Law Summary
Gross Income Definitions and Exclusions
- Gross income includes all gains, profits, and income from various sources including salaries, commerce, dividends, rents, and transactions.
- Exclusions from gross income include life insurance proceeds, return of insurance premiums, gifts and inheritances, interest on government securities, compensation for injuries, treaty-exempted income, certain retirement benefits and pensions, and income from public utilities and government essential functions.
Deductions Allowed from Gross Income
- Allowable deductions include ordinary and necessary business expenses, medical care expenses, basic tuition fees for dependents in high school, interest on indebtedness, taxes (excluding income and other specified taxes), losses actually sustained and not compensated, bad debts, depreciation, depletion of oil, gas wells, and mines, and charitable contributions within specified limits.
- Non-resident aliens are entitled to deductions related only to income from Philippine sources.
- Optional standard deduction of ₱5,000 or 10% of gross income is available for individuals, except non-resident aliens.
Income Tax Filing and Payment Procedures
- Individuals with gross income of at least ₱1,800 (or higher for married persons) must file tax returns.
- Non-resident alien individuals engaged in Philippine trade or business must file returns regardless of income.
- Corporations must file quarterly summary declarations of gross income and deductions, with adjustments and final payments made annually by April 15 or fourth month after fiscal year-end.
- Extensions may be granted for filing returns in meritorious cases.
Withholding Taxes
- Withholding tax at source applies to various income types.
- Dividends received by residents from domestic corporations and royalties are subject to 10% withholding tax.
- Interest on bank deposits is subject to 15% withholding tax, with limited exemptions.
- Withholding tax applies to payments to non-resident aliens and foreign corporations, generally at 30% or 35% depending on type.
Penalties and Surcharges
- Failure to file returns or pay tax on time results in surcharges of 25% or 50% for willful neglect or fraudulent returns.
- Interest on delinquent taxes is at 14% per annum (15% for estimated tax deficiencies) with maximum limits.
- Specific penalties apply for corporate officer failures and false returns.
Estate and Donor's Taxes
- Graduated estate tax rates apply to net estate values, with various deductions including funeral expenses, judicial costs, debts, claims, and transfers for public use.
- Gift tax is imposed on property transfers by gift with graduated rates.
- Certain gifts and transfers to government and charitable institutions are exempt.
- Executors and administrators must file returns and pay estate taxes within prescribed timelines.
Specific Taxes
- Specific taxes apply to manufactured goods, imported articles, distilled spirits, tobacco products, matches, fireworks, petroleum products, cinematographic films, and various other enumerated items.
- Manufacturers and importers have accounting, record keeping, and bonding requirements to ensure correct tax remittance.
Business Taxes
- Fixed and percentage taxes apply to various businesses and activities, including contractors, caterers, transportation operators, brokers, cinematographic film distributors, and others.
- The law includes provisions for payment, enforcement, and refund of these taxes.
Documentary Stamp Taxes
- Documentary stamp taxes are imposed on various documents including bonds, stock certificates, insurance policies, leases, mortgages, conveyances, and commercial papers.
- The law prescribes the rates, exemptions, and collection methods.
Mining Taxes
- Miners are subject to occupation fees, rentals, royalties, and ad valorem taxes depending on the type of mining activity and land classification.
- Payment, reporting procedures, and penalties for noncompliance are provided.
Miscellaneous Taxes
- Taxes imposed on banks, finance companies, insurance premiums, and franchises.
- Amusement taxes are collected on gross receipts from establishments like cabarets, clubs, and race tracks.
- Charges on forest products and water rentals are authorized.
- Firearms and ammunition licenses and fees are specified.
Administration and Enforcement
- The Bureau of Internal Revenue is tasked with assessment, collection, and enforcement of taxes.
- Internal revenue officers have authority to examine records, conduct investigations, make arrests, and levy taxes.
- The law specifies civil remedies for tax collection including distraint, levy, sale and foreclosure.
- Records must be kept and preserved for five years.
- The Secretary of Finance has authority to promulgate rules and regulations.
- Taxpayers have rights and responsibilities to file accurate returns, pay taxes timely, and comply with the Code.
Penalties on Tax Officials and Taxpayers
- Officials guilty of extortion, negligence, or fraud face fines and imprisonment.
- Taxpayers violating tax laws face fines, imprisonment, or both, including penalties for false returns, concealment, and obstructing tax collection.
Miscellaneous Provisions
- Public disclosure and confidentiality rules.
- Allocation and disposition of internal revenue collections to local governments, Insurance Fund, and other government agencies.
- Repealing clause confirming amendments and consolidations of prior laws.
- Separability and immediate effectivity of the Code provisions.
This summary encapsulates key provisions, scope, legal definitions, tax rates, filing procedures, withholding mechanisms, penalties, administrative powers, and special rules under the National Internal Revenue Code as amended, providing a comprehensive legal framework for internal revenue taxation in the Philippines.