Taxation of

Corporations:
Allowable Deductions

Prepared by:
Mikaila Alfa C. Solon
Maria Paz G. Lituañas
ALLOWABLE DEDUCTIONS

◉ Items or amounts which the law allows

to be deducted from the gross income
in order to arrive at taxable income.

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 ALLOWABLE DEDUCTIONS
(R.A. 9504)

ITEMIZED DEDUCTIONS OPTIONAL STANDARD

List of eligible expenses DEDUCTION
that may deduct from its Standard deduction not
business income. exceeding 40% of its gross
income.

Note: Applicable for a domestic or resident foreign corporations only

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TAXABLE INCOME & TAX DUE

◉ Taxable Income is the pertinent items of

gross income less the deductions
authorized for such types of income
◉ It is the amount or tax base upon which
tax rate is applied to arrive at tax due.

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Net Income= Gross Income - Deductions
Illustration: The gross sales of GEAL Corp. for 2018 amounted to P6,000,000, with cost of sales
amounting to P4,000,000. It incurred operating expenses amounting to P1,000,000, and on the
filing of its First Quarter Income Tax Return, it signified its intention to avail of the OSD.

Gross Income 6,000,000

Less: Cost of Sales 4,000,000
Gross Income 2,000,000
Less: OSD (2,000,000 x 40%) 800000
Taxable Income 1,200,000
Tax Due:
30% x 1,200,000 360000

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Gross Income
The entire gross income from business without any deductions for either
OSD or itemized deduction.

Gross Income 2,000,000

Multiply by: Tax Rate 30%
Tax Due 600000

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 CORPORATIONS EXEMPT FROM INCOME TAX
( Section 30, NIRC)

1. Labor, agricultural or horticultural organization not

organized principally for profit

2. Mutual savings bank not having capital stock represented

by shares, and cooperative bank without capital stock
organized and operated for mutual purposes or without
profit.

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3. A beneficiary society, order or association, operating
for the exclusive benefit of the members

4. Cemetery company owned and operated exclusively

for the benefit of its members

5. Non-stock corporation organized and operated

exclusively for religious, charitable, scientific, athletic
or cultural purposes or the rehabilitation of the
veterans.

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6. Business league, chamber of commerce, or board of
trade, not organized for profit and no part of the net
income of which inures to the benefit of any private
stockholder or individual.

7. Civic league or organization not organized for profit but

operated for the promotion of social welfare

8. A non-stock and non-profit educational institution

(used actually, directly and exclusively for educational
purposes)

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9. Government educational institutions.

10. Farmers’ and typhoon insurance company, irrigation

company, mutual or cooperative telephone company

11. Farmers’ fruit growers’, or association organized and

operated as a sales agent for the purpose of marketing
the products of its members and turning them back the
sales

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TAXATION FOR
COOPERATIVES

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COOPERATIVES

◉ Refers to an autonomous and duly

registered association of persons, with a
common bond of interest, who have
voluntarily joined together- to achieve
their social, economic and cultural
aspirations.

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 DEFINITION OF TERMS

1. Accumulated Reserves. Is also known as Reserve Fund.

Accumulated amount of money annually deducted from the
net surplus for the protection and stability of the
cooperative.

2. Business Transactions. Any business activity engaged

where such cooperative generates savings.

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3. Capital Assets. Property held by the taxpayer. Does not
include property included in the inventory if on hand at
the close of the taxable year or primarily for sale to the
customers which is subject to the allowance for
depreciation.

4. Certificate of Good Standing. Certificate issued

annually by the CDA. Such certificate is one of the
essential requirements for the grant of Tax exemption.

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5. Certificate of Tax Exemption/Ruling. Certificate issued
by BIR granting exemption to cooperative, which is
valid for 5 years.

6. Cooperative Development Authority (CDA).

Government agency created under RA 6939 mandated
to register, regulate and develop cooperatives

7. Interest on Share Capital. Interest earned by members’

paid-up to the capitalization of the cooperative.

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8. Patronage Refund. Cooperatives send profits back to
their owners.

9. Registration. Operative act granting juridical

personality to a proposed cooperative

10. Related Operations/Transactions. Refers to the

transaction of cooperatives enumerated under the
Article of Cooperation.

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11. Transaction with members. Cooperative activity that
provides goods and services to members where the
cooperative generates net savings/surplus.

12. Transaction with non-members. Cooperative activity

that provides goods and services to non-members
where the cooperative generates net savings/surplus.

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13. Undivided Net Surplus/ Undivided Net Savings.
Net amount arising from operations after deducting
operational expenses from revenue generated.

14. Unrelated Transactions. Transactions of cooperatives

which are not part of the objectives and purposes as
enumerated in the Articles of Cooperation.

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Classification of Cooperatives According to the Extent of
the Tax Exemptions Granted

1. Those duly registered cooperatives

which transact business with members
only; and
2. Those duly registered cooperative
which transact business with both
members and non-members
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Sub-classified according to the following:

a) Cooperatives with accumulated reserves and

undivided net savings of not more than P10 million; and

b) Cooperatives with accumulated reserves and

undivided net savings of more than P10 million.

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Tax Exemptions of Duly Registered Cooperatives
which Transact Business with Members Only
Including but not limited to:
1. Income Tax;
2. Value-Added Tax ;
3. Percentage Tax;
4. Donor’s Tax;
5. Excise Tax;
6. Documentary Stamp Tax;

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7. Annual Registration Fee of P500 ;
8. All taxes on transactions with insurance companies
and bank; and
9. Electric cooperatives shall be exempt from VAT on
revenues on system loss and VAT on revenues on
distribution, supply, metering and lifeline subsidy of
electricity to their members.

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Taxability/ Exemption of Duly Registered
Cooperatives which Transact Business with Members
and Non-Members

Cooperatives with accumulated reserves and undivided net

savings are not more than P10 million –

Exempt from all national internal revenue taxes

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Cooperatives with accumulated reserves and undivided
net savings are more than P10 million –

1) Business transactions with members-

exempt from all national internal revenue taxes

2) Business transactions with non-members-

a. pay the ff. taxes at full rate:
i. Income Tax iii. Percentage Tax
ii. VAT iv. All other Internal
Revenue Tax

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b. Be entitled to limited or full deductibility of
donations to duly accredited charitable, research and
educational institutions and reinvestment to socio-
economic projects within the area of operation

c. Entitled to an exemption on taxes on transactions

with insurance companies and bank.

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Taxability of Unrelated Income of Cooperative
All income not related to main/ principal business transaction under
its Article of Cooperation

- subject to all the appropriate taxes under NIRC

- applicable to all types of cooperatives

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Taxability of Cooperatives to Other Internal
Revenue Taxes
All cooperatives, regardless of classification shall be subject to:

• Capital Gain Tax

from sale of shares of stock, sales exchange disposition of
classified assets;
• Documentary Stamp Taxes
on transactions dealing with non-members;

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• Value-Added Tax
on purchases of goods and services;

• Withholding Tax
on compensation/ wages

• All other taxes for which cooperatives are directly

liable and not otherwise expressly exempted by
any law.

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Taxability of Members/ Share Holders of
Cooperatives
All members of cooperatives shall be liable to pay all the
necessary internal revenue taxes under NIRC, as amended,
except for the following:

1. Any taxes and fees,

-final tax on member’s deposits or fixed deposits
-documentary tax on transactions of members; and
2. Patronage Refund which includes all refunds, returns or
rebates of the net savings generated from the operation of
the cooperative.

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DECLARATION OF QUARTERLY CORPORATE
INCOME TAX

Every corporation shall file in duplicate a

quarterly summary of declaration of its gross
income and deductions on a cumulative basis
from the preceding quarter or quarters upon
which the income shall be levied, collected and
paid.

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The income tax computed decreased by the
amount of tax previously paid or assessed during
the preceding quarters shall be paid and the return
filed not later than sixty (60) days from the close of
each of he first three (3) quarters of the taxable
year.

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Every taxable corporation is likewise required to
file a final adjustment return covering the total
taxable income of the corporation for the
preceding calendar or fiscal year, which is
required to be filed and paid on or before April 15,
or on the 15th day of the 4th month following the
close of the fiscal year, as the case may be.

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If the sum of the quarterly tax payments made during the
said taxable year is not equal to the total tax due on the
entire taxable income of that year, the corporation shall
either:

1. pay the balance of the tax still due; or

2. carry over the excess credit; or
3. be credited or refunded with the excess
amount paid.

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Note:
In the computation of the tax due for the taxable
quarter, if the computed quarterly MCIT is higher than the
quarterly normal income tax, the tax due to be paid for
such taxable quarter at the time of filing of the quarterly
corporate income tax return shall be the MCIT (which is
two percent (2%) of the gross income as of the end of the
taxable quarter.

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 In the payment of said quarterly MCIT, excess
MCIT from the previous taxable year/s shall not be
allowed to be credited. Expanded WT, quarterly
corporate income tax payments under the normal
income tax, and the MCIT paid in the previous taxable
quarter/s are allowed to be applied against the
quarterly MCIT due (RR 12-2007

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