Question & AnswerQ&A (Act No. 2833)
The normal income tax rate imposed on individuals, whether citizens or residents of the Philippine Islands, is two percent (2%) on their entire net income received in the preceding calendar year from all sources.
An additional tax is levied progressively from one percent (1%) up to thirteen percent (13%) depending on the amount by which the net income exceeds the thresholds starting from above twenty thousand pesos.
Income includes gains, profits, and income derived from salaries, wages, professions, vocations, businesses, trade, property interests, dividends, securities, or any source whatever, subject to exemptions and deductions allowed by the law.
Yes, income received by estates during administration or settlement and income held in trust for unborn or contingent beneficiaries are subject to normal and additional income tax, and the fiduciaries are liable for the tax unless the beneficiary returns the income.
Exempt incomes include proceeds of life insurance policies upon death, return of insurance premiums, value of property acquired by gift or inheritance, and interest on obligations of the United States and Philippine governments within certain limits.
Deductions include necessary business expenses, interest on indebtedness (except for exempt securities), taxes paid, losses sustained and not compensated by insurance, worthless debts charged off, depreciation, and certain contributions to charitable corporations.
Individuals must file a true and accurate return under oath on or before March 1 each year, reporting income of six thousand pesos or over, to the Collector of Internal Revenue or provincial treasurer.
Failure to file results in a 50% additional tax, unless due to reasonable cause; willful false or fraudulent returns result in a 100% additional tax. Additional penalties include fines ranging from 40 to 2000 pesos and possible imprisonment for fraudulent returns.
Corporations are taxed 2% on their total net income from all sources, computed by deducting from gross income all ordinary and necessary business expenses, losses, depreciation, interest (with conditions), and taxes paid during the year.
Exempt incomes for corporations include those of labor, agricultural or horticultural organizations, mutual savings banks without capital stock, fraternal beneficiary societies, cemetery companies, religious, charitable or educational corporations, business leagues not organized for profit, among others.
The Collector must assess all income taxes and notify taxpayers of tax liabilities by June 1 each year; can make assessments within three years after returns are due in cases of erroneous, false, or fraudulent returns.
Persons or entities making certain payments (interest, rents, salaries, dividends, etc.) to nonresident aliens must withhold and remit the normal tax to the government, becoming personally liable for the tax withheld.
A personal exemption of six thousand pesos is allowed, with additional exemptions of two thousand pesos if the taxpayer is head of family or married with a spouse living with them, and four hundred pesos for each legitimate or adopted child under 18 or mentally/physically defective.
No, the law explicitly excludes income of foreign governments from taxation, including income from investments and interest on deposits in the Philippines.
Officers or employees of the Bureau of Internal Revenue who unlawfully disclose taxpayer information face fines up to two thousand pesos, imprisonment of six months to five years, or both.