Filing of Income Tax Returns and Payment

Who are Required to File

Individual Taxpayers

The following are required to file an income tax return:

Resident citizen
Non-resident citizen, on income from sources within the Philippines
Resident alien, on income from sources within the Philippines
Non-resident alien engaged in trade or business or in the exercise of profession in the Philippines, on income from sources within the Philippines

Resident citizens

Resident citizens receiving income from sources within or outside the Philippines:

Employees deriving purely compensation income from two or more employers, concurrently or successively at any time during the taxable year
Employees deriving purely compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting in the collectible or refundable return
Self-employed individuals receiving income from the conduct of a trade or business and/or practice of profession
Individuals deriving mixed-income, i.e., compensation income and income from the conduct of a trade or business and/or practice of profession
Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax
Individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing

Who of the following individuals shall be required to file an income tax return?

a. Every Filipino citizen residing in the Philippines

b. Every Filipino citizen residing outside the Philippines, on his income from sources within the Philippines

c. Every alien residing in the Philippines, on income derived from sources within the Philippines

d. All of the choices

Non-Individual Taxpayers

Corporations including partnerships, no matter how created or organized.
Domestic corporations receiving income from sources within and outside the Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business

Ordinary vs. Special Individual Taxpayers

Special Individual taxpayers. Are individual whose income from the Philippines are taxed at a preferential or single rate, hence are no longer required to file ITR.

Special Aliens
Nonresident alien not engaged in business in the Phil (NRANEBP) means foreigners who are resident of a foreign country and who are not authorized to engage in business in the Philippines. Also refers to aliens who shall come to the Philippines for definite purpose which in nature maybe accomplished promptly.
MWE (Minimum Wage Earner)- refers to worker in private or public sector receiving compensation of not more than the statutory minimum wage in agricultural and non agricultural sector where he is assigned.

Ordinary Individual taxpayer. Those individuals whose income is subject to income tax and required to file an income tax return.

Persons not required to file Income Tax Returns

Individuals whose gross income does not exceed P250,000 except citizen and alien individuals engaged in business or practice of profession within the Philippines who shall file income tax returns regardless of the amount of gross income.
Individuals with respect to pure compensation income from sources within the Philippines, the income tax on which has been withheld; except when such compensation has been derived from more than one employer (substituted filing).
Individuals whose sole income has been subjected to final withholding tax (pursuant to Sec. 57(A), NIRC).
Minimum wage earner (as defined in Sec. 22(HH), NIRC)
Individuals who are exempt from income tax.

When and Where to File

Individuals

In general

The income tax return of an individual who is not on a substituted basis shall be filed on or before April 15 of each year covering income of the preceding taxable year. [Sec. 51 (C)(1), NIRC]

After his graduation in the second quarter of 2020, Mr. B sold all his accounting books at a gain of P500,000. When should he file his income tax return?

a. May 15, 2020

b. August 15, 2020

c. November 15, 2020

d. April 15, 2021

Substituted Filing

SECTION. 51-A. Substituted Filing of Income Tax Returns by Employees Receiving Purely Compensation Income. Individual taxpayers receiving purely compensation income, regardless of amount, from only one employer in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said employer (tax due equals tax withheld) shall not be required to file an annual income tax return. The certificate of withholding filed by the respective employers, duly stamped ‘received’ by the BIR, shall be tantamount to the substituted filing of income tax returns by said employees.

Applicable to individual taxpayers:

receiving purely compensation income, regardless of amount
from only one employer in the Philippines for the calendar year, and
the income tax of which has been withheld correctly by the employer.

The certificate of withholding (BIR Form No. 2316) filed by their respective employers, duly stamped ‘received’ by the BIR, shall be tantamount to the substituted filing of income tax returns by the employee.

Substituted filing means

a. the employer files the annual information return (BIR Form No. 1604-CF) and issues BIR Form 2316 to its employees.

b. the employee received the income from only one employer in the Philippines during the taxable year.

c. the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer.

d. All of the above

Business/Professional Income Earner

A citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return, regardless of the amount of gross income.

Corporation

A corporation may employ either calendar year or fiscal year. Provided, that the corporation shall not change the accounting period employed without prior approval from the CIR.

Corporation using calendar year

Corporation using fiscal year

Domestic corporations and resident foreign corporations shall file quarterly corporate income tax returns within 60 days after the end of the calendar or fiscal quarter used, and annual corporate income tax return on or before the 15th day of the fourth month following the close of the calendar year or fiscal year, as the case may be.

Quarterly Return: 60 days after the end of fiscal quarter used

Annual Return: on or before the 15th day of the fourth month following the close of the fiscal year

Return of Corporation Contemplating Dissolution or Reorganization

Within 30 days after the adoption of the plan for dissolution or reorganization (including corporations notified of possible involuntary dissolution by the SEC), render a correct return to the CIR, verified under oath, setting forth the terms of such plan and such other information required by rules and regulations. Prior to the issuance by the SEC of the Certificate of Dissolution or Reorganization, the corporation shall secure a certificate of tax clearance from the BIR which shall be submitted to the SEC. [Sec. 52 (C), NIRC]

Final Tax and Capital Gains Tax

Final Tax	Capital Gains Tax
Within 25 days from the close of the taxable quarter.	Sale of shares not traded thru a local stock exchange: within 30 days after each transaction + final consolidated return on or before April 15 of each year
	Real Property: within 30 days following each sale or other disposition.

When should the income tax return for the sale of shares not traded through the local stock exchange be filed?

a. Within 30 days after each transaction and final consolidated return on or before April 15 of each year

b. Within 30 days after each transaction only

c. Within 25 days from the close of the taxable quarter

d. 60 days after the end of fiscal quarter used

Amended Income Tax Returns

The individual income tax return maybe amended on any day within 3 years from its filing or from the last day prescribed by law for filing, provided that no notice of assessment or tax audit has been actually served to the taxpayer in the meantime.

Time of Payment of the Income Tax

The total amount of tax imposed by this Title (Tax on Income) shall be paid by the person subject thereto at the time the return is filed.

Pay as you file.

Installment Payment

When the a tax due is in excess of Two thousand pesos (P2,000), the taxpayer other than a corporation, may elect to pay the tax in two (2) equal installments in which case,

the first installment shall be paid at the time the return is filed and

the second installment on or before October 15 following the close of the calendar year

if any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the delinquency penalties.

Manner of Payment

Manual Payment – Non-eFPS Filers
Online Payment – Non-eFPS Filers
Online Payment - eFPS Filers

Manual Payment – Non-eFPS Filers

Any Authorized Agent Banks (AABs) as provided under Revenue Memorandum Circular (RMC) No. 41-2021.

In places where there are no AABs, the return shall be filed and the tax due shall be paid with the Revenue Collection Officer (RCO) under the jurisdiction of any Revenue District Office (RDO).

Online Payment – Non-eFPS Filers

Mobile Payment (GCash/PayMaya); or
Landbank of the Philippines (LBP) Link.BizPortal – for taxpayers who have ATM account with LBP and/or holders of Bancnet ATM/Debit Card; or
Development Bank of the Philippines (DBP) Tax Online – for taxpayers-holders of Visa/Master Credit Card and/or Bancnet ATM Debit Card; or
Union Bank Online Web and Mobile Payment Facility – for taxpayers who have account with Union Bank; or
PESONet through LBP Link.BizPortal – for taxpayers who have account with RCBC, Robinsons Bank, Union Bank and BPI.

Online Payment - eFPS Filers

After submitting the return thru eBIRForms, eFPS Filers shall proceed to payment using the eFPS facility. They shall fill out and e-File BIR Form No. 0605 then proceed to e-Payment to pay their income tax due and shall use the following codes:

Tax Type Code – Income Tax (IT)
Alphanumeric Tax Code (ATC) - MC 200 Miscellaneous Tax

Penalties for Non-Filing of Returns

Surcharge, penalty imposed in addition to the tax required to be paid at 25% [Sec. 248(A)(1), NIRC] or 50% [Sec. 248(B), NIRC] of the amount due
Deficiency and Delinquency Interest
Failure to file information returns: P1,000 for each failure upon notice and demand by the CIR unless due to reasonable cause not willful neglect provided the aggregate amount for all such failures during the calendar year shall not exceed P25,000. [Sec. 250, NIRC]
Compromise Penalty

25% Surcharge

Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or
Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or
Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

50% Surcharge

50% of the tax or of the deficiency tax in case any payment has been made, in the following cases:

Willful neglect to file the return within the period prescribed; or
A false or fraudulent return is willfully made [Sec. 248(B), NIRC]

Prima Facie Evidence of a False or Fraudulent Return

Substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions. Failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration or for overstatement. [Sec. 248(B), NIRC]

Interest

Pursuant to the TRAIN law, the interest on deficiency and delinquency taxes shall be double the effective legal interest.

Mr. A has been assessed deficiency income tax of P1,000,000.00, exclusive of interest and surcharge for taxable year 2018. The tax liability has remained unpaid despite the lapse of June 30, 2020, the deadline for payment stated in the notice and demand issued by the Commissioner. Payment was made by the taxpayer on February 10, 2021. Compute the total amount due on February 10, 2021.

a. P1,498,530.16

b. P1,395,315.07

c. P1,200,143.06

d. P1,345,123.78

Solution:

Compromise Penalty

An amount of money paid by a taxpayer to compromise a tax violation that he has committed, which may be the subject of criminal prosecution. The basis of the amount paid is the gross sales or receipts during the year or the tax due.

Income Tax Credits

Income tax credits are directly deducted from the income tax due to arrive at income tax payable. The Income Tax return of an individual is filed on a cumulative quarterly basis and on an annual basis.

Tax Credits	Q1	Q2	Q3	Q4
Withholding tax on Wages	û	û	û	ü
Withholding Tax at Source	ü	ü	ü	ü
Prior Quarter Payments	û	ü	ü	ü
Income Tax Paid in original return (if the return is amended)	ü	ü	ü	ü
Prior years excess credit	ü	ü	ü	ü
Foreign Tax Credit (applies only to Resident Citizen)	ü	ü	ü	ü

Withholding Tax

Returns and Payment of Taxes Withheld at Source

The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers.

The return for final and creditable withholding taxes shall be filed and the payment made not later than the last day of the month following the close of the quarter during which withholding was made.

Parties to Withholding Tax

The payee is the taxpayer upon whom the tax is imposed.
The withholding agent acts as a collector of the government to ensure the collection of taxes.

Liability of Withholding Agent

To provide the taxpayer with a convenient way of paying his tax liability
To ensure the collection of tax
To improve the government’s cash flow

Persons Required to Deduct and Withhold

In general, any juridical person, whether or not engaged in trade or business
An individual, with respect to payments made in connection with his trade or business.
All government offices including GOCCs, as well as provincial, city, and municipal governments.

Time of Withholding

The obligation of the payor to deduct and withhold the tax arises at the time an income is paid or payable, whichever comes first.

Withholding Tax on Government Money Payments – Percentage Taxes

This is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to non-VAT registered taxpayers/suppliers/payees.

Withholding of Creditable Tax at Source

The Withholding of Creditable Tax at Source or simply called Expanded Withholding Tax is a tax imposed and prescribed on the items of income payable to natural or juridical persons, residing in the Philippines, by a payor-corporation/person which shall be credited against the income tax liability of the taxpayer for the taxable year.

Object	Items of Income tax payable
Persons	Natural or juridical persons, residing in the Philippines
Withholding agent	Payor-corporation/person
Creditability	Shall be credited against the income tax liability of the taxpayer for the taxable year

Rates of Withholding

The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than fifteen (15%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.

You may refer to the BIR Website for the rates of withholding.

Withholding of Final Tax on Certain Incomes

The amount of income tax withheld by the withholding agent is constituted as full and final payment of income tax due from the payee of the said income.

The liability for payment of tax rests primarily on the payor as a withholding agent. Failure to withhold the tax or in case of under-withholding, the deficiency tax shall be collected from the payor/withholding agent.

The payee is not required to file an income tax return for the particular income.

Section	Income Items
Sections 24(B)(1)	Interests, Royalties, Prizes, and Other Winnings
24(B)(2) 25(A)(2)	Cash and/or Property Dividends
24(C) 25(A)(3)	Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange
24(D)(1)	Capital Gains from Sale of Real Property, in general
25(B)	Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines
25(C), 25(D), 25(E)	Special Aliens
33	Fringe Benefit Tax
282	Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods

Tax-Free Covenant Bonds

In any case where bonds, mortgages, deeds of trust or other similar obligations of domestic or resident foreign corporations, contain a contract or provision by which the obligor agrees to pay any portion of the tax imposed in this Title upon the obligee or to reimburse the obligee for any portion of the tax or to pay the interest without deduction for any tax which the obligor may be required or permitted to pay thereon or to retain therefrom under any law of the Philippines, or any state or country, the obligor shall deduct and withhold a tax equal to thirty percent (30%) of the interest or other payments upon those bonds, mortgages, deeds of trust or other obligations, whether the interest or other payments are payable annually or at shorter or longer periods, and whether the bonds, securities or obligations had been or will be issued or marketed, and the interest or other payment thereon paid, within or without the Philippines, if the interest or other payment is payable to a non-resident alien or to a citizen or resident of the Philippines.

The final tax of 30% is imposed on interest or other payments upon tax-free covenant bonds, mortgages, deeds of trust, or other obligations under Sec. 57C of the NIRC of 1997, as amended.

It is “tax-free” only on the part of the buyer because it is not required to pay any tax as the seller of the bonds obligates itself to shoulder whatever tax is imposed by the government.

Withholding Tax on Compensation Income

Description	This refers to the tax withheld from income payments to individuals arising from an employer-employee relationship.
Application	Applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines.
Withholding Agent	The employer is constituted as the withholding agent.
Basis of Withholding	The withholding tax is computed using the revised monthly withholding tax or annualized withholding tax formula.

Responsibilities of the Employer

Submit the duly accomplished BIR Form Nos. 1902 and/or 1905 to the RDO within thirty (30) days from receipt;
Withhold the tax due from the employees following the prescribed manner;
Remit the amount of tax withheld from the employee within the prescribed due dates;
Do the year-end adjustment;
Submit Annual Information return (BIR Form 1604-C, 1604-F and 1604-E), including the required alphabetical list of employees/payees on or before January 31 following the close of the calendar year;
Issue the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) to the employees; and
Refund excess tax withheld.

Minimum Wage Earners

No withholding tax shall be required on the Statutory Minimum Wage (SMW) of the Minimum Wage earner in the private/public sectors as defined in RR 2-98, as amended by RR 11-2018, including Holiday pay, Overtime pay, Night shift differential, Hazard pay of Minimum Wage earners in the private/public sectors as defined by these Regulations.

Year-End Adjustments

On or before the calendar year and prior to the payment of the compensation for last payroll period, the employer shall determine the sum of the taxable regular and supplementary compensation paid to each employee for the whole year and must ensure that the tax due is equal to tax withheld.

Substituted Filing

An individual taxpayer will no longer have to personally file his own Income Tax Return (BIR Form 1700) but instead the employer's Annual Information Return on Income Taxes Withheld (BIR Form No. 1604-C) filed will be considered as the "substitute" ITR of the employee.

BIR Form 2316

The employer are required to submit the duplicate original copy of BIR Form No. 2316 to the Revenue District Office where they are registered on or before February 28.

It is also the responsibility of the employer to issue the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) to the employees.

Failure to Withhold

If the employer fails to withhold and remit the correct amount of tax, such tax shall be collected from the employer together with the penalties or additions to the tax otherwise applicable.

Taxes Paid in Foreign Countries

Resident Citizens and Domestic Corporations are taxable on income derived from sources within and without. The taxes they paid abroad may be claimed either as

Itemized deductions
Tax credit

Tax Credit	Tax Deductions
Taxes are deductible from the Philippine Income Tax Itself	Taxes are deductible from gross income in computing the taxable income
Reduces Philippine income tax liability	Reduces taxable income upon which the tax liability is calculated
Only foreign income taxes may be claimed as credits against Philippine income tax.	Deductible taxes (e.g. business tax, excise tax)

Requisites to Avail Tax Credit

Must be a resident citizen or domestic corporation
The taxpayer signifies in his return his desire to avail of the tax credit for taxes paid in a foreign county
Subject to limitations

Limitations on Tax Credit

Lowest among actual foreign taxes paid, per-country limit, and world limit.

Limit A, Per Country Limit.

Taxable Income per Foreign Country / Worldwide Taxable Income x Phil. Income Tax

Limit B, World Limit:

Total Taxable Income from Foreign Country / Worldwide Taxable Income x Phil. Income Tax

For example, in 2020, Mr. C, a resident citizen, had a taxable income of P2,000,000 from within the Philippines and P3,000,000 from the USA. The income tax paid on income from the USA was P1,010,000. How much was the allowable tax credit on income tax paid to the US Government?

a. P1,010,000

b. P870,000

c. P1,450,000

d. P0

Answer: b. P870,000

1. Compute the Philippine Income Tax Due

		Computation	Tax Due
First	P2,000,000	See bracket over P2,000,000 but not over P8,000,000	P490,000
Next	3,000,000	(P5,000,000 – 2,000,000) x 32%	960,000
Total	5,000,000	Income Tax Due	P1,450,000

2. Compute the limit per country

= Taxable Income per Foreign Country / Worldwide Taxable Income x Phil. Income Tax

= P3,000,000 / P5,000,000 x 1,450,000

= 870,000

3. Compare actual payment vs. the limit on tax credit

The actual payment is P1,010,000 while the limit is P870,000. Hence, the allowable tax credit on income tax paid to the US Government is P870,000.

Taxpayer’s Remedies

The following are the remedies of the taxpayer:

Protesting the Assessment
Compromise and Abatement of Taxes
Recovery of Tax Erroneously or Illegally Collected

Protesting the Assessment

Procedural Due Process in Tax Assessments

Letter of authority and tax audit
Informal conference
Preliminary assessment notice
Formal letter of demand and final assessment notice
Disputed assessment
Administrative decision on a disputed assessment
Appeal from an administrative decision on disputed assessment

Requisites of a valid assessment

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made.
An assessment contains not only a computation of tax liabilities but also a demand for payment within a prescribed period
An assessment must be served on and received by the taxpayer.

Types of Protest

The taxpayer may protest the FLD/FAN administratively within 30 days from date of receipt thereof; otherwise, the said FLD/FAN will become final, executory, and demandable.

Request for reconsideration. Refers to a plea of re-evaluation of an assessment on the basis of existing records without need of additional evidence.
Request for reinvestigation. Refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. The taxpayer shall submit the relevant documents within 60 days from filing of his letter of protest.

Remedies in Case of Denial of Protest

In case of denial of protest

If the protest is denied, in whole or in part, by the CIR’s duly authorized representative, the taxpayer may either:

Appeal to the CTA within 30 days from the date of receipt of the decision
Elevate his protest through request for reconsideration to the CIR (the only case where an administrative appeal is possible)

In case of inaction by CIR within 180 days from submission of documents

If the protest is not acted upon by the CIR’s duly authorized representative within 180 days from filing of the protest or from submission of required documents, the taxpayer may either:

Appeal to the CTA within 30 days after the expiration of the 180 days,
Await the final decision of the CIR’s duly authorized representative.

Prescriptive Periods

Compromise of Taxes

Compromise means reduction of the amount of tax payable. The CIR may compromise the payment of any internal revenue tax in the following cases:

A reasonable doubt as to the validity of the claim against the taxpayer exists; or
The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Cases which may be compromised

(RR No. 30-2002)

Delinquent accounts
Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office
Civil tax cases being disputed before the courts
Collection cases filed in courts
Criminal violations, other than those already filed in court or those involving criminal tax fraud

Cases which cannot be compromised

Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer's obligation to withhold
Criminal tax fraud cases confirmed as such by the CIR or his duly authorized representative
Criminal violations already filed in court
Delinquent accounts with duly approved schedule of installment payments
Cases where final reports of reinvestigation ore reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis
Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and
Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer

Limit of the CIR’s Power to Compromise

For cases of financial incapacity: a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax
For other cases: a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax

Abatement of Taxes

Abatement means to cancel the entire amount of tax payable. CIR may abate or cancel a tax liability:

The tax or any portion thereof appears to be unjustly or excessively assessed; or
The administration and collection costs do not justify the collection of the amount due. (e.g., when the costs of collection are greater than the amount of tax due)

Recovery of Tax Erroneously or Illegally Collected

Necessity of written claim for refund
Claim containing a categorical demand for reimbursement
Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause