Definitions Relevant to the Taxation Scheme
- Accredited Financial Institutions: those accredited by the Central Bank.
- Accredited Relief Organizations: those accredited by DSWD and BIR.
- Business Rental: compensation for use of property not owned or held in equity by the taxpayer for business purposes.
- Cost of Goods Sold/Cost of Sales: deduction representing cost of capital for manufacturers, traders, and service providers.
- Direct Costs: ordinary and necessary expenses directly related to the taxpayer’s trade, business, or profession.
- Professionals: those deriving income from the practice of their profession, including PRC-registered professionals, and persons making a living from artistic or athletic pursuits.
- Self-employed: persons engaged in trade, business, or services for a fee, including various categories such as proprietors, market vendors, brokers, and similar.
- Other definitions include raw materials, salary, supplies, telecommunications cost, fuel, and direct labor relevant to allowable deductions.
Income Tax Computation under SNITS
- Coverage: Tax imposed on taxable income excluding compensation income, certain passive incomes, and capital gains.
- Graduated tax rates from 3% on income up to P10,000 to 30% on income over P350,000.
- Allowable deductions limited strictly to direct costs such as raw materials, supplies, direct labor, salaries of employees directly involved, telecommunication and utilities, business rental, depreciation, contributions for calamity rehabilitation, and interest paid on loans from accredited financial institutions.
- Contributions to government/accredited relief organizations deductible only if used for rehabilitation of calamity-stricken areas declared by the President.
Forty Percent Maximum Deduction Rule
- When cost of goods sold and direct costs are difficult to determine, a maximum deduction of 40% of gross receipts is allowed.
- Taxpayer must elect this option at time of filing; the election is irrevocable for that taxable year.
- Taxpayers opting for itemized direct cost deductions who fail to substantiate their deductions during audit cannot revert to the 40% deduction.
Personal and Additional Exemptions
- Personal exemptions range from P6,000 for estates and trusts to P18,000 for married individuals.
- Additional exemption of P5,000 per dependent applicable up to four dependents, claimable by only one spouse (husband presumed head of family unless waived).
- When income includes both compensation and business/professional income, exemptions are first deducted from compensation income, with any excess deducted from business/professional income.
Taxation of Other Income
- Other income from sources not excluded under the SNITS provisions is subject to tax at prescribed rates under Section 21(f) of the NIRC.
- Gains by compensation earners from sale of assets like motor vehicles are taxed under compensation income rules.
Treatment of General Professional Partnerships (GPP)
- GPP and individual partners subject to SNITS.
- Only direct costs allowed as deductions in determining partnership net income.
- Individual partners’ unreimbursed expenses not considered direct costs are not deductible.
Taxation of Estates and Trusts
- Estates and trusts engaged in business are subject to income tax under SNITS rates and rules.
Repealing Clause
- All prior inconsistent regulations, orders, or issuances are revoked or modified to conform with the new regulations.
Effectivity
- Regulations take effect 15 days after publication.
- Applies to income earned during calendar year 1992.
- Deductions under this Act apply only to direct costs paid or incurred on or after July 28, 1992.