TAXATION

TAXATIONImportance Of Taxation To The Taxpayers And To The GovernmentKinds And Characteristics Of TaxesTaxation System In The Philippines Personal Income Tax Computation

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. TaxationPurposes Taxation to raise revenues for public needs so that persons can live in a civilized societyThe 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 economyCharacteristics of a sound Tax systemFairnessClarity and CertaintyConvenienceEfficiency

Effects of TaxationPersonal 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 PhilippinesThe legislative branch enacts laws to continually revitalize the taxation policy of the countryBIR (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 PhilippinesRepublic 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 PhilippinesTIN (Taxpayer Identification Number) is required for any individual taxpayer

Taxation in the PhilippinesTax Reforms:Lower income tax rates to enhance the competitiveness of the Philippines in the regionRemoval of areas which provide avenues for tax avoidance and abuseExemption of OFWs from payment of tax for income earned outside the PhilippinesSimplification of the tax system which encourages payments from tax payers including those from the underground economyTaxation in the PhilippinesTaxes 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 taxesIncome TaxTax on all yearly profits arising form property, possessions, trades or officesTax on a persons income, emoluments and profits Donors TaxTax imposed on donations inter-vivos or those made between living persons to take effect during the lifetime of the donor. Estate TaxTax on the right of the deceased person to transmit property at death

Kinds of taxesValue-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 chainCapital Gains TaxTax 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 assetsKinds of taxesExcise TaxTax applicable to specified goods manufactured in the Philippines for domestic sale or consumptionSpecific 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 productsAd 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, automobilesKinds of taxesDocumentary TaxTax on documents, instruments, loan agreements and papers, agreements evidencing the acceptance, assignments, sale or transfer of an obligation, rights or property incident thereto Withholding taxExpanded 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 taxFinal 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 taxWithholding 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 EvasionWhen there is fraud through pretension and the use of other illegal devices to lessen ones taxes, there is tax evasionUnder-declaration of incomeNon-declaration of income and other items subject to taxUnder-appraisal of goods subject to tariff Over-declaration of deductions

Individual Income Tax ComputationGross 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 ofP 50, 000 Taxpayer at any status: single/widow/separated, head of the family and marriedAdditional 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 twenty-one (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 IncomeThe formula for computing the amount of income tax payable by resident citizens and resident aliens as follows:Total gross compensation income from all sourcesLess: Personal and additional exemptions

= Taxable compensation incomeMultiplied 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 DiosIS 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?