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ITX5.

INDIVIDUAL INCOME TAX RATES

Assignment:
History of Philippine Income Tax Law
Sources of our law on income taxation
(Soft copy of the aforementioned topics must be in MS Word format and to be emailed at
waffo.sopmac@yandex.mail)

Rates of Individual income tax.

1. The individual income tax payable by citizens, resident or non-resident, and resident
aliens is imposed at progressive or graduated rates. The theory is that a person’s ability
to shoulder the tax burden increases more rapidly as his income becomes higher and
higher. Only resident citizens (and domestic corporations) are taxed on income derived
from abroad.
2. The tax is imposed upon taxable compensation or employment income, business
income, and income derived from the practice of professions derived by citizens and
resident aliens ranging from 5% on the first ₱10,000.00 up to maximum of 32% on the
excess over ₱500,000.00 (before TRAIN law).
3. The tax shall be computed in accordance with and at the rates established in the
following schedule as follows:

Before the TRAIN Law:

Under TRAIN LAW:


In the approved tax reform bill under the Tax Reform for Acceleration and Inclusion (TRAIN)
program:

 Those earning an annual salary of P250,000 or below will no longer pay any income
tax.

 Those earning between P250,000 and P400,000 per year will be charged an income
tax rate of 20% on the excess over P250,000.

 Those earning annual incomes between P400,000 and P800,000 will pay a fixed
amount of P30,000 plus 25% of the excess over P400,000.

 Those with yearly salaries between P800,000 and P2 million will be charged a fixed
amount of P130,000 plus 30% on the excess over P800,000.

 High-income earners receiving salaries between P2 million and P8 million annually


will pay a fixed amount of P490,000 plus 32% of the excess over P2 million.

 Finally, the highest income tier receiving salaries of at least P8 million per year will
have withholding taxes of P2.41 million plus 35% of the excess over P8 million.

All these will be implemented from 2018 until 2022, but beginning 2023, the rates will
further fall.
Income Tax rates to be lowered further (Year 2023 onwards)
From year 2023 onwards, the income tax rates will be further adjusted, as follows:

 Those earning an annual salary of P250,000 or below will continue to be exempted


from paying income tax.

 Those earning between P250,000 and P400,000 per year will be charged a lower
income tax rate of 15% on the excess over P250,000.

 Those with annual salaries from P400,000 to P800,000 will have withholding taxes
of P22,500 plus 20% of the excess over P400,000.

 Salaried employees with annual incomes between P800,000 and P2 million will be
charged a fixed amount of P102,500 plus 25% on the excess over P800,000.

 Those receiving salaries between P2 million and P8 million per year will be charged
P402,500 plus 30% of the excess over P2 million.

 Finally, the highest income segment of employees with annual salaries of at least
P8 million will pay P2.2025 million plus 35% of the excess over P8 million.

Annotation:

1. Married individuals (husband and wife) shall compute separately their individual income
tax based on their respective total taxable income. If any income cannot be definitely
attributed to, or identified as income exclusively earned or realized by either of the
spouses, the same shall be divided equally between them for the purpose of
determining their respective taxable income. Married individuals are treated by law as
separate taxable units. They have no more option to compute their individual income tax
jointly.
2. Minimum wage earners are exempt from the payment of income tax on their taxable
income. Holiday pay overtime pay, night shift differential pay, and hazard pay received
by them are likewise exempt from income tax. The term “minimum wage earner” refers
to a worker in the private sector with compensation income of not more than the
statutory minimum wage in the non-agricultural sector where he or she is assigned.

3. A non-resident alien individual engaged in trade or business in the Philippines is subject


to income tax in the same manner as in individual citizen and a resident alien on taxable
income received from sources within the Philippines.

4. For other non-resident aliens, not so engaged, the tax is 25% of the entire or gross
income received from sources within the Philippines and 15% of the gross income
received as compensation, salaries and other emoluments by reason of his
employment:
a. By regional or area headquarters and regional operating headquarters of multinational
companies; or
b. By offshore banking units established by a foreign corporation in the Philippines; or
c. By foreign petroleum service contractor or subcontractors operating in the Philippines.

The same preferential rate of 15% applies to a Filipino employed and occupying the
same position as an alien. If there is no alien occupying the same position as the
Filipino, the latter shall be subject to the regular income tax rates.

5. Certain passive incomes, however, subject to a separate and final income tax imposed
at fixed rates. They are not included in the computation of gross income. Exempt
incomes (exclusions) are, of course, not subject to tax.

ITX5: Exercise 5-1

Ms. CoCo Marla, an alien employes in PetrolEx Corporation that is a Petroleum Service Contractor,
received compensation income of ₱5,000,000 for 2018. She is married and has four (4) minor children.
How much is the tax due?

Answer: _____________________________________

ITX5: 5-2

This shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), as
defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and
Employment (DOLE).

a. Statutory Minimum Wage (SMW)


b. Compensation Income
c. Business of Professional Fee
d. Mixed Income

ITX5: 5-3

Aside from the SMW, which of the following shall likewise be covered by the exemption?

a. Holiday pay
b. Overtime pay
c. Night shift differential pay
d. All of the choices

Reference: Section 6, Revenue Regulations No. 11-2018

Income tax treatment of minimum wage earners (MWEs) on receipt of taxable income

Additional compensation such as commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P90,000, taxable allowances, and other taxable income other than those
that are expressly exempt from income tax [i.e., statutory minimum wage (SMW), overtime pay, night
shift differential, holiday pay, and hazard pay] given to an MWE by the same employer shall be subject
to withholding tax using the withholding tax table.

Likewise, MWEs receiving other income from other sources in addition to compensation income, such as
income from other concurrent employers, from the conduct of trade, business, or practice of profession,
except income subject to final tax, are subject to income tax only to the extent of income other than the
SMW, holiday pay, overtime pay, night shift differential pay, and hazard pay earned during the taxable
year.

[Note: Based on Illustration No. 4 of RR 11-2018, in case of receipt of taxable income such as
commission, the MWE shall remain exempt on the amount received as SMW, overtime pay, night shift
differential, holiday pay, and hazard pay and shall be taxable only on the commission received. This is in
accordance with the Supreme Court decision in the case of Soriano et al. vs. Secretary of Finance and
Commissioner of Internal Revenue, (G.R. No. 184450, 24 January 2017), which held that MWEs remain
exempt but the taxable income they receive other than as MWEs are subject to taxes.]