Philippine Taxation: A Quick Review Guide
Essential taxation concepts and NIRC provisions that you need to know for the CPALE.
Understanding Philippine taxation is essential for the CPALE—not just for the Taxation subject, but as a foundational skill for your practice as a CPA. From individual income tax computations to corporate tax compliance, taxation is a subject that demands both conceptual understanding and computational precision. This guide covers the key topics, provisions, and computations you must know, especially with the recent amendments under the TRAIN Law and CREATE Act.
General Principles of Taxation
Start with the foundational concepts that underpin all tax rules:
- Inherent powers of the state: Taxation, police power, eminent domain—taxation is the strongest
- Constitutional limitations: Due process, equal protection, uniformity, progressive taxation
- Statutory limitations: Provisions under the NIRC as amended
- Situs of taxation: Where income is taxable based on source and residency
- Double taxation: Direct vs. indirect, tax treaties and relief mechanisms
Individual Income Taxation
Individual income tax is one of the most frequently tested areas. Know the TRAIN Law rates:
- Tax table: Graduated rates from 0% to 35% (for taxable income over P8,000,000)
- Exempt threshold: First P250,000 of taxable income is exempt
- Compensation income: Gross income less non-taxable benefits and deductions
- Self-employed and professionals: 8% flat rate option vs. graduated rates
- Mixed income earners: Separate computation for compensation and business income
- Fringe benefits tax: 35% final tax on grossed-up monetary value
- De minimis benefits: Tax-exempt thresholds (rice subsidy, clothing allowance, etc.)
Corporate Income Taxation
Corporate tax was significantly amended by the CREATE Act:
- Regular corporate income tax (RCIT): 25% (20% for domestic corporations with net taxable income not exceeding P5M and total assets not exceeding P100M)
- Minimum corporate income tax (MCIT): 1% of gross income (reduced from 2% under CREATE)
- Special domestic corporations: Proprietary educational institutions (1% or 10%), hospitals (1% or 10%)
- Special resident foreign corporations: Regional operating headquarters, offshore banking units
- Improperly accumulated earnings tax: 10% on improper accumulation
- Tax-free exchanges and corporate reorganizations (Section 40(C)(2))
Value-Added Tax (VAT)
VAT is computation-heavy and frequently tested:
- VAT rate: 12% on sale of goods and services
- VAT threshold: P3,000,000 annual gross sales or receipts
- Output VAT: Tax on sales/receipts
- Input VAT: Tax on purchases—creditable against output VAT
- VAT-exempt transactions: Sale of agricultural products, educational services, health services
- Zero-rated transactions: Export sales, services rendered to non-residents
- Withholding of VAT: Government payments to VAT-registered suppliers
Transfer Taxes: Estate and Donor's Tax
Transfer taxes under the TRAIN Law were simplified:
- Estate tax: Flat rate of 6% on net estate (previously graduated rates)
- Standard deduction: P5,000,000 for estates
- Family home deduction: Up to P10,000,000
- Net estate computation: Gross estate less allowable deductions
- Donor's tax: Flat rate of 6% on total gifts exceeding P250,000 per year
- Exempt donations: Donations to government, accredited non-profit organizations
- Filing requirements and deadlines for estate and donor's tax returns
Withholding Tax System
Understanding the withholding tax system is critical for practice:
- Withholding tax on compensation: Based on tax tables, considering exemptions
- Expanded withholding tax (EWT): Various rates depending on transaction type
- Final withholding tax (FWT): Interest, royalties, dividends—specific rates
- Creditable vs. final withholding: When tax withheld is creditable vs. final
- Withholding VAT: Government withholding on payments to VAT-registered suppliers
- Annual information returns and reconciliation
Tax Remedies
Know both government and taxpayer remedies:
- Government remedies: Assessment, distraint, levy, forfeiture, tax lien, criminal prosecution
- Taxpayer remedies: Protest, appeal to CTA, refund/credit claims
- Prescriptive periods: 3-year assessment period, 5-year collection period (10 years for fraud)
- Compromise and abatement: When available and procedures
- Court of Tax Appeals (CTA): Jurisdiction and appeal process
TRAIN Law and CREATE Act Key Changes
These recent amendments are heavily tested—know the changes:
- TRAIN Law (RA 10963): New individual tax rates, simplified estate/donor's tax, sugar-sweetened beverage tax
- CREATE Act (RA 11534): Reduced corporate tax rates, revised MCIT rate, enhanced incentives framework
- EOPT Act amendments: Updated fiscal incentives and investment promotion provisions
- Tax amnesty programs: Estate tax amnesty, general tax amnesty provisions
- Ease of Paying Taxes Act: Simplified filing and payment procedures
Exam Tips for Taxation Questions
How taxation topics are typically tested:
- Computational problems: Income tax, VAT, estate/donor's tax computations—practice these extensively
- Scenario-based questions: Determine correct tax treatment for specific transactions
- Rate memorization: Know current tax rates, thresholds, and exemptions
- Conceptual questions: Principles of taxation, situs rules, tax remedies
- Recent amendments: TRAIN Law and CREATE Act changes are heavily tested
Key Takeaways
Philippine taxation isn't just exam material—it's the core of your future CPA practice. Understanding how tax laws work, how they've been amended, and how to compute taxes accurately is fundamental to serving clients effectively. The TRAIN Law and CREATE Act have significantly changed the tax landscape, so make sure you're studying the most current provisions. Use Akawntant's flashcards to memorize key rates, thresholds, and deadlines. Create mental frameworks: TRAIN = individual tax reform + excise taxes, CREATE = corporate tax reduction + incentives rationalization. Computation practice is essential—work through problems until the process becomes automatic. This subject rewards disciplined preparation, and mastering it will serve you well throughout your career.
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