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THIRTEENTH CONGRESS OF THE 
) 
Second Regular Session 
) 
JubJ -5 p 6 :!3 
REPUBLIC OF THE PHILIPPINE S 
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S.B. No. 2 2 6 1 
(In substitution of HBN 5296, taking into consideration SB Nos. 5.72.74.446.447. 794. 
795,879,985,1197,1198, ‘1320,’1339,1577,1917,2038, and 2210) 
Prepared by the Committee with S enators Flavier, L. Estrada, Osmeiia III, Villar, J. 
Estrada, Enrile, Recto, I3iazon and Madrigal as authors thereof, 
E 
- 
AN ACT 
AMENDING SECTIONS 24,31,34, 35 AND 110 OF THE NATIONAL INTERNAL 
REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled: 
SECTION 1. Section 24(A) of the National Internal Revenue Code 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. - 
“(1) 
“(a) 
x x x. 
An income tax is hereby imposed 
“(b) 
xxx. 
“(c) 
On the taxable income defined in Section 31 of this Code, other 
than income subject to tax under Subsections (B), (C), and @) 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) 
SCHEDULE OF TAX ON TAXABLE INCOME OF 
INDIVIDUALS. - The tax shall be computed in accordance with [and at the 
rates established in] the following schedule: 
V‘Not over P10,OOO ............................ 
5%] 
[“Over P10,OOO but not over P30,OOO.. .... P500+10% of excess over 
18 
P 1 O,OOO] 


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[“Over P30,OOO but not over P70,OOO.. .... P2,500+15% 
of 
excess 
over P30,OOOl 
[“Over P70,OOO but not over P140,OOO.. ... P8,500+20% 
of 
excess 
over P70,000] 
(“Over P140,OOO but not over P250,OOO.. 
P22,500+25% of excess 
over P140,000] 
[“Over P250,OOO but not over P500,OOO.. 
P50,000+30% of excess 
over P250,000] 
[“Over P500,OOO 
P125,000+34% of excess 
over P500,OOO in 19981 
“NOT OVER P144,OOO ........................ 
0% 
“OVER P144,OOO ................................ 
35% OF THE EXCESS 
OVER P144,OOO. 
“Provided, That THE ABOVE SCHEDULE SHALL TAKJ3 
EFFECT ON JANUARY 01, 2007: PROVTDED, FURTHER, THAT 
effective January 1, 2009 [1999], the [top marginal] rate OF THIRTY-FIVE 
PERCENT (35%) shall be REDUCED TO thirty[-three] percent (30[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. 
x x x.” 
“ 
SEC. 2. Section 31 of the National Internal Revenue Code of 1997, as amended, is 
hereby further amended to read as follows: 
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“SEC. 31. Taxable Income DeJined. - The term “taxable income” means 
the pertinent items of gross income specified in this Code, less the deductions 
[and/or personal and additional exemptions, if any,] authorized for such types 
of income by this Code or other special laws.” 
SEC. 3. Section 34(L) of the National Internal Revenue Code of 1997, as amended, 
:reby further amended to read as: 
“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 than under Subsection (M) hereof, in computing taxable 
income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (€3) and 
(C); and 28(A)(l), there shall be allowed the following deductions from gross 
income: 
“(A) x x x 
x x x. 
“ 
“(L) 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 [ten] percent (40[10]%) of his gross income AS DEFINED IN SECTION 
32 OF THE CODE. 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 Subsections. Such election when made in 
the return shall be irrevocable in 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 his gross income AS DEFINED IN SECTION 32 OF THE CODE 
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during the taxable year, as may be required by the rules and regulations promulgated 
by the Secretary of Finance, upon recommendation of the Commissioner.” 
“A CORPORATION SUBJECT TO TAX UNDER SECTIONS 27(A) 
AND 28(A)(1) OF THE CODE MAY ALSO AVAIL ITSELF OF THE 
OPTIONAL STANDARD DEDUCTION PROVIDED IN THE PRECEDING 
PARAGRAPH.” 
“(M) Premium Payments on Health and/or Hospitalization Insurance of an 
Individual Taxpayer. - x x X. 
x x x.” 
“ 
SEC. 4. Section 35 of the National Internal Revenue Code of 1997, as amended, is 
hereby deleted. 
[“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 
P20,000] 
[“For head of family 
P25,OOOl 
[“For each married individual 
P32,000] 
[“X x x] 
[“@)Additional Exemption for Dependents. - There shall be allowed an 
additional exemption of Eight thousand pesos (P8,OOO) for each dependent not 
exceeding four.] 
[“x x x.] 
[“(C) Change of Status. - x x x.] 
[ccx x x.”] 
r‘(D) Personal Exemption Allowable to Nonresident Alien Individual. - 
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x x x.”J 
SEC. 5. The succeeding sections of the National Internal Revenue Code are hereby 
renumbered accordingly. 
SEC. 6. Section 110(B) of the National Internal Revenue Code of 1997, as amended, 
is hereby fbrther amended as follows: 
“SEC. 110. Tax Credits. 
“(A) Creditable Input Tax. - x x x. 
“(B) Excess Output or Input Tax. - If at the end of any taxable quarter the 
output tax exceeds the input tax, the excess shall be paid by the VAT-registered 
person. If the input tax exceeds the output tax, the excess shall be carried over 
to the succeeding quarter or quarters.[: Provided, That the input tax inclusive of 
input VAT carried over from the pervious quarter that may be credited in every 
quarter shall not exceed seventy percent (70%) of the output VAT: Provided, 
however, That] A[a]ny input tax attributable to zero-rated sales by a VAT- 
registered person may at his option be refunded or credited against other 
internal revenue taxes, subject to the provisions of Section 112.” 
“X x x. “ 
SEC. 7. Implementing Rules and Regulations. -The Secretary of Finance shall, upon 
recommendation of the Commissioner of Internal Revenue, promulgate within thirty (30) 
days from the date of approval of this Act, the rules and regulations necessary for the 
implementation of this Act. 
SEC. 8. 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. 
SEC. 9. Repealing Clause. - Any law, presidential decree or issuance, executive 
order, letter of instruction, administrative order, iule or regulation contrary to, or 
inconsistent with any provision of this Act is hereby repealed or modified accordingly. 
SEC. 10. Effectivity Clause. -This Act shall take effect on January 01,2007. 
Approved, 
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