Final Income Taxation: Catch-All For Item of Gross Income Not Subject To Final Tax and Capital Gains Tax

Tax 04 - FINAL INCOME TAXATION
TAXATION
FINAL INCOME TAXATION
PHILIPPINEE INCOME TAX SCHEME

An identified gross income will be subject to tax as follows:
Identified item of gross income:
Exception Tests:
Final withholding Tax Taxable Capital Gains Tax

(Certain passive income only) at either (Certain capital gains only)
Regular Income Tax

Individuals: Progressive Taxation (5-32%)OLD (20-35%)NEW
Corporations: Proportional Taxation (30%)
Catch-all for item of gross income not subject to final tax and capital gains
tax
Final tax and capital gains tax are the exceptions rule in the taxation of gross income. If an item of gross
income subject to, or is exempted from, final tax or capital gains tax, it is no longer subject to regular
tax.
FINAL WITHHOLDING TAX

Final withholding tax is imposed to certain passive income. Refer to H004.1 for the list. Under the final-
withhold tax system, the taxpayer actually shoulders the tax but it is the income payor who withholds
and pays the tax. The amount of tax withhold is final. The taxpayer has no more responsibility to file an
income tax return for the passive income covered subject to final withholding tax.
Nature of Final Income Tax on Certain Passive Income:

1. The final taxes on the passive income are restrictive in application. They are applicable only on the
items of passive income that are expressly listed by the NIRC.
2. Final taxes are withheld at source by the income payor, hence, the income received by the taxpayer is
net of final tax. The income taxpayer therefore need not file a return for the passive income.
3. taxes apply only on specified passive income by the law earned in the Philippines.
Final Withholding Tax vs. Creditable/Expanded Withholding Tax

Final withholding tax Creditable withholding tax
The income payor withholds a percentage of the income.
Serves to avoid cash flow problems to taxpayers by collecting at the moment cash is available.
Differences:
Income tax withheld Full Only portion
Coverage Certain passive income Certain passive income and
regular income
Who remits the tax Income payor Income payor and the
taxpayer
Necessity for a consolidated return None Required
For Final Tax rates refer to Appendix 1 – Sumary of final tax rates of your book
Amendments introduced by the TRAIN Law below:
DESCRIPTION NIRC TRAIN
Final Tax on Winnings Philippine Charity Sweepstakes and Lotto Winnings – Philippine Charity Sweepstakes and
exempt from 20% final tax Lotto Winnings of more than P
10,000 shall be subject to 20% final
tax
Final Tax on interest on Interest Income received by an individual taxpayer Final Tax Rate increased to 15%
foreign currency deposit (except non-resident individual) from a depository bank
under the expanded foreign currency deposit system is
subject to 7.5% final tax
Capital Gains Tax on sale of The capital gains tax on net capital gains realized from Final Tax Rate of 15%
shares not traded through sale, barter, or exchange or disposition of shares of stock
the stock exchange in a domestic corporation not traded through the stock
exchange is :

Not over P 100,000 – 5%
On any amount in excess of P 100,000 – 10%
Exercise 1
De Lima a resident citizen of the Philippines earned the following last year:
Yield from deposit short-term local currency deposit P10,000

Interest Income from bonds of a domestic corporation P23,000
Property dividend declared by a foreign corporation 40,000
Stock dividend declared by a domestic corporation 50,000
Compensation income, net of P10,000 withholding tax 80,000
Prize on “Search for Mr. Sexy body” 15,000
Royalties from books 24,000
Interest Income on personal loans granted to a friend 8,000
Salaries from general professional partnership 30,000
Salaries from a business partnership 20,000
Compute the total amount of income subject to final tax.
How much is the total final tax withheld at source?
Exercise 2
Loonie a resident citizen of the Philippines is a partner in a business partnership. At the end of 2018, he
has a total of P300,000 profit sharing on the after tax income of the partnership inclusive of P120,000
salaries as a managing partner.
Compute the amount of final tax to be withheld from Loonie’s profit sharing
Assuming the same information above except the partnership is a general professional partnership,
compute the final tax to be withheld.
Exercise 3
Determine the total amount of income tax withheld if the taxpayer received the following passive
income during the year:
Interest on a peso bank deposit P90,000
Royalties from cinematographic film 36,000
Dividend from a domestic corporation 63,000
Share in distributive income of a joint venture 72,000
End of handout

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Tax 04 - FINAL INCOME TAXATION

PHILIPPINEE INCOME TAX SCHEME

Identified item of gross income:

Final withholding Tax Taxable Capital Gains Tax

Regular Income Tax

FINAL WITHHOLDING TAX

Nature of Final Income Tax on Certain Passive Income:

Final Withholding Tax vs. Creditable/Expanded Withholding Tax

Yield from deposit short-term local currency deposit P10,000

Compute the total amount of income subject to final tax.

How much is the total final tax withheld at source?

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