Publishing the Amendments Effected by Presidential Decree No. 69 to Title II and Supplement A thereto of the National Internal Revenue Code

January 9, 1973 REVENUE MEMORANDUM CIRCULAR NO. 02-73 SUBJECT : Publishing the Amendments Effected by Presidential Decree No. 69 to Title II and Supplement A thereto of the National Internal Revenue Code TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, there is published below certain sections of Title II and Supplement A thereto of the National Internal Revenue Code, as amended by Presidential Decree No. 69, viz.: TITLE II INCOME TAX "SEC. 21. Rates of Tax on citizens or residents . A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or an alien residing in the Philippines, determined in accordance with the following schedule: Provided , however , That non-resident citizens shall be subject to tax under this schedule only on income derived by them from sources within the Philippines. Not over P2,000 3% Over P2,000 but not over P4,000 P60 plus 6% of excess over P2,000. Over P4,000 but not over P6,000 P180 plus 9% of excess over P 4,000. Over P6,000 but not over P8,000 P360 plus 12% of excess over P6,000. Over P8,000 but not over P10,000 P600 plus 14% of excess over P8,000. Over P10,000 but not over P12,000 P880 plus 16% of excess over P10,000. Over P12,000 but not over P14,000 P1,200 plus 18% of excess over P12,000. Over P14,000 but not over P16,000 P1,560 plus 20% of excess over P14,000. Over P16,000 but not over P18,000 P1,960 plus 22% of excess over P16,000. Over P18,000 but not over P20,000 P2,400 plus 24% of excess over P18,000. Over P20,000 but not over P24,000 P2,880 plus 27% of excess over P20,000. Over P24,000 but not over P28,000 P3,960 plus 30% of excess over P24,000. Over P28,000 but not over P32,000 P5,160 plus 33% of excess over P28,000. Over P32,000 but not over P36,000 P6,480 plus 36% of excess over P32,000. Over P36,000 but not over P40,000 P7,920 plus 39% of excess over P36,000. Over P40,000 but not over P46,000 P9,480 plus 42% of excess over P40,000. Over P46,000 but not over P52,000 P12,000 plus 44% of excess over P46,000. Over P52,000 but not over P58,000 P14,640 plus 46% of excess over P52,000. Over P58,000 but not over P64,000 P17,400 plus 48% of excess over P58,000. Over P64,000 but not over P70,000 P20,280 plus 50% of excess over P64,000. Over P70,000 but not over P78,000 P23,280 plus 52% of excess over P70,000. Over P78,000 but not over P86,000 P27,440 plus 54% of excess over P78,000. Over P86,000 but not over P94,000 P31,760 plus 56% of excess over P86.000. Over P94,000 but not over P102,000 P36,240 plus 57% of excess over P94,000. Over P102,000 but not over P110,000 P40,800 plus 58% of excess over P102,000. Over P110,000 but not over P120,000 P45,440 plus 59% of excess over P110,000. Over P120,000 but not over P130,000 P51,340 plus 60% of excess over P120,000. Over P130,000 but not over P140,000 P57,340 plus 61% of excess over P130,000. Over P140,000 but not over P150,000 P63,440 plus 62% of excess over P140,000. Over P150,000 but not over P160,000 P69,640 plus 63% of excess over P150,000. Over P160,000 but not over P180,000 P75,940 plus 64% of excess over P160,000. Over P180,000 but not over P200,000 P88,740 plus 65% of excess over P180,000. Over P200,000 but not over P250,000 P101,740 plus 66% of excess over P200,000. Over P250,000 but not over P300,000 P134,740 plus 67% of excess over P250,000. Over P300,000 but not over P400,000 P168 240 plus 68% of excess over P300,000. Over P400,000 but not over P500,000 P236,240 plus 69% of excess over P400,000. Over P500,000 P305,240 plus 70% of excess over P500,000. Provided , further , That on the income of non-resident citizens from all sources without the Philippines, there is hereby imposed a tax on the gross amount of such income determined as follows: Not over $6,000 1% Over $6,000 but not over $20,000 2% Over $20,000 3% Provided , still further , That for purposes of this section, a non-resident citizen is one who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad for an uninterrupted period which includes an entire taxable year. "SEC. 22. Tax on non-resident alien individuals . (a) Non-Resident alien engaged in trade or business within the Philippines . There shall be levied, collected, and paid for each taxable year upon the entire net income received from all sources within the Philippines by every non-resident alien individual engaged in trade or business within the Philippines the tax imposed by Section twenty-one: 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 Section eighty-four (f) of this Code to the contrary notwithstanding. "(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 or business within the Philippines as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remuneration, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income, and capital gains, a tax equal to thirty per centum of such income. "SEC. 23. Amount of personal exemptions allowable to individuals . For the purpose of the tax provided for in this Title, there shall be allowed in the nature of a deduction from the amount of net income the following personal exemptions: "(a) Personal exemption of single individuals . The sum of one thousand eight hundred pesos, if the person making the return is a single person or a married person legally separated from his or her spouse. "(b) Personal exemption of married persons or heads of family . The sum of three thousand pesos, if the person making the return is a married man or a married woman or the head of a family: Provided , That only one exemption of three thousand pesos shall be made from the aggregate income of both husband and wife when not legally separated. For the purpose of this section, the term "head of family" includes an unmarried man or woman with one or both parents, or one or more brothers or sisters, or 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, or where such children are incapable of self-support because mentally or physically defective. "(c) Additional exemption for dependents . The sum of one thousand pesos of 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 incapable of self-support because mentally or physically defective. The additional exemption under this subsection shall be allowed only if the person making the return is the head of the family: Provided , however , That the total number of dependents for which additional exemptions may be claimed shall not exceed four dependents. "(d) Change of status . If the taxpayer married or should have additional dependents as defined in subsection (c) above during the taxable year the taxpayer may claim the corresponding personal exemptions in full for such year. "If the-taxpayer should die during the taxable year, his estate may still claim the personal and additional deductions 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 become twenty-one years old during the taxable year, the taxpayer may still claim the same exemptions as if they died, or as if such dependents became twenty-one years old at the close of such year. "(e) Personal exemptions allowable to a nonresident alien individual . A nonresident 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 in 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 nonresident alien 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. 24. Rates of tax on corporations . (a) Tax on domestic corporations . A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines no matter how created or organized, but not including duly registered general co-partnership (companias colectivas), general professional partnerships, private educational institutions, and building and loan associations, in accordance with the following: "Twenty-five per cent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and "Thirty-five per cent upon the amount by which the taxable net income exceeds one hundred thousand pesos. "Private educational institutions other than those exempt under Section 27(e) of this Code shall pay a tax of ten per cent of their taxable net income. "Building and loan associations operating in accordance with the General Banking Act shall pay a tax of twelve per cent of their taxable net income. "(b) Tax on foreign corporations . (1) Non-resident corporations . A foreign corporation not engaged in trade or business in the Philippines including a foreign life insurance company not engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains: Provided , however , That premiums shall not include reinsurance premiums: Provided , further , That cinematographic film owners, lessors or distributors shall pay a tax of fifteen per cent of their gross income. "(2) Resident corporations . A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines: Provided , however , That international carriers shall pay a tax of two and one-half per cent on their gross Philippine billings. "(c) Rates of tax on life insurance companies . Life insurance companies shall be taxable as provided in this subsection or under subsections (a) or (b), as the case may be, whichever will result in a higher tax. "(1) Domestic life insurance companies . A tax is hereby imposed upon the net investment income received during each taxable year from all sources, whether from within or outside the Philippines, by every life insurance company organized in, or existing under the laws of, the Philippines, but not including a purely cooperative company or association as defined in this Code, at the rate of eight and three-fourths per cent upon that income. A domestic life insurance company shall be exempt from income tax for a period of three years from the date of issuance of its certificate of authority. "For purposes of this paragraph, the 'net investment income' of a domestic life insurance company is its gross investment income derived from sources within and outside the Philippines, less its investment expenses. "(2) Foreign life insurance companies . A foreign life insurance company engaged in the life insurance business in the Philippines shall pay the rate of tax provided in paragraph (1) of this subsection upon the net investment income received during each taxable year from all sources within the Philippines. "For purposes of this paragraph, the 'net investment income from all sources within the Philippines' of a foreign life insurance company engaged in the life insurance business in the Philippines is that portion of its gross world investment income which bears the same ratio to that income as their total Philippine reserve bears to their total world reserve, less that portion of their total world investment expenses which bears the same ratio to those expenses as their total Philippine investment income bears to their total world investment income. "For purposes of paragraphs (1) and (2) of this subsection, 'gross investment income' means income received during the taxable year from rents, dividends, interest, and income from any other business than the life insurance business conducted by the company, including net capital gains as defined in Section 34 of this Code; 'investment expenses' means real estate expenses, depreciation (except to the extent that property is used in or connected with its underwriting business), interest paid or accrued within the taxable year on indebtedness (except on indebtedness incurred to purchase or carry obligations the interest upon which is wholly exempt from taxation under existing laws), and such investment expenses paid or accrued during the taxable year as are ordinary and necessary in the conduct of its investment or in the conduct of its business other than the life insurance business. "(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections 24(c)(1) and 27 of this Code shall pay the rates provided in this section. All corporations, agencies, or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry. "SEC. 29. G ross income . (a) General definition . 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gains or profit, or gains, profits, and income derived from any source whatever. "(b) 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 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, bequests, 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 subdivision 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) Miscellaneous items . (A) Income received from their investments in the Philippines in loans, stock, 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 hundred and thirty-eight. "(c) Dividends received from domestic corporations . In the case of dividends received by a domestic or resident foreign corporation from a domestic corporation liable to tax under this Code, only twenty-five per cent of such dividends shall be returnable for purposes of the tax imposed by Section twenty-four. "SEC. 30. Deductions from gross income . In computing net income there shall be allowed as deduction "(a) Expenses : "(1) In general . All the ordinary and necessary expenses paid 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 or business, rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. "In the case of an individual, ordinary and necessary entertainment expenses in an amount not in excess of one thousand pesos or five per centum of gross income, whichever is lesser, shall be allowed as deduction. Claims for such ordinary and necessary entertainment expenses in an amount exceeding this allowance shall be duly supported by the corresponding vouchers and/or receipts. "(2) Expenses allowable to citizens or resident individuals . "(A) Expenses incurred and paid in the Philippines during the taxable year, not compensated, for by insurance or otherwise, for medical care of the taxpayer, his spouse, or his dependents as defined in Section twenty-three (c). "1. Definition . For purposes of this subsection, the term 'medical care expenses' means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of diseases, or for the purpose of affecting any structure or function of the body, but excluding amounts paid for medicines. "2. Limitation . The deduction allowed in this sub-section shall not exceed five hundred pesos for the taxpayer and an additional five hundred pesos for the spouse and each dependent as defined in Section twenty-three (c), but not to exceed two thousand pesos in the aggregate. "3. Proof of Deductions . In connection with claims for medical care expense deduction, the taxpayer shall furnish the name and address of each person to whom payment for medical care expenses has been made during the taxable year, as well as the amount and the date of the actual payment thereof in each case. Claims for deductions must be substantiated by a receipt or a statement from the individual to whom or entity to which payment for medical care was paid, showing the nature of the service rendered, the name of the person for whom the service is rendered, the amount paid therefor and the date of actual payment thereof, and such other information as the Commissioner may deem necessary. "(B) Expenses incurred and paid in the Philippines during the taxable year for basic tuition fees of taxpayer's dependents, as defined in Section twenty-three (c), who are studying in high schools. "1. Definition . For purposes of this subsection, the term 'basic tuition fees' means amounts paid for the privilege to receive instruction in a high school but does not include matriculation fee, and other miscellaneous fees such as library and athletic fees, laboratory fee, entrance fee, ROTC fee, student council fee, graduation fee and similar fees. "2. Limitation . The deduction allowed in this subsection shall be two hundred fifty pesos for each of the taxpayer's dependents, as defined in Section twenty-three (c), who are studying in high schools but shall not exceed one thousand pesos in the aggregate. "3. Proof of Deductions . In connection with claims for basic tuition fees deduction, the taxpayer shall furnish the name and date of birth of each dependent child who incurred the expense during the taxable year, as well as the amount and the date of actual payment thereof in each case. Claims for deductions must be substantiated by a receipt or statement of the school to which payment for basic tuition fees was made, showing the total school fees paid, as well as a breakdown of such fees, and such other information as the Commissioner may deem necessary. "(3) 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. "(b) Interest : "(1) In General . The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title. "(2) Interest allowable to nonresident aliens . In the case of a nonresident alien individual or a foreign corporation, the amount of interest allowable is 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 the gross amount of income derived from all sources within and without the Philippines; but this deduction shall be allowed only if such nonresident alien individual or foreign corporation includes in the return required by this Title all the information necessary for its calculation. "(c) Taxes : "(1) In general . Taxes paid or accrued within the taxable year, except (A) The income tax provided for under this Title; (B) Income, war-profits, and excess-profits taxes imposed by the 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 credit for taxes of foreign countries). (C) Estate, inheritance and gift taxes; and D) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. "(2) Limitations on deductions . (A) In the case of a nonresident 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 partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the partnership or the estate 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) Nonresident 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 taxable 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 payment 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 redetermination, 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 five 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 Secretary 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 which such dividends were paid, which the amount of such dividends 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 sixty 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 or business; or (B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or (C) Of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from robbery, theft, or embezzlement. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate or inheritance tax purposes in the estate or inheritance tax return. "(2) By corporations . 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 nonresident aliens or foreign corporations . In the case of a nonresident alien individual or a foreign corporation, the losses deductible are those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses of property within the Philippines arising from fires, storms, shipwrecks, or other casualty, and from robbery, theft, or embezzlement, 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. "(4) Capital losses . (A) Limitation . Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in Section 34. (B) Securities becoming worthless . If any securities as defined in section 84 become 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, of capital assets. "(5) Losses on wash sales of stock or securities . Losses on 'wash sales' of stock or securities as provided in section 33. "(6) Wagering losses . Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. "(e) Bad debts : "(1) In general . Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year. "(2) Bad debts deductible by nonresident aliens or foreign case corporations . In the case of a nonresident 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 section eighty-four 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 or trust company incorporated under the laws of the Philippines a substantial part of whose business is the receipt of deposits, for the purposes 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 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 were 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 trustee 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 allocable to each. "(2) Depreciation deductible by nonresident aliens or foreign corporations . In the case of a nonresident alien individual or a foreign corporation, a reasonable allowance for the deterioration of property arising out of its use or employment or its nonuse 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 . Based on the following percentages, there shall be a depletion allowance based on the gross income but in no case to exceed thirty-five per centum of the net income or of the net profit, whichever is lower for the calendar year 1973 and fiscal year beginning July 1, 1973 and twenty-five per centum for the calendar year 1974 and fiscal year beginning July 1, 1974; Provided , however , That the percentage depletion allowance based on gross income shall be the percentage of the gross income after an amount equal to any rents or royalties paid or incurred by the taxpayer in respect to the property has been deducted therefrom: (A) Twenty-seven and one-half per cent for oil and gas wells; (B) Twenty-three per cent for mines of (1) Chromite, copper, gold, iron, manganese, mercury, nickel, and silver; and (2) Anorthosite (to the extent that alumina and aluminum compounds are extracted therefrom), antimony, asbestos, bauxite, beryl, bismuth, brucite, cadmium, celestite, coal, cobalt, columbium, corundum, fluorspar, germanium, graphite, ilmenite, kyanite, lead, lignite, lithium, marble, mercury, mica, molybdenum, olivine, platinum and platinum group metals, quartz crystal (radio grade), rutile, talc, tantalum, thorium, tin, titanium, tungsten, uranium, vanadium, zinc, and zircon; and (C) Fifteen per cent for mines of (1) Ball, brick, china, sagger, and tile clay, bentonite, mollusk shells (including clam shells and oyster shells), peat, perlite, pumice, scoria, shale, sodium chloride, and wollastonite. (2) If from brine wells-bromine, calcium chloride and magnesium chloride. (3) All other minerals including, but not limited to, aplite, barite, borax, calcium carbonates, refractory and fire clay, diatomaceous earth, dolomite, feldspar, fullers earth, garnet, gilsonite, granite, lepidolite, limestone, magnesite, magnesium carbonates, phosphate rock, potash pyrophyllite, quartzite, slate, soapstone, spodumene stone (used or sold for use by the mine owner or operator as dimension stone or ornamental stone), thenardite, tripoli, trona, and for purposes of this paragraph, the term 'all other minerals' does not include (a) Gravel, sand and stone in loose formation used in construction purposes, soil, sod, dirt, turf, water, or mosses; and (b) Minerals from sea water, the air, or similar in-exhaustible sources. "Beginning calendar year 1975 and fiscal year beginning July 1, 1975, depletion allowance shall be in accordance with the following: "(1) In general . (A) In the case of oil and gas wells, a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (B) In the case of mines, a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and computation are made. The allowances shall be made under rules and regulations to be prescribed by the Secretary of Finance: Provided , That when the allowances shall equal the capital invested, no further allowance shall be made. "(2) Depletion of oil and gas wells and mines deductible by a nonresident alien individual or foreign corporation . In the case of a nonresident 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 . Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural, or educational purposes or for the rehabilitation of veterans, or to societies for the prevention of cruelty to children or animals, 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 in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. "Notwithstanding the foregoing, the following donations shall be deductible in full and shall not be included for purposes of computing the maximum amount deductible under the preceding paragraph: "(1) Any donation made to any school, college or university recognized by the Government either for general or special purposes: Provided , That said donation is not for payment or granting of a salary increase, bonus, or personal benefits to any or all of the school officials, faculty, and personnel in case of a public school or to any of its stockholders, school officials, faculty, and personnel in case of private schools. "(2) Donations to the Artesian Well Fund as provided in Republic Act Numbered Nine hundred seventy-seven. "(3) Donations to the International Rice Research Institute as provided in Republic Act Numbered Two thousand seven hundred seven. "(4) Donations to the National Science Development Board and its agencies and to public or recognized private educational institutions, and scientific and research foundations, as provided in Republic Act Numbered Three thousand five hundred eighty-nine. "(5) Donations to the Ramon Magsaysay Award Foundation, as provided in Republic Act Numbered Three thousand six hundred seventy-six. "(6) Donations to the University of the Philippines and other state colleges and universities subject to the same limitations in paragraph one above. "(7) Donations to the Philippine Rural Reconstruction Movement. "(8) Donations to the Catholic Relief Services-NCWC, and the Tools for Freedom Foundation as provided in Republic Act Numbered Four thousand four hundred eighty-one. "(9) Donations to the Cultural Center of the Philippines. "(10) Donations to the Philippine Amateur Athletic Federation. "(11) Donations to the Trustees of the Press Foundation of Asia, Inc. "(12) Donations to the National Commission on Culture. "(13) Donations to Humanitarian Science Foundation. "(14) Donations to Roxas Education and Welfare Committee, Inc. "The provisions of existing special laws to the contrary notwithstanding, all other contributions or donations shall be subject to the limitations provided in the first paragraph of this subsection. "Such contribution or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance. "(i) Conditions under which a nonresident alien individual may receive benefit of deductions . A non-resident alien individual shall receive the benefit of the deductions provided for in this section only by filing or causing to be filed with the Commissioner 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 employee 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, other than a non-resident alien, may elect a standard deduction. Such optional standard deduction shall be in the amount of five thousand pesos or in an amount equal to ten per centum of his gross income, whichever is the lesser. Unless the tax-payer 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 Secretary 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. "(1) Standard deduction for working wife . If the gross income reported in the return filed by the taxpayer includes that received by his wife, a standard deduction of ten per cent of the gross income received by his wife but not exceeding P500 shall be allowed as deduction from their combined gross income, regardless of whether the taxpayer uses the itemized deductions under subsection (a) to (j), or the optional standard deduction under subsection (k), of this section. "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 one thousand eight hundred pesos 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 nonresident alien engage in trade or business in the Philippines shall file an income tax return. "(3) Notwithstanding the provisions of the preceding paragraph, a Filipino citizen, whether residing in the Philippines or abroad, or a resident alien, or a non-resident alien engaged in trade or business in the Philippines, shall file an income tax return if he falls under any of the following categories, regardless of whether he derives any income or not for the taxable year if, during that taxable year, he "(A) Is an official or employee of the government or has a contract with the Government of the Republic of the Philippines, or any of its agencies or instrumentalities, including government-owned or controlled corporations, regardless of the nature of his appointment or duration of his employment; "(B) Is a professional as defined herein below; "(C) Is a registered or beneficial owner or mortgagee of any real property; "(D) Is a registered or beneficial owner, or mortgagee of any motor vehicle; "(E) Is a registered or beneficial owner, or mortgagee of any share of stock or security of a corporation, or any interest in a firm or partnership; "(F) Has travelled abroad, except children below eighteen years of age; "(G) Has filed a certificate of candidacy for any public office except barrio officials and municipal councilors; "(H) Is engaged in trade or commerce. "For purposes of this section, an individual is deemed a professional if, during a taxable year, he passes any government examination for the practice of a profession given by a board of examiners or by the Supreme Court, or remains a registered member of any profession covered by such examination, regardless of whether or not, during that taxable year he actually practices his profession. "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 nonresident aliens engaged in trade or business in the Philippines which shall contain only such incomes derived from sources within the Philippines. "(b) Where to file . The return shall be filed with the Commissioner, Regional Director, Revenue District Officer, Collection Agent, duly authorized treasurer of the municipality, or authorized agent banks in which such person has his legal residence or place of business in the Philippines, or if there is no legal residence or place of business in the Philippines, then with the Commissioner in Manila. "(c) When to file . The return shall be filed on or before the fifteenth day of April of each year, covering income of the preceding calendar year, or within the extension which may be granted by the Commissioner of Internal Revenue as herein set forth. "(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 the 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. 46. Corporation returns . (a) Requirement . Every corporation, subject to the tax herein imposed, except foreign corporations not engaged in trade or business in the Philippines shall render, in duplicate, a true and accurate return of its annual net income in the manner and form prescribed by the Commissioner with the approval of the Secretary of Finance, and containing such facts, data, and information as are appropriate and in the opinion of the Commissioner necessary to determine the correctness of the net income returned and to carry out the provisions of this Title. The return shall be filed by the president, vice-president, or other principal officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer. "(b) When to file . The return shall be filed on or before the fifteenth day of April of each year for the preceding calendar year, or if the corporation has designated a fiscal year, on or before the fifteenth of the fourth month following the close of such fiscal year. "(c) Where to file . The return shall be filed with the Commissioner, Regional Director, Revenue District Officer, Collection Agent, duly authorized treasurer of the municipality, or authorized agent banks in which is located the principal office of the corporation where its books of accounts and other data from which the return is prepared are kept, or in the case of foreign corporation which has no office of any kind or agency in the Philippines, then to the Commissioner in Manila. All such returns shall as received be transmitted forthwith by the officer receiving them to the Commissioner. "(d) Fiscal year of corporations . Every corporation subject to tax, including duly registered general copartnerships, may designate the last day of any month in the year as the day of the closing of its fiscal year, and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as herein provided for the year ending on the day so designated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the Commissioner of Internal Revenue at any time not less than thirty days prior to the fifteenth day of April of the year in which its return would be filed if made upon the basis of the calendar year. "SEC. 51. Payment and assessment of income tax . (a) Payment of tax . (1) In general . The total amount of tax imposed by this Title shall be paid at the time the return is filed. Such tax shall be paid by the person subject thereto, and in the case of a corporation by the President, vice-president or other responsible officer thereof. "If the return is filed after the time prescribed by law (including cases in which an extension of time for filing the return has been granted under section forty-seven of this Code), there shall be paid at the time of such filing the tax or installment which would have been payable on or before such time if the return had been filed within the time prescribed by law, and the remaining installment shall be paid at the time at which, and in the amount in which, would have been payable if the return had been so filed, subject to the payment of interest at fourteen per centum per annum from the original due date. "(2) Installment payments . When the tax due is in excess of one thousand pesos, the taxpayer may elect to pay the tax in two equal installments, in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before, the fifteenth day of July following the close of the calendar year, or on or before the fifteenth day of the seventh month following the close of the fiscal year, as the case may be. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the delinquency penalties. "(b) Assessment and payment of deficiency tax . After the return is filed, the Commissioner of Internal Revenue shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the Commissioner of Internal Revenue. "In case a person fails to make and file a return or list at the time prescribed by law, or makes, willfully or otherwise a false or fraudulent return or list, the Commissioner of Internal Revenue shall make the return from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case, the Commissioner of Internal Revenue may make a return or amend any return and any return so made or amended shall be prima facie good and sufficient for all legal purposes, unless the taxpayer can prove the contrary under proper proceedings to be determined by the Commissioner of Internal Revenue. "(c) Definition of deficiency . As used in this Chapter in respect of a tax imposed by this Title, the term "deficiency" means: "(1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency, and decreased by the amount previously abated, credited, returned, or otherwise repaid in respect of such tax; or "(2) If no amount is shown as the tax by the taxpayer upon his return, or if no return is made by the taxpayer, then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed or collected without assessment, shall first be decreased by the amounts previously abated credited, returned, or otherwise repaid in respect of such tax. "(d) Interest on deficiency . Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner and shall be collected as a part of the tax, at the rate of fourteen per centum per annum from the date prescribed for the payment of the tax (or, if the tax is paid in installments, from the date prescribed for the payment of the first installment) to the date the deficiency is assessed: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding a prescription to the contrary notwithstanding. "(e) Additions to the tax in case of nonpayment . (1) Tax shown on the return . Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of fourteen per centum per annum from the date prescribed for its payment until it is paid: Provided , That the maximum amount that may be collected as interest on delinquency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "(2) Deficiency . Where a deficiency, or any interest assessed in connection therewith under paragraph (d) of this section, or any addition to the taxes provided for in section seventy-two of this Code is not paid in full within thirty days from the date of notice and demand from the Commissioner, there shall be collected upon the unpaid amount as part of the tax, interest at the rate of fourteen per centum per annum from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding. "(3) Surcharge . If any amount of tax included in the notice and demand from the Commissioner of Internal Revenue is not paid in full within thirty days after such notice and demand, there shall be collected in addition to the interest prescribed herein and in paragraph (d) above and as part of the tax a surcharge of five per centum of the amount of tax unpaid. "SEC. 53. Withholding tax at source . (a) Tax-free covenant bonds . (1) Requirement 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 proviso 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 of any state or country, the obligor shall deduct and withhold a tax equal to 30 per cent 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 nonresident alien or to a citizen or resident of the Philippines. "(2) Benefit of exemption against net income . The deductions and withholding required in subsection (a)(1) of this section shall not be required in the case of a citizen, resident alien, or nonresident alien engaged in trade or business in the Philippines, entitled to receive the interest or other payment, if that individual shall file with the withholding agent, on or before February first, a signed notice in writing claiming the benefit of the exemption provided in Section 23 of this Title. "(b) Nonresident aliens and foreign corporations . (1) Nonresident aliens . Every individual, corporation, partnership, or association, in whatever capacity acting, including a lessee 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 nonresident alien not engaged in trade or business within the Philippines, shall (except in the case provided in sub-section (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 30 per cent 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 85 per cent of the gross income of the corporation for the three-year period ending with the close of its 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 Section 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) Nonresident 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 is provided in subsection (b)(1) of this section, as well as on remunerations for technical services or otherwise, a tax equal to 35 per cent thereof. This tax shall be returned and paid in the same manner and subject to the same conditions as provided in Section 54. This deduction and withholding shall not be required in the case of reinsurance premiums ceded to foreign insurance corporations not engaged in trade or business in the Philippines. "(c) Other cases of withholding tax at source . The President of the Republic of the Philippines may upon the recommendation of the Secretary of Finance 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 ten per cent thereof which shall be credited against the income tax liability of the taxpayer for the taxable year. "SEC. 72. Surcharges for failure to render returns and for rendering false and fraudulent returns . In case of willful neglect to file the return or list required under this Title within the time prescribed by law, or in case a false or fraudulent return or list is willfully made, the Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make and file a return or list within the time prescribed by law or by the Commissioner or other internal revenue officer, not due to willful neglect, the Commissioner of Internal Revenue shall add to the tax twenty-five per centum of its amount, except that, when a return is voluntarily and without notice from the Commissioner or other officer filed after such time, and it is shown that the failure to file it was due to a reasonable cause, no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax. SUPPLEMENT A WITHHOLDING ON WAGES "ART. 2. 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 a withholding table to be prepared by the Secretary of Finance. "(b) Tax paid by recipient . If the employer, in violation of the provisions of this supplement, fails to deduct and withhold the tax as required under this supplement, 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 subarticle 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) Nondeductibility of tax in computing net income . The tax deducted and withheld under this article shall not be allowed as a deduction either to the employer or to the recipient of the income in computing net income under this Title. "(d) Refunds or credits . (1) Employer . When there has been an overpayment of tax under this article 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 supplement 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 Secretary of Finance. "Any excess of the taxes withheld over the tax due from the taxpayer shall be refunded or credited within three months from the date of filing of the income tax return of the taxpayer or from the fifteenth day of April, whichever is later. Refunds or credits made after such time shall earn interest at the rate of six per centum 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 countersignature by the Auditor General or the latter's duly authorized representative as an exception to the requirement prescribed by Section 621 of the Revised Administrative Code. "(e) Personal exemptions (1) In general . Unless otherwise provided in this Supplement, the personal and additional exemptions applicable under this supplement 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 the commencement of employment with an employer, or within ten days, from the effectivity of this Act in case of persons already employed, the employee shall furnish the employer with a signed withholding exemption certificate relating to the personal and additional exemptions 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 supplement, either fails or refuses to file a withholding exemption certificate, the employer shall withhold the taxes prescribed under schedule for zero exemption of the withholding tax table in subarticle (a). "(f) Withholding on basis of average wages . The Commissioner of Internal Revenue may, under regulations promulgated by the Secretary 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 subarticle. "(g) Husband and wife . When a husband wife each are recipients of wages, whether from the same or from different employer, 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 subarticle (a). "(h) Nonresident aliens . Wages paid to nonresident alien individuals shall not be subject to the provisions of this supplement and shall be governed by the provisions of section fifty-three of this Title. "ART. 8. Penalties (a) Penalties for failure to file , and for filing fraudulent returns or statements . Any person who willfully render or furnishes a false or fraudulent return or statement required under the provisions of articles four, five and six or under regulations promulgated by the Secretary of Finance, or who willfully fails to render or furnish a statement as required in this supplement, or fails to remit to the Commissioner the amount withheld by such agent, shall upon conviction, for each such act or omission, be fined not less than one thousand pesos nor more than two thousand pesos and imprisoned for not more than one year. "(b) Penalties in respect of withholding exemption certificates . Any individual required to supply information who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under article two, shall, in lieu of any penalty otherwise provided upon conviction be fined not more than one thousand pesos or imprisoned for not more than one year, or both. "The same penalty shall apply to an employer who willfully accepts as a fact or as true information which would reduce the tax to be withheld under Article two hereof. "(c) Penalties on corporate officers . The penalties prescribed in this article shall, in this case of an employer which is a corporation, partnership, or association, be imposed on the president, manager, treasurer, or other persons responsible for the particular act or omission." FEATURES OF THE AMENDMENTS Amendments to Section 21 : Rates of tax on citizens or residents . Non-resident citizens are now taxed under two different methods of income taxation. Their income from sources within the Philippines are taxed at the same rate and in the same manner as residents. In other words, they are allowed to deduct from such income the deductions allowable under Section 30 and the personal exemptions provided for in Section 23 of the Tax Code. However, on their income from sources from without the Philippines, they are taxed on the basis of the gross amount thereof, at rates graduated as follows: On the first $6,000 1% On the amount exceeding $6,000 but not exceeding $20,000 2% On the amount exceeding $20,000 3% This amendment to Section 21 applies to income for 1972. A non-resident citizen is defined as one physically present abroad for an uninterrupted period which includes an entire taxable year. Amendments to Section 22 : Tax on non-resident alien individuals not engaged in trade or business within the Philippines . Subsection (b) of this Section was amended by increasing the rate of tax therein prescribed, from 25% to 30%, and by deleting therefrom that proviso which would impose the rates of tax provided for in Section 21 of the Tax Code, if the total income received by the non-resident alien individual from sources within the Philippines exceed P43,060.00. Amendments to Section 23 : Amount of personal exemptions allowable to individuals . Only subsections (b), (c), (d) and (e) of this section were amended. Subsection (b) of this section was amended by reducing the maximum age, from 23 to 21, of a brother, sister or child who may be claimed as a dependent for the purpose of establishing the status of a taxpayer as head of the family. Subsection (c) was likewise amended, the maximum age of dependents for purposes of additional exemption being reduced from 23 to 21 years. Another amendment to this subsection is the limitation of additional exemption to that corresponding to only four dependents. It should, however, be emphasized that said amendments took effect only on January 1, 1973 and therefore, shall not be applied in the determination of income tax liabilities for 1972. But beginning the calendar year 1973, additional personal exemption shall be limited to four qualified dependents who must not be more than twenty-one years old. However, taxpayers who had claimed additional exemption for more than four dependents prior to 1973 may continue to claim additional exemption for such dependents for the year 1973 and subsequent years, provided such dependents are not over twenty-one years old at the end of the said calendar years. But if a child is born within the calendar year 1973 and the qualified dependents before said year exceed four at the end of the year 1973, the taxpayer cannot claim an additional exemption for the child born in said year. The same rule applies to subsequent calendar years. Unless and until the dependents previously considered for purposes of additional exemption shall have been reduced to less than four, the taxpayer cannot claim additional exemption for the child born in 1973, or subsequent years. The third paragraph of subsection (d) was amended by adding thereto the case of dependents becoming twenty-one years old within the calendar year. The taxpayer may still claim exemption for such dependents as if they became twenty-one years old at the close of the year. Subsection (e) was amended by specifying which nonresident alien individual may claim personal exemption under certain conditions. Before the amendment, the law referred to nonresident alien individuals, without qualification, thus giving the impression that even those who are not engaged in trade or business in the Philippines could claim personal exemption. But that was not the intention of the law as can be gleaned from Section 22, which taxes nonresident alien individuals not engaged in trade or business in the Philippines on their gross income derived from sources within the Philippines, which means that no deduction whatever shall be allowed, including personal exemption. To correct what appears to be an inconsistency between the provisions of Section 22 and those of subsection (d) of Section 23, the latter was amended by inserting therein the phrase "engaged in trade or business in the Philippines", thus making it clear that those not engaged in trade or business in this country cannot claim personal exemption. Amendments to Section 24 : Rates of tax on corporations . There is no amendment to subsection (a) of this section. A new proviso was added to subsection (b) (1), which subjects the gross income of nonresident foreign cinematographic film owners, lessors or distributors to 15% tax. A new proviso was also added to subsection (b) (2), which subjects international carriers to income tax of 2-1/2%, said tax to be based on their gross billings. There are no amendments to subsections (c) and (d) of this section. Amendments to Section 29 : Gross income . There are no amendments to subsections (a) and (c) of this section. Paragraph 7(A) of subsection (b) of this Section was amended by adding "loans" among the enumerated "investments in the Philippines", for the purpose of further clarifying the term "investments" and by extending the tax exemption provided for therein not only to foreign governments but also to financing institutions owned, controlled or enjoying refinancing from foreign governments and to international or regional financing institutions established by governments. Amendments to Section 30 : Deductions from gross income . There are no amendments to subsections (a), (b), (c), (d), (e), (f), (h), (i), (j) and (k) of this section. Only subsection (g) was amended and a new paragraph, numbered (1) was added to subsection (k). Subsection (g) (1) was amended by providing therein a new method of determining depletion allowance for oil and gas wells and mines, which is commonly known as cost depletion. However, this new method of determining depletion allowance shall be applied beginning the calendar year 1975 and fiscal year beginning July 1, 1975. In the meantime, the percentage method of determining depletion allowance shall continue to be used, but the maximum allowable depletion is gradually reduced as follows: 35% of net income or net profit, whichever is lower for the calendar year 1973 and fiscal year beginning July 1, 1973; and 25% for the calendar year 1974 and fiscal year beginning July 1, 1974. A new paragraph has been added to subsection (k), which allows a standard deduction of 10% of the gross income of the wife, but not exceeding P500.00, if the gross income reported in the return includes the income of the wife. This deduction is allowed whether the husband avails of the optional standard or the itemized deductions. A working wife may be defined as one deriving income from the exercise of a profession or occupation, or from employment, or from the performance of personal services, or from business, or from any activity conducted for profit. Amendments to Section 45 : Individual returns . Only subsection (a)(2) and subsection (b) were amended. The amendment of paragraph (2) of subsection (a) relieved nonresident aliens not engaged in trade or business in the Philippines from the requirement to file income tax returns of their income from sources within the Philippines, such requirement being no longer necessary inasmuch as in accordance with subsection (b) of Section 22, nonresident alien individuals are subject to tax on their entire income derived on Philippine sources, which are withheld and paid by the payors thereof under Section 53(b)(1). The withheld tax when paid by the withholding agent may now, therefore, be considered final payment. The amendment to subsection (b) merely specifies the internal revenue officers and other persons or entities with whom the income tax return may be filed, conformably with existing organizational and collection set-ups of the Bureau. Amendments to Section 46 : Corporation returns . Only subsections (a) and (c) of this section were amended. Under the amendment to subsection (a), foreign corporations not engaged in trade or business in the Philippines are now also expressly exempted from filing an income tax return for they are also subject to tax on their entire income, except reinsurance premiums, derived from Philippine sources which is likewise required to be withheld and paid by the payors thereof under Section 53(b)(2). The withheld tax when paid by the withholding agent may now also be considered final payment. The amendment to subsection (c) likewise merely specifies the proper internal revenue officers and other persons or entities with whom the corporate return may be filed, conformably also with the existing organizational and collection set-ups of the Bureau. Amendments to Section 51 : Payment and assessment of income tax . Only subsections (a), (d) and (e) of this Section were amended. (1) Subsection (a) The provision in paragraph (1) of this subsection, which specify the last day for payment of the tax was deleted, as this provision is unnecessary, considering that the law requires payment of the tax upon the filing of the return. Another provision deleted from subsection (a) is that provision which allows the taxpayer to deduct from the income tax due as per his current return the amount of income tax refundable to him but not yet refunded. In other words, automatic crediting by taxpayers of overpaid income tax is no longer allowed. Another amendment to paragraph (1) of subsection (a) is the increase of the rate of interest in case of late filing of return, from 12% to 14% per annum. The amendment to paragraph (2) of subsection (a) increased the minimum amount of tax, from over P500 to over P1,000, in order that a taxpayer may be allowed to pay his income tax in two equal installments. (2) Subsection (d) The amendment to this subsection merely increased the interest on deficiency from 6% to 14% per annum. (3) Subsection (e) The nature of the interest imposed under paragraph (1) of this subsection was changed from "deficiency" to "delinquency" to reflect its correct description, and the interest was increased from 1% a month, or 12% per annum, to 14% per annum. Paragraph (2); of this subsection was amended by increasing the interest on any deficiency assessed or additions thereto if not paid within 30 days from the date of notice and demand from 1% a month, or 12% -per annum, to 14% per annum. Amendments to Section 53 : Withholding of tax at source . The rate of withholding tax prescribed in paragraphs (a)(1) and (b)(1) of this section has been increased, from 25% to 30%. Another amendment to this section is the addition thereto of paragraph (c), which authorizes the President of the Philippines, upon recommendation of the Secretary of Finance, to require the persons mentioned in subsection (b)(1) thereof to withhold, as income tax, 10% of the items of income mentioned in said subsection, payable by them to persons (natural or juridical) residing in the Philippines, which withheld tax shall be credited against the income tax liability of the taxpayer for the taxable year. Prior to this amendment, income of resident individuals, except their salaries and wages, were not subjected to withholding at source. Neither were income of resident corporations subjected to such withholding. Finding a need to broaden the scope of the "withholding of tax at source'', paragraph (c) was added to Section 53. Amendment to Section 72 : Surcharges for failure to render returns and for rendering false and fraudulent returns . The first sentence of this section reading "The Commissioner of Internal Revenue shall assess all income taxes", being superfluous, was deleted. The other amendment is the addition of the phrase "required under this Title" after the terms "return or list", the purpose for such addition being merely for clarity. Amendment to Art . 2, Supplement A : Only sub-article (d) of this Article was amended. The amendment provides for the payment of interest at the rate of 6% per annum if the refund of any excess of the taxes withheld over the tax due from the taxpayer is not refunded within three months from the date the return is filed or from April 15, whichever is later, the interest to start after the lapse of said period to the date the refund or credit is made. The amendment furthermore provides that the refund warrants drawn by the Commissioner need not be countersigned by the Auditor General as an exception to the requirement of Section 621 of the Revised Administrative Code. Amendment to Art . 8, Supplement A : Only sub-article (a) of this Article was amended. Under the amendment, any employer who fails to remit to the Commissioner the taxes withheld from the wages of his employees is now held criminally liable, and shall, upon conviction, for each such omission, be fined not less than P1,000 nor more than P2,000 and imprisoned for not more than one year. EFFECTIVITY Except as specifically otherwise provided and except the tax on the income of nonresident citizens under the amendment to Section 21, which shall apply to income beginning January 1, 1972, the amendments to Title II of the National Internal Revenue Code and Supplement A thereto take effect on January 1, 1973. ENFORCEMENT All internal revenue officers are enjoined to be guided accordingly and to give this Circular as wide a publicity as possible. aisa dc MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Secretary of Finance