Policy and operative structure
- The Act strengthens tax administration and compliance by:
- Expanding the Commissioner of Internal Revenue’s access to information from government offices.
- Increasing prescribed taxes and rates for designated items and transactions.
- Adding compliance requirements through sworn statements, reporting duties, permits, and verification rules.
- Imposing enhanced sanctions for specific tax evasion behaviors.
Legal basis and predecessor references
- The Act amends Commonwealth Act No. 466 (National Internal Revenue Code framework).
- The Act cross-references:
- Republic Act No. 1093 (development banks) for inclusion in a specified tax-related category (Section 8).
- Republic Act No. 2338 for rewards exclusions in gross income (Section 9).
- Republic Act No. 977 (donations to the Artesian Well Fund) (Section 12).
- Republic Act No. 2707 (donations to the International Rice Research Institute) (Section 12).
- Republic Act No. 3589 (donations to the National Science Development Board and related entities) (Section 12).
- Republic Act No. 3676 (donations to the Ramon Magsaysay Award Foundation) (Section 12).
- Republic Act No. 4481 (donations to Catholic Relief Services-NCWC, and the Tools for Freedom Foundation) (Section 12).
- Republic Act No. 1287 in a tax classification rule for cigarettes (Section 24).
- Commonwealth Act No. 294 for the meaning of “mechanical engineers” in occupation taxes (Section 28).
- The Act’s amendments also rely on existing internal-revenue rules that govern “the same manner” and “subject to the same provisions of law” for computing and collecting related taxes and penalties (Section 7).
Tax administration powers and information duties
- Section 2 provides that the Bureau of Internal Revenue shall have a chief known as the Commissioner of Internal Revenue, and two assistant chiefs known as deputy commissioners.
- Section 5 requires the Commissioner of Internal Revenue to prescribe, provide, and distribute to proper officials:
- licenses
- internal revenue stamps
- labels or tags used in sealing weights and measures
- and all other forms, certificates, bonds, records, invoice books, instruments, appliances, and apparatus used in administering Bureau jurisdiction laws.
- Section 5 further provides that internal revenue stamps, strip stamps, science stamps, and labels shall be printed “in the same manner as Philippine currency.”
- Section 7-A empowers the Commissioner or his deputies to request valuable information for discovering potential taxpayers from government offices including:
- the Office of Register of Deeds
- the Securities and Exchange Commission
- the Philippines Patent Office
- offices of mayors and treasurers
- the Government Service Insurance System
- the Social Security System
- and others.
- Section 7-A imposes a duty on those offices to furnish the requested information within thirty days from receipt of the request.
Income tax and deductions rules
- Marital status and dependents: Section 23(d) as amended allows personal exemptions to be claimed in full for the year if the taxpayer:
- married, or
- acquired additional dependents as defined in Section 23(c) during the taxable year.
- Death during the taxable year: Section 23(d) as amended provides that:
- the taxpayer’s estate may still claim the personal and additional deductions as if death occurred at year-end, and
- if the spouse or any dependent dies during the year, the taxpayer may still claim deductions as if death occurred at year-end.
- Foreign corporations tax base: Section 24(b) as amended imposes:
- thirty-five per cent (35%) tax on gross income received during each taxable year from all sources within the Philippines for non-resident foreign corporations not engaged in trade or business in the Philippines, with a proviso that premiums do not include reinsurance premiums, and
- for foreign corporations engaged in trade or business within the Philippines (resident foreign corporations), taxation under Section 24(a) on total net income received in the preceding taxable year from all sources within the Philippines, excluding foreign life insurance companies from the resident-corporation statement.
- Improper accumulation by corporations: Section 25(a) as amended imposes an additional twenty-five per centum (25%) tax on the undistributed portion of accumulated profits or surplus (for each taxable year) for corporations formed or availed of to prevent shareholder tax through accumulation, except that banks, insurance companies, and personal holding companies are excluded; the additional tax is in addition to Section 24 tax and is computed, collected, and paid like Section 24 with the same applicable provisions and penalties.
- Expense deduction—entertainment limits: Section 30(a)(1) as amended allows:
- deductions for ordinary and necessary expenses, and
- in the case of an individual, entertainment expenses not exceeding one thousand pesos or five per centum of gross income, whichever is lesser.
- Charitable and other contributions—deduction cap: Section 30(h) as amended limits deductible contributions or gifts to:
- up to six per centum of taxable net income for individuals, and
- up to three per centum of taxable net income for corporations,
- where donations are made within the taxable year to qualified government or qualified institutions/entities for exclusively public, religious, charitable, scientific, athletic, cultural, educational purposes or for specified veterans and animal/child cruelty prevention purposes.
- Charitable donations—full deduction carve-outs: Section 30(h) as amended requires full deductibility (and non-inclusion in the maximum-deduction computation) for the listed donations, including those to:
- recognized schools/colleges/universities of the Government for general or special purposes with the stated salary increase/bonus/personal benefit restriction,
- the Artesian Well Fund (Republic Act No. 977),
- the International Rice Research Institute (Republic Act No. 2707),
- the National Science Development Board and specified scientific and educational institutions/foundations (Republic Act No. 3589),
- the Ramon Magsaysay Award Foundation (Republic Act No. 3676),
- the University of the Philippines and other state colleges and universities,
- the Philippine Rural Reconstruction Movement,
- Catholic Relief Services-NCWC and the Tools for Freedom Foundation (Republic Act No. 4481),
- the Cultural Center of the Philippines,
- the Philippine Amateur Athletic Federation,
- the Trustees of the Press Foundation of Asia, Inc.
- the National Commission on Culture,
- Humanitarian Science Foundation,
- Roxas Education and Welfare Committee, Inc.
- Charitable donations—priority rule and verification: Section 30(h) as amended provides that:
- existing special laws inconsistent with the paragraph do not override the stated maximum rules for “all other contributions,” and
- deductions are allowable only if verified under rules and regulations prescribed by the Secretary of Finance.
- Optional standard deduction: Section 30(k) as amended allows an individual (other than non-resident aliens) to elect an optional standard deduction in the amount of five thousand pesos (PHP 5,000) or ten per centum of gross income, whichever is lesser.
- Standard deduction election mechanics: Section 30(k) as amended provides that:
- absent a signification of election in the return, the taxpayer is considered to have availed of deductions in the preceding subsection,
- the Secretary of Finance prescribes the manner of election, and
- the election in the return is irrevocable for the taxable year for which the return is made.
- Individual returns—minimum gross income and mandatory filing: Section 45(a) as amended requires filing an income tax return for:
- every Filipino citizen, whether residing in the Philippines or abroad, and
- every alien residing in the Philippines,
- if gross income is at least one thousand eight hundred pesos (PHP 1,800) for the taxable year.
- Non-resident aliens—mandatory filing regardless of amount: Section 45(a)(2) requires every non-resident alien deriving income from sources within the Philippines to file an income tax return regardless of amount.
- Mandatory filing regardless of amount—listed categories: Section 45(a)(3) requires filing if, during the taxable year, a Filipino citizen abroad or abroad, or a resident alien, or a non-resident alien engaged in trade or business in the Philippines falls in any of the categories including:
- government official/employee or has a government contract,
- a professional as defined under the section,
- registered or beneficial owner or mortgagee of real property,
- registered or beneficial owner or mortgagee of any motor vehicle,
- registered or beneficial owner or mortgagee of shares/securities or interests in a firm/partnership,
- has travelled abroad (except children below eighteen years of age),
- filed a certificate of candidacy (except barrio officials and municipal councilors),
- engaged in trade or commerce.
- Professional definition: Section 45(a) as amended deems an individual a “professional” if during the taxable year the individual:
- passes a government examination for the practice of a profession given by a board of examiners or the Supreme Court, or
- remains a registered member of a profession covered by such examination,
- regardless of actual practice during the taxable year.
- Return format and income coverage: Section 45(a) as amended provides the income tax return must be filed in duplicate and:
- set forth gross income from all sources except that non-resident aliens’ returns contain only incomes derived from sources within the Philippines.
- Verification of returns—penalties of perjury: Section 50 as amended requires income tax returns to contain a declaration that the taxpayer or authorized representative made it under the penalties of perjury.
- Public records and inspection rules: Section 81 as amended provides that after assessment, returns and corrections filed are:
- public records and open to inspection as such upon an order of the President