Sunteți pe pagina 1din 5

INCOME TAXATION

INHERENT POWERS OF THE STATE


1. Police Power – general power of the State to enact laws to protect the well-being of its people
2. Eminent Domain – power of the State to take private property for public purpose after paying just compensation
3. Taxation – power of the state to enforce proportional contribution from its subjects to sustain itself and to provide benefits to its people
*Since the public would benefit from the government, it is but necessary to have a form of mandatory contribution from its people,
hence, the need for taxation

THEORIES OF COST ALLOCATION


1. Benefit received theory – the more benefit one receives from the government, the more taxes he/she should pay
2. Ability to pay theory – people contribute based on their capacity to contribute
Aspects:
2.a. Vertical Equity – extent of one’s ability to pay is directly proportional to the level of his tax base (i.e. if A has P300k income and B has
P800k income, B should pay more taxes)
2.b. Horizontal Equity – requires consideration of particular circumstances of the taxpayer (i.e. A and B both generated P500,000 income;
A had P200,000 business expenses, while B incurred P400,000 business expenses; A should be taxed more)

LIFEBLOOD DOCTRINE AND ITS IMPLICATIONS


Lifeblood doctrine – taxes are the lifeblood of the government; without it, the government cannot function. It is essential for prompt collection of
taxes and its availability.
Implications:
1. Tax is imposed even without constitutional grant
2. Claims for tax exemption are construed against taxpayers
3. The government reserves the right to choose the objects of taxation
4. The courts are not allowed to interfere with the collection of taxes
5. In income taxation:
a. Advanced income is taxable upon receipt
b. Deduction for prepayments is not allowed (i.e. prepayments are spread out)
c. A lower amount of deduction is preferred
d. A higher tax base is preferred

INHERENT LIMITATIONS OF TAXATION POWER


1. Territoriality – the government can only demand tax obligations upon its subjects within its territorial jurisdiction
Exceptions:
1.a. Income Taxation – Resident Citizens and Domestic Corporations are taxable within and outside the Philippines
1.b. Transfer Taxation – Residents or Citizens are taxable on transfers of properties located within or outside the Philippines
2. International Comity – all countries are of equal sovereignty (i.e. one country cannot tax another country)
3. Public Purpose – taxes should always be for public purpose
4. Exemption of the Government – the government is not subject to tax, however, income of the government from properties and activities
conducted for profit, including income from government-owned and controlled corporations (GOCCs) is subject to tax
5. Non-delegation of Taxing Power – the legislative taxing power is vested exclusively in Congress and cannot be redelegated

STAGES OF TAXATION
1. Levy – enactment of tax laws by the Congress
2. Assessment and Collection – implementation of the tax laws by the administrative branch

DOUBLE TAXATION
Elements:
1. Primary – same object
2. Secondary
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period

Types:
1. Direct – ALL element are present
2. Indirect – one of the secondary elements is not common

ESCAPES FROM TAXATION


Resulting to Loss of Government Revenue
1. Tax Evasion/Tax Dodging – any act that illegally reduces or avoids payment of tax

Prepared by: Lord Gen A. Rilloraza, CPA, MBA


2. Tax Avoidance/Tax Minimization – any act that legally reduces or avoids payment of tax
3. Tax Exemption/Tax Holiday – immunity from being subject to tax
No Loss of Government Revenue
1. Shifting – transferring of tax burden to other taxpayers

TAX COLLECTION SYSTEMS


1. Withholding System – the payor of income withholds the tax of the recipient of the income (i.e. the recipient receives the income net of
tax)
2. Voluntary Compliance/”Self-Assessment Method” – the taxpayer determines his income, and determines his income tax due and pays the
same to the government
3. Assessment/”Enforcement System” – government determines non-compliant taxpayers, assesses their tax dues, including penalties, and
demands taxpayer’s voluntary compliance

PRINCIPLES OF A SOUND TAX SYSTEM


1. Fiscal Adequacy – government funds must be enough to cover government costs
2. Theoretical Justice – taxation should consider the taxpayer’s ability to pay
3. Administrative Feasibility – tax laws should be capable of effective and efficient administration

WHAT IS CONSIDERED INCOME?


1. It is a return on capital, resulting to an increase in net worth
Items considered with infinite value
1.a. Life
1.b. Health
1.c. Reputation
2. It is a realized benefit
3. It is not exempt by any contract, treaty, or law

TYPES OF INCOME TAXPAYERS


I. Individuals
1. Citizens – taxpayers with Filipino citizenship
a. Resident Citizens (RC) – citizens residing in the Philippines
b. Non-Resident Citizens (NRC) – citizens not residing in the Philippines
2. Aliens – taxpayers with foreign citizenship
a. Resident Aliens (RA) – aliens residing in the Philippines
b. Non-Resident Aliens (NRA) – aliens not residing in the Philippines
i. Non-Resident Aliens Engaged in Trade and Business (NRAETB) – aliens who stay in the Philippines for an aggregate
period of more than 180 days
ii. Non-Resident Aliens Not Engaged in Trade and Business (NRANETB) – aliens who stay in the Philippines for an aggregate
period of not more than 180 days
3. Estates and Trusts
II. Corporations
1. Domestic Corporations (DC) – corporations established under Philippine laws
2. Foreign Corporations (FC) – corporations established under foreign laws
a. Resident Foreign Corporations (RFC) – foreign corporations conducting business in the Philippines through a permanent
establishment (e.g. branch)
b. Non-Resident Foreign Corporations (NRFC) – foreign corporations that do not conduct business in the Philippines

Rules of Residency:
1. A Citizen is a resident by default
2. An Alien is a non-resident by default
3. Change in residency should be based from:
a. Intention – for instance, an RC with a working visa and an employment contract abroad that requires the RC to stay in that country
for an extended period, the RC is reclassified to NRC upon departure
b. Length of stay – if there is no definite intention
i. RC changed to NRC – if RC is out of the country for at least 183 days
ii. Alien to RA – if stayed in the Philippines for more than 1 year
iii. Alien to NRAETB – if stayed in the Philippines for not more than 1 year but more than 180 days
iv. Alien to NRANETB – if stayed in the Philippines for not more than 180 days

SITUS RULES
 Interest income – debtor’s residence
 Royalties – where intangible is employed
 Rent income – location of property

Prepared by: Lord Gen A. Rilloraza, CPA, MBA


 Service income – where rendered
 Sale of properties
o Personal property – where sale was perfected (for domestic securities, presumed within)
o Real property – location of property
 Dividend income
o From DC – within
o From FC
 RFC – perform predominance test
 NRFC – outside
 Merchandise – where sold
 Manufacturing – where manufactured and sold

ITEMS OF GROSS INCOME ARE SUBJECT TO


1. Final Tax (FT) – under the withholding tax system; applicable to some passive income
2. Capital Gains Tax (CGT) – gain on capital assets
3. Regular Income Tax (RIT) – under self-assessment method; applicable to active income and some passive income not subject to FT

ACCOUNTING PERIOD
1. Regular – 1 year
a. Calendar Year – follows the calendar (from Jan. 1 to Dec. 31)
Required if:
1.a.i No annual accounting period
1.a.ii No accounting books
1.a.iii Taxpayer is an individual
b. Fiscal Year – any year ending on any month other than Dec. 31 (for instance, May 1 to April 30)
2. Short – less than 1 year; allowed only for:
a. New businesses
b. Dissolution of business
c. Change of accounting period
d. Death of taxpayer
e. Termination by CIR

DEADLINE OF FILING AND PAYMENT OF TAX


- 15th day of the 4th month following the end of the taxable year

MODES OF FILING TAX RETURN


Manual e-BIR Forms eFPS
Data entry Manual Electronic Electronic
Filing/submission Manual Electronic Electronic
Tax payment Manual Manual Electronic

Note: PAY AS YOU FILE

PENALTIES FOR LATE FILING OR PAYMENT OF TAX


1. Surcharge
25% - failure to file or pay on time
50% - wilful neglect to file and pay taxes
2. Interest – double the legal interest (current legal interest = 6%)
3. Compromise – amount paid in lieu of criminal prosecution
Compromise for failure to make/file/submit any return
GROSS SALES COMPROMISE
zero to P50,000 P1,000
More than P50,000 to P100,000 P3,000
More than P100,000 to P500,000 P5,000
More than P500,000 to P5 million P10,000
More than P5 million to P10 million P15,000
More than P10 million to P25 million P20,000
More than P25 million P25,000

TYPES OF INCOME TAX


1. Final Tax (FT)
 Follows the withholding tax system

Prepared by: Lord Gen A. Rilloraza, CPA, MBA


 Applies to certain passive income and persons not engaged in business in the Philippines
2. Capital Gains Tax (CGT) – applies to gains on capital assets
3. Regular Income Tax (RIT) – follows the self-assessment method

FINAL TAX
 Final
 Withheld at source
 Territorial imposition
 Imposed on:
o Certain passive income
o Persons not engaged in trade or business – NRANETB and NRFC

General Final Tax Rates


 NRANETB – 25%
 NRFC – 30%
*Note: the general rates will ALWAYS BE APPLIED to NRANETB and NRFC, UNLESS specifically mentioned otherwise

INTEREST INCOME
 Bank Deposits or Deposit Substitutes
o Types:
 Short-term – less than 5 years
 Long-term – not less than 5 years
o Final tax rates:
INDIVIDUALS CORPORATIONS
Short-Term 20% 20%
Long-Term Exempt 20%
o Rates for pre-termination of long-term deposits:
 <3yrs – 20%
 3 - <4yrs – 12%
 4 - <5yrs – 5%
 Foreign Currency Deposits
o Residents – 15%
o Non-Residents (including NRANETB and NRFC) – exempt

DIVIDENDS
 Rates (applies to dividends received from Domestic Corporations; note that Final Tax is territorial)
CLASSIFICATIONS RATES
RC 10%
NRC 10%
INDIVIDUALS RA 10%
NRAETB 20%
NRANETB 25%
DC Exempt
CORPORATIONS RFC Exempt
NRFC 30%
ROYALTIES
INDIVIDUAL CORPORATION
Books, literary works, musical composition 10% 20%
Others 20% 20%

 Rule for books and literary works


o Printed – follow rate above (i.e. 10%)
o Soft copy (e-books, CDs, etc.) – 20%
 For cinematographic films, rate is 25% for NRAETB, NRANETB, and NRFC

PRIZES
INDIVIDUAL CORPORATION
More than P10,000 20% RIT
Not more than P10,000 RIT RIT
 Prizes are exempted if
o Person exerted no effort to join
o There is no future service to be rendered after receiving the prize

Prepared by: Lord Gen A. Rilloraza, CPA, MBA


o If sports competition, it shall be sanctioned by the respective national sports organization

WINNINGS
INDIVIDUAL CORPORATION
PCSO/Lotto winnings not more than P10,000 Exempt Exempt
PCSO/Lotto winnings more than P10,000 20% 20%
Other winnings 20% RIT
TAX INFORMER’S REWARD
 Given to individuals who would provide information to BIR regarding a violation of the National Internal Revenue Code (NIRC), which would
result to the government recovering lost revenues
 Reward given to such person is – 10% of the recovered amount or P1 million, whichever is lower
 Example:
o Mr. Cruz informed BIR of the violation of ABC Company of the NIRC. BIR was able to recover P100 million in tax revenues. The
determined reward shall be:
 10% of P100 million = P10 million
 P1 million
o Since P1 million is the lower amount, Mr. Cruz is only entitle to P1 million reward
 Final tax rate = 10%
 People exempted from the reward
o Government employees/officials
o Relatives of government employees/officials within the 6th degree of consanguinity

Prepared by: Lord Gen A. Rilloraza, CPA, MBA

S-ar putea să vă placă și