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8/6/2019 Tax Introduction
1/19
INCOME TAXATION _______________________________________________________
Atty. Erikson V. Eustaquio
8/6/2019 Tax Introduction
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INCOME TAXATION _______________________________________________________________
I. Tax Code ProvisionsII. When Income is Taxable
III. General Principles of Income TaxationIV. Definition of TermsV. Formula for Computation of Income TaxVI. Gross IncomeVII. Allowable deductionsVIII. Filing of tax returns
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INCOME TAXATION _______________________________________________________________
y NIRC, as amended, Title II, Sections 22 to 83
y Tax Code Provisions
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INCOME TAXATION _______________________________________________________________
When is income taxable?
There is income, gain or profit
Income, gain or profit is received or realized during thetaxable year Income, gain or profit is not exempt from income tax
Income-flow of wealth other than as a mere returnof capital (Conwi vs. CIR, 213 SCRA 83)
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INCOME TAXATION _______________________________________________________________
General Principles of Income Taxation in the Philippines(Section 23)
Resident citizen-taxable on all income derived fromsources within and without the Phils
Non-resident citizen-taxable only on income derivedfrom sources within the Philippines
Citizen who is an OCW-taxable only on income fromsources within the Philippines
Seaman (of a vessel engaged exclusively ininternational trade)-considered OCW
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INCOME TAXATION _______________________________________________________________
General Principles of Income Taxation in the Philippines(Section 23)
Alien individual, whether resident or non-resident-
taxable only on income derived from sources withinthe Philippines
Domestic corporation-taxable on all income derivedfrom sources within and without the Philippines
Foreign corporation-whether or not engaged in tradeor business in the Philippines, taxable only on incomederived from sources within the Philippines
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INCOME TAXATION _______________________________________________________________
General Principles of Income Taxation in the Philippines
Situs rules (Section 42)Interest income-residence of the obligor Dividends-
* Domestic corporation-within* Foreign corporation 50% of gross income within for 3 years-
withinServices-place of performance
Rentals and Royalties-place of useReal Property-location of real propertyPersonal property-place of sale (except shares of stock in a
domestic corporation, within regardless of the place of sale)
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INCOME TAXATION _______________________________________________________________
Definition of Terms (Section 22)
Note the ff new definitions added by RA 9504,approved on June 17, 2008
GG-statutory minimum wageHH-minimum wage earner
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INCOME TAXATION _______________________________________________________________
Formula for computation of income tax (Section 31)
A. Global
Gross income xxLess Allowable deductions (xx)Taxable income xxTax rate x%Tax due xxLess: Tax credit (xx)
Tax payable xx
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INCOME TAXATION _______________________________________________________________
Formula for computation of income tax (Section 31)
A. Global
Global tax rates:
Citizens, resident aliens, NRAETB- 5%-32%NRANETB-25%Domestic corporations and RFC-30% (effective Jan 1,2009; RA 9337)
NRFC-30% (effective Jan 1, 2009; RA 9337)
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INCOME TAXATION _______________________________________________________________
Formula for computation of income tax
B. Schedular
Item of income multiplied by tax rate.
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INCOME TAXATION _______________________________________________________________
Gross Income (Section 32)Income derived from whatever source, including but not limited to the ff:
Compensation for servicesGross income from conduct of trade, business, professionGains from dealings in propertyInterestsRentsRoyaltiesDividendsAnnuitiesPrizes and winningsPensionsPartners distributive share from the net income of a GPP
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Allowable Deductions (Sec 34 to 42)
A. Compensation income earners:
- Premium payments on health and/or hospitalization insurance (Section 34 M)
- Personal exemptions (Section 35)
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INCOME TAXATION _______________________________________________________________
Allowable DeductionsB. Non-compensation income earners (Section 34)
Individuals1. Itemized deductions + premium on
health/hospitalization insurance + personalexemptions; or
2. Optional standard deduction (40% of gross sales or
gross receipts) + premium on health/hospitalizationinsurance + personal exemptions (see Section 34,L, as amended by RA 9504; approved on June 17,2008)
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INCOME TAXATION _______________________________________________________________
Allowable DeductionsB. Non-compensation income earners (Section 34)
Itemized deductions
ExpensesInterestTaxesLossesBad debtsDepreciationDepletionCharitable and other contributionsResearch and development
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INCOME TAXATION _______________________________________________________________
Allowable DeductionsB. Non-compensation income earners (Section 34)
Itemized deductions
Requirements for deductibilitySee detailed requirements for eachNote Section 34K-proof of withholding
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INCOME TAXATION _______________________________________________________________
Allowable DeductionsCorporate Taxpayers
Itemized deductions
Optional standard deduction for domestic andresident foreign corporations (Section 34L, asamended by RA 9504) 40% of gross income
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INCOME TAXATION _______________________________________________________________
Filing of tax returnsIndividual tax returns- Section 51
Annual income tax return
Corporate tax returns- Sections 52, 53, 76
Quarterly and cumulativeFinal adjustment return