Simplified Net Income Taxation Scheme for Self-Employed and Professionals

May 15, 1992

REPUBLIC ACT NO. 7496

AN ACT ADOPTING THE SIMPLIFIED NET INCOME TAXATION SCHEME FOR THE SELF-EMPLOYED AND PROFESSIONALS ENGAGED IN THE PRACTICE OF THEIR PROFESSION, AMENDING SECTIONS 21 AND 29 OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

SECTION 1.It is hereby declared the policy of the State to have a uniform and equitable tax system as mandated by the Constitution. The tax structure must be such that all tax groups shall pay their fair share of taxes. The higher income groups shall bear a higher tax burden than the low income groups.

SECTION 2.As used herein, the term:

(a)" Self-employed" means persons engaged in business and who derive their personal income from such business. This includes single proprietorships, i.e., manufacturers, traders, market vendors, owners of eateries, farmers and service shops; and

(b)" Professionals" means persons who derive their income from the practice of their profession. This includes lawyers and other persons who are registered with the Professional Regulation Commission such as doctors, dentists, certified public accountants and others similarly situated. The term "professional" also refers to one who pursues an art and makes his living therefrom such as artists, athletes and others similarly situated.

"(a) Taxable compensation income. — A tax is hereby imposed upon the taxable compensation income as defined in Section 27, other than the incomes subject to tax under paragraphs (b), (c), (d), (e) and (f) of this section, received during each taxable year from all sources determined in accordance with the following schedule:

Not over P2,500	0%
"Over P2,500 but not over P5,000	1%
"Over P5,000 but not over P10,000	P25 + 3% of excess over P5,000
"Over P10,000 but not over P20,000	P175 + 7% of excess over P10,000
"Over P20,000 but not over P40,000	P875 +11% of excess over P20,000
"Over P40,000 but not over P60,000	P3,075+15% of excess over P40,000
"Over P60,000 but not over P100,000	P6,075+19% of excess over P60,000
"Over P100,000 but not over P250,000	P13,675+24% of excess over P100,000
"Over P250,000 but not over P500,000	P46,675+29% of excess over P250,000
"Over P500,000	P122,175+35% of excess over P500,000

"(f)Simplified Net Income Tax for the Self-employed and for Professionals Engaged in the Practice of Profession. — A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual whether a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his profession therein, determined in accordance with the following schedule:

"Not over P10,000	3%
"Over P10,000 but not over P30,000	P300 + 9% of excess over P10,000
"Over P30,000 but not over P120,000	P2,100 + 15% of excess over P30,000
"Over P120,000 but not over P350,000	P15,600 + 20% of excess over P120,000
"Over P350,000	P61,600 + 30% of excess over P350,000

"In computing taxable income subject to tax under Sections 21(a); 24(a), (b), and (c); and 25(a) (1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section: Provided, however, That, in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of profession, only the following direct costs shall be allowed as deductions:

"(a) Raw materials, supplies and direct labor;

"(b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their profession;

"(c) Telecommunications, electricity, fuel, light and water;

"(d) Business rental;

"(e) Depreciation;

"(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity-stricken areas declared by the President; and

"(g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business.

"For individuals whose cost of goods sold and direct costs are difficult to determine, including professionals as herein defined, a maximum of forty percent (40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the case may be." casia

SECTION 6. The Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall promulgate and publish the necessary rules and regulations for the effective implementation of the provisions of this Act.

SECTION 7. If any provision of this Act is declared unconstitutional or the application thereof to any person, circumstance or transaction is held invalid, the validity of the remaining provisions of this Act or the applicability of such provision to other persons, circumstances or transactions shall not be affected thereby.

SECTION 8. The provisions of Sections 21 and 29 of the National Internal Revenue Code, as amended, and all other laws, decrees, orders, rules and regulations, or parts thereof, inconsistent with this Act are hereby repealed or amended accordingly.

SECTION 9. After three (3) years from the effectivity of this Act, the Commissioner of Internal Revenue may implement a withholding tax scheme to further enhance the taxation of the self-employed and professionals as defined under this Act.

In furtherance of this section, the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall issue and publish the implementing rules and regulations to implement this mandate. cd

SECTION 10. This Act shall take effect upon its approval.

Approved: May 15, 1992

Published in the Official Gazette, Vol. 88 No. 28 page 4476 on July 13, 1992.