Amendments to National Internal Revenue Code 1977

Imposes tax on taxable net income for individuals (citizens and resident aliens) using a different graduated scale.
Rates range from 5% to 60% depending on income tiers ranging from P10,000 to over P500,000.

Royalties, prizes (except those ≤ P3,000), and other winnings (excluding Philippine Charity Sweepstakes) are subject to a final 15% tax.
Collection and payment follow specific provisions under the Code.

Interest from Philippine currency bank deposits and monetary benefits from deposit substitutes and trusts are subject to final taxes.
Tax rates are 15% on savings deposit interest and 20% on time deposits and yield from substitutes.
Exemptions apply if total annual interest does not exceed P1,000 and to tax-exempt or preferentially taxed recipients.

Dividends from domestic corporations and individual partners' shares in taxable partnerships are subject to a final 15% tax.

Tax imposed on income from sources outside the Philippines of non-resident citizens.
Graduated rates: 1% up to $6,000, 2% on excess up to $20,000, 3% on income over $20,000.
Adjusted gross income deduct personal exemption and foreign taxes paid.
Declaration of foreign income and taxes paid is required.

Non-resident aliens engaged in trade/business are taxed similarly to residents on Philippine-source income.
Dividends, partnership income, interest, royalties, prizes, and winnings taxed at a final 30% rate.
Non-resident aliens not engaged in business pay 30% final tax on all Philippine-source income, including capital gains (with exceptions).
Aliens employed by multinational corporation headquarters, offshore banking units, and petroleum contractors pay 15% final tax on gross income.

Single persons (including legally separated) exempt P3,000.
Married persons exempt P6,000; heads of families exempt P4,500.
Additional exemption of P2,000 per dependent child up to four dependents.
Special provisions on change of status, death of taxpayer or dependents.
President may adjust exemptions every 3 years considering economic indices.
Non-resident aliens engaged in business get personal exemptions equal to that granted by their home country but no more than citizens’ exemptions.

Taxable compensation income = gross compensation income minus personal and additional exemptions.
Gross compensation income includes all payments from employer-employee relationships; excludes partners’ share in general professional partnerships.
Exclusions include damages related to employer-employee relations and items similarly excluded from gross income.

Taxable net income = gross income minus allowable deductions and personal/additional exemptions.
Gross income includes all income from business, professions, property dealings, interest, rents, dividends, etc., excluding compensation income and incomes subject to final tax.
Specific exclusions from gross income apply, such as life insurance proceeds, gifts, government securities interest, compensation for injuries, treaty-exempt income, retirement benefits, and specific miscellaneous items.

Deductible business expenses must be ordinary, necessary, and substantiated; includes travel, salaries, rentals.
Strict rules for entertainment expenses including substantiation and limits.
Non-resident aliens allowed expense deductions only if connected with Philippine business.
Specific deductions for private educational institutions for facility expansion.
Interest deductions with limitations; special rules for prepaid interest.
Taxes deductible except self-income tax and specific excluded taxes; credit for foreign taxes allowed with restrictions.
Losses deductible if sustained and not compensated, with rules for business vs. other transactions; specific rules for capital losses.
Allowance for depreciation for business properties including petroleum-related assets with specified useful life.
Depletion deductions for oil, gas wells, and mines under cost method with election options for exploration and development costs.
Charitable contributions deductible up to specific limits; full deduction for government-directed and certain foreign/international institution donations; detailed provisions for private foundations.
Optional standard deduction of up to 10% of gross income available to individual taxpayers (except non-resident aliens).

Filing required for Filipino citizens (resident or abroad) and aliens residing in the Philippines with gross income ≥ P3,000.
Non-resident aliens engaged in trade or business must file regardless of income amount.
Simplified returns possible for individuals with fully final tax withheld on compensation income.
Where to file specified by legal residence, business location, or Commissioner’s office.
Filing deadlines: March 18 for salaried residents; April 15 for others.
Husband and wife may file consolidated returns.
Parents file for unmarried minors under certain conditions.

Requires withholding on interest, royalties, prizes, dividends, and other specified income.
Tax rates vary according to payee status: e.g., 30% for non-resident aliens on various income, 15-20% for bank deposit interest.
Exemptions and refunds for tax-exempt or preferentially treated depositors.
Withholding applies also to non-resident foreign corporations with different rates.
Minister of Finance authorized to impose withholding on other income items within set limits.

Fiduciaries must file returns for estates, trusts, or persons they represent if gross income ≥ P3,000.
Return must be sworn to as true and correct.

Failure to file return or pay taxes can result in fines up to P2,000 or imprisonment up to 6 months, or both.
Exception for individuals with final withholding on compensation income.
False or fraudulent returns subject to heavier penalties: fine of at least P5,000 and imprisonment of at least 2 years.

All persons or entities making payments of income must file returns with the Commissioner stating amounts and recipients.
Special provisions apply to payments involving foreign bonds and dividends collected domestically.

Employers must deduct and withhold tax on wages as per schedules established by the Minister of Finance.
Withheld tax is generally final unless taxpayer’s status changes or has multiple employers.
Employers not withholding properly may face penalties but not liable for the tax itself.
Refunds or credits provided for overwithholding.
Employees must file exemption certificates for personal and additional exemptions.
Special withholding rules apply to married couples and non-resident aliens.

Minister of Finance to promulgate necessary rules and regulations within 90 days.
Repealed inconsistent laws and preserved investment incentives.
The Act took effect January 1, 1982, applicable to income earned from that date.