Law Summary
Regulatory Provisions of the Bureau
- Regulations to specify canvassing provincial treasurers for taxable persons and objects.
- Prescribing labeling, branding, and marking of goods subject to specific tax.
- Setting rules for goods for export and bonded warehouses.
- Supervision of record-keeping for prohibited drugs and conditions of their transfer.
- Conditions for import, storage, removal and denaturation of alcohol.
- Rules on revenue stamps, licensing, income tax returns, and tax payments via collection agents or commercial banks.
Internal Revenue Districts and Regional Directors
- Division of the Philippines into revenue districts supervised by Revenue District Officers.
- Creation of Regional Director position to implement laws, enforce tax collection, coordinate with agencies and local governments, and supervise officers.
Duties and Assignment of Internal Revenue Officers
- Ensuring compliance with internal revenue laws and preventing fraud.
- Reporting incompetence or negligence among officers.
- Assignment of officers to regional offices and establishments where taxable goods are produced or kept.
- Authority for officers to administer oaths and take testimony during investigations.
Individual Income Tax Rates
- Graduated tax rates imposed on taxable net income for individuals, either citizens or residents, with rates ranging from 3% to 70% based on income brackets.
- Specific gross income tax rates on nonresident citizens from foreign sources.
Taxation on Nonresident Alien Individuals
- Nonresident aliens engaged in trade or business taxed on net income at rates applicable to residents.
- Nonresident aliens not engaged in business taxed at 30% on income from Philippine sources such as interest, dividends, salaries, and capital gains.
Personal Exemptions for Individuals
- Single individuals allowed P1,800 personal exemption.
- Married persons or heads of family allowed P3,000 with limitation of one exemption per married couple.
- Additional exemption of P1,000 per dependent child, up to four dependents.
- Change of status provisions allowing full exemptions if marital or dependent status changes within taxable year.
- Nonresident aliens entitled to personal exemptions comparable to those allowed to Filipino citizens in their home country but capped to Philippine rates.
Corporate Income Tax Rates
- Domestic corporations taxed at 25% for income up to P100,000 and 35% for excess.
- Private educational institutions taxed at 10%.
- Building and loan associations taxed at 12%.
- Foreign corporations not engaged in trade/business taxed 35% on gross Philippine-sourced income.
- Foreign life insurance companies taxed on net investment income allocated to Philippine sources.
Gross Income Definition and Exclusions
- Income from all sources including compensation, business, professions, dividends, rents, interest, and capital gains.
- Exclusions include life insurance proceeds, return of premiums, gifts and inheritances, Philippine government securities interest, injury compensation, treaty-required exemptions, and certain foreign government investments.
- Dividends received by domestic/resident corporations partially excluded in taxable income.
Allowable Deductions from Gross Income
- Ordinary and necessary business expenses, including reasonable salaries, travel, and entertainment (up to set limits).
- Medical expenses and tuition fees for dependents are deductible within specified limits and requirements for proof.
- Interest paid on indebtedness, subject to limitations for nonresident aliens and foreign corporations.
- Deductions for various taxes paid, limited in scope and with credits possible for foreign taxes.
- Losses and bad debts deductible under prescribed conditions.
- Depreciation and depletion allowances limited by capital invested and property location.
- Charitable contributions deductible up to percentage limits of taxable net income, with certain donations fully deductible.
- Pension trust contributions may be amortized over a ten-year period.
- Optional standard deduction available to individuals other than nonresident aliens.
Filing of Tax Returns
- Individuals with gross income above P1,800 required to file annual returns.
- Special categories required to file returns regardless of income: government officials, professionals, property owners, travelers abroad, candidates, and businesspersons.
- Married couples may file consolidated or separate returns.
- Executors file for minors’ income derived from parental property unless gift tax paid.
- Corporate returns filed annually, fiscal year designation allowed.
- Returns filed locally or with Commissioner if no Philippine residence or place of business.
Payment and Assessment of Income Tax
- Taxes due upon filing of returns; installment payments allowed over two installments for taxes over P1,000.
- Commissioner may assess additional taxes (deficiencies) after examining returns.
- Interest at 14% per annum assessed on unpaid taxes and deficiencies with caps.
- Penalties and surcharges for late payment and willful neglect or fraud.
Withholding Taxes at Source
- Requirements to withhold taxes on interest and other income paid to nonresident aliens at varying rates.
- Employers must withhold income tax on wages using prescribed tables.
- Rules on exemption certificates and employer responsibilities.
- Penalties imposed for failure to withhold or remit taxes and for fraudulent information.
Estate Tax Rates and Deductions
- Graduated estate tax rates ranging from 3% to 60% based on net estate value.
- Net estate determined by deducting funeral expenses, judicial expenses, claims, unpaid mortgages, and taxes previously paid on transferred property within 5 years.
- Deductions allowed for transfers to government and public purposes.
- Special provisions for nonresident estates.
- Valuation of usufructs and real property based on specific actuarial and market value schedules.
- Executors and heirs responsible for filing notices and returns within specified timelines and paying estate taxes.
- Extensions permitted on payment for hardship but no extension allowed for fraud or negligence.
- Penalties imposed for evasion, false returns, and failure to remit taxes; restrictions on property transfer before tax payment.
Donor's Tax Rates and Exemptions
- Graduated donor's tax rates scaling up with net gifts.
- Certain gifts exempt including dowries, gifts to the government or charitable/religious institutions under conditions.
- Filing and payment of donor's tax returns mandated with provisions for extensions, interest, deficiencies, and penalties.
Specific Taxes on Goods and Occupations
- Specific taxes imposed on distilled spirits, wines, fermented liquors, tobacco products, fireworks, cinematographic films, and others with prescribed rates.
- Requirements for labeling, records, counting devices, and bonding for manufacturers and importers.
- Fixed and percentage taxes on businesses and occupations based on type and volume of operations.
- Taxes on banks, finance companies, insurance companies, and franchises with periodic payment and penalties for delinquency.
- Amusement taxes imposed on admission fees with certain exemptions for cultural events.
Documentary Stamp Taxes
- Taxes imposed on foreign bills of exchange, life insurance policies, warehouse and hotel receipts, and jai-alai or race tickets with specific rates.
Mining Taxes
- Annual occupation fee per hectare paid by mining claim holders, with surcharge for delinquency.
- Portion of fees allocated to local government units.
- Nonpayment leads to claims becoming open to relocation or lease.
Administrative and Enforcement Provisions
- Restrictions on court suits for recovery of taxes unless claims for refund are filed within two years.
- Civil and criminal actions for tax collection conducted in the name of the government.
- Commissioner authorized to compromise tax cases, abate excessive taxes, and refund erroneously collected amounts.
- Tax liens created upon assessment with filing requirements to affect third parties.
- Remedies for collection include distraint, levy, and court actions.
- Procedures for forfeiture of property for tax nonpayment and redemption rights.
- Extended periods for assessment and collection in cases of fraud or failure to file returns.
- Suspension of the statute of limitations in certain circumstances.
- Mandatory preservation of books of accounts for five years with provisions for audit and inspection.
- Assignment of taxpayer account numbers for identification purposes.
- Penalties for unlawful divulgence of taxpayer secrets including fines and imprisonment.
Effective Date
- Most provisions effective January 1, 1973, except the tax on income of nonresident citizens which applies from January 1, 1972.