulated leave credits as a
result thereof falls within the
enumerated exclusion from gross

88

RETIREMENT/PENSION PLAN
1.
2.
3.
4.
5.
6.

Employer must have established a

pension plan
Pension plan must reasonable or
actuarially sound
Funded by the employeer and employee
Amount contributed by the employer
must not be subject to his control
Payment has not been allowable as
deduction before
Apportioned over a period of ten (10)
consecutive years beginning with the
year in which the transfer in payment

89

Requisites of a reasonable
retirement benefit plan
1.

2.

3.
4.
5.

It must be a definite written program

setting forth all provisions essential for
qualifications;
It must be permanent and continuing
program unless sooner terminated by virtue
of a valid business reason;
It must cover at least 70% of all officials
and employees.
It must provide for the non-diversion of the
corpus.
It must not provide for discrimination in
contributions or benefits in favor of officials90

Private retirement benefit

plan

Under Republic Act No. 4917,

retirement benefits received by
employees of private firms in
accordance with a reasonable
private benefit plan maintained by
the employer are exempt from all
taxes, provided that the retiring
employees has been in the service
of the same employer for at least
ten (10) years and is not less than
fifty (50) years of age at the time of

91

RETIREMENT BENEFITS, PENSIONS,

GRATUITIES

Retirement benefits received by officials

and
employees
of
private
firms,
individuals or corporations.
Reasonable private plan maintained by
the employer duly approved by the BIR
for exclusive benefit of the membersemployees;
Retiring official or employee who has
rendered at least 10 years of service;
At least 50 years of age at the time of
the retirement;
92

The benefit of exclusion

shall be availed of only
once.
Even if the member has
attained 50 years of age
with at least ten years of
service, if the employeemember is still on active
employment
with
the

93

Separation benefits due to death,

sickness or other physical disability
or for any cause beyond the control
of the said official or employees
Any amount received from an
employer as result of separation
from service due to sickness is
exempt from all taxes.
Separation
benefits
paid
to
retrenched
employees
as
a
consequence of either the sale of
the entire business to another
corporation or the cessation of the

94

Imposition of Improperly
Accumulated Earnings Tax
A.

In General In addition to other

taxes imposed, there is hereby
imposed for each taxable year on
the improperly accumulate taxable
income of each corporation, an
improperly accumulated earnings
tax equal to ten percent (10%) of
the improperly accumulated taxable
income.
95

Corporations not subject to

IAET and other non-bank financial
Banks
intermediaries;
Insurance companies;
Publicly-held corporations;
Taxable partnerships;
General professional partnerships;
Enterprises duly registered with the
Philippine Economic Zone Authority
(PEZA) under R.A. No. 7916, and
enterprises registered pursuant to the
Bases Convertion and Development

96

PERSON REQUIRED TO
DEDUCT & WITHHOLD
a.

In general, any juridical person,

whether or not engaged in trade or
business;

b.

b. an individual, with respect to

payments made in connection with his
trade or business.
c. All government offices including
government owned or controlled
corporation, as well as provincial, city,
municipal governments and barangays.

c.

97

Types of Withholding
Taxes
Withholding Tax on Gross Compensation
Expanded

or Creditable Withholding Tax

Service Income
Purchases of goods
Final Withholding Tax (Passive Investment Income)
Interest, Dividends, Royalties, Prizes, Winnings
and Capital Gain
Withholding Tax on Government Money Payment
Income Tax
VAT
Percentage Tax
Quarterly Withholding Tax
Individual Engage in Business or Profession
Corporation
98

Duties & Obligations of a

Withholding Agent
To register
To deduct and withhold
To remit the tax withheld
To file withholding tax
returns
To issue withholding tax
certificate
99

Time of Withholding
A. Ordinarily, the obligation of the payor to
deduct and withhold arises:

at the time an income payment is paid or

payable.
income payment is accrued or recorded as an
expense or asset,
whichever is applicable in the payors books,
whichever is comes first.
The Term payable refers to the date the obligation
becomes due, demandable or legally
enforceable
100

Time of Withholding

B. When income is not yet paid or

payable but has been recorded as
an expense or asset, whichever is
applicable, in the payors books:
Last month of the return period in
which the same is claimed as an
expense or amortized for tax purpose
101

Time of Withholding
Withholding tax on compensation
Compensation actually or
Constructive paid
Constructively paid when it credited to
the account of or set apart for an
employee so that it may de drawn
upon by him at ay time although not
then actually reduced to possession

Types of Withholding
Taxes
Withholding Tax on Gross Compensation
Expanded

or Creditable Withholding Tax

Service Income
Purchases of goods
Final Withholding Tax (Passive Investment Income)
Interest, Dividends, Royalties, Prizes, Winnings
and Capital Gain
Withholding Tax on Government Money Payment
Income Tax
VAT
Percentage Tax
Quarterly Withholding Tax
Individual Engage in Business or Profession
Corporation
103

Gross Compensation
Income
Salaries

& Wages
Overtime Pay
Emergency Pay
Loyalty Pay
Directors Pay

104

Gross Compensation
Income
Allowances

Representation & Transportation

Cost of Living
Clothing
Housing
Medical
Meal
Laundry
Others
105

Gross Compensation
Income
Vacation

Leave
Bonus/Incentives

Christmas Bonus
Incentive Pay
Productivity Bonus
Anniversary Bonus
Commission
Profit

Sharing
106

Tax Due = Tax Withheld

Example:
Tax Payer

Income Tax
(Jan. to Dec.)

30,000

30,000

30,000

Less Tax
Withheld (Jan. to
Nov.)

28,000

33,000

30,000

Withholding Tax
for December
Refund Jan. 20

2,000
None

None
3,000

None
None
107

R.A. 9504
Minimum Wage Tax
Exemption
Revenue
Regulations No. 102008
July 8, 2008
108

The minimum wage earners as defines in

this Code shall be exempt from the payment of
income tax on their taxable income: provided,
further, that the holiday pay, overtime pay, night
shift differential pay and hazard pay received by
such minimum wage earners shall likewise be
exempt from income tax.

109

Holiday pay, overtime pay, night shift differential

pay and hazard pay earned by the aforementioned MWE
shall likewise be covered by the above exemption.
Provided, however, that an employee who receives/earns
additional compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the allowable
statutory amount of P30,000.00, taxable allowances and
other taxable income other than the SMW, holiday pay,
overtime pay, hazard pay and night shift differential pay
shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from
income tax and, consequently, from withholding tax.

110

MWEs receiving other income, such as income

from the conduct of trade, business, or practice of
profession, except income subject to final tax, in
addition to compensation income are not exempted from
income tax on their entire income earned during the
taxable year. This rule, notwithstanding, the SMW,
Holiday pay, overtime pay, night shift differential pay
and hazard pay shall still be exempt from withholding
tax.

111

DE MINIMIS
The following shall be considered as de minimis
benefits not subject to income tax, hence, not subject to
withholding tax on compensation income of both
managerial and rank and file employees:
a.

Monetized unused vacation leave credits of

employees not exceeding ten (10) days during the
year and the monetized value of leave credits paid
to government officials and employees;
b. Medical cash allowance to dependents of
employees not exceeding P750.00 per employee
per semester of P125 per month;
112

c. Rice subsidy of P1,500.00 or one (1)

sack of 50-kg. rice per month
amounting to not more than
P1,500.00;
d. Uniforms and clothing allowance not
exceeding P5,000.00 per annum;
e. Actual yearly medical benefits not
exceeding P10,000.00 per annum;
f. Laundry allowance not exceeding
P300.00 per month;
113

g. Employees achievement awards, e.g., for

length of service or safety achievement,
which must be in the form of a tangible
personal property other than cash or gift
certificate, with an annual monetary value
not exceeding P10,000.00 received by
the employee under an established
written plan which does not discriminate
in favor of highly paid employees;

114

h. Gifts given during Christmas and

major anniversary celebrations not
exceeding P5,000.00 per
employee per annum;
i. Daily meal allowance for overtime
work not exceeding twenty five
percent (25%) of the basic
minimum wage.
115

The amount of de minimis benefits

conforming to the ceiling herein prescribed
shall not be considered in determining the
P30,000.00 ceiling of other benefits
excluded from gross income under Section
32(b)(7)(e) of the Code. Provided that, the
excess of the de minimis benefits over
their respective ceilings prescribed by these
regulations shall be considered as part of
other benefits and the employee receiving
it will be subject to tax only on the excess
over the P30,000.00 ceiling.
116

Any amount given by the

employer as benefits to its
employees, whether classified as
de minimis benefits or fringe
benefits, shall constitute as
deductible expense upon such
employer.

117

Final Withholding Tax

Interest
Dividend
Prizes
Winning
Royalty
Capital

Gain
118

Dividends
Cash and/or Property Dividends 10%
A final tax at the following rates shall
be imposed upon the cash and/or
property
dividends
actually
or
constructively received by an individual
(except
a
general
professional
partnership)
10% beginning January 2, 2000

119

Capital Gain Tax on sale of Shares of Stock

Capital gains forms

ales etc. of UNLISTED
shares
Not over P100,000
5%
Over P100,000
10%
Capital gains from
sale of LISTED &
TRADE shares
of 1% of gross
selling price

same

120

Final Withholding Tax

Interest
Dividend
Prizes
Winning
Royalty
Capital

Gain
121

Withholding Tax on Lease

of Properties
1.

Real properties Five percent

(5%)

2.

Personal properties On
gross rental or lease in excess
of Ten Thousand Pesos
(P10,000.00)

Withholding Taxes Income

payments to certain contractors
two percent (2%)
Computer services, computer
programmers, software/program
developer/designer-internet
service providers, web page
designing, computer data
processing, conversion or base
services and other computer
related activities;

Annual information Return (BIR Form

1604CF/1604E)
including
the
Alphabetical List of Employees and
Income Recipient
10

or less number of employees or

payees
Manual submission 3 copies of
604CF/1604E
+
alphalist
of
employees and income payees.
Diskette submission ten (10) or
more number of employees or
payees who are recipient of income

REVENUE REGULATIONS
NO. 2-2006
Mandatory Attachments of
the Summary Alphalist of
Withholding Agents of Income
Payments Subjected to Tax
Withheld at Source (SAWT) to
Tax Returns with Claimed Tax
Credits

Mandatory Submission

Summary
Alphalist
of
Withholding
Agents/Payors
of
Income
Payments
subjected to Creditable Withholding Tax at
Source (SAWT) submitted by the payeerecipient of income.
Monthly Alphalist of Payees (MAP) Annex
B is a consolidated alphalist of income
earners from whom taxes have been
withheld by the payor of income

Mandatory Submission
Persons required to submit Summary Alphalist
of Withholding Agents of Income Payments
subjected to Withholding Taxes (SAWT)
SAWT in hard copy as attachment to the
required tax return.
Submit SAWT electronically in a 3.5 inch
floppy diskette.
All taxpayers required to file the EFPS,
regardless of the number of withholding
agents/payor of income, are strictly
required to attached the electronic copy of
the SAWT to the electronic return

Mandatory Submission
Persons required to submit Monthly Alphalist
of Payees (MAP)

All withholding agents enumerated under

Sections 2.57.3,4.114,5.116 of Revenue
Regulations No. 2-98, not more than ten
(10) income payees-income per return.
Have more than ten (10) income payeesincome recipient per return.
All taxpayers remitting taxes withheld thru
the EFPS.

Mandatory Submission
Returns required to be filed with SAWT and
Certificate Tax Withheld at Source

Individual Quarterly Income Tax Return

Individual Annual Income Tax Return
Individual Annual Income Tax Return for Compensation
income Earners (for those required to file an ITR)
Corporate Quarterly Income Tax Return
Corporate Annual Income Tax Return
Quarterly VAT Return
Monthly VAT Declaration
Monthly Percentage Tax Return
Percentage Tax Return under Special Laws

Mandatory Submission
Returns required to be filled with MAP

Monthly Remittance Return of Creditable Income

Taxes Withheld (Expanded Withholding Tax)
Monthly Remittance Return of Final Taxes Withheld
Monthly Remittance Return of Value Added Tax
and Other Percentage Taxes (Under RAs1051,
4649, 8241 and 8424)

CWT BEING CLAIMED AS

CREDIT

tax, VAT, percentage

tax)
1. (income
Quarterly
and annual

income tax returns

Q,1700, 1701Q, 1701,

2.
3.
4.

(Forms 1700,
1702Q and 1702
Monthly and quarterly VAT returns (Forms
2550Q and 2550M)
Monthly percentage tax returns (Form
2551)
Percentage tax return order special laws
(Form 2553)

MAP (Monthly Alphalist of

Payees)

Reporting CWT or FWT withheld on

Income Payees
1.Monthly

return of creditable income

taxes withheld (Form 1601E)
2.Monthly return of final income taxes
withheld (Form 1601F)
3.Monthly return of VAT and other
percentage taxes withheld (Form
1600)

FORMAT
Up to 10
withholding agents or
income
payees

In hard copy

Taxpayers with more

than 10
withholding agents or
income
payees

In 3.5 diskette or CD
inside a sealed letter
envelope, in excel or own
extract programs
validated through the BIR
validation module; or
using the BIR date entry
module

EFPS fillers

In electronic form
attached to electronic
return

Penalties
P1,000

for each failure to

file the required alphalist nut
not to exceed P25,000 in a
year on all such failures
The penalty does not exempt
the taxpayer from the
required submission of the
documents

FRINGE
BENEFIT TAX

135

Rank and File Employees - means all

employees who are holding neither
managerial or supervisory position.
Managerial Employees - is one who is
vested with powers or prerogatives to
lay down and execute management policies
and/or to hire, transfer, suspend, lay-off,
recall, discharge, assign or discipline
employees.

136

Special Treatment of Fringe Benefit

Imposition of a final tax of
32% effective Jan. 1,2000 and thereafter
Basis of Computation
Grossed-up monetary value of fringe
benefit furnished or granted to the
employee by the employer, whether an
individual or a corporation.
137

FRINGE BENEFIT, DEFINED

Fringe benefit means any good, service or other benefit
granted in cash or in kind by an employer to an
individual employee (except rank and file employees)
such as, but not limited to the ff:
1.
2.
3.
4.
5.

Housing
Expense Account
Vehicle of any kind
Household personnel
Interest in loan at less than market rate

138

FRINGE BENEFIT, DEFINED

6. Membership fees, dues and other expenses born by
the employer for the employee in social and athletic
clubs
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to employee or his dependent
10.Life or health insurance and other non-life insurance
premiums.

139

VAT - TAXATION

Categories of
exemptions

Exempt persons the seller or the

buyer is not liable to value added
tax; or
2. Exempt transactions transactions
in certain goods, properties or
services, which are not subject to
value added tax, even if such
goods, properties or services are
sold by a VAT registered person,
and regardless of the annual gross
sales or receipts derived therefrom.
1.

VAT-Exempt Transactions
Educational

services rendered by
private educational institutions
duly accredited by the Department
of Education (DepED), the
Commission on Higher Education
(CHED) and the Technical
Education and Skills Development
Authority (TESDA) and those
rendered by government
educational institutions;

VAT on Importation of
Goods
In

general VAT is imposed on

goods brought into the Philippines,
whether for use in business or not.
Applicability and payment The
VAT on importation shall be paid by
the importer prior to the release of
such goods from customs custody
Sales, transfer or exchange of
imported goods by tax-exempt
persons.

DOCUMENTARY
STAMP TAX

Revenue Regulations No.

7-2009

Implementing the Electronic

Documentary Stamp Tax
System System to Replace the
Documentary Stamp Tax
Electronic Imprinting Machine

Any

taxpayer belonging to the following

industries is mandated to use the webbased eDST System in the
payment/remittance of its/his/her DST
liabilities and the affixture of the
prescribed documentary stamp on
taxable documents, except those
expressly exempted by the
Commissioner of Internal revenue, on
meritorious grounds
Educational institution, in respect to the
issuance of taxable certificates such as
Diploma, Transcript of Records and
other documents taxable as certificates

DOCUMENTARY STAMPS
Section 188: STAMP TAX ON
CERTIFICATES
Amount :
P15.00
Examples
:
Certificate of
Diploma
Transcript of
Records
Other
Certificates Issues

R.A. No. 9243, An Act Rationalizing the

provision of the Documentary Stamp
Tax of the National Internal Revenue
Code.
New Rate of DST on Original issue of
shares stocks.
The rate of DST on the original issue of
shares of stock was revised from One
Peso and fifty centavos (P1.50) on each
Two Hundred Pesos (P200) to One
pesos (P1.00) on each Two Hundred
Pesos (P200) or fractional part thereof,

In all cases where the issued

shares are with par value, the
basis of the DST shall be the
par value thereof. For shares of
stock without par value, the
basis shall be the actual
consideration for the shares of
stock. However, in the case
where shares of stocks without
par value are issued as stock
dividends, the basis of the DST

New Rate of DST on all debt

instruments

All such debt instruments are

now subject to DST of One
Peso (P1.00) on each two
hundred pesos (P200).
Or
fractional part thereof, of the
issue price of any such debt
instrument, from the previous
varying rates of one peso and
fifty centavos (1.50) on each
two hundred pesos (P200).

DST on Domestic Bills of Exchange

or Drafts

Stamp Tax on all Bills of

Exchange or Drafts on all bills
of exchange (between points
within the Philippines) or grafts,
there shall be collected a
documentary stamp tax of
Thirty centavos (P0.30) on each
Two hundred pesos (P200), or
fractional part thereof, of the

Stamp TAX on Lease and

other Hiring Agreements

Three pesos (P3.00) fees

the first Two thousand pesos
(P2,000) or fractional part
thereof and on additional
One pesos (P1.00) fee every
One thousand pesos P1,000
or fractional part thereof

Thank You
and
May GOD Bless You
in all the days of
your life.