2018 Income Tax Rates

Updated Income Tax Rates for 2nd Exam
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TAX ON INDIVIDUALS (SEC 24)
INDIVIDUAL SOURCE TAX RATE ON INCOME
Resident Citizens W i t h i n a n d w i t h o u t t h e 20 – 35%

Philippines
Non Resident Citizens: Within the Philippines 20 – 35%

Sec 22 (E)
1. A citizen of the Philippines who
establishes to the satisfaction of the
Commissioner the fact of his physical
presence abroad with a definite intention to
reside therein.
(2) A citizen of the Philippines who leaves

the Philippines during the taxable year to
reside abroad, either as an immigrant or for
employment on a permanent basis.
(3) A citizen of the Philippines who works

and derives income from abroad and whose
employment thereat requires him to be
physically present abroad most of the time
during the taxable year.
*Physical presence must be more than 183

days abroad
*Overseas Contract Workers need not
comply with the period requirement as long
as the employment contract is registered
with POEA.
(4) A citizen who has been previously

considered as nonresident citizen and who
arrives in the Philippines at any time during
the taxable year to reside permanently in
the Philippines shall likewise be treated as
a nonresident citizen for the taxable year in
which he arrives in the Philippines with
respect to his income derived from sources
abroad until the date of his arrival in the
Philippines.
Resident Alien: Within the Philippines 20 – 35%
1. Not a mere transient or sojourner

2. No definite intention of his stay
3. His purpose is of such a nature that it
may be necessary to extend his stay for its
accomplishment
Non-Resident Alien Engaged in Trade and WITHIN 20-35%

Business
*Resides in the Philippines for more than

180 days
Non-Resident Alien Not Engaged in Trade Within 25% of gross income

and Business
Prepared by: Kahlil Denise Alcomendras

Ateneo de Davao University College of Law
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Married individuals Rule: compute separately their

individual income tax based on
their respective total taxable
income: Provided, That 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 the spouses
Minimum Wage Earners Exempt from the payment of

income tax on their taxable
income: provided, further, That
8
the holiday pay received by
such minimum wage earners
shall likewise be exempt from
income tax.
Passive Income (Sec 24B) Resident and Resident Alien Non-Resident Alien
Non- Resident
Citizen
interest from any currency bank deposit FT 20% NRETB: 20%

and yield or any other monetary benefit NRNETB: 25%
from deposit substitutes and from trust
funds and similar arrangements
Royalties on books, literary works, and FT 10% NRETB: 10%

compositions NRNETB: 25%
Royalties (others) FT 20% NRETB: 20%
Prizes (Above P10,000) FT 20% NRETB: 20%
Prizes (P10,000 and below) GI – 20 TO 35% NRETB: 20%
Winnings FT 20% NRETB: 20%

*Winnings that are P10,000 and below
from PCSO are exempted
Interest income derived from a depository FT 15% NRETB: Exempt

bank under the expanded foreign NRNETB: Exempt
currency deposit system
interest income from long-term deposit or GR: Exempted NRETB: Same w/ citizens
investment in the form of savings, EXP: In case of pre-termination before NRNETB: 25%
common or individual trust funds, deposit the 5th year
substitutes, investment management 4 years to less than 5 years – 5%
accounts and other investments 3 years to less than 4 years – 12&
Less than 3 years – 20%
Cash or Property dividends From domestic corporation: FT 10% NRETB: 20%

From foreign corporation: GI NRNETB: 25%
Capital Gains from Sale of Shares of Traded in the Stock Exchange – N R E T B : S A M E W /

Stock Percentage Tax 6/10 of 1% of Gross CITIZENS
Selling Price NRNETB: SAME W/
CITIZENS
Not traded – FT 15% of Net Selling Price

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Capital Gains from Sale of Real Property GR: FT 6% based on the gross selling N R E T B : S A M E W /
price or current fair market value CITIZENS
Note: Must be found in the PH whichever is higher NRNETB: SAME W/
If found abroad – GI CITIZENS
*FT or GI at the option of the taxpayer if
gains from sales or other dispositions of
real property to the government
EXP: sale of principal residence is

exempt
RQSTS:
1. the proceeds is fully utilized in
acquiring or constructing a new principal
residence within eighteen (18) calendar
months from the date of sale or
disposition
2. Commissioner shall have been duly
notified by the taxpayer within thirty (30)
days from the date of sale or disposition
3. Only be availed of once every ten (10)
years
4. if there is no full utilization of the
proceeds of sale or disposition, the
portion of the gain presumed to have
been realized from the sale or disposition
shall be subject to capital gains tax.
Capital Gains on Other Property CGT: 6%
Tax base:
SHORT TERM HOLDING PERIOD:
100% of the Gain (AC – SP)
LONG TERM HOLDING PERIOD: 50%
of the Gain
TAX ON CORPORATIONS SEC 27
INCOME DOMESTIC RESIDENT NONRESIDENT
Business Income 30% on Taxable Income 35% of GI

2% Minimum Corporate Income Tax:
Imposed beginning on the fourth taxable year

immediately following the year in which such
corporation commenced its business
operations, when the minimum income tax is
greater than the tax computed for the taxable
year.
Resident FC not subject to MCIT:

1. International Carriers
2. Off shore banking units
3. Regional Operating HQ
4. Under PEZA

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Interest on currency bank deposit FT 20% 30% of GI

and yield or any other monetary
benefit from deposit substitutes and
from trust funds and similar
arrangements received by domestic
corporations, and royalties, derived
from sources within the Philippines
NOTE: Interest income or yield

earned by DC from sources outside
the Philippines shall be included in
the gross income and subject to
NCIT.
Interest from a depository bank FT 15% FT 7.5% EXEMPT

under the expanded foreign currency
deposit
Capital Gains from the Sale of FT 15% Not over P100,000 – 5%

Shares of Stock Not Traded in the On any amount in excess of P100,000 – 10%
Stock Exchange
Intercorporate Dividends DOMESTIC T O DOMESTIC TO FT 15% if tax sparing rule

DOMESTIC: Exempt R E S I D E N T: applies:
Exempt
FOREIGN TO DOMESTIC: the country in which the
GI FOREIGN TO nonresident foreign
RESIDENT: corporation is domiciled,
Dividend received from EXEMPT shall allow a credit against
foreign corporation is the tax due from the
subject to Philippine income nonresident foreign
tax if at least 50% of the corporation taxes deemed
world (total) income of the to have been paid in the
foreign corporation must be Philippines equivalent to
derived from the Philippines 15%
for three years preceding
the declaration of such OTHERWISE: 30%
dividend
Capital Gains Realized from the FT 6% based on: the gross

Sale, Exchange or Disposition of selling price of fair market
Lands and/or Buildings value whichever is higher
SPECIAL DOMESTIC CORPORATIONS
Proprietary Educational Institution GR: 10% of Taxable Income

- any private school maintained and EXP: 30% if the gross income from 'unrelated trade, business or
administered by private individuals or other activity' exceeds fifty percent (50%) of the total gross
groups income derived by such educational institutions from all sources
Non-profit Hospitals Note: unrelated trade, business or other activity' means any
trade, business or other activity, the conduct of which is not
substantially related to the exercise or performance by such
educational institution or hospital of its primary purpose or
function
Corporations, agencies, or instrumentalities 30% on Taxable Income

owned or controlled by the Government
GSIS, SSS, PHIC, Local Water Districts Exempted

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SPECIAL RESIDENT FOREIGN CORPORATIONS
International Carrier 2.5% on Gross Philippine Billings (amount of gross revenue

derived from carriage of persons, excess baggage, cargo, and
mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and
the place of payment of the ticket or passage document)
Offline carriers/no landing rights – 30%
Branch Profits Remittance 15% based on total profits applied or earmarked for remittance
- any profit remitted by a branch to its
head office
Regional or Area Headquarters Exempt
Regional Operating headquarters 10% on Taxable Income
SPECIAL NONRESIDENT FOREIGN CORPORATIONS
Nonresident Cinematographic Film Owner, 25% OF GI

Lessor or Distributor
Nonresident Owner or Lessor of Vessels 4.5% of gross rentals, lease or charter fees from leases or
Chartered by Philippine Nationals charters to Filipino citizens or corporations, as approved by the
Maritime Industry Authority.
Nonresident Owner or Lessor of Aircraft, 7.5% of gross rentals or fees.

Machineries and Other Equipment
GROSS INCOME SEC 32
INCOME TREATMENT
C o m p e n s a t i o n f o r s e r v i c e s i n Taxable as GI
whatever form paid, including, but not
limited to fees, salaries, wages,
commissions, and similar items;
Allowance GR: Representation and transportation allowances which are fixed in

amounts and are regularly received by the employees as part of their
monthly compensation income shall be considered as taxable
compensation income
EXP: Employer’s convenience rule
Tips and Gratuities If given directly to the employee: Excluded

If given to the business to be divided among the employees: TAXABLE
Life Insurance GR: Excluded

The proceeds of life insurance policies paid to the heirs or beneficiaries
upon the death of the insured
EXP: if such amounts are held by the insurer under an agreement to pay
interest thereon, the interest payments shall be included in GROSS
INCOME

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Amount Received by Insured as Excluded

Return of Premium
Rqts:
1. The amounts received are return of premiums paid by the taxpayer to
the insurance company;
2. It is by virtue of a life insurance, endowment or annuity contract;
3. It is paid either during the term or at the maturity of the term mentioned
in the contract or upon surrender of the contract.
Gifts, Bequests, and Devises Value of property acquired by gift, bequest, devise, or descent –
EXCLUDED
Income from such property, as well as gift, bequest, devise or descent of
income from any property, in cases of transfers of divided interest –
GROSS INCOME
Compensation for Injuries or Sickness Excluded
Rqsts:
1. Received through Accident or Health Insurance or under Workmen's
Compensation Acts,
2. as compensation for personal injuries or sickness,
3. plus the amounts of any damages received
Retirement Benefits, Pensions, Excluded

Gratuities
Rqsts:
1. in the service of the same employer for at least ten (10) years and
2. is not less than fifty (50) years of age at the time of his retirement
3. availed of by an official or employee only once.
4. Private benefit plan is approved by the BIR.
Separation pay GR: GI

EXP: Excluded
Rqsts:
1. Any amount received by an official or employee or by his heirs from the
employer
2. as a consequence of separation of such official or employee from the
service
3. because of death sickness or other physical disability or for any cause
beyond the control of the said official or employee
Social security benefits, retirement Excluded

gratuities, pensions and other similar
benefits received by resident or
nonresident citizens of the Philippines
or aliens who come to reside
permanently in the Philippines from
foreign government agencies
SSS and GSIS Benefits Excluded

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Prizes and Awards Under GI:

1) Prizes and Other winnings derived by resident citizens and domestic
corporation from sources without the Philippines.
2) Prizes and Winnings received by corporation from sources within the
Philippines
3) Prices received by individuals from sources within the Philippines
amounting to P10,000 or less
Exempted from Tax:

1. Purpose is primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement
2. The recipient was selected without any action on his part to enter the
contest or proceeding; and
3. The recipient is not required to render substantial future services as a
condition to receiving the prize or award.
20% final tax:

1) Prizes and other winnings received by individuals (except NRA-NETB)
from sources within Philippines exceeding P10,00.
P r i z e s a n d A w a r d s i n s p o r t s GR: GI
competition EXP: Excluded, FT
Rqsts:
1. Competition must be sanctioned by the Philippine Olympic Association
13th Month Pay and Other Benefits GR: Excluded

EXP: Excess of the P90,000 threshold will be part of GI
FRINGE BENEFIT
GENERAL RULES:
If MANAGERIAL EMPLOYEE – FT 35% based on the grossed up monetary value of the fringe benefits
GMV = Actual Monetary Value / 65%
If RANK AND FILE – included in GI
XPNS:
1. For non-resident aliens who are not engaged in Trade and Business (NRANETB) - the tax rate is 25%
2. Special individuals/aliens – 15%
1) Aliens who are employees in regional operating headquarters of multinational companies.

2) Those who are engaged in offshore banking units of foreign banks.
3) Those who are employed in petroleum service contractors or sub-contractors in the Philippines.
4) Filipino citizens but they are employed here in either the 3 companies occupying the same position as
those special aliens.
Fringe benefits shall be valued as follows: (RR 3-98)

a. If the fringe benefit is granted in money, or is directly paid for by the employer, then the value is the amount granted
or paid for.
b. If the fringe benefit is granted or furnished by the employer in property other than money and ownership is
transferred to the employee, then the value of the fringe benefit shall be equal to the fair market value of the property
as determined in accordance with Sec. 6(E) of the Code (Authority of the Commissioner to Prescribe Real Property
Values).

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c. If the fringe benefit is granted or furnished by the employer in property other than money but ownership is not
transferred to the employee, the value of the fringe benefit is equal to the depreciation value of the property.
FRINGE BENEFIT VALUATION
Housing Rules:
(a) If the EM leases residential property for the use of his EE and
the said property is the usual place of residence of the employee
MV = 50% of the rent
(b) If the employer owns a residential property and the same is

assigned for the use of his employee as his usual place of
residence
MV = [5%(FMV or ZONAL VALUE] X 50%
(c) If the employer purchases a residential property on installment

basis and allows his employee to use the same as his usual place
of residence
Annual Value = 5% of the acquisition cost, exclusive of interest.

MV = 50% of the Annual Value
(d) If the employer purchases a residential property and transfers

ownership thereof in the name of the employee
MV = acquisition cost or zonal value whichever is higher
(e) If the employer purchases a residential property and transfers

ownership thereof to his employee for the latter's residential use, at
a price less than the employer's acquisition cost,
MV = difference between the fair market value or zonal value

whichever is higher, and the cost to the employee.
NOT TAXABLE AS FRINGE BENEFIT:

(f) Housing privilege of military officials of the Armed Forces of the
Philippines (AFP) consisting of officials of the Philippine Army,
Philippine Navy and Philippine Air Force
(g) A housing unit which is situated inside or adjacent to the

premises (50 meters from the premises) of a business or factory
(h) Temporary housing for an employee who stays in a housing unit

for three (3) months or less
Expenses Account GR: FBT

EXP: Rqsts -
Includes: 1. expenditures are duly receipted for and
1. expenses incurred by the employee but 2. in the name of the employer and
which are paid by his employer 3. the expenditures do not partake the nature of a personal
2. Expenses paid for by the employee but expense attributable to the employee.
reimbursed by his employer
3. Personal expenses of the employee (like NOT TAXABLE AS FB AS A GR:
purchases of groceries for the personal
consumption of the employee and his family Representation and transportation allowances which are fixed in
members) paid for or reimbursed by the amounts and are regular received by the employees as part of their
employer to the employee monthly compensation income shall not be treated as taxable
fringe benefits but the same shall be considered as taxable
compensation income.

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Motor Vehicle (a) If the employer purchases the motor vehicle in the name of the
employee (regardless of whether the motor vehicle is used by the
employee partly for his personal purpose and partly for the benefit
of his employer)
MV = acquisition cost
(b) If the employer provides the employee with cash for the
purchase of a motor vehicle, the ownership of which is placed in
the name of the employee,
MV = amount of cash received by the employee
(c) If the employer purchases the car on installment basis, the

ownership of which is placed in the name of the employee,
MV = the acquisition cost exclusive of interest, divided by five (5)

years
(d) If the employer shoulders a portion of the amount of the

purchase price of a motor vehicle the ownership of which is placed
in the name of the employee,
MV = the amount shouldered by the employer.
(e) If the employer owns and maintains a fleet of motor vehicles for
the use of the business and the employees
MV = 50% of the acquisition cost of all the motor vehicles not

normally used for sales, freight, delivery service and other non-
personal used divided by five (5) years.
(f) If the employer leases and maintains a fleet of motor vehicles

for the use of the business and the employees,
MV = 50% of the amount of rental payments for motor vehicles not

normally used for sales, freight, delivery, service and other non-
personal use.
(h) The use of yacht whether owned and maintained or leased by

the employer shall be treated as taxable fringe benefit.
MV = the depreciation of a yacht at an estimated useful life of 20

years.
NOT SUBJECT TO FBT:

(g) The use of aircraft (including helicopters) owned and
maintained by the employer
Household Expenses FBT

Includes:
1. Expenses of the employee which are borne
by the employer for household personnel
2, salaries of household help, personal driver
of the employee, or
3. other similar personal expenses (like
payment for homeowners association dues,
garbage dues, etc.)

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Interest on loan at less than market rate (a) If the employer lends money to his employee free of interest or
at a rate lower than twelve per cent (12%),
MV = interest foregone by the employer or the difference of the

interest assumed by the employee and the rate of 12%
Membership fees, dues, and other FBT

expenses borne by the employer for his
employee, in social and athletic clubs or
other similar organizations
Expenses for foreign travel NOT SUBJECT TO FBT:
(a) Reasonable business expenses which are paid for by the

employer for the foreign travel of his employee for the purpose of
attending business meetings or conventions shall not be treated as
taxable fringe benefits.
Includes:
1. inland travel expenses (such as expenses for food, beverages
and local transportation) except lodging cost in a hotel amounting
to an average of US$300.00 or less per day
2. cost of economy and business class airplane ticket shall not be
subject to a fringe benefit tax. However, 30 percent of the cost of
first class airplane ticket shall be subject to a fringe benefit tax.
Note: Expenses should be supported by documents proving the

actual occurrences of the meetings or conventions.
In the absence of such: TREATED AS FBT
(c) Travelling expenses which are paid by the employer for the
travel of the family members of the employee shall be treated as
taxable fringe benefits of the employee.
Holiday and vacation expenses FBT
Educational assistance to the employee or To the employee:

his dependents
GR: FBT
EXP: Not subject when –
1. if the education or study involved is directly connected with the
employer's trade, business or profession, and
2. there is a written contract between them that the employee is
under obligation to remain in the employ of the employer for period
of time that they have mutually agreed upon.
To employee’s dependents
GR: FBT
EXP: the assistance was provided through a competitive scheme
under the scholarship program of the company.
Life or health insurance and other non-life Subject to FBT:

insurance premiums or similar amounts in The cost of life or health insurance and other non-life insurance
excess of what the law allows premiums borne by the employer for his employee
Not subject to FBT:

(a) contributions of the employer for the benefit of the employee
such as SSS or GSIS and
(b) the cost of premiums borne by the employer for the group
insurance of his employees.

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Contributions of the employer for the benefit GR: GI (not subject to FBT)
of the employee to retirement, insurance and
hospitalization benefit plans;
If the grant of fringe benefits to the employee GR: GI

is required by the nature of, or necessary to
the trade, business or profession of the
employer
CBA and productivity incentive schemes GR: GI

provided that the total annual monetary value
received from both CBA and productivity
incentive schemes combined, do not exceed
ten thousand pesos (Php 10,000.00) per
employee per taxable year;
De Minimis Benefits GR: Not subject to FBT

Includes:
(a) Monetized unused vacation leave credits of private employees

not exceeding ten (10) days during the year;
(b) Monetized value of vacation and sick leave credits paid to
government officials and employees;
(c) Medical cash allowance to dependents of employees, not
exceeding ₱1,500 per employee per semester of ₱ 250 per month;
(d) Rice subsidy of ₱2,000 or one sack of 50kg. rice per month
amounting to not more than ₱2,000;
(e) Uniform and clothing allowance not exceeding ₱6,000 per
annum;
e. Actual medical assistance not exceeding P10,000 per annum;
f. Laundry allowance not exceeding P300 per month;
g. Employees’ achievement awards, which must be in the form of
tangible personal property other than cash or gift certificates, with
an annual monetary value not exceeding P10,000 received by the
employee under an established written plan which does not
discriminate in favor of highly paid employees;
h. Gifts given during Christmas and major anniversary celebrations
not exceeding P5,000 per employee per annum;
i. Daily meal allowance for overtime work and night/graveyard shift
not exceeding 25% of the basic minimum wage; and
j. Benefits received by an employee by virtue of a Collective
Bargaining Agreement (CBA) and productivity incentive schemes,
provided the total annual monetary value received from both CBA
and productivity incentive schemes combined do not exceed
P10,000 per employee per taxable year
EXP: Taxable if in excess of the P90,000 ceiling
NEW TAX SCHEDULE
OVER BUT NOT OVER TAX RATE
250,000 0%
250,000 400,000 20% of excess over 250,000
400,000 800,000 30,000 + 25% of excess of over 400,000
800,000 2,000,000 130,000 + 30% of excess of over 800,000
2,000,000 8,000,000 490,000 + 32% of excess of over 2,000,000

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8,000,000 2,410,000 + 35% of excess over 8,000,000
TAX PAYER TAX TREATMENT
Self-Employed Individuals Earning Income Purely from Options:

Self-Employment or Practice of Profession. 1. Graduated Rates or
2. 8% tax on gross sales or receipts and other non-
operating income in excess of P250,000 in lieu of the
graduated rates and percentage tax
CONDITIONS TO AVAIL OF 8%
(1) Taxpayer is a purely self-employed individual and/or
professional
(2) Gross sales or gross receipts and other non-
operating
income of the taxpayer does not exceed the VAT
threshold of P3M
(3) Taxpayer should not be a VAT registered taxpayer
because once he is, he or she will be subjected to VAT
regardless of the amount of the gross income.
(4) Taxpayer indicated in his tax income return at the
start of the taxable period that he will be availing of the
8% gross sales or gross receipts tax option
Individuals Earning Purely Compensation Income Graduated Rates
Mixed Income Earners Compensation income – graduated rates

Business Income –
1. If gross sales do not exceed VAT threshold, he has

the option to be taxed at:
a. Graduated rates or
b. 8% tax on gross sales or receipts and other non-
operating income in lieu of the graduated rates and
percentage tax
*deduction of P250,000 does not apply
2. If gross sales do exceed VAT threshold, graduated

rates.
• SMI V CIR
The properties involved in this case include petitioner’s buildings, equipment, and machineries. None of the
properties were used in petitioner’s trade or ordinary course of business because petitioner never commenced
operations. They were not part of the inventory. None of themwere stocks in trade. Based on the definition of capital
assets under Section 39 of the National Internal Revenue Code of 1997, they are capital assets.
Respondent insists that since petitioner’s machineries and equipment are classified as capital assets, their sales
should be subject to capital gains tax. Respondent is mistaken.
Capital gains of individuals and corporations from the sale of real properties are taxed differently. Individuals are
taxed on capital gains from sale of all real properties located in the Philippines and classified as capital
assets. However, petitioner is a corporation. Therefore, only the presumed gain from the sale of petitioner’s land and/
or building may be subjected to the 6% capital gains tax. The income from the sale of petitioner’s machineries and
equipment is subject to the provisions on normal corporate income tax.
• South African Airways v CIR

Off-line air carriers having general sales agents in the Philippines are engaged in or doing business in the Philippines
and that their income from sales of passage documents here is income from within the Philippines. Thus, they are
liable for the *32% tax on its taxable income.

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The general rule is that resident foreign corporations shall be liable for a *32% income tax on their income from within
the Philippines, except for resident foreign corporations that are international carriers that derive income from
carriage of persons, excess baggage, cargo and mail originating from the Philippines which shall be taxed at 2 1/2%
of their Gross Philippine Billings. Petitioner, being an international carrier with no flights originating from the
Philippines, does not fall under the exception. As such, petitioner must fall under the general rule
If an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its
Gross Philippine Billings, while international air carriers that do not have flights to and from the Philippines but
nonetheless earn income from other activities in the country will be taxed at the rate of *32% of such income.
• SORIANO V CIR
To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH) says he/she must be one who is
paid the statutory minimum wage if he/she works in the private sector, or not more than the statutory minimum wage
in the non-agricultural sector where he/she is assigned, if he/she is a government employee. Thus, one is either an
MWE or he/she is not. Simply put, MWE is the status acquired upon passing the litmus test - whether one receives
wages not exceeding the prescribed minimum wage. Minimum wage is distinct and different from other payments
including allowances, honoraria, commissions, allowances or benefits that an employer may pay or provide an
employee.
What the legislature is exempting is the MWE's minimum wage and other forms statutory compensation like holiday
pay, overtime pay, night shift differential pay, and hazard pay. These are not bonuses or other benefits; these are
wages. Workers who receive the statutory minimum wage their basic pay remain MWEs. The receipt of any other
income during the year does not disqualify them as MWEs. They remain MWEs, entitled to exemption as such, but
the taxable income they receive other than as MWEs may be subjected to appropriate taxes.
• CIR V YMCA
YMCA is a non-stock, non-profit institution. Is the rental income of the YMCA from its real estate subject to tax? Yes.
Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, [is] not,
therefore, exempt from income taxation, even if such income [is] exclusively used for the accomplishment of its
objectives. Section 27 of the NIRC mandates that the income of exempt organizations (such as the YMCA) from any
of their properties, real or personal, be subject to the tax imposed by the same Code. The rental income is taxable
regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish,
neither should we.
For the YMCA to be granted the exemption it claims under the Constitution, it must prove with substantial evidence
that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for educational purposes.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the Constitution? We rule
that it is not. The Court has examined the "Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but
found nothing in them that even hints that it is a school or an educational institution. The Court also notes that the
former did not submit proof of the proportionate amount of the subject income that was actually, directly and
exclusively used for educational purposes.
• CIR V ST LUKES
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution
use the property 'actually, directly and exclusively' for charitable purposes. To be exempt from income taxes, Section
30(E) of the NIRC requires that a charitable institution must be 'organized and operated exclusively' for charitable
purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be
'operated exclusively' for social welfare. However, the last paragraph of Section 30 provides that if a tax exempt
charitable institution conducts 'any' activity for profit, such activity is not tax exempt even as its not-for-profit activities
remain tax exempt.
Thus, even if the charitable institution must be 'organized and operated exclusively' for charitable purposes, it is
nevertheless allowed to engage in 'activities conducted for profit' without losing its tax exempt status for its not-for-
profit activities. The only consequence is that the 'income of whatever kind and character' of a charitable institution
'from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to
tax.'
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit educational
institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be
proprietary and non-profit. 'Proprietary' means private, following the definition of a 'proprietary educational institution'
as 'any private school maintained and administered by private individuals or groups' with a government permit. 'Non-

ihipnghangin
profit' means no net income or asset accrues to or benefits any member or specific person, with all the net income or
asset devoted to the institution's purposes and all its activities conducted not for profit.
The Court finds that St. Luke's is a corporation that is not 'operated exclusively' for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned. Activities for profit should not escape the reach
of taxation. Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an
institution from tax.
• LUNG CENTER V CIR

Lung Center of the Philippines is a non-stock and non-profit entity. It operates a hospital. A big space at the ground floor is being
leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their
private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of
the building is vacant and idle, while a big portion on the right side is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center. It accepts paying and non-paying patients. It also renders medical services to
out-patients, both paying and non-paying.
Portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually,
directly and exclusively used for charitable purposes. The land leased to private entities as well as those parts of the hospital leased
to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.


2018 Income Tax Rates

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2018 Income Tax Rates

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Updated Income Tax Rates for 2nd Exam

TAX ON INDIVIDUALS (SEC 24)

INDIVIDUAL SOURCE TAX RATE ON INCOME

Resident Citizens W i t h i n a n d w i t h o u t t h e 20 – 35%

Non Resident Citizens: Within the Philippines 20 – 35%

(2) A citizen of the Philippines who leaves

(3) A citizen of the Philippines who works

*Physical presence must be more than 183

(4) A citizen who has been previously

Resident Alien: Within the Philippines 20 – 35%

1. Not a mere transient or sojourner

Non-Resident Alien Engaged in Trade and WITHIN 20-35%

*Resides in the Philippines for more than

Non-Resident Alien Not Engaged in Trade Within 25% of gross income

Prepared by: Kahlil Denise Alcomendras

Married individuals Rule: compute separately their

Minimum Wage Earners Exempt from the payment of

interest from any currency bank deposit FT 20% NRETB: 20%

Royalties on books, literary works, and FT 10% NRETB: 10%

Royalties (others) FT 20% NRETB: 20%

Prizes (Above P10,000) FT 20% NRETB: 20%

Prizes (P10,000 and below) GI – 20 TO 35% NRETB: 20%

Winnings FT 20% NRETB: 20%

Interest income derived from a depository FT 15% NRETB: Exempt

Cash or Property dividends From domestic corporation: FT 10% NRETB: 20%

Capital Gains from Sale of Shares of Traded in the Stock Exchange – N R E T B : S A M E W /

Prepared by: Kahlil Denise Alcomendras

EXP: sale of principal residence is

Capital Gains on Other Property CGT: 6%

TAX ON CORPORATIONS SEC 27

INCOME DOMESTIC RESIDENT NONRESIDENT

Business Income 30% on Taxable Income 35% of GI

Imposed beginning on the fourth taxable year

Resident FC not subject to MCIT:

Prepared by: Kahlil Denise Alcomendras

Interest on currency bank deposit FT 20% 30% of GI

NOTE: Interest income or yield

Interest from a depository bank FT 15% FT 7.5% EXEMPT

Capital Gains from the Sale of FT 15% Not over P100,000 – 5%

Intercorporate Dividends DOMESTIC T O DOMESTIC TO FT 15% if tax sparing rule

Capital Gains Realized from the FT 6% based on: the gross

SPECIAL DOMESTIC CORPORATIONS

Proprietary Educational Institution GR: 10% of Taxable Income

Corporations, agencies, or instrumentalities 30% on Taxable Income

GSIS, SSS, PHIC, Local Water Districts Exempted

Prepared by: Kahlil Denise Alcomendras

SPECIAL RESIDENT FOREIGN CORPORATIONS

International Carrier 2.5% on Gross Philippine Billings (amount of gross revenue

Offline carriers/no landing rights – 30%

Regional or Area Headquarters Exempt

Regional Operating headquarters 10% on Taxable Income

SPECIAL NONRESIDENT FOREIGN CORPORATIONS

Nonresident Cinematographic Film Owner, 25% OF GI

Nonresident Owner or Lessor of Aircraft, 7.5% of gross rentals or fees.

GROSS INCOME SEC 32

Allowance GR: Representation and transportation allowances which are fixed in

EXP: Employer’s convenience rule

Tips and Gratuities If given directly to the employee: Excluded

Life Insurance GR: Excluded

Prepared by: Kahlil Denise Alcomendras

Amount Received by Insured as Excluded

Compensation for Injuries or Sickness Excluded

Retirement Benefits, Pensions, Excluded