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Batas Pambansa Bilang 135

PHILIPPINE LAWS, STATUTES AND CODES - CHAN ROBLES VIRTUAL LAW LIBRARY

MGA BATAS PAMBANSA




BATAS PAMBANSA BILANG. 135


BATAS PAMBANSA BLG. 135 - AN ACT AMENDING CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1977, AS AMENDED, AND FOR OTHER PURPOSES

Section 1. Sec. 21 of the National Internal Revenue Code of 1977, as amended, is hereby further amended to read as follows:

"Sec. 21. Rates of tax on citizens or residents. – (a) On taxable compensation income. – A tax is hereby imposed upon the taxable compensation income as determined in Sec. 28 (a) received during each taxable year from all sources by every individual, whether a citizen of the Philippines, determined in accordance with the following schedule:

Not over P2,500 0%
Over P2,500 but not over P5,000 1%
Over P5,000 but not over P10,000 P25 + 3% of excess over P5,000
Over P10,000 but not over P20,000 P175 + 7% of excess over P10,000
Over P20,000 but not over P40,000 P875 + 11% of excess over P20,000
Over P40,000 but not over P60,000 P3,075 + 15% of excess over P40,000
Over P60,000 but not over P100,000 P6,075 + 19% of excess over P60,000
Over P100,000 but not over P250,000 P13,657 + 24% of excess over P100,000
Over P250,000 but not over P500,000 P49,675 + 29% of excess over P250,000
Over P500,000 P122,175 + 35% of excess over P500,000

"(b) On taxable net income. – A tax is hereby imposed upon the taxable net income as determined in Sec. 29(a) received during each taxable year from all sources by every individual, whether a citizen of the Philippines, or an alien residing in the Philippines determined in accordance with the following schedule:

Not over P10,000 5%
Over P10,000 but not over P30,000 P500 + 15% of excess over P10,000
Over P30,000 but not over P150,000 P3,500 + 30% of excess over P30,000
Over P150,000 but not over P500,000 P39,500 + 45% of excess over P150,000
Over P500,000 P197,000 + 60% of excess over P500,000

"(c) On royalties, prizes and other winnings. – Royalties, prizes (except prizes amounting to Three thousand pesos or less which shall be subject to tax under paragraph [b] and other winnings (except Philippine Charity Sweepstakes winnings) received by citizens and resident alien individuals shall be subject to a final tax at the rate of fifteen per centum (15%) on the total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code.

"(d) On interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements. – Interest from Philippine Currency Bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements whether received by citizens of the Philippines or by resident alien individuals, shall be subject to the final tax as follows: (a) fifteen per centum (15%) of the interest on savings deposits, and (b) twenty per centum (20%) of interest on time deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, which shall be collected and paid as provided in Sec. 53 and 54 of this Code: Provided, That no tax shall be imposed if the aggregate amount of the interest on all Philippine Currency deposit accounts maintained by a depositor alone or together with another in any one bank at any time during the taxable period does not exceed One thousand pesos (P1,000,000) a year or Two hundred fifty pesos (250.00) per quarter: Provided, further, That if the recipient of such interest is exempt from income taxation, no tax shall be imposed and that, if the recipient is enjoying preferential income tax treatment, then the preferential tax rates so provided shall be imposed.

"(e) On dividends and share of individual partner in the net profits or taxable partnership. – Dividends received by an individual who is a citizen of the Philippines or resident alien from a domestic corporation and the share of an individual partner in a partnership subject to tax under Sec. 24 (a) shall be subject to a final tax at the rate of fifteen per centum (15%) on the total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code.

"(f) On adjusted gross income. – A tax is hereby imposed upon the adjusted gross income derived by a non-resident citizen from all sources without the Philippines during each taxable year computed in accordance with the following schedule:

If the amount subject to tax is:

Not over U.S.$6,000.00 1%
Over U.S.$6,000.00 but
not over U.S.$20,000.00 U.S. $60 plus 2%
of excess over
U.S. $6,000
Over U.S. $20,000 U.S. $340 plus 3%
of excess over
U.S. $20,000

For purposes of this paragraph, "adjusted gross income" means the gross income from all sources without the Philippines less the following:

"(1) An allowance for personal exemption in the amount of Two thousand dollars (U.S. $2,000), if the person making the return is a single or a married person legally separated from his or her spouse; or Four Thousand dollars (U.S. $4,000), if the person making the return is married or head of the family, as defined in Sec. 23 of this Code and

"(2) The total amount of the national income tax actually paid to the government of the foreign country of his residence.

"Every non-resident citizen availing of the special rates provided herein is required to support his declaration of gross income, exemption and deductions claimed by attaching to his Philippine income tax return a copy of the income tax return he has filed with the government of the foreign country of his residence."

Sec. 2. Sec. 22 of the said Code is hereby amended to read as follows:

"Sec. 22. Tax on non-resident alien individuals. – (a) Non-resident aliens engaged in trade or business within the Philippines. (1) In general. – Non-resident aliens engaged in trade or business in the Philippines shall be subject to tax in the same manner as resident citizens and aliens on taxable compensation income and/or other taxable net income received from all sources within the Philippines, except capital gains realized from buying and/or selling shares of stock of Philippine corporations listed in the dollar or any foreign currency board of stock exchange: Provided, That for purposes of this Title, a non-resident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty days during any calendar year shall be deemed a non-resident alien, doing business in the Philippines, the provision of Sec. 20 (g) of this Code to the contrary notwithstanding.

"(2) Dividend, share in the net profits of a taxable partnership, interest, royalties, prizes and other winnings, etc. – Dividends from a domestic corporation, share in the net profits of a partnership taxable under Sec. 24 (a), interest, royalties, (in any form) and prizes (except prizes amounting to P3,000 or less which shall be subject to tax under paragraph (b) of Sec. 21) and other winnings (except Philippine Charity Sweepstakes winnings), shall be subject to a final tax of thirty per centum (30%) on the total amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code.

"(b) Non-resident alien not engaged in trade or business within the Philippines. – There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every non-resident alien individual not engaged in trade of business within the Philippines as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits, and income, and capital gains (except capital gains realized from buying and/or selling shares of stock of Philippine corporations listed in the dollar or any acceptable foreign currency board of any stock exchange), a tax equal to thirty per centum (30%) of such income.

"(c) Aliens employed by regional or area headquarters of multinational corporations. – There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by regional or area headquarters established in the Philippines by multinational corporations as salaries, wages, annuities, compensations, remunerations and other emoluments, such as honoraria and allowances, from such regional or area headquarters a tax equal to fifteen per centum (15%) of such gross income: Provided, That the activities of the said regional headquarters or area headquarters shall be limited to acting as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches of such multinational corporations. For purposes of this chapter, the term 'multinational corporation' means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia Pacific Region.

"(d) Aliens employed by offshore banking units. – There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by offshore banking units established in the Philippines as salaries, wages, annuities, compensations, remunerations and other emoluments, such as honoraria and allowances, from such offshore banking units a tax equal to fifteen per centum (15%) of such gross income.

"(e) Aliens employed by petroleum service contractors and subcontractors. – Aliens who are permanent residents of a foreign country but who are employed and assigned in the Philippines by service contractors or by subcontractors engaged in petroleum operations in the Philippines shall be liable to a final income tax equal to fifteen per centum (15%) of the salaries, wages, annuities, compensations, remunerations and other emoluments, such as honoraria and allowances, received from such contractors or subcontractors. Any income, earned from all other sources within the Philippines by the said alien employees shall be subject to the income tax imposed under the National Internal Revenue Code."

Sec. 3. Sec. 23 of the said Code is hereby amended to read as follows:

"Sec. 23. Amount of personal exemptions allowable to individuals. – For the purpose of the tax provided in this Title, there shall be allowed in the nature of a deduction from the amount of gross compensation income and/or net income, as the case may be, the following personal exemptions:

"(a) Personal exemption of a single individuals. – The sum of Three thousand pesos (P3,000,00), if the person making the return is a single person or a married person judicially decreed as legally separated from his or her spouse.

"(b) Personal exemption of married persons or heads of family. – The sum of Six thousand pesos (P6,000,00), if the person making the return is a married man or a married woman, or Four thousand five hundred pesos (P4,500,00), if the person making the return is the head of the family: Provided, That only one exemption of six thousand pesos (P6,000,00) shall be made from the aggregate income of both husband and wife when not legally separated. For the purposes of this section, the term "head of the family" means an unmarried man or woman with one or both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized natural, or adopted children living with and dependent upon him or her for their chief support where such brothers, sisters, or children are not more than twenty-one years of age, unmarried, and not gainfully employed, of where such children are incapable of self-support because of mental or physical defect.

"(c) Additional exemption for dependents, – The sum of Two thousand pesos (P2,000,00) for each legitimate, recognized natural or adopted child wholly dependent upon and living with the taxpayer if such dependents are not more than twenty-one years of age, unmarried, and not gainfully employed or if they are incapable of self-support because of mental or physical defect. The additional exemption under this subsection shall be allowed only if the person making the return is either married or head of the family: Provided, however, That the total number of dependents for which additional exemptions may be claimed shall not exceed four dependents: Provided, further, That an additional exemption of One thousand pesos (P1,000,00) shall be allowed for each child who otherwise qualified as dependent prior to January 1, 1980.

"In the case of individual who derives compensation and other incomes, the amount of personal and additional exemptions granted under this section shall be deducted first from the gross compensation income. Any excess thereof shall be deducted from other income.

"(d) Change of Status. – If the taxpayer is married or should have additional dependents as defined in subsection (c) above during the taxable year, the taxpayer may claim the corresponding personal and additional exemption, as the case may be, in full for such year.

"If the taxpayer should die during the taxable year, his estate may still claim the personal and additional exemptions for himself and his dependents as if he died at the close of such year.

"If the spouse or any of the dependents should die or if any of such dependents becomes twenty-one years old during the taxable year, the taxpayer may still claim the same exemptions as if they died, or if such dependents become twenty-one years old at the close of such year.

"(e) Allowances for adjustment. – Upon the recommendation of the Minister of Finance, the President may not more often than once every three years, adjust the personal and additional exemptions taking into account, among others, the movements in consumer price indices, levels of minimum wages, and bare subsistence levels.

"(f) Personal exemptions allowable to non-resident alien individuals. – A non-resident alien individual engaged in trade or business in the Philippines shall be entitled to personal exemption in an amount equal to the exemptions allowed by the income tax law of the country of which he is a subject or citizen to citizens of the Philippines not residing in such country, but not to exceed the amount fixed in this section as exemption for citizens or residents of the Philippines: Provided, That said non-resident alien should file a true and accurate return of the total income received by him from all sources in the Philippines, as required by this Title."

Sec. 4. The title of Chapter IV is hereby amended to read as follows:

"Chapter IV. – Computation of taxable compensations income and taxable net income."

Sec. 5. Sec. 28 of said Code is hereby amended to read as follows:

"Sec. 28. Taxable compensation income. – (a) Computation. – For purposes of determining the tax prescribed in Sec. 21(a), "taxable compensation income" is gross compensation income as defined in paragraph (b) hereof, less the personal and additional exemptions allowed under Sec. 23.

"(b) "Gross compensation income" defined. – "Gross compensation income includes all income payments received as a result of an employer-employee relationship such as, salaries, wages, honoraria, bonuses, pensions, allowances for transportation, representation, entertainment, fees, (including director's fees) and other income of similar nature, including compensation paid in kind: Provided, however, That payments made by a general professional partnership to a partner for services rendered shall not be considered as gross compensation income but as a partner's distributive share of ordinary business income.

"(c) Exclusion from gross compensation income. – The following are excluded from the computation of gross compensation income:

"(1) Actual, moral, exemplary and nominal damages received by the employees or his heirs pursuant to a final judgment or compromise agreement arising out of or related to an employer-employee relationship.

"(2) All items excluded under paragraphs (c) (1) to (c) (8), inclusive of Sec. 29."

Sec. 6. Sec. 29 of said Code is hereby amended to read as follows:

"Sec. 29. Taxable net income. – (a) For purposes of determining the tax prescribed in Sec. 21(b) and Sec. 24, "taxable net income" is gross income as defined in paragraph (b) hereof, less the deductions allowed by Sec. 30 and, in the case of individuals, the personal and additional exemptions allowed under Sec. 23.

"(b) "Gross income" defined. – "Gross income" includes gains, profits, and income derived from professions, vocations, trades, business, commerce, sales, or from dealings in property, whether real or personal, or growing out of the ownership or use of property or any interest therein; and from interest, rents, dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits and income of whatever kind and in whatever form derived from any source: Provided, however, That gross compensation income tax under this Title shall not be included in "gross income".

"(c) Exclusions from gross income. – The following items shall not be included in gross income and shall be exempt from taxation under this Title:

"(1) Life Insurance. – The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.

"(2) Amount received by insured as return of premium. – The amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.

"(3) Gifts, bequests, and devises. – The value of property acquired by gift, bequest, devise, or descent; but the income from such property shall be included in gross income.

"(4) Interest on Government securities. – Interest upon the obligations of the Government of the Republic of the Philippines or any political subdivisions thereof, but in the case of such obligations issued after the approval of this Code, only to the extent provided in the act authorizing the issue thereof.

"(5) Compensation for injuries or sickness. – Amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness.

"(6) Income exempt under treaty. – Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.

"(7) Retirement benefits, pensions, gratuities, etc. –

"(A) Retirement benefits received by officials and employees or private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years is not less than fifty years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes of this sub-section, the term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for officials and employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

"(B) Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee.

"(C) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or non-resident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.

"(D) Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration.

"(E) Payments of benefits made under the Social Security Act of 1954, as amended.

"(F) Benefits received from the GSIS and the retirement gratuity received by government officials and employees.

"(8) Miscellaneous items. – (A) Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities or from interest on their deposits in banks in the Philippines by (1) foreign governments, (2) financing institutions owned, controlled, or enjoying refinancing from them, and (3) international or regional financing institutions established by governments.

"(B) Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.

"(C) Income derived as rewards under Republic Act Numbered Twenty-three hundreds and thirty-eight, as amended by Presidential Decree No. 707.

"(D) Interest earned from deposits maintained with a bank under the expanded foreign currency deposit system."

Sec. 7. Sec. 30 of said Code is hereby amended to read as follows:

"Sec. 30. Deductions from gross income. – In computing net income there shall be allowed as deductions. -

"(a) Expenses. – (1) Business expenses. – (A) In general. – All ordinary and necessary expenses pair or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; travelling expenses while away from home in the pursuit of a trade, profession or business, rentals or other payments required to be made as a condition to the continued use or possession, for the purpose of the trade, profession or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.

"(B) General requirements for entertainment amusement or recreation. – No deductions otherwise allowable under this paragraph shall be allowed for any item –

"(i) Activity. – With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, unless the taxpayer establishes that the item was directly related to, or, in the case of an item was directly preceding or following a substantial and bona fide business discussion (including business meetings at a convention or otherwise), that such item was associated with, the active conduct of the taxpayer's trade, profession or business, or

"(ii) Facility. – With respect to a facility used in connection with an activity referred to in subparagraph (A), unless the taxpayer establishes that the facility was used primarily for the furtherance of the taxpayer's trade or business and that the item was directly related to the active conduct of such trade, profession or business.

"For purposes of applying this subparagraph, dues or fees paid to any social, athletic or sporting club or organization shall be treated as items with respect to facilities.

"In no case shall an entertainment, amusement or recreational expense which is contrary to law, public policy or for immoral purposes be allowed as a deduction.

"(C) Substantiation required. – No deduction shall be allowed under the preceding subparagraph (B) unless the taxpayer substantiates with official receipts or by adequate records or by sufficient evidence corroborating his own statement (i) the amount of such expense or other item, (ii) the date and place of entertainment, amusement, or recreation, (iii) the professional or business purpose of the expense or other items and (iv) the professional or business relationships, to the taxpayer of the persons entertained or using the facility. The Minister of Finance may by regulations provide that some or all of the requirements in the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations.

"(2) Expenses allowable to non-resident alien individuals and foreign corporations. – In the case of a non-resident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying on any business or trade conducted within the Philippines exclusively.

"(3) Expenses allowable to private educational institutions. – In addition to the expenses allowable as deductions under paragraph (1) of this subsection, a private educational institutions, whether stock or non-stock, shall also be allowed to deduct during the taxable year when they incurred expenses for the expansion of school facilities to be determined by rules and regulations issued jointly by the Ministries of Education and Culture and of Finance.

"(b) Interest:

"(1) In General. – The amount of interest paid or accrued within a taxable year on indebtedness incurred in connection with the taxpayer's profession, trade, or business, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title: Provided, however, That interest on deposits paid by authorized agent banks of the Central Bank of the Philippines to depositors shall be allowed as a deduction only if it is shown that the tax on such interest was withheld and paid in accordance with the provisions of Sections 53 and 54 of this Code.

"(2) Interest allowable to non-resident aliens. – In the case of a non-resident alien individual or a foreign corporation, the amount of interest allowable in the proportion of the amount of interest paid within the year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations, the interest upon which is wholly exempt from taxation as income under this Title, which the gross amount of income for the year derived from sources within the Philippines bears to gross amount of income derived from all sources within and without the Philippines; but this deduction shall be allowed only if such non-resident alien individual or foreign corporation includes in the return required by this Title all the information necessary for its calculation.

"(3) No deduction shall be allowed in respect of interest otherwise deductible under the preceding subparagraphs –

"(A) If within the taxable year an individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance through discount or otherwise: Provided, however, That such interest shall be allowed as a deduction in the year the indebtedness is paid: and Provided, further, That if the indebtedness is payable in periodic amortization, the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year.

"(B) If both the taxpayer and the person to whom the payment has been made or is to be made are persons specified within any one of the paragraphs of subsection (b) of Sec. 31.

"(C) If the indebtedness is incurred to finance petroleum exploration.

"(c) Taxes:

"(1) In general. – Taxes paid or accrued within the taxable year in connection with the taxpayer's profession, trade or business, except -

"(A) The income tax provided for under this Title;

"(B) Income, war-profits, and excess-profits taxes imposed by authority of any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) of this subsection (relating to credits for taxes of foreign countries);

"(C) Estate and gift taxes;

"(D) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed; and

"(E) Electric energy consumption tax imposed by Batas Pambansa Blg. 36.

"(2) Limitations on deductions. –

"(A) In the case of a non-resident alien individual and a foreign corporation, the deductions for taxes provided in paragraph (1) of this subsection (c) shall be allowed only if and to the extent that they are connected with income from sources within the Philippines; and

"(B) In the case of a citizen of a foreign country residing in the Philippines whose income from sources within such foreign country is not taxable under this Title, only that portion of the taxes paid to such foreign country which corresponds to his net income taxable under this Title shall be allowed as deduction.

"(3) Credit against tax for taxes of foreign countries. – If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with –

"(A) Citizen and domestic corporation. – In the case of a citizen of the Philippines and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country;

"(B) Alien resident of the Philippines. – In the case of an alien resident of the Philippines, the amount of any such taxes paid or accrued during the taxable year to any foreign country; if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes allows a similar credit to citizens of the Philippines residing in such country; and

"(C) Partnerships and estates. – In the case of any such individual who is a member of a general professional partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the general professional partnership or the state or trust paid or accrued during the taxable year to a foreign country, if his distributive share of the income of such partnership or trust is reported for taxation under this Title.

"(D) Non-resident aliens and foreign corporations. – Non-resident alien individuals and foreign corporations shall not be allowed the credits against the tax for the taxes of foreign countries allowed under this paragraph.

"(4) Limitations on credit. – The amount of the credit taken under this section shall be subject to each of the following limitations:

"(A) The amount of the credit in respect to the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country under this Title bears to his entire net income for the same taxable year; and

"(B) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources without the Philippines taxable under this Title bears to his entire net income for the same taxable year.

"(5) Adjustments on payments of accrued taxes. – If accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Commissioner of Internal Revenue, who shall redetermine the amount of the tax for the year or years affected, and the amount of tax due upon such determination, if any, shall be paid by the taxpayer upon notice and demand by the Commissioner, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer. In the case of such a tax accrued but not paid, the Commissioner as a condition precedent to the allowance of this credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved by the Commissioner in such sum as he may require, conditioned upon the payment by the taxpayer of any amount of tax found due upon any such redetermination. The bond herein prescribed shall contain such further conditions as the Commissioner may require.

"(6) Year in which credit taken. – The credits provided for in paragraph (3) of this subsection may, at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country accrued, subject, however, to the conditions prescribed in paragraph (5) of this subsection. If the taxpayer elects to take such credits in the year in which the taxes of the foreign country accrued, the credits for all subsequent years shall be taken upon the same basis, and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year.

"(7) Proof of credits. – The credits provided in paragraph (3) of this subsection shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner (1) the total amount of income derived from sources without the Philippines, (2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under said paragraph, such amount to be determined under rules and regulations prescribed by the Minister of Finance, and (3) all other information necessary for the verification and computation of such credits.

"(8) Taxes of foreign subsidiary. – For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of such foreign corporation from such dividends were paid which the amount of such dividend bears to the amount of such accumulated profits; Provided, That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. The term "accumulated profits" when used in this subsection in reference to a foreign corporation, means the amount of its gains, profits, or income in excess of the income, war-profits, and excess-profits taxes imposed upon or with respect to such profits or income; and the Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid, treating dividends paid in the first 60 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation, the income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting period of less than one year, the word "year" as used in this subsection shall be construed to mean such accounting period.

"(9) Taxes of shareholder paid by corporation. – The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder which are paid by the corporation without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes.

"(d) Losses:

"(1) By individuals. – In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise.

"(A) If incurred in trade, profession, or business: Provided, however, That a loss representing the excess over the income, of allowable expenses and other deductions directly or approximately attributable or related to the production or earning of such income from a particular line of business or activity, shall not be allowed as a deduction from or offset against income derived from other sources: Provided, further, That a net operating loss sustained in a particular line of profession, business or activity within three years after the commencement of such business or activity may, in a manner prescribed by regulations promulgated by the Minister of Finance, be carried over as a deduction from the income derived from the same particular line of business or activity for two (2) consecutive years immediately following the year such loss was sustained, or

"(B) If incurred in any transaction entered into for profit, though not connected with the trade or business. The Minister of Finance, upon recommendation of the Commissioner of Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing, among other things, the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty of from robbery, theft, or embezzlement during the taxable year: Provided, however, That the time limit to be so prescribed in the regulations shall not be less than 30 days nor more than 90 days from the date of the occurrence of the casualty or robbery, theft, or embezzlement giving rise to the loss.

"(2) By corporation. – In the case of a corporation, all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise.

"(3) By non-resident aliens of foreign corporations. – In the case of a non-resident alien individual or foreign corporation, the losses deductible are those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses actually sustained during the year in transactions entered into for profit in the Philippines although not connected with their business or trade, when such losses are not compensated for by insurance or otherwise. The Minister of Finance, upon recommendation of the Commissioner of Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing, among other things, the time and manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft, or embezzlement during the taxable year: Provided, however, That the time to be so prescribed in the regulations shall not less than 30 days nor more than 90 days from the date of the occurrence of the casualty or robbery, theft, or embezzlement giving rise to the loss.

"(4) Capital losses. –

"(A) Limitation. – Losses from sales or exchange of capital assets shall be allowed only to the extent provided in Sec. 34.

"(B) Securities becoming worthless. – If any securities as defined in Sec. 20 becomes worthless during the taxable year and are capital assets, the loss resulting therefrom shall, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, or capital assets.

"(5) Losses on wash sales of stock or securities. – Losses on "wash sales" of stock or securities as provided in Sec. 33.

"(6) Wagering losses. – Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.

"(7) Abandonment Losses. – (A) In the event a contract area where petroleum operations are undertaken is partially or wholly abandoned, all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction: Provided, however, That accumulated expenditures incurred in that area prior to January 1, 1979, shall be allowed as a deduction only from any income derived from the same contract area. In all cases, notices of abandonment shall be filed with the Commissioner of Internal Revenue.

"(B) In case a producing well is subsequently abandoned, the unamortized costs thereof, as well as the undepreciated costs of equipment directly used therein shall be allowed as a deduction in the year such well, equipment or facility is abandoned by the contractor; Provided, however, That if such abandoned well is reentered and production is resumed, or if such equipment or facility is restored into service, the said costs shall be included as part of gross income in the year of resumption or restoration and shall be amortized or depreciated, as the case may be.

"(e) Bad Debts:

"(1) In general. – Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year except those not connected with profession, trade or business and those sustained in a transaction entered into between parties mentioned under subsection (b) of Sec. 31 of this Code.

"(2) Bad debts deductible by non-resident aliens or foreign corporations. – In the case of a non-resident alien individual or a foreign corporation, bad debts are deductible if they have arisen in the course of business or trade conducted within the Philippines and actually ascertained to be worthless and charged off within the year.

"(3) Securities becoming worthless. – If any securities as defined in Sec. 20 are ascertained to be worthless and charged off within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank of trust company incorporated under the laws of the Philippines a substantial part of whose business is the receipt of deposits, for the purpose of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year of capital assets.

"(f) Depreciation:

"(1) In general. – A reasonable allowance for deterioration of property arising out of its use or employment in the profession, business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer or, in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant where the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustees in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allowable to each.

"(2) Depreciation of properties used in petroleum operations. – An allowance for depreciation in respect to all properties directly related to production of petroleum initially placed in service in a taxable year under the straight-line or double- declining balance method of depreciation at the option of the service contractor. However, of the service contractor initially elects the double-declining method, it may, at any subsequent date, shift to the straight-line method. The useful life of properties used in or related to production of petroleum shall be ten (10) days or such shorter life as may be permitted by the Commissioner of Internal Revenue.

"Properties not used directly in the production of petroleum shall be depreciated under the straight-line method on the basis of an estimated useful life of five (5) years.

"(3) Depreciation deductible by non-resident aliens of foreign corporations. – In the case of a non-resident alien individual or foreign corporation, a reasonable allowance for the deterioration of property arising out of its use or employment or its non-use in the business or trade shall be permitted only when such property is located within the Philippines.

"(g) Depletion of oil and gas wells and mines:

"(1) In general. – In the case of oil and gas wells and mines, a reasonable allowance for depletion or amortization computed in accordance with the cost depletion method shall be granted under rules and regulations to be prescribed by the Minister of Finance: Provided, That when the allowance shall equal the capital invested no further allowance shall be granted: Provided, further, That after production in commercial quantities has commenced, certain intangible exploration and development drilling costs (i) shall be deductible in the year incurred if such expenditures are incurred for on-producing wells or (ii) shall be deductible in full in the year paid or incurred or, at the election of the election of the taxpayer, may be capitalized and amortized, if such expenditures incurred are for producing wells in the same contract area.

"Intangible costs in petroleum operations refer to any costs incurred in petroleum operations which in itself has no salvage value and which is incidental to and necessary for the drilling of wells and preparation of wells for the production of petroleum: Provided, That said cost shall not pertain to the acquisition or improvement of property of a character subject to the allowance for depreciation except that the allowances for the depreciation on such property, shall be deductible under this subsection.

"Any intangible exploration, drilling and development expenses allowed as a deduction in computing taxable income during the year shall not be taken into consideration in computing the adjusted cost basis for the purpose of computing allowable cost depletion.

"(2) Election to deduct exploration and development expenditures. – In computing taxable income, the taxpayer may, at his option, deduct exploration and development expenditures accumulated as cost or adjusted basis for cost depletion as of January 1, 1978, as well as exploration and development expenditures paid or incurred during the taxable year: Provided, That the total amount deductible for exploration and development expenditures shall not exceed twenty-five per centum (25%) of the net income from mining operations computed without the benefit of any tax incentives under existing laws. This subparagraph shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation under Sec. 30 (f) (1) of this Code but the allowance for depreciation thereon shall be treated as expenditure.

"The election by the taxpayers to deduct the exploration and development expenditures is irrevocable and shall be binding in succeeding taxable years.

"In no case shall this paragraph apply with respect to amounts paid or incurred for the exploration and development of oil and gas. The term "exploration expenditures" means expenditures paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, and paid or incurred before the beginning of the development state of the mine or deposit. The term "development expenditures" means expenditures paid or incurred during the development stage of the mine or other natural deposits. The development stage of a mine or other natural deposit shall begin at the time when deposits or ore or other minerals are shown to exist in sufficient commercial quantity and quality and shall end upon commencement of actual commercial extraction.

"(3) Depletion of oil and gas wells and mines deductible by a non-resident alien individual or foreign corporation. – In the case of a non-resident alien individual or a foreign corporation, allowance for depletion of oil and gas wells or mines under paragraph (1) shall be authorized only in respect to oil and gas wells or mines located within the Philippines.

"(h) Charitable and other contributions. –

"(1) In general. – Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, no part of the net income of which inures to the benefit of any private stockholder or individual to an amount not in excess of six per centum (6%) in the case of an individual, and three per centum (3%) in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this and the following subparagraphs.

"(2) Contributions deductible in full. – Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full:

"(A) Donations to the Government. – Donation to the Government of the Philippines or to any of its agencies or political subdivisions including fully-owned government corporations exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to a national priority plan to be determined by the NEDA, in consultation with appropriate government agencies, including its regional development councils, and private philanthropic persons and institutions: Provided, however, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in subparagraph (1) of this Section.

"(B) Donations to certain foreign institutions or international organizations. – Donations to foreign institutions or international organizations which are fully deductible in pursuance of or in compliance with agreements, treaties, or commitments entered into by the Government of the Philippines and the foreign institutions or international organizations or in pursuance of special laws.

"(C) Donations to certain private foundations. – The term "private foundation" means a non-profit domestic corporation;

"(i) Organized and operated exclusively for scientific, research, education, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual;

"(ii) Which, not later than the 15th day of the third month after the close of the foundation's taxable year in which contributions are received, makes utilization directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, unless an extended period is granted by the Minister of Finance in accordance with the rules and regulations to be promulgated.

"(iii) The level of administrative expense of which shall on an annual basis conform with the rules and regulations to be prescribed by the Minister of Finance but in no case to exceed thirty per centum (30%) of total expenses;

"(iv) The assets of which in the event of dissolution would be distributed to another non-profit domestic corporation organized for similar purpose or purposes, or to the State for a public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of said court will best accomplish the general purpose for which the dissolved organization was organized.

"Subject to such terms and conditions as may be prescribed by the Minister of Finance, the term "utilization" means:

"(i) Any amount in cash or in kind (including administrative expenses) pair or utilized to accomplish one or more purposes for which the private foundation was created or organized.

"(ii) Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the foundation was created or organized.

"An amount set aside for a specific project which comes within one or more purposes of the foundation may be treated as a utilization, but only if, at the time such amount is set aside, the private foundation establishes to the satisfaction of the Commissioner of Internal Revenue that the amount will be paid for the specific project within a period to be prescribed in regulations to be promulgated by the Minister of Finance, but not to exceed 5 years, and the project is one which can be better accomplished by setting aside such amount than by immediate payment of funds. The Minister of Finance shall promulgate rules and regulations to implement this subparagraph.

"(3) Valuation. – Properties other than cash donated shall be valued in accordance with the rules and regulations prescribed by the Minister of Finance, in consultation with the appropriate government agencies.

"(4) Proof of deductions. – Contributions or gifts shall be allowable as deductions only if verified under the regulations prescribed by the Minister of Finance.

"(i) Conditions under which a non-resident alien individual may receive benefit of deductions. – A non-resident alien individual engaged in trade or business in the Philippines shall reserve the benefit of the deductions provided for in this section only by filing or causing to be filed with the Commissions of Internal Revenue a true and accurate return of his total income, received from all sources, corporate or otherwise in the Philippines, in the manner prescribed by this Code; and in case of his failure to file such return the Commissioner of Internal Revenue shall collect the tax on such income.

"(j) Pension trusts. – General rule. – An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trusts during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount (1) has not theretofore been allowable as a deduction, and (2) is apportioned in equal parts over a period of ten consecutive years beginning with the year in which the transfer or payment is made.

"(k) Optional Standard Deduction. – In lieu of the deductions allowed under this section an individual subject to tax under Sec. 21 (b), other than a non-resident alien, may elect a standard deduction in an amount not exceeding ten per centum (10%) of his gross income. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding subsection. The Minister of Finance shall prescribe the manner of the election. Such election when made in the return shall be irrevocable for the taxable year for which the return is made."

"(l) Additional requirement for deductibility of certain payments. – Any amount paid or payable which otherwise deductible from, or taken into account in computing gross income for which depreciation or amortization may be allowed under this section and Sec. 29, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this section, Sections 54 and 93 of this Code. (As amended by PD 1351, PD 1353, PD 1475)

"Notwithstanding the provisions of the preceding paragraphs, the Minister of Finance, upon recommendation of the Commissioner, after a public hearing shall have been held for this purpose may prescribe by regulations, limitations or ceilings for any of the itemized deduction under this section; Provided, That for purposes of determining such ceilings or limitations, the Minister of Finance shall consider the following factors: (1) adequacy of the prescribed limits on the actual expenditure requirements of each particular industry; and (2) effects of inflation on expenditure levels; Provided, further, That no ceilings shall further be imposed on items of expense already subject to ceilings under present law."

Sec. 8. Sec. 45 of said Code is hereby amended to read as follows:

"Sec. 45. Individual returns. – (a) Requirements. – (1) The following individuals are required to file an income tax return, if they have a gross income of at least P3,000 for the taxable year.

"(A) Every Filipino citizen, whether residing in the Philippines or abroad, and

"(B) Every alien residing in the Philippines, regardless of whether the gross income was derived from sources within or outside the Philippines.

"(2) Regardless of amount, every non-resident alien engaged in trade or business in the Philippines shall fine an income tax return.

"The income tax return shall be filed in duplicate, and shall set forth specifically the gross amount of income from all sources, except that of non-resident aliens engaged in trade or business in the Philippines which shall contain only such income derived from sources within the Philippines: Provided, however, That in the case of an individual with compensation income taxable under Sec. 21 (a) and where the tax withheld thereon in final, a simplified return shall be filed with the Bureau of Internal Revenue after directly or through the employer.

"(3) Notwithstanding the provisions of the preceding paragraphs, an individual (except a non resident alien engaged in trade or business in the Philippines) whose gross compensation income as defined under Sec. 28(b) does not exceed his personal exemption of P3,000 if he/she is single or P6,000 if he/she is married or P4,500 if he/she is head of family, is not required to filed an income tax return.

"(b) Where to file. – Except in cases where the Commissioner otherwise permits, the return shall be filed with the Revenue District Officer, Collection Agent, or duly authorized Treasurer of the Municipality in which such person has his legal residence or principal place of business in the Philippines, or if there be no legal residence or place of business in the Philippines, then with the Office of the Commissioner of Internal Revenue.

"(c) When to file. – The return of:

"(1) Residents of the Philippines, whether citizens or aliens, whose income had been derived solely from salaries, wages, interest, dividends, allowances, commissions, bonuses, fees, pensions, or any combination thereof shall be filed on or before the eighteenth day of March of each year, covering income for the proceeding taxable year.

"(2) All other individuals not mentioned above, including non-resident citizens shall be filed on or before the fifteenth day of April of each year covering income of the preceding taxable year.

"Individuals subject to the final schedule tax on net capital gains from the sale or other disposition of real property under Sec. 34 (h) of this Code, shall file or cause to be filed a separate return prescribed therefor by the Commissioner within thirty (30) days following each sale or other disposition of capital assets.

"(d) Husband and Wife. – In the case of married persons, whether citizens, resident or non-resident aliens, only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses, but where it is impracticable for the spouses, to file one consolidated return, each spouse may file his separate return of income, but the returns so filed shall be consolidated for the purpose of the tax prescribed under this Title.

"(e) Return of parent to include income of children. – The income of unmarried minors derived from property received from a living parent shall be included in the return of the parent, except (1) when the gift tax has been paid on such property, or (2) when the transfer of such property is exempt from gift tax.

"(f) Persons under disability. – If the taxpayer is unable to make his own return, the return may be made by his duly authorized agent or representative or by the guardian or other person charged with the care of his person or property, the principal and his representative or guardian assuming the responsibility of making the return and incurring penalties provided for erroneous, false or fraudulent returns.

"(g) Signature presumed correct. – The fact that an individual's name is signed to a filed return shall be prima facie evidence for all purposes that the return was actually signed by him."

Sec. 9. Sec. 53 of said Code is hereby amended to read as follows:

"Sec. 53. Withholding of tax at source. – (a) Tax-free covenant bonds. –

"(1) Requirements of withholding. – In any case where bonds, mortgages, deeds of trust, or other similar obligations of domestic or resident foreign corporations, contain a contract or provision by which the obligor agrees to pay any portion of the tax imposed in this Title upon the obligee or to reimburse the obligee for any portion of the tax or to pay the interest without deduction for any tax which the obligor may be required or permitted to pay thereon or to retain therefrom under any law of the Philippines, or any state or country, the obligor shall deduct and withhold a tax equal to thirty per centum (30%) of the interest or other payments upon those bonds, mortgages, deeds of trust, or other obligations, whether the interest or other payments are payable annually or at shorter or longer periods, and whether the bonds, securities or obligations had been or will be issued or marketed, and the interest or other payment thereon paid, within or outside the Philippines, if the interest or other payment is payable to a non-resident alien or to a citizen or resident of the Philippines.

"(b) Withholding tax on royalties, prizes and other winnings. – The tax imposed by Sections 21 (c) and 24 of this Code on royalties, prizes (except prizes amounting to Three thousand pesos or less which shall be subject to tax under paragraph (b) of Sec. 21) and winnings shall be withheld by the payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Sec. 54 of the National Internal Revenue Code.

"(c) Withholding tax on dividends. – The tax imposed by Sections 21 and 24 (c) of this Code on dividends shall be withheld by the payor-corporation and paid in the same manner and subject to the same conditions as provided in Sec. 54 of this Code.

"(d) Withholding of final tax on interest on bank deposits, yield or any other monetary benefit from deposit substitutes and from trust and similar arrangements.

"(1) Withholding of final tax. – Every bank or non-bank financial intermediary shall deduct and withhold from the interest on bank deposits or yield or any other monetary benefit from deposit substitutes a final tax equal to fifteen per centum (15%) of the interest on savings deposits and twenty per centum (20%) of the interest on time deposits or yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements: Provided, however, That no withholding tax shall be made if the aggregate amount of the interest on all deposits accounts maintained by a depositor alone or together with another in any one bank at any time during the taxable period does not exceed One thousand pesos (P1,000.00) a year or Two hundred fifty pesos (P250.00) per quarter. For this purpose, interest on a deposit account maintained by two persons shall be deemed to be equally owned by them.

"(2) Depositors or placers/investors enjoying tax exemption privileges or preferential tax treatment. – In all cases where the depositor or placer/investors is tax-exempt or is enjoying preferential income tax treatment under existing laws, the withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon submission to the Commissioner of Internal Revenue of proof that the said depositor, or placer/ investor is a tax exempt entity or enjoys a preferential income tax treatment.

"(3) Manner of withholding. – Without divulging the names of the depositors, or placer/investors, the tax shall be withheld by the bank or non-bank financial intermediary and paid in the same manner and subject to the said conditions provided in Sec. 54 of this Code.

"(e) Non-resident aliens and foreign corporations. (1) Non-resident aliens. – Every individual, corporation, partnership, or association, in whatever, capacity acting, including a lease or mortgagor of real or personal property, trustee acting in any trust capacity, executor, administrator, receiver, conservator, fiduciary, employer, and every officer or employee of the Government of the Republic of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains, of any non-resident alien not engaged in trade or business within the Philippines, shall (except in the cases provided in subsection (a)(1) of this section) deduct and withhold from the annual, periodical, or casual gains, profits, and income, and capital gains, a tax equal to thirty per centum (30%) thereof. This deduction and withholding shall not be required in the case of dividends paid by a foreign corporation unless (1) the corporation is engaged in trade or business within the Philippines, and (2) more than eighty- five per centum (85%) of the gross income of the corporation for the three-year period ending with the close of each taxable year preceding the declaration of the dividends (or for such part of the period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of Sec. 37. The Commissioner may authorize the tax to be deducted and withheld from the interest or other income upon any security or obligation the owners of which are not known to the withholding agent.

"(2) Non-resident foreign corporations. – In the case of foreign corporations subject to tax under this Title, not engaged in trade or business within the Philippines, there shall be deducted and withheld at the source in the same manner and upon the same items as provided in subsection (b) (1) of this section, as well as on remunerations for technical services or otherwise, a tax equal to thirty-five per centum (35%) thereof: Provided, That interest on foreign loans shall be subject to withholding tax of fifteen per centum (15%) This tax shall be returned and paid in the same manner and subject to the same conditions as provided in Sec. 54. This deduction and withholding shall be required in the case of reinsurance premiums ceded to foreign insurance corporations not engaged in trade or business in the Philippines.

"(f) Other cases of withholding tax at source. – The Minister of Finance may upon recommendation of the Commissioner of Internal Revenue, require also the withholding of a tax on the same items of income payable to persons (natural or juridical) residing in the Philippines by the same persons mentioned in paragraph (b) (1) of this section at the rate of not less than two and one-half per centum (2-1/2%) but not more than thirty-five per centum (35%) thereof which shall be credited against the income tax liability of the taxpayer of the taxable year."

Sec. 10. Sec. 58 of said Code is hereby amended to read as follows:

"Sec. 58. Exemption allowed to estates and trusts. – For the purpose of the tax provided for in this Title, there shall be allowed an exemption of Three thousand pesos from the income of the estate or trust."

Sec. 11. Sec. 61 of said Code is hereby amended to read as follows:

"Sec. 61. Fiduciary returns. – Guardians, trustees, executors, administrators, receivers, conservators, and all persons or corporations, acting in any fiduciary capacity, shall render, in duplicate, a return of the income of the person, trust, or estate for whom or which they act, and be subject to all the provisions of this Title, which apply to individuals in case such person, estate, or trust has a gross income of Three thousand pesos or over during the taxable year. Such fiduciary or person filing the return for him or it, shall take oath that he has sufficient knowledge of the affairs of such person, trust, or estate to enable him to make such return and that the same is, to the best of his knowledge and belief, true and correct, and be subject to all the provisions of this Title which apply to individuals: Provided, That a return made by or for one or two or more joint fiduciaries filed in the province where such fiduciary resides, under such regulations as the Minister of Finance prescribe, shall be a sufficient compliance with the requirements of this section."

Sec. 12. Sec. 73 of said Code is hereby amended to read as follows:

"Sec. 73. Penalty for failure to file return or to pay tax. – Any one liable to pay the tax, to make a return or to supply information required under this Code, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be punished by a fine of not more than Two thousand pesos or by imprisonment for not more than six months, or both: Provided, however, That an individual with compensation income taxable under Sec. 21 (a) of this Code and where the tax withheld from such compensation income is final shall be exempt from the penalty for failure to pay the tax on such compensation income and to file a return thereon at the designated period.

"Any individual or any officer of any corporation, or general co-partnership (compania colectiva), required by law to make, render, sign or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this Code to be made, shall be punished by a fine of not less than Five thousand pesos and imprisonment of not less than two years."

Sec. 13. Sec. 77 of said Code is hereby amended to read as follows:

"Sec. 77. Information at source as to income payments. – All persons, corporations or duly registered co-partnerships (companias colectivas), in whatever capacity acting, including lessees or mortgagors or real or personal property, trustees, acting in any trust capacity, executors, administrators, receivers, conservators, and employees making payment to another person, corporation, or duly registered general co-partnership (compania colectiva), of interest, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income, other than payment described in Sections 75 and 79, in any taxable year, or, in the case of such payments made by the Government of the Philippines, the officers or employees of the Government having information as to such payments and required to make returns in regard thereto, are authorized and required to make returns in regard thereto, are authorized and required to render a true and accurate return of the Commissioner of Internal Revenue, under such rules and regulations and in such form and manner as may be prescribed by the Minister of Finance, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payments: Provided, That such returns shall be required in the case of payments of interest upon bonds and mortgages or deeds of trust or other similar obligations of corporations, and in the case of collections of items, not payable in the Philippines, of interest upon the bonds of foreign countries and interest from the bonds and dividends from the stock of foreign corporations by persons, corporations, or duly registered general co-partnership (companias colectivas), undertaking as a matter of business or for profit or otherwise the collection of foreign payments of such interest or dividends by means of coupons or bills of exchange."

Sec. 14. Sec. 91 of said Code is hereby amended to read as follows:

"Sec. 91. Income tax collected at source. – (a) Requirement of withholding. – Every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with regulations to be prepared by the Minister of Finance. The tax withheld is a final tax, except where the personal circumstances or income of the taxpayer change within the taxable year or where the taxpayer has multiple employment.

"(b) Tax paid by recipient. – If the employer, in violation of the provisions of this chapter, fails to deduct and withheld the tax as required under this chapter, and thereafter the tax against which such tax may be credited is paid, the tax so required to be deducted and withheld shall not be collected from the employer; but this subsection shall in no case relieve the employer from liability for any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold.

"(c) Refunds or credits. – (1) Employer. – Where there has been an overpayment of tax under this section, refund or credit shall be made to the employer only to the extent that the amount of such overpayment was not deducted and withheld hereunder by the employer.

"(2) Employees. – The amount deducted and withheld under this chapter during any calendar year shall be allowed as a credit to the recipient of such income against the tax imposed under the main provisions of this Title. Refunds and credits in cases of excessive withholding shall be granted under rules and regulations promulgated by the Ministry of Finance.

"Any excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within three months from the fifteenth day of April. Refunds of credits made after such time shall earn interest at the rate of six per centum (6%) per annum starting after the lapse of the three month period to the date the refund or credit is made.

"Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of counter-signature by the Chairman, Commission on Audit or the latter's duly authorized representatives as an exception to the requirement prescribed by Sec. 621 of the Revised Administrative Code.

"(d) Personal exemptions. –

"(1) In general. – Unless otherwise provided by this chapter, the personal and additional exemptions applicable under this chapter shall be determined in accordance with the main provisions of this Title.

"(2) Exemption certificates. –

"(A) When to be filed. – On or before the date of commencement of employment with an employer, or within ten days from the effectivity of this Code in case of persons already employed, the employee shall furnish the employer with a signed withholding exemption certificate relating to the personal and additional exemption to which he is entitled.

"(B) Change of status. – In case of change of status of an employee as a result of which he would be entitled to a lesser amount of exemption, the employee shall, within ten days from such change, file with the employer a new withholding exemption certificate reflecting the change. If the change would entitle the employee to a greater amount of exemption, he may furnish the employer with a new withholding exemption certificate reflecting such change.

"(C) Use of certificates. – The certificates filed hereunder shall be used by the employer in the determination of the amount of taxes to be withheld.

"(D) Failure to furnish certificate. – Where an employee, in violation of this chapter, either fails or refuses to file a withholding exemption certificate, the employer shall withhold the taxes prescribed under the schedule for zero exemption of the withholding tax table subsection (a).

"(e) Withholding on basis of average wages. – The Commissioner of Internal Revenue may, under regulations promulgated by the Minister of Finance, authorize employers (1) to estimate the wages which will be paid to an employee in any quarter of the calendar year, (2) to determine the amount to be deducted and withheld upon each payment of wages to such employee during such quarter as if the appropriate average of the wages so estimated constituted the actual wages paid, and (3) to deduct and withhold upon any payment of wages to such employee during such quarter such amount as may be required to be deducted and withheld during such quarter without regard to this subsection.

"(f) Husband and wife. – When a husband and wife each are recipients of wages, whether from the same or from different employers, taxes to be withheld shall be determined on the following bases:

(1) The husband shall be deemed the head of the family and proper claimant of the additional exemption in respect to any dependent children;

"(2) Taxes shall be withheld from the wages of the wife in accordance with the schedule for zero exemption of the withholding tax table in subsection (a).

"(g) Non-resident aliens. – Wages paid to non-resident alien individuals engaged in trade or business in the Philippines shall be subject to the provisions of this chapter."

Sec. 15. Rules and Regulations. – The Minister of Finance, upon recommendation of the Commissioner of Internal Revenue, shall within 90 days after approval of this Act, promulgate the necessary rules and regulations for the effective enforcement of this Act. Such regulation shall take effect following the completion of its publication in two newspapers of general circulation in the Philippines.

Sec. 16. Repealing Clause. – All other laws, decrees, orders and regulations or parts thereof which are inconsistent with this Act are hereby repealed or modified accordingly: Provided, That incentives granted under Presidential Decree No. 1789 otherwise known as the Omnibus Investments Code, Presidential Decree No. 66, as amended, Presidential Decree No. 535 and other special laws of similar nature shall not be affected.

Sec. 17. Effectivity. – This Act shall take effect on January 1, 1982, and shall be applicable to incomes earned beginning on such date.

Approved: December 18, 1981 (C.B. No. 34.)

ANNEX A
BIR WITHHOLDING TAX TABLES

Following are the withholding tax tables approved by the Bureau of Internal Revenue pursuant to Revenue Regulations No. 20-81 implementing the provisions of Batasang Pambansa Blg. 135, An Act amending certain provisions of the National Internal Revenue Code of 1977, as amended, and for other purposes (introducing the Gross Income Tax System for compensation income.)

HOW TO USE THE TABLES

A. Legend of status and amount of exemption

1. Zero (0.0) – exemption for working wife with employed husband; employee with multiple employers which refers to second, third, etc. employers and employee who fails to file an exemption certificate.

2. S (3.0) – for single or married but legally separated individuals.

3. S (4.5) – single with qualified dependent parent, sister or brother, legitimate, recognized natural, or legally adopted child.

4. H/F1 (6.5), H/F2 (8.5), H/F3 (10.5), H/F4 (12.5), H/F5 (13.5), H/F6 (14.5) H/F7 (15.5) – The numerals affixed to the status symbol HF represent the number of qualified legitimate, recognized natural or adopted children.

5. M (6.0) – married and not legally separated.

6. M1 (6.0), M2 (10.0), M3 (12.0), M4 (14.0), M5 (15.0), M6 (16.0), and M7 (17.0) – The numerals affixed to the status symbol M represent the number of qualified legitimate, recognized natural adopted children.

B. Computation of Withholding Tax

1. Use of the appropriate table for the payroll period – monthly, semi-monthly, weekly, or daily, as the case may be.

2. Ascertain the status and total exemptions of the employee to determine the line to be used.

3. Determine the total monetary and non-monetary (Cash Value) compensation paid to the employee.

4. Use the tax rate indicated in the column wherein the employer's total compensation exceeds the compensation level shown in the said column but should not be over the compensation level of the next column to the right of the table.

5. Regular wage or compensation includes basic salary, fixed allowances for representation, transportation, housing, cost of living and all other forms of benefits (monetary and non-monetary) paid to an employee per payroll period.

Supplementary wages are those paid to an employee in addition to the regular wage such as commission, overtime pay, retired pay, profit-sharing, bonus, 13th month pay, vacation and sick leave pay etc., with or without regard to a payroll period. 

6. Compute the amount of withholding tax (see examples).

Example 1.

An employee who is married with 3 qualified dependent children entitled to total personal and additional exemptions of P12,000.00, receives a total of regular monthly compensation of P1,500.00

Computation:

Using the monthly withholding tax table, the monthly withholding tax is computed by referring to line 10 of column 3, which shows a tax of P2.08 on P1,416 plus three percent of the excess (P1,500 - P1,416 = P84)

Total compensation P1,500.00
Compensation level (line 10, col. 3) 1,416.00
Excess P84.00
========

Tax on P1,416 2.08
Tax on excess (84 x 3%) 2.52
Monthly withholding tax P 4.60
========

Example 2.

An employee who is married with two qualified dependents received a total of P5,000 as regular salary and commission on the same date, broken down as follows:

Regular monthly salary P3,000.00
Commissioner 2,000.00
Total P5,000.00
========

Computation:

1. Using the monthly withholding tax tables, the withholding tax on the monthly regular wage (P3,000) is computed by referring to line 8 column 5, which show a tax of P72.92 on P2,500 plus 11% of the excess.

2. Aggregate the monthly salary (P3,000) and commissions (P2,000) and determine the amount of compensation in excess of P2,500 (see No. 1).

Monthly salary P3,000.00
Commissions 2,000.00
Total Compensation P5,000.00
========
Less: Compensation Level
(Col. 5, Line 8) P2,500.00
Excess P2,500.00
========

3. Tax on P2,500 P72.92
Tax on excess (P2,500 x 11%) 275.00
_________
Withholding tax P347.92
=======

Example 3.

An employee who is married with two qualified dependents receives P3,000 as his monthly regular salary from which the tax of P127.92 has already been deducted. In addition, he was paid P2,000 as bonus on a date other than the date of payment of the regular salary.

Computation:
Multiply the amount of bonus by the rate of tax given for the amount in excess of the regular compensation (P3,000), which is 11% as per line 8 of col. 5.
Tax on bonus (P2,000 x 11%) P220.00
Tax on salary already deducted 127.92
_________
Total withholding tax P347.92
=======

WITHHOLDING TAX TABLE MONTHLY

1 2 3 4 5 6 7 8 9 10
P0.00 P0.00 P2.08 P14.58 P72.92 P256.25 P506.25 P1139.58 P4139.58 P10181.25
Exemptions +0% +1% +3% +7% +11% +15% +19% +24% +29% +35%
Status ('000P) Over Over Over Over Over Over Over Over Over Over
Zero 0 P 0 P 208 P 416 P 833 P 1666 P 3333 P 5000 P 8333 P 20833 P 41666 1
S 3.0 0 458 666 1088 1916 3583 5250 8583 21083 41916 2
HF 4.5 0 583 791 1208 2041 3708 5375 8705 21208 42041 3
M 6.0 0 708 916 1333 2166 3833 5500 8833 21333 42166 4
HF/1 6.5 0 750 958 1375 2208 3875 5541 8875 21375 42208 5
M/1 8.0 0 875 1083 1500 2333 4000 5666 9000 21500 42333 6
HF/2 8.5 0 917 1125 1541 2375 4041 5708 9041 21541 42375 7
M/2 10.0 0 1042 1250 1666 2500 4166 58333 9166 21666 42500 8
HF/3 10.5 0 1083 1291 1708 2541 4208 5875 9208 21708 42541 9
M/3 12.0 0 1028 1416 1833 2666 4333 6000 9333 21833 42666 10
HF/4 12.5 0 1250 1458 1875 2708 4375 6041 9375 21875 42708 11
HF/5 13.5 0 1333 1541 1958 2791 4458 6125 9458 21958 42791 12
M/4 14.0 0 1375 1583 2000 2833 45000 6166 9500 22000 42833 13
HF/6 14.5 0 1417 1625 2041 2875 4541 6208 9541 22041 42875 14
M/5 15.0 0 1458 1666 2083 2916 4583 6250 9583 22083 42916 15
HF/7 15.5 0 15000 1708 2125 2958 4625 6291 9625 22125 42958 16
M/6 16.0 0 1542 1750 2166 3000 4666 6333 9666 22166 43000 17
M/7 17.0 0 1625 1833 2250 3083 4750 6416 9750 22250 43083 18

Legend: S – Single HF – Single but head of the family M – Marriage 1..7 – Number of dependents
WITHHOLDING TAX TABLE
SEMI-MONTHLY

1 2 3 4 5 6 7 8 9 10
P0.00 P0.00 P1.04 P36.46 P72.92 P128.13 P253.13 P569.79 P2069.79 P5090.63
Exemptions +0% +1% +3% +7% +11% +15% +19% +24% +29% +35%
Status ('000P) Over Over Over Over Over Over Over Over Over Over
Zero 0 P 0 P 104 P 208 P 416 P 833 P 1666 P 2500 P 4166 P 10416 P 20833 1
S 3.0 0 229 333 541 958 1791 2625 4291 10541 20958 2
HF 4.5 0 292 395 604 1020 1854 2687 4354 10604 21020 3
M 6.0 0 354 458 666 1083 1916 2750 4416 10666 21083 4
HF/1 6.5 0 375 479 687 1104 1937 2770 4437 10687 21104 5
M/1 8.0 0 438 541 750 1166 2000 2833 4500 10750 21166 6
HF/2 8.5 0 458 562 770 1187 2020 2584 4520 10770 21187 7
M/2 10.0 0 521 625 833 1250 2083 2916 4583 10833 21250 8
HF/3 10.5 0 542 645 854 1270 2104 2937 4604 10854 21270 9
M/3 12.0 0 604 708 916 1333 2166 3000 4666 10916 21333 10
HF/4 12.5 0 625 729 937 1354 2187 3020 4687 10937 21354 11
HF/5 13.5 0 667 770 979 1395 2229 3062 4729 10979 21395 12
M/4 14.0 0 688 791 1000 1416 2250 3087 4750 11000 21416 13
HF/6 14.5 0 708 812 1020 1437 2270 3104 4707 11020 21437 14
M/5 15.0 0 729 833 1041 1458 2291 3125 4791 11041 21458 15
HF/7 15.5 0 750 854 1062 1479 2312 3145 4812 11062 21479 16
M/6 16.0 0 771 875 1083 1500 2333 3166 4833 11083 21500 17
M/7 17.0 0 813 916 1125 1541 2375 3208 4875 11125 21541 18

Legend: S–Single HF–Single but head of the family M–Marriage 1..7–Number of dependents

WITHHOLDING TAX TABLE WEEKLY

1 2 3 4 5 6 7 8 9 10
P0.00 P0.00 P1.04 P36.46 P72.92 P128.13 P253.13 P569.79 P2069.79 P5090.63
Exemptions +0% +1% +3% +7% +11% +15% +19% +24% +29% +35%
Status ('000P) Over Over Over Over Over Over Over Over Over Over
Zero 0 P 0 P 48 P 96 P 192 P 384 P 769 P 1153 P 1923 P 4807 P 9615 1
S 3.0 0 106 153 250 442 826 1211 1980 4865 9673 2
HF 4.5 0 135 182 278 471 855 1240 2009 4894 9701 3
M 6.0 0 163 211 307 500 884 1269 2038 4923 9730 4
HF/1 6.5 0 173 221 317 509 894 1278 2048 4932 9740 5
M/1 8.0 0 202 250 346 538 923 1307 2076 4961 9769 6
HF/2 8.5 0 212 259 355 548 932 1317 2086 4971 9778 7
M/2 10.0 0 240 288 384 576 961 1346 2115 5000 9807 8
HF/3 10.5 0 250 298 394 586 971 1355 2125 5009 9817 9
M/3 12.0 0 279 326 423 615 1000 1384 2153 5038 9846 10
HF/4 12.5 0 288 336 432 625 1009 1394 2163 5048 9855 11
HF/5 13.5 0 308 355 451 644 1028 1413 2182 5067 9875 12
M/4 14.0 0 317 365 461 653 1038 1423 2192 5076 9884 13
HF/6 14.5 0 327 375 471 663 1048 1432 2201 5086 9894 14
M/5 15.0 0 337 384 480 673 1057 1442 2211 5096 9903 15
HF/7 15.5 0 346 394 490 682 1067 1451 2221 5105 9913 16
M/6 16.0 0 356 403 500 692 1076 1461 2230 5115 9923 17
M/7 17.0 0 375 423 519 711 1096 1480 2250 5134 9942 18

Legend: S–Single HF–Single but head of the family M–Marriage 1..7–Number of dependents

WITHHOLDING TAX TABLE DAILY

1 2 3 4 5 6 7 8 9 10
P0.00 P0.00 P0.08 P0.58 P2.89 P10.15 P20.05 P45.13 P163.94 P403.22
Exemptions +0% +1% +3% +7% +11% +15% +19% +24% +29% +35%
Status ('000P) Over Over Over Over Over Over Over Over Over Over
Zero 0 P 0 P 8 P 16 P 33 P 66 P 132 P 198 P 330 P 825 P 1650 1
S 3.0 0 18 26 42 75 141 207 339 834 1660 2
HF 4.5 0 23 31 47 80 142 212 344 839 1665 3
M 6.0 0 28 36 52 85 151 217 349 844 1669 4
HF/1 6.5 0 30 37 54 87 153 219 351 846 1671 5
M/1 8.0 0 35 42 59 92 158 224 356 851 1676 6
HF/2 8.5 0 36 44 61 94 160 226 358 853 1678 7
M/2 10.0 0 41 49 66 99 165 231 363 858 1683 8
HF/3 10.5 0 43 51 67 100 166 232 364 859 1684 9
M/3 12.0 0 48 56 72 105 171 237 369 864 1689 10
HF/4 12.5 0 50 57 74 107 173 239 371 866 1691 11
HF/5 13.5 0 53 61 77 110 176 242 374 869 1694 12
M/4 14.0 0 54 62 79 112 178 244 376 871 1696 13
HF/6 14.5 0 56 64 80 113 179 245 377 872 1698 14
M/5 15.0 0 58 66 82 115 181 247 379 874 1699 15
HF/7 15.5 0 59 67 84 117 183 249 381 876 1701 16
M/6 16.0 0 61 69 85 118 184 250 382 877 1702 17
M/7 17.0 0 64 72 89 122 188 254 386 881 1706 18

Legend: S–Single HF–Single but head of the family M–Marriage 1..7–Number of dependents

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