Courtesy For Sir DAVE NAMBATAC For All of

The Following Information:

INHERENT POWERS OF THE STATE -

NOTES 1 Because the state exists, these powers exist.

Taxation is a means or process by which the The following are the inherent powers of the
sovereign thru its lawmaking body raises state:
income to defray the necessary expenses of
Taxation power – enforce proportional
the government.
contribution

Police power – to protect the people

Theory of Taxation
Eminent domain – take private properties for
The power of taxation proceeds upon the public use
theory that the existence of government is a
necessity and that it cannot continue without
the means to pay its expenses. The LIMITATIONS OF TAXATION POWER
government needs funds in order to provide
A. Inherent limitations
public services.
B. Constitutional Limitations

Basis of Taxation
Inherent limitations (TIPEN)
The mutuality of support between the people
and the government is referred to as the basis 1. Territoriality
of taxation. The people pay taxes and the
government provides public services. 2. International comity

3. Public Purpose

Ability to Pay Theory 4. Exemption of the government

Taxation should consider the ability of the 5. Non-delegation of the taxing power
taxpayer to pay. The greater the income, the
better capacity to contribute.
Territoriality of taxation

Taxes are imposed within the territory. The

Lifeblood doctrine Philippine government cannot impose taxes
Taxes are essential and indispensable to the outside its territorial jurisdiction. For
continued subsistence of the government. example, The Philippine government cannot
Just like in the human body, if there is no impose real property tax on land in Malaysia.
blood, there is no life.
International Comity religious and educational purposes
are exempt from property taxes.
There is supposed to be a mutual courtesy
6. Exemption from taxes of the revenue
and reciprocity among countries. As an
and assets of non-profit, non-stock
example, the embassy in the United States of
educational institutions
America in Manila is not subject to property
7. All revenues and assets actually,
taxes in our country.
directly and exclusively devoted for
educational purpose are not subject
to income tax, property tax and
Public purpose customs duties.
Taxes should not be used for the furtherance 8. Appropriations, revenue or tariff bills
of private interest. shall originate from the House of
Representatives.
9. Laws which allow spending and add
Exemption of the government income to the national treasury must
originate from the Lower House while
The government is exempt from taxes with Senate of the Philippines may make
exception. Income from governmental amendments.
functions is not subject to tax.

Situs of taxation
Non-delegation of the power of taxation
Situs is the place of taxation. For example,
The power to make tax laws is delegated by businesses are subject to tax in the place
the people to congress and what has been where the business is conducted.
delegated cannot be further delegated with
exceptions.
Prospectivity of tax laws

Constitutional limitations of the power of Tax laws apply from the date of effectivity
taxation onwards.

1. Those limitations embodied in the

Philippine constitution is called Non-compensation
constitutional limitations.
2. Progressive system of taxation Taxes are not subject to automatic set-off
3. Under the progressive system, tax
rates increase as the tax base
increases. Construction of tax law
4. Exemption of religious, charitable or
When the tax law is clear, implement the tax
educational entities, non-profit
measure. If there is no room for
cemeteries, churches and mosques.
interpretation, the only room is
5. Those land, buildings and
implementation.
improvements actually, directly and
exclusively use for charitable,
If there is a doubt, the tax law should be Tax amnesty
construed against the government and in
Tax amnesty is the forgiveness by the
favor of the taxpayer.
government its right to collect which includes
Let the government prove that the taxpayer is both civil and criminal liabilities.
covered by the tax law. Failure to prove on the
part of the government, the taxpayer is not
subject to the tax law. Tax condonation

This is forgiveness of the tax obligation on its

civil liabilities under certain justifiable
Interpretation of tax exemptions
grounds.
When the tax law exemption is clear, then the
taxpayer will be exempted.

If there is a doubt, the tax exemption is

construed against the taxpayer and in favor of
the government. Let the taxpayer prove that
exemption applies to him. Failure to prove on
the part of the taxpayer, the taxpayer is not
covered with the exemption.

Double taxation

This occurs when the same taxpayer is taxed

twice by the same tax jurisdiction for the
same thing. There is no law that prohibits
double taxation however discouraged if it
becomes oppressive and burdensome.

Tax evasion

Refers to illegal acts that reduce or avoid the

payment of tax illegally.

Tax avoidance

Reducing or avoiding payment of taxes using

legally permissible means.
NOTES 2 Classification Of Taxes:

As to subject matter:
TAX LAWS
a. Personal - Ex. Community tax
Sources of tax laws:
b. Property - Ex. Real estate tax
1. Constitution
c. Excise - Ex. Income tax
Ex. The constitution exempts properties from
property tax actually, directly and exclusively
used for charitable purposes. As to who bears the burden:
2. Statutes and presidential decrees a. Direct - income tax
Ex. RA 10963 or TRAIN Law b. Indirect - value added tax
3. Judicial decisions or case laws

Ex. CIR vs. Algue on Lifeblood doctrine As to purpose:

4. Executive orders and Batas Pambansa a. General- income tax
Ex. Executive Order No. 273 on value-added b. Regulatory - protective tariffs
tax

5. Local ordinances
As to authority:
6. Tax treaties and conventions with foreign
countries a. National - internal revenue taxes

7. Revenue Regulations b. Local - real estate tax

Revenue Regulation No. 29-2020

Title: Implements the provisions of RA 11494 Nature of Philippine Tax Law

relative to the tax exemption of certain
Philippine tax laws are civil and not political in
income payments.
nature. Our internal revenue laws are not
penal in nature.

Types of administrative Issuances:

• Revenue regulations Tax

• Revenue Memorandum Orders Tax is an enforced contribution levied by the

lawmaking body of the state to raise income
• Revenue Memorandum Circulars for public purpose.
• Revenue bulletins

• BIR ruling
Tax system 1. Fiscal Adequacy – source is enough to the
expenses
The tax system refers to the methods of
imposing, assessing and collecting taxes. The 2. Administrative feasibility – capable of
Philippine tax system is divided into two: the efficient and effective administration
national tax system and local tax system
3. Theoretical justice- should consider the
ability of the taxpayer to pay

Types Of Tax System According to Impact:

Progressive system is one that emphasizes Tax administration

direct taxes. Direct taxes cannot be shifted.
There are three branches of the government,
the executive, legislative and judiciary.

Regressive tax system is one than Tax administration refers to the management
emphasizes indirect taxes. Indirect taxes can of the tax system. Tax administration Is
be shifted by businesses to consumers. entrusted to the Bureau of Internal Revenue
(BIR) under the supervision and
administration of the Department of Finance
Tax Collection Systems: in the executive branch of the government.

Withholding system on income tax

The payor deducts the tax on income before Taxpayer classification for purposes of tax
releasing to the payee and remit to the administration
government.
• Large taxpayer

• Non-large taxpayers
Creditable withholding tax

Example: withholding tax on compensation

In taxation, conflict between the Generally
Final withholding tax Accepted Accounting Principles (GAAP) and
tax laws, the tax laws prevail.
Example: Final tax on interest from bank
deposits

Self-assessment method – the taxpayer

himself compute and determine his income,
fills-up the income tax returns and then files
and pays to the government.

Principles Of Sound Tax System (FAT)

NOTES 3 Citizens (AMEN)

Under the constitution, citizens are:

Capital vs. Income
1. Those who are citizens of the Philippines at
CAPITAL is a fund while INCOME is the flow the time of adoption of the Constitution on
of wealth February 2, 1987
return of capital vs. return on capital 2. Those whose fathers or mothers are
wealth vs. service of wealth citizens of the Philippines

Capital is a tree vs. Income is a fruit (based on 3. Those born before January 17, 1973 of
Madrigal case) Filipino mothers who elected Filipino
citizenship upon reaching the age of majority

4. Those who are naturalized in accordance

Only income is subject to income tax. with the law.
Capital is not subject to income tax.

Non-resident citizen
Types Of Income Taxpayers: Most of the time means 183 days or more
1. Individuals
• Citizen
i. Resident citizen Non-resident aliens
ii. Non-resident citizen Non-resident aliens engaged in business
(NRA-NETB)
More than 180 days stay
• Alien
i. Resident alien
ii. Non-resident alien (NRA) Taxable estates and trusts
1. NRA engaged in trade or
business Estates under judicial settlement are treated
as an individual taxpayer.
2. NRA not engaged in trade Trust is treated as an individual taxpayer if
or business irrevocably designated.
2. Corporations
• Domestic corporation
• Foreign corporation
General rules in income taxation
i. Resident foreign corporation
Individual taxpayers
ii. Non-resident foreign
Taxable on income earned:
corporation
• Resident citizen- within and without

• Non-resident citizen- within

• Resident alien- within

• Non-resident alien- within
NOTES 4
Income taxation schemes
Corporation Taxpayers
The following are the income taxation
Taxable on income earned:
• Final income taxation
• Domestic corporation- within and without
• Capital gains taxation
• Resident Foreign- within
• Regular income taxation
• Non-resident foreign- within

An item of gross income that is already

Situs of income subject to tax in one scheme will not be taxed
The situs of income is the place of taxation of by the other schemes.
income. Jurisdiction that has the authority to
impose tax.
Final Income taxation

1. Full taxes are withheld by the income payor

at source.

2. Recipient receives the income net of tax

3. Payor is the one required by law to remit

the tax to government

4. Recipient need not file an income tax

return

5. Tax withheld constitutes full tax due and

deemed final payments

EXAMPLE:

Mr. A is a depositor of a bank and earns an

interest income of P8,000 for the year. This
interest income is subject to 20% final tax or
P1,600.

1. Bank withheld the amount of P1,600

2. Recipient Mr. A receives P6,400 income net

of final tax

3. Bank will remit the P1,600 to government

4. Mr. A need not file an income tax return on ACCOUNTING PERIOD
this transaction
Accounting period is the length of time over
5. P1,600 withheld constitutes the full and which income is measured and reported.
final tax on that transaction.

Calendar year
Passive Income vs. Active Income
Accounting period that starts from January 1
Passive income is earned with less or even to December 31.
without active involvement of the taxpayer
Calendar year shall be used if the taxpayer is
individual.

Examples of passive income:

Interest income from banks Fiscal year

Dividends from domestic corporations Accounting period is any 12-month period

that ends on any day other than December
31.
Active or regular income arises from
The income tax return is due for filing on the
transactions requiring effort and undertaking
15th day of the fourth month following the
from the individual
close of the taxable year of the taxpayer.
Examples of active income
Taxpayer under the calendar year must file
• Compensation their annual income tax return for the current
period not later than April 15 of the following
• Business year.
• Professional

Leasehold improvement
Capital gains taxation When the lessee makes useful improvement
Capital gains tax is imposed on gain realized to the leased premises such as construction
on sale, exchange and other dispositions of of a building or fence is leasehold
certain capital assets improvement. If improvements benefit the
lessor when the useful life extends beyond
the lease term without demanding
There are only 2 types of capital gains subject reimbursement of its value, there are rules to
to capital gains tax: follow.

1. Capital gains on the sale of domestic Leasehold improvement can be reported as

stocks sold directly to buyer Outright method
2. Capital gains on the sale of real properties Spread-out method
not used in business.
NOTES 5
Rationale of Final Income Taxation
FINAL INCOME TAXATION
This is built upon the convenience of the
Final Income taxation taxpayer and government.
1. Full taxes are withheld by the income payor
at source.
Passive income subject to final tax
2. Recipient receives the income net of tax
Interest or yield from bank deposits or deposit
3. Payor is the one required by law to remit substitutes
the tax to government

4. Recipient need not file an income tax

return Short term deposit or made for a period of
less than 5 years is subject to 20% final tax on
5. Tax withheld constitutes full tax due and individual recipient.
deemed final payments
EXAMPLE:

Mr. A is a depositor of a bank and earns an

EXAMPLE: interest income of P8,000 for the year. This
Mr. A is a depositor of a bank and earns an interest income is subject to 20% final tax or
interest income of P8,000 for the year. This P1,600.
interest income is subject to 20% final tax or
P1,600.
Long term deposit or made for a period of not
1. Bank withheld the amount of P1,600 less than five years, for individuals are
2. Recipient Mr. A receives P6,400 income net exempted from final tax. However, if pre-
of final tax terminated or withdraw earlier, this will be
subjected to final tax rates depending on the
3. Bank will remit the P1,600 to government holding period.
4. Mr. A need not file an income tax return on EXAMPLE:
this transaction
Mr. A is earned interest income of P40,000 in
5. P1,600 withheld constitutes the full and a 5-year time deposit. The long-term deposit
final tax on that transaction. is exempt from final tax.
Final withholding tax system applies only to
certain passive income earned from sources
within the Philippines. Other passive income subject to final tax

Final tax rates apply to taxpayers other than: • Domestic dividend, in general

• Non-resident alien not engaged in trade or • Dividend income from REIT

business (NRA-NETB) • Share in the net income of a business
• Non-resident foreign corporation (NRFC) partnership
• Royalties, in general Intercorporate dividends

• Prizes exceeding P10,000 There is intercorporate dividend when a

dividend is declared by one corporation and
• Winnings
received by another corporation which is a
stockholder to the former.

Tax sparring rule 1. Dividends received by a domestic

corp. to another domestic corp. shall
Non-resident Foreign Corporation (NRFC) is not be subject to tax.
generally subject to 25% general final tax rate.
In tax sparring rule, the NRFC shall be subject 2. Dividends received by a resident
to a 15% final tax on dividend income instead foreign corp. to a domestic corp. shall
of the 25% if the country of domicile of NRFC not be subject to tax.
reduce or even exempt dividends from foreign
sources.

EXAMPLE:

NRFC of country X received a dividend from a

domestic corporation in the Philippines. The
final tax to be imposed in the Philippines shall
only be 15% if country X, domicile of NRFC
also reduce its income tax dividend by at
least 15%.

Taxability of stock dividends

It is a distribution by a corporation to its

shareholders of the corporation’s own stock.
A stock dividend representing the transfer of
surplus to capital account shall not be
subject to tax except in the following:

1. These shares are later redeemed for a

consideration by the corporation or
conveyed by the stockholder to the
extent of such consideration;

2. The recipient is other than a

stockholder;

3. A change in the stockholder’ equity

results by virtue of the stock dividend
issuance.
NOTES 6 Modes of disposing domestic stocks

Shares of stocks may be sold:

Capital gains taxation
1. Through the Philippine Stock Exchange
There are two types of capital gains subject to (PSE)
capital gains tax:
2. Directly to the buyer
1. Capital gains on the sale of domestic
stocks sold directly to buyer.

2. Capital gains on the sale of real properties Gain on the sale, exchange, and other
not used in business. disposition of domestic stocks directly to the
buyer is subject to 15% capital gains tax.

EXAMPLE:
Capital gains arise from the sale, exchange
and other disposition of capital assets. Mr. A sold his domestics stocks directly to the
buyer costing P100,000 for P180,000.
Capital assets – any asset not classified as
ordinary asset

Ordinary asset – assets used in business Selling Price P180,000

which includes: Less: Cost P100,000
• Stock in trade of a taxpayer or other real Net Capital gains P80,000
property of a kind which would properly be
included in the inventory of the taxpayer if on Multiply by 15%
hand at the close of the taxable year
Capital gains tax due P12,000
• Real property held by the taxpayer primarily
15% is multiplied to the Net Capital Gains.
for sale to customers in the ordinary course of
trade or business Sale of shares of stock through Philippine
Stock Exchange (PSE)
• Real property used in trade or business of a
character which is subject to the allowance Sale of shares of stock through PSE is not
for depreciation subject to capital gains tax. It is subject to
stock transaction tax of 60% of 1% of
• Real property used in trade or business of
the selling price.
the taxpayer

In summary, ordinary assets are:

EXAMPLE:
Held for sale- inventory
Mr. B sold his shares of stocks through
Held for use-supplies and buildings and
Philippine Stock Exchange (PSE) costing
equipment
P900,000 with selling price of P1,000,000.

Is this subject to capital gains tax? NO

This is subject to stock transaction tax. 2. Fair market value, as shown in the
schedule of market values of the Provincial or
Selling price P1,000,000
City Assessors
Multiply by 60% of 1%
3. Selling Price
Stock transaction tax P6,000
Whichever is the highest.

Wash Sale Rule

EXAMPLE:
Wash sale of securities is deemed to happen
Mr. T sold his vacant lot with the selling price
when with 30 days before and after 30 days
of P5M. The BIR’s zonal value is P4.5M and
after the losing sale of securities (61-day
the City Assessors fair value is P3M. How
period), the taxpayer acquired or entered into
much is the capital gains tax?
a contract to acquire the same or
substantially similar securities. Capital loss
on wash sale by non-dealers are not
Highest is selling price P5M
deductible against capital gains because
there is only a theoretical loss. Multiply by rate 6%

Capital gains tax 300,000

EXAMPLE:

Mr. C purchased on January 4, 2021 10,000 Deadline for the 6% capital gains tax
shares of stocks for P200,000. He sold it for
P180,000 on February 28. However, with 30 The 6% capital gains tax should be filed and
days from February 28, he purchased 12,000 paid within 30 days from the date of sale
shares. using BIR Form 1706.

Under the wash sale rule, the capital loss on

February 28 of P20,000 is considered as DOCUMENTARY STAMP TAX ON SALE OF
theoretical loss. CAPITAL ASSETS

Documentary stamp tax on sale of real

CAPITAL GAINS ON THE SALE OF REAL properties
PROPERTIES NOT USED IN BUSINESS

P15 for every P1000

The sale, exchange and other disposition of
real property capital assets in the Philippines
is subject to a tax of 6%. Mr. T sold his vacant lot with the selling price
of P5M. The BIR’s zonal value is P4.5M and
Basis for the 6% the City Assessors fair value is P3M. How
1. Zonal value, which is the value prescribed much is the documentary stamp tax?
by the Commissioner of Internal Revenue
Highest is selling price P5M
NOTES 7
Multiply by P15/P1000
Characteristics of the regular income tax
Documentary stamp tax P75,000
1. General in coverage

2. A net income tax

Documentary stamp tax on sale of domestic
shares directly to the buyer 3. An annual tax

P1.50 for every P200 of the par value 4. Creditable witholding tax

5. Progressive or proportional tax

EXAMPLE:

Mr. T sold domestic stock with total par value Regular income tax model
of P800,000 for P1.2M. How much is the GROSS INCOME
documentary stamp tax?
LESS: ALLOWABLE DEDUCTIONS
P800,000 x P1.5/P200
TAXABLE INCOME
P6,000 is the documentary stamp tax.

Gross income classified:

1. Compensation income

2. Business or professional income

Differentiate compensation vs business

• Compensation - from employer-

employee relationship
• Business - selling goods or rendering
services

Pure compensation earner:

Gross compensation

Less: Non-taxable compensation

Taxable compensation income

Pure business/professional income earner: For resident citizen, what income is subject
to Phil income tax?
Gross Income
Answer: For a resident citizen, all income
Add: Non-operating income
within and without is subject to Phil income
Total Gross Income tax.

Less: Allowable deductions

Taxable net income CORPORATE INCOME TAX

What is the rate of corporate income tax

today?
Globalization rule
EXAMPLE:
The income of mixed income earner from
both sources is simply totaled A domestic corporation has a net income of
P1,200,000 in the Philippines and P800,000
from abroad. How much is the corporate
Business selling goods, how to get gross income tax due?
income? Note: Domestic corporation - global income
Sales

Less: Cost of goods sold BIR Form:

Gross Income 1700- Purely employed taxpayer

1701A- Purely business/profession, using

Business selling services, how to get gross itemized, OSD or 8%
income? 1701- Mixed income earners, estates and
Revenues trusts

Less: Cost of sales

Gross Income

Types:

1. Individual Income Tax

2. Corporate Income Tax

INDIVIDUAL INCOME TAX

Invite your attention to Tax Table for Individual

Taxpayer for 2023.
NOTES 8
Exclusions vs. Deductions
Exclusions from gross income are income
which will not be subject to income tax. Exclusions from gross income are not
included in the amount of reportable gross
Not included in the gross income. income in the tax return. Deductions is
initially included in the amount of the gross
income but is separately presented as
EXAMPLE: Alberto takes a life insurance deduction against gross income in the
policy of 1M. Alberto died and the heirs income tax return.
received 1M.

The proceeds of life insurance should not be

part of the gross income and not subject to
income tax because it is an exclusion.

Gift is an exclusion.

EXAMPLE: Donor gives the Donee 1M. Donee

accepts it.

GIFTS should not be part of the gross income

and not subject to income tax because it is an
exclusion.

Devise is a disposition by will and testament

of real properties while legacy is a bequest of
personal property.

Bequest and devise are exclusions.

The following are exclusions: (PAGCRIM)

1. Proceeds of life insurance

2. Amount received by the insured as a

return of premium

3. Gift, bequest, devise or descent

4. Compensation for injuries

5. Income exempts under treaty

6. Retirement benefits, pension,

gratuities
NOTES 9 PBC does not stand for Phil. Banking
Corporation
Inclusion in Gross Income P-profession

B-business
EXAMPLE: Employee works for the employer. C-compensation
Employee is paid for the work done.

Identify the item of gross income.

PRP does not mean Peoples Reform Party

P-Prizes
EXAMPLE: Businessman sells grocery items
to the buyer. Sales less cost is gross income. R-Rents

Identify the item of gross income. P-Pensions

The following in the list are items of Gross WPD does is not the same w Western Police
Income: (GRIP3I3RAWD) District

Income from compensation W- winnings

Income from business P-property dealing gains

Income from profession D-dividends

Gains derived from dealings in properties

Interest P-Partner’s distributive share

Rents A-Annuities

Royalties R-Royalties

Dividends I-Interest

Annuities

Prizes GENERAL CRITERIA

Winnings Items of gross income subject to regular

income tax are not limited to the list in NIRC.
Pensions Under the NIRC, the regular income tax for all
Partner’s distributive share income derived from whatever sources that
are:

1. Not subject to final tax, capital gains

I used following code to remind me of the tax and special tax regime
items of gross income:
2. Not excluded or exempted by law,
treaty or contract from taxation.
 NOTES 11
Recoveries of past deductions
Fringe benefit tax is imposed on the grossed-
When bad debts are ascertained to be up monetary value of the fringe benefit
worthless and charged off during the year, furnished, granted or paid by the employer to
they are allowed as deductions of the managerial and supervisory employees.
taxpayer.
Example:
There are situations where bad debts are
recovered by the taxpayer in succeeding During the year M Company purchased a
periods. Recovery of bad debts previously brand-new car for use by its marketing
allowed as deduction in the preceding years manager. The car costing P780,000 was
shall be included as part of the gross income registered in the name of the manager. Most
in the year of recovery to the extent of the of the time the vehicle is being used for
income tax benefit of said deduction. (Tax business purposes of the manager.
benefit rule). How much is the fringe benefit tax?

Monetary value………..780,000
Creditable withholding tax Divided by……………………….65%
Withholding tax at source maybe classified Grossed up…………….,1.200,000
into:
Rate of tax…………………….,,,35%
1. Final withholding tax
Fringe benefit tax……….420,000
2. Creditable withholding tax

Under creditable withholding tax (CWT)

system, taxes withheld on certain income Suppose the company paid only 70% of the
payments are intended to at least value of the car while the balance was paid by
approximate the tax due of the payee on said the manager.
income.
How much is the fringe benefit tax?
The income recipient is still required to file an
Monetary value(780,000x70%) 546,000
income tax return to report the income and
pay the difference between the tax withheld Divided by………………………..,,,,,,,,,,,,….65%
and the tax due on income.
Grossed up…………..,………….…….,840,000
EXAMPLE:
Rate of tax……………………………..…….,,,35%
Mr. X owns a building rented by Ms. Y. The
Fringe benefit tax………………….….294,000
monthly rental is P500,000. Ms. Y will
withheld 5% of P500,000 as a creditable
withholding tax of P25,000, pay P475,000 to
the lessor and furnish him a copy of BIR form
2307. Ms. Y remit the P25,000 withheld tax to
the government.
NOTES 12 NOTES 13
Dealings in properties involve the sale, What are the allowable deductions from
exchanges and other dispositions of gross income?
properties such as ordinary or capital assets.
a) *Optional Standard Deduction - an
amount not exceeding 40% of the gross
sales/receipts for individuals and gross
Dealings in ordinary assets are subject to
income for corporations; or
regular income tax. Dealings in capital assets
other than domestic stocks directly sold to b) Itemized Deductions which include the
buyer and real properties not used in following:
business, are also subject to regular income
- Expenses
tax.
- Interest

- Taxes
Holding period is the length of time the asset
has been held by an individual taxpayer. It - Losses
covers the period from the date of acquisition
to the date of sale. - Bad Debts

It should be noted that holding period applies - Depreciation

only if the taxpayer is individual. If it is a - Depletion of Oil and Gas Wells and Mines
corporation, the rule on holding period does
not apply. - Charitable Contributions and Other
Contributions

- Research and Development

Where the taxpayer is an individual, the - Pension Trusts
following rules as to recognition of capital
gains or losses from the disposition of capital
asset shall apply:

Depending on the holding period, the

percentages of gain or loss to be taken into
account follows:

100% if the capital asset has been held for 12

months or less;

50% if the capital asset has been held for

more than 12 months.
NOTES 14
CLASSIFICATION OF INDIVIDUAL INCOME
TAXPAYERS

1. Pure compensation earner

2. Pure business or professional income

earner

3. Mixed income earner

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Pure compensation earner

The compensation income of employees,

except minimum wage earners, is subject to
withholding tax on compensation.

If the employee has no other taxable income,

he may avail of the substituted filing system.
Under this system, the withholding tax on
compensation is considered enough tax
compliance of the employee provided that
the employer withheld the correct tax.

BIR Form 1700 -an Income Tax form required

from employed individuals who had multiple
employers within the same taxable year.

BIR Form 1701-if the employee is a mixed

income earner, also engaged in business or
profession.