FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND The two common causes of the discrepancy in figures are:

MANAGEMENT 2- Q2 1. Time lags

WEEK 1: Bank Reconciliation Statement ● prevent one of the parties (company or the bank) from
Bank Statement recording the transaction in the same period as the other
● is a report that shows and informs the account holders of all party.
the bank transactions that occur generally monthly. Example: A bank statement that ends January 30, 2015 and then
● It is prepared and sent by the bank through courier services the company were able to collect cash of P20,000 at 5:00 PM. Bank
together with the debit and credit memos and the cancelled usually closes at 3:00 PM because of this, the cash collected will
checks for those accounts that do not have passbooks. not be reflected in the bank as deposit but it is however recorded in
● It is normal for a company's bank balance as per accounting accounting records of the company.
records to differ from the balance as per bank statement. The
difference between these figures is the reason why 2.Errors by either party in recording transactions
companies prepare a bank reconciliation statement. a. Bank Errors
● These are mistakes made by the bank. Depending on the
Nature of a Bank Reconciliation Statement and Effects of the errors, these can either increase or decrease the balance in
Identified Reconciling Items bank statement. These could include:
● the bank recording an incorrect amount, like
Bank Reconciliation Statement transposition (165 instead of 156) and trans placement
● is a report prepared to compare the cash book balance with (500.00 instead of 5,000.00).
the bank’s records. ● entering an amount that does not belong to a
● The main purpose is to see if there are any differences company's bank statement.
between the balances of these two sets of records for ● omitting an amount from a company's bank statement
company’s cash transactions. (error of omission).
Cash book balance. b.Book Errors/ Errors in Cash Account
● The first record which is the company’s record is based on the ● These are mistakes made by the company. Depending on
ending balance of their accounting records. the errors, these can either increase or decrease the
Bank balance balance in company’s book. These could include:
● The second is the bank’s record as reflected on the bank ● Entering an incorrect amount, such as transposition
statement. It is common for these two records to have and trans placement.
differences in their ending balances. Thus, it is necessary to ● entering a transaction that does not belong in the
prepare the Bank Reconciliation Statement. account; or
● omitting a transaction that should be in the account.
Nature of a Bank Reconciliation Statement Example: A check was issued to Meralco by the company
1. It is a process because it involves a series of steps to arrive at amounting to P1000. The company recorded this as P100. When
the correct balances of cash. the check was presented, the bank paid Meralco P1,000. In the
2. It is a periodic report because it is prepared monthly. It is records of the company, it was P100 while in the records of the
prepared at the end of every month after preparing Cash Book. bank it’s P1,000.
3. It contains an explanation of the difference in balances as per There is in this case an error that will cause the difference
Cash Book and Bank Statement. between the company’s records and the bank records.
4. It is an integral part of cash management and control. It only
deals with cash transactions of the company. COMMON RECONCILING ITEMS
5. It is prepared by the account holder, but it is not legally A. BANK
compulsory to prepare this statement. 1. Deposit in Transit/Uncredited Cash or Checks
● These are cash or checks received and recorded by the
As an integral part of cash management and control, Bank company and deposited to the bank but are not yet
Reconciliation has the following importance. reflected in the records of the bank as of cut-off period.
● This should be added to the bank balance.
1. It helps in the identification of errors in the accounting records of ● are amounts already received and recorded by the
the company or the bank, such as double payments, missed company, but not yet recorded by the bank.
payments, calculation errors, etc. Example: A retail store deposits its cash receipts of August 31 into
2. It provides the necessary control mechanism to help protect the the bank's night depository at 10:00 p.m. on August 31. The bank
valuable resource through uncovering irregularities such as will process this deposit on the morning of September 1. As of
unauthorized bank withdrawals, fraudulent transactions, and August 31 (the bank statement date) this is a deposit in transit.
theft.
3. It provides added comfort that the bank transactions have been ● Because deposits in transit are already included in the
recorded correctly in the company’s records. This is so if the company's Cash account, there is no need to adjust the
bank balance appearing in the accounting records is confirmed company's records.
to be correct as what is indicated in the bank statement balance. ● However, deposits in transit are not yet on the bank statement.
4. It assists in the regular monitoring of cash flows of a business, ● Therefore, they need to be listed on the bank reconciliation as
e.g. accounts payable and receivables of the business. an increase to the balance per bank to report the true amount
5. It helps in tracking and adjusting the accounting books for fees of cash. A deposit in transit is on the company's books, but it
and penalties. isn't on the bank statement.
2. Outstanding checks or Uncashed Checks
The complete bank reconciliation tracks down differences, ● These are checks already issued for payment by the company
as a result, the necessary adjustment in company’s records will be but not yet presented by the payee to the bank for payment.
immediately done. ● This is the case if the payee does not immediately present the
In addition, the Bank Reconciliation Statement can checks at the bank.
detect if any customer checks has bounced, or if any checks issued ● The company has already recorded it in cash book as
are altered or even stolen and cashed out without the account payment, but the bank has not yet reflected it on the bank’s
holder’s knowledge. Also, when it comes to annual audit, the record.
auditors will always examine the company's ending bank ● This should be deducted from the bank balance.
reconciliation statement as part of their testing procedures. ● Checks written during the last few days of the month plus a few
As discussed earlier, the Bank Reconciliation Statement older checks are likely to be among the outstanding checks.
helps in the identification of reconciling items in the accounting Because all checks that have been written are immediately
records of the company or the bank. The occurrence of these recorded in the company's cash account, there is no need to
reconciling items is due to the following: adjust the company's records for the outstanding checks.
CELINE ANGEL JORILLA 12 ABM-COMPASSION
 However, the outstanding checks have not yet reached the automatically be deducted from the company's checking
bank and the bank statement. account.
● Therefore, outstanding checks are listed on the bank ● Because the check printing charges have already been
reconciliation as a decrease in the balance per bank. deducted on the bank statement, there is no adjustment to the
balance per bank. However, the check printing charges need to
Example: be an adjustment on the company's books. They will be a
● On January 29, 2015, Juan issued a check to Maria amounting deduction to the company's Cash account.
to P2,000. The check was then recorded by Juan in his books
as a deduction to his cash. It so happened that the bank was Credit Memos: (amount added by the bank to the account of the
closed on that day and Maria was able to visit the bank and depositor)
have it encashed on February 1, 2015 only. In the bank a. Interest earned
statement received by Juan from his bank ending ● will appear on the bank statement when a bank gives a
January30,2015, the P2,000 check was not deducted however company interest on its account balances.
it was already deducted in the books of Juan on January 29, ● The amount is added to the checking account balance and is
2015. automatically on the bank statement. Hence there is no need to
● The P2,000 check is called an outstanding check. adjust the balance per the bank statement. However, the
amount of interest earned will increase the balance in the
a) Bank errors company's Cash account on its books.
● are mistakes made by the bank. b. Notes Received
● Bank errors could include the bank recording an incorrect ● are assets of a company. When notes come due, the company
amount, entering an amount that does not belong on a might ask its bank to collect the notes receivable.
company's bank statement, or omitting an amount from a ● For this service the bank will charge a fee. The bank will
company's bank statement. increase the company's checking account for the amount it
collected (principal and interest) and will decrease the account
● The company should notify the bank of its errors. Depending by the collection fee it charges.
on the error, the correction could increase or decrease the ● Since these amounts are already on the bank statement, the
balance shown on the bank statement. company must be certain that the amounts appear on the
● Since the company did not make the error, the company's company's books in its Cash account.
records are not changed. c. Errors in the company's Cash account
● result from the company entering an amount, entering a
3. BOOK transaction that does not belong in the account, or omitting a
Debit Memos: (deductions charged by the bank from the account transaction that should be in the account.
of the depositor) ● Since the company made these errors, the correction of the
a. Bank service charges error will be either an increase or a decrease to the balance in
- are fees deducted from the bank statement for the bank's the Cash account on the company's books.
processing of the checking account activity
- Examples: accepting deposits, posting checks, mailing the Note that adjustments made in the book balance require adjusting
bank statement entries.

● Other types of bank service charges include the fee charged There are 3 methods of preparing a Bank Reconciliation Statement.
when a company overdraws its checking account and the bank These are:
fee for processing a stop payment order on a company's a. Adjusted Balances Method
check. ● The balances per bank and per book are separately
● The bank might deduct these charges or fees on the bank determined.
statement without notifying the company. When that occurs, the a. Book to Bank Method
company usually learns of the amounts only after receiving its ● The book balance is adjusted to agree with the bank balance.
bank statement. b. Bank to Book Method
● Because the bank service charges have already been ● The bank balance is adjusted to agree with book balance.
deducted on the bank statement, there is no adjustment to the
balance per bank. WEEK 2: Adjusting Entries
● However, the service charges will have to be entered as an
adjustment to the company's books. The company's Cash
account will need to be decreased by the amount of the service
charges WEEK 3: Income and Business Taxation- PART 1
A. Definition of TAXATION
b) NSF check ● “taxation” Latin word “taxationem” which means “a rating,
● is a check that was not honored by the bank of the person or valuing, or appraisal” - the process or means by which the
company writing the check because that account did not have sovereign, through its law-making body, raises income to
a sufficient balance. defray the necessary expenses of government.
● As a result, the check is returned without being honored or Taxation
paid. ● is the process by which the government collects revenue in
● NSF is the acronym for not sufficient funds. order to pay for its expenses.
● When the NSF check comes back to the bank in which it was Taxes
deposited, the bank will decrease the checking account of the ● are revenue of the government that funds government
company that had deposited the check. The amount charged expenditures and programs.
will be the amount of the check plus a bank fee ● are the amount collected from the constituents by virtue of the
● Because the NSF check and the related bank fee have already taxation power of the state.
been deducted on the bank statement, there is no need to ● It is an involuntary fee or charge that is required from
adjust the balance per the bank. However, if the company has individuals, corporations, or properties.
not yet decreased its Cash account balance for the returned ● failure to pay taxes is punishable by law.
check and the bank fee, the company must decrease the ● Governing tax law in the Philippines is the National
balance per books in order to reconcile. Internal Revenue Code of 1997.
● Bureau of Internal Revenue (BIR) is the primary
c) Check printing charges implementing agency in charge of tax collections.
● occur when a company arranges for its bank to handle the
reordering of its checks. The cost of the printed checks will
CELINE ANGEL JORILLA 12 ABM-COMPASSION
B. Nature of Taxation 2. Theoretical Justice
1. Inherent in sovereignty ● also known as equality, the tax burden imposed to the taxpayer
● The power is inherent as an incident necessary to the should be based on his/her ability to pay.
existence of every government. ● it also suggests that the taxing system must not be oppressive,
2. Legislative unjust, and confiscatory.
● known as the Congress, it makes laws to limit the power of 2-Important concepts of this principle:
taxation. Taxes created by law-makers (i.e. Congressmen and a. Horizontal equity- means that taxpayers in similar
Senators) are generally called national taxes. financial condition or taxpayers who earn the same level of
Local Government Units (LGU) income should pay the similar amount of taxes.
● are expressly granted powers to tax those within their local b. Vertical equity- means that taxes levied should be applied
territories, classified as local taxes and are applicable only to in proportion to the earning capacity of the taxpayers.
those who reside within the boundaries of the LGU’s authority. Taxpayers earning more should pay more than those
3. Subject to constitutional and inherent limitations earning less.
● “the power to tax involves the power to destroy” 3. Administrative Feasibility
● The tax laws should be capable of convenient, just and
Some inherent limitations: effective administration. As such, the tax laws must be clear
1. Tax must be imposed for a public purpose; and easily understood, capable of uniform enforcement, and
2. Limited to only those within the taxing state’s territory; convenient as to time, place, and manner of payment.
3. Exemption of the government entities performing governmental ● levying taxes should not create any inconvenience to the
functions from taxation; taxpayer. For instance, the Bureau of Internal Revenue
4. The state cannot tax the property of foreign sovereigns. implements the electronic Filing and Payment System
(e-FPS) and eBIR Forms in order to improve efficiency and
C. Purpose of Taxation “Always a public purpose” give convenience when paying taxes.
1. Revenue or Fiscal Purpose
● used to provide for various public services to promote the Definition, Process, & Principles of Income Taxes & Business
welfare of the people. Taxes
2. Non-Revenue or Regulatory ● Taxpayers earn different types of income and the treatment for
● used to regulate the behavior of people towards a particular each income also varies.
purpose the gov’t. seeks to achieve ● The tax rate for each income category also varies.
● This will all depend on the classification of the taxpayers and
Secondary to raising funds, taxation is also used for the following: their respective income category.
a. To provide incentive and support to small-scale and Taxes imposed in the Philippines
startup businesses through tax exemptions. 1. Income Tax- e.g. Regular, MCIT, Capital Gains Tax, Final
b. To protect domestic and local industries against foreign Income Tax
competitions through imposition of custom duties and 2. Business Tax – e.g VAT, OPT, Excise Tax
tariffs on imported goods; 3. Transfer Tax – e.g. Estate Tax, Donor’s Tax
c. To reduce inequalities in wealth and income of 4. Documentary Tax – e.g. DST
individuals and businesses by imposing higher taxes to
those who earn more and imposing less taxes to those Passive Income
who earn less (progressive taxation); ● Interest income earned from the bank in general – 20% of
d. To prevent inflation by increasing taxes or ward off gross earnings
depression by decreasing taxes. ● Royalty income in general – 20%; except royalty for literary
works of individual taxpayer – 10% of gross earnings
Theory and Basis of Taxation ● Dividend income of individuals – 10% of gross earnings;
1. Lifeblood Doctrine ● dividend income of corporation – tax exempt in general
● constitutes the theory of taxation which states that the ● Winnings in general – 20% of the gross earnings.
existence of a government in every state is a necessity and the
government cannot continue to exist without the means to 1. INCOME TAX
defray its expenses ● is a tax computed based on a person’s income/profit arising
● Therefore, the government has the right to compel its citizens from property, practice of profession, employment, or trade or
to contribute in order to preserve the state’s sovereignty and business
safety. ● is generally considered as a privilege tax. It is not levied on
● This theory is also known as the necessity principle. The the person, property, funds, or profits as such but on the right
basis of taxation is founded on the reciprocal duties of or the privilege of the person to receive compensation, income,
protection and support between the state and its people. or profit
● In return for the taxpayer’s contribution, he/she enjoys the ● is usually based on the annual or yearly income of the
privileges and protection granted to him/her by the government. taxpayer.
This is the so-called benefits-received principle or the
reciprocity principle. PRINCIPLES - Income Taxation
Regular income taxation applies to all items of income
PRINCIPLES OF A SOUND TAX SYSTEM except those that are subject to final tax, capital gains tax, and
● A tax system of any state is a complex system composed of special tax regimes. According to Section 23 of the NIRC, the
different laws, guidelines, and rules to follow. following are the general principles of Income Taxation in the
● Countries around the world implement different tax systems Philippines:
based on their needs and fiscal requirements. However, the 1. A citizen of the Philippines residing therein is taxable on all
different tax systems share common principles. income derived from sources within and without the
Philippines.
Basic principles of a sound or a good tax system may be 2. A nonresident citizen is taxable only on income derived
summarized in three crucial points: from sources within the Philippines.
1. Fiscal Adequacy 3. An individual citizen of the Philippines who is working and
● This means that the sources of revenue and funds should be deriving income from abroad as an overseas contract
sufficient to meet the requirements and demands of worker is taxable only on income derived from sources
government spending and public expenditures. within the Philippines: Provided, that a seaman who is a
● In theory, the government must not incur any deficit as a citizen of the Philippines and who receives compensation
budget deficit will paralyze the government’s ability to deliver for services rendered abroad as a member of the
the essential public services to its people. complement of a vessel engaged exclusively in
CELINE ANGEL JORILLA 12 ABM-COMPASSION
 international trade shall be treated as an overseas contract mineral products, automobiles and other motor vehicles, and
worker. non-essential goods.
4. An alien individual, whether a resident or not of the
Philippines, is taxable only on income derived from 1. Value –added tax (VAT)
sources within the Philippines. ● is a business tax imposed and collected from the seller in the
5. A domestic corporation is taxable on all income derived course of trade or business
from sources within and without the Philippines. ● is levied repeatedly at every point of sale until it ultimately
6. A foreign corporation, whether engaged or not in trade or reaches the final consumer. It is an indirect tax so it can be
business in the Philippines is taxable only on income passed on to consumers
derived from sources within the Philippines. ● In the Philippines, the VAT is usually computed at 12% and is
mostly included in the selling price of the goods or services.
● BIR Form 2550M - Monthly Value-Added Tax Declaration
Within the PH Outside the PH
● VAT-Manual Filing - Not later than the 20th day following the
end of each month Through Electronic Filing and Payment
Resident Citizen ✓ ✓
System (eFPS).
Non resident Citizen ✓ X
2. PercentageTax
Resident Alien ✓ X
● is a business tax imposed on businesses with gross annual
sales and/or receipts not exceeding ₱3,000,000 and
Non Resident Alien ✓ X
businesses that are not VAT registered or are VAT-exempt
● This is computed at 3% of the gross sales or gross receipts.
Domestic Corporation ✓ ✓ ● When to File/Pay? Within twenty-five (25) days after the end
of each taxable quarter.
Non Domestic Corporation ✓ X ● BIR Form 2551Q - Quarterly Percentage Tax Return (3
months)
● "No payment" returns filed late will result on imposition by the
Classification of Income Tax RDO of penalties, which shall be paid at the concerned AAB.
a. Individual Income Tax
● is the tax paid by persons earning compensation income, 3. Excise Tax
business or professional income, or passive income ● is a business tax on the production, sale or consumption of a
b. Corporate Income Tax commodity in a country
● is the tax paid by corporations (both domestic and foreign) ● it applies to goods manufactured or produced in the Philippines
which conduct business in the country. for domestic sale or consumption or for any other disposition
● This is a tax computed on their yearly profits. and to imported goods
● a corporation is a separate juridical entity created by operation
of law and is granted some of the rights and privileges of a MAJOR CLASSIFICATION OF EXCISABLE ARTICLES AND
human being. RELATED CODAL SECTION
1.Alcohol Products (Sections 141-143)
2. BUSINESS TAX a. Distilled Spirits (Section 141)
● is a tax levied on the privilege to enter into business b. Wines (Section 142)
● usually forms part of the selling price or the cost of the product c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
or item sold
a. Tobacco Products (Section 144) b
● this is sometimes referred to as sales tax and includes: b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
Principles- Business Taxation 3. Petroleum Products (Section 148)
1. Any person who in the course of trade or business, sells, barters, 4. Miscellaneous Articles (Section 149-150)
exchanges, leases goods or properties, renders services, and any a. Automobiles (Section 149)
person who imports goods shall be subject to the value-added tax b. Non-essential Goods (Section 150)
(VAT). c. Non-essential Service (Section 150-A) - RA 10963 [TRAIN Law))
d. Sweetened Beverages (Section 150-B)-(RA 10963 [TRAIN Law])
● There shall be levied, assessed, and collected on every sale,
5. Mineral Products (Sections 151)
barter or exchange of goods or properties, value added tax
equivalent to twelve percent (12%) of the gross selling ● Excise taxes are imposed on specific products such as alcohol
price or gross value in money of the goods or properties sold, products, tobacco products, petroleum products, minerals and
bartered, or exchanged, such tax to be paid by the seller or mineral products, automobiles and other motor vehicles, and
transferor. non-essential goods.
2. Any person whose gross sales or receipts are below the ● In addition, by virtue of RA 10963 or the TRAIN Law,
₱3,000,000 is thresh exempt from the payment of value-added tax. sweetened beverages (such as juice and soft drinks) and
● Any person who is not a VAT registered person shall pay a invasive cosmetic procedures are now subject to excise tax.
tax equivalent to three percent (3%) of his/her gross ● Excise taxes apply to goods manufactured or produced in the
quarterly sales or receipts: Provided, that cooperatives, and Philippines for domestic sales or consumption or for any other
beginning January 1, 2019, self-employed and professionals disposition and to things imported as well as services
with total annual gross sales and/or gross receipts not performed in the Philippines.
exceeding Five hundred thousand pesos (₱500,000) shall be ● The excise tax imposed herein shall be in addition to the
exempt from the three percent (3%)gross receipts tax herein value-added tax imposed under Title IV.
imposed. ● Excise taxes are generally paid by the producer or
3. Excise taxes apply to goods manufactured or produced in the manufacturer of domestic or local articles, or by the importer
Philippines for domestic sales or consumption or for any other or owner in case of imported goods.
disposition and to things imported as well as services performed in
the Philippines. Excise tax may either be:
● The excise tax imposed herein shall be in addition to the a. Specific excise tax based on weight, volume capacity, or
value-added tax imposed under Title IV. Excise taxes are any other physical unit or measure.
generally paid by the producer or manufacturer of domestic or b. Ad Valorem excise tax based on the assessed value of an
local articles, or by the importer or owner in case of imported item, good or commodity.
goods.
● Excise taxes are imposed on specific products such as alcohol
products, tobacco products, petroleum products, minerals and
CELINE ANGEL JORILLA 12 ABM-COMPASSION
TIME OF PAYMENT: ● The computations presented herein is pursuant to Tax
In General Reform for Acceleration and Inclusion (TRAIN) law or
● On domestic products Before removal from the place of RA 10963 which was signed into law last December 19,
production. 2017.
● On imported products Before release from the customs’
custody. 3 Types of Individual Taxpayer
1. Purely from compensation income
WEEK 4: Income and Business Taxation- PART 2 2. Income from business (self employed) and or professionals
● All Filipino income earners are required to pay their tax to the 3. Mixed income earner
government.
● In doing so, government projects and various expenses are
met primarily for the benefit of the public.
● Correct declaration of income earned by an individual or
businesses must be observed for proper computation of tax
due.

● The government has the right to collect as much taxes as it

wants as long as it is necessary, justifiable, and constitutional.
● Taxation has two aspects: levy and collection.
● Levying or imposition of the tax requires legislative intervention.
● As such, in the Philippines, it is the duty of the Congress to levy
taxes.
● Collection of the tax levied, on the other hand is an
To determine the income tax due of any taxpayer, the following
administrative function. It includes assessment and determining
steps are to be followed:
the taxes payable of the taxpayers as well as the collection of
Step 1. Identify the classification of the taxpayer.
the corresponding payments.
● In the illustration, it was mentioned that Ms. San Pedro is a
resident citizen. Thus, the classification of the taxpayer is a
STEPS in computing for income tax due:
resident citizen. In which case, she is taxable on her
1. Classify the taxpayers according to their citizenship,
income within and without.
residence as well as their sources of income – whether
Step 2. Determine the sources of income of the taxpayer.
from within the Philippines or outside–because not all
● Using the same illustration, the sources of income of Ms.
individual taxpayers are taxed on all their income.
San Pedro is purely compensation income.
Step 3. Add all the gross income/earnings/receipts (derived
The following are the classifications of the individual taxpayers:
from different sources, if applicable) of the taxpayer to arrive at
1. Citizens
the total compensation income.
Under the Constitution, citizens are those:
● who are citizens of the Philippines at the time of adoption of the
Constitution on February 2, 1987;
● whose fathers and mothers are citizens of the Philippines;
● born before January 17,1973 of Filipino mothers who elected
Filipino citizenship upon reaching the age of majority; and
● who are naturalized in accordance with the law.
Citizens can be further classified into:
a. Resident citizen –a Filipino citizen residing in the Philippines Step 4. Determine the taxable income of the taxpayer by
b. Non-resident citizen –a Filipino citizen who is not physically deducting the mandatory contributions (to SSS, GSIS,
residing in the country during the taxable year, due to Philhealth, and Pag-IBIG) and the non-taxable income (13th
immigration or employment, or any other reasons. month pay and other benefits) of the taxpayer from the Total
2. Alien Compensation Income.
a. Resident alien- an individual residing in the Philippines but is
not a citizen thereof
b. Non-resident alien- an individual who is not residing in the
Philippines and who is not a resident thereof

After classifying the taxpayers, the following general rules for individual
income taxpayers apply: ● Non-taxable income refers to additional compensation (aside
from basic salary) received by an employee which includes 13th
month pay and other bonuses/benefits which should not exceed
the exclusion threshold of ₱90,000. Any amount in excess of the
exclusion threshold shall be subject to income tax.

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

(using the tax table).
2. Determine the gross income of the taxpayer.
Gross income may be derived mainly (but not limited to) from three
(3) sources:
1. Compensation income or remunerations earned under an
employer-employee relationship such as salaries, wages,
bonuses and other benefits;
2. Business income or income arising from habitual engagement
in any commercial activity involving regular sales of goods or
services;
3. Non-operating income which involves all other incomes that do
not fall under the previous two categories such as gains from
dealing with properties, passive income not subject to final tax,
casual or one-time income, etc.

CELINE ANGEL JORILLA 12 ABM-COMPASSION

● The final step is to compute for the income tax payable of the
taxpayer using the table as provided in RA 10963.
● However, in our illustration, Ms. San Pedro has no income tax
due as she is exempted from income tax because she is a
minimum wage earner.
● With the implementation of RA 10963 (TRAIN Law), the
Bureau of Internal Revenue (BIR) issued Revenue
Regulations (RR) No. 11- 2018 which provides that for
minimum wage earners, their statutory minimum wage, holiday
pay, overtime pay, night shift differential pay, and hazard pay
shall be exempt from income tax and withholding tax.
● Additional compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the mandatory nontaxable
amount of ₱90,000, taxable allowances, and other taxable
income earned by a minimum wage earner shall, however, be
subject to withholding tax using the revised withholding tax
WEEK 5: Income and Business Taxation- PART 3
table under the TRAIN Law.
● Tax Reform for Acceleration and Inclusion (TRAIN) Act Tax
Reform for Acceleration and Inclusion (TRAIN) Act, officially
cited as Republic Act No. 10963, is the initial package of the
Comprehensive Tax Reform Program (CTRP) signed into law
by President Rodrigo Duterte on December 19, 2017.
● Tax Reform for Acceleration and Inclusion (TRAIN) Act TRAIN
consists of revisions to the National Internal Revenue Code of
1997, or the Tax Code. This reform includes packages that
make changes in taxation concerning the:
1. Personal Income Tax (PIT)
2. Estate Tax
3. Donor’s Tax
4. Value Added Tax (VAT)
5. Documentary Stamp Tax (DST)
6. Excise Tax of petroleum products, automobiles,
sweetened beverages, cosmetic procedures, coal, mining
and tobacco.

Changes on Excise Tax on Automobiles under RA 10963

RA 10963 restructures the tax schedule on the excise tax
on automobiles by imposing ad valorem tax rates that are directly
applied to the net manufacturer’s price/importer’s selling price
instead of imposing marginal tax rates, as follows:

CELINE ANGEL JORILLA 12 ABM-COMPASSION

 Excise Tax on Sweetened Beverages under RA 10963

Beverages Covered:
● Sweetened Juice drinks
● Sweetened Tea
● Flavored Water
● All carbonated BEverages
● Energy & ports Drinks
● Cereal & Grain Beverage
● Other Powdered Drinks not classified as Milk, Juie, Tea, & coffee
● Other non-alcoholic beverages that contain added sugar
Beverages Excluded: ● Additionally, minimum-wage earners are still exempted from
● All Milk Products including Plain Milk, Infant Formula, Milk, Powdered PIT.
Milk, etc. ● The Law also ensures a minimum wage earner who incurs a
● Meal Replacement & Medically-Indicated Beverages
small raise will not have his overall salary (with the PIT
● Ground Coffee, Instant Soluble Coffee and Pre-packaged Powdered
Coffee Products deducted) less than minimum wage.
● 100% Natural Vegetable Juices ● Also, married couples where both parties are working may be
● 100% Natural Fruit Juices exempted up to a total of ₱500,000. This does not include the
exemption from the first ₱90,000 of their thirteenth month pay
RA 10963 increases the excise tax on cigarettes paked by hand and additional bonuses
and paked by mahine, a follows: ● Finally, Self-employed and professionals with gross sales
below VAT can only pay 8% flat tax instead of their income and
personal tax

3 types of individual taxpayers:

1. Purely from compensation
2. Self-employed and professionals
3. Mixed income earners

Tax Rules for Self-Employed and Professionals

(UPDATE May 2018):
● The BIR has released a new Revenue Memorandum Order
covering the availment of 8% tax rate for self-employed and
professionals.
● Here are relevant items on taxation of Self-Employed and
Professionals from BIR’s RR 8-2018:
● “Individuals earning income purely from self-employment
and/or practice of profession whose gross sales/receipts and
other nonoperating income does not exceed the value-added
BUSINESS TAX tax (VAT) threshold (₱3,000,000) as provided under Section
● is the tax imposed on the right or privilege to engage in an 109 (BB) of the Tax Code, as amended, shall have the option
onerous transfer of goods or services in the normal conduct of to avail of:
business. a. The graduated rates under Section 24(A)(2)(a) of the Tax
● Transfers arising from the conduct of business will give rise to Code, as amended; OR
both business tax and income tax b. An eight percent (8%) tax on gross sales or receipts and
Business Income other non-operating income in excess of two hundred fifty
● The tax payments of a business organized as a sole thousand pesos (₱250,000.00) in lieu of the graduated
proprietorship are made in the name of its owner. income tax rates under Section 24(A) and the percentage
● The owner is considered an individual taxpayer who derived tax under Section 1 16 all under the Tax Code, as
income from business. He is required to file BIR Form 1701. amended.

● Businesses may settle their income tax liabilities and submit ● Taxable income for individuals earning income from
their income tax returns (tax form) to the government three self-employment/practice of profession shall be the net income,
months and fifteen days from the close of the year. if taxpayer opted to be taxed at graduated rates or has failed to
● For a business that follows a calendar year, the date of signify the chosen option.
settlement is April 15 ● However, if the option availed is the 8% income tax rate, the
taxable base is the gross sales/receipts and other
● The prominent feature of the tax reform is that people who earn non-operating income.
₱250,000 annually or ₱21,000 monthly and below are
exempted from paying Personal Income Tax (PIT). What are the implications of availing of the 8% Tax Rate?
● This includes minimum wage earners, who were also The eight-percent (8%) tax rate filers should take note of the
exempted in the former tax system. following:
● On the other hand, those earning over ₱250,000 have tax rates ● You are no longer required to file and pay Percentage Tax (BIR
following a set PIT schedule. Form 2551Q);
● Essentially, greater income is taxed at higher tax rates. ● You are not required to attach your financial statements when
● This denotes that low to middle income earners get to have a filing your annual income tax return;
higher take home pay, while high income-earners have a ● You are no longer allowed to deduct expenses incurred by the
bigger contribution to tax revenues. business.
● Increase in consumption taxes intend to counterbalance PIT
tax exemptions.
CELINE ANGEL JORILLA 12 ABM-COMPASSION
Formula for computing your income tax based on the 8% tax
rate, depending on taxpayer type:
For self-employed individuals earning income solely from business
and/or profession:
● Income tax due = 8% x [Gross sales or receipts +
Non-operating income – ₱250,000]
For mixed income-earners:
● Income tax due = [8% x Gross sales or receipts +
Non-operating income] + Tax due on compensation
income (based on graduated tax rates)

● To compute the tax due, you only need to multiply the 8% tax
rate by the total gross sales or receipts minus ₱ 250,000.00.
● Moreover, choosing the 8% tax rate would exempt you from
paying the 3% Percentage Tax (now 1% until 2023)

WEEK 6: Income and Business Taxation- PART 4

Mixed Income Earners
● is a compensation-earner who at the same time is engaged in
business or practice of profession.
● A taxpayer deriving mixed income will also use BIR Form 1701.

For mixed income earners, the income tax rates applicable are:
1. The compensation income shall be subject to the tax rates
prescribed under Section 24(A)(2)(a) of the Tax Code, as
amended; AND
2. The income from business or practice of profession shall be
subject to the following:
a. lf the gross sales/receipts and other non operating
income do not exceed the VAT threshold; the
individual has the option to be taxed at:
a.1. Graduated income tax rates prescribed under
Section 24(A)(2)(a) of the Tax Code, as
amended; OR
a.2. Eight percent (8%) income tax rate based on
gross sales/receipts and other non-operating
income in lieu of the graduated income tax rates
and percentage tax under Section 116 of the Tax
Code, as amended.
b. If the gross sales/receipts and other non operating
income exceeds the VAT threshold, the individual
shall be subject to the graduated income tax rates
prescribed under Section 24(A)(2)(a) of the Tax Code,
as amended.

● The provision under Section 24(A)(2)(b) of the Tax Code, as

amended, which allows an option of 8% income tax rate on
gross sales/receipts and other non-operating income in excess
of ₱250,000.00 is available only to purely self-employed
individuals and/or professionals.
● The ₱250,000.00 mentioned is not applicable to mixed-income
earners since it is already incorporated in the first tier of the
graduated income tax rates applicable to compensation
income.
● Under the said graduated rates, the excess of the ₱
250,000.00 over the actual taxable compensation income is not
deductible against the taxable income from business/practice
of profession under the 8% income tax rate option.

CELINE ANGEL JORILLA 12 ABM-COMPASSION

The total tax due shall be the sum of:
1. tax due from compensation, computed using the graduated
income tax rates; and
2. tax due from self-employment/practice of profession, resulting
from the multiplication of the 8% income tax rate with the total
of the gross sales / receipts and other non-operating income.

● Mixed income earner who opted to be taxed under the

graduated income tax rates for income from business/practice of
profession, shall combine the taxable income from both
compensation and business/practice of profession in computing
for the total taxable income and consequently, the income tax
due.

CELINE ANGEL JORILLA 12 ABM-COMPASSION

CELINE ANGEL JORILLA 12 ABM-COMPASSION