Tax 1 Income Taxation

TAX 1 INCOME TAXATION Chapter 2: SELF-TEST EXERCISES Discussion Question: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Distinguish tax law from tax exemption law Enumerate the sources of tax laws. Discuss the nature of the Philippine tax law. Distinguish tax laws, revenue regulations, and rulings. Define tax and identify its elements What are the classifications of taxes? Enumerate and provide examples for each classification. Compare tax with revenue, license, toll, debt, special assessment, tariff and penalty. What is a tax systems? What are its types? Enumerate the principles of a sound tax system. Explain each. Enumerate the powers of BIR. Enumerate the none delegated powers of the CIR. ANSWERS FROM ABOVE QUESTIONS: 1. Tax laws are laws that are provide for the assessment and collection of taxes while the tax exemption laws are laws that grant certain immunity from taxation. 2.There are 8 sources of tax laws the constitution, statutes and presidential decrees, judicial decisions or case laws, executive orders and Batas Pambansa, Administrative issuances, local ordinances, tax treaties and conventions with foreign countries and lastly the revenue regulations. 3. Philippines tax law are civil and not political in nature. They are laws of the occupied territory and not by the occupying enemy. Tax payments made during occupations of foreign enemies are valid. Our internal revenue laws are not penal in nature because they do not define crime. Their penalty provisions are merely intended to secure tax payers compliance. 4. Tax laws provide the assessment and collection of taxes (ex. The national internal revenue code NIRC, The tariff and customs code, The local tax code and the real property tax code) 5. Tax is an enforced proportional contribution leveid by the law making body of the state to raise revenue for public purpose. The elements of a valid tax are as follows: (BASAHIN MO NALANG SA LIBRO KASI MARAMI) HAHAHAAHAH (nasa page 38) 6. A. As to purpose Fiscal or Revenue Tax- A tax imposed for general purpose B. As to subject matter Personal, poll or capitation- A tax on persons who are residents of a particular teritory C. As to incidence Direct Tax – When both the impact and incidence of taxation rest upon the same tax payer, the tax is said to be direct. D. As to amount – Specific Tax- A tax of a fixed amount imposed on a per unit basis such as per kilo, liter or metered. (NASA PAGE 38) 7. (NASA PAGE 40 LAHAT SAGOT NITO) 8. (NASA PAGE 41) 9. Tax System refers to the methods or schemes of imposing, assessing, and collecting taxes. The Philippine tax system is divided into two: The national tax system and the local tax system. Types of tax system according to imposition: 1. Progressive-employed in the taxation of income f individuals, and transfers of properties by individuals. 2. Proportional-employed in taxation of corporate income and business. 3. Regressive- not employed in the Philippines. Types of tax system according to impact: 1. Progressive System- is one that emphasizes direct taxes. A direct tax cannot be shifted, hence, it encourages economic efficiency as it leaves no other resort to taxpayers than to be efficient. this type of tax systems impact more upon the rich. 10. Powers of the Bureau of Internal Revenue 1. Assessment and collection of taxes 2. Enforcement of all forfeitures, penalties and fines, and judgement in all cases decided in its favor by the courts. 3.Giving effect to and administering the supervisory and police powers conferred to it by the NIRC and other laws. 4. Assignment of internal revenue officers and other employees to other duties. 5. Provisions and distribution of forms, receipt, certificates, stamps, etc. to proper officials 6. Issuance of receipts and clearances 7.Submition of annual report. 11. (NASA PAGE 45 BASAHIN MO NALANG SUBRANG DAMI_) Exercise Drill No.1 Identify the type of tax that is describe the following: 1. A consumption tax collected by non-VAT businesses Other percentage tax 2.Tax on gratuitous transfer of property by a living donor Donor’s tax 3. Tax that decrease in rates as the amount or value of the tax Regressive tax object increases. Indirect tax 4. Tax collected upon persons who are not statutory taxpayers. 5.Tax that is imposed based on the value of the tax object. Ad valorem 6.Tax for general purpose Fiscal or revenue tax 7.Tax imposed by the national government National tax 8.A tax on sin products or non essential commodities. Excise tax 9.Impossed on the gratuitous transfer of property upon death. Estate tax 10.Tax on residents of a country. Personal, poll, or capitation Proportional 11.Tax that remains at flat rate regardless of the value of the tax tax object. 12.Tax which is collected on a per unit basis. Specific tax 13.Tax is collected upon the statutory taxpayer Direct tax 14.Tax imposed to regulate businesses or professions Regulatory Excise/privilege 15.Tax upon performance of an act or enjoyment of a tax privilege. EXERCISE DRILL NO.2 Identify which item is described by the following: 1.It refers to all income of the government 2.It is an imposition for the support of the government 3.It is imposed upon land adjacent to public improvements 4.It is imposed on imported and exported commodities. 5.It is a charge imposed prior to the commencement of business or exercise of a profession. 6.It is a post-activity rather than a pre-activity imposition. 7.It is subject to compensation or set-off 8.It is a charge for the use of others property. 9.It is an imposition intended to discourage an act. 10.It arises from contracts rather than from law. Revenue Tax Special assessment Costum’s duties License fee Tax Debt Toll Penalty Debt EXERCISE DRILL NO.3 Indicate the criteria for the selection of large tax payers for each of the ff: AS TO PAYMENT 1.Value added tax 2.Excise Tax 3.Income tax 4.Withholding tax 5.Percentage tax 6.Documentary stamp tax AS TO CONDITIONS AND OPERATIONS 1.Gross receipts or sales 2.Net worth 3.Gross purchases MULTIPLE CHOICE-THEORIES: PART 1 1. B 2. A 3. C 4. C CRITERIA 200,000/QUARTER 1,000,000/YEAR 1,000,000/YEAR 1,000,000/YEAR 200,000/QUARTER 1,000,000/YEAR 1,000,000,000 IN A YEAR 300,000,000 AT YEAR END 800,000 IN THE PRECEDING YEAR CHAPTER 3: Exercise Drill No.2 Check the box where each of the following items is taxable: TRANSACTION 1. 2. 3. 4. 5. 6. Barter of properties Sale of goods Rendering of services Donation of properties Transfer of properties from a decedent to the heirs upon death Transfer for less than full than adequate consideration. INCOME TAX TRANSFER TAX √ √ √ √ √ √ √ TAXABLE √ √ EXEMPT Exercise Drill No.3 The tax concept of income: Check the box: 1. 2. 3. 4. 5. 6 7. 8. 9. 10. 11. 12. 13. 14. ITEM Winnings from gambling Income from swindling Indemnity for moral damages Harvest fruits from an orchard Compensation income Interest income Amount received by the insured in excess of insurance premiums paid. Proceeds of life insurance received by the heirs of the insured. Gain on sale of goods by the home ofÏce to its branch. Gain on sale of goods and services between relatives Gain on sale of goods by a parent corporation to a subsidiary corporation. Appreciation in the value of land Birth of animal offspring Income of a registered Barangay Micro-Business enterprise √ √ √ √ √ √ √ √ √ √ √ √ 15. 16. 17. 18. 19. 20. 21. 22. Cancellation of debt out of gratuity of the creditor Cancellation of debt by the creditor in exchange in exchange of services rendered by the debtor. Matured interest from coupon bonds Receipt of bank loan Salaries of a minimum wage earner PCSO or lotto winnings Benefits from GSIS, SSS, PSG-IBIG,OR PHILHEALTH Discovery of hidden treasure √ √ √ √ √ √ √ √ EXERCISE DRILL NO.4: INCOME TAX PAYER CLASSIFICATION: INDICATE DC-Domestic Corporation RFC-Resident Foreign Corporation NRFC- Non-resident foreign corporation NRA-ETB- Non-resident alien engaged in trade or business NRA-NETB-Non- resident alien not engaged in trade or business RC-Resident citizen NRC-Non-resident citizen RA-Resident alien 1. 2. 3. 4. 5. 6. 7. 8. 9. 10 11. 12. 13. 14. 15. 16. PERSON OR ENTITY A fat Mexican tourist A hardworking overseas Filipino worker An expatriate employee A Filipino who is privately employed in the Phil’s. An unemployed Filipino residing in the Phil’s A Chinese businessman who has his domicile in the Philippines for 6 months A Japanese who married a beautiful Filipina and has been residing in the Philippines for 2 years A 2nd year Korean college studying in the Philippines A corporation incorporated under Philippine law A foreign corporation doing business in the Philippines Trust designated by the donor as irrevocable Trust designated by the donor as revocable A business partnership A joint venture organized under a foreign law and is not operating in the Philippines An estate of a Filipino citizen judicially administered in japan. An estate of a Filipino citizen extra judicially CLASSIFICATION NRA-NETB NRC NRC RC RC NRA-NETB RA RA DC RFC RC NT DC NRFC NRC NT 17. 18. administered in the Philippines A taxable joint venture organized in the Philippines A non-profit corporation organized in the philippines DC DC EXERCISE DRILL NO.5: GENERAL INCOME TAX RULE CHECK THE BOX TAX PAYER 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. WORLD INCOME Non –resident citizen Resident alien Non-resident alien engaged in trade or business Resident foreign corporation Resident citizen Non-resident alien not engaged in business Non-resident foreign corporation Domestic corporation Taxable trust established by a Filipino citizen in the Philippines Taxable estate of a non-resident citizen judicially administered abroad. PHILIPPINE INCOME √ √ √ √ √ √ √ √ √ √ EXERCISE DRILL NO.6: LOCATION AND SITUS OF INCOME Compute how much is earned within and earned outside the Philippines from each of the following independent cases. INCOME DESCRIPTION 1. 2. 3. 4. 5. 6. Rey earned P100,000 interest income; 40% of these were from non-resident debtors. A finance company earned P1,000,000 royalties from a franchise; 40% of these were derived abroad Raymond earned P100,000 royalties from his apartment in the U.S. He also earned P40, 000 rent from his Philippine condominium unit. Chester, a resident citizen, works home online and submits his output to clients. He collected P100, 000 service fee from foreign clients and P20,000 from resident clients. Mark rendered audit services to client in Afghanistan for P500,000. The services were paid in Afghanistan. Jun has a store in a tourist park in Baguio city, Phils. WITHIN WITHOUT 60,000 40,000 600,000 400,000 40,000 100,000 120,000 0 0 500,000 40,000 0 7. 8. 9. 10. 11. 12. 13. He earned a total of P40,000 gain from selling souvenir items. 40% were from foreign tourist. Don mariano sold at a gain of P2,000,000 to a client abroad a commercial building located in Quezon city. John sold his stocks in a domestic corporation to a foreign investor at a gain of P50,000. Manso received P20,000 dividends from a domestic corporation and P30,000 dividend income from a non-resident foreign corporation. Andrew received P40,000 dividends froma resident foreign corporation; 60% of its historical incomes is from the Philippines. CDO,Inc.Manufactures in the Philippines and sells to unafÏliated export clients. A total of P100,000 gross income was earned during the period. ABC manufactures abroad and sells to its Philippines branch at market prices.production cost abroad were P200,000. Billings to branch totaled P300,000 while branch sales totaled P450,000. James received P100,000 dividends from a resident 2,0000,000 0 50,000 0 20,000 30,000 24,000 16,000 100,000 0 150,000 100,000 0 100,000 0 20,000 400,000 0 foreign corporation which realized 40 of its income in the Philippines. 14. 15. Ellis received P20,000 dividend from a non- resident foreign corporation. Davao plant manufactures tables and sells resident clients. A total of P400,000 gross income was realized during the period. MULTIIPLE CHOICE-THEORY: PART-1 1. C 6. D 2. D 7. B 3. A 8. B 4. A 9. B 5. A 10. B MC PROBLEMS: 1. 2. 3. 4. B C C A CASE PROBLEM 1: REQUIRED: COMPUTE THE TOTAL INCOME EARNED FROM SOURCES 1.WITHIN THE PHILIPPINES- (P1,040,000) 2. OUTSIDE OF THE PHILIPPINES- (P760,000) CASE PROBLEM 2: REQUIRED: COMPUTE THE TOTAL INCOME EARNED FROM SOURCES 1. WITHIN THE PHILIPINES- (P750,000) 2. WITHOUT THE PHILIPPINES- (P340,000) CASE PROBLEM 3: 1. A ( 1,960,000;1,360,000)