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National Internal Revenue Code of 1997, as amended (NIRC)

(Revenue Regulations 02-98)

Income Taxation

1. Income tax systems

a) Global tax system- a system where the taxing authority views indifferently the tax base and generally treats in

common all categories of taxable income of the individual

- taxes all categories of income except certain passive incomes or capital gains

- prescribes a unitary but progressive rate for taxable aggregate income but flat rate to

passive incomes derived by individuals

b) Schedular tax system

- a system where the income tax treatment varies and is made to depend on the kind or

categories of income tax

- it itemizes income taxes and sets forth different percentages to be applied on them

c) Semi-schedular or semi-global tax system

- the compensation income, buss or professional income, capital gain and passive income

not subject to final tax

- and other income are added up together to arrive at the gross income

- and after deducting the sum of allowable deductions from

a. income not subject to final tax

b. in case of a corporation, personal and addtl tax exemptions

c. in case of indivl taxpayers, taxable income is subject to one set of graduated tax

rates

2. Features of the Philippine income tax law

a. Direct imposable on income-earnerb. Progressive tax base increases as tax rate increases

c. Comprehensive PH adopts residence, citizenship and source principles

d. Semi-schedular more schedular on indiv taxpayers, more global on corpo

e. American origin

3. Criteria in imposing Philippine income tax

a. Citizenship principle a citizen of the Philippines is subject to PH income tax

i. on his worldwide, if he is a resident of PH

ii. on his income from sources w/in the PH if he is a non-resident

b. Residence principle Alien is subject to PH income tax for his income from sources w/in

PH, but is exempted from tax for income not from PH sources

c. Source principle an alien is subject to PH income tax because he derives income from

sources w/in the PH.

Ex. Although a non-resident alien has not set foot on the PH, he is liable to pay PH

income tax for his income derived from PH sources

4. Taxable period

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5. Kinds of Income taxpayersa) Individual taxpayers

(i) Citizens

(a) Resident citizens (RC)

Two categories:

i. RC residing in the PH

ii. Filipinos living abroad with no intention to reside permanently therein

- However, those who intent to reside there permanently can still beconsidered RC if they do not manifest that intention to the Commissioner and

the fact of their physical presence therein

OCW (Overseas contract worker) Filipinos working abroad w/a contract, not TNTs

Requisites of a Fil seaman:

i. must be a member of the complement of a vessel

ii. vessel must be exclusively engaged in international trade or commerce

- If he is not, then he is either an RC or NRC depending on where he stays mostof the time during the taxable year

- Important to determine w/he is RC or NRC because RCs are taxable on allincome derived w/in or outside the PH