INCOME TAXATION
Business and Other Transfer Taxes
Class: Accounting/Entrep/HRM 3
Room:304T
Days:Monday-Wednesday
Time:9:30 11:00 a.m.
Business and Other Transfer Taxes
Class: Marketing 3
Room:305T
Days:Monday-Wednesday
Time:12:00 1:30 p.m.
Teaching-Learning Strategies
Lecture and Class Discussions
Actual Demonstrations and Computations
Problem Solving and Case Analysis
Course Requirements
Attendance and Attitude
Class Participation
Quizzes/Long Tests
Assignments/Discussions
Major Exams (Prelim, Midterm, Final)
Attendance
Tardiness:
Arrives 1 minute after scheduled start of class
3 tardiness = 1 absence
Absences:
Beyond 15 minutes late is considered absent.
Maximum # of absences = 4
Beyond 4 absences = failure due to absences (FDA)
Grading System
Class Participation20%
Quizzes/Long Tests20%
Assignments/Discussions20%
Major Exams (Prelim, Midterm, Final)40%
Final Grade = Prelim + Midterm + Final
3
Where We Stand
Everyone starts with a perfect grade
How you maintain that mark until the end of the semester is
entirely within your control
Attendance and Attitude
Class Participation
Quizzes/Long Tests
Assignments/Discussions
Major Exams (Prelim, Midterm, Final)
Introduce yourself
Name course level
Class expectations:
Of the Subject
What do you expect to learn from this class?
How do you want the class to proceed?
Of the teacher
What do you expect of me as your teacher?
How can we make this a truly fulfilling learning experience?
My Expectations
At the end of the semester :
Students should be able to:
Demonstrate acceptable level of mastery of the basic concepts
and principles of transfer and business taxes. (Competence)
Foster adherence to tax laws and recognize the importance of
taxes in business as well as in their individual lives.
(Character)
Manifest a drive to understand how taxes can affect business
such that it leads the student to formulate ideas on how to improve
taxation in the country. (Commitment to achieve)
Share knowledge learned and ideas formulated from assigned
topics and harmoniously work within a group to draft plans and
innovate ways to determine a tax framework that is friendly to
business. (Collaboration)
Discover sources of information to widen knowledge about
business and other transfer taxes. (Creativity)
First Assignmentfor submission Nov 12
size index card
Family Name, First Name (Nickname) upper left
Course & Year upper middle
1 x 1 - ID picture upper right
Contact# (1st row)
Email address (2nd row)
Lecture Topics
Week 1: Basic Concepts and Principles of Taxation
Introduction
Definition, Nature & Basis of Taxation
State Power
Objectives of Taxation
Limitations on the Power of Taxation
Basic Principles of a Sound Tax System
Essential Characteristics of a Tax
Tax distinguished from a license fee
Classification of Taxes
What is Taxation?
Inherent power of a sovereign state (government) to impose a
charge or financial burden on persons, properties or rights to
Raise revenues for its use and support
Enable it to discharge its appropriate functions
Dictated by the needs of the government - exact any amount,
except when
There are prescribed limitations
There is abuse of power
Power is shared by the three branches of government
Legislative: enacts the laws that impose the tax
Executive: promulgates the regulations that implement the
law
Judicial: sees to it that
the laws do not violate inherent and constitutional limitations
on the power of taxation, and
the implementation is according to the letter and spirit of the
law
Inherent limitations:
Must be levied for a public purpose
Cannot be delegated
Government instrumentalities through which the government
exercise sovereign powers are exempt from tax
Limited to the territorial jurisdiction of the taxing state
Cannot apply to the property of foreign governments
(international comity)
Constitutional limitations:
No law impairing the obligations of contracts shall be
passed
No person shall be imprisoned for debt or non-payment of a poll
tax
The rule on taxation shall be uniform and equitable
Charitable and religious institutions and non-profit cemeteries
and all kinds of lands, buildings and improvements actually,
directly or indirectly, used for charitable and religious purposes
shall be exempt from taxation
Basic Principles of a Sound Tax System
Fiscal adequacy sources of revenue as a whole should provide
enough funds to meet the expanding expenditures of the
government
Theoretical justice taxes must be based on the taxpayers ability
to pay
Administrative feasibility:
clear to the taxpayer,
not unduly burdensome and discouraging to business,
convenient as to time and manner of payment and
capable of enforcement by competent public officials
Essential Characteristics of a Tax
Forced contribution
Exacted pursuant to the legislative authority
Proportionate in character
Payable in money
Imposed for the purpose of raising revenue
Used for a public purpose
Tax Distinguished from License Fee
TaxesLicense FeePurposeRaise revenuePolice power of the
stateMaintain government functionRegulate certain business or
occupationAmountUnlimitedShould not unreasonably exceed the
expenses of issuing the license and supervision
Classification of Taxes
As to subject matter
Personal, capitation or poll tax (persons or residents of a
specified territory)
Property tax (properties located within a taxing
jurisdiction)
Excise tax (performance of an act or enjoyment of a
privilege)
As to who bears the burden
Direct (whom the law intends to pay)
Indirect (shifted or transferred to someone else)
As to determination of amount
Specific (standard of weight or measurement)
Ad Valorem (value of the subject)
As to purpose
General
Special
As to scope
National
Local
As to proportionality
Progressive (tax rate increases is proportional to the tax base
increases)
Regressive (tax rate increases is not proportional to the tax
base increases)
Proportional (fixed percentage of amount of the base)
Tax 2 Assignment - Nov 12, 2013
Read about and explain briefly:
Gross estate
Classification of decedent
Inclusions to gross estate
Disposition of transfers prior to death
Deductions from gross estate
Net taxable estate and
Estate tax computation
Submit written answers on Nov 17, 2013
Gross Estate
Gross estate includes real properties
Land
Building
Anything attached to the soil with permanence
Tangible personal property can be seen & touched
Intangible personal property cannot be seen and touched
Classification of Decedent
Class A
Citizen of the Philippines, residing in the Philippines
Citizen of the Philippines, residing abroad
Citizen of a foreign country, residing in the Philippines
Class B
Citizen of a foreign country, residing abroad
Inclusions to Gross Estate
Gross estate of a resident or citizen of the Philippines (Class
A) consists of
real estate and
personal property (tangible or intangible),
regardless of location.
Gross estate of a non-resident whos not a citizen of the
Philippines (Class B) consists of
real estate located in the Philippines and
tangible personal property in the Philippines, and
subject to exception (reciprocity clause), intangible personal
property in the Philippines.
Disposition of Transfers Prior to Death
Transfers in contemplation of death Motivated by the thought of
death although death may not be imminent such as donation mortis
causa.
Revocable transfer terms of enjoyment of the property may be
altered, amended, revoked or terminated by the decedent. It is
sufficient that the decedent has the power to revoke though he did
not exercise the power to revoke.
Transfer under the general power of appointment designate person
or persons who will succeed to the property of a prior
decedent.
Insurance Proceeds
Life insurance proceeds are included in the gross estate if
beneficiary is:
Estate of the decedent, his executor or administrator
A revocable third person beneficiary
Valuation of Gross Estate
For personal property : at Fair Market Value at time of
death
For real property (whichever is higher):
Assessed value
Fair Market Value
Zonal value
Deductions from Gross Estate
Ordinary deductions
Expenses, losses, indebtedness, taxes, etc:
Funeral expenses: actual incurred or 5% of gross estate
whichever is lower, but not over P200,000.
Judicial expenses or intestate proceedings : fees of executor,
attorneys fees, court fees, accounts fees, appraisers fees, cost of
preserving the property, brokerage fees, etc.
Claims against the estate: enforceable obligations during his
lifetime, notarized debt instrument, monetary claims
Claims against insolvent persons: after preferred creditors
& ordinary creditors are paid and the properties are not
sufficient to pay the obligations
Deductions from Gross Estate
Ordinary deductions (continuation)
Expenses, losses, indebtedness, taxes, etc:
Unpaid mortgage or indebtedness on property : Gross FMV
reflected & unpaid mortgage deducted
Unpaid taxes: accrued before death such as income taxes due and
property taxes
Losses: not insured, not claimed as deduction in the ITR,
occurred during settlement of the estate and before last day of
payment (6 months after death)
Transfer for public use in the last will & testament,
transfer in favor of the government for public purposes
Deductions from Gross Estate
Ordinary deductions (continuation)
Vanishing deduction:
No consecutive deaths within 5 years of a previous decedent
Property located in the Philippines
Part of the prior decedents estate, finally determined and
paid
Identified as the one received from prior decedent or something
in exchange for
No vanishing deduction on the property claimed by prior
decedents estate
Rates applied as follows:
100% within one year to the death of the decedent
80% >1 2 3 4 5 years1%
Royalties, rental, trading gains7%
Dividends0%
Tax on other non-bank financial intermediaries
Maturities < 5 years5%
Maturities > 5 years1%
Other gross income items5%
Tax on insurance companies (on premium collected)2%
Tax on agents of foreign insurance companies4%
Amusement tax
Boxing exhibition10%
Professional Basketball15%
Cockpits, cabarets, night clubs18%
Jai-alai & race tracks30%
Tax on winnings
Horse races or race tracks10%
Double, forcast, quinella or trifecta bets4%
Owners of winning horses10%
Stock transaction tax
secondary offering of 1%
IPO
Up to 25% of shares issued4%
Over 25% not over 33 1/3% 2%
Over 33 1/3%1%
Generally, percentage taxes are based on gross receipts (cash
actually received)
Percentages taxes are payable by the sellers of the services
except overseas communications tax, which is paid by the user.
General rule: percentage taxes are paid within 20 days after the
end of each taxable month, except
3% percentage tax - when tax was a final tax through withholding
tax system.
within 20 days after the end of the quarter:
Overseas communication tax
Amusement tax
Tax on winnings within 20 days from date.
Stock transaction tax
Secondary offering within 5 days
IPO within 30 days from listing
Excise Taxes
Manufacturing & importing of the following 10 categories
only:
1) distilled spirits
2) wines
3) fermented liquors
4) tobacco products
5) cigars
6) cigarettes
7) automobiles
8) manufactured fuel oils
9) mineral products
10) non-essential goods
Subject to excise tax
Manufacturers
Importers
Two kinds of excise tax
Specific tax
Ad valorem tax
Tax bases of excise tax
Proof of liter- Liter
Number- Selling price
Actual market value- Kilogram or metric ton
Wholesale price
Tax rate frequently changed as government need for revenue
arises.
When paid
Manufactured goods before removal from place of production
Imported articles before release from customs custody
