If this Giant Must Walk: A Manifesto for a New Nigeria
Tax aspect for educational intitutions(june 26, 2013)
1. TheTax Aspect ofTheTax Aspect of
Educational InstitutionEducational Institution
By:By:
Dr. Ruperto P. Somera, Ph, D., CPADr. Ruperto P. Somera, Ph, D., CPA
Tax Consultant, Professor/LecturerTax Consultant, Professor/Lecturer
Former Member, Board of AccountancyFormer Member, Board of Accountancy
Former Director, Bureau of Internal RevenueFormer Director, Bureau of Internal Revenue
FellowTax ManagementFellowTax Management
2. Kinds of Educational InstitutionsKinds of Educational Institutions
1. Proprietary Educational
Institutions
2. Non-stock, Non-Profit
Educational Institutions
3. A Proprietary educational institution isA Proprietary educational institution is
any private school maintained andany private school maintained and
administered by private individuals oradministered by private individuals or
groups with an issued permit togroups with an issued permit to
operate from the Department ofoperate from the Department of
Education, Culture and Sports (DECS),Education, Culture and Sports (DECS),
or the Commission on Higheror the Commission on Higher
Education (CHED), or the TechnicalEducation (CHED), or the Technical
Educational and Skills DevelopmentEducational and Skills Development
Authority (TESDA)Authority (TESDA)
4. Proprietary Educational InstitutionsProprietary Educational Institutions
Proprietary Education Institutions –
Proprietary educational institutions shall
pay a tax often percent (10%) on their
income. Provided, that if the gross
income from unrelated trade, business or
other activity fifty percent (50%) of the
total gross income derived by such
educational tax should be 30% on the net
income.
5. Kinds of Income Tax ExemptionKinds of Income Tax Exemption
Express income tax exemptions
Intentional income tax exemptions
It could be express or implies immunity, to
particular persons or corporations, or to
persons or corporations of a particular
class.
6. CONSTITUTIONAL EXEMPTION:
ARTICLE XIV Sec 4 (3):
“SECTION 4(3) All revenues and assets of
non-stock, non-profit education institutions
used actually, directly and exclusively for
educational purposes shall be exempt from
taxes and duties.
7. Art. XIV Sec. 4 par. (4)Art. XIV Sec. 4 par. (4) –– “Subject to conditions“Subject to conditions
prescribed by law all grants, endowments,prescribed by law all grants, endowments,
donations or contributions used actually, directlydonations or contributions used actually, directly
and exclusively for educational purposes shall beand exclusively for educational purposes shall be
exempt from tax.”exempt from tax.”
Proprietary educational institutions
including those cooperatively organized may
likewise be entitled to such exemptions
subject to the limitations provided by law
including restrictions on dividends and
provisions for reinvestments.
8. Tax Exemptions Granted to Non-Stock,Tax Exemptions Granted to Non-Stock,
Non-Profit Educational InstitutionsNon-Profit Educational Institutions
All revenues and assets of non-
stock, non-profit educational
institutions used actually, directly
and exclusively for educational
purposes shall be exempt from
taxes and duties.
9. Department Order No.Department Order No.
137-87 (DOF137-87 (DOF))
Non-stock,non-profit educational institutions
are exempt from tax on all revenues derived in
pursuance of its purpose as an educational
institution and used actually, directly and
exclusively for educational.
10. They shall, however, beThey shall, however, be subject tosubject to
internal revenue taxes on income frominternal revenue taxes on income from
trade, business or other activity thetrade, business or other activity the
conduct to which is not related to theconduct to which is not related to the
exercise or performance by suchexercise or performance by such
educational institution of itseducational institution of its
educational purpose or function.educational purpose or function.
11. DECS ORDER NO. 137-87DECS ORDER NO. 137-87
The implementing regulations of DECS Order No.
137-87 dated December 16, 1987
1.The exemption granted refers to internal revenue
taxes and customs duties imposed by the National
Government on all revenues and assets of non-stock,
non-profit educational institutions.
2.The exemption is not only limited to revenues and
assets derived from strictly school operations like
income from tuition and other miscellaneous fees
such as matriculation, library, ROTC, etc., but also
extends to incidental income derived from canteen,
bookstore and dormitory facilities.
12. 3. In this case, however, of incidental income, the
facilities mentioned must not only be owned
and operated by school itself but such facilities
must be located inside the school campus.
Canteens operated by mere concessionaries are
taxable.
4. Income which is unrelated to school operations
like income from money market placements are
taxable.
5. The use of the school’s income or assets must
be in consonance with the purposes for which
the school is created; in short, the use must be
school-related like the grant of scholarship,
faculty equipment, establishment of professional
chairs, etc.
13. Their interest income from currency
bank deposits and yield from deposit
substitute instruments used actually,
directly and exclusively in pursuance of
their purposed and an educational
institution, are exempt from the 20%
final tax and 7 1/2% tax on interest
income under the expanded foreign
currency deposit system imposed under
Section 27 (D) (1) of the Tax Code of
1997.
14. DECS Recognition vsDECS Recognition vs
Government PermitGovernment Permit
DECS RECOGNITION is
permanent, no need to renew, while
GOVERNMENT PERMIT is
temporary this is the reason why
some schools
15. Income TaxIncome Tax
Is a tax all yearly profits arising from
property, professions, trades or offices,
or as a tax on a person’s income,
emoluments, profits. Income tax is a
direct tax on actual or presumed income
(gross or net) of a taxpayer received,
accrued, or realized during the taxable
year.
16. PROPRIETARY EDUCATIONALPROPRIETARY EDUCATIONAL
INSTITUTIONSINSTITUTIONS – Proprietary– Proprietary
educational institutions pay on Incomeeducational institutions pay on Income
tax of ten percent (10%) on theirtax of ten percent (10%) on their
taxable net incometaxable net income exceptexcept::
Interests from deposits/depositInterests from deposits/deposit
substitute/trust funds/royaltiessubstitute/trust funds/royalties
* 20% (peso)* 20% (peso)
* 7.5 (under the Expanded FCD* 7.5 (under the Expanded FCD
system)system)
17. LIMITATIONS:LIMITATIONS:
- if the- if the gross incomegross income from the unrelatedfrom the unrelated
trade, business or other activitytrade, business or other activity exceedsexceeds
fifty (50%)fifty (50%) of the total gross incomeof the total gross income
derived by such educational institutionsderived by such educational institutions
from all sources, the tax to be applied andfrom all sources, the tax to be applied and
used shall be 35% on theused shall be 35% on the entire taxableentire taxable
income.income.
18. Income from School ActivitiesIncome from School Activities
1. Related School Income
2. Unrelated School Income
19. Related School IncomeRelated School Income
A. Related School Activities
1. Tuition Fee
2. Registration Fee
3. Laboratory Fee
4. Entrance Fee
5. Identification Card Fee
6. Comprehensive Examination Fee
7. Internet Fee
8. Practicum Fee
9. Internship Fee
10. Graduation Fee
20. 11. Medical and Dental Fee11. Medical and Dental Fee
12. Proceeds from School Uniforms12. Proceeds from School Uniforms
13. Proceeds from Yearbook13. Proceeds from Yearbook
14. Proceeds from Field Trip14. Proceeds from Field Trip
15. Retreat Fee15. Retreat Fee
16. Canteen Operation16. Canteen Operation
17. School Bus Operation17. School Bus Operation
18. Bookstore Operation18. Bookstore Operation
19. Dormitory Operation19. Dormitory Operation
20. Other Related Income20. Other Related Income
21. Unrelated trade, business orUnrelated trade, business or
other Incomeother Income – any trade,– any trade,
business or other activity, thebusiness or other activity, the
conduct of which is not substantiallyconduct of which is not substantially
related to the exercise orrelated to the exercise or
performance by such educationalperformance by such educational
institutions.institutions.
22. UNRELATED SCHOOL INCOMEUNRELATED SCHOOL INCOME
1. Lease of Properties
2. Lease of Gym, Auditorium, Football
field and other related facilities
3. Printing Press Operation
4. Parking Fee
5. Consultancy Fee
6. Commission from Group Life and
Accident Insurance Policies procured
by the school for the students and
employees
23. 7. Sales of Stickers, gifts, souvenirs and7. Sales of Stickers, gifts, souvenirs and
other items donationsother items donations
8. Donations8. Donations
9. Investments in shares of stocks9. Investments in shares of stocks
10. Money market placements10. Money market placements
11. Catering Services11. Catering Services
12. Other unrelated income12. Other unrelated income
24. Non-Stock, Non-Profit EducationalNon-Stock, Non-Profit Educational
InstitutionsInstitutions
The exemption of non-stock, non-profit educational institutions
refers to internal revenue taxes imposed by the National
Government on all revenues and assets used actually, directly and
exclusively for educational purposes.
Revenues derived from assets used in the operation of cafeterias /
canteens and bookstore are exempt from taxation provided they
are owned and operated by the educational institution as ancillary
activities and the same are located within the school premises.
They shall be subject to internal revenue taxes on income from
trade, business or other activity, the conduct of which is not
related to the exercise or performance by such educational
institutions of their educational purposed or functions (Sec. 2,
Finance Department Order No. 137-87, as amended by Finance
Department Order No. 92-88), i.e., rental payment from their
building/premises.
25. Unlike non-stock, non-profit corporation, their
interest income from currency bank deposits and
yield from deposit substitute instruments used
actually, directly and exclusively in pursuance of
their purposes as an educational institution, are
exempt from the 20% final tax and 7 ½% tax on
interest income under the expanded foreign
currency deposit system imposed under Section 25
(D) (1) of the Tax Code of 1997, subject to
compliance with that as a tax-exempt educational
institution, they shall on annual basis submit to the
Revenue District Office concerned an annual
information return and duly audited financial
statement together with the following:
26. i. Certification from the depository banks as to the
amount of interest income earned from passive
investment not subject to the 20% final withholding tax
and 7 ½% tax on interest income under the expanded
foreign currency deposit system imposed by Section 27
(D)(1) of the Tax Code of 1997.
ii. Certification of actual utilization of the said income; and
iii. Board Resolution by the school administration on
proposed projects (i.e., construction and/or
improvement of school buildings and facilities,
acquisition of equipment, books and the like) to be
funded out of the money deposited in banks or placed in
money markets on or before the 14th
day of the fourth
month following the end of its taxable year (Sec. 3,
Finance Department Order No. 137-87)
27. Withholding TaxWithholding Tax
The exemption does not cover withholding
taxes as an educational they are constituted
as withholding agents for the government
required to withhold the tax on
compensation income of their employees
or the withholding tax on income payments
to persons subject to tax pursuant to
Section 57 of the Tax Code of 1997.
28. Government Educational InstitutionGovernment Educational Institution
UP (Act No. 1870, as amended) is subject
to 20% final tax. Other government
educational institutions are likewise subject
thereto. Reason: Income from properties,
real or personal or from any their activities
conducted fro profit, regardless of the
disposition made of such income shall be
subject to tax (BIR Ruling 21-90, 28
February 1990)
30. All rulings issued prior to January 1,
1998 shall no longer have any binding
effect. Consequently, these rulings
cannot be invoked as basis for any
current business transaction/s. Neither
can these rulings be used as basis for
securing legal tax opinions/rulings.
30
32. REGISTRATION REQUIREMENTSREGISTRATION REQUIREMENTS
Every person subject to any internal revenue
tax shall register once with the appropriate
Revenue District Officer:
- Within ten (10) days from date of employment
or
- On or before the commencement of business
or
- Before payment of any tax due or
- Upon filing of a return statement or
declaration.
33. DATA NEEDED FORTHE REGISTATIONDATA NEEDED FORTHE REGISTATION
The registration shall contain
1) the taxpayer’s name and TIN
2) style of Business
3) place of business
A person maintaining a head office branch
or facility shall register with the Revenue
District Officers having jurisdiction over
the head office, branch or facility.
34. ANNUAL REGISTRATION FEEANNUAL REGISTRATION FEE
Five hundred pesos (P500) for every separate or
distinct establishment or place of business, including
facility types where sales transaction occur, shall be
paid upon registration and every year thereafter on
or before the last day of January:
35. KEEPING OF BOOKS OF ACCOUNTSKEEPING OF BOOKS OF ACCOUNTS
1. Corporation,companies, partnership or
persons are required to keep books of
accounts.
2. Quarterly sales, earnings receipts do not
exceed P50,000 use SIMPLIFIED Set of
Bookkeeping Records
36. KEEPING OF BOOKS OF ACCOUNTSKEEPING OF BOOKS OF ACCOUNTS
3. Quarterly sales, earning receipts exceed
P50,000 Journals and Ledger.
4. Corporations, partnerships or persons
whose gross quarterly sales, earnings,
receipts exceed P150,000 shall have their
Books of Accounts audited by
independents Certified Public
Accountants.
37. PRESERVATION OF BOOKS OFPRESERVATION OF BOOKS OF
ACCOUNTS AND OTHERACCOUNTS AND OTHER
ACCOUNTING RECORDSACCOUNTING RECORDS
All the books of accounts, including the
subsidiary books and other accounting records
of corporations, partnerships or persons, shall be
preserved for a period of three (3) years
beginning from the last entry in each book.
38. PRINTING RECEIPTS OFPRINTING RECEIPTS OF
COMMERCIAL OR SALES INVOICESCOMMERCIAL OR SALES INVOICES
All persons who are engaged in business
shall secure from the Bureau of Internal Revenue
an authority to print receipts or sales or
commercial invoices before a printer can print the
same.
39. PRINTING OF RECEIPTS ORPRINTING OF RECEIPTS OR
COMMERCIAL OR SALES INVOICESCOMMERCIAL OR SALES INVOICES
No authority to print receipts or sales or commercial
invoices shall be granted unless the receipts or
invoices to be printed are serially numbered and shall
show, among other things, the name, business style,
Taxpayer Identification Number (TIN) and business
address of the person or entity.
40. PENALTYPENALTY
For failure to issue a receipt or invoices
shall be fine P1,000 but not more than P50,000
and imprisonment of not less than 2 years but
not more than than 4 years upon conviction for
every violation.
41. VIOLATIONS RELATEDTOTHEVIOLATIONS RELATEDTOTHE
PRINTING OF RECEIPTS OR INVOICESPRINTING OF RECEIPTS OR INVOICES
Any person who commits any of these
acts enumerated there under shall be
fined not less than P1,000 but not more
P50,000 and imprisonment of not less
than two years but not more than four
(4) years.
42. REVENUE MEMORANDUMREVENUE MEMORANDUM
CIRCULAR NO. 69-2009CIRCULAR NO. 69-2009
Mandatory Enrollment to and
Availment of the Electronic Filing
Payment System (eFPS) Facility for
Selected Taxpayers
42
43. 1. Large taxpayers pursuant to Revenue
Regulations (RR) No. 2-2002;
2. All Government bidders pursuant to RR No. 3-
2005
3. Corporations with paid-up capital stock of Ten
Million Pesos (P10,000,000.00) pursuant to RR
No. 10-2007
4. Corporations with complete computerized
system pursuant to RR No. 10-2007
5. Taxpayers belonging to the list of the Top 20,000
Private Corporations under Section 2.57.2(M)
of RR No. 2-98, as last amended by RR No. 14-
2008, in relation to RR No. 5-2004; and
6. Taxpayers belonging to the Top 5,000 Individual 43
44. 44
INCOMETAX
DEDUCTIONS FROM
GROSS INCOME
a. The itemized deductiona. The itemized deduction
b. The optional standard deductionb. The optional standard deduction
c. The special deductions and in specialc. The special deductions and in special
laws like the BOI law (E.O. 226)laws like the BOI law (E.O. 226)
45. Deductions from Gross IncomeDeductions from Gross Income
Deductions are items or amounts which the law allows to be
deducted from the gross income.
45
Time for availing deductions
A taxpayer has the right to deduct all authorize
expense for the taxable year. He can not deduct
them from the income of the next or any
succeeding year.
46. 46
Kinds of deductions
1. Deductions from compensation income of
individual taxpayers.
2. Deductions from business and / or professional
income of individual taxpayers.
3. Deductions from corporate income.
4. Special deductions.
47. BUSINESS EXPENSESBUSINESS EXPENSES
1. It must be ordinary and necessary;
2. It must be paid or incurred during the taxable year;
3. It must be paid on incurred in carrying on or which
are directly attributable to the development,
management, operation and/or conduct of trade,
business or exercise of profession;
4. It must be supported by adequate invoices or
receipts;
5. The tax required to be withheld on the expense paid
or payable.
47
48. 48
A. Connected with the taxpayer’s trade or
business (business related deductions).
1. Expenses
2. Interest
3. Taxes
4. Losses
5. Bad Debts
6. Depreciation
7. Research and Development
8. Contributions to pension trusts
49. 49
B. Not connected with the taxpayer’s trade of
business (non-business deductions).
10. Charitable and other contributions
11. Optional standard deduction
12. Premium payment on health and/or
hospitalization insurance.
50. 50
ITEMIZED DEDUCTION
There shall be allowed as deduction from
gross income all the ordinary and necessary
expenses paid incurred during the taxable year
in carrying on or which are directly
attributable to, the development, management,
operation and/or conduct of the trade,
business or exercise of a profession including
a reasonable allowance for salaries, travel,
rental and entertainment expenses.
51. Requisites for deductibility
The expense must be ordinary and
necessary. There is no hard and fast rule
on the matter.
It depends upon particular facts such as,
the type of business (custom), intention of
the taxpayer, time, place and prevailing
circumstances. The Supreme Court has
never attempted to define with precision
the terms ordinary and necessary.
51
52. GUIDING PRINCIPLESGUIDING PRINCIPLES
Ordinary, when it is normal (common or
usual) in relation to the business of the
taxpayer and the surrounding circumstances.
Necessary, where it is appropriate and
helpful in the development of the taxpayer’s
business. It is intended to realize a profit or
to minimize a loss (Visayan Cebu Terminal
Co. V. Collector, CTA Case No. 28, 29 June
1957).
52
53. 53
Expenses are considered “ordinary and
necessary” if they are directly attributable
to development, management, operation,
and or conduct of the trade or business of
the taxpayer, or in the exercise of the
taxpayer’s profession.
The expenses must be incurred in trade or
business carried on by the taxpayer – This
means that the same is not incurred in the
trade or business of another.
54. The expenses must be substantiated by
proof
• Receipts are the best proof. Burden
of proof lies upon the taxpayer.
• Even if no records/receipts are
available, the oral testimony of a CPA,
if not contradicted by the government
is sufficient (Basilan Estates v. Com.,
G.R. No. L22494, 5 September 1967).
54
55. Paid or incurred during the taxable year
• Cash basis method – deducts
expenses in the year in which they
are paid.
• Accrual basis method – recognizes
expenses in the year they accrue.
55
56. Seller of services:
Gross receipts x x x
Less
Sales discounts (x x)
Cost of services (x x)
Gross Income x x
56
57. Gross receipts means amounts
actually or constructively received
during the taxable year. However,
for taxpayers engaged as seller of
services but employing the accrual
basis of accounting for their income,
the term gross receipts shall mean
amounts earned as gross revenue
during the taxable year.
57
58. 58
Cost of services means all direct costs and
expenses necessarily incurred to provide the
services required by the customers and clients
including:
1)Salaries and employee benefits of personnel,
consultants and specialists directly rendering the
services, and
2)Cost of facilities directly utilized in providing the
service such as depreciation or rental of
equipment used and cost of supplies.
Provided, however, that “cost of services” shall not
include interest expense except in the case of
banks and other financial institutions.
59. Expenses Must be ReasonableExpenses Must be Reasonable
1. A reasonable allowance for salaries,
wages and other forms of compensation
for personal services actually rendered
2. A reasonable allowance for travel
expenses, here and abroad, while away
from home in the pursuit of trade,
business or profession
60. Expenses Must be ReasonableExpenses Must be Reasonable
3. A reasonable allowance for rentals
and/or other payments
4. A reasonable allowance for
entertainment, amusement and
recreation expenses during taxable year
61. The expenses must not be contraryThe expenses must not be contrary
to public policy, such as:to public policy, such as:
BRIBES, KICKBACKS AND OTHER
PAYMENTS MADE DIRECTLY OR
INDIRECTLY TO AN OFFICIAL OR
EMPLOYEE OR THE NATIONAL OR
LOCAL GOVERNMENT
BRIBES OR KICKBACKS PAID TO A
PRIVATE CORPORATION, GENERAL
PROFESSIONAL PARTNERSHIP, OR
SIMILAR ENTITY
62. Representation ExpensesRepresentation Expenses
Refers to expenses incurred by a taxpayer
in connection with the conduct of his trade,
business or exercise of profession, in
entertaining, providing amusement and
recreation
63. Requisites of Deductibility ofRequisites of Deductibility of
“Entertainment, Amusement and“Entertainment, Amusement and
Recreation Expenses”Recreation Expenses”
It must be paid or incurred during the
taxable year;
It must be:
◦ Directly connected to the development
Management and operation of the trade,
business or profession of the taxpayer; or
◦ Directly related to or in furtherance of the
conduct of his or its trade, business or
exercise or a profession;
64. Requisites of Deductibility ofRequisites of Deductibility of
“Entertainment, Amusement and“Entertainment, Amusement and
Recreation Expenses”Recreation Expenses”
It must not be contrary to law, morals,
good customs, public policy or public
order;
It must be duly substantiated by adequate
proof
65. 65
CEILING ON ENTERTAINMENT,
AMUSEMENT,AND RECREATION
EXPENSE
Actual entertainment, amusement and recreation
expenses paid or incurred within the taxable year by
the taxpayer, but in no case shall such deduction
exceed ½ of 1% of net sales (i.e., gross sales less
sales returns/allowances and sales discounts) for
taxpayers engaged in sale of goods or properties; or
1% of net revenue (I.e., gross revenue less discounts)
for taxpayers engaged in sale of services, including
exercise of profession and use or lease of
properties.
67. 67
ILLUSTRATION:
ERA Corporation is engaged in the sale of
goods and services with net sales/net revenue
of P200,000 and P100,000, respectively. The
actual entertainment, amusement and
recreation expense for the taxable quarter
totaled to P3,000.
68. 68
*Appointment Formula
Sales of Goods (P200,000 x 0.50%)
Sales of Services (P100,000 x 1%)
**Maximum Percentage Ceiling
Sale of Goods (P200,000 x 0.50%)
Sale of Services (P100,000 x 1%)
69. 69
INTEREST EXPENSE
REQUISITES for DEDUCTABILITY
A.These must be an indebtedness;
B. There should be an interest expense paid or
incurred upon such indebtedness;
C.The indebtedness must be that of the taxpayer;
D. The indebtedness must be connected with the
taxpayer’s trade, business or exercise of
profession;
E. The interest expense must have been paid or
incurred during the taxable year;
70. 70
F. The interest must have been stipulated in
writing;
G.The interest must be legally due;
H. The interest payment arrangement must
not between related taxpayers;
I. In case of interest incurred to acquire
property used in trade, business or exercise
of profession, the same was not treated as a
capital expenditure.
71. 71
INTEREST
In General
The amount of interest paid or incurred
within the taxable year on indebtedness in
connection with the taxpayer profession, trade
or business shall be allowed as deduction from
gross income: Provided, however, that the
taxpayer’s otherwise allowable deduction for
interest expense shall be reduced by an
amount equal to the 33%of the interest
income subjected to final tax:
72. 72
Example:
Assume that a taxpayer incurred in 2010, interest
expense amounting to P100,000. This is
“OTHERWISE ALLOWABLE DEDUCTION FOR
INTEREST EXPENSE” but it will be reduced by an
amount equal to the prescribed percentage of
interest income subjected to the final tax.Thus, if in
2010, the taxpayer received P60,000 interest income
on which the final tax was withheld and remitted to
the BIR by the payor of such income, then the
deductible amount of interest will be computed as
follows:
74. 74
TAXES
All taxes are deductible except:
1. Income
2. Estate Tax
3. Energy Tax
4. Special Assessment Tax
5. Value Added Tax
6. Amnesty Tax
7. 10% Penalty Tax on undue
accountabilities of profit
8. Penalty (25% surcharge, 50% surcharge
compensation payment)
75. 75
LOSSES
Requisites for the deductibility of a loss.
1. The loss must be incurred in trade, profession, or
business of the taxpayer, or any transaction entered
into for profit;
2. It must be actually sustained within the taxable year;
3. It must be evidenced by a closed and completed
transaction;
4. It must not be compensated for by insurance or other
form of indemnity; and
5. The taxpayer has filed a sworn declaration of loss
within 45 days after the date of the occurrence of
casualty or robbery, theft, or embezzlement.
76. 76
Requirement for the substantiation of a loss.
The taxpayer bears the burden of proving and
substantiating his claim for deduction for loss and
should com,ply with the following substantiation
requirements:
1. A sworn declaration of loss must be filed within
the period prescribed; and
2. Proof of the elements of the loss claimed, such as
the actual nature and occurrence of the event and
the amount of the loss
77. 77
Bad Debts – The requisites for deductibility of bad
debts are:
1.There must be an existing indebtedness due to the
taxpayer which must be valid and legally demandable;
2. The same must be connected with the taxpayer’s
trade, business or practice of profession;
3. The same must not be sustained in transaction
entered into between related parties;
78. 78
4. The same must be actually charged off the books
of accounts of the taxpayer as of the end of the
taxable year;
5. The same must be actually charged off the books
of accounts of the taxpayer as of the end of the
taxable year;
* Debt is charged-off within the taxable year.
Partial writing-off is not allowed, it must be
charged-off in full or not at all. (Fernandez
Hermanos. Inc. vs. Comm.2DCRA552)
79. 79
DEPRECIATION
Requisites that must concur the deduction or
Depreciation from Gross Income
• The allowance for depreciation must be
reasonable;
• It must be for property used in the trade or
business;
• It must be charged off during the taxable year; and
• A statement on the allowance must be attached to
the return.
80. Expenses Allowable to Private
Educational Institutions – In addition
to the expenses allowable as deductions a
private education institution may at its
option elect their: (a) to deduct
expenditures otherwise considered as
capital outlays of depreciable assets
incurred during the taxable year for the
expansion of school facilities or (b) to
deduct allowance for depreciation.
81. RESEARCH AND DEVELOPMENT EXPENDITURES
Methods of treating research and development
The Taxpayer has the option to treat research and
development expenditures under one of the following
two methods
1. Currently deductible as ordinary and necessary
expense
• Research or Development expenditures paid or
incurred by a taxpayer during the taxable year in
connection with his trade, business or profession
and are not chargeable to capital account may be
deducted as expenses
81
82. 2. Treatment as deferred expenses
• Deferred expenses are allowable as deduction
ratably over a period of no less than 60
consecutive months beginning with the month in
which the taxpayer first realizes benefits from the
expenditures.
82
83. CHARITABLE AND OTHER
CONTRIBUTION
Corporation or association to whom
contributions or gifts may be made or paid
and claimed as deduction, the amount of
which is subject to limitations.
The limitation is 10% for individual and 5% for
corporations, of the taxable income derived
from trade, business or profession.
83
84. CONTRIBUTION DEDUCTIBLE IN FULL
1. Donation to the Government
2. Donation to Certain Foreign Institutions or
International Organizations
3. Donation to Accredited Nongovernment
organization
84
85. 85
ITEMS NOT DEDUCTIBLE
1. Personal, living or family expenses;
2. Any amount paid out for new building or for
permanent improvements, or betterment made to
increase the value of any property or estate;
3. Any amount expanded in restoring property or in
making good the exhaustion thereof for which an
allowance is or has been made; or
4. Premiums paid on any life of any officer or
employee, or of any person financially interested in
any trade or business carried on by the taxpayer,
individual or corporate.
86. REVENUE REGULATIONREVENUE REGULATION
NO. 2-2011NO. 2-2011
Filing of Income Tax Return and/or
Annual Information Return by
Individuals, including Estates and Trusts
86
87. 87
RETIREMENT PLAN
• Benefit received as a result of voluntary
resignation are taxable. Reason: It is a cause
within the control of the said official or
employee.
• The exemption holds regardless of the
employee’s age and length of service.
• The law does not require that the exclusion
be enjoyed once.
• Separation of employee due to dissolution
of a law firm is cause the control of said
employee.
88. 88
• Compulsory retirement – caused beyond
the control of the employee.
• Terminal leave pay is excluded from gross
income. Compulsory retirement may be
considered as a cause beyond the control of
the said official employee. Consequently, the
amount received by way of commutation of
his accumulated leave credits as a result
thereof falls within the enumerated
exclusion from gross income.
89. 89
RETIREMENT/PENSION PLANRETIREMENT/PENSION PLAN
1. Employer must have established a pension plan
2. Pension plan must reasonable or actuarially sound
3. Funded by the employeer and employee
4. Amount contributed by the employer must not be
subject to his control
5. Payment has not been allowable as deduction
before
6. Apportioned over a period of ten (10) consecutive
years beginning with the year in which the transfer
in payment was made.
90. Requisites of a reasonableRequisites of a reasonable
retirement benefit planretirement benefit plan
1. It must be a definite written program setting forth all
provisions essential for qualifications;
2. It must be permanent and continuing program unless
sooner terminated by virtue of a valid business reason;
3. It must cover at least 70% of all officials and
employees.
4. It must provide for the non-diversion of the corpus.
5. It must not provide for discrimination in contributions
or benefits in favor of officials and employees who are
officers, shareholders, supervisors or highly
compensated officers;
90
91. 91
Private retirement benefit planPrivate retirement benefit plan
Under Republic Act No. 4917, retirement
benefits received by employees of private
firms in accordance with a reasonable
private benefit plan maintained by the
employer are exempt from all taxes,
provided that the retiring employees has
been in the service of the same employer
for at least ten (10) years and is not less
than fifty (50) years of age at the time of his
retirement.
92. 92
RETIREMENT BENEFITS, PENSIONS,RETIREMENT BENEFITS, PENSIONS,
GRATUITIESGRATUITIES
• Retirement benefits received by officials and
employees of private firms, individuals or
corporations.
• Reasonable private plan maintained by the
employer duly approved by the BIR for exclusive
benefit of the members-employees;
• Retiring official or employee who has rendered at
least 10 years of service;
• At least 50 years of age at the time of the
retirement;
93. 93
• The benefit of exclusion shall be
availed of only once.
• Even if the member has attained
50 years of age with at least ten
years of service, if the
employee-member is still on
active employment with the
company.
94. 94
Separation benefits due to death, sickness or
other physical disability or for any cause
beyond the control of the said official or
employees
• Any amount received from an employer as
result of separation from service due to
sickness is exempt from all taxes.
• Separation benefits paid to retrenched
employees as a consequence of either the
sale of the entire business to another
corporation or the cessation of the
employer’s business are exempt from
income tax.
95. 95
Imposition of Improperly AccumulatedImposition of Improperly Accumulated
Earnings TaxEarnings Tax
A. In General – In addition to other taxes
imposed, there is hereby imposed for each
taxable year on the improperly accumulate
taxable income of each corporation, an
improperly accumulated earnings tax equal
to ten percent (10%) of the improperly
accumulated taxable income.
96. 96
Corporations not subject to IAETCorporations not subject to IAET
•Banks and other non-bank financial
intermediaries;
•Insurance companies;
•Publicly-held corporations;
•Taxable partnerships;
•General professional partnerships;
•Enterprises duly registered with the Philippine
Economic Zone Authority (PEZA) under R.A.
No. 7916, and enterprises registered pursuant
to the Bases Convertion and Development Act
of 1992 under R.A. No. 7227.
97. 97
PERSON REQUIRED TOPERSON REQUIRED TO
DEDUCT & WITHHOLDDEDUCT & WITHHOLD
a. In general, any juridical person, whether or
not engaged in trade or business;
b. b. an individual, with respect to payments
made in connection with his trade or
business.
c. c. All government offices including
government owned or controlled
corporation, as well as provincial, city,
municipal governments and barangays.
98. 98
Types of Withholding TaxesTypes of Withholding Taxes
Withholding Tax on Gross Compensation
Expanded or Creditable Withholding Tax
◦ Service Income
◦ Purchases of goods
Final Withholding Tax (Passive Investment Income)
◦ Interest, Dividends, Royalties, Prizes, Winnings and Capital
Gain
Withholding Tax on Government Money Payment
◦ Income Tax
◦ VAT
◦ Percentage Tax
Quarterly Withholding Tax
◦ Individual Engage in Business or Profession
◦ Corporation
99. 99
Duties & Obligations of aDuties & Obligations of a
Withholding AgentWithholding Agent
To register
To deduct and withhold
To remit the tax withheld
To file withholding tax returns
To issue withholding tax
certificate
100. Time of WithholdingTime of Withholding
A. Ordinarily, the obligation of the payor to deduct
and withhold arises:
◦ at the time an income payment is paid or payable.
◦ income payment is accrued or recorded as an expense
or asset,
whichever is applicable in the payor’s books, whichever is
comes first.
The Term “payable” refers to the date the obligation becomes
due, demandable or legally enforceable
100
101. Time of WithholdingTime of Withholding
B. When income is not yet paid or payable
but has been recorded as an expense or
asset, whichever is applicable, in the
payor’s books:
◦ Last month of the return period in which the
same is claimed as an expense or amortized
for tax purpose
101
102. Time of WithholdingTime of Withholding
Withholding tax on compensation
Compensation actually or
Constructive paid
Constructively paid when it credited to the
account of or set apart for an employee
so that it may de drawn upon by him at
ay time although not then actually
reduced to possession
103. Types of Withholding TaxesTypes of Withholding Taxes
Withholding Tax on Gross Compensation
Expanded or Creditable Withholding Tax
◦ Service Income
◦ Purchases of goods
Final Withholding Tax (Passive Investment Income)
◦ Interest, Dividends, Royalties, Prizes, Winnings and Capital
Gain
Withholding Tax on Government Money Payment
◦ Income Tax
◦ VAT
◦ Percentage Tax
Quarterly Withholding Tax
◦ Individual Engage in Business or Profession
◦ Corporation
103
107. Tax Due = Tax WithheldTax Due = Tax Withheld
Tax Payer A B C
Income Tax
(Jan. to Dec.) 30,000 30,000 30,000
Less Tax
Withheld (Jan. to
Nov.) 28,000 33,000 30,000
Withholding Tax
for December
Refund Jan. 20
2,000
None
None
3,000
None
None
107
Example:
109. 109
The minimum wage earners as defines in
this Code shall be exempt from the payment of
income tax on their taxable income: provided,
further, that the holiday pay, overtime pay,
night shift differential pay and hazard pay
received by such minimum wage earners shall
likewise be exempt from income tax.
110. 110
Holiday pay, overtime pay, night shift differential
pay and hazard pay earned by the aforementioned MWE
shall likewise be covered by the above exemption.
Provided, however, that an employee who receives/earns
additional compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the allowable
statutory amount of P30,000.00, taxable allowances and
other taxable income other than the SMW, holiday pay,
overtime pay, hazard pay and night shift differential pay
shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from
income tax and, consequently, from withholding tax.
111. 111
MWEs receiving other income, such as income
from the conduct of trade, business, or practice of
profession, except income subject to final tax, in
addition to compensation income are not exempted from
income tax on their entire income earned during the
taxable year. This rule, notwithstanding, the SMW,
Holiday pay, overtime pay, night shift differential pay
and hazard pay shall still be exempt from withholding
tax.
112. 112
The following shall be considered as “de minimis”
benefits not subject to income tax, hence, not subject to
withholding tax on compensation income of both
managerial and rank and file employees:
a. Monetized unused vacation leave credits of
employees not exceeding ten (10) days during the
year and the monetized value of leave credits paid
to government officials and employees;
b. Medical cash allowance to dependents of
employees not exceeding P750.00 per employee
per semester of P125 per month;
DE MINIMIS
113. 113
c. Rice subsidy of P1,500.00 or one (1)
sack of 50-kg. rice per month
amounting to not more than
P1,500.00;
d. Uniforms and clothing allowance not
exceeding P5,000.00 per annum;
e. Actual yearly medical benefits not
exceeding P10,000.00 per annum;
f. Laundry allowance not exceeding
P300.00 per month;
114. 114
g. Employees achievement awards, e.g., for
length of service or safety achievement,
which must be in the form of a tangible
personal property other than cash or gift
certificate, with an annual monetary value
not exceeding P10,000.00 received by
the employee under an established
written plan which does not discriminate
in favor of highly paid employees;
115. 115
h. Gifts given during Christmas and
major anniversary celebrations not
exceeding P5,000.00 per
employee per annum;
i. Daily meal allowance for overtime
work not exceeding twenty five
percent (25%) of the basic
minimum wage.
116. 116
The amount of “de minimis” benefits
conforming to the ceiling herein prescribed
shall not be considered in determining the
P30,000.00 ceiling of ‘other benefits’
excluded from gross income under Section
32(b)(7)(e) of the Code. Provided that, the
excess of the ‘de minimis’ benefits over
their respective ceilings prescribed by these
regulations shall be considered as part of
‘other benefits’ and the employee receiving
it will be subject to tax only on the excess
over the P30,000.00 ceiling.
117. 117
Any amount given by the
employer as benefits to its
employees, whether classified as
“de minimis” benefits or fringe
benefits, shall constitute as
deductible expense upon such
employer.
118. Final Withholding TaxFinal Withholding Tax
Interest
Dividend
Prizes
Winning
Royalty
Capital Gain
118
119. DividendsDividends
Cash and/or Property Dividends – 10%
A final tax at the following rates shall be
imposed upon the cash and/or property
dividends actually or constructively received
by an individual (except a general
professional partnership)
10% beginning January 2, 2000
119
120. Capital Gain Tax on sale of Shares of Stock
Capital gains forms
ales etc. of UNLISTED
shares –
Not over P100,000
Over P100,000
5%
10%
• Capital gains from
sale of LISTED &
TRADE shares –
½ of 1% of gross
selling price
same
120
122. WithholdingTax on Lease ofWithholdingTax on Lease of
PropertiesProperties
1. Real properties – Five percent (5%)
2. Personal properties – On gross
rental or lease in excess of Ten
Thousand Pesos (P10,000.00)
123. WithholdingTaxes Income payments toWithholdingTaxes Income payments to
certain contractors – two percent (2%)certain contractors – two percent (2%)
Computer services, computer
programmers, software/program
developer/designer-internet service
providers, web page designing, computer
data processing, conversion or base
services and other computer related
activities;
124. Annual information Return (BIR Form
1604CF/1604E) including the Alphabetical
List of Employees and Income Recipient
•10 or less number of employees or payees
•Manual submission – 3 copies of
604CF/1604E + alphalist of employees and
income payees.
•Diskette submission – ten (10) or more
number of employees or payees who are
recipient of income payments subject to
creditable and final withholding tax, are
required to submit 3.5 inch floppy disk
125. REVENUE REGULATIONSREVENUE REGULATIONS
NO. 2-2006NO. 2-2006
Mandatory Attachments of the
Summary Alphalist of Withholding
Agents of Income Payments
Subjected to Tax Withheld at Source
(SAWT) to Tax Returns with Claimed
Tax Credits
126. Mandatory SubmissionMandatory Submission
• Summary Alphalist of Withholding Agents/Payors of
Income Payments subjected to Creditable
Withholding Tax at Source (SAWT) submitted by the
payee-recipient of income.
• Monthly Alphalist of Payees (MAP) Annex “B” is a
consolidated alphalist of income earners from whom
taxes have been withheld by the payor of income
127. Mandatory SubmissionMandatory Submission
Persons required to submit Summary Alphalist of
Withholding Agents of Income Payments subjected to
Withholding Taxes (SAWT)
• SAWT in hard copy as attachment to the required
tax return.
• Submit SAWT electronically in a 3.5 inch floppy
diskette.
• All taxpayers required to file the EFPS, regardless of
the number of withholding agents/payor of income,
are strictly required to attached the electronic copy
of the SAWT to the electronic return
128. Mandatory SubmissionMandatory Submission
Persons required to submit Monthly Alphalist of Payees
(MAP)
• All withholding agents enumerated under Sections
2.57.3,4.114,5.116 of Revenue Regulations No. 2-98,
not more than ten (10) income payees-income per
return.
• Have more than ten (10) income payees-income
recipient per return.
• All taxpayers remitting taxes withheld thru the EFPS.
129. Mandatory SubmissionMandatory Submission
Returns required to be filed with SAWT and Certificate
Tax Withheld at Source
• Individual Quarterly IncomeTax Return
• Individual Annual Income Tax Return
• Individual Annual Income Tax Return for Compensation income Earners
(for those required to file an ITR)
• Corporate Quarterly IncomeTax Return
• Corporate Annual Income Tax Return
• QuarterlyVAT Return
• MonthlyVAT Declaration
• Monthly PercentageTax Return
• PercentageTax Return under Special Laws
130. Mandatory SubmissionMandatory Submission
Returns required to be filled with MAP
• Monthly Remittance Return of Creditable Income Taxes
Withheld (Expanded Withholding Tax)
• Monthly Remittance Return of Final Taxes Withheld
• Monthly Remittance Return of Value Added Tax and Other
Percentage Taxes (Under RAs1051, 4649, 8241 and 8424)
131. CWT BEING CLAIMED ASCWT BEING CLAIMED AS
CREDITCREDIT
(income tax,VAT, percentage tax)(income tax,VAT, percentage tax)
1. Quarterly and annual income tax returns (Forms
1700, Q,1700, 1701Q, 1701, 1702Q and 1702
2. Monthly and quarterly VAT returns (Forms 2550Q
and 2550M)
3. Monthly percentage tax returns (Form 2551)
4. Percentage tax return order special laws (Form
2553)
132. MAP (Monthly Alphalist of Payees)MAP (Monthly Alphalist of Payees)
Reporting CWT or FWT withheld on Income
Payees
1.Monthly return of creditable income taxes
withheld (Form 1601E)
2.Monthly return of final income taxes withheld
(Form 1601F)
3.Monthly return of VAT and other percentage
taxes withheld (Form 1600)
133. FORMATFORMAT
Up to 10
withholding agents or income
payees
In hard copy
Taxpayers with more than 10
withholding agents or income
payees
In 3.5 diskette or CD inside a
sealed letter envelope, in excel
or own extract programs
validated through the BIR
validation module; or using the
BIR date entry module
EFPS fillers In electronic form attached to
electronic return
134. PenaltiesPenalties
P1,000 – for each failure to file the
required alphalist nut not to exceed
P25,000 in a year on all such failures
The penalty does not exempt the
taxpayer from the required
submission of the documents
136. 136
Rank and File Employees - means all
employees who are holding neither
managerial or supervisory position.
Managerial Employees - is one who is
vested with powers or prerogatives to
lay down and execute management policies
and/or to hire, transfer, suspend, lay-off,
recall, discharge, assign or discipline
employees.
137. 137
Special Treatment of Fringe Benefit
• Imposition of a final tax of
32% effective Jan. 1,2000 and thereafter
• Basis of Computation
Grossed-up monetary value of fringe
benefit furnished or granted to the
employee by the employer, whether an
individual or a corporation.
138. 138
FRINGE BENEFIT, DEFINED
Fringe benefit means any good, service or other benefit
granted in cash or in kind by an employer to an
individual employee (except rank and file employees)
such as, but not limited to the ff:
1. Housing
2. Expense Account
3. Vehicle of any kind
4. Household personnel
5. Interest in loan at less than market rate
139. 139
FRINGE BENEFIT, DEFINED
6. Membership fees, dues and other expenses born by
the employer for the employee in social and athletic
clubs
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to employee or his dependent
10.Life or health insurance and other non-life insurance
premiums.
141. Categories of exemptionsCategories of exemptions
1. Exempt persons – the seller or the buyer is
not liable to value added tax; or
2. Exempt transactions – transactions in
certain goods, properties or services, which
are not subject to value added tax, even if
such goods, properties or services are sold
by a VAT registered person, and regardless
of the annual gross sales or receipts derived
therefrom.
142. VAT-Exempt TransactionsVAT-Exempt Transactions
Educational services rendered by
private educational institutions duly
accredited by the Department of
Education (DepED), the Commission
on Higher Education (CHED) and
the Technical Education and Skills
Development Authority (TESDA)
and those rendered by government
educational institutions;
143. VAT on Importation of GoodsVAT on Importation of Goods
In general – VAT is imposed on goods
brought into the Philippines, whether for
use in business or not.
Applicability and payment – The VAT on
importation shall be paid by the importer
prior to the release of such goods from
customs custody
Sales, transfer or exchange of imported
goods by tax-exempt persons.
145. Revenue Regulations No. 7-2009Revenue Regulations No. 7-2009
Implementing the Electronic
Documentary Stamp Tax System
System to Replace the Documentary
Stamp Tax Electronic Imprinting
Machine
146. Any taxpayer belonging to the following
industries is mandated to use the web-based
eDST System in the payment/remittance of
its/his/her DST liabilities and the affixture of
the prescribed documentary stamp on
taxable documents, except those expressly
exempted by the Commissioner of Internal
revenue, on meritorious grounds
Educational institution, in respect to the
issuance of taxable certificates such as
Diploma, Transcript of Records and other
documents taxable as certificates
148. R.A. No. 9243, An Act Rationalizing the
provision of the Documentary Stamp Tax of the
National Internal Revenue Code.
New Rate of DST on Original issue of shares
stocks.
The rate of DST on the original issue of shares of
stock was revised from One Peso and fifty
centavos (P1.50) on each Two Hundred Pesos
(P200) to “One pesos (P1.00) on each Two
Hundred Pesos (P200) or fractional part thereof,
of the par value, of such shares of stock.
149. In all cases where the issued shares are
with par value, the basis of the DST
shall be the par value thereof. For
shares of stock without par value, the
basis shall be the actual consideration
for the shares of stock. However, in the
case where shares of stocks without
par value are issued as stock dividends,
the basis of the DST shall be the actual
value represented by each share.
150. New Rate of DST on all debt instrumentsNew Rate of DST on all debt instruments
All such debt instruments are now
subject to DST of “One Peso (P1.00)
on each two hundred pesos (P200).
Or fractional part thereof, of the issue
price of any such debt instrument, from
the previous varying rates of one peso
and fifty centavos (1.50) on each two
hundred pesos (P200).
151. DST on Domestic Bills of Exchange orDST on Domestic Bills of Exchange or
DraftsDrafts
Stamp Tax on all Bills of Exchange or
Drafts on all bills of exchange (between
points within the Philippines) or grafts,
there shall be collected a documentary
stamp tax of Thirty centavos (P0.30) on
each Two hundred pesos (P200), or
fractional part thereof, of the face, value
of any such bill of exchange or draft.
152. Stamp TAX on Lease and otherStamp TAX on Lease and other
Hiring AgreementsHiring Agreements
Three pesos (P3.00) fees the first
Two thousand pesos (P2,000) or
fractional part thereof and on
additional One pesos (P1.00) fee
every One thousand pesos P1,000
or fractional part thereof
153. Thank YouThank You
andand
May GOD Bless YouMay GOD Bless You
in all the days of your life.in all the days of your life.
