TAXATION

1. TAXATION Martin Cole Acosta Jurilla 11125993 EA2 SEMFILA

2. Taxation • An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities

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11. State Policy of Tax Reform Act of 1997/National Internal Revenue Act • It is hereby declared the policy of the State to promote sustainable economic growth through the rationalization of the Philippine internal revenue tax system, including tax administration; to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity; and to create a robust environment for business to enable firms to compete better in the regional as well as the global market, at the same time that the State ensures that Government is able to provide for the needs of those under its jurisdiction and care.

12. Philippine Constitution(Tax Reform Act of 1997) • Section 20, Article III, Bill of Rights -Prohibition against imprisonment for non-payment of poll tax • Section 28, Article VI, Legislative Department -Requirement of uniformity and equity in taxation • Section 29, Article VI, Legislative Department -Prohibition against taxation appropriation for religious purposes

13. Philippine Constitution • Section 28, Article VI, Legislative Department -Prohibition against taxation of religious, charitable and educational entities(Religious and charitable institutions exempt from property taxes) • Section 4, Article XVI, Education -Prohibition against taxation of non-stock , non-profit educational institutions and proprietary educational institutions (exempt from property and income taxes as well as customs duties except income derived from business activity not related to its educational purpose)

14. Income Tax • Income Tax is a tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code, as amended, or other special laws.

15. Individual Income Tax • Resident citizens receiving income from sources within or outside the Philippines • employees deriving purely compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year • employees deriving purely compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return • self-employed individuals receiving income from the conduct of trade or business and/or practice of profession • individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession • individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax • individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing • marginal income earners

16. Individual Income Tax • Non-resident citizens receiving income from sources within the Philippines • Aliens, whether resident or not, receiving income from sources within the Philippines • Corporation shall include partnerships, no matter how created or organized. • Domestic corporations receiving income from sources within and outside the Philippines • Foreign corporations receiving income from sources within the Philippines • Estates and trusts engaged in trade or business

17. Tax Deduction • Tax deduction is a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. • Often these deductions are subject to limitations or conditions. Tax deductions generally are allowed only for expenses incurred that produce current benefits, and capitalization of items producing future benefit is required, sometimes with exceptions. Most systems allow recovery in some manner over a period of time of capitalized business and investment items, such as through allowances for depreciation, obsolescence, or decline in value.

18. Income Tax Deductions • Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction provided that the gross family income does not exceed P250,000 per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income: • a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or

19. Income Tax Deductions • b) Itemized Deductions which include the following: • Expenses • Interest • Taxes • Losses • Bad Debts • Depreciation • Depletion of Oil and Gas Wells and Mines • Charitable Contributions and Other Contributions • Research and Development • Pension Trusts

20. Income Tax Deductions • Many systems limit particular deductions, even where the expenses directly relate to the business. Such limitations may, by way of example, include: • Maximum deductions for use of automobiles • Limits on deducting compensation of certain key employees • Limits on lobbying or similar expenditures • Nondeductibility of payments considered in violation of public policy, such as criminal fines • Limits on deductions for business related entertainment.

21. Tax Exemptions • Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or specific monetary exemption which may be claimed by an individual to reduce taxable income under some systems. Tax exempt status may provide a potential taxpayer complete relief from tax, tax at a reduced rate, or tax on only a portion of the items subject to tax.

22. Exemptions From Income Tax • An individual who is a minimum wage earner • An individual whose gross income does not exceed his total personal and additional exemptions • An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld • An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)

23. Exemptions From Income Tax • Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the following requirements are present : • the employee received purely compensation income (regardless of amount) during the taxable year • the employee received the income from only one employer in the Philippines during the taxable year • the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer • the employee’s spouse also complies with all 3 conditions stated above

24. Exemptions From Income Tax • Non-resident a) 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 b) 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 c) 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 d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during 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. • Overseas Filipino Worker, including overseas seaman

25. Exemptions From Income Tax • Charitable organizations • Religious groups • Duty Free shopping also termed as “Tax-free shopping” • Veteran workers • Under poverty

26. Corporate and Partnership Tax • Many countries impose corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the entity level. Most countries tax all corporations doing business in the country on income from that country. Many countries tax all income of corporations organized in the country.

27. Income Tax on Corporate and Partnership Income • Corporations may be taxed on their incomes, property, or existence by various jurisdictions. Many jurisdictions impose a tax based on the existence or equity structure of the corporation. For example, Manila imposes a tax on corporations organized in that state based on the number of shares of capital stock issued and outstanding. Many jurisdictions instead impose a tax based on stated or computed capital, often including retained profits

28. Philippine Corporate and Partnership Tax • Corporate income tax rate both for domestic and resident foreign corporations in Philippines is 30%, based on net taxable income. • Company tax is payable by domestic companies on all income derived from sources within and outside the Philippines. Foreign corporations, whether resident or nonresident, are taxable only on income derived from sources within the Philippines.

29. Philippine Corporate and Partnership Tax • The corporate income tax rate both for domestic and resident foreign corporations is 30%. Excluded from the income tax are dividends received from domestic corporations; interest on Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; and other passive income previously subject to final taxes. • Regional operating headquarters are taxed at 10% on taxable income.

30. Philippine Corporate and Partnership Tax • Special economic zone enterprises duly registered with the Philippines Economic Zone Authority are taxed at the rate of 5% on gross income in lieu of national and local taxes, except real property tax. The term 'gross income' refers to gross sales or gross revenue derived from the business activity within the Ecozone, net of sales discount, sales returns and allowances, less the cost of sales or direct costs but before deduction is made for administrative expenses and incidental losses during the taxable period.

31. References • http://www.bir.gov.ph/index.php/tax-information/income-tax.html#it0015 • http://www.bir.gov.ph/index.php/tax-code.html • http://www.chanrobles.com/legal6nationalinternalrevenuecodeof1997.html • http://quezoncity.gov.ph/index.php?option=com_content&view=article&id=226&Itemid=347 • http://www.tradingeconomics.com/philippines/corporate-tax-rate