Republic of the Philippines
HOUSE OF REPRESENTATIVES
‘Quezon City

FIFTEENTH CONGRESS
First Regular Session

House BillNo,_ S992

Introduced by Honorable Giorgidi 8. 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; §. 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 eamestly requested.

GIORGIDI onsno


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

House BillNo,__ 3902

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

“(ll) 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.

“(JJ) 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 FROM 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. ~

© (A)xexx

“xxx and
*(o)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.

KK

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 eaming 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) hereot, 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 SECTION: 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 AND 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 OF A LESEE, USER OR POSSESSOR,
IN THE PURSUIT OF THE TAXPAYER'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 GROSS INCOME, IN THE PURSUIT OF THE
‘TAXPAYER'S TRADE OR BUSINESS, PROFESSION OR OCCUPATION; AND

“(H) CONTRIBUTIONS 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 [ten (10%)
percent] TWENTY (20%) PERCENT of his gross income x x x x x

“(M) xxx

XXX

SECTION 4. Mandatory Registration by Self-Employed individuals and Professionals. ~ All
‘self-employed individuals and professionals, as defined in this Act, shall register with 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 (SSS), the
Professional Regulations Commission (PRC), the Department of Trade and Industry (DT!) ~ Board of
Investments (BO!), and other licensing and/ or regulatory agencies, shall be required to submit on a
quarterly basis to the Bureau of Internal Revenue (BIR), @ list of self-employed individuals or
professionals, registered with such agency.

SECTION 5. Applicability Clause. — This act shall apply to income eared or paid to, and
deductions incurred or paid by, self-employed individuals and professionals, beginning taxable year
2011

SECTION 6. Separabilty 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 7. 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 8. Effectivity Clause. - This Act shall take effect fitteen (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.