Tax Schemes, Periods,

Methods and Reporting

Presented by:
Sam Cedrick H Calites
 Income Taxation Schemes
 An item of gross income is taxable in any of the three tax
schemes as shown in the figure below these are final
taxation, capital gains taxation and regular income taxation.
The tax schemes are mutually exclusive. It means that if an
income is subjected to one scheme, it will not be taxed by
other schemes. Similarly, exempted income in one scheme is
not taxable by other schemes.
 Income Taxation Schemes

 Final Income Taxation-characterized by final taxes

wherein full taxes are withheld by the income payor
at source. The recipient income taxpayer receives
the net income net of taxes. The payor is the one
required by law to remit the tax to the government.
Consequently, the recipient income taxpayer does
not need to file ITR because the withheld tax
constitutes the full tax due and therefore deemed
final payments. Final Income tax is applicable only
on certain passive income listed by law. Not all
passive income is subjected to final income tax.
 This system of taxation is called final withholding tax
system.
Income Taxation Schemes
 Capital Gain Taxation-used for the computing
the gain on sale, exchange and other
disposition of capital assets. These assets are
not used in the ordinary course of business or
profession. Ordinary assets such as inventory,
supplies or property, plant and equipment are
not Capital Asset.
 Capital Gains taxation applies only to two types of
capital assets: domestic stocks and real property.
Income Taxation Schemes

 Regular Income Taxation- it is the general rule

in income taxation. It covers all other income
not taxed by #1 or # 2 above. Items of gross
income are accumulated over an accounting
period and reported to the government
through an income tax return. It makes use of
the self- assessment method.
THE BASIC INCOME TAX PATTERNS

 Global Income Tax System- it is a combination of

gross compensation and or net income from
business, trade or profession to arrive at the total
income subject to tabular tax rates. It employs the
grouping of similar incomes from all sources and
subjecting them to a single tax rate or progressive
graduated rates.
Examples:
a. Compensation Income;
b. Net Income from business, trade or profession;
c. Passive Income(not subject to final tax); and
d. Capital Gains ( not subjected to capital gains tax)
THE BASIC INCOME TAX PATTERNS

 Gross Income Tax System- the taxpayer’s income

tax is fixed or computed based on the gross
income. The usual allowable deductions are
completely disregarded in computing this income
tax
Examples:
a. Fringe Benefit tax;
b. Passive Income subject to final tax;
c. Capital gains tax on real property (capital asset);
d. Minimum Corporate Income tax
THE BASIC INCOME TAX PATTERNS

 Schedular Income Tax System- income taxes are

either computed based on global or gross income
system. The filing and payment should be
accompanied with separate BIR form as required
per category of income.
Examples:
a. Annual income tax return(for global income tax);
b. Capital Gains Tax returns(for sale of property
classified as capital asset and shares of stock not
traded in the stock market.
SUMMARY OF GROUPS OF INCOME

1. Gross Income Subject to Regular Income

Taxation
2. Gross Income Subject to Final Income
Taxation
3. Gross Income Subject to Capital Gain
Taxation
SUMMARY OF GROUPS OF INCOME
ACCOUNTING PERIODS

 Accounting period refers to the fixed time

period during which all accounting
transactions are recorded for financial
statement. It is the basis of which the taxable
income is computed and the income tax
imposed.
Two kinds of accounting period
1. Regular Accounting Period- 12 months length

 Calendar Year. A period of 12 months beginning

January 1 and ending December 31, of every year
 Fiscal Year. A period of 12 months ending on the
last day of any month other than December.
Two kinds of accounting period
 The taxable income shall be computed upon the
basis of the taxpayer’s annual accounting period
(fiscal or calendar year) in accordance with the
method of accounting regularly employed in
keeping the books of the taxpayer.
 Individuals, estates or trusts and general
professional partnerships are required to compute
their taxable income on the basis of the calendar
year only. While corporations may employ either
calendar year or fiscal year as a basis for filing
annual income tax return.
 **If the latter does not have an accounting period
or does not keep books, it is required to file
returns on the calendar year basis.
Two kinds of accounting period
2. Short Accounting Period- less than 12
months

Instances of short accounting period

1. Newly commenced business- The
accounting period covers the date of start of
business until the year-end of the business.
 Ex. TT started business operation on July
1, 2019 and opted to use calendar year.
TT should file its first income tax return
for July 1- December 31,2019 on or
before April 15,2020.
Instances of short accounting
period
2. Dissolution of business- The accounting period
covers the start of the current year until the date
of dissolution.
 Ex. Star Bucks is on the fiscal year of accounting
period ending every May 31. It ceased operation
on August 15,2019.
 Star Bucks should file its last income tax return
covering April 1 to August 15, 2019 on or before
September 15, 2019.
 **Under the Old NIRC, dissolving corporations
shall file their return within 30 days from the
cessation of activities or 30days from the
approval of merger by the Securities and
Exchange Commission.
Instances of short accounting
period
 Change of accounting period by corporate taxpayers- The
accounting period covers the start of the previous period up to
the designated year- end of the new accounting period.
Example 1:
 Effective February 2019, S Corporation changed its calendar
accounting period to a fiscal year ending every June 30.
 S Corporation shall file an adjustment return covering the
income from January 1 to June 30, 2019 on or before October
15, 2019.
 Example 2:
 Effective August 2019, S Corporation changed its fiscal
accounting period to a calendar ending every June 30.
 S Corporation shall file an adjustment return covering the
income from July 1 to December 31, 2019 on or before April 15,
2020.
 ** BIR approval is required in changing an accounting period. It
is not automatic
Instances of short accounting
period
4. Death of the taxpayer -The accounting period
covers the start of the calendar year until the death
of the taxpayer.
5. Termination of the accounting period of the
taxpayer by the commissioner of Internal Revenue-
The accounting period covers the start of the current
year until the date of the termination of the
accounting period.
Ex. The accounting period of a taxpayer under the
calendar year basis was terminated by the CIR on
August 2, 2019.

The taxpayer must file an income tax return covering

January 1 to August 2, 2019. The income tax return
and tax shall be due and payable immediately.
ACCOUNTING METHODS

Accounting techniques used to measure income

Types of Accounting Methods

1. The general methods
a. Accrual
b. Cash basis
2. Installment and deferred payment method
3. Percentage of Completion Method
4. Outright and Spread Out Method(Leasehold
improvement)
5. Crop Year Basis ( agricultural or farming income)
ACCOUNTING METHODS

General Methods for Income from sale of goods

or service
a. Cash Basis-income is recognized when
received and expense is recognized when paid.
b. Accrual Basis- income is recognized when
earned regardless of when received. Expense is
recognized when incurred regardless of when
paid.
 ACCOUNTING METHODS
Tax and Accounting concepts of accrual and cash basis distinguished

The financial accounting concepts of accrual basis and cash basis are
similar to their tax counter parts except only for the following tax
rules:
1. Advanced income is taxable upon receipt-income received in
advance is taxable upon receipt pursuant to the Lifeblood Doctrine
and the Ability to Pay Theory. This rule is applicable only to sale of
services not on goods.
2. Prepaid expense is non-deductible- these are not deductible
against the gross income in the year paid. They are deducted against
income in the future period they expire or are used in the business,
trade or profession of the taxpayer. This contradicts the Lifeblood
Doctrine.
3. Special Tax accounting must be followed – there are cases where
the tax law itself provides for a specific accounting treatment of an
income tax expense. The specified method must be observed even if
it departs from the basis regularly employed by the taxpayer in
keeping his books.
TAX REPORTING

 The process of reporting taxes in the

Philippines consists of five steps:
 TAX REPORTING
Step 1. A person subject to any internal revenue tax shall register
once with the appropriate revenue office. Any person required filing a
return; statement or document shall be registered and assigned a Tax
Identification Number (TIN). Only one TIN shall be assigned to a
taxpayer. Any person who shall secure more than one TIN shall be
criminally liable.

Registration Period. Every person subject to any internal revenue tax

shall register once with the appropriate Revenue District Officer (RDO)
1. within ten (10) days from date of employment;
2. On or before the commencement of business;
3. Before payment of any tax due;
4. Upon filing of a return, statement or declaration as required in
the tax code.
Annual Registration. The annual registration fee is P500 for every
separate or distinct establishment or place of business. It shall be paid
upon registration and every year thereafter on or before January 31.
Cooperatives, individuals earning purely compensation income and
overseas contract workers are not liable to the registration fee herein
imposed.
TAX REPORTING
Step 2-3. Every person who is required to register with the
BIR shall file a return and pay such taxes for each type of
internal revenue tax for which he is obligated.
Types of Returns
a. Income tax returns- provide details of the taxpayer’s
income, expense, tax due. tax credit and tax still due to the
government.
b. Withholding tax returns-provide reports of income
payments subjected to withholding tax by the taxpayer-
withholding agent
c. Information returns do not involve any payment or
withholding of tax but are essential to the government in its
tax mapping efforts and in its evaluation of tax compliance.
 **Non-filing of income tax returns, withholding tax
returns , or information returns is subject to penalties,
fines and or imprisonment
TAX REPORTING
Step 4-5. Compliance matters. A taxpayer must not
forget to do the steps 1-3 on time; moreover,
completeness and accuracy of records must be
always available as support in case subjected for
audit. Failure to comply means the BIR can enforce
collection of tax dues plus penalties and interest due
to non-compliance.

For further reading:

https://www.bir.gov.ph/index.php/tax-
code.html#title9sections 232-243 NIRC.
MODES OF FILING INCOME TAX
RETURN
1. Electronic filing and payment
system (eFPS)
2. Electronic BIR Forms (eBIRForms)
3. Manual filing
MODES OF FILING INCOME TAX
RETURN
What is the eFPS?
eFPS is a paperless system for filling of ITRs and
paying taxes through the internet. It is developed by
the BIR for quick, convenient and secure way of filling
and paying taxes. It also minimize the government’s
administrative and operational costs in interacting
with taxpayers and collecting taxes.
MODES OF FILING INCOME TAX
RETURN
Who can use the eFPS
This is built mainly for the large taxpayers in the
Philippines. But at present, all taxpayers in the country
who need to file and pay their taxes are allowed to use
the eFPS.

Taxpayers mandated to use eFPS

1. Large taxpayer duly notified by the BIR
2. Top 20,000 private corporations duly notified by the
BIR
3. Top 5,000 individual taxpayers duly notified by the
BIR
4. Taxpayers who wish to enter into contracts with
government offices
MODES OF FILING INCOME TAX
RETURN
5. Corporations with paid-up capital of P10,000,000
6. PEZA-registered entities and those located within Special
Economic Zones.
7. Government offices, in so far as remittance of withheld
VAT and business tax are concerned.
8. Taxpayers included in Taxpayer Account Manager
Program (TAMP)
9. Accredited Importers, including prospective importers
required to secure the Importers Clearance Certificate and
Custom brokers clearance certificate.
 In case of unavailability of the eFPS during maintenance
or instances of technical errors, eFPS enrolled taxpayers
may file manually.
How to Use the eFPS
1. Register for an account. Visit the eFPS site and click the
“Enroll to eFPS” link. Once done, fill out the enrollment
form and click the Submit button. Wait for an email
message from the BIR after three to 10 days regarding the
approval or rejection of your enrollment.
2. Upon activation of your account, you can start filing and
paying your taxes electronically through the eFPS. Log in to
your account, fill out the required fields, and submit your
info.
3. Once the information has been received, you’ll receive a
filing reference number (FRN). The FRN, which can be
found on the top right corner of your ITR, will be issued for
every successful filing transaction.
4. To pay your tax, click the Proceed to Payment button
under the FRN. Enter the required details and payment
mode. Then click “Submit.” You’ll see a confirmation notice
on the screen when the payment has been successfully
completed.
5. Print your ITR through the Tax Return Inquiry facility.
You may get your e-filed ITR certified in your RDO.
What is Electronic BIR Forms?

The eBIRForms is an alternative method that

makes ITR preparation and filing easier, more
convenient, and more accurate. It consists of
two packages that enable taxpayers to fill out
their ITRs offline and submit it to the BIR online:
 Offline package – This downloadable tax
preparation software allows taxpayers to directly
encode data offline and validate, edit, save, print,
and submit ITRs to the online eBIRForms system
Electronic BIR FORMS

 Online package – This system accepts ITRs submitted

online and automatically computes penalties for late
filing of Income tax return.
Who Can Use the eBIRForms?

 Non-eFPS filers may use this method. The

government mandates certain taxpayers
such as accredited tax agents and their
clients to use the eBIRForms.
 How to to File BIR Form 1701
Online Using the eBIRForms?
1. Visit the eBIRForms
2. Download the latest version of the eBIRForm Offline
package on the page.
3. Install the package and open it.
4. Choose the appropriate form (Form 1701A for self-
employed individuals). Enter the required information in the
ITR and validate it.
5. Click the “Final Copy” button to save a copy of the final ITR.
6. Go online and submit your ITR using the OnlineeBIRForm
system. Enter your username and password.
7. On your screen, the FRN will appear confirming receipt of
the ITR.
8. If the submission failed, click the “Final Copy” button to
access the alternative mode for the ITR submission.
9. Check your email for a confirmation message of successful
tax return submission.
What is Manual Filing of ITR?

Manual filing involves filing your

Income Tax Return personally in the
RDO where you’re currently
registered.
Who Can File an ITR Manually?

 Taxpayers, who are exempted from

electronic filing of tax returns such as
senior citizens and persons with
disabilities (PWDs), as well as those who
can’t use the eFPS and eBIRForms due to
technical error or system maintenance,
can file and pay their taxes manually.
How to File an ITR Personally

1. Download, fill out and print three copies of the

accomplished BIR Form No. 1701A(Annual Income
Tax Return for individuals earning income purely from
business/profession).
2. If you’re required to pay taxes, go to the
accredited bank of the RDO where you’re registered.
Present the accomplished BIR form and the required
documents (Check the requirements on the BIR
website).
3. Get your copy of the duly stamped and validated
BIR form. This will be your proof that you’ve filed
your ITR.
RETURNS AND PAYMENT OF
TAXES

Taxpayers are required to use the new BIR forms to

be accepted by Accredited Agent Banks (AABs) where
the forms are to be filed and taxes paid. The form
should bear the correct form number and the latest
revision date.

Click the link below for more information

 https://www.bir.gov.ph/index.php/bir-forms/income-tax-return.html
PAYMENT OF INCOME TAXES

 General rule: Pay as you File .

 Capital Gains Tax and regular income tax
are paid as the taxpayer files his return.
Installment options are allowed on certain
conditions.
 Taxpayers under eFPS system shall e-pay
their tax online through internet banking
service. The account of the taxpayer will
be auto debited for the amount of taxes to
be paid.
BASIC COMPARISON OF FILING
AND PAYMENT SYSTEMS
PENALTIES FOR LATE FILING OR
PAYMENT OF TAX
1. Surcharge-
a. Simple Neglect- 25% of the basic tax for failure to file
and pay deficiency tax on time.
b. Willful Neglect-50% for willful neglect to file and pay
taxes.
Non – filing is a willful if the BIR discovered first. Meaning
the taxpayer received a Notice from the BIR to file
return prior to his actual filing. On the other hand, if the
taxpayer filed before the receipt of such notice , it is only
considered as simple neglect.
2. Interest
Double of the legal interest rate for loans or forbearance of
any money in the absence of any express stipulation
References:

 Income taxation Laws, Principles and

Applications 2019 by Rex B. Banggawan,
CPA, MBA
 BIR website
 www. bir.gov.ph
 https://eaa.edu.ph/e-filers-group-
classification-and-deadlines/