Implementing the Income Tax Provisions
of Republic Act No. 10963, also known
as
TAX REFORM FOR
ACCELERATION AND
INCLUSION ACT
( T R A I N L AW )
ATTY JOSE DULA II, CPA
Professor of Accounting and Business Law
U n i v e r si t y o f M a k a t i ( 2 0 1 9 - P r e s e n t )
Tax and Labor Practitioner
Bachelor of Science in Management
Accounting
CUM LAUDE
U n i v e r si t y o f M a k a t i - C l a ss o f 2 0 1 2
Bachelor of Science in Accountancy
MAGNA CUM LAUDE
U n i v e r si t y o f M a k a t i - C l a ss o f 2 0 1 3
Bachelor of Laws
12TH HONORABLE MENTION
2 0 1 8 B A R PA S S E R
A r e l l a n o U n i v e r s i t y S c h o o l o f L a w - C l a ss o f 2 0 1 8
Definition, Concept and Purpose of Taxation
Taxation is the inherent power of the Sovereign, exercised
through the legislature to impose burdens upon subjects and
objects within its jurisdiction for the purpose of raising revenues
to carry out the legitimate objects of the government.
Power of Taxation as distinguished from Police
Power and Power of Eminent Domain
TAXATION POLICE POWER EMINENT DOMAIN
Purpose
Exercised to promote public welfare through
Levied for the purpose of raising revenue. Taking of private property for public use.
regulations.
Amount of Exaction
Limited to cover the cost of regulation, No exaction. Compensation is paid by the
There is no limit.
issuance of the license or surveillance. government.
Benefits Received
No direct benefits are received, “damnum Direct benefit results in the form of just
No special or direct benefit is received.
absque injuria”. compensation.
Transfer of Property of Rights
No transfer but only restraint on the exercise Property is taken by the government upon
Taxes paid become part of the public funds
of property rights exist. payment of just compensation.
Scope
Affects all persons, property, privileges, and Affects only the particular property
Affects all persons, property and excises
even rights. comprehended
Basis
Public necessity and the right of the State
Public necessity. and the public to self-protection and self- Necessity of the public for private property.
preservation.
Lifeblood Theory
The government can neither exist nor endure
without taxation. Taxes are the lifeblood of the
government and their prompt and certain
availability is an imperious need (Bull vs. United
States, 295 U.S. 247).
Purpose of Taxation
1. Revenue-Raising
To provide funds with which the state delivers the basic services to the people.
2. Non- Revenue / Special or Regulatory
Regulation – Taxation has a regulatory purpose as in the case of taxes levied on
excises or privileges like those imposed on tobacco and alcoholic products, or
amusement places like night clubs, cabarets, cockpits, etc.
Promotion of General Welfare – Taxation can be used to implement police
power in order to promote the general welfare of the people.
Purpose of Taxation
Reduction of Social Inequity – This is made possible through the progressive
system of taxation where the objective is to prevent the undue concentration of
wealth in the hands of few individuals. Progressivity is keystoned on the principle
that those who are able to pay should shoulder the bigger portion of the tax
burden.
Encourage Economic Growth – In order to promote the country’s economic
growth the law, at times, grants incentives or tax exemptions to encourage
investments.
Protectionism – It protects local industries from foreign competition i.e.
protective tariffs and custom duties.
Scope of Legislative Power to Tax
1.The determination of purposes for which taxes shall be levied
provided it is for the benefit of the public.
2.The determination of subjects of taxation such as the person,
property or occupation within its jurisdiction.
3.The determination as to the amount or rate of tax unless
constitutionally prohibited.
4.The determination as to the kind of tax to be collected (i.e. property
tax, income tax, inheritance tax, etc).
5.The determination of agencies to collect the taxes.
6.The power to specify or provide for administrative and judicial
remedies
7.The power to grant tax exemptions and condonations.
Principles of Sound Tax System
Fiscal Adequacy
It simply means that the sources of revenues must be adequate to meet government
expenditures and their variations (AbakadaGuro vs. Ermita, G.R. No. 168056, September 1,
2005).
Administrative Feasibility
Tax laws must be capable of effective and efficient enforcement.
Theoretical Justice
The tax should be collected on the basis of ability to pay through a progressive system of
taxation. Thus, the incidence or burden of taxation should fall more on those who could afford.
Inherent Limitations
Public purpose
A revenue measure must be laid for public purpose it is the legislature who determines ‘public purpose’ (Dimaampao, p. 37).
International Comity
Posits that the property of a foreign state or government may not be taxed by another.
Non-delegation
General Rule
Since the power of taxation is a power that is exercised by the Congress as delegates of the people, then as a general rule,
Congress could not re-delegate this delegated power.
Exemption of Government Entities, Agencies, and Instrumentalities
Agencies performing governmental functions are tax-exempt.
Situs of Taxation
the place or authority that has the right to impose and collect taxes.
INDIVIDUAL CITIZEN AND
INDIVIDUAL RESIDENT ALIEN
OF THE PHILIPPINES
In general, the income tax on the individual's taxable
income shall be computed based on the following
schedules as provided under Sec. 24(A)(2a) of the Tax
Code, as amended:
INDIVIDUALS EARNING
PURELY COMPENSATION
INCOME
lndividuais earning purely compensation
income shali be taxed based on the income
tax rates prescribed under
subsection (A) here
Taxable income for compensation earners is the gross
compensation income less non- taxable income/benefits such as but
not limited to the Thirteenth (13th) month pay and other benefits
(subject to limitations, see Section 6(G)(e) of these Regulations), de
minimis benefits, and employee's share in the SSS, GSIS, PHIC,
Pag-ibig contributions and union dues.
Husband and wife shall compute their individual income tax
separately based on their respective taxable income; if any income
cannot be definitely attributed to or identified exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
taxable income.
Minimum wage earners shall be exempt from the payment of
income tax based on their statutory minimum wage rates. The
holiday pay, overtime pay, night shift differential pay and hazard
pay received by such earner are likewise exempt.
* Taxpayer is tax exempt as
an MWE. The statutory
minimum wage as well as the
holiday pay, overtime pay,
night shift differential pay
and hazard pay received by
such MWE are specifically
exempted
from income tax under the
law.
SELF-EMPLOYED INDIVIDUALS EARNING INCOME
PURELY FROM SELF-EMPLOYMENT OR PRACTICE OF
Individuals earning income purely from self-employment and/or practice of profession whose
PROFESSION
gross sales/receipts and other non-operating income does not exceed the value-added tax
(VAT) threshold as provided under Section 109 (BB) of the Tax Code, as amended, shall have
the option to avail of:
1. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other non- operating income
in excess of fwo hundred fifty thousand pesos (P250,000.00) in lieu of the graduated
income tax rates under Section 24(A) and the percentage tax under Section 1 16 all
under the Tax Code, as amended.
ATTY. Joseph Zapata, a customs broker and a lawyer, signifies his intention to pay 8% income tax. His
income for both professions are as follows:
Professional Fee (from Legal Fees) – Php 600,000
Professional Fee (as broker) – Php 400,000
Compute and prepare the necessary Income Tax Return
INDIVIDUALS EARNING INCOME BOTH FROM
COMPENSATION AND FROM SELF-EMPLOYMENT (BUSINESS
OR PRACTICE OF PROFESSION)
For mixed income earners, the income tax rates applicable are:
1. The compensation income shall be subject to the tax rates prescribed under Section 24(A)(2)(a) of the Tax Code,
as amended; AND
2. The income from business or practice of profession shall be subject to the following:
A.lf the gross sales receipts and other non-operating income do not exceed the VAT threshold, the individual has the
option to be taxed at:
1 Graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax Code, as amended; OR
2 Eight percent (8%) income tax rate based on gross sales/receipts and other non-operating income
B. If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the individual shall be
subject to the graduated income tax rates prescribed under Section 24(A)(2)(a) of the Tax code, as amended
INCOME TAX RATES ON
CERTAIN PASSIVE INCOME
The following passive income shall be
subject to the following final income tax
rates:
a. interests from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements 20%;
SECTION 8. DEDUCTIONS FROM GROSS INCOME
In general, there shall be allowed at the option of the
taxpayer, itemized deductions or an Optional
StandardDeduction (OSD) at the rate of forty percent
(40%). In case of individual taxpayers, OSD shall be
computed at the rate of forfy percenl (40%) of gross
sales/receipts, as the case may be Corporations may elect
standard deduction in an amount not exceeding forty
percent (40%) of its gross income.
However. no deductions shali be allowed to individual
taxpayers eaming compensation income arising fiom
personal services rendered under an employer-empioyee
relationship, and those who opted to be taxed at 8% income
tax rate on their income from business/practice of
profession.
INDIVIDUALS NOT
REQUIRED TO FILE
INCOME TAX RETURN
A. An individual earning purely compensation income whose taxable income does not exceed Two
Hundred Fifty Thousand pesos (P250,000.00);
The Certificate of Withholding filed by the respective employers, duly stamped "Received" by
the Bureau, shall be tantamount to the substituted filing of income tax returns by said employees
B. An individual whose income tax has been correctly withheld by his employer, provided that
such individual has only one employer for the taxable year - the Certificate of Withholding filed by the
respective employers, duly stamped "Received" by the Bureau. shall be taniarnouht to the substituted
filing of income tax returns by said employees;
C. An individuat whose sole income has been subjected to final withholding tax;
D. A rninimum wage earner as defined in these regulations - The Certificate of Withholding fileJ
by the respective employers, duly stamped "Received" by the Bureau. shall be tantamount to the
substituted filing of income tax returns by said employees
In all cases, all individuals deriving compensation income, regardless of the amount, from two (2)
or more concurrent or successive employers at any time during the taxable year are not qualified for
substituted filing. Thus, they are still required to file a return'
SECTION 10. TIME OF FILING OF
INDIVIDUAL INCOME TAX
RETURN
Individuals engaged in business/practice of profession, regardless of amount of
sales/receipts, are required to file quarterly income tax return on or before May 15,
August 15 and November 15 for the first, second and third quarters of the current
year, respectively pursuant to Section 74(A) of the Tax Code, as amended; and to
file an annual income tax return, not later than the fifteenth (15th) day of the fourth
month following the close of the calendar year or April 15 as provided under
Section 51(C)(1) of the Tax Code, as amended.
SECTION 11. INSTALLMENT PAYMENT
OF INDIVIDUAL INCOME TAX.
When the tax due is in excess of Two thousand pesos (P2,000.00), the
individual may elect to pay the tax in two (2) equal installments, in
which case, the first installment shall be paid at the time the annual
income tax return is filed and the second installment paid on or before
October 15 following the close of the calendar year.
SECTION 14. REPEALING
CLAUSE
All revenue issuances that are inconsistent with the
provisions of these Regulations are hereby amended,
modified or repealed accordingly.
SECTION 15. EFFECTIVITY
These regulations are effective
beginning January 1,2018, the
effectivity date of the TRAIN Law.
SOCIALS
Jose Dula II +639173142707
THANK YOU!
