PPT2_Income tax on individuals

INCOME TAX ON INDIVIDUALS

1. Introduction

  • Overview of income tax responsibilities for individuals.

2. Seatwork: True or False Quiz

  • Taxation Basics

    • Taxation is the process of imposing burdens on subjects to raise revenue. (True)

    • Revenue from taxation must cover government expenses. (True)

    • The National Internal Revenue Code (NIRC) is the only source of tax laws in the Philippines. (False)

    • Progressive tax system means tax rate decreases as income increases. (False)

    • Power of taxation is essential for government survival according to Lifeblood Doctrine. (True)

    • The state can take private property for public use without compensation. (False)

    • Taxation can exist without law or constitutional support. (False)

    • Main purpose of taxation is public welfare. (True)

    • Police power is the state’s authority to levy taxes. (False)

    • Constitution prohibits taxation of religious, charitable, and non-profit institutions. (True)

3. Objectives

  • Determine who are individual taxpayers.

  • Classify individual taxpayers.

  • Understand income tax rates and basis.

  • Identify different types of income and their taxation.

  • Differentiate between capital and ordinary assets.

  • Identify passive income subject to final withholding tax.

4. Individual Taxpayer Definition

  • Natural persons with income derived within the jurisdiction of a taxing authority.

5. Classification of Individual Citizens

  • Citizens:

    • Resident Citizens

    • Non-resident Citizens

  • Aliens:

    • Resident Aliens

    • Non-resident Aliens engaged in trade

    • Non-resident Aliens not engaged in trade.

6. Definition of Non-resident Citizens

  • Citizens physically present abroad with intent to reside.

  • Citizens leaving the Philippines during the taxable year for employment.

  • Citizens working abroad deriving income mostly out of the Philippines.

7. Tax Classification and Rates

  • Classification:

    • RC: Net Income Graduated, Within and Without.

    • NRC: Net Income Graduated, Within only.

    • RA: Net Income Graduated, Within only.

    • NRA: ET Net Income Graduated, Within only.

    • NRA NET: Gross Income Final Tax of 25%, Within only.

8. Tax Rates

  • Taxable Income and Rates:

    Net Taxable Income

    Tax Rate

    Over 0

    0%

    250,000 - 400,000

    15% excess over 250,000

    400,000 - 800,000

    22,500 + 20% excess over 400,000

    800,000 - 2,000,000

    102,500 + 25% excess over 800,000

    2,000,000 - 8,000,000

    402,500 + 30% excess over 2,000,000

    8,000,000 and above

    2,202,500 + 35% excess over 8,000,000

9. Tax Computation Example

  • An individual taxpayer's income and tax due to be calculated based on provided gross income and expenses.

10. Types of Income

  • Ordinary Income

  • Passive Income in the Philippines

  • Capital Gains Subject to CGT

11. Capital vs. Ordinary Assets

  • Ordinary Assets Include:

    • Stock in trade, property used in trade or business, real property held for sale, and property used in business.

  • Capital Assets:

    • All other properties not defined as ordinary assets.

12. Summaries of Taxation on Sales

  • Sale of shares and real property with different treatments depending on their location and status of the buyer.

13. Passive Income Subject to Final Withholding Tax

  • Types of passive income:

    • Interest income

    • Dividend income

    • Royalty income

    • Prizes and other winnings.

14. Specific Income Types

  • Interest Income:

    • Tax rates vary based on source and status of the taxpayer.

  • Dividend Income:

    • Tax treatment for domestic and foreign corporations varies.

  • Royalty Income:

    • Payments for the use of intellectual property with specified tax rates.

  • Prizes and Winnings:

    • Taxed based on the amount with specific thresholds.

15. Conclusion

  • Summary and review of the information provided regarding individual income taxation.