TAXATION Magazine

BAC106 | VOL. 1 MARCH 2022 TtAaXxAaTt IOi oNn Taxation Matters! aliens are taxpayers? This month will feature Tax, what it is, its importance, its role in society, are aliens and more. real? find out more BAC106 | Module Output 1 Made by Mary Nicole Soberano

1 | PAGE What is Taxation? Taxation is the levying of tax and a raising of revenue that covers government costs for the benefit of the people. Every sovereign state possesses this power, which is necessary for the existence of any government. inherent powers of the state 01 Police Power 02 Power of Eminent Domain Purpose of Taxation 03 Power of Taxation PPRRIIMMAARRYY SSEECCOONNDDAARRYY Theory of Taxation Raise R evenue To Reg ulate Lifeblood Theory Cover CGoos vtesrnment ReIdnuecqeu aSloictiyal it allows the government to exist Promote Safety FosteGrroE wctohnomic Reciprocity Theory and Ge neral Welfare it is for the protection the government provides Ability to Pay Theory considering the taxpayer's ability to pay

TTAAXX 2 | PAGE Taxes are proportional contributions Legislative in Nature levied on an individual, a corporation, or property. It is Direct Tax common to pay it in money and is The tax that is paid by a person directly. proportionate, which is always in percentage. Indirect Tax The responsibility of paying tax is passed on to another. Three branches of Government legislative executive judicial The department where The department where The department wherein they write laws. they administer and they interpret laws. implement laws. stages of taxation levying The first stage. This is where The objective of taxation is assessment determined by the congress through law. The second stage. This is where the BIR provide rules and guidelines on paying or computing taxes collection The third stage. This is where money from taxpayers is being collected in the BIR.

NATURE of the power 3 | PAGE to tax taxes in the - it is inherent or automatic in sovereignty Philippines - it is legislative and cannot be delegated except: 1. income tax – payroll tax or tax from earnings president as to imports the LGU, as long there is no double taxation 2. business tax – only applicable for other kinds of government agencies, as to business non-legislative processes - exemption of the government and its 3. estate tax – belongings of the one agencies who died - international comity (reciprocal agreement or treaty involved) 4. donor’s tax – donations - territorial jurisdiction 5. documentary stamp tax – tax for Classification of documents Taxes 6. excise tax – privilege taxes that are scope and taxing subject matter or object not common authority personal taxes – tax attached 7. real property tax – house or land or both, you need to pay tax in LGU national tax – payed in BIR on persons 8. local business tax – business permit local tax – only in LGU property – on real/ personal property 9. community tax - sedula excise – exercise of privilege ELEMENTS as to burden as to determination of direct tax OF A SOUND SYSTEM amount indirect tax FISCAL ADEQUACY specific – ther e is THEORETICAL JUSTICE ADMINISTRATIVE FEASIBILITY measurement ad valorem – it is based on a percentage as to purpose as to rate revenue for th e government proportional – based on a fixed percentage sumptuary – to control an industry progressive – m ore income, bigger tax to pay regressive – more income, lesser tax to pay

LimitationS 4 | PAGE inherent constitutional Situs of Taxation The mother law of the They are natural already so Philippines. It is expressly where a subject should be taxed. it does not need to make it provided in which it is written in persons – residence a law. the constitution. real property – depends on the public purpose due process of law IN ALL LEGAL location of land or non delegation of taxing PROCEEDINGS building only power – it is not allowed to substantive due process – it is the personal property – be passed to other treatment of people place of transaction departments procedural due process interest income – the territoriality of taxation – equal protection of the law – location of bank the government of the everyone is viewed equally Philippines cannot get uniformity rule in taxation involved with the tax of income tax – schedular / table other countries non imprisonment for non- payment of debt and poll tax double non impairment of obligations and contracts !! no law can impair obligations and contracts, same with taxes non infringement of religious freedom – it is forbidden to tax religions, exemption of churches is only exempted in religious activities non appropriation of government funds for the use, benefit or taxationsupport of any church same taxpayer is taxed twice by same tax jurisdiction for the same thing 2 Types Direct Double Taxation double taxation can be avoided all elements of double taxation are present. or minimized through: Indirect Double Taxation 1.Provision of tax exemption 2.Foreign Tax Credit being allowed one of the secondary elements is not meet not 3.Allows reciprocal tax treatment common 4.Entering into a treaty Take Note! Double taxation is not allowed because it is a burdensome and oppressive.

escape from taxation 5|PAGE no loss of government loss of government revenue revenue SHIFTING TAX EXEMPTION Transferring tax burden to other privilege from being subject to tax and can taxpayers. only be granted by law, constitution or contract TRANSFORMATION TAX AVOIDANCE Elimination of wastes or losses by taxpayers. Any act or trick that reduces or escapes taxes in a legal way. TAX EVASION Avoiding the payment of tax by not filing a tax return. Sources NATURE of Tax Laws OF PHILIPPINE TAX LAWS https:/sources-of-laws-bac106.com In case of interpretation CONSTITUTION - the most powerful source of tax laws, tax laws are STATUES (aka laws) AND PRESIDENTIAL DECREES constructed against the TAX CODE government and in favor COURT DECISIONS (aka case laws) EXECUTIVE ORDERS AND BATAS PAMBANSA of the taxpayer. LOCAL ORDINANCES Meanwhile, in case of tax TAX TREATIES AND CONVENTIONS WITH OTHER exemption, tax laws are COUNTRIES against the taxpayer and ISSUANCE BY THE BIR in favor of the government.

6 | PAGE Income Taxation in the philippines Two classifications of Taxpayers: Individuals Corporations OFWs CLASSIFIED INTO TWO: Filipino who migrates or work permanently CITIZENS - Filipino Permanently living in another country in the Philippines Filipino who has been resident citizens (RC) Parents are citizens out of the Philippines non-resident citizens (NRC) of the country, for 183 days and born by blood not more ALIENS - Foreigners by birth Foreigners who resident aliens (RA) temporarily lives in the non-resident aliens (NRA) Philippines because of a definite purpose that engaged in trade or business (NRA-ETB) requires them not engaged in trade or business (NRA-NETB) aliens whose purpose to earn business come in the Philippines income can be accomplished aliens who stay for right away more than 180 days alien who is on a during the year vacation but suddenly engaged in selling something

types of income 7 | PAGE Income tax due ORDINARY IN COME REGULAR INC OME TAX employment and business income PASSIVE INCO ME FINAL WITHHO LDING TAX investments or rental income CAPITAL GAIN S CAPITAL GAIN TAX property finaflor iinncdoimviedutaaxlastion PPAASSSSIIVVEE IINNCCOOMMEE passive income subject to final taxes only covers income that are earned in the Philippines income that are subject to final withholding taxes are only those earned in the Philippines and in: interest income from bank deposits (bonds) and investments certificates Take Note! dividend income royalties prizes and winnings 1. Not ALL passive income is tax informer's reward subject to final tax. Tax Exempt Prizes 2. If there is passive income which was earned outside the country, it is subject to regular income because they are considered as ordinary income. prizes received by a person without any effort in joining a contest prizes from sports competition (national sports organizations) the recipient should be selected without doing anything Invitation, nomination or winner of a sports competition are also exempted.

finafloriinncdomiviedutaaxlastion 8 | PAGE Final Withholding Tax System A person is obligated to withhold the tax for the government. Income earner does not need to file any tax return anymore. OORRDDIINNAARRYY IINNCCOOMMEE TWO CLASSIFICATIONS: Compensation Income - income acquired from employment (salary) Business Income - income obtained from the operations of a taxpayer's own business Passive income which was earned outside the country is also included. Regular income tax is to computed Take Note! ANUALLY but needs to be paid QUARTERLY. MIXED INCOME EARNERS - They acquire both compensation income and business Pure compensation income earners income are exempted to this, as they are subject to substituted by their employers and are taxed MONTHLY