123456789101112131415 PDF

Preview

Summary

Download 123456789101112131415 PDF

Description

INCOME TAXATION REVIEWER ON PRINCIPLES, INDIVIDUALS, CORPORATIONS, GROSS INCOME, DEDUCTION

Anna Mae Leron

STARTED: DECEMBER26, 2019 |

[Publish Date]

INCOME TAXATION

Contents Fundamental Principles of Taxation..............................................................2 Situs of TAXATION......................................................................................5 Individual Taxpayers......................................................................................8 SOURCE OF INCOME...................................................................................9 Types of Income Taxes................................................................................9 Table 2.1 – GRADUATED TAX RATE  BASIC INCOME TAX....................9 Table 2.2 – FINAL WITHHOLDING TAX  FWT PASSIVE INCOME........10 Table 2.3 – CAPITAL GAINS TAX  CGT................................................11 SELF-EMPLOYED and/or PROFESSIONALS (SEP)........................................12 Minimum Wage Earners...........................................................................12 BTX of MARRIED INDIVIDUALS..................................................................13 Income Tax of Senior Citizen.....................................................................13 Fringe Benefits and De Minimis (FBT).......................................................13

Anna Mae S. Leron

2

[Publish Date]

INCOME TAXATION

Proctect local competition.

Fundamental Principles of Taxation

industries

Inherent Power – natural/basic part of every sovereign state. – Not granted by the people/Constitution. 3 Inherent Powers ( P. E. T.) 1. Police Power – promoting public welfare by restraining & regulating the use of liberty and property. **property taken are destroyed because it is noxious (harmful to living things).

2. Eminent Domain – power to take private property for public purposes with just compensation. **process of expropriation.

3. Power of Taxation – act of levying tax. The power of state to raise revenue to defray the necessary expenses. **involutary(compulsary)

Similarities ( I. P. I. L. E) a. Inherent b. State interfere with private rights and property c. Exist independently of the consitution d. Legislative in nature and character e. Equivalent compensation received, directly indirectly.

or

Purposes of Taxation Primary Purpose – Revenue/Fiscal Purpose  To raise revenues/funds to defray necessary expenses. Secondary Purpose  Regulatory Purpose – devise for regulation and control.  Compensatory Purpose (REP) Reduction of Social Inequality Economic Growth Anna Mae S. Leron

2

against

unfair

[Publish Date]

INCOME TAXATION Nature and Characteristics of TAXATION (I.L.L.T.I.P.P.S.E) 1. Inherent Power 2. Legislative Function – cannot be exercise by the executive or judicial branches of gov’t 3. Subject to Inherent and Constitutional Limitations 4. Territorial in scope 5. Subject to International treaty or comity 6. For Public Purpose 7. Generally payable in money 8. Strongest inherent power 9. Exemption of gov’t entities, agencies and instrumentalities – governmental functions. SCOPE OF POWER OF TAXATION - Most absolute power; broadest scope. - In the absence of inherent and constitutional limitations, power to tax is COMPREHENSIVE, PLENARY, SUPREME, and UNLIMITED. 1. 2. 3. 4. 5. 6. 7.

Subject/object to be taxed Purpose (as long as for public purpose) Amount/rate of the tax Kind of tax Apportionment of tax (general/limited to a locality) Situs of taxation Manner or method of collection

**Power to tax includes power to destroy. TAX – enforced proportional contributions from persons & property levied by the state for the support of gov’t and its public needs. Essential Characteristics of TAX (E.P.P.P.L.L.) 1. Enforced contribution 2. Pecuniary burden payable in money 3. For Public purpose Anna Mae S. Leron

4. Proportionate in character 5. Legislative authority 6. Levied on person, property, or exercise of right/privilege Theory of Taxation a. Necessity Theory – gov’t can’t continue to serve without means to pay its expenses. b. Lifeblood Doctrine – without taxes gov’t can’t exist or endure. It is an imperious NEED. Manefestation of Lifeblood Theory  No Estoppel against the gov’t  Collection of Taxes can’t be enjoined (stopped) by injuction – collected without unnecessary delay. (bayad muna, refund kapag may mali.)

 Not subject to compesation or set-off. – not a debt/contract. Gov’t and taxpayer are not mutual debtor and creditor of each other. 



**EXN: where both claims are DUE, DEMANDABLE, & FULLY LIQUIDATED. May result to destruction of taxpayer’s property  Valid tax = power to destroy  Invalid tax = not destructive Right to select objects/subjects of taxation

Basis of Taxation Benefits-Protection Theory – reciprocal duties of “protection and support”  The state collects taxes to function.  The citizens pay taxes to enjoy the benefits. Doctrine of Symbiotic Relationship – Taxes are what we pay for a civilized society. Aspects/Stages of TAXATION a. Levying/Imposition – passage of tax laws 2

[Publish Date]

INCOME TAXATION b. Assessment and Collection – act of administration & implementation of tax laws; determination of correct amount c. Payment of Tax – Bureau of Internal Revenue (BIR)

1. Levying (Legilative Function)

b. c. 3. As to a. b. 4. As to a. b. 5. As to a. b.

3. Payment of Taxes Collection (Executive Function)

2. Assessment (Executive Function)

Principles/Elements of Sount Tax System 1. Fiscal Adequacy – revenue must be sufficient to meet gov’t expenses and other public needs 2. Administrative Feasibility – must be capable of convenient, just and effective administration – free from confusion & uncertainty 3. Theoretical Justice – Tax burden should be proportionate to taxpayer’s ability to pay. Classification of TAXES 1. As to SCOPE: a. National – VAT, OPT, Income tax, Documentary stamp tax, Excise Tax, Estate and Donor’s Tax ( V.O.I.D.E.E.D) b. Local 2. As to SUBJECT MATTER a. Personal/Poll/Capitation – w/in a specified territory Anna Mae S. Leron

6. As to a. b. c. 7. As to a. b.

Property – real/personal property Excise – exercise of certain rights WHO BEARS THE BURDEN Direct – cannot be shifted; taxpayer is directly liable Indirect – can be transferred/shifted; tax paid by a person indirectly liable DETERMINATION OF AMOUNT Specific – fixed amount (by head/number; measured) Ad valorem – fixed proportion PURPOSE Primary/Fiscal/General/Revenue Purpose Secondary/Regulatory/Special/Sumptuary Purpose GRADUATION or RATE Proportional – fixed percentage; unitary/single rate Progressive/Graduated – tax rate increases as tax base increases Regressive – tax rate increases as tax base decreases. TAXING AUTHORITY/JURISDICTION/SCOPE National Local

LIMITATIONS ON THE STATE’S POWER TO TAX Inherent Limitations 1. For public purpose (governmental purpose) Proceeds must be used for:  Support for gov’t  Recognized object of gov’t  To promote the welfare of the community 2. Territorial limitation - Cannot operate beyond state’s jurisdiction 3. International comity/treaty - state cannot tax another state. 4. Non-delegability of Taxing power 2

[Publish Date]

INCOME TAXATION EXN: to non-delegation rule.  (no. 2) a. Delegation to the President  Tariff rates  Import and export quotas  Tonnage and wharfage dues  Other duties or imposts w/in the framework of national dev’t program of the gov’t b. Delegation to local government units - Delegated - legislative in nature of local ordinances by the local legislative branch - Congress cannot abolish LGUs power to tax c. Delegation to administrative agencies - Power to value property - Power to assess and collect taxes - Power to perform details of computation/appraisement/adjustment d. Subject to inherent and Constitutional Limitations 5. Exemption of gov’t entities, agencies and instrumentalities a. Governmental functions  Tax exempt b. Proprietary functions  subject to tax c. GOCCS proprietary functions  Tax exempt  GSIS  SSS  PHIC  PCSO  Local water districts Constitutional Limitations 1. Due process of law – right to notice & hearing 2. Equal protection of laws – prohibits class legislation w/c discriminates against someone in favor of another. Anna Mae S. Leron

 Substantial distinction  Be germane to the purpose of the law  Not be limited to existing conditions only  Apply equally to all members of the same class 3. Rule of Uniformity and Equity in Taxation – 4. Progressive scheme of taxation – emphasis on direct tax **Regressive System of Taxation – more indirect taxes than direct taxes.

5. Non-imprisonment for non-payment of POLL TAX – only punishable by surcharge. 6. Non-impairment of obligations and contracts 7. Free-worship clause 8. REAL PROPERTY Tax exemption for institutions directly and exclusively used for religious, charitable and educational purposes. – not ownership but refers to exclusively as in primarily or solely used for the said purpose. 9. Tax exemption of non-stock, non-profit educational institutions – revenues and assets actually, directly, and exclusively exempt from taxes/duties; subject to internal revenue tax on income from trade, business or other activity. (income, property, donor’s tax and custom duties) **Proprietary educational institutions (non-profit) – entitled to exemptions subj to limitations. 10. Non-appropriation of public funds or property for the benefit of any church, sect, or system of religion 11.No money shall be paid out of the Treasury except in pursuance of an appropriation made by law. 12.Concurrence of a majority of ALL MEMBERS OF CONGRESS for the passage of a law granting tax exemption 13.Non-diversification of tax collections 14.The president shall have the power to veto any particular item(s) in an appropriation, revenue, or tariff, but the veto shall not affect the item(s) to wc no objection has been made 2

[Publish Date]

INCOME TAXATION 15.Non-impairment of the jurisdiction of the Supreme Court to review tax cases 16.Appropriations, revenue or tariff bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with amendments. 17.Each LGU shall exercise the power to create its own sources of revenue and shall have a just share in the national taxes.

Situs of TAXATION -

Place of taxation – place wc has jurisdiction to impose particular tax.

Factors to consider in determining situs a. b. c. d. e. f.

Subject matter (person, property, or activity) Nature of tax Citizenship Residence of the taxpayer Source of income Place of excise, business, or occupation being taxed

Application of Situs of Taxation Person Residence of Taxpa Real Property Location Personal Property Location; place of sale/transaction Domicile of the owner EXN: when it has situs elsewhere

Intangible Personal Property

Income

Franchise  place where exercised Receivables  domicile/residence of debtor Bank Deposits  Location of depository bank

Source of income; residence; citizenship Occupation  where engaged in

Anna Mae S. Leron

Business Gratuitous Transfer

Transaction  where it took place Place of Business Residence/citizenship of taxpayer; or location of property

DOUBLE TAXATION – direct duplicate taxation Taxing twice by:

    

Same Same Same Same Same

taxing authority or district; jurisdiction purpose year or taxing period subject/object kind/character of the tax

TAX distinguished from OTHER TERMS Toll – sum of money for the use of something. Penalty – sanction imposed as punishment for violation of law. Special Assessments – enforced proportional contribution from owners of lands for special benefits resulting from public improvements. (prop with special benefits) Revenue – all funds/income derived by gov’t from tax or other source Subsidy – pecuniary aid directly granted the gov’t to an individual/private commercial enterprise deemed beneficial to the public Permit/License Fee – charge imposed under police power for purposes of regulation Debt – liability based on contract, assignable Custom Duties – taxes imposed on goods exported from/imported into a country Tariff – may be used in one of three senses a. A book of rates drawn usually in alphabetical order containing the names of several kinds of 2

[Publish Date]

INCOME TAXATION merchandised with corresponding duties to be paid for the same b. Duties payable on goods imported/exported c. System or principle of imposing duties on the importation of goods. ** tariff and custom duties are used interchangeably in the Tariff and Customs Code

Escape from TAXATION a. Shifting – transfer of tax burden (not payment) to another. Ex. VAT, Percentage, Excise, Ad-valorem (oil co.) **only indirect taxes may be shifted Impact – point wc a tax is originally imposed Incidence – “ “ tax burden finally rests/settles down

b. Transformation – manufacturer absorbs the additional taxes w/o passing it to the buyers for fear of lost of his market. **increases quantity production, for lower cost transforming the tax into gain through the medium of production.

c. Evasion (aka Tax dodging)– unlawful/illegal/fraudulent means to lessen tax payment. d. Tax Avoidance (aka tax minimization) – legally permissible means of reduction or tally escaping tax payment. ** must be in good faith and at arm’s length.

e. Capitalization – reduction in selling price provided that buyer will shoulder the taxes. f. Exemption – grant of immunity/privilege/freedom from payment. With clear provision; reasonable foundation/ rational basis. ** not favored and are construed against the taxpayer.

Anna Mae S. Leron

Grounds for granting tax exemption  May be based on a contract.  May be based on some ground of public policy.  May be based on the ground of reciprocity. Nature of power to grant tax exemption a. National gov’t b. Local gov’t Kinds of EXEMPTIONS As to   As to   As to  

Basis Constitutional – originates from constitution Statutory – emanates from legislation Form Express – expressly granted by statute Implied – deemed exempt as they fall outside the scope. Not mentioned. Extent Total – absolute immunity Partial – collection of a part of the tax is dispensed with

Sources of TAX LAWS 1. Constitution 2. Tax Treaties and Conventions with Foreign Countries 3. Tax Code – National Internal Revenue Code, Tariff and Customs Code, portion of Local Gov’t Code (Book II) 4. Statutes and laws – TRAIN Law, Court of Tax Appeals, EVAT Law, tax Reform act of 1997 5. Presidential Decrees 6. Executive Orders 7. Court Decisions 8. Revenue regulations (DOF) 9. Administrative issuance of the BIR 10.BIR Rulings 11.Local Tax Ordinances 2

[Publish Date]

INCOME TAXATION 12.Special Laws TAX LAWS -

-

-

Not political in nature Civil not penal in nature Purpose: Impose penalties for delinquencies to compel timely payment of taxes or punish evasion or neglect of duty. IN CASE OF DOUBT: Tax statutes are construed strictly against the gov’t and liberally in favor of the taxpayer . Tax exemptions are construed strictly against the taxpayer and liberally in favor of gov’t. APPLICATION: prospective in operation, but may operate retroactively if expressly declared or is clearly the legislative intent.

System of INCOME TAXATION a. Global System – all items are reported in one income tax return and the applicable tax rate is applied on the tax base. b. Schedular System – diff types of income are subj to diff sets of graduated/flat income tax rates. OTHER DOCTRINES/RULES in Taxation Equitable Recoupment – claim for refund may be allowed to be used as payment for unsettled tax liabilities – if both taxes arise from same transaction in which overpayment is made and underpayment is due Set-off taxes – not subject to legal compensation Taxpayer’s suit – allowed only if the act involves a direct and illegal disbursement of public funds derived from taxation Taxpayers have locus standi to question the validity of tax measures/ illegal expenditures of public money.

Anna Mae S. Leron

2

[Publish Date]

INCOME TAXATION

Individual Taxpayers Individual Taxpayers – Natural persons with income derived from within territorial jurisdiction of a taxing authority. Classifications: 1. 2. 3. 4.

Resident Citizen (RC) Nonresident Citizen (NRC) Resident Alien (RA) Nonresident Alien (NRA) a. Engaged in trade/business (NRA-ETB) b. Not engaged in trade/business (NRA-NETB)

Importance of Classification     

Situs of income Manner of computing tax Treatment of certain passive incomes Allowable deductions References in the tax code

Citizens  Born by birth with father/mother as Filipino citizens  Born before January 17,1973 of Filipino mother who elects Philippines citizenship upon reaching age of majority  Acquired citizenship after birth (NATURALIZED) Nonresident Citizen  Physical presence abroad with a definite intention to reside therein.  Leaves the PH during taxable year to reside abroad – either as an immigrant or for employment on a Anna Mae S. Leron

permanent basis or for work and derives income from abroad that requires him to be physically abroad most of the time during taxable year  Stays outside the Philippines for 183 days or more.  NRC who arrives in the PH at any time during the taxable year to reside permanently shall be considered NRC until the date of his arrival in the PH.  OFW/OCW (Overseas Contract Workers) – must be registered in Philippine Overseas Employment Administration (POEA) with valid Overseas Employment Certificate. **includes seafarers and seamen **income earned by OCW/OFW are exempted from income tax but not the earnings from business venture in PH.

Aliens – foreign-born person not qualified to acquire PH citizenship by birth or after birth. Resident Aliens – residence is w/in PH but not a citizen  Present in the PH who is not a mere transient/sojourner **Transient – a person who comes for a definite purpose

**Sojourn - temporary stay by a person who is not just passing through a place but is also a permanent resident.  Aliens who comes with no definite intention as to his stay  Alien who comes for the purpose that requires extended stay making his home temporarily in the PH. **regardless of his intention to return to his residence abroad

An alien who has acquired residence in PH retains his status as a resident until he abandons the same and actually depart from PH.

2

[Publish Date]

INCOME TAXATION Nonresident Alien – not a resident and citizen;  with definite purpose which in its nature may be promptly accomplished  transients/nonresidents 



NRA-Engaged in Trade/Business  Actually, engaged in Trade/Business  Stays in PH for an aggregate period of more than 180 days (>180) NRA-Not Engaged in Trade/Business  Not deriving business income  Stays in PH for 180 days or less

- Kind of tax prescribed on a “certain income” - Not credible against income tax - Passive Income derived abroad are subject to Basic Tax. - Interest Income - Dividend Income - Royalties - Prizes - Other Winnings 3. Capital gains Tax (CGT) - On Sale of Shares of Stock of domestic Corporations - On Sale of Real Properties located in PH **Total Income Tax Expense – total amount of taxes above

NRA-NETB – subject to 25% income tax bas...