Question & AnswerQ&A (BATAS PAMBANSA BLG. 135)
The tax rate imposed on taxable compensation income not exceeding P2,500 is 0% (no tax).
Royalties, prizes (except prizes amounting to Three thousand pesos or less), and other winnings received by citizens and resident alien individuals are subject to a final tax of 15% on the total amount.
Personal exemptions allowed include P3,000 for single individuals or legally separated married persons, P6,000 for married persons, and P4,500 for heads of family. Additional exemptions of P2,000 are allowed for each dependent child up to a maximum of four dependents, with some provisions for prior dependents.
Every Filipino citizen (whether residing in the Philippines or abroad) and every alien residing in the Philippines with a gross income of at least P3,000 are required to file an income tax return. Additionally, every non-resident alien engaged in trade or business in the Philippines must file a return regardless of income amount.
A non-resident alien who stays in the Philippines for an aggregate period of more than 180 days during any calendar year is deemed to be engaged in trade or business within the Philippines.
A fine of not more than P2,000 or imprisonment for not more than six months, or both. However, individuals with compensation income subject to final withholding tax are exempted from penalties for failure to pay tax or file a return on such compensation income.
Dividends received by individuals who are citizens or resident aliens from domestic corporations are subject to a final tax at the rate of 15% on the total amount.
Taxable compensation income is the gross compensation income, which includes all income payments from employer-employee relationships, less the personal and additional exemptions allowed under Section 23.
Gross income includes gains, profits, and income derived from professions, trades, business, rents, dividends, securities, and other income of whatever kind from any source, excluding gross compensation income and items subject to final tax under the Code.
Allowable deductions include ordinary and necessary business expenses, interest paid on indebtedness related to trade or business, taxes paid (except certain taxes), losses sustained, bad debts, depreciation, depletion of oil and gas wells or mines, charitable contributions subject to limits, and other specific items as detailed in the section.
Banks must withhold a final tax of 15% on interest from savings deposits and 20% on time deposits, unless the aggregate interest does not exceed P1,000 per year or P250 per quarter, in which case no withholding is required.
Only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses. If impracticable, separate returns may be filed but must be consolidated for tax purposes.
Taxpayers who pay income, war-profits, and excess-profits taxes to foreign countries may credit such taxes against Philippine income tax, subject to certain limitations and conditions, while non-resident aliens and foreign corporations are not allowed this credit.
A non-resident alien not engaged in trade or business in the Philippines is taxed at a flat rate of 30% on all income received from sources within the Philippines including interest, dividends, rents, and capital gains (except certain listed shares).
A fine of not less than P5,000 and imprisonment of not less than two years is imposed on individuals or officers who make false or fraudulent tax returns with intent to evade tax.