CPALE Taxation Review: NIRC, TRAIN Law, CREATE, Income Tax

CPALE Taxation Review: NIRC, TRAIN Law, CREATE, Income Tax

CPALE Taxation tests Philippine tax law as it applies to accountancy practice. The 70 items, in a three-hour paper on the morning of Day 2, cover individual and corporate income tax, VAT, percentage tax, transfer taxes, and tax administration — all under the National Internal Revenue Code (NIRC) as amended by recent reform packages.

The big complexity: the TRAIN Law (RA 10963, 2017) and CREATE Act (RA 11534, 2021) changed major rates and thresholds, and later laws such as the Ease of Paying Taxes Act (RA 11976, 2024) and CREATE MORE (RA 12066, 2024) changed more. Use a current reviewer.

This post is the topic-by-topic plan that the CPALE pillar guide hands off to.

Suggested practice mix

PRC doesn't publish item counts per topic. This is our suggested mix for a 70-item practice set, not an official breakdown:

Individual income tax

Drill list under TRAIN Law:

Tax rates (effective 2023+):

• ₱0 - ₱250,000: 0%
• ₱250,000 - ₱400,000: 15% of excess over ₱250,000
• ₱400,000 - ₱800,000: ₱22,500 + 20% of excess over ₱400,000
• ₱800,000 - ₱2,000,000: ₱102,500 + 25% of excess over ₱800,000
• ₱2,000,000 - ₱8,000,000: ₱402,500 + 30% of excess over ₱2,000,000
• Over ₱8,000,000: ₱2,202,500 + 35% of excess

8% optional tax for self-employed individuals and professionals whose gross sales or receipts don't exceed ₱3M.

Categories:

• Resident citizens: taxed on worldwide income
• Non-resident citizens: taxed only on PH-source income
• Resident aliens: taxed only on PH-source income
• Non-resident aliens engaged in trade or business: graduated rates on PH-source income
• Non-resident aliens not engaged in trade: 25% flat on PH gross income

Final taxes on passive income:

• Interest from bank deposits: 20%
• Royalties: 20% (10% on books, literary, musical compositions)
• Prizes >₱10,000: 20%
• Dividends from domestic corp: 10%

Corporate income tax (under CREATE Act)

Corporate income tax rates:

• Domestic corporations + resident foreign corporations: 25% (or 20% if net taxable income ≤ ₱5M and total assets ≤ ₱100M, excluding land)
• Non-resident foreign corporations: 25% on gross PH-source income

Minimum Corporate Income Tax (MCIT): 2% of gross income from the 4th year of operations (CREATE cut it to 1% from July 2020 to June 2023; it's back to 2%). You pay whichever is higher: regular CIT or MCIT.

Improperly Accumulated Earnings Tax (IAET): repealed by CREATE.

Branch Profit Remittance Tax: 15% on profits remitted by PH branch to head office abroad.

Final taxes on passive corporate income.

Value-Added Tax (VAT)

Drill list:

• VAT-registered persons: gross sales/receipts > ₱3M (TRAIN threshold)
• Output VAT: 12% on sales of goods/services
• Input VAT: VAT paid on purchases
• VAT payable = Output VAT - Input VAT
• Zero-rated transactions vs VAT-exempt transactions (key distinction)
• Excess input VAT: refund vs carry-forward
• Quarterly VAT returns (BIR Form 2550Q); monthly VAT returns are no longer required from 2023 under TRAIN
• VAT on importation
• VAT on services rendered to non-residents

Percentage tax + excise tax

• Percentage tax: 3% (CREATE cut it to 1% from July 2020 to June 2023)
• Persons subject to percentage tax (small business not VAT-registered)
• Excise taxes on specific goods: alcohol, tobacco, petroleum, motor vehicles, sugar-sweetened beverages
• Sin tax laws (RA 10351, RA 11346, RA 11467 amendments)

Estate tax

• 6% flat rate on net estate (under TRAIN; replaced graduated 5-20%)
• Standard deduction: ₱5M
• Family home deduction: up to ₱10M
• Other deductions: claims against the estate, unpaid mortgages, casualty losses, vanishing deduction, transfers for public use (TRAIN removed the old deductions for funeral, judicial and medical expenses)
• Filing deadline: within 1 year from death
• Installment payment option

Donor's tax

• 6% flat rate on net gifts in excess of ₱250,000 (under TRAIN; replaced graduated rates)
• Annual exemption: ₱250,000 cumulative across all donations in calendar year
• Exempt donations include gifts to the national government and to accredited non-profit organizations (TRAIN removed the old exemption for dowries)
• Filing deadline: within 30 days of donation

Withholding tax

• Creditable withholding tax (CWT): on rentals, professional fees, contractor payments
• Final withholding tax: on passive income, dividends to non-residents
• Withholding tax on compensation: graduated based on employee's compensation
• Substituted filing for pure compensation earners
• BIR Form 2316 (employee compensation tax statement)

Tax remedies + administration

Assessment process:

• Letter of Authority (LOA)
• Pre-Assessment Notice (PAN) — 15 days to respond
• Final Assessment Notice (FAN) — 30 days to file protest
• Final Decision on Disputed Assessment (FDDA) — 30 days to appeal to CTA

Statutes of limitation:

• 3 years from filing for assessment (general rule)
• 10 years from discovery for false/fraudulent return
• 5 years from assessment for collection

Court of Tax Appeals (CTA):

• Exclusive appellate jurisdiction over decisions of the BIR and Customs commissioners in tax disputes
• Appeals to CTA en banc, then SC

Local taxes

• Real property tax (RPT): basic tax of up to 1% in provinces and up to 2% in cities and Metro Manila municipalities, plus 1% for the Special Education Fund (SEF)
• Local business tax
• Community tax certificate (cedula)

A 6-week Taxation drilling plan

Where Super Tutor fits

CPALE is coming soon to Super Tutor. There's no CPALE reviewer in the app yet. You can follow the CPALE exam page or see every exam Super Tutor covers now.

What to read next

The CPALE pillar guide covers the full review. The other Day 2 subject is RFBT.