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THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES } 
Second Regular Session 
. . , . . . 
6 JUi.i-8 :~* 
INTRODUCED BY HON. MANNY VILLAR 
EXPLANATORY NOTE 
The bill exempts minimum wage earners from income tax and lowers the income 
tax of low middle income earners. .It increases by fifty percent (50%) the personal 
exemptions enjoyed by every taxpayer. It also aims to reduce the tax gap or tax 
leakage on individual income taxation by adopting the Simplified Net Income Tax for the 
Self-Employed (SNITS) for individuals engaged in tradelbusiness and/or practice of 
their profession. It offers a forty percent (40%) optional standard deduction (OSD) to 
professionals and self-employed in lieu of the expenses/deductions which are difficult to 
determine. 
The expected incremental revenues from SNITS will balance off the 
revenue implication of the restructuring of income tax rates and increase in personal 
exemptions. The measure provides for the legal basis of de minimis benefits in 
individual income taxation. 
Approval of this measure is earnestly sought. 
MANNYVI LAR 
i’ 


THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES ) 
Second Regular Session 
INTRODUCED BY HON. MANNY VILLAR 
AN ACT RESTRUCTURING THE INCOME TAXATION FOR INDIVIDUALS BY 
SECTION 34, AND AMENDING SECTIONS 22,24,32 AND 35, ALL UNDER THE 
NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED 
CREATING A NEW SECTION SEC. 34A, REPEALING SUBSECTION (L) OF 
Be it enacted by the Senate and the 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 
(FF) to read as follows: 
"Sec. 22. Definitions. - When used in this Title: 
"(FF) The term long-term deposit or investment certificates shall refer to 
certificate of time deposit or investment in the form of savings, common or 
individual trust funds, deposit substitutes, investment management accounts and 
other investments with a maturity period of not less than five (5) years, the form 
of which shall be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued 
by banks only (not by nonbank financial intermediaries and finance companies) 
to individuals in denominations of Ten thousand pesos (Pl0,OOO) and other 
denominations as may be prescribed by the BSP. 
"(GG) "SELF-EMPLOYED" MEANS PERSONS ENGAGED IN TRADE OR 
BUSINESS AND WHO DERIVED THEIR PERSONAL INCOME FROM SUCH 
TRADE OR BUSINESS. THIS INCLUDES SINGLE PROPRIETORSHIPS, SUCH 
AS BUT NOT LIMITED TO MANUFACTURERS, TRADERS, MARKET 
VENDORS OWNERS OF EATERIES, FARMERS AND SERVICE SHOPS; AND 
"(HH) "PROFESSIONALS MEANS PERSONS WHO DERIVE THEIR INCOME 
FROM THE PRACTICE OF THEIR PROFESSION. THIS INCLUDES LAWYERS 
AND 
OTHER 
PERSONS 
WHO 
ARE 
REGISTERED 
WITH 
THE 
PROFESSIONAL REGULATION COMMISSION SUCH AS 
DOCTORS, 
DENTISTS, CERTIFIED PUBLIC ACCOUNTANTS, ARCHITECTS AND 
OTHERS SIMILARLY SITUATED. THE TERM "PROFESSIONALS' ALSO 
REFER TO THOSE WHO PURSUE AN ART OR SPORTS AND MAKE THEIR 
LIVING THEREFROM SUCH AS ARTISTS, ATHLETES AND OTHERS 
SIMILARLY SITUATED." 
SEC. 2. Subsection (A) of Section 24 of the National Internal Revenue Code of 1997, as 
amended, on income tax of individuals, is hereby further amended to read as follows: 
"Sec. 24. Income Tax Rates. - 


(A) Rates of Income Tax on Individutd Citizen arid Individual Resident Alien of 
the Philippines. 
"(1)x x x 
"(c) On the taxable income defined in Section 31 of this Code, other than income 
subject to tax under Subsections (B), (C), and (D) of this Section, derived for each 
taxable year from all sources within the Philippines by an individual alien who is a 
resident of the Philippines. 
"(2) RATES OF TAX ON TAXABLE INCOME 0.F INDIVIDUALS. -The tax 
shall be computed in accordance with and at the rates established in the following 
schedule: 
["Not over PIO, 000 ................. 5%] 
[" Over P 10,000 but not over P30, 000 ............... P500 + 10% of excess over 
[" Over P30,OOO but not over P70, 000 ................. P2,500 + 15% of excess over 
P30,000] 
[" Over P70, 000 but not over P140,OOO ................... P8,500 + 20% of excess 
over P70, 0001 
[" Over P140,OOO but not over P250,OOO ..................... 
P22,500 + 25% of excess 
over Pl40,000] 
[" Over P250, 000 but not over P500,OOO ................... P50, 000 +30% of excess 
over P250,000] 
[" Over 500,000 ................................................ 
P125,OOO + 34% of excess 
over P500,OOO in 1998) 
"OVER P55, 000 BUT NOT OVER P150, 000 .......... 25% OF THE EXCESS 
OVER P55,OOO 
"OVER P150,OOO BUT NOT OVER P250,OOO .......... P23,750 + 28% OF 
EXCESS OVER P150,OOO 
"OVER P250,OOO BUT NOT OVER P350,OOO ......... P51,750 + 31% OF 
EXCESS OVER P250,OOO 
"OVER P350,OOO BUT NOT OVER P500,OOO ................ P82,750 + 33% OF 
EXCESS OVER P350,OOO 
"OVER P500,OOO ................................................................. P132,250 + 35% OF 
EXCESS OVER P500,OOO 
P10,000] 
"NOT OVER P55, 000 ....................................... 
0% 
r'Provided, That effective January 1, 1999, the top marginal rate shall be 
thirty-three percent (33%) and effective January 1, 2000, the said rate shall be 
thirty-two percent (32%).] 
For married individuals, the husband and wife, subject to the provision of 
Section 51 (D) hereof, shall compute separately their individual income tax based 
on their respective total taxable income: Provided, That if any income cannot be 
definitely attributed to or identified as income exclusively earned or realized by 
either of the spouses, the same shall be divided equally between the spouses for 
the purpose of determining their respective taxable income. 
"(3) SIMPLIFIED NET INCOME TAX FOR THE SELF-FMPLOYED 
ENGAGED IN TRADElBUSlNESS AND FOR PROFESSIONALS ENGAGED IN 
THE PRACTICE OF PROFESSION - AN INCOME TAX FOLLOWING THE 
PRESCRIBED RATE FOR 
INDIVIDUALS UNDER THE 
PRECEDING 
PARAGRAPH IS HEREBY IMPOSED UPON THE TAXABLE INCOME 
DERIVED DURING EACH TAXABLE YEAR FROM ALL SOURCES WITHIN 
AND WITHOUT THE PHlPPlNES BY AN INDIVIDUAL RESIDENT CITIZEN 


AND FROM ALL SOURCES WITHIN THE PHILAPPINES BY AN INDIVIDUAL 
NONRESIDENT CITIZEN AND INDIVIDUAL RES [DENT ALIEN ENGAGED IN 
TRADE, BUSINESS AND/OR PRACTICE OF PROFESSION. ” 
SEC. 3. Section 32 (B) of the National Internal Revenue Code of 1997, as amended, is 
hereby further amended to read as follows: 
“SEC. 32. Gross Income. - 
“x x x 
”(B) Exclusions from Gross Income. - The following items shall not be included in 
gross income and shall be exempt from taxation under this Title: 
“x x x 
“(7) Miscellaneous Items. - 
“x x x 
“(h) Gains from Redemption of Shares in Mutual Fund - Gains realized by the 
investor upon redemption of shares of stock in a mutual fund company as 
defined in Section 22 (BB) of this Code. 
“(I) “DE MINIMIS” BENEFITS- PRIVILEGES OR FACILITIES FURNISHED OR 
OFFERED BY AN EMPLOYER TO ITS EMPLOYEES THAT ARE OF. 
RELATIVELY SMALL VALUE AND ARE OFFERED OR FURNISHED BY THE 
EMPLOYER MERELY AS A MEANS OF PROMOTING THE HEALTH, 
GOODWll.L, CONTENTMENT, OR EFFICIENCY OF ITS EMPLOYEES, SUCH 
AS BUT NOT LIMITED, TO THE FOLLOWING: 
(1) 
NOT EXCEEDING TEN (IO) DAYS DURING THE YEAR; 
(2) 
MEDICAL CASH ALLOWANCE; 
(3) 
(4) 
(5) 
MEDICAL BENEFITS GIVEN TO THE 
EMPLOYEES BY THE 
EMPLOYER: 
MONETIZED UNUSED VACATION LEAVE CREDITS OF EMPLOYEES 
RICE SUBSILLY GRANTED BY AN EMPLOYER TO ITS 
EMPLOYEES; 
UNIFORMS GIVEN TO EMPLOYEES BY THE EMPLOYER; 
LAUNPRY ALLOWANCE; 
EMPLOYEE ACHIEVEMENT AWARDS GIVEN FOR INSTANCE FOR 
LENGTH OF SERVICE OR SAFETY ACHIEVEMENT, WHICH MUST BE 
IN THE FORM OF A TANGIBLE PERSONAL PROPERTY OTHER THAN 
CASH OR GIFT CERTIFICATE, WlTH AN ANNUAL MONETARY VALUE 
OF THE 
EMPLOYEE RECEIVING THE AWARD 
UNDER AN 
ESTABLISHED WRITTEN PLAN WHICH DOES NOT DISCRIMINATE IN 
FAVOR OF HIGHLY PAID EMPLOYEES; 
CHRIS1 MAS AND MAJOR ANNIVERSARY CELEBRATIONS FOR 
NOT EXCEEDING ONE-HALF (112) MONTH OF THE BASIC SALARY 
EMPLOYEES AND THEIR GUESTS; 
COMPANY 
PICNICS AND 
SPORTS TOURNAMENTS IN THE 
PHILIPPINES 
AND 
ARE 
PARTICIPATED 
EXCLUSIVELY 
BY 
EMPLOYEES; AND 
FLOWERS, FRUITS, BOOKS OR 
SIMILAR ITEMS GIVEN TO 
EMPLOYEES UNDER SPECIAL CIRCUMSTANCES SUCH AS, BUT 
NOT LIMITED TO ILLNESS, MARRIAGE, AND BIRTH OF A BABY. 


SEC. 4. Chapter VII, Title II of the National Internal Revenue Code of 1997, as 
amended, is hereby further amended by adding a new section to be known as 
Section 34- to read as follows: 
"SEC. 34-A. DEDUCTIONS FROM THE GROSS REVENUES OF SELF- 
EMPLOYED AND/OR PROFESSIONALS- IN COMPUTING THE TAXABLE 
INCOME SUBJECT TO TAX UNDER SUBSECTION 24(A)(3) IN THE CASE OF 
INDIVIDUALS ENGAGED IN TRADEIBUSINESS AND/OR PRACTICE OF 
PROFESSION, 
0,NLY 
THE 
FOLLOWING 
EXPENSESlDEDUCTlONS 
INCURRED IN 
DOING 
BUSINESS 
SHALL 
BE ALLOWED 
TO 
BE 
SUBTRACTED FROM THE GROSS REVENUES OF SUCH INDIVIDUALS: 
"(A) SALES DISCOUNTS 
"(B) SALES RETURNS AND ALLOWANCES 
"(C) RAW MATERIALS, SUPPLIES, AND DIRECT LABOR; 
"(D) SALARIES OF EMPLOYEES DIRECTLY ENGAGED IN ACTIVITIES 
IN THE COURSE OF OR PURSUANT TO THE BUSINESS, TRADE OR 
PRACTICE OF THEIR PROFESSION; 
(E) TELECOMMUNICATIONS, ELECTRICITY, FUEL AND WATER: 
PROVIDED, THAT THE TOTAL AMOUNT OF THESE EXPENSES 
SHOULD NOT EXCEED TEN PERCENT (100%) OF GROSS INCOME 
OF SUCH INDIVIDUAL: 
"(F) BUSINESS RENTALS; 
"(G) DEPRECIATION IN ACCORDANCE WITH SUBSECTION 34 (F) 
HEREOF; 
"(H) CONTRIBUTIONS MADE TO THE GOVERNMENT OR ANY OF ITS 
AGENCIES 
OR 
ANY 
POLITICAL 
SUBDIVISION 
THEREOF 
EXCLUSIVELY FOR PUBLIC PURPOSES OR TO ACCREDITED 
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 OR TO 
NONGOVERNMENT ORGANIZATIONS, IN ACCORDANCE WITH 
SUBSECTION 34(H) HEREOF" 
"(I) INTEREST PAID OR ACCRUED WITHIN A TAXABLE YEAR ON 
LOANS 
CONTRACTED 
FROM 
ACCREDITED 
FINANCIAL 
INSTITUTIONS WHICH MUST BE PROVEN TO HAVE BEEN 
INCURRED 
IN 
CONNECTION 
WITH 
THE 
CONDUCT 
OF 
A 
TAXPAYER'S PROFESSION, TRADE OR BUSINESS IN ACCORDANCE 
WITH SUBSECTION 34(B) HEREOF; 
"(J) FREIGHT, HANDLING AND TRUCKING; 
"(K) INSURANCE EXPENSE; 
"(L) PROFESSIONAL FEES; 


"(M) 
SSS, 
GSIS, 
PHILHEALTH, 
AND 
HDMF 
(PAG-IBIG) 
CONTRIBUTIONS; AND 
"(N) TAXES AND LICENSES IN ACCORWANCE WITH SUBSECTION 
34(C) HEREOF; 
"FOR 
INDIVIDUALS ENGAGED IN TRflDElBUSlNESS AND/OR 
PRACTICE OF THEIR PROFESSION WHOSE EXPENSESlDEDUCTlONS 
ENUMERATED IN THE PRECEDING PARAGRAPH ARE DIFFICULT TO 
DETERMINE, SAID INDIVIDUAL SHALL BE ALLOWED AN OPTIONAL 
STANDARD DEDUCTION EQUIVALENT TO FORTY PERCENT (40%) OF HIS 
GROSS REVENUES IN LIEU OF THE SAID EXPENSESlDEDUCTlONS 
PROVIDED HEREIN. 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 
EXPENSES/DEDUCTIONS PRESCRIBED UNDER THIS SECTION. SUCH 
ELECTION WHEN MADE IN THE RETURN SHALL BE IRREVOCABLE FOR 
THE TAXABLE YEAR FOR, WHICH THE RETURN IS MADE: PROVIDED, 
THAT AN INDIVIDUAL WHO IS ENTITLED TO AND CLAIMED FOR THE 
OPTIONAL STANDARD DEDUCTION SHALL NOT BE REQUIRED TO SUBMIT 
WITH HIS TAX RETURN SUCH FINANCIAL STATEMENTS OTHERWISE 
REQUIRED UNDER THIS CODE; PROVIDED, FURTHER THAT EXCEPT 
WHEN THE COMMISSIONER OTHERWISE PERMITS, THE SAID INDIVIDUAL 
SHALL KEEP SUCH RECORDS PERTAINING TO THIS GROSS REVENUES 
DURING THE TAXABLE YEAR, AS MAY BE REQUIRED BY THE RULES AND 
REGULATIONS PROMULGATED BY THE SECRETARY OF FINANCE, UPON 
RECOMENDATION OF THE COMMISSIONER. 
SEC. 5. Subsection (L) of Section 34 of the NlRC of 1997, as amended, is hereby 
repealed. 
SEC. 6. Subsections (A) and (B) of Section 35 of the National Internal Revenue Code of 
1997, as amended, are hereby further amended to read as follows: 
"SEC. 35 Allowance of Personal Exemption for Individual Taxpayer. 
"(A) In General - For purposes of determining the tax provided in Section 24 (A) 
of this Title, there shall be allowed a basic personal exemption as follows: 
"For single individual or married individual judicially decreed as legally 
separated with no qualified dependents [P20, 0001 P30, 000 
"For head of family " [P25,000] P37,500 
"For each married individual [P32,000] P48,OOO 
"x x x 
"(B) Additional/ Exemption for Dependents. - There shall be allowed an 
additional exemption of Eight thousand pesos (P8, OOO)] TWELVE 
THOUSAND PESOS (P12, 000) for each dependent not exceeding four 
(4). 
"x x x 


SEC. 7. Separability Clause. - If any provisioi7 of this Act is declared invalid or 
unconstitutional, other provisions hereof which are not affected thereby shall 
continue to be in fulb force and effect. 
SEC. 8. Repealing Clause. - Any law, presidential decree or issuance, executive 
order, letter of instruction, administrative order, rulie or regulation contrary to, or 
inconsistent with any provision of this Act is htereby repealed or modified 
according I y . 
SEC. 9. Effectivity Clause. - This Act shall take effect after fifteen (15) days from 
its publication in the Official Gazette or in at least two (‘2) 
national newspapers of 
general circulation, whichever date comes earlier. 
Approved,