Question & AnswerQ&A (Republic Act No. 5325)
Section 21 imposes tax on the taxable net income received during each taxable year from all sources by every individual, including citizens residing in the Philippines or abroad and aliens residing in the Philippines, according to a graduated tax schedule.
The tax rate for citizens or residents is structured on a graduated scale starting at 3% for income not over P2,000 and increasing incrementally to 70% for income over P500,000.
A non-resident alien who stays in the Philippines for an aggregate period of more than 180 days during any calendar year is deemed engaged in trade or business within the Philippines.
They are subject to a tax of 25% on income from sources within the Philippines such as interest, dividends, rents, salaries, and other fixed or determinable gains. If income exceeds P43,060, the graduated rates under Section 21 apply, but the tax cannot be less than 25%.
A personal exemption of P3,000 is allowed to a married person or head of family. Only one exemption can be claimed from the aggregate income of both husband and wife if not legally separated.
An unmarried man living with and supporting one or both parents, siblings, or legitimate/recognized natural/adopted children who are under 23 years old, unmarried, not gainfully employed, or incapable of self-support due to mental or physical defects.
Expenses incurred and paid in the Philippines during the taxable year for medical care of the taxpayer, spouse, or dependents are deductible up to P500 each, excluding amounts paid for medicines, not compensated by insurance.
The total deduction for medical care expenses shall not exceed P500 for the taxpayer, plus P500 for each spouse and dependent, with an aggregate limit of P2,000.
Expenses for basic tuition fees of dependents studying in high school are deductible, defined as amounts paid for instruction privilege but excluding other fees such as library or laboratory fees, with a limit of P250 per dependent and an aggregate of P1,000.
Taxpayers must provide receipts or statements showing payment details, including name and address of payee, nature of service, amount and date of payment, and for tuition fees, the dependent's name and date of birth.
Only necessary expenses paid or incurred in carrying on any business or trade conducted exclusively within the Philippines are deductible.
The provisions apply only to income for taxable years beginning January 1, 1968.