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Income Taxes on IndividualsTable 2-2: APPLICABLE TAXES BASED ON THE NATURE OF INCOME Regular Passive income Capital gains Capital gainsTaxpayer Income (Section 24B) (Section 24C) (Section 24D)

RC Basic Tax Final Tax Final Tax Final Tax (Table 2-3) (Table2-4) (Table 2-4) (Table 2-4)

NRC, RA, Basic Tax Final tax Final Tax Final TaxNRA-ETB (Table2-3) (Table 2-4) (Table2-4) (Table 2-4)

NRA-NETB 25% Final 25% Final tax Final Tax Final Tax Tax based based on gross (Table 2-4) (Table 2-4) on gross income income2

Table 2-3: GRADUATED OR SCHEDULAR (SECTION 24A) Over But not over Tax Plus Of excess over

10,000 - 5% - 10,000 30,000 500 10% 10,000 30,000 70,000 2,500 15% 30,000 70,000 140,000 8,500 20% 70,000 140,000 250,000 22,500 25% 140,000 250,000 500,000 50,000 30% 250,000 500,000 - 125,000 32% 500,000

Illustration. Determine the tax due assuming the taxable income is:Case A. P200,000 Tax on First 140,000 P 22,500 In excess of P140,000 15,000 (P60,000 x 25%) Tax Due P 37,500 Case B. P300,000 Tax on First 250,000 P 50,000 In excess of P250,000 15,000 (P50,000 x 30%) Tax Due P 65,000 Case B. P800,000 Tax on First 500,000 P 125,000 In excess of P500,000 96,000 (P300,000 x 33%) Tax Due P 221,000

TABLE 2-4: INCOME SUBJECT TO FINAL TAXES Section 24(B). Final Tax Rates on Certain Passive Income from Phil. Sources

INTEREST, ROYALTIES, PRIZES AND OTHER WINNINGS Citizens, NRA - NRA Residents, & ETB NETB Special Individualsa. Interest from any currency bank deposit 20% 20% 25%b. Yield or any other monetary benefit from deposit substitute 20% 20% 25%c. Yield or any other monetary benefit from trust funds and similar arrangements 20% 20% 25%d. Royalties, in general (other than royalties described in lettere) 20% 20% 25%e. Royalties on books, as well as other literary works and musical compositions 10% 10% 25%f. Prizes exceeding P10,000 20% 20% 25%g. Other winnings(other than PCS and Lotto winnings 20% 20% 25%h. Interest incomes received from a depository bank under expanded foreign currency deposit system 7- % Exempt Exempt Note: NRC-Exempt (RR 1-2011)i.Interest income from long-term deposit or investment evidenced by certificates prescribed by BSP. If predetermined before Exempt Exempt 25% fifth year, a final tax shall be imposed base on remaining maturity: * 4 years to less than 5 years 5% 5% 25% * 3 years to less than 4 years 12% 12% 25% * less than three years 20% 20% 25% (2) CASH AND/OR PROPERTY DIVIDENDS Citizens, NRA - NRA Residents, & ETB NETB Special Individuals

a.Cash and/or property dividends actually or cons- tructively received from a domestic corporation or from a joint stock co., insurance or mutual fund companies and regional operating headquarters of multinational companies, beginning January 1, 2000 10% 20% 25%b. Share of an individual in the distributable net income after tax of a Partnership(other than a general professional partnership) Beginning Jan. 1, 2000 10% 20% 25%c. Share of an individual in the net income after tax of an Association, a Joint Account, or a Joint Venture or Consortium taxable as a corporation, which he is a member or a co-venturer Beginning Jan.1, 2000 10% 20% 25%

SECTION 24C. Capital Gains from Sale of Shares of Stock of a domestic corp. Not Traded in the Stock Exchange RES/ CIT NRA- NRA- ETB NETBTax base:Net Capital gain Tax rate: Not over P100,000 5% 5% 5% Amount in excess of P100,000 10% 10% 10%

SECTION 24D. Capital Gains from Sale of Real property classified as Capital Asset.

RES/ CIT NRA- NRA- ETB NETBTax base: Gross selling price or current fair market value whichever is higherTax rate: 6% 6% 6%

Deposit substitutes - RR 14-2012 defines deposits substitutes as an alternative form of obtaining funds from the public other than deposits, through the issuance, endorsement of acceptance of debt instruments for the borrowers own account, for the purpose of re-lending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer.

Creditable withholding tax vs Final Tax Certain regular income are subject to creditable withholding tax. The termCreditable means the taxes withheld are deductible from tax due computed using thegraduated tax table under Section 24(a) of the tax code. Ex: tax withheld by anemployer from the compensation income of an employee.

Illustration:Case A. A resident citizen employee provided the following data for the current taxableYear: Compensation income(gross of deduction below) P450,000 Deductions made by the employer SSS premiums contributions 6,000 Philhealth contributions 8,400 Pag-ibig contributions 2,400 union dues 1,200 income tax withheld 89,600Question: How much is the income tax payable of the employee?Answer: Compensation income(gross of deduction below) P450,000 Less: Deductions made by the employer SSS premiums contributions ( 6,000) Philhealth contributions ( 8,400 ) Pag-ibig contributions ( 2,400 ) union dues ( 1,200 ) *** Basic personal exemptions (50,000) Taxable income P382,000 Tax Due Tax on 1st P250,000 P50,000 Tax in excess of P250,000 @30% 39,600 total tax due P89,600 Less: Tax withheld by the employer ( 89,600 ) Income tax payable P 0

Case B.A resident citizen taxpayer (single) provided the following information: compensation income P1,000,000 Gross business income, Philippines 2,000,000 Gross business income, Canada 3,000,000 Business expenses, Philippines 1,400,000 Business expenses, Canada 2,050,000 Income tax withheld by the individual taxpayers employer on his compensation income 285,000 Income tax withheld by certain payors on business income in the Philippines(Taxes withheld at source) 100,000 Income tax payments to the BIR for the first three (3) quarters of the year 300,000

Question: Determine income tax payable of the taxpayer.Answer: compensation income P 1,000,000 Gross business income, Philippines 2,000,000 Gross business income, Canada 3,000,000 Business expense, Philippines ( 1,400,000) Business expense, Canada (2,050,000) *** Basic exemption (50,000 ) Taxable income P2,500,000 Tax due: Tax on 1st P500,000 P 125,000 On excess of P500,000 (P2,000,000 x 32%) 640,000 P765,000

Less: Tax withheld by the employer P285,000 Tax withheld at source 100,000 Income tax paid 300,000 (685,000)

Income tax payable P80,000

Final Withholding tax Taxable income under section 24B, 24C and 24D are subject to final taxes (Table 2-4) instead of basic tax or the tabular/graduated tax rates. This kind of with-holding tax which is prescribed on certain income payments and is not creditableagainst the income tax due of the payee on other income subject to regular rates oftax for the taxable year. The payee is not required to file an income tax return for theparticular income. However, the payor is required to issue final withholding tax certi-icate. Capital gains realized by a nonresident alien individual not engaged in tradeor business in the Philippines from the sale of of shares of stock in any domesticCorporation and real property shall be subject to the income tax prescribed underSubsections(C ) and (D) of section 24.Illustration. A resident citizen taxpayer provided the following information: Gross business income, Philippines P2,000,000 Gross business income, Canada 3,000,000 Business expenses, Philippines 1,400,000 Business expenses, Canada 2,050,000 Interest income BDO Philippines 100,000 Interest income - BDO in Canada 50,000 Dividend income from a domestic corp. 125,000 Dividend income from a resident foreign corporation 75,000 Interest income received from a depository bank under the Expanded Foreign Currency Deposit System (FCDU), Philippines 50,000 Philippine Charity sweepstakes winnings 500,000 Singapore sweepstake winnings 200,000 Winnings Robinson manila raffle promo 8,000 Winnings SM Manila raffle promo 20,000 Winnings SM China raffle promo 30,000 Capital gains on sale of shares of a domestic corp. sold directly to a buyer( Sales Price- P1,110,000; Cost P1,000,000) 110,000

Gain on sale of shares of a domestic corp. sold in a local stock exchange (Sales Price-P115,000; cost; P90,000) 25,000 Gain on sale of real property classified as capital asset in the Philippines (Sales Price-P2,000,000; FMV-P3,000,000; acquisition cost when acquired 3 years ago P1,500,000) 500,000 Gain on sale of real property abroad not used in business(Sales Price- P3,000,000; FMV-P2,500,000; Acquisition cost when acquired 3 years ago- P2,700,000) 300,000

Determine the following: Case A. Taxable income (subject to basic or normal tax) Gross business income, Philippines P2,000,000 Gross business income, Canada 3,000,000 Business expenses, Philippines ( 1,400,000 ) Business expenses, Canada ( 2,050,000 ) Interest income BDO in Canada 50,000 Dividend income from a resident foreign corp. 75,000

Singapore sweepstakes winnings 200,000 Winnings- Robinsons manila raffle promo 8,000 Winnings- SM China raffle promo 30,000 Gain on sale of property abroad 300,000 Personal exemption ( 50,000 ) Taxable income P2,163,000

Note: Interest income on bank deposits from sources outside of the Philippines are subject to basic tax Dividend income from resident foreign corporation subject to basic tax PCSO winnings are tax-exempt Sweepstakes winnings and other winnings/prizes from sourcesoutside of the Philippines are subject to basic tax. Winnings and prizes not higher than P10,000 are subject to basic tax. On the other hand, winnings more than P10,000 are subject to final tax on passive income from sources within the Philippines. Gain on sale on real property classified as capital assets are subject to 6% final withholding tax, provided the property is located within the Philippines (Table 2-4). Real properties sold abroad, regardless of classification is subject to basic tax. Refer to Table 2-4 for final tax rates.

Case B. The amount of final taxes on passive income Interest income BDO Philippines P 20,000 ( P100,000 x 20%) Dividend income from a domestic corp. 12,500 (P125,000 x 20%) Interest income received from FCDU deposit 3,750 (P50,000 x 7.5%) Winnings SM Manila raffle promo 4,000 ( P20,000 x 20%) Total final tax on passive income from the Phil. P 40,250

Case C. The amount of capital gain tax Sale of shares of a domestic corporation sold directly to buyer On the first P100,000 at 5% P 5,000 In excess of P100,000 at 10% (P10,000 x 10%) 1,000 Capital gain on sale of real property in the (Philippines (P3,000,000 x 6%) 180,000 Total capital gain tax P 186,000

Case D.The total amount of final taxes P226,250 computed by adding the answers in Case B and C.