[PP3] Module 2c: Tax Code

Tax

Mandatory contributions levied on individuals or corporations by a government entity--whether local, regional, or national. Tax revenues finance government activities, including public works and services such as roads and schools or Social Security and Medicare programs

Lifeblood Doctrine

Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.

Necessity Theory

The exercise of the power to tax emanates from necessity, because without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. (𝗖𝗜𝗥 𝘃. 𝗕𝗮𝗻𝗸 𝗼𝗳 𝗣𝗵𝗶𝗹𝗶𝗽𝗽𝗶𝗻𝗲 𝗜𝘀𝗹𝗮𝗻𝗱𝘀)

Benefits Received Principle / 𝘽𝙚𝙣𝙚𝙛𝙞𝙩𝙨-𝙋𝙧𝙤𝙩𝙚𝙘𝙩𝙞𝙤𝙣 𝙏𝙝𝙚𝙤𝙧𝙮

Taxpayers receive benefits from taxes through the protection the State affords to them. For the protection they get arises their obligation to support the government through payment of taxes. (CIR v. Algue, Inc., G.R. No. L-28896, February 17, 1988, 158 SCRA 9)

𝙎𝙮𝙢𝙗𝙞𝙤𝙩𝙞𝙘 𝙍𝙚𝙡𝙖𝙩𝙞𝙤𝙣𝙨𝙝𝙞𝙥 𝙏𝙝𝙚𝙤𝙧𝙮

Taxation arises because of reciprocal relation of protection and support between the State and taxpayers. The State gives protection and for it to continue giving protection, it must be supported by the taxpayers in the form of taxes. (𝗖𝗜𝗥 𝘃. 𝗔𝗹𝗴𝘂𝗲, 𝗜𝗻𝗰., 𝗚.𝗥. 𝗡𝗼. 𝗟-𝟮𝟴𝟴𝟵𝟲, 𝗙𝗲𝗯𝗿𝘂𝗮𝗿𝘆 𝟭𝟳, 𝟭𝟵𝟴𝟴, 𝟭𝟱𝟴 𝗦𝗖𝗥𝗔 𝟵)

Bureau of International Revenue (BIR)

National government agency mandated to formulate policies, implement programs and serve as the policy- coordinating arm tasked to collect taxes from the Filipino People.

"Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure."

Income

means all wealth which flows into the taxpayer other than as a mere return of capital

Taxable Income

the pertinent items of gross income specified in the Tax Code as amended, less the deductions, if any authorized for such types of income, by the Tax Code of other special laws,

Gross Income

All income derived from whatever source (9-5 job, passive income, freelance work or hobbies)

• Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar items

• Gross income derived from the conduct of trade or business or the exercise of profession

• Gains derived from dealings in property

• Interest

• Rents

Gross income includes, but is not limited to, the following:

- Royalties

- Dividends

- Annuities

- Prizes and winnings

- Pensions

- Partner's distributive share from the net income of the general professional partnerships

Gross Income

• Life insurance Amount received by insured as return of premium Gifts, bequests and devises • Compensation for injuries or sickness • Income exempt under treaty • Retirement benefits, pensions, gratuities, etc. * Miscellaneous items

Exclusions

Tax Reform Act of 1997 Republic Act No. 8424

Persons required to File income Tax Returns Resident citizens receiving income from sources within or outside the Philippines Non-resident citizens receiving income from sources within the Philippines Aliens, whether resident or not, receiving income from sources within the Philippines

Basic Personal Expenses

This is a mandatory deduction allowed to individual citizens in the Philippines regardless of status at the amount of 50,000.00Php. This applies to all individual citizen tax payers. In the computation of annual income tax for income tax return filing in the Philippines, this 50,000.00Php basic personal exemption is deducted from the gross income.

Additional Personal Exemption

This is a mandatory deduction of Php 25,000 for every qualified dependednt child up to maximum of 4 ________ maximum amount of Php 100,000

a. An individual earning purely compensation income whose taxable income does not exceed P250,000.00

b. An individual whose income tax has been withheld correctly by his employer, provided that such individual has only one employer for the taxable year

c. An individual whose sole income has been subjected to final withholding tax or who is exempt from income tax pursuant to the Tax Code and other special laws.

d. An individual who is a minimum wage earner

Who are not required to file Income Tax Returns?

c. General Professional Partnership

d. Government Service Insurance System (GSIS)

e. Social Security System (SSS)

f. Philippine Health Insurance Corporation (PHIC)

g. Local Water Districts (LWD)

Exempt from Income Tax

Corporate Tax Rate

The corporate income tax rate both for domestic and resident foreign corporations is 30% based on net taxable income. Excluded in income are dividends received from domestic corporations; interest on lippines currency bank deposit and yield from trust funds.

This is usually prepared by Certified Public Accountants

• Corporations shall include partnerships, no matter how created or organized.

* Domestic corporations receiving income from sources within and outside the Philippines

• Foreign corporations receiving income from sources within the Philippines

* Estates and trusts engaged in trade or business

Companies required to File Income Tax Returns

Tax Reform for Acceleration and Inclusion

TRAIN

Graduated Income Tax Rate

Pay a different percent of income tax based upon how much money you make.