Income Taxation

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Classification of Taxpayers

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Individual and Non-individual Taxpayers

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Types of Individual Tax Payers

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Citizens and Aliens

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Types of Citizens

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Resident and Non-resident citizens

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Types of Aliens Taxpayers

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Resident Aliens, Non-resident alien Engage and Not-engaged in trade or business

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4 requirements to be Citizens

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1. Those who are citizens of the Philippines at the time of the adoption of the Constitution (on February 2, 1987)

2. Those whose fathers or mothers are citizens of the Philippines

3. Those born before January 17, 1973 of Filipino mothers who elect Philippine citizenship upon reaching the age of majority

4. Those who are naturalized in accordance with law

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A citizen of the Philippines residing therein

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Resident Citizen

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4 requirements in Non-resident citizen (NRC)

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1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein

2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis

3. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year

4. A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines

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Individuals who are not Filipino citizens

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Aliens

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Normal Savings Interest

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all 20 except NRFC and NETB 25

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Interest 5yrs+

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4E-25-RCIT-25

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Interest less 3yrs

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420-25-RCIT-25

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Interest 3-4yrs

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412-25-RCIT-25

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Interest 4-5yrs

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45-25-RCIT-25

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Dividends DC

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310-20-25-2E-25

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Dividends RC/NFRC

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If pre-dominant income is within, same rule as DC. If pre-dominant income is without, subject to normal income tax if received by RC and DC

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FCDU

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R15-NRe

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Royalties Books

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410-25-220-25

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Royalties Non Book

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420-25-220-25

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Prizes 10k below

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4G-25-RCIT-25

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Prizes 10K+

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420-25-RCIT-25

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Winnings 10K below

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all E

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Winnings 10K+

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420-25-RCIT-25

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ITR

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all 10

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3 req. Resident alien (RA)

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1. An individual whose residence is within the Philippines and who is not acitizen thereof.

2. An alien who lives in the Philippines with no definite intention as to his stay

3. One who comes to the Philippines for a definite purpose which in its naturewould require an extended stay and to that end makes his home temporarilyin the Philippines, although it may be his intention at all times to return to hisdomicile abroad

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3 req. Non-resident alien engaged in trade or business (NRA-ETB)

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1. Non-resident alien who is engaged in trade or business in the Philippines

2. Non-resident alien who has practiced his profession in the Philippines

3. Non-resident alien who shall come to the Philippines and stay therein for anaggregate period of more than 180 days during any calendar year shall bedeemed a “non-resident alien doing business in the Philippines”.

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3 req. Non-resident alien not engaged in trade or business (NRA-NETB)

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1. Non-resident alien who is not engaged in trade or business in the Philippines

2. Non-resident alien who has not practiced his profession in the Philippines

3. Non-resident alien who shall come to the Philippines and stay therein for anaggregate period of NOT more than 180 days during any calendar year

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Types of Non-individual taxpayers

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Domestic Corporation;

Residenr Foreign Corp;

Non-resident Foreign Corp

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organized and established under the laws of the Philippines andis taxable on all income derived from sources within and outside the Philippines

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Domestic Corporation (DC)

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corporation organized and established under the lawsof a foreign country and is engaged in trade or business within the Philippines (taxable only onincome derived from sources within the Philippines)

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Resident Foreign Corporation (RFC)

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corporation organized and established underthe laws of a foreign country and is not engaged in trade or business within the Philippines(taxable only on income derived from sources within the Philippines

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Non-Resident Foreign Corporation (NRFC)

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Tax Base

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all Taxable Income except NETB and NRFC (gross income)

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source of income

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all within except RC and DC (in and out)

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Tax Rates (Graduated Tax)

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RC,NRC,RA,NRC-ETB

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Tax Rates (Final Tax 25%)

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NRA-NETB and NRFC

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Tax Rates (NIT 25% or 20%)

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DC and RFC

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Not over P250,000

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0,0

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Over P250,000 but not over P400,000

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0, 15% of excess over P250,00

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Over P400,000 but not over P800,000

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P22,500, 20% of excess over P400,000

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Over P800,000 but not over P2,000,000

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P102,500, 25% of excess over P800,000

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Over P2,000,000 but not over P8,000,000

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P402,500, 30% of excess over P2,000,000

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Over P8,000,000

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P2,202,500, 35% of excess over P8,000,000

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An enforced proportionate contribution imposed upon persons, properties, businesses, rights, interests,privileges, transactions and acts within the territorial jurisdiction

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Tax

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is the power by which the sovereign raises revenue to defray the expenses of thegovernment.

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Taxation as a power

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is the process or means by which the sovereign, through its lawmaking body, raisesincome to defray the necessary expenses.

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Taxation as a process

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is the indispensable and inevitable price for civilized society.

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Taxation as a price

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is the legislative act of levying/imposing a tax to raise income for the government todefray its necessary expenses

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Taxation as an act

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the existence of the government is a necessity; it cannot exist nor endure without means topay its expenses; and for those means, the government has the right to compel all its citizensand property within its limits to contribute in the form of taxes.

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Lifeblood Theory

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every person who is able to must contribute his share inthe running of the government. The government, for its part, is expected to respond in theform of tangible and non-tangible benefits intended to improve the lives of the people andenhance their moral and material values.

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Doctrine of Symbiotic Relationship

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the power to take property for the support of the government and for publicpurpose

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Power of Taxation

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the power to enact laws to promote the general welfare of the people. It is wider inapplication because it is the general power to make laws.

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Police Power

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the power to take private property for public use upon payment of justcompensation (Power to Expropriate)

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Power of Eminent Domain

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Nature and Characteristics of the Power of Taxation

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1. It is legislative in character

2. It is subject to international comity or treaty

3. It is subject to constitutional and inherent limitations

4. It is generally payable in money

5. It is territorial

6. It is for public purpose

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sources of revenue should be sufficient to meet the demand for public expenditure

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Fiscal Adequacy

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tax laws must be capable of convenient, just and effective administration

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Administrative Feasibility

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onsiders the taxpayer’s ability to pay (ability-to-pay principle).

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Theoretical Justice

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is a scheme used outside of those lawful means and when availed of it exposestaxpayers to criminal and administrative liabilities. It refers also to acts and devices that illegally reducesor totally evade the payment of taxes

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Evasion or tax dodging

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is a device within the means sanctioned by law. It is thereduction or totally escaping payment of taxes through legally permissible means. Should be used ingood faith and at arm’s length.

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Avoidance or tax minimization or tax saving

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is the process of transferring the tax burden from the statutory to another (e.g. VAT)

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Shifting

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is a limited time offer by the State to a specified group of taxpayers to pay a definedamount (certain percentage) in exchange for forgiveness of a tax liability relating to a previous taxperiod as well as freedom from criminal prosecution.

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Tax Amnesty

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means to remit or to desist or refrain from exacting or imposing a tax. Condonationof a tax liability is equivalent to and is in the nature of a tax exemption

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Tax Condonation

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all incomes regardless of classification are reported in the income tax return andthen the tax is computed thereon

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Global Tax System

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different types of income are subject to different sets of income tax rates(graduated or flat). The basis may be gross income (without deductions) or net income (gross incomeless allowable deductions).

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Schedular Tax System

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regular or ordinary income including passive income andcapital gain not subjected to final tax are lumped or added together and after deducting allowabledeductions, the taxable income is subjected to tax in accordance with tax rules i.e. graduated forindividual or flat rate for non-individual

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Semi-Schedular or Semi-Global Tax System

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Tax of a fixed amount imposed on individual, whether citizens ornot, residing within a specified territory without regard to their property or the occupation inwhich he may be engaged

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Personal/Poll/Capitation

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Tax imposed on property, whether real or personal, in proportion either to itsvalue, or in accordance with some other reasonable method of apportionment

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Property

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Tax based on a fixed percentage of amount of the property, receipts, or otherbases to be taxed

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Proportional

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Tax the rate of which increases as the tax base or bracket increases

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Progressive

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Tax the rate of which decreases as the tax base of bracket increases

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Regressive

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subject to basic or normal income tax (NIT) using the graduated tax tablei.

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Ordinary or regular income

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subject to final withholding taxes (FWT)

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Passive income

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Workers, whether in the public or private sector, who is paid not more than the statutory minimum wage.

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Minimum Wage Earners (MWEs)

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The family of John received P2 million life insurance proceeds when he died. How much is the taxable income?

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Non Taxable

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shall include one person corporations, partnerships, no matter howcreated or organized, joint-stock companies, joint accounts

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corporation under tax code

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is an artificial being created by operation of law, having the right of succession andthe powers, attributes and properties expressly authorized by law or incident to its existence.

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corporation under corporation code

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a corporation with a single stockholder who can only be a natural person,trust or estate

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One-person corporations

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two or more persons bind themselvesto contribute money, property, or industry to a common fund, with the intention of dividing the profitamong themselves

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Ordinary partnerships

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a business owned by investors, with each investor owning a share based on theamount of stock purchased

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Joint stock companies

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is one that is held jointly by two or more natural persons, or by two or more juridical persons orentities. Under such setup, the depositors are joint owners or co-owners of the said account, andtheir share in the deposits shall be presumed equal, unless the contrary is proved

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any organization or group of persons other than those mentioned