lOMoARcPSD|24528773

Income Taxation Reviewer

Bachelor of Science in Accountancy (Polytechnic University of the Philippines)

Studocu is not sponsored or endorsed by any college or university

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TAXATION - the process by which the sovereign, through its law-making c. Amount or rate of the tax - Philippine Health Insurance Corporation (PHIC)
body, imposes burdens for the purpose of raising revenues to carry out d. Kind of tax - Philippine Charity Sweepstakes Office (PCSO)
legitimate objects of the government e. Apportionment of the tax - Local Water Districts (RA 10026)
f. Situs (place) of taxation
TAXES - the enforced contribution levied by the law-making body of the g. Manner, means, agencies of collection of the tax CLASSIFICATION OF TAXES
state for the support of the government and all the public needs. 5. A valid tax may result in the destruction of the taxpayer’s property. 1. As to scope:
- Lawful tax cannot be defeated. - National - imposed by the national government
3 INHERENT POWERS OF THE STATE - Bring out the insolvency of the taxpayer - Local - imposed by the local government
1. POLICE POWER - the power of promoting public welfare and - Forfeiture of property through police power 2. As to subject matter or object:
regulating the use of liberty and property - Personal, poll, or capitation - tax of a fixed amount
2. POWER OF TAXATION - the power which raises revenue for the SCOPE OF TAXATION imposed upon an individual residing within a specified
expenses of the government The power of taxation is the most absolute of all the powers of the territory.
3. POWER OF EMINENT DOMAIN - the power to acquire private government. - Property - imposed on property in proportion to their value
property for public purpose upon payment of just compensation a. Comprehensive - covers all (business, persons, professions) - Excise - tax on certain rights and privileges (sin products
b. Unlimited - absence of limitations or imported goods)
PURPOSES OF TAXATION c. Plenary - it is complete 3. As to who bears the burden:
1. PRIMARY: Revenue or fiscal purpose d. Supreme - Direct - taxpayer cannot shift to another
- To provide funds or property with which to promote general - Indirect - indemnify himself in the expense of another
welfare and protection of its citizens. ESSENTIAL ELEMENTS/CHARACTERISTICS OF TAX 4. As to determination of fixed amount:
2. SECONDARY: Regulatory purpose a. It is an enforced contribution. - Specific - tax of fixed amount by number, standard of
- Employed as a device for regulation or control b. It is generally payable in money. weight, or measurement
Effect: c. It is proportionate in character. - Ad valorem - tax of fixed proportion of the value property
- Promotion of general welfare d. It is levied on persons, property, or right, 5. As to purpose:
- Reduction of social inequality e. It is levied by the law-making body of the state. - Primary, Fiscal or Revenue Purpose
- Economic growth f. It is levied for public purpose. - Secondary, Regulatory, Special, or Sumptuary Purpose
6. As to graduation or rate:
THEORIES OF TAXATION ASPECTS OF TAXATION - Proportional - tax based on fixed percentage of amount
1. NECESSITY THEORY a. Levying or imposition of tax - Progressive - tax the rate of which increases as the tax
- To preserve the state’s sovereignty b. Assessment or determination of the correct amount base or bracket increases
- A means to give protection or facilities c. Collection of tax - Regressive - tax the rate of which decrease as the tax
2. LIFEBLOOD THEORY base or bracket increases
- Used to continue to perform the government’s basic NATURE/CHARACTERISTICS OF THE STATE’S POWER OF TAX 7. As to the taxing authority
function of serving and protecting its people A. It is inherent in sovereignty. - National - imposed under National Internal Revenue
- Give tangible and intangible benefits - Can enforce contribution in the absence of law Code, collected by Bureau of Internal Revenue
B. It is legislative in character, - Local - imposed by LGUs
BASIS OF TAXATION - the government may be able to perform its - Cannot be exercised by executive and judicial branches.
functions while the citizens may be secured in the enjoyment of the C. Exemption of government entities, agencies, and instrumentalities ELEMENTS OF SOUND TAX SYSTEM
benefits D. International Comity a. Fiscal Adequacy - sources must be enough
E. Limitation of territorial jurisdiction b. Theoretical Justice or Equity - tax should be proportionate
MANIFESTATION OF LIFEBLOOD THEORY F. Strongest among all the inherent powers of the state. c. Administrative Feasibility - law must be capable of effective and
1. Rule of “No estoppel against the government” efficient enforcement
2. Collection of taxes cannot be stopped by injunction - Agencies performing governmental function are tax exempt unless
- Court of tax appeals have the authority to grant injunction expressly taxed LIMITATIONS ON THE STATE’S POWER TO TAX
to restrain collection of internal tax revenue, fee, or charge - Agencies performing proprietary functions are subject to tax 1. Inherent Limitations
3. Taxes could not be subject of compensation or set-off unless expressly exempted 2. Constitutional Limitations
- Tax is compulsory not bargain - GOCCs performing proprietary functions are subject to tax, - Progressive system - emphasis on direct taxes
4. Right to select objects (subjects) of taxation however the following are granted tax exemptions: - Regressive system - more indirect taxes imposed
a. Subject or object to be taxed - Government Service Insurance System (GSIS) - Regressive tax rates - tax rates which decreases as tax
b. Purpose of the tax (as long as it’s a public purpose) - Social Security System (SSS) base or bracket increases

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2. Transformation - the producer pays the tax and endeavor to accordance with Philippine Laws.
FACTORS IN DETERMINING THE SITUS OF TAXATION recoup himself by improving his process of production
a. Subject matter (person, property, or activity) 3. Evasion - the use of illegal means to defeat or lessen tax NONRESIDENT CITIZEN OF THE PHILIPPINES
b. Nature of tax 4. Tax avoidance - the exploitation of legally permissible alternative 1. Establishes to the satisfaction of the Commissioner of Internal
c. Citizenship tax rates of assessing taxable income to reduce tax liability Revenue, the fact of his physical presence abroad with a definite
d. Residence of the taxpayer 5. Exemption - the grant of immunity to particular persons of a intention to reside therein.
e. Source of income particular class 2. Leaves the Philippines during the taxable year to reside abroad:
f. Place of excise, business, or occupation being taxed 6. Capitalization - the reduction in the selling price of income - As an immigrant
producing property by an amount equal to the capitalized value - For employment on a permanent basis
TOLL is a sum of money for the use of something which is paid for the 7. Avoidance - the tax saving device within the means sanctioned - For work and derives income that requires him to be
use of a road, bridge, or public nature. by the law physically abroad most of the time during the taxable year
3. A citizen of the Philippines who shall have stayed outside the
PENALTY is a sanction imposed as a punishment for violation of law or SOURCES OF TAX LAWS Philippines for one hundred eight-three days (183) or more by the
acts deem injurious. 1. Constitution end of the year.
2. National Internal Revenue Code
SPECIAL ASSESSMENT is an enforced proportional contribution from 3. Tariff and Customs Code - A Filipino citizen taxpayer not classified as a nonresident citizen is
owners of the lands for special benefits resulting from public 4. Local Government Code (Book II) considered a RESIDENT CITIZEN for tax purposes.
improvements, 5. Local tax ordinances/City or municipal tax codes - An ALIEN is a foreign-born person who is not qualified to acquire
6. Tax treaties and international agreements Philippine citizenship by birth or after birth
Characteristics: 7. Special laws - Section 22(F) of the tax code defines RESIDENT ALIENS as an
A. Levied only on land 8. Decision of the Supreme Court decisions and the Court of Tax individual whose residence is within the Philippines and who is not
B. Not a personal liability of the person assessed Appeals a citizen thereof
C. Based wholly on benefits (not necessary) 9. Revenue rules and regulations and administrative ruling and - The term NONRESIDENT ALIEN under Section 22(G) of the Tax
D. Exceptional both as to time and place opinion Code means an individual whose residence is not in the
Philippines and not a citizen thereof
REVENUE refers to all funds or income derived by the government. INDIVIDUAL TAXPAYERS are natural persons with income derived from - Under Section 22(S) of the Tax Code, ‘trade or business”
within the territorial jurisdiction of taxing authority. They are classified as: includes performance of the functions of a public service or
SUBSIDY is a pecuniary aid directly granted by the government to an performance of personal service in the Philippines.
individual or enterprise deemed beneficial to the public. 1. Resident Citizens (RC) - A nonresident alien not engaged in trade or business is
2. Nonresident Citizens (NRC) subject to 25% income tax based on gross profit from all sources
PERMIT or LICENSE is a charge imposed under the police power for 3. Resident Aliens (RA) within the Philippines.
purposes of regulation. 4. Nonresident Aliens (NRA)
- Engaged in trade/business (NRA-ETB) APPLICABLE TAXES AND TAX RATES
CUSTOMS DUTIES are taxes imposed on goods exported from or - Nonresident aliens not engaged in trade or business (NRA- 1. Classification of the Taxpayer
imported into a country. NETB) 2. Source of Income
Taxpayer - Taxbase - Source of taxable income
TARIFF is the system of imposing duties on the importation or exportation Importance of classification: RC - Net Income - Within and without
of goods. They differ as to: NRC, RA, NRA-ETB - Net Income - within
- Situs of income NRA-NETB - gross income - within
DIRECT DOUBLE TAXATION means taxing twice: - Manner of computing tax
1. By the same taxing authority, jurisdiction, or taxing district - Treatment of certain passive incomes 3. Type of Income (APPLICABLE TAX)
2. For the same purpose - Allowable deductions a. Ordinary or regular income (GRADUATED RATE)
3. In the same year or taxing period - References in the tax choice - Refers to income such as compensation income,
4. Same subject or object business income, and income from practice of a
5. Same kind or character of the tax CITIZENS OF THE PHILIPPINES profession
1. Born with father and/or mother as Filipino citizens b. Passive income (FINAL WITHHOLDING TAX)
MEANS OF AVOIDING THE BURDEN OF TAXATION 2. Born before Jan, 17, 1913 of Filipino mother who elects Philippine - Subject to final withholding taxes are certain
1. Shifting - the transfer of the burden of tax by the original taxpayer citizenship upon reaching the age of maturity, passive incomes from sources within the
to someone else 3. Acquired Philippine citizenship after birth (naturalized) in Philippines such as:

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- Interest income
- Dividend income
- Royalties
- Prizes
- Other winnings
c. Capital gains subject to gains tax (CAPITAL GAIN TAX)
- Capital gains from sale of shares of stocks of a
domestic corporation
- Capital gains from sale of real property in the
Philippines

Under RA 10963 (TRAIN LAW), self-employed is defined as a sole

proprietor or independent contractor who reports income earned from
self-employment,

PROFESSIONAL is a person formally certified by a professional body

belonging to a specific profession.

Regular income of SELF-EMPLOYED and/or PROFESSIONALS (SEP)

amounting to more than 250,000 but with a gross sales and other
operating income not exceeding 3M shall have the option to avail 8% tax.

FINAL WITHHOLDING TAX F

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