TAX

INCOME

- a burden imposed upon

persons, properties or rights
to raise revenue to defray
the necessary expenses of
the government
- it is a burden because it is
an enforced contribution
from ones hard earned
money

INCOME TAX

- all wealth which flows into

the taxpayer other than
mere return of capital

- it is simply a tax on
income, either based on
net or gross, realized
during/in one taxable year.

-includes gains derived from

sale or disposition of
capital asset

- a tax on yearly profits

arising from:
>property;
>professions;
>trades or offices;
>or a tax on persons
income, emoluments, profits,
and the like
- it is DUE on or before the
15th day of the 4th month
following the close of the
persons taxable year

- amount of money derived

from labor or capital, or
both labor and capital,
either engaged in trade or
business or exercise of
profession and includes the
gain derived from the sale
and exchange of capital
assets.
- a gain derived and severed
from capital.

IN TAX LAW:
- an amount of money
coming to a person within a
specified time whether as:
>payment for services;
>interest;
>profit from investment
- cash or its equivalent

- generally regarded as
excise tax, levied upon the
right of a person or entity to
receive income or profits
- it is arbitrary and
confiscatory if it taxes
capital because CAPITAL
IS NOT INCOME
- further imposed as final tax
on certain passive income
including but not limited to
interests, royalties, prizes,
and other winnings, cash
and/or property dividends,
capital gains from the sale of
shares of stock not traded in
the stock exchange and
capital gains from sale of
real property classified as
capital asset located in the
Philippines

Chapter 2 Introduction to Income Tax

INCOME
CAPITAL
(not subject to tax)
- a fund or property
existing at one
distinct point in
time
- wealth or fund

INCOME
(subject to tax)
- denotes a flow of
wealth during a
definite period of
time
- profit or gain
-flow of wealth

REQUISITES FOR AN INCOME TO BE TAXABLE:

1. There must be gain;

2. The gain must be realized and received;

3. The gain must not be excluded by law or treaty from taxation. (tax exemptions?)
STOCK DIVIDENDS ARE NOT INCOME UNTIL REALIZED
Stock dividends
- a portion of the principal, or profits, divided among several owners of a thing,
usually corporate profits that are distributed to the shareholders.
- those issued by the corporation are considered unrealized gain, not subject to
income tax until they are realized.
- mere representation of an interest in the corporate properties, until they are
realized.
Determining factor for the imposition of income tax:
- whether any gain or profit was derived from a transaction.

INCOME vs CAPITAL
INCOME
FLOW
- a flow of
services
rendered by
that capital by
payment of
money from it
or any other
benefit
rendered by a
fund or capital
in relation to
such fund
through a
period of time
SERVICE OF
WEALTH

CAPITAL
FUND
- a fund of
property
existing at an
instant of time

WEALTH

Property:tree ; Income:fruit
Labor:tree ; Income:fruit
Capital:tree ; Income:fruit
*A tax on income is not a tax on property*

INCREASE IN THE VALUE SHARES NOT AN INCOME

- A mere advance in the value of the property of a person or corporation in no sense
constitute income
- It only constitute an can be treated merely as an increase in capital.
- No factual and legal basis in assessing income tax on the increase in the value
until the same is actually sold at a profit.
CAMPAIGN CONTRIBUTIONS
- Sec. 13 of RA 7166 provides that such campaign contributions in cash or in kind to
any candidate, duly reported to the COMELEC, are exempt from the imposition
of donors tax.

When these contributions are not utilized, there is a need to clarify the treatment
of these excess campaign funds, for tax purposes.

ORDINARY INCOME
- Any gain from the sale or exchange of property which is not a capital asset or
property described in Sec 39 (A)(1)
IMPOSITION
- An income tax is imposed on the taxable income, other than income subject to
final tax of:
1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien engaged in trade or business
5. Domestic corporation
6. Resident foreign corporation
-

An income tax is likewise imposed on the gross income of:

1. Non-resident alien NOT engaged in trade or business
2. Non-resident foreign corporation or foreign corporation not doing business in
the Philippines.

KINDS OF INCOME TAX

NET INCOME TAX
- certain deductions and/or
exemptions are deducted
from the gross income and
the tax is computed based
on resulting net income or
taxable income.

GROSS INCOME TAX

FINAL INCOME TAX

- NO deductions and/or
exemptions are allowed to
be deducted, hence, the tax
in computed based on gross
or the aggregate amount
earned.

- NO deductions and/or
exemptions are allowed to
be deducted, hence, the tax
in computed based on gross
or passive income but as a
distinction, it is subject to
the withholding of final tax
as provided in Sec. 57 (A) of
the Code

CHARACTERISTICS OF INCOME TAX (DiNaExGenPro)

1. Direct Tax payable to the person to whom it is directly imposed. Its payment of
liability cannot be shifted or passed to another.
2. National Tax collected by the national government.
3. Excise Tax it is a burden imposed on the right or privilege of a person to earn or
receive an income.
4. General Tax levied without a specific purpose, and thus, may form part of the
national budget for general public purposes.
5. Progressive Tax the tax rates increase as the income increase.
INCOME ACCORDING TO SOURCE
1. Income from sources within the Philippines
2. Income from sources without the Philippines; and
3. Income from sources partly within and partly without the Philippines.
GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES [PAR. A, SEC. 42,
NIRC]
The following shall be treated as gross income from sources within the Philippines:
1. Interests
- derived from sources within the Philippines
- Interests on bonds, notes, or
- other interest-bearing obligation of residents, corporate or otherwise
2. Dividends

- From a domestic corporation

- From a foreign corporation, unless less than 50% of the gross income of such
foregn corporation was derived from sources within the Philippines
3. Services
- Compensation for labor or personal services performed in the Philippines.
4. Rentals and Royalties
- from property located in the Philippines or from any interest in such property
including rentals or royalties for:
a. The use of, or the right or privilege to use in the PH any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade
brand, or other like property or right.
b. The use of, or right to use in the PH any industrial, commercial, or scientific
equipment.
c. The supply of scientific, technical, industrial, or commercial knowledge or
information
d. The supply of any assistance that is ancillary and subsidiary to, and is furnished
as a means of enabling the application or enjoyment of, any such property or
right as is mentioned in paragraph (a), (b) or (c).
e. The supply of services by a non-resident person or his employee om connection
with the use of property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such non-resident
person
f. Technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial, or commercial
undertaking, venture, project or scheme; and
g. The use of, or the right to use:
Motion picture films
Films or video tapes for use in connection with television
Tapes for use in connection with radio broadcasting
5. Sale of Real Property
- gains, profits and income from the sale of real property located in the Philippines
6. Sale of Personal Property
- gains, profits and income from the sale of personal property
TAXABLE INCOME FROM SOURCES WITHIN THE PHILIPPINES [See PAR. B,
SEC. 42, NIRC]
GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES [See PAR. C, SEC.
42, NIRC]
TAXABLE INCOME FROM SOURCES WITHOUT THE PHILIPPINES [See PAR. D,
SEC. 42, NIRC]
GAINS, PROFITS, AND INCOME FROM THE SALE OF PERSONAL PROPERTY
[See PAR. D, SEC. 42, NIRC]