KINDS OF TAXES NATIONAL TAXES  imposed by the national government.  main sources are derived from the NIRC (National Internal Revenue Code) and OTHER SPECIAL LAWS LOCAL TAXES  imposed by the local government.  sources are derived from the LGC

NIRC Income tax Estate tax Donor’s tax VAT Other Percentage tax Excise tax Documentary Stamp tax P.D. No Customs duties P.D. No Travel tax R.A. No Motor vehicle user’s charge P.D. No. 844 and 845 B.P. Blg. 36 Energy taxes NATIONAL TAXES

LOCAL TAXES Professional tax Business tax Community tax Property tax

INCOME TAX

GENERAL PRINCIPLES OF PHILIPPINE INCOME TAXATION  Resident citizen………………within & without  Non-resident citizen………..within  OFW……………………………..within  Alien……………………………..within  Domestic corporation………within & without  Foreign corporation…………within

CLASSIFICATION OF TAXPAYERS INDIVIDUALS resident citizens non-resident citizens resident aliens non-resident aliens CORPORATIONS Domestic those incorporated under Phil. law Foreign (resident/non-resident) those incorporated under foreign law GENERAL PARTNERSHIP Formed by persons deriving income from engaging in any trade or business ESTATES & TRUSTS Estate – refers to all the property, rights & obligations of a person which are not extinguished by his death. Trusts – refers to an arrangement created by agreement or law under which title to property is held by one person (trustee) for the benefit of another (beneficiary).

EXCLUSIONSEXCLUSIONS INCOME TAX THEORY R E C E I P T S GROSSINCOMEGROSSINCOME Income subject to IT Deduction Exemption Capital Gains subject to CGT Passive Income subject to FIT IT-Income Tax CGT-Capital Gains Tax FIT-Final Income Tax

INCOME - means all wealth which flows into the taxpayer return from service from sale of property from use of capital

GROSS INCOME All income of whatever kind and derived by a taxpayer from whatever source but not including exclusions. EXCLUSIONS Those which are not included in gross income and shall be exempt from taxation.

EXCLUSIONS L A Gi C I Re M ife Insurance proceeds mount received as return of premium fts ompensation for injuries/sickness ncome exempt under treaty tirement benefits, pensions iscellaneous items

L ife Insurance proceeds - paid to the heirs or beneficiaries upon the death of the insured illustration: Mr. X purchased a life insurance policy with a premium of P100,000. Under the policy, his heirs would receive P1 million upon his death. The P1 million pesos received by the heirs is excluded from their gross income, hence, not taxable.

Illustration: Mr. Y, 25 yrs. old, purchased a life annuity plan for P100,000. Under the plan, if he would still be alive after 40 yrs., he would receive the amount of P50,000 per year. Mr. Y died at the age of 75. A mount received as return of premium P50,000/yr X 10 years = P500,000 P100,000 as return of premium P400,000 as profit

Gi fts - no legally demandable obligation to give

C ompensation for injuries/sickness - paid by Accident /Health insurance or paid by defendant or accused in a lawsuit

I ncome exempt under treaty - treaty obligation is binding upon the Philippine government

-retirement benefits:retiree is at least 10 years in service and retiree is at least 50 yrs. old - pensions:from SSS, GSIS, Retirement Plan - separation pay:separation from the service is because of death, sickness, or for any cause beyond the control of the employee. Re tirement benefits, pensions, separation pay

- income derived by foreign government - income derived by Philippine government - prizes and awards in recognition of religious, charitable and educational achievement - prizes & awards in sports competition - 13th month pay, christmas bonus and other benefits up to a maximum of P30,000 - GSIS, SSS, PAG-IBIG, Philhealth contributions - gains from indebtedness with a maturity of more than 5 years M iscellaneous items

ITEMS of GROSS INCOME Co G G I R Ro D A P P mpensation for services ross income derived from conduct of trade or business or exercise of a profession ains derived from dealings in property nterest ents yalties ividends nnuities rizes and winnings artner’s share from the income of a general professional partnership

Compensation for services “COMPENSATION INCOME” - means arising from personal services under an employer- employee relationship Gross income derived from conduct of trade or business or exercise of a profession “NON-COMPENSATION INCOME” “BUSINESS INCOME” “PROFESSIONAL INCOME” - income not derived from personal services or not related to an employer- employee relationship.

Gains derived from dealings in property Interest Rents

RoyaltiesD ividends A nnuities

General Professional Partnership (GPP) -formed by persons for the sole purpose of exercising their common profession -is not subject to income tax but the partners are liable for income tax in their separate and individual capacities on their respective shares in the net income of the partnership Prizes and winningsPartner’s share from the income of a general professional partnership

GPP -exempt entity -purpose is to exercise profession GP -taxable entity -purpose is to engage in trade or business

DEDUCTIONS - items which the law allows to be deducted from the gross income of a taxpayer in order to arrive at the taxable income O I Ta L Ba D D Char Pe rdinary and necessary business expense nterest xes osses d debts epreciation of property epletion of natural resources itable and other contributions nsion trust

O rdinary and necessary business expense - directly attributable to the conduct of the trade, business or exercise of a profession ex. salaries of employees allowance for travel expenses representation expense promotion or advertising expense rentals

I nterest - paid on indebtedness in connection with the taxpayer’s trade, business or profession - ex. interest on bank loan used for business expansion T axes - paid in connection with the taxpayer’s trade, business or exercise of a profession - ex. business tax paid for the operation of the business

L osses - of property connected with trade, business or exercise of a profession - not compensated for by insurance - loss arise from fires, storms, robbery, theft Ba d debts - actually ascertained to be worthless after exerting a diligent effort to collect - incurred in connection with the taxpayer’s trade, business or exercise of a profession

D epreciation of property - deduction of reasonable allowance for the exhaustion, wear and tear of property used in the trade, business or exercise of a profession - allocating the remaining value over the economic life of the property - ex. property value P100,000 economic life 10 yrs. = P10,000 deduction/yr. for 10 yrs.

D epletion of natural resources - allocating the expenditure and development of oil, gas, wells, mines, etc. over the economic life of such natural resources - ex. expenditure P10,000,000 eco. life 10 yrs. = P1,000,000 deduction/yr for 10 yrs.

Char itable and other contributions - to Philippine government or any of its agencies or political subdivision exclusively for public purpose - to organizations or associations operated exclusively for religious, charitable, educational purposes - to social welfare institutions or NGOs

Pe nsion trust - any contribution to it by the employer is allowed to be deducted from employer’s gross income