Taxation Part 2

Income and
Business
Taxation Part 2
Quarter 2, Week 4
Learning Competency
• Explain the
procedure in the
computation of
gross taxable
income and tax
due.
All Filipino income earners are
required to pay their tax to the
government.
In doing so, government projects and
various expenses are met primarily for
the benefit of the public.
Correct declaration of income earned by an

individual or businesses must be observed for
proper computation of tax due.
➢The government has the right to collect as much taxes as it
wants as long as it is necessary, justifiable, and
constitutional.
➢Taxation has two aspects: levy and collection.
➢Levying or imposition of the tax requires legislative
intervention.
➢As such, in the Philippines, it is the duty of the Congress to
levy taxes.
➢Collection of the tax levied, on the other hand is an
administrative function. It includes assessment and
determining the taxes payable of the taxpayers as well as
the collection of the corresponding payments.
STEPS in computing for income tax due:
1. Classify the taxpayers according to their

citizenship, residence as well as their
sources of income – whether from within
the Philippines or outside–because not all
individual taxpayers are taxed on all their
income.
1. Citizens
Under the Constitution, citizens are
those:
The following ✓ who are citizens of the Philippines
are the at the time of adoption of the
Constitution on February 2, 1987;
classifications ✓ whose fathers and mothers are
of the citizens of the Philippines;
✓ born before January 17,1973 of
individual Filipino mothers who elected
taxpayers: Filipino citizenship upon reaching
the age of majority; and
✓ who are naturalized in accordance
with the law
Citizens can be further
classified into:
The following a. Resident citizen –a
Filipino citizen residing in
are the the Philippines
classifications b. Non-resident citizen –a
of the Filipino citizen who is not
individual physically residing in the
taxpayers: country during the taxable
year, due to immigration or
employment, or any other
reasons
2. Alien
a. Resident alien b. Non-resident alien
an individual residing in the an individual who is not
Philippines but is not a citizen residing in the Philippines and
thereof who is not a resident thereof
After classifying the taxpayers, the following general rules
for individual income taxpayers apply:
2. Determine the gross income of the taxpayer.
Gross income may be derived mainly (but not

limited to) from three (3) sources:
1. Compensation income or remunerations

earned under an employer-employee
relationship such as salaries, wages,
bonuses and other benefits;
2. Business income or income arising from
habitual engagement in any commercial
activity involving regular sales of goods or
services;
3. Non-operating income which involves all other

incomes that do not fall under the previous
two categories such as gains from dealing
with properties, passive income not subject to
final tax, casual or one-time income, etc.
The computations presented herein is
pursuant to Tax Reform for Acceleration
and Inclusion (TRAIN) law or RA 10963
which was signed into law last December
19, 2017.
3 Types of Individual Taxpayers
1. Purely from
compensation
income
2. Income from
business (self-
employed) and or
professionals
3. Mixed income
earner
Illustration 1.
Rosario San Pedro, single and a resident citizen, is a

minimum wage earner (MWE) with a gross compensation
income for the year 2018 of ₱180,000. She works as a
finance assistant of BIG Corporation in the Philippines. In
addition to her basic salary, Ms. San Pedro also earned a 13th
month pay of ₱15,000, overtime pay amounting to ₱100,000,
night shift differential of ₱30,000, and holiday pay of ₱25,000.
Ms. San Pedro also paid for her mandatory contributions in
Social Security System (SSS), Philhealth, and Pag-IBIG, for a
total of ₱6,000. How much is her taxable income and income
tax due?
To determine the income tax due of any
taxpayer, the following steps are to be followed:
Step 1. Identify the classification of the taxpayer.
In the illustration, it was mentioned that Ms. San

Pedro is a resident citizen. Thus, the
classification of the taxpayer is a resident citizen.
In which case, she is taxable on her income
within and without.
Step 2. Determine the sources of income of the
taxpayer.
Using the same illustration, the sources of

income of Ms. San Pedro is purely compensation
income.
Step 3. Add all the gross income/earnings/receipts
(derived from different sources, if applicable) of
the taxpayer to arrive at the total compensation
income.
In the case of Ms. San Pedro, the following are her gross
income:
Step 4. Determine the taxable income of the taxpayer
by deducting the mandatory contributions (to
SSS, GSIS, Philhealth, and Pag-IBIG) and the
non-taxable income (13th month pay and
other benefits) of the taxpayer from the Total
Compensation Income.
*Non-taxable income refers to additional compensation
(aside from basic salary) received by an employee which
includes 13th month pay and other bonuses/benefits
which should not exceed the exclusion threshold of
₱90,000. Any amount in excess of the exclusion
threshold shall be subject to income tax.
Step 5. Compute for the income tax due/liability of the

taxpayer (using the tax table).
Tax Due: EXEMPT

The final step is to compute for the income tax
payable of the taxpayer using the table as
provided in RA 10963.
However, in our illustration, Ms. San Pedro has

no income tax due as she is exempted from
income tax because she is a minimum wage
earner.
With the implementation of RA 10963 (TRAIN
Law), the Bureau of Internal Revenue (BIR)
issued Revenue Regulations (RR) No. 11-
2018 which provides that for minimum wage
earners, their statutory minimum wage,
holiday pay, overtime pay, night shift
differential pay, and hazard pay shall be
exempt from income tax and withholding tax.
Additional compensation such as
commissions, honoraria, fringe benefits,
benefits in excess of the mandatory non-
taxable amount of ₱90,000, taxable
allowances, and other taxable income
earned by a minimum wage earner shall,
however, be subject to withholding tax using
the revised withholding tax table under the
TRAIN Law.
Illustration 2.
Mr. Jose Gantimpala, 33, Filipino, single, is a regular employee
of Wise Marketing. He receives an annual salary of ₱300,000.
For 2019, he also earned an overtime pay of ₱50,000 and
hazard pay of ₱57,250. He also received his 13th month pay of
₱25,000 as well as other benefits amounting to ₱72,000. His
mandatory contributions are as follows:
Compute for the taxable income and income tax due of Mr.
Gantimpala.
Since Mr. Gantimpala is not a minimum wage earner, his income is
subject to income tax. To compute for his income tax due, we will use
the following tax table as provided by RA 10963.
Therefore, the income tax payable of Mr. Gantimpala
is ₱29,865.
Illustration 3.
Mrs. Rhea Alvarez, married and a resident

citizen, is a regular employee of Health is Wealth
Company. She receives monthly salary of
₱52,000 or ₱624,000 annually. For 2019, she
has also received her 13th month pay and other
benefits amounting to ₱109,000. Her mandatory
contributions are as follows:
SSS ₱9,600.00
Philhealth 8,250.00
Pag-IBIG 1,200.00
Total ₱19,050.00
Required: Compute for the taxable income and

income tax due of Mrs. Alvarez.

Taxation Part 2

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Taxation Part 2

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Income and

Correct declaration of income earned by an

1. Classify the taxpayers according to their

Gross income may be derived mainly (but not

1. Compensation income or remunerations

3. Non-operating income which involves all other

Rosario San Pedro, single and a resident citizen, is a

Step 1. Identify the classification of the taxpayer.

In the illustration, it was mentioned that Ms. San

Using the same illustration, the sources of

Step 5. Compute for the income tax due/liability of the

Tax Due: EXEMPT

However, in our illustration, Ms. San Pedro has

Mrs. Rhea Alvarez, married and a resident

Required: Compute for the taxable income and

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