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1. a) Income refers to all wealth which flows into the taxpayer other than as mere
return of capital. It includes the forms of income specifically described as gains
and profits, including gains derived from the sale or other disposition of capital
assets (R.R. No. 2, Sec. 36).

Income is a flow of service rendered by capital by payment of money from

it or any benefit rendered by a fund of capital in relation to such fund through a
period of time (Madrigal v. Rafferty, G.R. No. 12287, August 8, 1918).

b) Income vs. Capital

CAPITAL INCOME constitutes the investment which is the source of income. It is

the fund of a person. It is the wealth. It is also the return or recovery of capital is
not subject to income tax.

INCOME is any wealth which flows into the taxpayer other than a mere return of
capital. It is the flow of the money. It is also the service of wealth. Income is
subject to income tax.

2. a) Taxable income refers to the pertinent item of gross income specified in the
NIRC, less the deductions and/or personal and additional exemptions if any,
authorized for such type of income by the NIRC or other special laws. In other
words, it refers to all items of Gross Income less allowable deductions and
exemptions authorized by law (section 31 of the NIRC).

b) Gross income is that income which includes all income received that is not
explicitly exempt from taxation, under the Internal Revenue Code; while taxable
income is an income that is actually the subject of taxation. Deductions are
subtracted from gross income to arrive at the mount of taxable income.

3. The “all events test” is a test applied in the realization of income and expense
by an accrual-basis taxpayer. The test requires (1) the fixing of a right to the
income or liability to pay; and (2) the availability of reasonably accurate
determination of such income or liability, to warrant the inclusion of the income or
expense in the gross income or deductions during the taxable year. (CIR v.
Isabela Cultural Corporation, G.R. No. 172231, Feb. 12, 2007)

4. Realization Principle is the concept that revenue can only be recognized once
the underlying goods or services associated with the revenue have been
delivered or rendered. The Supreme Court held in the case of Manila Mandarin
Hotels Inc. vs. CIR et.al. That revenue is generally recognized when both the
earning process is complete or virtually complete and the exchange has been
taken place.
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5. Cash method versus accrual method of accounting

In cash method, income is recognized only upon actual or contructive receipt of

cash payments or property but no deductions are allowed from the cash income
unless actually disbursed through an actual or contructive payment in cash or
property. Stated otherwise, income is earned when cash is collected, and
expense is incurred when cash is dibursed.

Meanwhile, in accrual method, income is recognized in the period it is earned,

regardless of whether it has been received or not. In the same manner,
expenses are accounted for in the period they are incurred and not in the period
they are paid (Domondon, 2013). Amounts of income accrue when the right to
receive them become fixed, when there is a created enforceable liability.
Similarly, liabilities are accrued when fixed and determinable in amount, without
regard to indeterminacy merely of time of payment.

6. Capital gain refers to the gain derived from the sale or exchange of capital
assets or property whether or not connected with the trade or business of the tax
payer other than ordinary assets; while ordinary gain is that what derived from
the sale or exchange of ordinary assets.

7. Fringe benefit is any good, service or other benefit furnished or granted by an

employer, in cash or in kind, in addition to basic salaries, to an individual
employee, except a rank and file employee, such as but not limited to:

1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel such as maid, driver and others
5. Interest on loans at less than market rate to the extent of the difference
between the market rate and the actual rate granted
6. Membership fees, dues and other expenses athletic clubs or other similar
organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows (NIRC, Sec. 33 [B]; R.R. 3-98, Sec.
2.33 [B])

8. a) Interest income (for loans) - The test of source of income of interest income
is the resident of the debtor. The residence of the obligor who pays the interest
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rather than physical location of the securities, bonds or note or the place of
payment is the determining factor.
b) Service/compensation for labor/personal service - The test of source of
income of services is the place of performance of the service. If the service is
performed in the Philippines, the income is treated as from sources within the
Philippines, regardless of the residence of the payor, of the place in which the
contract for service was made, or of the place of payment.
c) Dividends from domestic and foreign corporation - The test of source of
income of dividends is the residence of the corporation paying the dividends.
Dividends from a domestic corporation or from a foreign corporation are treated
as income from sources within the Philippines, unless less than 50% of the gross
income of the foreign corporation for the three year period preceding the
declaration of such dividends was derived from sources within the Philippines, in
which case only the amount which bears the same ratio to such dividends as the
gross income of the corporation for such period derived from sources within the
Philippines bears to its gross income from all sources shall be treated as income
from sources within the Philippines
d) Rentals - The test of source of income of rental is the location or use of the
property or interest in such property. If the property is located or used in the
Philippines, the rents are income from sources within the Philippines.
e) Royalties - The test of source of income of royalties is the location or use of
the property or interest in such property. If the property is located or used in the
Philippines, the royalties are income from sources within the Philippines.
f) Gain on sale of shares stock in a domestic corporation - The test of source
of income of shares of stock in a domestic corporation is the place where the
sales contract was consummated. Gain, profit, or income is treated as derived
entirely from sources within the Philippines, regardless of where said shares are
sold (Mamalateo, 2014).
9. a) Resident citizen – is a citizen of the Philippines who has a permanent home
or place of abode in the Philippines to which he/she intends to return whenever
he/she is absent for business or pleasure.

b) Non-resident citizen – is a citizen of the Philippines who: (a) establishes the

fact of his/her physical presence abroad with the definite intention to reside
therein; (b) leaves the country to reside abroad, either as an immigrant or for
employment on a permanent basis; (c) works and derives income from abroad
and whose employment thereat requires him to be physically present abroad
most of the time during the taxable year; or, who has been considered
nonresident citizen previously and who arrives in the Philippines at any time
during the taxable year to reside permanently in the Philippines shall be treated
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as nonresident citizen for the taxable year in which he arrives in the Philippines
with respect to his income abroad until the date of his arrival in the Philippines.

c) Resident alien – is an individual who is not a citizen of the Philippines but

whose residence is within the Philippines.

d) Non-resident alien – is an individual who is not a citizen of the Philippines

and whose residence is not within the Philippines. A nonresident alien is deemed
engaged in trade or business in the Philippines if he/she has stayed in the
Philippines for an aggregate period of more than 180 days during any calendar
year.

e) Domestic Corporation – is a corporation created or organized in the

Philippines or under its laws which shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts, associations, or
insurance companies, but does not include general professional partnerships and
a joint venture or consortium formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract with
the Government.

f) Foreign Corporation – (1) Resident Foreign Corporation - is one which is

organized or existent under the laws of any foreign country but is engaged in
trade or business in the Philippines.

(2) Nonresident Foreign Corporation - is one which is organized under the laws
of any foreign country and not engaged in trade or business in the Philippines but
is deriving income from sources within the Philippines.

g) General Professional Partnership – It is formed by persons for the sole

purpose of exercising their common profession, no part of income of which is
derived from engaging in any trade or business.

10. The three systems of taxation are as follows:

1). Global tax system is employed where the tax system views indifferently the
tax base and generally treats in common all categories of taxable income of the
individual;

2.) Schedular tax system is a system usually employed where the income tax
treatment varies and is made to depend on the kind or category of taxable
income of the taxpayer (Tan v. Del Rosario, Jr., 237 SCRA 324, 331); and
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3). Semi-schedular or semi-global tax system. In this system, all

compensation income, business or professional income, capital gain, passive
income, and other income not subject to final tax are added together to arrive at
the gross income. After deducting the allowable deductions and exemptions from
the gross income, the taxable income is subjected to one set of graduated tax
rate for individual or normal corporate income tax rate for corporation.

11. A most-favored nation (MFN) clause requires a country to provide any

concessions, privileges, or immunities granted to one nation in a trade
agreement to all other World Trade Organization member countries. In
international trade, MFN treatment is synonymous with non-discriminatory trade
policy because it ensures equal trading among all World Trade Organization
member nations rather than exclusive trading privileges. For example, if a nation
reduces tariffs by 5% for one nation, the MFN clause states that all World Trade
Organization members will have their tariffs cut by 5% into that nation.

12. Exclusions from Gross Income are as follows:

A. Exclusions under the constitution. Income derived by the Government or

its political subdivision is exempt from gross income, if the source of the
income is from any public utility or from the exercise of any essential
governmental functions.
B. Exclusions under the NIRC. The following are excluded from gross
income by the National Internal Revenue Code (NIRC): Gifts, bequests
and devises; Life insurance proceeds; Amount received by insured as return
of premium; Retirement benefits, pensions, gratuities, etc.; Income exempt
under treaty; Compensation for injuries or sickness; and Miscellaneous
items (section 32, NIRC as amended by section 9, R.A. No. 10963).
a) Gifts bequests and devises are excluded from gross income because the
consideration is based on pure liberality and is already subject to donor’s
tax as the case maybe, and there is no income derived in such
transaction;
b) Life Insurance proceeds are not considered as income because they
partakes the nature of an indemnity or compensation rather than gain to
the recipient. Life insurance proceeds also serve the same purpose as
nontaxable inheritance;
c) Amount received by insured as return of premium. If the insured dies and
the beneficiary receives the life insurance proceeds, these are not taxable
income because they are excluded from gross income as proceeds from
life insurance;
d) Income of any kind, to the extent required by any treaty obligation binding
upon the Government of the Philippines is exempt from tax (NIRC, Sec.
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32 B [5]). It is not considered as gross income because of the principle of

reciprocity and for the purpose of lessening the rigors of international
juridical double taxation;
e) Compensation for injuries or sickness is excluded as gross income as they
are mere compensation for injuries or sickness suffered and not income. It
is intended to make the injured party whole as before the injury; and
f) Miscellaneous items such as gross benefits received by officials and
employees of public and private entities may be excluded from gross
income provided that the total exclusion shall not exceed P82, 000. The
excess would be considered as part of the compensation income of the
employee where it is subject on a schedular rate (NIRC, Sec. 32 B [7] e).

C. Income derived by foreign government. The exclusion from gross income

may be premised either on the principle of comity or upon the principle of
reciprocity.

D. Income derived by the government or its political subdivisions from the

exercise of any essential government function. These are excluded from
gross income because it derived through an exercise of the taxing authority
for the government.

E. Exclusions under special laws. This exclusion from gross income is

expressly laid down by a statute.

13. a) Charitable contributions – At present, the deductibility of donations and

other charitable contributions is governed by the provision of Section 34 of RA
8424 which states as follows:

Section 34. Deductions from Gross Income. – Except for taxpayers earning
compensation income arising from personal services rendered under an
employer-employee relationship where no deductions shall be allowed under this
Section other than under Subsection (M) hereof, in computing taxable income
subject to income tax under Section 24(A); 25 (A); 26; 27 (A)(B) and (C); and 28
(A)(1), there shall be allowed the following deductions from gross income:

xxx. (H) Charitable and Other Contributions.- 1) In General.- Contributions

or gifts actually paid or made within the taxable year to, or for the use of the
Government of the Philippines or any of its agencies or any political subdivision
thereof exclusively for public purposes, or to accredited domestic corporations or
associations organized and operated exclusively for public purposes, or to
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accredited domestic corporations or associations organized and operated

exclusively for religious, charitable, scientific, youth and sports development,
cultural or educational purposes or for the rehabilitation of veterans, or to social
welfare institutions, or to non-government organizations, in accordance with
rules and regulations promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, no part of the net income of which inures
to the benefit of any private stockholder or individual in an amount not in excess
of ten percent (10%) in the case of an individual, and five percent (5%) in the
case of a corporation, of the taxpayer’s taxable income derived from trade,
business or profession, computed without the benefit of this deduction.

As a general rule, the deduction is subject to a ceiling of 5% (corporations)

and 10% (individuals), of the taxpayer’s gross income. It is not clear anymore
why there is a ceiling on deductible contributions. In the main, it may be
presumed that the ceiling is not intended to discourage charity or generosity but
to prevent/minimize abuses in the claim of deductible donations. The same
proviso also allows full deductibility and exemption from the 5% or 10% ceiling if
the donations are made in favor of the government, foreign institutions or
international organizations and accredited nongovernment organizations (NGOs).

Based on the foregoing provision, self-employed individuals and

professionals are allowed to deduct from their gross income items enumerated
under Section 34 of the NIRC of 1997,8 as amended, which are also allowed as
deductions to corporations’ gross income when determining the latter’s liability to
income tax. The allowable deductions extended to self-employed individuals and
professionals include charitable contributions or donations which are either
deductible in full or up to 10% of their taxable income. Meanwhile, compensation
or fixed income earners are not allowed to claim deductions from their gross
income except payments on health and/or hospitalization premiums/insurance
under certain conditions as provided under Section 34 (M) of the NIRC, as
amended.

Requisites for deductibility

1. The contribution or gift must be actually paid;

2. It must be paid within the taxable year;

3. It must be given to the organization specified by law;

4. It must be evidenced by adequate receipts or records; and

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5. The amount of charitable contribution of property other than money

shall be based on the acquisition cost of said property.

Contributions that are deductible in full

These are:

1. Donations to the Government of the Philippines, or political subdivisions

including fully-owned government corporation to be used exclusively in
undertaking priority activities in:

a. Culture

b. Health

c. Economic Development

d. Education

e. Science

f. Human Settlement

g. Youth and Sports development

2. Donations to foreign institutions and international organizations in

compliance with treaties and agreements with the Government.

3. Donations to accredited NGO’s

a. Exclusively for:

i. Cultural

ii. Charitable

iii. Health

iv. Educational

v. Scientific

vi. Social welfare

vii. Character building &youth and sports Development

viii. Research

ix. Any combination of the above

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b. Donation must be utilized not later than the 15th day of the 3rd
month following the close of taxable year;

c. Administrative expense must not exceed 30% of the total

expenses;

d. Upon dissolution, assets shall be transferred to another non-

profit domestic corporation or to the State.

4. Donations of prizes and awards to Athletes (RA 7549, Sec. 1)

b) Losses – losses deductible shall be those actually sustained during the year
incurred in business, trade or exercise of a profession conducted within the
Philippines and not compensated for by insurance or other forms of indemnity.
Losses from sale or exchanges of capital assets are deductible only to the extent
of the gains from such sales or exchanges. Losses from wash sales of stock or
securities are allowed when the claim is made by a dealer in stock or securities,
and with respect to a transaction made in the ordinary course of business of such
dealer under certain conditions. Losses from wagering transactions are
deductible to the extent of the gains from such transactions.

Requisites for deductibility

The requisites for deductibility of a loss are:

1. Loss belongs to the taxpayer
2. Actually sustained and charged off during the taxable year
3. Evidenced by a closed and completed transaction
4. Not compensated by insurance or other forms of indemnity
5. Not claimed as a deduction for estate tax purposes in case of individual
taxpayers
6. Must be connected with taxpayer’s trade, business or profession or
incurred in any transaction or incurred by an individual in any transaction
entered into for profit though not connected with his trade, business or
profession
7. If it is casualty loss, it is evidenced by a declaration of loss file within 45
days with the BIR.

c) Interest – Interest paid or incurred within the taxable year on indebtedness in

connection with the taxpayer’s profession, trade or business which shall be
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reduced by 33% of the grossed-up value of the interest income subjected to final
tax.

At the option of the taxpayer, interest incurred to acquire property used in

trade or business or exercise of a profession may be allowed as a deduction or
treated as capital expenditure [Sec. 34(B)(3), supra.].

Interest shall refer to the payment for the use or forbearance or detention
of money, regardless of the name it is called or denominated. It includes the
amount paid for the borrower’s use of money during the term of the loan, as well
as for his detention of money after the due date for its repayment (R.R. 13-2000,
Sec. 2[a]).
Requirements under the NIRC for interest to be deductible
1. There must be an indebtedness
2. The indebtedness must be that of the taxpayer
3. The interest must be legally due and stipulated in writing
4. The interest must be paid or incurred during the taxable year
5. The indebtedness must be connected with the taxpayer’s trade,
business, or exercise of profession
6. The interest arrangement must not be between related taxpayers
7. The allowable deduction have been reduced by an amount equal to
33% of the interest income subject to tax (NIRC, Sec. 34[B][1] as
amended by R.A. 6337).

d) Bad debts – the deductions for bad debts shall be allowed only if they arise in
the course of business or trade conducted within the Philippines.

Bad debts arising from loss on securities held as capital assets which are
ascertained to be worthless and charged off within the taxable year by a
taxpayer, except domestic banks or trust companies the substantial part of
whose business is the receipt of deposits.

Requisites for deductibility:

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1. The debts are uncollectible despite diligent effort exerted by the

taxpayer;
To prove that the taxpayer exerted diligent efforts to collect the
debts:
a. Sending of statement of accounts;
b. Sending of collection letters;
c. Giving the account to a lawyer for collection; and
d. Filing a collection case in court.

2. Existing indebtedness subsisting due to the taxpayer which must

be valid and legally demandable;

3. Connected with the taxpayer’s trade, business or practice of

profession;

4. Actually charged off in the books of accounts of the taxpayer as

of the end of the taxable year;

5. Actually ascertained to be worthless and uncollectible as of the

end of the taxable year; and

6. Must not be sustained in a transaction entered into between

related parties.

The factors to be considered include, but are not limited to, the following:
1. The debtor has no property or visible income;
2. The debtor has been adjudged bankrupt or insolvent;
3. There are numerous debtors with small amounts of debts and
further action on the accounts would entail expenses exceeding the
amounts sought to be collected;
4. The debt can no longer be collected even in the future; and
5. Collateral shares have become worthless.
e) Personal exceptions – Personal and additional exemptions are allowed to
be deducted from gross compensation income and net income arising from
business or profession of the taxpayer. In case of individuals who derive
compensation and other incomes, the amount of personal and additional
exemptions shall be deducted first from compensation income. Any excess
thereof shall be deducted from other incomes.
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(1) As to nature - Personal, living or family expenses

(2) As to purpose - To recover the personal, living and family expenses
paid or incurred during the taxable year
(3) As to kinds of deductions or exemptions - Exemption may be classified
into: Basic personal exemption; Additional personal exemption of
P25,000 for every qualified dependent, legitimate, recognized
illegitimate child or children not more than four.

14. A. (The Consultancy fees are not subject to Philippine income Tax). - Being
an alien, it is subject to income tax only on income from sources within the
Philippines. Since the consultancy fees are received by him for designing a
computer program and installing the same in China, the same shall be treated as
income from sources outside the Philippines.

15. C. (The service is actually performed in the Philippines) – Because the

service was done within the Philippines. (Section 42, NIRC)

16. B. Pierre de Saviny is a Frenchman who engaged business in the

Philippines, thus his income generated during his stay in the country is that of in
the nature or status of taxable income of a non-resident alien who engaged in
trade or business in the Philippines.

17. D. (Organized under the laws of a foreign country that engages in business
in Makati City, Philippines.) – as stated in Section 22 (h) of NIRC, the term
resident foreign corporation applies to a foreign corporation engage in trade or
business within the Philippines.

18. No. Since Hopeful Corporation exercised its right to redeem the property,
Generous Bank is not liable to pay capital gains tax on the foreclosure sale. The
court held in the case of Supreme Transliner, Inc., v. BPI Family Savings Bank,
Inc , that a mortgagor exercises his right of redemption within one year from the
issuance of the certificate of sale, no capital gains tax shall be imposed because
no sale or transfer of real property was realized.

It is only in case of non-redemption by Hopeful Corporation that the obligation to

pay capital gains tax arises, which shall be based on the bid price of the highest
bidder. The tax will be imposed only upon the expiration of the one-year period of
redemption. Furthermore, the obligation to pay the capital gains tax would
primarily fall on the mortgagor, Hopeful Corporation, and not on Generous Bank.
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19. B (P500,000.00).
20. No. Income Tax Regulations provides that if a debtor performs services for a
creditor who cancels the debt in consideration for such services, the debtor
realizes income to that amount as compensation for his services.

In the given problem, the cancellation of Mr. Gipit’s indebtedness up to the

amount of Php 75,000.00 gave rise to compensation income subject to income
tax, since Mr. Maunawain condoned such amount as consideration for the
general cleaning services rendered by Mr. Gipit.

21. B. (Tonette may carry over and deduct her 2009 loss only from her 2010 gain.) In
the net operating loss of Tonette in her transaction for any taxable year
immediately preceding in the current taxable year, which had not been previously
offset as deduction from gross income for the next three consecutive taxable
years immediately following the year of such loss.

22. Not all of the representation and entertainment expenses claimed by Golden
Dragon are deductible. Only those that are reasonable in amount and nature
should be deductible. It should be noted that the total expenses is P430,000.00
for the five (5) investors or P86,000.00 each. What should be allowed is only a
deduction in such amounts that are reasonable under the circumstances but in
no case shall all deductions for representation and entertainment expenses
[NIRC of 1997, Sec. 34 (A) (1) (iv); RR 10-2002].

23. I will advise Patrick that once he re-acquire his Philippine citizenship and
establishes his residence in this country, his income tax classification would then
be a “resident citizen”. A resident citizen is taxable on all his income, whether
derived within or without the Philippines; accordingly, the income he earns from
his business abroad will now be subject to the Philippine income taxation
(Section 23, NIRC).

24. R.A. No. 10701 is valid and constitutional. A levy of tax is constitutional because
it is not intrinsically equal and uniform in its operation. The uniformity rule does
not prohibit classification for purposes of taxation. (British American Tobacco v.
Jose Isidro N. Camacho). Uniformity in taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities. Uniformity does
not prevent or forbid classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification applies equally well to all
those belonging to the same class. (Rufino R. Tan v. Ramon R. Del Rosario, Jr.,
237 SCRA 324). All of the foregoing requirements of a valid classification having
been met and those which are singled out are a class in themselves, there is no
violation of the “Equal Protection Clause” of the Constitution.
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25. (a) SPRC cannot claim as a deduction, the amount spent for lunch in the
meeting with the Regional Director of HLURB: While the expense is business
connected, the same is not allowed as deduction because it was incurred as an
indirect payment to a government official which, not only amounts to a violation of
the Anti Graft and Corrupt Practices Act but also constitutes bribes, kickbacks
and similar payments (See Şec: 34 (a) (C) NIRC).

With respect, however, to the amount spent for breakfast with a

prospective client, the same is deductible from gross income of SPRC. The
expense complies with the requirements for deductibility, namely: (a) the
expense must be ordinary and necessary (b) it must have been paid or incurred
during the taxable year; (c) it must have been paid or incurred in carrying on the
trade or business of the taxpayer, and (d) it must be supported by receipts,
records or other pertinent papers (CIR v. General Foods (Phils.), Inc, GR No:
143672, April 4, 2003, 401 SCRA 545, 553).

Section 34 (A )(b) of the 1997 NIRC, as amended, does not require that the
substantiation be in the form of official receipts or invoices issued in the name of
the taxpayer claiming the expense. It must only be proven that there is a direct
connection or relation of the expense being deducted to the development,
management, operation and/or conduct of the trade business or profession of the
taxpayer”.

(b) No. Any amount paid as reimbursements for representation incurred by the
employee in the performance of his duties is not compensation subject to
withholding, if the following conditions are satisfied: (1) It is for ordinary and
necessary representation expense paid or incurred by the employee in the
pursuit of the trade, business or profession, and (ii) The employee is required to
account/liquidate (for such expense in accordance with the specific requirements
of substantiation pursuant to Seç, 34 of the 1997 NIRC, as amended. The
amounts are actually spent by the employee for the benefit of his employer, so
no income is considered to have flowed to the employee.

26. No. Under Revenue Regulations No:3-2002, only an individual receiving purely
compensation income, regardless of amount; from only one employer in the
Philippines for the calendar year, the income tax of which has been withheld
correctly by the said em

Daryl, within the same calendar year, derived income from producing short
films; thus, she did not receive purely compensation income for calendar year
2015. Accordingly, the amount withheld from her compensation income is not
equal to the income tax due on his aggregate taxable income during the taxable
year.

27. No. Double taxation means taxing for the same tax period the same thing or
activity twice; when it should be taxed but once, for the same purpose and within
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the same kind of character of tax. The 20% final tax is imposed on the interest
income, while the tax earlier withheld is on the salary or compensation income.
Thus, though both pertain to income tax, they do not pertain to the same thing or
activity and consequently, no double taxation exits.

28. a) The separation pay and indemnity that will be received by the affected
employees as the result of their separation from service shall be tax exempt.
Under section 32 (B) (6) (b), any amount received by an official or employee or
by his heirs from the employer as a of separation of such official or employee
from the service of the employer because of death, sickness or other physical
disability or for any cause beyond the control of the said official or employee shall
be exempt from taxation.

b) No, BATAS Law is not liable to pay the assessed percentage business tax.
Section 133 (i) of the LGC provides that the exercise of the taxing powers of local
government units such as the City of Valenzuela shall not extend to the levy of
“percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services” except as otherwise provided in the LGC;
therefore BATAS Law may not be assessed with and required to pay percentage
business tax.

29. No, provided that the revenues are used actually, directly, and exclusively for
educational purposes as provided under Article XIV, Section 4(3) of the 1987
Constitution. The requisites for availing the tax exemption under Article XIV,
Section 4 (3) are as follows: (1) the taxpayer falls under the classification non-
stock, non-profit educational institution, and (2) the income it seeks to be
exempted from taxation is used actually, directly and exclusively for educational
purposes; thus, so long as the requisites are met, the revenues may be exempt
from tax.

30. Amendments introduced by RA No. 10963 (Train Law) on individual taxation are
as follows:

1. It restructures the personal income tax (PIT) schedule, with separate

schedules for compensation income earners (CIEs), purely self-employed
individuals and/or professionals (SEPs) whose gross sales or gross
receipts and other non-operating income do not exceed the Value-Added
tax (VAT) threshold of Three Million and mixed income earners;
2. reduces the number of tax brackets from seven (7) to six (6);
3. exempts the first P250, 000 annual taxable income of tax payers;
4. sets the highest amount of taxable income at more than P8 million and
subjects it to a higher marginal rate of 35%;
5. repeals the provision on basic personal and additional exemptions and
premiums paid on health and/or hospitalization insurance which are
deemed integrated into the P250,000 exempt threshold;
6. retains the income tax exemption of minimum wage earners;
Income Tax 1 – Seatwork
Signabon-Malao

7. retains the exemption from tax of the de minimis benefits as well as the
non-taxability of mandatory contributions such as those made to the GSIS,
SSS, PhilHealth, Pag-IBIG Fund and union dues;
8. increases the amount of tax-exempt benefits ceiling (13th month pay
and other benefits) from P82,000 to P90,000;
9. imposes a 20% final tax on PCSO and lotto winnings exceeding
P10,000;
10. removes the preferential tax rate of 15% for employees of regional
area headquarters, regional operating headquarters, offshore banking
units and petroleum service contractors and subcontractors;
11. increases the fringe benefits tax (FBT) rate from 32% to 35%; and
12. inserts a provision that the optional Standard Deduction by general
professional partnership (GPP) may only be availed once, either by the
GPP or the partners comprising such partnership.