With about 1 month left to file the annual Income Tax Returns, the DOF and BIR have just required an additional return to be filed this April 15. By virtue of Revenue Regulations 2-2011, covered individuals, estates and trusts, resident aliens and non-resident aliens are now required to file an Annual Information Return (AIR) (BIR Form 1705) together with the Income Tax Return (ITR) (BIR Form 1700 or 1701).
Filing of ITR with AIR
Under Sec. 3 of RR2-2011, beginning with taxable year 2010, all individuals, estates and trusts required to file an ITR shall now file an AIR together with their ITR. Said taxpayers should include in their AIR such income subject to final withholding tax and those exclusions from gross income under Sec. 32 (B) of the Tax Code.
What exactly are the incomes the DOF and BIR are requiring you to report?
Here is a list of income subject to final withholding tax under said Sec. 57 of the Tax Code:
1) If an Individual Citizen and Individual Resident Alien of the Philippines-
a. Interests, Royalties, Prizes, and Other Winnings - interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; royalties, except on books, as well as other literary works and musical compositions; prizes (except prizes amounting to P10,000 or less); and other winnings (except Philippine Charity Sweepstakes and Lotto winnings), derived from sources within the Philippines pursuant to Sec. 24 (B) (1);
b. Cash and/or Property Dividends - cash and/or property dividends actually or constructively received by an individual from a domestic corporation or from a joint stock company, insurance or mutual fund companies and regional operating headquarters of multinational companies, or on the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner, or on the share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer pursuant to Sec. 24 (B) (2);
c. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange - net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange pursuant to Sec. 24 (C);
d. Capital Gains from Sale of Real Property - capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts pursuant to Sec. 24 (D) (1);
2) If a Nonresident Alien Individual engaged in Trade or Business Within the Philippines –
a. Cash and/or Property Dividends from a Domestic Corporation or Joint Stock Company, or Insurance or Mutual Fund Company or Regional Operating Headquarters or Multinational Company, or Share in the Distributable Net Income of a Partnership (Except a General Professional Partnership), Joint Account, Joint Venture Taxable as a Corporation or Association, Interests, Royalties, Prizes, and Other Winnings (Sec. 25 (A) (2);
b. Capital Gains - Capital gains realized from sale, barter or exchange of shares of stock in domestic corporations not traded through the local stock exchange, and real properties (Sec. 25 (A) (3);
3) If a Nonresident Alien Individual not engaged in Trade or Business Within the Philippines – entire income received from all sources within the Philippines if the nonresident alien individual is not engaged in trade or business within the Philippines, as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains (Sec. 25 (B);
4) If an Alien Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies – gross income received as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, from such regional or area headquarters and regional operating headquarters (Sec. 25 (C);
5) If an Alien Individual Employed by Offshore Banking Units - gross income received as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, from such off-shore banking units (Sec. 25 (D);
6) If an Alien Individual Employed by Petroleum Service Contractor and Subcontractor - salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, received from such contractor or subcontractor (Sec. 25 (E);
7) Fringe Benefit as defined in Sec. 33 of the Tax Code; and
8) Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods under Sec. 282 of the Tax Code.
And below is the list of the exclusions from gross income under said Sec. 32 (B):
1) Life Insurance
2) Amount Received by Insured as Return of Premium
3) Gifts, Bequests, and Devises
4) Compensation for Injuries or Sickness
5) Income Exempt under Treaty
6) Retirement Benefits, Pensions, Gratuities, etc.
7) Miscellaneous Items -
a) Income Derived by Foreign Government
b) Income Derived by the Government or its Political Subdivisions
c) Prizes and Awards
d) Prizes and Awards in Sports Competition
e) 13th Month Pay and Other Benefits
f) GSIS, SSS, Medicare and Other Contributions
g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness
h) Gains from Redemption of Shares in Mutual Fund.
Individuals not required to file ITRs or those qualified for substituted filing, may file an ITR for purposes of loan, foreign travel requirements, etc. But if they file an ITR, they should also file an AIR.
Obviously, the DOF and BIR, as much as possible, will not leave any stone left unturned.
Filing of AIR only
Under Sec. 4 of RR2-2011, the following are now required to file the AIR which return shall include “such income subject to final withholding tax and those exclusions from gross income” (see the 2 lists above);
a) an individual with respect to pure compensation income derived from sources within the Philippines, the income tax on which has been correctly withheld under Sec. 79 of the Tax Code, whose annual taxable income exceeds P500,000. But, an individual deriving compensation concurrently from 2 or more employers during the taxable year shall also file an ITR;
b) individuals, estates and trusts whose sole income has been subjected to final withholding tax under Sec 57(a) of the Tax Code when the aggregate final tax withheld exceeds P125,000.00;
The term “individual whose sole income has been subjected to final withholding tax” shall include aliens, or Filipino citizens occupying the same positions as the alien employees, who are employed by regional operating headquarters, regional or area headquarters, offshore banking units, petroleum service contractors and sub-contractors, pursuant to Sec. 25 (C), (D), (E) and Sec. 57 (A), including those subject to Fringe Benefit Tax under Sec. 33 of the Tax Code, R.A. 8756, P.D. 1354 and other pertinent laws.
c) individuals whose sole income is exempt from income tax but whose total annual income exceeds P500,000.
Filing of Return and Attachments
The ITR and/or AIR shall be filed in triplicate with the RDO where the taxpayer is required to register or where he/she has legal residence or place of business on or before April 15 of each year.
If only the AIR is required to be filed, the same must be similarly filed on or before May 15 of each year.
Those earning purely compensation income had previously breathed a collective sigh of relief when they no longer had to file income tax returns. While progressive taxation is encouraged, regressive practices in requiring filings is not. Considering that the taxes for compensation income and those items subject to final tax have been withheld already and the appropriate filings made, why is the taxpayer being required to do so anew? Imagine how tedious it will be to sum up all the interest income you may have received on savings accounts. While there is no double taxation, it’s double the trouble for the taxpayer and there appears to be no justification for it except maybe to make the BIR’s job easier.