FM-AA-CIA-15 Rev.

0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

1
STUDY GUIDE FOR MODULE NO. ___
2
Chapter 2: TAXATION OF INDIVIDUALS
MODULE LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify the individual income tax payer.
2. Define the individual taxpayers and the related term used.
3. illustrate the different classification of individual taxpayer.
4. State the source of income individual taxpayers.
5. Recognize the categories of income and state the tax rates to be used by each type of individual
taxpayer.
6. List the sources of passive income and state the final tax rates to be used by each type of individual
taxpayer.
7. Discuss the treatment of passive income in the computation of taxable income from compensation of
business/professional income.
8. Define the allowance deductions from gross income.
9. Define and compute taxable income and tax due for each type of individual taxpayer depending on
income category.
10. Explain the taxation of income received by social media influencers.
11. Be familiar with individual taxpayers exempt from income tax.

LEARNING CONTENT 1.1– Definition, Nature and Information of Taxation of Individuals

The Code directs that a tax shall imposed on the taxable income of every individual. Our present tax system
imposed progressive rates of income taxes on citizens and resident aliens. This system equitably distributes
the tax burden by recognizing the paying ability of the individual taxpayer.

Likewise, the global treatment in taxing compensation and business income has been restored from the
previous schedular treatment. In schedular system, the income tax treatment varies depending on kind of
taxable income of the taxpayer. A schedular system of taxation provides for a different tax treatment of
different types of income so that a separate tax return is required to be filed for each types of income and the
tax is computed on a per return or per schedule basis.

Global treatment, on the other hand, is a tax system where the tax treatment views indifferently the tax base
and generally treats is common all categories of taxable income of the taxpayer. A global system taxation is
one where the taxpayer is required to lump up all items of all income earned during a taxable period and pay
under a single set of income tax rules on these different items of income. under this system the taxable
income - which is the aggregate of the gross compensation income and gross business of professional
income less the allowance deductions- is being subjected to a unitary but progressive graduated rates.
Unlike financial accounting, tax law does not distinguish between a person and unincorporated business, If
one person engages in several different business activities, his or her total taxable income is determined by
aggregating income and losses from the various sources. If two or more individuals-professionals from a
general professional partnership, there is no income tax imposed on the entity. Rather, the partners must
include their respective shares of the partnership's income, along with income from any other sources , in
determining their individual taxable incomes.

While all individual are subject to tax on their respective taxable incomes, they are not all taxed at the same
rate of two reasons. First, tax rates are generally higher for higher levels of income. Second, even at the
same level of income and with the same basic personal exemption of P50,000, tax dues will vary depending
on an individual's claim for additional exemption on dependents.

PANGASINAN STATE UNIVERSITY 1

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS

1. Citizen
a. Resident
b. Non-resident
2. Alien
a. Resident
b. Non-resident

1. Engaged in trades of business in the Philippines

2. Not engaged in trade or business in the Philippines
a. Regional or area headquarters (RHQs) and regional operating headquarters
(ROHQs) or multinational entities in the Philippines that are engaged in
international trade with affiliates and subsidiary branch offices in the Asia-Pacific
region
b. Offshore banking units
c. Petroleum contractors and sub-contractors

Citizen
The following shall be considered citizens of the Philippines:
• Those who are citizens of the Philippines at the time of the adoption of the February 2, 1987 Constitution;
• Those whose fathers or mothers are citizens of the Philippines;
• Those born before January 17, 1973, the date of the adoption of the 1973 Constitution of Filipino mothers
who elect Philippine citizenship upon reaching the age of majority; and
• Acquired Philippine citizenship after birth (naturalized) in accordance with Philippine laws.

CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS

Alien Resident
a. Resident
b. Non-resident
1. Resident in trade or business in the Philippines
2. Not engaged in trade or business in the Philippines
3. Employed by
a. Regional or area headquarters (RHQs) and regional operating headquarters (ROHOS) of
multinational entities in the Philippines that are engaged in international trade with affiliates and
subsidiary branch offices in the Asia-Pacific region.
b. Offshore banking units.
c. Petroleum contractors and sub-contractors.

Resident Citizen is a Filipino citizen who permanently resides in the Philippines.

• By the definition of the Constitution of the Philippines, a citizen is someone who is both a citizen and a
resident of the Philippines. Therefore, the individual should be residing in the country or may be citizen of the
Philippines since or sometime after birth.
• If his/her parents are both citizens of the Philippines.
• RCs are taxable for all income derived from sources within and without the Philippines.
Example:

PANGASINAN STATE UNIVERSITY 2

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

Efren, a Filipino “cue” artist went to Canada during the taxable year to train and participate in the world cup of
pool. He stayed there most of the time during the year.

Non-Resident Citizen means:

• A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
• A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
• A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time. During the taxable year. “Most of the time” is
interpreted to mean presence abroad for at least 183 days during the taxable year (BIR Ruling 128-99, Aug.
18, 1999).
• A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non-
resident citizen for the taxable year in which he arrives, in the Philippines with respect to his income derived
from sources abroad until the date of his arrival in the Philippines.
• The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to
reside permanently abroad or to return to and reside in the Philippines, as the case may be.
• NRCs are taxable only for income derived from sources within the Philippines.
Example:
Overseas Contract Workers (OCWs) or commonly referred to as Overseas Filipino Workers
(OFWs) are classified as nonresident citizens for tax purposes as they are employed in foreign
countries and are physically present in that foreign country because of such employment. This also covers
seafarers or seaman, Filipino citizens, who receive compensation for services rendered abroad as a member
of the complement of a vessel engaged exclusively for international trade.
If a non-resident citizen arrives in the Philippines at any time during the taxable year to reside
permanently in the Philippines, that NRC is considered a nonresident citizen with respect to income earned
from sources abroad until the date of his arrival in the Philippines.

SOURCES OF INCOME

Source of income is not a place but the property, activity or service that produced the income. In the case of
income derived from fabor, it is the place where the labor is performed; in the case of income derived from the
use of capital, it is the place where the capital is employed; and in the case of profits from the sale or
exchange of capital assets, it is the place where the sale or transaction occurs.

It is important to know the source of income of an individual taxpayer-whether from within the Philippines or
without-because not all individual taxpayers are taxed on all their income. The following rules apply:

1. Resident citizens are taxable on all income derived from sources within and without.

2. Non-resident citizens and alien individuals-resident and non-resident-are taxable only on income derived
from sources within the Philippines. An overseas contract worker is taxable only on his income from sources
within.

Individual Source of Income

PANGASINAN STATE UNIVERSITY 3

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

Within the Pills. Without the pills.

1. Resident Citizen ✔ ✔
2. Non-Resident Citizen ✔
3. Resident Alien ✔
4. Non-Resident Alien ✔

NON-RESIDENT ALIEN
- An individual who’s residence is not within the Philippines and who is not a citizen thereof;

• Non-Resident Alien Engaged in Trade and Business( NRAETB) refers to a non resident alien who
shall come to the Philippines and stay for an aggregate period of more than one hundred eighty (180)
days during any calendar
- Non-Resident Alien engaged in Trade or Business within the Philippines. In general, the Income tax
rates applicable to this taxpayer shall be the rates imposed on individual citizen and a resident alien
individual on the taxable income derived within the Philippines.

• Non-Resident Alien Not Engaged in Trade and Business (NRANETB) refers to a nonresident alien
who shall come to the Philippines and stay for anaggregate period of one hundred eighty (180) days
or less during any calendar year.

- Non-Resident Alien NOT engaged in Trade or Business within the Philippines. Upon the entire
income received from all sources within the Philippines by this taxpayer such as interest, cash and/or
property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration,
emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income,
and capital gains-income tax rate is at 25%;

•Before TRAIN, all income received by a non-resident alien employed by: a. Regional or area headquarters
(RHQs) and regional operating headquarters (ROHQs) of
Multinational companies in the Philippines, which are engaged in international trade with affiliates and
subsidiary branch offices in the Asia-Pacific region and other foreign markets,

Passive Income
Passive income is subject to a separate and final tax. Examples of passive income are interests, royalties,
prizes, winnings and dividends. A table showing the passive income and the corresponding tax rates is
provided later.
Illustration: Helena Dela Cruz, single and a resident citizen, has the following passive income for the year
2018:

Interest from BPI Savings Deposit P75,000

Royalty from Invention80, 000
Prize in a Painting Competition 50, 000
Dividends Received from a Domestic Corporation 30, 000

Computation of Final Tax

Interest (P75,000 x 20%) P15, 000

Royalty (P80,000 x 20%) 16, 000
Prize (P50,000 x 206) 10, 000
Dividends (P30,000 x 106) 3, 000
Total P44, 000

For this illustration, it is assumed that the passive income are all gross of final taxes (FT) or final withholding
taxes (FWT). Final tax imposed on income or gain shall no longer be included as taxable income subject to
the graduated rates. The final tax is imposed without any deduction and is withheld at source. The amount
received by passive income earner is net of the final tax. The final tax on passive income is remitted by the
payor who serves as the withholding agent’ to the BIR. For example, if the prize in a painting competition is
P50,000, the amount to be received by the winner will only be P40,000.

PANGASINAN STATE UNIVERSITY 4

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

PASSIVE INCOME
Passive income is subject to a separate and final tax at fixed rates ranging from 5% to 25% (for NRA-NETB).
They are not included in the computation of taxable income from compensation or business/professional
income, the tax due on which is computed in accordance with the graduated income tax schedule for
Individuals in Section 24(A).

 Resident Citizen  Non-Resident Alien

ON PASSIVE INCOME  Non-resident Citizen Engaged in Trade or
 Resident Alien Business in the Philippines
(NRA-ETB)

Interests

Interest from any currency bank

deposit and yield or any other
monetary benefit from deposit
substitutes and from trust funds
and similar arrangements. 20% 20%

Interest income from a 15% (TRAIN) Exempt

depository bank under the Non-resident citizen
Expanded Foreign Is tax exempt.
Currency Deposit System
(FCDS).

Interest income from long-term

deposit or investment in the
form ofsavings, common or
individual trust funds, deposit
substitute, investment
management accounts (IMA)
and other investments
evidenced by certificates in
such form prescribed by the Exempt Exempt
BSP with five-year term or
longer.
if deposit is pre-terminated
before the fifth year, the
corresponding final tax shall be:
4 years to less than 5 years 5% 5%
3 years to less than 4 years 12% 12%
Less than 3 years 20% 20%

Royalties

Royalties, in general 20% 20%

Royalties on books, literary

works and musical composition 10% 10%

CATEGORIES OF INCOME AND TAX RATES

1. Compensation income. Individuals earning purely compensation income shall be taxed based
on the graduated income tax rates (from 20% to 35% effective January 1,2018 t0 December

PANGASINAN STATE UNIVERSITY 5

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

31,2022;from 15% to 35%effective Jan. 1, 2023 onwards) prescribed under Sec.24(A) of the Tax
Code.

Total Compensation Income Pxxx

Less: Mandatory contributions/non-taxable benefits xx
Net taxable income Pxxx

2. Business income arises from self- employment or practice of profession.This shall not include
income from performance of service by the taxpayer as an employee.
Individuals earning income purely from self- employment and/or practice of profession whose gross
sales/receipts and other non- operating income (GSRONOI) do not exceed the P3.0M VAT threshold, shall
have the option to avail of.

a. The graduated rates under Section 24(A) of the Tax Code as amended; or,
b. 8% tax of GSRONOI In excess of 250,000* in lieu of the graduated income tax rates under Section
24(A) and the percentage tax under section 116 all under the Tax Code, as amended.

Gross Sales/Receipts Pxxx

Less: Cost of Sales xx
Gross Income Pxxx
Less: Operating expenses xx
Taxable Income (if graduated rates) P xx

 The 250,000 mentioned is not applicable to mixed income earners since it is already
incorporated in the first tier of the graduated income tax rates applicable to compensation
income.

3. Mixed income Earners. There are individual who earn income both from compensation and from
self- employment(business or practice of profession).They shall be subject to the following taxes:

a. On compensation income at graduated rates ;plus

b. On income from business or practice of profession shall be subject to the following:

b.1. If GSRONOI do not exceed the VAT threshold-

 Either at graduated rates or
 8% of GSRONOI in lieu of graduated rates and percentage tax, at the option of the taxpayer.
b.2. If GSRONOI exceed the VAT threshold –at graduated rates.

Allowable Deductions

Section 34 of the NIRC states that in computing taxable income subject to income tax under Sections 24 (A);
25 (A); 26; 27 (A), (B), and (C); and 28 (A) (1), there shall be allowed as deduction from gross income, among
others, all the ordinary and necessary expenses paid or 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. The expenses enumerated from Section 34 (A) to (1) constitute the
itemized deductions. These may be claimed as deductions provided that they are directly and exclusively
related to the production or realization of the income and can be substantiated with sufficient evidence, such
as BIR- registered receipts and invoices.

In the case of YouTubers for instance, the common business expenses that may be deducted from their gross
income include, but not limited to, the following:
1. filming expenses ( cameras, smartphones, microphone and other filming equipment );
2. computer equipment;
3. subscription and software licensing fees;

PANGASINAN STATE UNIVERSITY 6

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

4. internet and communication expenses;

5. home office expenses ( ex. Proportionate rent and utilities expenses );
6. office supplies
7. business expenses (e.g. travel or transportation expenses related YouTube business, payment to an
independent contractor or company for video editing, costume designer, advertising and marketing costs
( cost of contests and giveaway prizes, etc.);
8. depreciation expense; and
9. bank charges and shipping fees.

In lieu of the itemized deductions, the taxpayer may elect Optional Standard Deduction (OSD) or a standard
deduction not exceeding 40% of gross sales/ receipts in the case of individual taxpayers, or 40% of its gross
income in the case of corporations. No substantiation is required for the OSD. To be entitled to OSD,
however, the taxpayer must signify in the return the intention to elect OSD; otherwise, he/she/it shall be
considered as having availed of the itemized deductions.

Income from YouTube

Early this year, Google LLC, the owner of YouTube, informed the public that any payments from YouTube
through any other agreement between the content creator and YouTube (e.g. through the YouTube Partner
Program) will be treated as royalties starting June 1, 2021 and that Chapter 3 of the United States (US)
Internal Revenue Code requires Google to collect tax information, withhold taxes, and report to the US tax
authority when a creator on YouTube earns royalty revenue from viewers in the US. Creators outside the US
were thus advised to submit tax information to Google LLC.

For the purpose of fixing the withholding tax rate to be applied on all income payments from YouTube, social
media influencers residing in the Philippines are hereby advised to submit their tax informationto Google to be
eligible to claim treaty benefits under the tax treaty between the Philippines and the US.

Avoidance of Double Taxation

In order to avoid the risks of double taxation, a social media influencer receiving income from a nonresident
person residing in a country with which the Philippines has a tax treaty must inform the latter that he/she it is a
resident of the Philippines, and is, therefore, entitled to claim treaty benefits provided under the relevant tax
treaty.

Where the nonresident requires the presentation of prrof of residency, the influencer must obtain a Tax
Residency Certificate (TRC) from the International Tax Affairs Division (ITAD) of the BIR and submit the same
to the former. The influencer shall exert all efforts to obtain treaty benefits in the state of source.

If the influencer did not avail of the treaty benefits and was, in fact, subjected to regular tax in the state of
source, he/she/ it shall not be allowed to claim foreign tax credits in excess to the appropriate amount of tax
that is supposed to be paid in the source state had the income recipient invoked the provision/s of the treaty
and proved his/her/its residency in the Philippines. A more detailed discussion on this can be found in Section
5 of Revenue Memorandum Order 43-2020.

If, on the other hand, the influencer is denied treaty benefits despite being able to prove entitlement there to,
he/she/it must file an application for Mutual Agreement Procedure (MAP) with ITAD following the guidelines
and procedures set out in the pertinent revenue issuance for MAP assistance.

Benefits of obtaining a TRC

A TRC is an official document issued by the BIR, through the ITAD, that certifies the tax residency of a certain
taxpayer in the Philippines pursuant to the residency provision of the relevant tax treaty. This document is
presented to the foreign country to prove that the tax payer named therein is a resident of the Philippines and
may,therefore claim to the benefits provided under the tax treaty. To date, the Philippines has 43 valid and
effective tax treaties.

TAXABLE INCOME AND TAX DUE?

Taxable Income refers to the pertinent items of gross income specified in the Code, less deductions, if
any, authorized for such types of income by the Code or other special laws.

PANGASINAN STATE UNIVERSITY 7

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

INDIVIDUAL CITIZEN AND INDIVIDUAL RESIDENT ALIEN OF THE PHILIPPINES." In general, the income
tax on the individual's taxable income shall be computed based on the following schedules as provided under
Sec. 24(A) of the Tax Code, as amended:
(A) Income Tax Rates
Effective Jan. 1, 2018 until Dec. 31,2022:
RANGE OF TAXABLE INCOME TAX DUE =a + (b x c)
OVER NOT OVER BASIC ADDITIONAL OF EXCESS
AMOUNT (a) RATE (b) OVER (c)
- 250,000.00 - -
250,000.00 400,000.00 - 20% 250,000.00
400,000.00 800,000.00 30,000.00 25% 400,000.00
800,000.00 2,000,000.00 130,000.00 30% 800,000.00
2,000,000.00 8,000,000.00 490,000.00 32% 2,000,000.00
8,000,000.00 2,410,000.00 35% 8,000,000.00

Effective Jan. 1, 2023 and onwards:

RANGE OF TAXABLE INCOME TAX DUE =a + (b x c)
OVER NOT OVER BASIC ADDITIONAL OF EXCESS
AMOUNT (a) RATE (b) OVER (c)
- 250,000.00 - -
250,000.00 400,000.00 - 15% 250,000.00
400,000.00 800,000.00 22,500.00 20% 400,000.00
800,000.00 2,000,000.00 102,500.00 25% 800,000.00
2,000,000.00 8,000,000.00 402,500.00 30% 2,000,000.00
8,000,000.00 2,202,500.00 35% 8,000,000.00

(B) Individuals Earning Purely Compensation Income. Individuals earning purely compensation
income shall be taxed based on the income tax rates prescribed under subsection (A) hereof.

Taxable income for compensation earners is the gross compensation income less nontaxable
income/benefits such as but not limited to the Thirteenth (13th) month pay and other benefits (subject
to limitations, see Section 6(G) (e) of these Regulations), de minimis benefits, and employee's share
in the SSS, GSIS, PHIC, Pag-IBIG contributions and union dues.

Total Compensation Income Pxxx

Less: Mandatory Contributions/Non-taxable benefits xx
Net Taxable income Pxxx

Husband and wife shall compute their individual income tax separately based on their respective
taxable income; if any income cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be divided equally between the spouses
for the purpose of determining their respective taxable income.

Minimum wage earners shall be exempt from the payment of income tax based on their statutory
minimum wage rates. The holiday pay, overtime pay, night shift differential pay and hazard pay
received by such earner are likewise exempt.

(C) Self-Employed Individuals Earning Income Purely from Self-Employment or Practice of Profession.
Individuals earning income purely from self-employment and/or practice of profession whose gross
sales/receipts and other non-operating income (GSRONOI) do not exceed the P3.0M VAT threshold, shall
have the option to avail of:
1. the graduated rates under Section 24(A) of the Tax Code, as amended; or
2. 8% tax of GSRONOI in excess of P250,000* in lieu of the graduated income tax rates under Section
24(A) and the percentage tax under Section 116 all under the Tax Code, as amended.

Gross Sales/Receipts Pxxx

Less: Cost of Sales xx

PANGASINAN STATE UNIVERSITY 8

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

Gross Income Pxxx

Less: Operating Expenses xx
Taxable Income (if graduated rates, option 1) P xx

The P250,000 mentioned is not applicable to mixed income earners since it is already incorporated in
the first tier of the graduated income tax rates applicable to compensation income.
Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st Quarter
Percentage and/or Income Tax Return, or on the initial quarter return of the taxable year after the
commencement of a new business/practice of profession, the taxpayer shall be considered as having
availed of the graduated rates under Section 24(A) of the Tax Code, as amended. Such election shall
be irrevocable and no amendment of option shall be made for the said taxable year.

The option to be taxed at 8% income tax rate is not available to the following:

1. A VAT-registered taxpayer, regardless of the amount of gross sales/receipts.

2. A taxpayer who is subject to Other Percentage Taxes under Title V of the Tax Code, as amended,
except those subject under Section 116 of the same Title.
3. Partners of a General Professional Partnership (GPP) by virtue of their distributive share from
GPP which is already net of cost and expenses.

A taxpayer who signifies the intention to avail of the 8% income tax rate option, and is conclusively
qualified for said option at the end of the taxable year [annual gross sales/receipts and other non-
operating income did not exceed the VAT threshold (P3,000,000)] shall compute the final annual
income tax due based on the actual annual gross sales/receipts and other non-operating income. The
said income tax due shall be in lieu of the graduated rates of income tax and the percentage tax
under Sec. 116 of the Tax Code, as amended. The Financial Statements (FS) is not required to be
attached in filing the final income tax return. However, existing rules and regulations on bookkeeping
and invoicing/receipting shall still apply.

Taxable income for individuals earning income from self-employment/practice of profession shall be
the net income, if taxpayer opted to be taxed at graduated rates or has failed to signify the chosen
option. However, if the option availed of is the 8% income tax rate, the taxable base is the gross
sales/receipts and other non-operating income.

TAXATION OF INCOME RECEIVED BY SOCIAL MEDIA INFLUENCERS

Definition of social Media influencers
The term “ social media influencers”, referred to in the Revenue Memorandum Circular 97-2021 includes all
taxpayers, individuals or corporations, receiving income, in cash or in kind, from any social media sites and
platforms (YouTube, Facebook, Instagram, Twitter, Tiktok, Reddit, Snapchat, etc.) in exchange for services
performed as bloggers, video bloggers or as an influencer, in general, and from any other activities performed
on such social media sites and platforms.

Liability for Income Tax and Percentage or Value-Added Tax

Unless exempted pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, as
amended, and other existing laws, social media influencers shall be liable to income tax and percentage or
value-added tax, as shown below:

INCOME TAX
Social media influencer other than corporations and partnerships are classified for tax purposes as self-
employed individuals or person engaged in trade or business as sole proprietors, therefore , their income is
generally considered business income.

BUSINESS TAX
Besides Income tax, social media influencers are also liable for business tax, which may either be percentage
or VAT. Self-employed individuals whose gross sales or gross receipts and other non-operating income do not
exceed the VAT threshold of P3,000,000 shall have the option to avail of the 8% tax on gross sales or gross
receipts and other non-operating income in excess of P250,000 in lieu of the graduated income tax rates
under Section 24(A)(2)(a) and percentage tax under Section 116 of the NIRC.
Mixed income earners or those who are earning both compensation income and income from business and/or

PANGASINAN STATE UNIVERSITY 9

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

profession shall be taxable under Section 24(A)(2)(a) for all income earned from compensation and income
earned from business or practice of profession may be taxed at the same graduated rates or 8% income tax
based on gross sales or gross receipts provided that the total gross sales and/or gross receipts and other
non-operating income do not exceed the VAT threshold as discussed in the preceding paragraph. However, if
the total gross sales and/or gross receipts and other non-operating income exceed the VAT threshold, the
graduated rates under Section 24(A)(2)(a) shall apply and they shall likewise be liable for VAT.

LEARNING ACTIVITY: Answer the following

Analytical Skills: Answer the following questions

1.A british computer expert was hired by a Philippine cooperation system installation for which had to stay in
the Philippines for 6 months. Is he a resident alien?

2.A British cultural performer was engaged to perform in the Philippines for two weeks after which he returned
to his country.Is he a resident alien?

3.An alien owns shares of stock in the Philippines.Is he considered as engaged in business or trade in the
Philippines ?

4.An alien temporarily serves as executive of an airline in manila. is he considered engage in trade or
business in the Philippines ?

5.A resident alien left the Philippines and abandoned his residency thereof without any intention of
returning.May he still considered as resident alien?

6.A resident alien left the Philippines with re-entry permit.is he still a resident alien?

7.A non-resident citizen went to manila under the Balikbayan Programs.Does his return to manila interrupt his
residence abroad?

SUMMARY OF INCOME TAX RATES ON INDIVIDUAL CITIZEN AND RESIDENT ALIEN

DECLARATION OF INCOME TAX FOR INDIVIDUALS

Self-employed individuals are required to file a declaration of their estimated income for the current taxable
year on or before April 15 of the same taxable year. This estimated tax shall be paid in four installments as
follows:
INSTALMENT DATE
First Apr 15
Second Aug 15
Third Nov 15
Fourth Apr 15

The final adjusted income tax return is supposed to be filed and paid in time for the fourth installment on or
before April 15 of the following calendar year. In the quarterly and final returns, gross income and deductions
shall be computed on a cumulative basis. Personal exemptions shall be allowed in the final return only.

Estimated tax means the amount which the individual declared as income tax in his final adjusted and annual
income tax return for the preceding taxable year minus the credits allowed. If, during the taxable year, the
taxpayer reasonably expects to pay a bigger income tax, he shall file an amended declaration during any
interval of installment payment dates. The return shall be filed with and the income tax shall be paid in the
accredited bank in the city or municipality where the principal place of business is located.
Non-resident Filipino citizens, with respect to income from without the Philippines, and non-resident aliens
not engaged in trade or business in the Philippines, are not required to render a declaration of estimated
income tax.

PANGASINAN STATE UNIVERSITY 10

 FM-AA-CIA-15 Rev. 0 10-July-2020

Study Guide in TAXATION (BAC 103) Module No.1

INDIVIDUALS EXEMPT FROM INCOME TAX

a. Non-resident citizen who is:

1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to reside therein.
2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either
as an immigrant or for employment on a permanent basis.
3. A citizen of the Philippines who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the taxable year.
4. A citizen who has been previously considered as a non-resident citizen and who arrives in the
Philippines at any time during the year to reside permanently in the Philippines will likewise be treated
as a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to
his income derived from sources abroad until the date of his arrival in the Philippines.

b. Overseas Contract Worker, Including Overseas Seaman

c. Barangay Micro Business Enterprises (R.A 9178 or BMBE Law)
d. Expanded Senior Citizen Act of 2010
e. Personal Equity and Retirement Account of 2008 (R.A 9505)

REFERENCES

Book/s:

Ballada, Ballada Income Taxation Made Easy, 2022 Issue. ( 19th Edition ) DomDane Publishers (ISBN 978-
971-0165-20-9)

E Sources :

https://youtu.be/3tpbSuLkJSw

PANGASINAN STATE UNIVERSITY 11