TAXATION

Importance Of Taxation To The

Taxpayers And To The Government
Kinds And Characteristics Of Taxes
Taxation System In The Philippines
Personal Income Tax Computation

Taxation
The system of compulsory
contributions levied by a government
or other qualified body on people,
corporations and property in order to
fund public expenditures.
An inherent power of the state to
raise income and to demand enforced
contributions for public purposes.

Purposes Taxation
to raise revenues for public needs so that
persons can live in a civilized society
The government increase taxes in order to
stabilize prices and stimulate greater
production.
An instrument of fiscal policy influences
the direction and structure of money
supply, investments, credits, production,
interest rate, inflation, prices and in
general, of the national economy

Characteristics of a sound Tax

system

Fairness
Clarity and Certainty
Convenience
Efficiency

Effects of Taxation
Personal Income Tax which is presumed to fall
entirely on the legal taxpayers influences
decisions to work, save, and invest. These
decisions affect other people.
Corporate Income Tax may simply result to lower
corporate profits and dividends. It may reduce
their income of all owners of property and
businesses. The company may move toward
raising the prices of their products

Taxation in the
Philippines

The legislative branch enacts laws to

continually revitalize the taxation policy of
the country

BIR (Bureau of Internal Revenue)

Mandated to comprehend the assessment
and collection of all national internal revenue
taxes, fees and charges so as to promote a
sustainable economic growth

Taxation in the
Philippines

Republic Act No. 8424

(Comprehensive Tax Reform Act of
1997)
Tax Payer: any person subject to tax
whose sources of income is derived
from within the Philippines
TIN (Taxpayer Identification Number) is
required for any individual taxpayer

Taxation in the
Philippines

Tax Reforms:

Lower income tax rates to enhance the

competitiveness of the Philippines in the region
Removal of areas which provide avenues for tax
avoidance and abuse
Exemption of OFWs from payment of tax for
income earned outside the Philippines
Simplification of the tax system which encourages
payments from tax payers including those from
the underground economy

Taxation in the
Philippines
Taxes are collected within a
particular period of time know as
taxable year
This is the calendar year or the fiscal
year that covers an accounting period
of 12 months ending on the last day
of any month other that December.

Kinds of taxes
Income Tax
Tax on all yearly profits arising form property,
possessions, trades or offices
Tax on a persons income, emoluments and profits

Donors Tax
Tax imposed on donations inter-vivos or those made
between living persons to take effect during the
lifetime of the donor.

Estate Tax
Tax on the right of the deceased person to transmit
property at death

Kinds of taxes
Value-added Tax (VAT)
Tax imposed and collected on every sale, barter,
exchange or transaction deemed sale of taxable
goods, properties, lease of goods, services or
properties in the course of trade as they pass along
the production and distribution chain

Capital Gains Tax

Tax imposed on the gains presumed to have been
realized by the seller for the sale, exchange or other
disposition of real property located in the Philippines,
classified as capital assets

Kinds of taxes
Excise Tax
Tax applicable to specified goods
manufactured in the Philippines for domestic
sale or consumption
Specific tax: imposed on certain goods based on weight
or volume capacity or any other physical unit of
measurement (Specific tax = volume x tax rate)
Alcohol products, petroleum products, tobacco
products
Ad valorem tax: imposed on certain goods based on
selling price or other specified value of the goods
(Ad valorem tax = selling price x tax rate)
Mineral products, automobiles

Kinds of taxes
Documentary Tax
Tax on documents, instruments, loan
agreements and papers, agreements
evidencing the acceptance, assignments, sale
or transfer of an obligation, rights or property
incident thereto

Withholding tax
Expanded withholding tax:
A system of collecting taxes
whereby the taxes withheld on
certain income payments are
intended to equal or at least
approximate the tax due of the
payer on said income.

Withholding tax
Final withholding tax:
A system of collecting taxes whereby
the amount of income tax withheld by
the withholding agent is constituted as a
full payment of the income tax due form
the payer on the said income. The payer
is not required to file an income tax
return for the particular income.

Withholding tax
Withholding tax for
compensation income:
Commonly referred to as pay as you go
or pay as you earn.
A method of collecting the income tax at
source upon receipt of the income.

Tax Evasion
When there is fraud through pretension
and the use of other illegal devices to
lessen ones taxes, there is tax evasion
Under-declaration of income
Non-declaration of income and other items
subject to tax
Under-appraisal of goods subject to tariff
Over-declaration of deductions

Individual Income Tax

Computation
Gross income is all income but not including exempt
income and income subject to final income tax.
Examples of gross income are salaries or wages for
services including fees, commissions, and similar items
and those derived from business or profession, sale of
and other dealings in property, interest, rents dividends,
and securities.
Taxable income is gross income as defined above less the
deductions allowed by law which includes, in the case of
individuals, the allowable personal and additional
exemptions.

Personal and Additional Exemptions

Allowable to Individuals
For income tax purposes:
PERSONAL EXEMPTION of
P 50, 000
Taxpayer at any status:
single/widow/separated, head of
the family and married

Additional Exemptions Allowable

to Individuals
In the case of married
individuals where only one of
the spouses is deriving gross
income, only such spouse
shall be allowed the personal
exemption.

Additional Exemptions Allowable

to Individuals
An additional exemption of
P 25,000.00 shall be allowed for
each qualified dependent child,
not exceeding four (4). The
additional exemption for
dependents shall be claimed by
the husband, who is deemed the
head of the family unless he
explicitly waives his right in favor
of his wife.

Additional Exemptions Allowable

to Individuals
In the case of legally separated
spouses, additional exemption
may be claimed only by the
spouse who has custody of the
child or children; provided, that
the total amount of additional
exemptions that may be claimed
by both shall not exceed the
maximum exemptions allowed by
the Tax Code.

Personal and Additional Exemptions

Allowable to Individuals

Head of the family means an unmarried or

legally separated man or woman with one or both
parents, or with one or more brothers and sisters,
or with one or more legitimate, recognized natural
or legally adopted children, living with and
dependent upon him for their chief support,
where such brothers or sisters or children are not
more than twenty-one (21) years of age,
unmarried, not gainfully employed, or regardless
of age, are incapable of self-support because of
mental or physical defect. The term also includes
a benefactor of a senior citizen under Republic
Act 7432.

Personal and Additional Exemptions

Allowable to Individuals

Dependent child means a legitimate,

illegitimate or legally adopted child chiefly
dependent upon and living with the taxpayer
if such dependent is not more than twentyone (21) years of age, unmarried and not
gainfully employed, or regardless of age, is
incapable of self-support because of mental
or physical defect.
A recognized child is one born outside of
wedlock between a man and wife, who at
the time of the conception of the child, were
legally free to marry each other, and is
recognized by one or both parents.

Computation of Tax on
Compensation Income
The formula for computing the amount of income tax payable by
resident citizens and resident aliens as follows:
Total gross compensation income from all sources
Less: Personal and additional exemptions
= Taxable compensation income
Multiplied by: Graduated tax rate in
Section 21 (a) of the Tax Code
= Amount of income tax due and payable
Note that only personal and additional exemptions may be
deducted from gross compensation income.

Problem
Mr. de Dios is earning a monthly income of
P15,500. His 18 years old son is a call center
agent, earning a monthly salary of P 4,500. Mr.
de Dios is diabetic with a monthly expenses on
medicine worth PhP3000. He sends money to
his mother every 15th of the month with a total of
P1,500. And his annual withholding tax is
P
26,000.
Compute for the tax due of Mr. de
Dios
IS there a tax payable or refundable?
How much?

Fidel is married government employee with a monthly

salary of P 25,000, and have five children ages
10,11,13,17 and 18 years. On March 1 of this year the
eldest child got married, and three months later the second
eldest got employed as a contractual crew at a fast food
company. On September of the same year Fidels wife
gave birth to triplets. Two months later her wife and his two
babies died in a car accident. His annual withholding tax is
P15,250.
How many qualified dependents that Fidel can avail of
the additional exemption?
How much is his taxable income?
How much is his tax due for the given year?