Republic of the Philippines
HOUSE OF REPRESENTATIVES

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Quezon City ,
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Fat UL 2013
SIXTEENTH CONGRESS Time:
First Regular Session adh 5

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HOUSE BILL NO. 118

Introduced by Honorable Giorgidi B. Aggabao

EXPLANATORY NOTE

The inherent and fundamental nature and character of a tax is that of a
contribution to the support of the government. And Income Taxation i.e. taxes on
income is a well-recognized exaction. The law, however, allows a taxpayer to
reduce his taxes by permitting him certain deductions. This is an area, however,
where discreditable evasion of the taxing laws occurs; where fraud on the
revenue of the government happens.

Under present law, deductions from gross income are permitted for the
following expenses: 1. Ordinary and necessary trade, business or professional
expenses; 2. Interests; 3. Taxes; 4. Losses; 5. Bad Debts; 6. Depreciation;
7. Charitable Contributions; 8. Research & Development; 9. Pension Trusts;
10. Premium Payments on Insurance.

As proposed under this bill, deductions from gross income will only be allowed
only for the following expenses: 1. Salaries & Wages; 2. Supplies and Utilities;
3. Rentals; 4. Interests; 5. Taxes; 6. Depreciation; 7. Research & Development;
8, Charitable Contributions.

This bill seeks to accomplish three objectives. First, it limits, through specific
statutory provisions, deductions to only eight allowable expenses. Second, it
eliminates the sui generis deduction of “ordinary and necessary trade, business
or professional expenses" such as travelling expenses, entertainment,
amusement, recreation expenses and other wide variety of expenses that have
spawned problems of drawing an exact line of demarcation between legitimate
business expenses and personal expenses. Third, it also eliminates Losses,


Bad Debts, Pension Trusts and Premium payments on insurance which are
basically personal expenses.

The practical operation of the Optional Standard Deduction is maintained under
this bill. However, instead of 10% of gross income, this bill seeks to increase the
rate to 20% of gross income.

It is hoped that simplifying the taxes for self-employed individuals and

professionals will boost the tax take of the government. For this reason, approval
of this bill is earnestly requested.

GIORGID| 'GABAO


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

12
nouse sino, 22

Introduced by Honorable Giorgidi B. Aggabao

AN ACT
ADOPTING THE SIMPLIFIED NET INCOME TAXATION SCHEME FOR
INDIVIDUALS ENGAGED IN TRADE/BUSINESS AND/OR PRACTICE OF
PROFESSION, AMENDING FOR THE PURPOSE THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED

Be it enacted by the Senate and House of representatives of the Philippines in Congress
assembled:

SECTION 1. Section 22 of the National Internal Revenue Code (NIRC) of 1997,
as amended, is hereby further amended by adding the following definitions after
Subsection (HH) to read as follows:

“Sec. 22. Definitions. - When used in this Title:

XXX
“(HH) xxx
“(l) THE TERM ‘SELF-EMPLOYED INDIVIDUALS’ SHALL
MEAN _ PERSONS WHO, INDEPENDENT OF EMPLOYER-EMPLOYEE
RELATIONSHIP, DERIVE INCOME FROM TRADE OR BUSINESS
ORFROM THE PURSUIT OF AN OCCUPATION.

“(J) THE TERM ‘PROFESSIONALS’ SHALL MEAN PERSONS


WHO, INDEPENDENT OF EMPLOYER-EMPLOYEE RELATIONSHIP,
DERIVE FROM THEIR PROFESSION, THE PRACTICE OR EXERCISE OF
WHICH REQUIRE AN EXAMINATION AND/OR LICENSE FROMO A
(GOVERNMENT AGENCY.”

SECTION 2. Section 24 of the NIRC of 1997, as amended, is hereby further
amended to read as follows:
“ Sec. 24. Income Tax Rates. -

“ (A) Rates of Income Tax on Individual Citizen and Individual Resident
Alien of the Philippines. ~

” (I)xxx
” xx and
¥ (xxx.

(2) Rates of tax on Taxable Income of Individuals. -

XXX.

“ (3) SIMPLIFIED NET INCOME TAX FOR SELF-EMPLOYED
INDIVIDUALS AND FOR PROFESSIONALS. - AN INCOME TAX
FOLLOWING THE PRESCRIBED RATE FOR INDIVIDUALS UNDER
THE PRECEDING PARAGRAPH IS HEREBY IMPOSED UPON THE
TAXABLE INCOME DERIVED DURING ITS TAXABLE YEAR FROM
ALL SOURCES WITHIN AND WITHOUT THE PHILIPPINES BY AN
INDIVIDAL RESIDENT CITIZEN AND FROM ALL SOURCES
WITHIN THE PHILIPPINES BY AN INDIVIDAL NONRESIDENT
CITIZEN AND INDIVIDUAL RESIDENT ALIEN ENGAGED IN
TRADE, BUSINESS OR PRACTICE OF PROFESSION.

"XXX"
SECTION 3. Section 34 of the NIRC of 199, as amended, is hereby further
amended, to read as follows:

“Sec. 34. Deductions from Gross Income. - Except for taxpayers

earning compensation income arising from personal services rendered
under an employer-employee relationship where no deductions shall be


allowed under this Section other that under Subsection (M) hereof, in
computing taxable income subject to income tax under Sections [24(A),]
[25(A)] [26] 27(A), (B) and (C) [] THE ITEMS SPECIFIED IN
PARAGRAPHS (A) TO (J) OF THIS ECTION: PROVIDED, HOWEVER,
THAT IN COMPUTING TAXABLE INCOME SUBJECT TO TAX
UNDER SECTION 24(A)(3) IN THE CASE OF SELF-EMPLOYED
INDIVIDUALS OR PROFESSIONALS, ONLY THE FOLLOWING
DEDUCTIONS SUBJECT TO SUBSTANTIATION, SHALL BE
ALLOWED:

“(A) A REASONABLE ALLOWANCE FOR SALARIES AMD
OTHER COMPENSATION;

“(B) A REASONABLE ALLOWANCE FOR SUPPLIES AND
UTILITIES INCURRED, IN THE PURSUIT OF THE TAXPAYER'S
TRADE OR BUSINESS, PROFESSION OR OCCUPATION;

“(C) A REASONABLE ALLOWANCE FOR RENTALS AND/OR
PAYMENTS WHICH ARE REQUIRED AS CONDITION FOR THE
CONTINUED USE OR POSSESSION OF PROPERTY TO WHICH THE
TAXPAYER HAS NOT TAKEN OR IS NOT TAKING TITLE OR IN
WHICH HE HAS NO EQUITY OTHER THAN OA A LESEE, USER OR
PROSSESSOR, IN THE PURSUIT OF THE TAAXPAYER’S TRADE OR
BUSINESS, PROFESSION OR OCCUPATION.

“(D) INTEREST PAID OR ACCRUED WITHIN A TAXABLE
YEAR ON LOANS CONTRACTED FROM ACCREDITED FINANCIAL
INSTITUTIONS WHICH MUST BE PROVEN TO HAVE BEEN
INCURRED, IN THE PURSUIT OF THE TAXPAYER’S TRADE OR
BUSINESS, PROFESSION OR OCCUPATION;

“(E) TAXES PAID OR INCURRED WITHIN THE TAXABLE
YEAR, IN THE PURSUIT OF THE TAXPAYER'S TRADE OR
BUSINESS, PROFESSION OR OCCUPATION, EXCEPT:

“(1) THE INCOME TAX PROVIDED FOR UNDER THIS TITLE;

“(2) THE INCOME TAXES IMPOSED BY AUTHORITY OF ANY
FOREIGN COUNTRY;

“(3) ESTATE AND DONOR’S TAXES; AND

“(4) TAXES ON REAL PROPERTY NOT USED IN THE
TAXPAYER'S TRADE OR _ BUSINESS, PROFESSION OR


OCCUPATION.

“(F) A REASONABLE ALLOWANCE FOR DEPRECIATION,
FOR THE EXHAUSTION, WEAR AND TEAR OF PROPERTY USED IN
THE PURSUIT OF THE TAXPAYER’S TRADE OR BUSINESS,
PROFESSION OR OCCUPATION;

“(G) A REASONABLE ALLOWANCE FOR RESEARCH AND
DEVELOPMENT NOT IN EXCESS OF FIVE PERCENT (5%) OF
FGROSS INCOME, IN THE PURSUIT OF THE TAXPAYER’S TRADE
OR BUSINESS, PROFESSION OR OCCUPATION; AND

“(H) CONTRIBUTION MADE TO THE GOVERNMENT AND
ACCREDITED RELIEF ORGANIZATIONS FOR THE
REHABILITATION OF CALAMITY STRICKEN AREAS BY THE
PRESIDENT.”

“(A) Expenses. ~

XXX.

“() Optional Standard Deduction. - In lieu of the deductions allowed
under the preceding Subsections, an individual subject to tax under
Section 24, other than a nonresident alien, may elect a standard deduction
in an amount not exceeding forty percent (40%) of his gross [sales or gross
receipts, as the case may be]

INCOME. xxx.
“(M) x xx.

Xxx.

SECTION 4. Disposition of Incremental Revenue from the Implementation of this Act.
~ the amount of incremental revenue derived from this Act, shall be allocated
and used exclusively for the following purposes:

(1) Nine billion two hundred million pesos (Php 9.2 billion) for the
rehabilitation and development of region VI (Western Visayas);

(2) One billion two hundred million pesos (Php 1.0 billion) for public
tertiary education, to finance the capital outlay of state universities and colleges,
annually, upon effectivity of this Act, with the Commission on Higher Education
(CHED) as the implementing agency;


(8) One billion two hundred million pesos (Php 1.0 billion) for the
construction, expansion, repair and development of the shipping industry,
annually, upon effectivity of this Act, with the Philippines Ports Authority (PPA)
as the implementing agency; and

(2) Five billion pesos (Php 5.0 billion), shall be appropriated annually,
upon effectivity of this Act, as a ‘National Standby Calamity Fund’.

‘Incremental Revenue’ shall mean the difference between the revenue
collection derived from self-employed individuals and professionals in taxable
year 2007 and the revenue collection in taxable year 2008.

Such allocations shall be segregated as separate trusts funds by the
National Treasury and shall be over and above the annual appropriations for

similar purposes.

SECTION 5. Mandatory Registration by Self-Employed Individuals and Professionals,
~ All self-employed individuals and professionals, as defined in this Act, shall
register wit the appropriate Government licensing and/or regulatory agency, for
purposes of the unified list of taxpayers who are self-employed individuals and
professionals: Provided, That the Social Security System (88S), the Professional
Regulations Commission (PRC), the department of trade and Industry (DTI) -
Board of Investments (BOI), and other licensing and/ or regulatory agencies,
shall be required to submit on a quarterly basis to the Bureau of Internal Revenue
(BIR), a list of self-employed individuals or professionals, registered with such

agency.

SECTION 6. Applicability Clause. - This act shall apply to income earned or paid
to, and deductions incurred or paid by, self-employed individuals and
professionals, effective beginning taxable year 2008.

SECTION 7. Separability Clause. - If any provision of this Act is declared invalid
or unconstitutional, other provisions hereof which are not affected thereby shall
continue to be in full force and effect.

SECTION 8. Repealing Clause. - Any law, presidential decree or issuance,
executive order, letter of instruction, administrative order, rule or regulation
contrary to or inconsistent with any provision of this Act is hereby repealed or
modified accordingly.


SECTION 9. Effectivity Clause. - This Act shall take effect fifteen (15) days after
its publication in the Official Gazette or in at least two (2) national newspapers of
general circulation, whichever date comes earlier.

Approved.