NIRC Revenue, hereinafter referred to

as the Commissioner, and four (4)

Title 1 – Title 2 Chapter 6 assistant chiefs to be known as
Deputy Commissioners.
TITLE I SEC. 4. Power of the
Commissioner to Interpret Tax
ORGANIZATION AND
Laws and to Decide Tax Cases. -
FUNCTION OF THE BUREAU
The power to interpret the
OF INTERNAL REVENUE
provisions of this Code and other
(As Last Amended by RA 10963) tax laws shall be under the
[1] exclusive and original jurisdiction
SEC. 1. Title of the Code. - This of the Commissioner, subject to
Code shall be known as the review by the Secretary of
National Internal Revenue Code Finance.
of 1997. [2] The power to decide disputed
SEC. 2. Powers and Duties of the assessments, refunds of internal
Bureau of Internal Revenue. - The revenue taxes, fees or other
Bureau of Internal Revenue shall charges, penalties imposed in
be under the supervision and relation thereto, or other matters
control of the Department of arising under this Code or other
Finance and its powers and duties laws or portions thereof
shall comprehend the assessment administered by the Bureau of
and collection of all national Internal Revenue is vested in the
internal revenue taxes, fees, and Commissioner, subject to the
charges, and the enforcement of exclusive appellate jurisdiction of
all forfeitures, penalties, and fines the Court of Tax Appeals. [3]
connected therewith, including SEC. 5. Power of the
the execution of judgments in all Commissioner to Obtain
cases decided in its favor by the Information, and to Summon,
Court of Tax Appeals and the Examine, and Take Testimony of
ordinary courts. The Bureau shall Persons. - In ascertaining the
give effect to and administer the correctness of any return, or in
supervisory and police powers making a return when none has
conferred to it by this Code or been made, or in determining the
other laws. liability of any person for any
SEC. 3. Chief Officials of the internal revenue tax, or in
Bureau of Internal Revenue. - The collecting any such liability, or in
Bureau of Internal Revenue shall evaluating tax compliance, the
have a chief to be known as Commissioner is authorized:
Commissioner of Internal
(A) To examine any book, paper, Authority to the Bureau shall be
record, or other data which may submitted to the Department of
be relevant or material to such Finance and shall be included in
inquiry; the database created under
Republic Act No. 10708,
(B) To obtain on a regular basis
otherwise known as “The Tax
from any person other than the
Incentives Management and
person whose internal revenue tax
Transparency Act (TIMTA).” [4]
liability is subject to audit or
investigation, or from any office (C) To summon the person liable
or officer of the national and local for tax or required to file a return,
governments, government or any officer or employee of such
agencies and instrumentalities, person, or any person having
including the Bangko Sentral ng possession, custody, or care of the
Pilipinas and government-owned books of accounts and other
or -controlled corporations, any accounting records containing
information such as, but not entries relating to the business of
limited to, costs and volume of the person liable for tax, or any
production, receipts or sales and other person, to appear before the
gross incomes of taxpayers, and Commissioner or his duly
the names, addresses, and authorized representative at a
financial statements of time and place specified in the
corporations, mutual fund summons and to produce such
companies, insurance companies, books, papers, records, or other
regional operating headquarters data, and to give testimony;
of multinational companies, joint (D) To take such testimony of the
accounts, associations, joint person concerned, under oath, as
ventures of consortia and may be relevant or material to
registered partnerships, and their such inquiry; and
members; Provided, That the
Cooperative Development (E) To cause revenue officers and
Authority shall submit to the employees to make a canvass from
Bureau a tax incentive report, time to time of any revenue
which shall include information district or region and inquire after
on the income tax, value added and concerning all persons
tax, and other tax incentives therein who may be liable to pay
availed of by cooperatives any internal revenue tax, and all
registered and enjoying incentives persons owning or having the
under Republic Act No. 6938, as care, management or possession
amended: Provided, further, That of any object with respect to
the information submitted by the which a tax is imposed.
Cooperative Development
The provisions of the foregoing That within three (3) years from
paragraphs notwithstanding, the date of such filing, the same
nothing in this Section shall be may be modified, changed, or
construed as granting the amended: Provided, further, That
Commissioner the authority to no notice for audit or
inquire into bank deposits other investigation of such return,
than as provided for in Section statement or declaration has in
6(F) of this Code. the meantime been actually
served upon the taxpayer.
SEC. 6. Power of the
Commissioner to Make (B) Failure to Submit Required
Assessments and Prescribe Returns, Statements, Reports and
Additional Requirements for Tax other Documents. - When a report
Administration and Enforcement. required by law as a basis for the
- assessment of any national
internal revenue tax shall not be
(A) Examination of Return and
forthcoming within the time fixed
Determination of Tax Due. After a
by laws or rules and regulations or
return has been filed as required
when there is reason to believe
under the provisions of this Code,
that any such report is false,
the Commissioner or his duly
incomplete or erroneous, the
authorized representative may
Commissioner shall assess the
authorize the examination of any
proper tax on the best evidence
taxpayer and the assessment of
obtainable.
the correct amount of tax,
notwithstanding any law In case a person fails to file a
requiring the prior authorization required return or other
of any government agency or document at the time prescribed
instrumentality [4]: Provided, by law, or willfully or otherwise
however, That failure to file a files a false or fraudulent return or
return shall not prevent the other document, the
Commissioner from authorizing Commissioner shall make or
the examination of any taxpayer. amend the return from his own
knowledge and from such
The tax or any deficiency tax so
information as he can obtain
assessed shall be paid upon notice
through testimony or otherwise,
and demand from the
which shall be prima facie correct
Commissioner or from his duly
and sufficient for all legal
authorized representative.
purposes.
Any return, statement of
(C) Authority to Conduct
declaration filed in any office
Inventory-taking, Surveillance
authorized to receive the same
and to Prescribe Presumptive
shall not be withdrawn: Provided,
Gross Sales and Receipts. - The and such amount so prescribed
Commissioner may, at any time shall be prima facie correct for
during the taxable year, order purposes of determining the
inventory-taking of goods of any internal revenue tax liabilities of
taxpayer as a basis for such person.
determining his internal revenue (D) Authority to Terminate
tax liabilities, or may place the Taxable Period. - When it shall
business operations of any person, come to the knowledge of the
natural or juridical, under Commissioner that a taxpayer is
observation or surveillance if retiring from business subject to
there is reason to believe that such tax, or is intending to leave the
person is not declaring his correct Philippines or to remove his
income, sales or receipts for property therefrom or to hide or
internal revenue tax purposes. conceal his property, or is
The findings may be used as the performing any act tending to
basis for assessing the taxes for
obstruct the proceedings for the
the other months or quarters of collection of the tax for the past or
the same or different taxable years current quarter or year or to
and such assessment shall be render the same totally or partly
deemed prima facie correct. ineffective unless such
When it is found that a person has proceedings are begun
failed to issue receipts and immediately, the Commissioner
invoices in violation of the shall declare the tax period of
requirements of Sections 113 and such taxpayer terminated at any
237 of this Code, or when there is time and shall send the taxpayer a
reason to believe that the books of notice of such decision, together
accounts or other records do not with a request for the immediate
correctly reflect the declarations payment of the tax for the period
made or to be made in a return so declared terminated and the
required to be filed under the tax for the preceding year or
provisions of this Code, the quarter, or such portion thereof as
Commissioner, after taking into may be unpaid, and said taxes
account the sales, receipts, shall be due and payable
income or other taxable base of immediately and shall be subject
other persons engaged in similar to all the penalties hereafter
businesses under similar prescribed, unless paid within the
situations or circumstances or time fixed in the demand made by
after considering other relevant the Commissioner.
information may prescribe a (E) Authority of the
minimum amount of such gross Commissioner to Prescribe Real
receipts, sales and taxable base, Property Values. –The
Commissioner is hereby (F) Authority of the
authorized to divide the Commissioner to Inquire into
Philippines into different zones or Bank Deposit Accounts and Other
areas and shall, upon mandatory Related information held by
consultation with competent Financial Institutions. [5] -
appraisers both from the private Notwithstanding any contrary
and public sectors, and with prior provision of Republic Act No.
notice to affected taxpayers, 1405, Republic Act No. 6426,
determine the fair market value of otherwise known as the Foreign
real properties located in each Currency Deposit Act of the
zone or area, subject to automatic Philippines, and other general or
adjustment once every three (3) special laws, the Commissioner is
years through rules and hereby authorized to inquire into
regulations issued by the the bank deposits and other
Secretary of Finance based on the related information held by
current Philippine valuation financial institutions of:
standards: Provided, That no (1) A decedent to determine his
adjustment in zonal valuation gross estate; and
shall be valid unless published in
a newspaper of general circulation (2) Any taxpayer who has filed an
in the province, city or application for compromise of his
municipality concerned, or in the tax liability under Section 204(A)
absence thereof, shall be posted in (2) of this Code by reason of
the provincial capitol, city or financial incapacity to pay his tax
municipal hall and in two (2) liability.
other conspicuous public places In case a taxpayer files an
therein: Provided, further, That application to compromise the
the basis of any valuation, payment of his tax liabilities on
including the records of his claim that his financial
consultations done, shall be public position demonstrates a clear
records open to the inquiry of any inability to pay the tax assessed,
taxpayer. [4] For purposes of his application shall not be
computing any internal revenue considered unless and until he
tax, the value of the property shall waives in writing his privilege
be, whichever is the higher of: under Republic Act No. 1405,
(1) The fair market value as Republic Act No. 6426, otherwise
determined by the Commissioner; known as the Foreign Currency
or Deposit Act of the Philippines, or
under other general or special
(2) The fair market value as laws, and such waiver shall
shown in the schedule of values of constitute the authority of the
the Provincial and City Assessors.
Commissioner to inquire into the (a) The identity of the person
bank deposits of the taxpayer. under examination or
investigation;
(3) A specific taxpayer or
taxpayers subject of a request for (b) A statement of the information
the supply of tax information being sought, including its nature
from a foreign tax authority and the form in which the said
pursuant to an international foreign tax authority prefers to
convention or agreement on tax receive the information from the
matters to which the Philippines Commissioner;
is a signatory or a party of: (c) The tax purpose for which the
Provided, That the information information is being sought;
obtained from the banks and
other financial institutions may be (d) Grounds for believing that the
used by the Bureau of Internal information requested is held in
Revenue for tax assessment, the Philippines or is in the
verification, audit and possession or control of a person
enforcement purposes. within the jurisdiction of the
Philippines;
In case of a request from a foreign
tax authority for tax information (e) To the extent known, the name
held by banks and financial and address of any person
institutions, the exchange of believed to be in possession of the
information shall be done in a requested information;
secure manner to ensure (f) A statement that the request is
confidentiality thereof under such in conformity with the law and
rules and regulations as may be administrative practices of the
promulgated by the Secretary of said foreign tax authority, such
Finance, upon recommendation of that if the requested information
the Commissioner. was within the jurisdiction of the
The Commissioner shall provide said foreign tax authority then it
the tax information obtained from would be able to obtain the
banks and financial institutions information under its laws or in
pursuant to a convention or the normal course of
agreement upon request of the administrative practice and that it
foreign tax authority when such is in conformity with a convention
requesting foreign tax authority or international agreement; and
has provided the following (g) A statement that the
information to demonstrate the requesting foreign tax authority
foreseeable relevance of the has exhausted all means available
information to the request: in its own territory to obtain the
information, except those that
would give rise to and moral fitness, individuals and
disproportionate difficulties. general professional partnerships
and their representatives who
The Commissioner shall forward
prepare and file tax returns,
the information as promptly as
statements, reports, protests, and
possible to the requesting foreign
other papers with or who appear
tax authority. To ensure a prompt
before, the Bureau for taxpayers.
response, the Commissioner shall
Within one hundred twenty (120)
confirm receipt of a request in
days from January 1, 1998, the
writing to the requesting tax
Commissioner shall create
authority and shall notify the
national and regional
latter of deficiencies in the
accreditation boards, the
request, if any, within sixty (60)
members of which shall serve for
days from receipt of the request.
three (3) years, and shall
If the Commissioner is unable to designate from among the senior
obtain and provide the officials of the Bureau, one (1)
information within ninety (90) chairman and two (2) members
days from receipt of the request, for each board, subject to such
due to obstacles encountered in rules and regulations as the
furnishing the information or Secretary of Finance shall
when the bank or financial promulgate upon the
institution refuses to furnish the recommendation of the
information, he shall immediately Commissioner.
inform the requesting tax
Individuals and general
authority of the same, explaining
professional partnerships and
the nature of the obstacles
their representatives who are
encountered or the reasons for
denied accreditation by the
refusal.
Commissioner and/or the
The term “foreign tax authority,” national and regional
as used herein, shall refer to the accreditation boards may appeal
tax authority or tax such denial to the Secretary of
administration of the requesting Finance, who shall rule on the
State under the tax treaty or appeal within sixty (60) days from
convention to which the receipt of such appeal. Failure of
Philippines is a signatory or a the Secretary of Finance to rule on
party of. the Appeal within the prescribed
(G) Authority to Accredit and period shall be deemed as
Register Tax Agents. - The approval of the application for
Commissioner shall accredit and accreditation of the appellant.
register, based on their (H) Authority of the
professional competence, integrity Commissioner to Prescribe
Additional Procedural or deficiency taxes of Five hundred
Documentary Requirements. - thousand pesos (P500,000) or
The Commissioner may prescribe less, and minor criminal
the manner of compliance with violations, as may be determined
any documentary or procedural by rules and regulations to be
requirement in connection with promulgated by the Secretary of
the submission or preparation of finance, upon recommendation of
financial statements the Commissioner, discovered by
accompanying the tax returns. regional and district officials, may
be compromised by a regional
SEC. 7. Authority of the
evaluation board which shall be
Commissioner to Delegate Power.
composed of the Regional
- The Commissioner may delegate
Director as Chairman, the
the powers vested in him under
Assistant Regional Director, the
the pertinent provisions of this
heads of the Legal, Assessment
Code to any or such subordinate
and Collection Divisions and the
officials with the rank equivalent
Revenue District Officer having
to a division chief or higher,
jurisdiction over the taxpayer, as
subject to such limitations and
members; and
restrictions as may be imposed
under rules and regulations to be (d) The power to assign or
promulgated by the Secretary of reassign internal revenue officers
Finance, upon recommendation of to establishments where articles
the Commissioner: Provided, subject to excise tax are produced
however, That the following or kept.
powers of the Commissioner shall SEC. 8. Duty of the Commissioner
not be delegated: to Ensure the Provision and
(a) The power to recommend the Distribution of Forms, Receipts,
promulgation of rules and Certificates, and Appliances, and
regulations by the Secretary of the Acknowledgment of Payment
Finance; of Taxes. -
(b) The power to issue rulings of (A) Provision and Distribution to
first impression or to reverse, Proper-Officials. – Any law to the
revoke or modify any existing contrary notwithstanding, it shall
ruling of the Bureau; be the duty of the Commissioner,
among other things, to prescribe,
(c) The power to compromise or
provide, and distribute to the
abate, under Sec. 204 (A) and (B)
proper officials the requisite
of this Code, any tax liability:
licenses; internal revenue stamps;
Provided, however, That
unique, secure and non-
assessments issued by the
removable identification markings
regional offices involving basic
(hereafter called unique any payment of any tax is made
identification markings), such as under the provisions of this Code
codes or stamps, be affixed to or to acknowledge the payment of
form part of all unit packets and such tax, expressing the amount
packages and any outside paid and the particular account
packaging of cigarettes and bottles for which such payment was made
of distilled spirits; labels and in a form and manner prescribed
other forms; certificates; bonds; therefor by the Commissioner.
records; invoices; books; receipts; SEC. 9. Internal Revenue
instruments; appliances and Districts. - With the approval of
apparatus used in administering the Secretary of Finance, the
the laws falling within the Commissioner shall divide the
jurisdiction of the Bureau. For Philippines into such number of
this purpose, internal revenue revenue districts as may from
stamps, or other markings and time to time be required for
labels shall be caused by the
administrative purposes. Each of
Commissioner to be printed with these districts shall be under the
adequate security features. supervision of a Revenue District
Internal revenue stamps, whether Officer.
of a bar code or fuson design, or SEC. 10. Revenue Regional
other markings shall be firmly and Director. - Under rules and
conspicuously affixed or printed regulations, policies and
on each pack of cigars and standards formulated by the
cigarettes and bottles of distilled Commissioner, with the approval
spirits subject to excise tax in the of the Secretary of Finance, the
manner and form as prescribed by Revenue Regional director shall,
the Commissioner, upon approval within the region and district
of the Secretary of Finance. offices under his jurisdiction,
To further improve tax among others:
administration, cigarette and (a) Implement laws, policies,
alcohol manufacturers shall be plans, programs, rules and
required to install automated regulations of the department or
volume-counters of packs and agencies in the regional area;
bottles to deter over-removals and
misdeclaration of removals. (b) Administer and enforce
internal revenue laws, and rules
(B) Receipts for Payment Mode. – and regulations, including the
It shall be the duty of the assessment and collection of all
Commissioner or his duly internal revenue taxes, charges
authorized representative or an and fees;
authorized agent bank to whom
(c) Issue Letters of authority for through the Regional Director,
the examination of taxpayers any neglect of duty,
within the region; incompetency, delinquency, or
malfeasance in office of any
(d) Provide economical, efficient
internal revenue officer of which
and effective service to the people
he may obtain knowledge, with a
in the area;
statement of all the facts and any
(e) Coordinate with regional evidence sustaining each case.
offices or other departments,
SEC. 12. Agents and Deputies for
bureaus and agencies in the area;
Collection of National Internal
(f) Coordinate with local Revenue Taxes. - The following
government units in the area; are hereby constituted agents of
(g) Exercise control and the Commissioner:
supervision over the officers and a) The Commissioner of Customs
employees within the region; and and his subordinates with respect
(h) Perform such other functions to the collection of national
as may be provided by law and as internal revenue taxes on
may be delegated by the imported goods;
Commissioner. b) The head of the appropriate
SEC. 11. Duties of Revenue government office and his
District Officers and Other subordinates with respect to the
Internal Revenue Officers. - It collection of energy tax; and
shall be the duty of every Revenue c) Banks duly accredited by the
District Officer or other internal Commissioner with respect to
revenue officers and employees to receipt of payments internal
ensure that all laws, and rules and revenue taxes authorized to be
regulations affecting national made thru banks.
internal revenue are faithfully
Any officer or employee of an
executed and complied with, and
authorized agent bank assigned to
to aid in the prevention, detection
receive internal revenue tax
and punishment of frauds of
payments and transmit tax
delinquencies in connection
returns or documents to the
therewith.
Bureau of Internal Revenue shall
It shall be the duty of every be subject to the same sanctions
Revenue District Officer to and penalties prescribed in
examine the efficiency of all Sections 269 and 270 of this Code.
officers and employees of the
SEC. 13. Authority of a Revenue
Bureau of Internal Revenue under
Officer. - Subject to the rules and
his supervision, and to report in
regulations to be prescribed by
writing to the Commissioner,
the Secretary of Finance, upon Commissioners, the Revenue
recommendation of the Regional Directors, the Revenue
Commissioner, a Revenue Officer District Officers and other
assigned to perform assessment internal revenue officers shall
functions in any district may, have authority to make arrests
pursuant to a Letter of Authority and seizures for the violation of
issued by the Revenue Regional any penal law, rule or regulation
Director, examine taxpayers administered by the Bureau of
within the jurisdiction of the Internal Revenue. Any person so
district in order to collect the arrested shall be forthwith
correct amount of tax, or to brought before a court, there to be
recommend the assessment of any dealt with according to law.
deficiency tax due in the same SEC. 16. Assignment of Internal
manner that the said acts could Revenue Officers Involved in
have been performed by the Excise Tax Functions to
Revenue Regional Director
Establishments Where Articles
himself. subject to Excise Tax are
SEC. 14. Authority of Officers to Produced or Kept. - The
Administer Oaths and Take Commissioner shall employ,
Testimony. - The Commissioner, assign, or reassign internal
Deputy Commissioners, Service revenue officers involved in excise
Chiefs, Assistant Service Chiefs, tax functions, as often as the
Revenue Regional Directors, exigencies of the revenue service
Assistant Revenue Regional may require, to establishments or
Directors, Chiefs and Assistant places where articles subject to
Chiefs of Divisions, Revenue excise tax are produced or kept:
District Officers, special deputies Provided, That an internal
of the Commissioner, internal revenue officer assigned to any
revenue officers and any other such establishment shall in no
employee of the Bureau thereunto case stay in his assignment for
especially deputized by the more than two (2) years, subject
Commissioner shall have the to rules and regulations to be
power to administer oaths and to prescribed by the Secretary of
take testimony in any official Finance, upon recommendation of
matter or investigation conducted the Commissioner.
by them regarding matters within SEC. 17. Assignment of Internal
the jurisdiction of the Bureau. Revenue Officers and Other
SEC. 15. Authority of Internal Employees to Other Duties. - The
Revenue Officers to Make Arrests Commissioner may, subject to the
and Seizures. - The provisions of Section 16 and the
Commissioner, the Deputy laws on civil service, as well as the
rules and regulations to be director or Revenue District
prescribed by the Secretary of Officer, as the case may be, may
Finance upon the send the report to the
recommendation of the corresponding prosecuting officer
Commissioner, assign or reassign in the latter case, a copy of his
internal revenue officers and report shall be sent to the
employees of the Bureau of Commissioner.
Internal Revenue, without change SEC. 19. Contents of
in their official rank and salary, to Commissioner's Annual Report. -
other or special duties connected The Annual Report of the
with the enforcement or Commissioner shall contain
administration of the revenue detailed statements of the
laws as the exigencies of the collections of the Bureau with
service may require: Provided, specifications of the sources of
That internal revenue officers revenue by type of tax, by manner
assigned to perform assessment
of payment, by revenue region
or collection function shall not and by industry group and its
remain in the same assignment disbursements by classes of
for more than three (3) years; expenditures.
Provided, further, That
assignment of internal revenue In case the actual collection
officers and employees of the exceeds or falls short of target as
Bureau to special duties shall not set in the annual national budget
exceed one (1) year. by fifteen percent (15%) or more,
the Commissioner shall explain
SEC. 18. Reports of Violation of the reason for such excess or
Laws. - When an internal revenue shortfall.
officer discovers evidence of a
violation of this Code or of any SEC. 20. Submission of Report
law, rule or regulations and Pertinent Information by the
administered by the Bureau of Commissioner. -
Internal Revenue of such (A) Submission of Pertinent
character as to warrant the Information to Congress. - The
institution of criminal provision of Section 270 of this
proceedings, he shall immediately Code to the contrary
report the facts to the notwithstanding, the
Commissioner through his Commissioner shall, upon request
immediate superior, giving the of Congress and in aid of
name and address of the offender legislation, furnish its appropriate
and the names of the witnesses if Committee pertinent information
possible: Provided, That in urgent including but not limited to:
cases, the Revenue Regional industry audits, collection
performance data, status reports (g) Such other taxes as are or
in criminal actions initiated hereafter may be imposed and
against persons and taxpayer's collected by the Bureau of
returns: Provided, however, That Internal Revenue.
any return or return information TITLE II
which can be associated with, or
otherwise identify, directly or
indirectly, a particular taxpayer TAX ON INCOME
shall be furnished the appropriate
Committee of Congress only when (As Amended by RA Nos. 9294,
sitting in Executive Session 9337, 9504, 10021, 10026, 10653
Unless such taxpayer otherwise & 10963) [6]
consents in writing to such
disclosure.
CHAPTER I
(B) Report to Oversight
Committee. - The Commissioner
shall, with reference to Section DEFINITIONS
204 of this Code, submit to the
Oversight Committee referred to
in Section 290 hereof, through the SEC. 22. Definitions. - When used
Chairmen of the Committee on in this Title:
Ways and Means of the Senate
and House of Representatives, a
report on the exercise of his (A) The term 'person’ means an
powers pursuant to the said individual, a trust, estate or
section, every six (6) months of corporation.
each calendar year.
SEC. 21. Sources of Revenue. - (B) The term 'corporation' shall
The following taxes, fees and include partnerships, no matter
charges are deemed to be national how created or organized, joint-
internal revenue taxes: stock companies, joint accounts
(a) Income tax; (cuentas en participacion),
association, or insurance
(b) Estate and donor's taxes; companies, but does not include
(c) Value-added tax; general professional partnerships
and a joint venture or consortium
(d) Other percentage taxes;
formed for the purpose of
(e) Excise taxes; undertaking construction projects
(f) Documentary stamp taxes; and or engaging in petroleum, coal,
geothermal and other energy
operations pursuant to an
operating consortium agreement (3) A citizen of the Philippines
under a service contract with the who works and derives income
Government. 'General from abroad and whose
professional partnerships’ are employment thereat requires him
partnerships formed by persons to be physically present abroad
for the sole purpose of exercising most of the time during the
their common profession, no part taxable year.
of the income of which is derived
from engaging in any trade or
business. (4) A citizen who has been
previously considered as
nonresident citizen and who
(C) The term 'domestic, when arrives in the Philippines at any
applied to a corporation, means time during the taxable year to
created or organized in the reside permanently in the
Philippines or under its laws. Philippines shall likewise be
treated as a nonresident citizen
for the taxable year in which he
(D) The term 'foreign’, when arrives in the Philippines with
applied to a corporation, means a respect to his income derived
corporation which is not domestic from sources abroad until the date
of his arrival in the Philippines.

(E) The term 'nonresident citizen'

means; (5) The taxpayer shall submit
proof to the Commissioner to
show his intention of leaving the
(1) A citizen of the Philippines Philippines to reside permanently
who establishes to the satisfaction abroad or to return to and reside
of the Commissioner the fact of in the Philippines as the case may
his physical presence abroad with be for purpose of this Section.
a definite intention to reside
therein.
(F) The term 'resident alien'
means an individual whose
(2) A citizen of the Philippines residence is within the Philippines
who leaves the Philippines during and who is not a citizen thereof.
the taxable year to reside abroad,
either as an immigrant or for
employment on a permanent (G) The term 'nonresident alien'
basis. means an individual whose
residence is not within the
Philippines and who is not a associations and recreation or
citizen thereof. amusement clubs (such as golf,
polo or similar clubs), and mutual
fund certificates.
(H) The term 'resident foreign
corporation' applies to a foreign
corporation engaged in trade or (M) The term 'shareholder'shall
business within the Philippines. include holders of a share/s of
stock, warrant/s and/or option/s
to purchase shares of stock of a
(I) The term 'nonresident foreign corporation, as well as a holder of
corporation' applies to a foreign a unit of participation in a
corporation not engaged in trade partnership (except general
or business within the professional partnerships) in a
Philippines. joint stock company, a joint
account, a taxable joint venture, a
member of an association,
(J) The term 'fiduciary' means a recreation or amusement club
guardian, trustee, executor, (such as golf, polo or similar
administrator, receiver, clubs) and a holder of a mutual
conservator or any person acting fund certificate, a member in an
in any fiduciary capacity for any association, joint-stock company,
person. or insurance company.

(K) The term 'withholding agent' (N) The term 'taxpayer’ means
means any person required to any person subject to tax imposed
deduct and withhold any tax by this Title.
under the provisions of Section
57.
(O) The terms 'including’ and
'includes', when used in a
(L) The term 'shares of stock' shall definition contained in this Title,
include shares of stock of a shall not be deemed to exclude
corporation, warrants and/or other things otherwise within the
options to purchase shares of meaning of the term defined.
stock, as well as units of
participation in a partnership
(except general professional (P) The term 'taxable year' means
partnerships), joint stock the calendar year, or the fiscal
companies, joint accounts, joint year ending during such calendar
ventures taxable as corporations, year, upon the basis of which the
net income is computed under interest coupons or in registered
this Title. 'Taxable year' includes, form.
in the case of a return made for a
fractional part of a year under the
provisions of this Title or under (U) The term 'dealer in securities'
rules and regulations prescribed means a merchant of stocks or
by the Secretary of Finance, upon securities, whether an individual,
recommendation of the partnership or corporation, with
commissioner, the period for an established place of business,
which such return is made. regularly engaged in the purchase
of securities and the resale thereof
to customers; that is, one who, as
(Q) The term 'fiscal year' means a merchant, buys securities and
an accounting period of twelve re-sells them to customers with a
(12) months ending on the last view to the gains and profits that
day of any month other than may be derived therefrom.
December.

(V) The term 'bank' means every

(R) The terms 'paid or incurred' banking institution, as defined in
and 'paid or accrued' shall be Section 2 of Republic Act No. 337,
construed according to the [7] as amended, otherwise known
method of accounting upon the as the “General banking Act.” A
basis of which the net income is bank may either be a commercial
computed under this Title. bank, a thrift bank, a development
bank, a rural bank or specialized
government bank.
(S) The term 'trade or business'
includes the performance of the
functions of a public office. (W) The term 'non-bank financial
intermediary' means a financial
intermediary, as defined in
(T) The term 'securities' means Section 2(D)(C) of Republic Act
shares of stock in a corporation No. 337, [8] as amended,
and rights to subscribe for or to otherwise known as the “General
receive such shares. The term Banking Act,” authorized by the
includes bonds, debentures, notes Bangko Sentral ng Pilipinas (BSP)
or certificates, or other evidence to perform quasi-banking
or indebtedness, issued by any activities.
corporation, including those
issued by a government or
political subdivision thereof, with
(X) The term 'quasi-banking their own needs or the needs of
activities' means borrowing funds their agent or dealer. These
from twenty (20) or more instruments may include, but
personal or corporate lenders at need not be limited to bankers'
any one time, through the acceptances, promissory notes,
issuance, endorsement, or repurchase agreements, including
acceptance of debt instruments of reverse repurchase agreements
any kind other than deposits for entered into by and between the
the borrower's own account, or Bangko Sentral ng Pilipinas (BSP)
through the issuance of and any authorized agent bank,
certificates of assignment or certificates of assignment or
similar instruments, with participation and similar
recourse, or of repurchase instruments with recourse:
agreements for purposes of Provided, however, That debt
relending or purchasing instruments issued for interbank
receivables and other similar call loans with maturity of not
obligations: Provided, however, more than five (5) days to cover
That commercial, industrial and deficiency in reserves against
other non-financial companies, deposit liabilities, including those
which borrow funds through any between or among banks and
of these means for the limited quasi-banks, shall not be
purpose of financing their own considered as deposit substitute
needs or the needs of their agents debt instruments.
or dealers, shall not be considered
as performing quasi-banking
functions. (Z) The term 'ordinary income'
includes any gain from the sale or
exchange of property which is not
(Y) The term 'deposit substitutes' a capital asset or property
shall mean an alternative from of described in Section 39(A)(1). Any
obtaining funds from the public gain from the sale or exchange of
(the term 'public' means property which is treated or
borrowing from twenty (20) or considered, under other
more individual or corporate provisions of this Title, as
lenders at any one time) other 'ordinary income' shall be treated
than deposits, through the as gain from the sale or exchange
issuance, endorsement, or of property which is not a capital
acceptance of debt instruments asset as defined in Section 39(A)
for the borrowers own account, (1). The term 'ordinary loss'
for the purpose of relending or includes any loss from the sale or
purchasing of receivables and exchange of property which is not
other obligations, or financing a capital asset. Any loss from the
sale or exchange of property branches in the Asia-Pacific
which is treated or considered, Region and other foreign markets.
under other provisions of this
Title, as 'ordinary loss' shall be
treated as loss from the sale or (EE) The term 'regional operating
exchange of property which is not headquarters' shall mean a branch
a capital asset. established in the Philippines by
multinational companies which
are engaged in any of the
(AA) The term 'rank and file following services: general
employees' shall mean all administration and planning;
employees who are holding business planning and
neither managerial nor coordination; sourcing and
supervisory position as defined procurement of raw materials and
under existing provisions of the components; corporate finance
Labor Code of the Philippines, as advisory services; marketing
amended. control and sales promotion;
training and personnel
management; logistic services;
(BB) The term 'mutual fund research and development
company' shall mean an open-end services and product
and close-end investment development; technical support
company as defined under the and maintenance; data processing
Investment Company Act. [9] and communications; and
business development.

(CC) The term 'trade, business or

profession' shall not include (FF) The term 'long-term deposit
performance of services by the or investment certificate' shall
taxpayer as an employee. refer to certificate of time deposit
or investment in the form of
savings, common or individual
(DD) The term 'regional or area trust funds, deposit substitutes,
headquarters' shall mean a branch investment management accounts
established in the Philippines by and other investments with a
multinational companies and maturity period of not less than
which headquarters do not earn five (5) years, the form of which
or derive income from the shall be prescribed by the Bangko
Philippines and which act as Sentral ng Pilipinas (BSP) and
supervisory, communications and issued by banks only (not by non-
coordinating center for their bank financial intermediaries and
affiliates, subsidiaries, or finance companies) to individuals
in denominations of Ten thousand (A) A citizen of the Philippines
pesos (P10,000) and other residing therein is taxable on all
denominations as may be income derived from sources
prescribed by the BSP. within and without the
Philippines;

(GG) The term ‘statutory

minimum wage’ shall refer to the (B) A nonresident citizen is
rate fixed by the Regional taxable only on income derived
Tripartite Wage and Productivity from sources within the
Board, as defined by the Bureau of Philippines;
Labor and Employment Statistics
(BLES) of the Department of
Labor and Employment (DOLE). (C) An individual citizen of the
[10] Philippines who is working and
deriving income from abroad as
an overseas contract worker is
(HH) The term “minimum wage taxable only on income derived
earner” shall refer to a worker in from sources within the
the private sector paid the Philippines: Provided, That a
statutory minimum wage or to an seaman who is a citizen of the
employee in the public sector with Philippines and who receives
compensation income of not more compensation for services
than the statutory minimum wage rendered abroad as a member of
in the non-agricultural sector the complement of a vessel
where he/she is assigned. [8] engaged exclusively in
international trade shall be
treated as an overseas contract
worker;

CHAPTER II (D) An alien individual, whether a

resident or not of the Philippines,
is taxable only on income derived
GENERAL PRINCIPLES
from sources within the
Philippines;
SEC. 23. General Principles of
Income Taxation in the
(E) A domestic corporation is
Philippines. - Except when
taxable on all income derived
otherwise provided in this Code:
from sources within and without
the Philippines; and
 (b) On the taxable income defined
in Section 31 of this Code, other
(F) A foreign corporation, whether
than income subject to tax under
engaged or not in trade or
Subsections (B), (C) and (D) of
business in the Philippines, is
this Section, derived for each
taxable only on income derived
taxable year from all sources
from sources within the
within the Philippines by an
Philippines.
individual citizen of the
Philippines who is residing
outside of the Philippines
including overseas contract
workers referred to in
CHAPTER III Subsection(C) of Section 23
hereof; and

TAX ON INDIVIDUALS
(c) On the taxable income defined
in Section 31 of this Code, other
SEC. 24. Income Tax Rates. - than income subject to tax under
Subsections (B), (C) and (D) of
this Section, derived for each
(A) Rates of Income Tax on taxable year from all sources
Individual Citizen and Individual within the Philippines by an
Resident Alien of the Philippines.- individual alien who is a resident
of the Philippines.
(1) An income tax is hereby
imposed (2) Rates of Tax on Taxable
Income of Individuals. [11] - The
tax shall be computed in
(a) On the taxable income defined accordance with and at the rates
in Section 31 of this Code, other established in the following
than income subject to tax under schedule:
Subsections (B), (C) and (D) of
this Section, derived for each
taxable year from all sources (a) Tax Schedule Effective
within and without the January 1, 2018 until December
Philippines be every individual 31, 2022 [4]:
citizen of the Philippines residing
therein;
Not over Over P250,000 but not over
P250,000………………………………… P400,000……………………….. 15%
…………… 0% of the excess over P250,000

Over P250,000 but not over Over P400,000 but not over
P400,000……………………….. 20% P800,000………………………..
of the excess over P250,000 P22,500 + 20% of the excess over
P400,000

Over P400,000 but not over

P800,000……………………….. Over P800,000 but not over
P30,000 + 25% of the excess over P2,000,000……………………..
P400,000 P102,500 + 25% of the excess over
P800,000

Over P800,000 but not over

P2,000,000…………………….. Over P2,000,000 but not over
P130,000 + 30% of the excess P8,000,000…………………...
over P800,000 P402,500 + 30% of the excess
over P2,000,000

Over P2,000,000 but not over

P8,000,000…………………... Over P8,000,000
P490,000 + 32% of the excess ………………………………………………..
over P2,000,000 P2,202,500 + 35% of the excess
over P8,000,000

Over P8,000,000
……………………………………………….. For married individuals, the
P2,410,000 + 35% of the excess husband and wife, subject to the
over P8,000,000 provision of Section 51 (D) hereof,
shall compute separately their
individual income tax based on
Tax Schedule Effective January 1, their respective total taxable
2023 and onwards: income: Provided, That if any
income cannot be definitely
attributed to or identified as
Not over income exclusively earned or
P250,000………………………………… realized by either of the spouses,
……………. 0% the same shall be divided equally
between the spouses for the
purpose of determining their both compensation income and
respective taxable income. income from business or practice
of profession shall be subject to
the following taxes:
Provided, That minimum wage
earners as defined in Section
22(HH) of this Code shall be (1) All Income from
exempt from the payment of Compensation – The rate
income tax on their taxable prescribed under Subsection (A)
income: Provided, further, That (2)(a) of this Section.
the holiday pay, overtime pay,
night shift differential pay and
hazard pay received by such (2) All Income from Business or
minimum wage earners shall Practice of Profession –
likewise be exempt from income
tax. [12]
(a) If Total Gross Sales and/or
Gross Receipts and Other Non-
(b) Rate of Tax on Income of Operating Income Do Not Exceed
Purely Self-employed Individuals the VAT Threshold as Provided in
and/or Professionals Whose Section 109(BB) of this Code. –
Gross Sales or Gross Receipts and The rates prescribed under
Other Non-operating Income Subsection (A)(2)(a) of this
Does Not Exceed the Value-added Section on taxable income, or
Tax(VAT) Threshold as Provided eight percent (8%) income tax
in Section 109(BB). – Self- based on gross sales or gross
employed individuals and/or receipts and other non-operating
professionals shall have the income in lieu of the graduated
option to avail of an eight percent income tax rates under Subsection
(8%) tax on gross sales or gross (A)(2)(a) of this Section and the
receipts and other non-operating percentage tax under Section 116
income in excess of Two hundred of this Code.
fifty thousand pesos (P250,000)
in lieu of the graduated income
tax rates under Subsection (A)(2) (b) If Total Gross Sales and/or
(a) of this Section and the Gross Receipts and Other Non-
percentage tax under Section 116 operating Income Exceeds the
of this Code. VAT Thresholds Provided in
Section 109(BB) of this Code. –
The rates prescribed under
(c) Rate of Tax for Mixed Income Subsection (A)(2)(a) of this
Earners. – Taxpayers earning Section.
 investment in the form of savings,
common or individual trust funds,
(B) Rate of Tax on Certain Passive
deposit substitutes, investment
Income: -
management accounts and other
investments evidenced by
(1) Interests, Royalties, Prizes, certificates in such form
and Other Winnings. – A final tax prescribed by the Bangko Sentral
at the rate of twenty percent ng Pilipinas (BSP) shall be exempt
(20%) is hereby imposed upon the from the tax imposed under this
amount of interest from any Subsection: Provided, finally, That
currency bank deposit and yield should the holder of the certificate
or any other monetary benefit pre-terminate the deposit or
from deposit substitutes and from investment before the fifth (5th)
trust funds and similar year, a final tax shall be imposed
arrangements; royalties, except on on the entire income and shall be
books, as well as other literary deducted and withheld by the
works and musical compositions, depository bank from the
which shall be imposed a final tax proceeds of the long-term deposit
of ten percent (10%); prizes or investment certificate based on
(except prizes amounting to Ten the remaining maturity thereof:
thousand pesos (P10,000) or less
which shall be subject to tax
Four (4) years to less than five (5)
under Subsection (A) of Section
years - 5%;
24; and other winnings (except
winning amounting to Ten
thousand pesos (P10,000) or less Three (3) years to less than (4)
from Philippine Charity years - 12%; and
Sweepstakes and Lotto which
shall be exempt), derived from
sources within the Philippines: Less than three (3) years - 20%
Provided, however, That interest
income received by an individual
taxpayer (except a nonresident (2) Cash and/or Property
individual) from a depository Dividends. - A final tax at the rate
bank under the expanded foreign of ten percent (10%) [4] shall be
currency deposit system shall be imposed upon the cash and/or
subject to a final income tax at the property dividends actually or
rate of fifteen percent (15%) of constructively received by an
such interest income [4]: individual from a domestic
Provided, further, That interest corporation or from a joint stock
income from long-term deposit or company, insurance or mutual
fund companies and regional whichever is higher, is hereby
operating headquarters of imposed upon capital gains
multinational companies, or on presumed to have been realized
the share of an individual in the from the sale, exchange, or other
distributable net income after tax disposition of real property
of a partnership (except a general located in the Philippines,
professional partnership) of which classified as capital assets,
he is a partner, or on the share of including pacto de retro sales and
an individual in the net income other forms of conditional sales,
after tax of an association, a joint by individuals, including estates
account, or a joint venture or and trusts: Provided, That the tax
consortium taxable as a liability, if any, on gains from
corporation of which he is a sales or other dispositions of real
member or co-venturer: property to the government or any
of its political subdivisions or
agencies or to government-owned
(C) Capital Gains from Sale of or controlled corporations shall be
Shares of Stock not Traded in the determined either under Section
Stock Exchange. - The provisions 24 (A) or under this Subsection, at
of Section 39(B) notwithstanding, the option of the taxpayer;
a final tax at the rate of fifteen
percent (15%) is hereby imposed
upon the net capital gains realized (2) Exception. - The provisions of
during the taxable year from the paragraph (1) of this Subsection to
sale, barter, exchange or other the contrary notwithstanding,
disposition of shares of stock in a capital gains presumed to have
domestic corporation, except been realized from the sale or
shares sold, or disposed of disposition of their principal
through the stock exchange. [4] residence by natural persons, the
proceeds of which is fully utilized
in acquiring or constructing a new
(D) Capital Gains from Sale of principal residence within
Real Property. – eighteen (18) calendar months
from the date of sale or
disposition, shall be exempt from
(1) In General. - The provisions of the capital gains tax imposed
Section 39(B) notwithstanding, a under this Subsection: Provided,
final tax of six percent (6%) based That the historical cost or
on the gross selling price or adjusted basis of the real property
current fair market value as sold or disposed shall be carried
determined in accordance with over to the new principal
Section 6(E) of this Code, residence built or acquired:
Provided, further, That the shall be subject to an income tax
Commissioner shall have been in the same manner as an
duly notified by the taxpayer individual citizen and a resident
within thirty (30) days from the alien individual, on taxable
date of sale or disposition through income received from all sources
a prescribed return of his within the Philippines. A
intention to avail of the tax nonresident alien individual who
exemption herein mentioned: shall come to the Philippines and
Provided, still further, That the stay therein for an aggregate
said tax exemption can only be period of more than one hundred
availed of once every ten (10) eighty (180) days during any
years: Provided, finally, That if calendar year shall be deemed a
there is no full utilization of the 'nonresident alien doing business
proceeds of sale or disposition, in the Philippines'. Section 22 (G)
the portion of the gain presumed of this Code notwithstanding.
to have been realized from the
sale or disposition shall be subject
to capital gains tax. For this (2) Cash and/or Property
purpose, the gross selling price or Dividends from a Domestic
fair market value at the time of Corporation or Joint Stock
sale, whichever is higher, shall be Company, or Insurance or Mutual
multiplied by a fraction which the Fund Company or Regional
unutilized amount bears to the Operating Headquarter or
gross selling price in order to Multinational Company, or Share
determine the taxable portion and in the Distributable Net Income of
the tax prescribed under a Partnership (Except a General
paragraph (1) of this Subsection Professional Partnership), Joint
shall be imposed thereon. Account, Joint Venture Taxable as
a Corporation or Association.,
Interests, Royalties, Prizes, and
SEC. 25. Tax on Nonresident Other Winnings. - Cash and/or
Alien Individual. – property dividends from a
domestic corporation, or from a
joint stock company, or from an
(A) Nonresident Alien Engaged in insurance or mutual fund
trade or Business Within the company or from a regional
Philippines. – operating headquarter of
multinational company, or the
share of a nonresident alien
(1) In General. - A nonresident individual in the distributable net
alien individual engaged in trade income after tax of a partnership
or business in the Philippines (except a general professional
partnership) of which he is a should the holder of the certificate
partner, or the share of a pre-terminate the deposit or
nonresident alien individual in investment before the fifth (5th)
the net income after tax of an year, a final tax shall be imposed
association, a joint account, or a on the entire income and shall be
joint venture taxable as a deducted and withheld by the
corporation of which he is a depository bank from the
member or a co-venturer; proceeds of the long-term deposit
interests; royalties (in any form); or investment certificate based on
and prizes (except prizes the remaining maturity thereof:
amounting to Ten thousand pesos
(P10,000) or less which shall be
subject to tax under Subsection Four (4) years to less than five (5)
(B)(1) of Section 24) and other years - 5%;
winnings (except Philippine
Charity Sweepstakes and Lotto
winnings); shall be subject to an Three (3) years to less than four
income tax of twenty percent (4) years - 12%; and
(20%) on the total amount
thereof: Provided, however, that
royalties on books as well as other Less than three (3) years - 20%.
literary works, and royalties on
musical compositions shall be
(3) Capital Gains. - Capital gains
subject to a final tax of ten percent
realized from sale, barter or
(10%) on the total amount
exchange of shares of stock in
thereof: Provided, further, That
domestic corporations not traded
cinematographic films and similar
through the local stock exchange,
works shall be subject to the tax
and real properties shall be
provided under Section 28 of this
subject to the tax prescribed
Code: Provided, furthermore,
under Subsections (C) and (D) of
That interest income from long-
Section 24.
term deposit or investment in the
form of savings, common or
individual trust funds, deposit (B) Nonresident Alien Individual
substitutes, investment Not Engaged in Trade or Business
management accounts and other Within the Philippines.- There
investments evidenced by shall be levied, collected and paid
certificates in such form for each taxable year upon the
prescribed by the Bangko Sentral entire income received from all
ng Pilipinas (BSP) shall be exempt sources within the Philippines by
from the tax imposed under this every nonresident alien individual
Subsection: Provided, finally, that
not engaged in trade or business equal to fifteen percent (15%) of
within the Philippines as interest, such gross income: Provided,
cash and/or property dividends, however, That the same tax
rents, salaries, wages, premiums, treatment shall apply to Filipinos
annuities, compensation, employed and occupying the same
remuneration, emoluments, or position as those of aliens
other fixed or determinable employed by these multinational
annual or periodic or casual gains, companies. For purposes of this
profits, and income, and capital Chapter, the term 'multinational
gains, a tax equal to twenty-five company' means a foreign firm or
percent (25%) of such income. entity engaged in international
Capital gains realized by a trade with affiliates or
nonresident alien individual not subsidiaries or branch offices in
engaged in trade or business in the Asia-Pacific Region and other
the Philippines from the sale of foreign markets.
shares of stock in any domestic
corporation and real property
shall be subject to the income tax (D) Alien Individual Employed by
prescribed under Subsections (C) Offshore Banking Units. - There
and (D) of Section 24. shall be levied, collected and paid
for each taxable year upon the
gross income received by every
(C) Alien Individual Employed by alien individual employed by
Regional or Area Headquarters offshore banking units established
and Regional Operating in the Philippines as salaries,
Headquarters of Multinational wages, annuities, compensation,
Companies. - There shall be remuneration and other
levied, collected and paid for each emoluments, such as honoraria
taxable year upon the gross and allowances, from such off-
income received by every alien shore banking units, a tax equal to
individual employed by regional fifteen percent (15%) of such gross
or area headquarters and regional income: Provided, however, That
operating headquarters the same tax treatment shall apply
established in the Philippines by to Filipinos employed and
multinational companies as occupying the same positions as
salaries, wages, annuities, those of aliens employed by these
compensation, remuneration and offshore banking units.
other emoluments, such as
honoraria and allowances, from
such regional or area (E) Alien Individual Employed by
headquarters and regional Petroleum Service Contractor and
operating headquarters, a tax Subcontractor. [13] - An Alien
individual who is a permanent Commission (SEC) after January
resident of a foreign country but 1, 2018: Provided, however, That
who is employed and assigned in existing RHQs/ROHQs, OBUs or
the Philippines by a foreign petroleum service contractors and
service contractor or by a foreign subcontractors presently availing
service subcontractor engaged in of preferential tax rates for
petroleum operations in the qualified employees shall
Philippines shall be liable to a tax continue to be entitled to avail of
of fifteen percent (15%) of the the preferential tax rate for
salaries, wages, annuities, present and future qualified
compensation, remuneration and employees. [14]
other emoluments, such as
honoraria and allowances,
received from such contractor or (NOTE: The amendments
subcontractor: Provided, however, introduced by the TRAIN Law on
That the same tax treatment shall Section 6(F) was vetoed by the
apply to a Filipino employed and President. The veto message
occupying the same position as an reads:
alien employed by petroleum
service contractor and
subcontractor. “I am constrained to veto the
provision under Section 6(F) of
the enrolled bill that effectively
Any income earned from all other maintains the special tax rate of
sources within the Philippines by 15% of gross income for the
the alien employees referred to aforementioned employees, to
under Subsections (C), (D) and wit:
(E) hereof shall be subject to the
pertinent income tax, as the case
may be, imposed under this Code. ‘Provided, However, That Existing
RHQs/ROHQs, OBUs or
Petroleum Service Contractors
(F) The preferential tax treatment and Subcontractors Presently
provided in Subsections (C), (D), Availing of Preferential Tax Rates
and (E) of this Section shall not be For Qualified Employees Shall
applicable to regional Continue To Be Entitled To Avail
headquarters (RHQs), regional Of The Preferential Tax Rate For
operating headquarters (ROHQs), Present And Future Qualified
offshore banking units (OBUs) or Employees.’
petroleum service contractors and
subcontractors registering with
the Securities and Exchange
While I understand the laudable
objective of the proposal, the For purposes of computing the
provision is violative of the Equal distributive share of the partners,
Protection Clause under Section 1, the net income of the partnership
Article III of the 1987 shall be computed in the same
Constitution, as well as the rule of manner as a corporation.
equity and uniformity in the
application of the burden of
taxation: Each partner shall report as gross
income his distributive share,
actually or constructively
Section 1. No person shall be received, in the net income of the
deprived of life, liberty, or partnership.
property without due process of
law, nor shall any person be
denied the equal protection of the
laws.

CHAPTER IV
In line with this, the overriding
consideration is the promotion of
fairness of the tax system for TAX ON CORPORATIONS
individuals performing similar
work. Given the significant
reduction in the personal income SEC. 27. Rates of Income tax on
tax, the employees of these forms Domestic Corporations. –
should follow the regular tax rates
applicable to other individual
taxpayers.) (A) In General. - Except as
otherwise provided in this Code,
an income tax of thirty-five
SEC. 26. Tax Liability of Members percent (35%) is hereby imposed
of General Professional upon the taxable income derived
Partnerships. - A general during each taxable year from all
professional partnership as such sources within and without the
shall not be subject to the income Philippines by every corporation,
tax imposed under this Chapter. as defined in Section 22(B) of this
Persons engaging in business as Code and taxable under this Title
partners in a general professional as a corporation, organized in, or
partnership shall be liable for existing under the laws of the
income tax only in their separate Philippines: Provided, That
and individual capacities. effective January 1, 2009, the rate
of income tax shall be thirty (2) A ratio of forty percent (40%)
percent (30%). [19] of income tax collection to total
tax revenues;

In the case of corporations

adopting the fiscal-year (3) A VAT tax effort of four
accounting period, the taxable percent (4%) of GNP; and
income shall be computed without
regard to the specific date when
specific sales, purchases and other (4) A 0.9 percent (0.9%) ratio of
transactions occur. Their income the Consolidated Public Sector
and expenses for the fiscal year Financial Position (CPSFP) to
shall be deemed to have been GNP.
earned and spent equally for each
month of the period.
The option to be taxed based on
gross income shall be available
The corporate income tax rate only to firms whose ratio of cost of
shall be applied on the amount sales to gross sales or receipts
computed by multiplying the from all sources does not exceed
number of months covered by the fifty-five percent (55%).
new rate within the fiscal year by
the taxable income of the
corporation for the period, The election of the gross income
divided by twelve. [8] tax option by the corporation shall
be irrevocable for three (3)
consecutive taxable years during
Provided, further, That the which the corporation is qualified
President, upon the under the scheme.
recommendation of the Secretary
of Finance, may effective January
1, 2000, allow corporations the For purposes of this Section, the
option to be taxed at fifteen term 'gross income' derived from
percent (15%) of gross income as business shall be equivalent to
defined herein, after the following gross sales less sales returns,
conditions have been satisfied: discounts and allowances and cost
of goods sold. ‘Cost of goods sold'
shall include all business expenses
(1) A tax effort ratio of twenty directly incurred to produce the
percent (20%) of Gross National merchandise to bring them to
Product (GNP); their present location and use.
For a trading or merchandising (50%) of the total gross income
concern, 'cost of goods sold’ shall derived by such educational
include the invoice cost of the institutions or hospitals from all
goods sold, plus import duties, sources, the tax prescribed in
freight in transporting the goods Subsection (A) hereof shall be
to the place where the goods are imposed on the entire taxable
actually sold, including insurance income. For purposes of this
while the goods are in transit. Subsection, the term 'unrelated
trade, business or other activity'
means any trade, business or
For a manufacturing concern, other activity, the conduct of
'cost of goods manufactured and which is not substantially related
sold' shall include all costs of to the exercise or performance by
production of finished goods, such such educational institution or
as raw materials used, direct labor hospital of its primary purpose or
and manufacturing overhead, function. A 'proprietary
freight cost, insurance premiums educational institution' is any
and other costs incurred to bring private school maintained and
the raw materials to the factory or administered by private
warehouse. individuals or groups with an
issued permit to operate from the
Department of Education, Culture
In the case of taxpayers engaged and Sports (DECS) [15], or the
in the sale of service, 'gross Commission on Higher Education
income' means gross receipts less (CHED), or the Technical
sales returns, allowances and Education and Skills Development
discounts. Authority (TESDA), as the case
may be, in accordance with
existing laws and regulations.
(B) Proprietary Educational
Institutions and Hospitals.–
(C) Government-owned or –
Controlled Corporations, Agencies
Proprietary educational or Instrumentalities. [16] - The
institutions and hospitals which provisions of existing special or
are nonprofit shall pay a tax of ten general laws to the contrary
percent (10%) on their taxable notwithstanding, all corporations,
income except those covered by agencies, or instrumentalities
Subsection (D) hereof: Provided, owned or controlled by the
that if the gross income from Government, except the
‘unrelated trade, business or other Government Service Insurance
activity’ exceeds fifty percent System (GSIS), the Social Security
System (SSS), the Philippine (2) Capital Gains from the Sale of
Health Insurance Corporation Shares of Stock Not Traded in the
(PHIC) and the local water Stock Exchange. - A final tax at
districts (LWDs) [17] shall pay the rate of fifteen percent (15%)
such rate of tax upon their taxable shall be imposed on net capital
income as are imposed by this gains realized during the taxable
Section upon corporations or year from the sale, exchange or
associations engaged in similar other disposition of shares of
business, industry, or activity. stock in a domestic corporation
except shares sold or disposed of
through the stock exchange. [4]
(D) Rates of Tax on Certain
Passive Incomes. –
(3) Tax on Income Derived under
the Expanded Foreign Currency
(1) Interest from Deposits and Deposit System. – Income derived
Yield or any other Monetary by a depository bank under the
Benefit from Deposit Substitutes expanded foreign currency
and from Trust Funds and Similar deposit system from foreign
Arrangements, and Royalties. - A currency transactions with
final tax at the rate of twenty nonresidents, offshore banking
percent (20%) is hereby imposed units in the Philippines, local
upon the amount of interest on commercial banks including
currency bank deposit and yield branches of foreign banks that
or any other monetary benefit may be authorized by the Bangko
from deposit substitutes and from Sentral ng Pilipinas (BSP) to
trust funds and similar transact business with foreign
arrangements received by currency deposit system shall be
domestic corporations, and exempt from all taxes, except net
royalties, derived from sources income from such transactions as
within the Philippines: Provided, may be specified by the Secretary
however, That interest income of Finance, upon recommendation
derived by a domestic corporation by the Monetary Board to be
from a depository bank under the subject to the regular income tax
expanded foreign currency payable by banks: Provided,
deposit system shall be subject to however, That interest income
a final income tax at the rate of from foreign currency loans
fifteen percent (15%) of such granted by such depository banks
interest income. [4] under said expanded system to
residents other than offshore
banking units in the Philippines
or other depository banks under
the expanded system, shall be (1) Imposition of Tax. - A
subject to a final tax at the rate of minimum corporate income tax of
ten percent (10%). [20] two percent (2%) of the gross
income as of the end of the
taxable year, as defined herein, is
Any income of nonresidents, hereby imposed on a corporation
whether individuals or taxable under this Title, beginning
corporations, from transactions on the fourth taxable year
with depository banks under the immediately following the year in
expanded system shall be exempt which such corporation
from income tax. commenced its business
operations, when the minimum
income tax is greater than the tax
(4) Intercorporate Dividends. - computed under Subsection (A) of
Dividends received by a domestic this Section for the taxable year.
corporation from another
domestic corporation shall not be
subject to tax. (2) Carry Froward of Excess
Minimum Tax. - Any excess of the
minimum corporate income tax
(5) Capital Gains Realized from over the normal income tax as
the Sale, Exchange or Disposition computed under Subsection (A) of
of Lands and/or Buildings. - A this Section shall be carried
final tax of six percent (6%) is forward and credited against the
hereby imposed on the gain normal income tax for the three
presumed to have been realized (3) immediately succeeding
on the sale, exchange or taxable years.
disposition of lands and/or
buildings which are not actually
used in the business of a (3) Relief from the Minimum
corporation and are treated as Corporate Income Tax Under
capital assets, based on the gross Certain Conditions. - The
selling price of fair market value Secretary of Finance is hereby
as determined in accordance with authorized to suspend the
Section 6(E) of this Code, imposition of the minimum
whichever is higher, of such lands corporate income tax on any
and/or buildings. corporation which suffers losses
on account of prolonged labor
dispute, or because of force
(E) Minimum Corporate Income majeure, or because of legitimate
Tax on Domestic Corporations. – business reverses.
The Secretary of Finance is hereby and manufacturing overhead,
authorized to promulgate, upon freight cost, insurance premiums
recommendation of the and other costs incurred to bring
Commissioner, the necessary the raw materials to the factory or
rules and regulation that shall warehouse.
define the terms and conditions
under which he may suspend the
imposition of the minimum In the case of taxpayers engaged
corporate income tax in a in the sale of service, 'gross
meritorious case. income' means gross receipts less
sales returns, allowances,
discounts and cost of services.
(4) Gross Income Defined. - For 'Cost of services' shall mean all
purposes of applying the direct costs and expenses
minimum corporate income tax necessarily incurred to provide
provided under Subsection (E) the services required by the
hereof, the term 'gross income' customers and clients including
shall mean gross sales less sales (A) salaries and employee benefits
returns, discounts and allowances of personnel, consultants and
and cost of goods sold. ‘Cost of specialists directly rendering the
goods sold' shall include all service and (B) cost of facilities
business expenses directly directly utilized in providing the
incurred to produce the service such as depreciation or
merchandise to bring them to rental of equipment used and cost
their present location and use. of supplies: Provided, however,
That in the case of banks, 'cost of
services' shall include interest
For a trading or merchandising expense.
concern, 'cost of goods sold' shall
include the invoice cost of the
goods sold, plus import duties, SEC. 28. Rates of Income Tax on
freight in transporting the goods Foreign Corporations. - [18]
to the place where the goods are
actually sold including insurance
while the goods are in transit. (A) Tax on Resident Foreign
Corporations. -

For a manufacturing concern,

‘cost of goods manufactured and (1) In General. - Except as
sold' shall include all costs of otherwise provided in this Code, a
production of finished goods, such corporation organized,
as raw materials used, direct labor authorized, or existing under the
laws of any foreign country, conditions, as provided in Section
engaged in trade or business 27 (A).
within the Philippines, shall be
subject to an income tax
equivalent to thirty-five percent (2) Minimum Corporate Income
(35%) of the taxable income Tax on Resident Foreign
derived in the preceding taxable Corporations. - A minimum
year from all sources within the corporate income tax of two
Philippines: Provided, That percent (2%) of gross income, as
effective January 1, 2009, the rate prescribed under Section 27 (E) of
of income tax shall be thirty this Code, shall be imposed, under
percent (30%). [19] the same conditions, on a resident
foreign corporation taxable under
paragraph (1) of this Subsection.
In the case of corporations
adopting the fiscal-year
accounting period, the taxable (3) International Carrier. — An
income shall be computed without international carrier doing
regard to the specific date when business in the Philippines shall
sales, purchases and other pay a tax of two and one-half
transactions occur. Their income percent (21/2 %) on its ‘Gross
and expenses for the fiscal year Philippine Billings’ as defined
shall be deemed to have been hereunder:
earned and spent equally for each
month of the period.
(a) International Air Carrier. —
‘Gross Philippine Billings’ refers
The corporate income tax rate to the amount of gross revenue
shall be applied on the amount derived from carriage of persons,
computed by multiplying the excess baggage, cargo, and mail
number of months covered by the originating from the Philippines
new rate within the fiscal year by in a continuous and uninterrupted
the taxable income of the flight, irrespective of the place of
corporation for the period, sale or issue and the place of
divided by twelve. [8] payment of the ticket or passage
document: Provided, That tickets
revalidated, exchanged and/or
Provided, however, That a indorsed to another international
resident foreign corporation shall airline form part of the Gross
be granted the option to be taxed Philippine Billings if the
at fifteen percent (15%) on gross passenger boards a plane in a port
income under the same or point in the Philippines:
Provided, further, That for a flight (4) Offshore Banking Units. - The
which originates from the provisions of any law to the
Philippines, but transshipment of contrary notwithstanding, income
passenger takes place at any part derived by offshore banking units
outside the Philippines on another authorized by the Bangko Sentral
airline, only the aliquot portion of ng Pilipinas (BSP), from foreign
the cost of the ticket currency transactions with
corresponding to the leg flown nonresidents, other offshore
from the Philippines to the point banking units, local commercial
of transshipment shall form part banks, including branches of
of Gross Philippine Billings. foreign banks that may be
authorized by the Bangko Sentral
ng Pilipinas (BSP) to transact
(b) International Shipping. — business with offshore banking
‘Gross Philippine Billings’ means units shall be exempt from all
gross revenue whether for taxes except net income from such
passenger, cargo or mail transactions as may be specified
originating from the Philippines by the Secretary of Finance, upon
up to final destination, regardless recommendation of the Monetary
of the place of sale or payments of Board which shall be subject to
the passage or freight documents. the regular income tax payable by
banks: Provided, however, That
any interest income derived from
Provided, That international foreign currency loans granted to
carriers doing business in the residents other than offshore
Philippines may avail of a banking units or local commercial
preferential rate or exemption banks, including local, branches
from the tax herein imposed on of foreign banks that may be
their gross revenue derived from authorized by the BSP to transact
the carriage of persons and their business with offshore banking
excess baggage on the basis of an units, shall be subject only to a
applicable tax treaty or final tax at the rate of ten percent
international agreement to which (10%). [20]
the Philippines is a signatory or
on the basis of reciprocity such
that an international carrier, Any income of nonresidents,
whose home country grants whether individuals or
income tax exemption to corporations, from transactions
Philippine carriers, shall likewise with said offshore banking units
be exempt from the tax imposed shall be exempt from income tax.
under this provision.
(5) Tax on Branch Profits (b) Regional operating
Remittances. - Any profit remitted headquarters as defined in
by a branch to its head office shall Section 22(EE) shall pay a tax of
be subject to a tax of fifteen (15%) ten percent (10%) of their taxable
which shall be based on the total income.
profits applied or earmarked for
remittance without any deduction
for the tax component thereof (7) Tax on Certain Incomes
(except those activities which are Received by a Resident Foreign
registered with the Philippine Corporation. -
Economic Zone Authority). The
tax shall be collected and paid in
the same manner as provided in (a) Interest from Deposits and
Sections 57 and 58 of this Code: Yield or any other Monetary
Provided, that interests, Benefit from Deposit Substitutes,
dividends, rents, royalties, Trust Funds and Similar
including remuneration for Arrangements and Royalties. -
technical services, salaries, wages Interest from any currency bank
premiums, annuities, emoluments deposit and yield or any other
or other fixed or determinable monetary benefit from deposit
annual, periodic or casual gains, substitutes and from trust funds
profits, income and capital gains and similar arrangements and
received by a foreign corporation royalties derived from sources
during each taxable year from all within the Philippines shall be
sources within the Philippines subject to a final income tax at the
shall not be treated as branch rate of twenty percent (20%) of
profits unless the same are such interest: Provided, however,
effectively connected with the That interest income derived by a
conduct of its trade or business in resident foreign corporation from
the Philippines. a depository bank under the
expanded foreign currency
deposit system shall be subject to
(6) Regional or Area a final income tax at the rate of
Headquarters and Regional seven and one-half percent (7
Operating Headquarters of 1/2%) of such interest income.
Multinational Companies. –

(b) Income Derived under the

(a) Regional or area headquarters Expanded Foreign Currency
as defined in Section 22(DD) shall Deposit System. - Income derived
not be subject to income tax. by a depository bank under the
expanded foreign currency
deposit system from foreign Stock Exchange. - A final tax at
currency transactions with the rates prescribed below is
nonresidents, offshore banking hereby imposed upon the net
units in the Philippines, local capital gains realized during the
commercial banks including taxable year from the sale, barter,
branches of foreign banks that exchange or other disposition of
may be authorized by the Bangko shares of stock in a domestic
Sentral ng Pilipinas (BSP) to corporation except shares sold or
transact business with foreign disposed of through the stock
currency deposit system units, exchange:
and other depository banks under
the expanded foreign currency
deposit system shall be exempt Not over P100, 000
from all taxes, except net income 5%
from such transactions as may be On any amount in excess of
specified by the Secretary of P100,000 10%
Finance, upon recommendation
by the Monetary Board to be
subject to the regular income tax (d) Intercorporate Dividends. -
payable by banks: Provided, Dividends received by a resident
however, That interest income foreign corporation from a
from foreign currency loans domestic corporation liable to tax
granted by such depository banks under this Code shall not be
under said expanded system to subject to tax under this Title.
residents other than offshore
banking units in the Philippines
or other depository banks under (B) Tax on Nonresident Foreign
the expanded system shall be Corporation. -
subject to a final tax at the rate of
ten percent (10%). [20]
(1) In General. - Except as
otherwise provided in this Code, a
Any income of nonresidents, foreign corporation not engaged
whether individuals or in trade or business in the
corporations, from transactions Philippines shall pay a tax equal
with depository banks under the to thirty-five percent (35%) of the
expanded system shall be exempt gross income received during each
from income tax. taxable year from all sources
within the Philippines, such as
interests, dividends, rents,
(c) Capital Gains from Sale of royalties, salaries, premiums
Shares of Stock Not Traded in the (except reinsurance premiums),
annuities, emoluments or other
fixed or determinable annual, (5) Tax on Certain Incomes
periodic or casual gains, profits Received by a Nonresident
and income, and capital gains, Foreign Corporation. -
except capital gains subject to tax
under subparagraph 5 ( c ):
Provided, That effective January (a) Interest on Foreign Loans. - A
1, 2009, the rate of income tax final withholding tax at the rate of
shall be thirty percent (30%). [19] twenty percent (20%) is hereby
imposed on the amount of interest
on foreign loans contracted on or
(2) Nonresident Cinematographic after August 1, 1986;
Film Owner, Lessor or
Distributor. - A cinematographic
film owner, lessor, or distributor (b) Intercorporate Dividends. - A
shall pay a tax of twenty-five final withholding tax at the rate of
percent (25%) of its gross income fifteen percent (15%) is hereby
from all sources within the imposed on the amount of cash
Philippines. and/or property dividends
received from a domestic
corporation, which shall be
(3) Nonresident Owner or Lessor collected and paid as provided in
of Vessels Chartered by Philippine Section 57 (A) of this Code,
Nationals. – A nonresident owner subject to the condition that the
or lessor of vessels shall be subject country in which the nonresident
to a tax of four and one-half foreign corporation is domiciled,
percent (4 1/2%) of gross rentals, shall allow a credit against the tax
lease or charter fees from leases or due from the nonresident foreign
charters to Filipino citizens or corporation taxes deemed to have
corporations, as approved by the been paid in the Philippines
Maritime Industry Authority. equivalent to twenty percent
(20%), which represents the
difference between the regular
(4) Nonresident Owner or Lessor
income tax of thirty-five percent
of Aircraft, Machineries and Other
(35%) and the fifteen percent
Equipment. - Rentals, charters
(15%) tax on dividends as
and other fees derived by a
provided in this subparagraph:
nonresident lessor of aircraft,
Provided, that effective January 1,
machineries and other equipment
2009, the credit against the tax
shall be subject to a tax of seven
due shall be equivalent to fifteen
and one-half percent (7 1/2%) of
percent (15%), which represents
gross rentals or fees.
the difference between the regular
income tax of thirty percent (30%)
and the fifteen percent (15%) tax (B) Tax on Corporations Subject
on dividends; [19] to Improperly Accumulated
Earnings Tax. -
(c) Capital Gains from Sale of
Shares of Stock not Traded in the (1) In General. - The improperly
Stock Exchange. - A final tax at accumulated earnings tax
the rates prescribed below is imposed in the preceding Section
hereby imposed upon the net shall apply to every corporation
capital gains realized during the formed or availed for the purpose
taxable year from the sale, barter, of avoiding the income tax with
exchange or other disposition of respect to its shareholders or the
shares of stock in a domestic shareholders of any other
corporation, except shares sold, or corporation, by permitting
disposed of through the stock earnings and profits to
exchange: accumulate instead of being
divided or distributed.
Not over P100,000
5% (2) Exceptions. - The improperly
On any amount in excess of accumulated earnings tax as
P100,000 10% provided for under this Section
shall not apply to:

SEC. 29. Imposition of

Improperly Accumulated (a) Publicly-held corporations;
Earnings Tax. -

(b) Banks and other nonbank

(A) In General. - In addition to financial intermediaries; and
other taxes imposed by this Title,
there is hereby imposed for each
taxable year on the improperly (c) Insurance companies.
accumulated taxable income of
each corporation described in
Subsection B hereof, an (C) Evidence of Purpose to Avoid
improperly accumulated earnings Income Tax. –
tax equal to ten percent (10%) of
the improperly accumulated
taxable income. (1) Prima Facie Evidence. - the
fact that any corporation is a mere
holding company or investment
company shall be prima facie And reduced by the sum of:
evidence of a purpose to avoid the
tax upon its shareholders or
members. (a) Dividends actually or
constructively paid; and
(2) Evidence Determinative of
Purpose. - The fact that the (b) Income tax paid for the
earnings or profits of a taxable year.
corporation are permitted to
accumulate beyond the
reasonable needs of the business Provided, however, That for
shall be determinative of the corporations using the calendar
purpose to avoid the tax upon its year basis, the accumulated
shareholders or members unless earnings tax shall not apply on
the corporation, by the clear improperly accumulated income
preponderance of evidence, shall as of December 31, 1997. In the
prove to the contrary. case of corporations adopting the
fiscal year accounting period, the
improperly accumulated income
(D) Improperly Accumulated not subject to this tax, shall be
Taxable Income. - For purposes of reckoned, as of the end of the
this Section, the term 'improperly month comprising the twelve
accumulated taxable income' (12)-month period of fiscal year
means taxable income adjusted 1997-1998.
by:

(E) Reasonable Needs of the

(a) Income exempt from tax; Business. - For purposes of this
Section, the term 'reasonable
needs of the business' includes the
(b) Income excluded from gross reasonably anticipated needs of
income; the business.

(c) Income subject to final tax; SEC. 30. Exemptions from Tax on
and Corporations. - The following
organizations shall not be taxed
under this Title in respect to
(d) The amount of net operating
income received by them as such:
loss carry-over deducted;
(A) Labor, agricultural or any member, organizer, officer or
horticultural organization not any specific person;
organized principally for profit;

(F) Business league chamber of

(B) Mutual savings bank not commerce, or board of trade, not
having a capital stock represented organized for profit and no part of
by shares, and cooperative bank the net income of which inures to
without capital stock organized the benefit of any private stock-
and operated for mutual purposes holder, or individual;
and without profit;

(G) Civic league or organization

(C) A beneficiary society, order or not organized for profit but
association, operating for the operated exclusively for the
exclusive benefit of the members promotion of social welfare;
such as a fraternal organization
operating under the lodge system,
or mutual aid association or a (H) A nonstock and nonprofit
nonstock corporation organized educational institution;
by employees providing for the
payment of life, sickness,
accident, or other benefits (I) Government educational
exclusively to the members of institution;
such society, order, or association,
or nonstock corporation or their
dependents; (J) Farmers' or other mutual
typhoon or fire insurance
company, mutual ditch or
(D) Cemetery company owned irrigation company, mutual or
and operated exclusively for the cooperative telephone company,
benefit of its members; or like organization of a purely
local character, the income of
which consists solely of
(E) Nonstock corporation or assessments, dues, and fees
association organized and collected from members for the
operated exclusively for religious, sole purpose of meeting its
charitable, scientific, athletic, or expenses; and
cultural purposes, or for the
rehabilitation of veterans, no part
of its net income or asset shall (K) Farmers', fruit growers', or
belong to or inure to the benefit of like association organized and
operated as a sales agent for the
purpose of marketing the
products of its members and
turning back to them the proceeds
of sales, less the necessary selling
expenses on the basis of the CHAPTER VI
quantity of produce finished by
them;
COMPUTATION OF GROSS
INCOME
Notwithstanding the provisions in
the preceding paragraphs, the
income of whatever kind and
character of the foregoing
organizations from any of their
SEC. 32. Gross Income. -
properties, real or personal, or
from any of their activities
conducted for profit regardless of (A) General Definition. - Except
the disposition made of such when otherwise provided in this
income, shall be subject to tax Title, gross income means all
imposed under this Code. income derived from whatever
source, including (but not limited
to) the following items:

CHAPTER V (1) Compensation for services in

whatever form paid, including,
but not limited to fees, salaries,
COMPUTATION OF TAXABLE wages, commissions, and similar
INCOME items;

(2) Gross income derived from the

conduct of trade or business or
the exercise of a profession;
SEC. 31. Taxable Income Defined.
-The term ‘taxable income’ [21]
means the pertinent items of (3) Gains derived from dealings in
gross income specified in this property;
Code, less the deductions, if any,
authorized for such types of
income by this Code or other (4) Interests;
special laws. [4]
(5) Rents; (2) Amount Received by Insured
as Return of Premium. - The
amount received by the insured,
(6) Royalties; as a return of premiums paid by
him under life insurance,
endowment, or annuity contracts,
(7) Dividends; either during the term or at the
maturity of the term mentioned in
the contract or upon surrender of
(8) Annuities; the contract.

(9) Prizes and winnings; (3) Gifts, Bequests, and Devises. -

The value of property acquired by
gift, bequest, devise, or descent:
(10) Pensions; and
Provided, however, That income
from such property, as well as gift,
(11) Partner's distributive share bequest, devise or descent of
from the net income of the general income from any property, in
professional partnership. cases of transfers of divided
interest, shall be included in gross
income.
(B) Exclusions from Gross
Income. - The following items
shall not be included in gross (4) Compensation for Injuries or
income and shall be exempt from Sickness. - amounts received,
taxation under this Title: through Accident or Health
Insurance or under Workmen's
Compensation Acts, as
(1) Life Insurance. - The proceeds compensation for personal
of life insurance policies paid to injuries or sickness, plus the
the heirs or beneficiaries upon the amounts of any damages received,
death of the insured, whether in a whether by suit or agreement, on
single sum or otherwise, but if account of such injuries or
such amounts are held by the sickness.
insurer under an agreement to
pay interest thereon, the interest
payments shall be included in (5) Income Exempt under Treaty.
gross income. - Income of any kind, to the extent
required by any treaty obligation
binding upon the Government of
the Philippines.
 benefit of the said officials and
employees.
(6) Retirement Benefits, Pensions,
Gratuities, etc.-
(b) Any amount received by an
official or employee or by his heirs
(a) Retirement benefits received
from the employer as a
under Republic Act No. 7641 and
consequence of separation of such
those received by officials and
official or employee from the
employees of private firms,
service of the employer because of
whether individual or corporate,
death sickness or other physical
in accordance with a reasonable
disability or for any cause beyond
private benefit plan maintained by
the control of the said official or
the employer: Provided, That the
employee.
retiring official or employee has
been in the service of the same
employer for at least ten (10) (c) The provisions of any existing
years and is not less than fifty (50) law to the contrary
years of age at the time of his notwithstanding, social security
retirement: Provided, further, benefits, retirement gratuities,
That the benefits granted under pensions and other similar
this subparagraph shall be availed benefits received by resident or
of by an official or employee only nonresident citizens of the
once. For purposes of this Philippines or aliens who come to
Subsection, the term 'reasonable reside permanently in the
private benefit plan' means a Philippines from foreign
pension, gratuity, stock bonus or government agencies and other
profit-sharing plan maintained by institutions, private or public.
an employer for the benefit of
some or all of his officials or
employees, wherein contributions (d) Payments of benefits due or to
are made by such employer for the become due to any person
officials or employees, or both, for residing in the Philippines under
the purpose of distributing to such the laws of the United States
officials and employees the administered by the United States
earnings and principal of the fund Veterans Administration.
thus accumulated, and wherein its
is provided in said plan that at no
time shall any part of the corpus (e) Benefits received from or
or income of the fund be used for, enjoyed under the Social Security
or be diverted to, any purpose System in accordance with the
other than for the exclusive
provisions of Republic Act No. (c) Prizes and Awards. - Prizes
8282. and awards made primarily in
recognition of religious,
charitable, scientific, educational,
(f) Benefits received from the artistic, literary, or civic
GSIS under Republic Act No. achievement but only if:
8291, including retirement
gratuity received by government
officials and employees. (i) The recipient was selected
without any action on his part to
enter the contest or proceeding;
(7) Miscellaneous Items. – and

(a) Income Derived by Foreign (ii) The recipient is not required

Government. - Income derived to render substantial future
from investments in the services as a condition to
Philippines in loans, stocks, bonds receiving the prize or award.
or other domestic securities, or
from interest on deposits in banks
in the Philippines by (i) foreign (d) Prizes and Awards in sports
governments, (ii) financing Competition. - All prizes and
institutions owned, controlled, or awards granted to athletes in local
enjoying refinancing from foreign and international sports
governments, and (iii) competitions and tournaments
international or regional financial whether held in the Philippines or
institutions established by foreign abroad and sanctioned by their
governments. national sports associations.

(b) Income Derived by the (e) 13th Month Pay and Other
Government or its Political Benefits. - Gross benefits received
Subdivisions. - Income derived by officials and employees of
from any public utility or from the public and private entities:
exercise of any essential Provided, however, That the total
governmental function accruing exclusion under this
to the Government of the subparagraph shall not exceed
Philippines or to any political Ninety thousand pesos (P90,000)
subdivision thereof. which shall cover: [4]
(i) Benefits received by officials (h) Gains from Redemption of
and employees of the national and Shares in Mutual Fund. - Gains
local government pursuant to realized by the investor upon
Republic Act No. 6686; redemption of shares of stock in a
mutual fund company as defined
in Section 22 (BB) of this Code.
(ii) Benefits received by
employees pursuant to
Presidential Decree No. 851, as SEC. 33. Special Treatment of
amended by Memorandum Order Fringe Benefit. -
No. 28, dated August 13, 1986;

(A) Imposition of Tax. – Effective

(iii) Benefits received by officials January 1, 2018 and onwards, a
and employees not covered by final tax of thirty-five percent
Presidential Decree No. 851, as (35%) is hereby imposed on the
amended by Memorandum Order grossed-up monetary value of
No. 28, dated August 13, 1986; fringe benefit furnished or
and granted to the employee (except
rank and file employees defined
herein) by the employer, whether
(iv) Other benefits such as an individual or a corporation
productivity incentives and (unless the fringe benefit is
Christmas bonus. required by the nature of, or
necessary to the trade, business or
profession of the employer, or
(f) GSIS, SSS, Medicare and Other when the fringe benefit is for the
Contributions. - GSIS, SSS, convenience or advantage of the
Medicare and Pag-Ibig employer). The tax herein
contributions, and union dues of imposed is payable by the
individuals. employer which tax shall be paid
in the same manner as provided
for under Section 57 (A) of this
(g) Gains from the Sale of Bonds, Code. The grossed-up monetary
Debentures or other Certificate of value of the fringe benefit shall be
Indebtedness. - Gains realized determined by dividing the actual
from the same or exchange or monetary value of the fringe
retirement of bonds, debentures benefit by sixty-five percent (65%)
or other certificate of effective January 1, 1998; sixty-
indebtedness with a maturity of seven percent (67%) effective
more than five (5) years. January 1, 1999; and sixty-eight
percent (68%) effective January 1,
2000 and thereafter: Provided,
however, That fringe benefit (5) Interest on loan at less than
furnished to employees and market rate to the extent of the
taxable under Subsections (B), difference between the market
(C), (D) and (E) of Section 25 rate and actual rate granted;
shall be taxed at the applicable
rates imposed thereat: Provided,
further, That the grossed -up (6) Membership fees, dues and
monetary value of the fringe other expenses borne by the
benefit shall be determined by employer for the employee in
dividing the actual monetary social and athletic clubs or other
value of the fringe benefit by the similar organizations;
difference between one hundred
percent (100%) and the applicable
rates of income tax under (7) Expenses for foreign travel;
Subsections (B), (C), (D), and (E)
of Section 25. [4]
(8) Holiday and vacation
expenses;
(B) Fringe Benefit Defined. - For
purposes of this Section, the term
'fringe benefit' means any good, (9) Educational assistance to the
service or other benefit furnished employee or his dependents; and
or granted in cash or in kind by an
employer to an individual
employee (except rank and file (10) Life or health insurance and
employees as defined herein) such other non-life insurance
as, but not limited to, the premiums or similar amounts in
following: excess of what the law allows.

(1) Housing; (C) Fringe Benefits Not Taxable. -

The following fringe benefits are
not taxable under this Section:
(2) Expense account;

(1) Fringe benefits which are

(3) Vehicle of any kind; authorized and exempted from tax
under special laws;

(4) Household personnel, such as

maid, driver and others;
(2) Contributions of the employer
for the benefit of the employee to
retirement, insurance and
hospitalization benefit plans;

(3) Benefits given to the rank and

file employees, whether granted
under a collective bargaining
agreement or not; and

(4) De minimis benefits as defined

in the rules and regulations to be
promulgated by the Secretary of

Finance, upon recommendation of

the Commissioner.

The Secretary of Finance is hereby

authorized to promulgate, upon
recommendation of the
Commissioner, such rules and
regulations as are necessary to
carry out efficiently and fairly the
provisions of this Section, taking
into account the peculiar nature
and special need of the trade,
business or profession of the
employer.