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Income tax
Levied from the income from property or an occupation
It is a direct tax upon the thing called income.
Purpose:
a) To raise revenue
b) To mitigate the evils arising from the inequalities of
wealth
Characteristics of Philippine Income Tax
a) A national tax
b) A general tax
c) An excise tax
d) A direct tax
e) A progressive tax
f) The income tax system is a comprehensive system
g) Semi-global or semi-schedular system
Meaning of Income
• Income means all wealth flows into the taxpayer other than
a mere return of capital.
• Income is a gain derived from:
a) use of employment of labor or capital, or both labor
and capital;
b) from the sale or other disposition of assets or property
(ordinary and capital)
Requisites of Taxability of Income
1. There must be a gain or profit whether in cash or its
equivalent;
2. The gain must be realized or received;
3. The gain must not be excluded by law or international
treaty of taxation.
Classification of 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.
INCOME TEST SOURCE OF INCOME
i) Income from transportation and other services rendered Partly within and partly without
partly within and partly without the Philippines
j) From domestic Corporation Income within
From foreign Corporation (1) Income within, if 50% or more of the gross income
of the foreign corporation for the preceding three
years prior the declaration of the dividend or for
such part of such period as the corporation has
been in existence, was derived from sources within
the Philippines
Global System
Net income taxation, certain deductions are allowed
and subtracted from the aggregate of incomes not subject to
final tax
Returnable Income Passive Income Capital Gains
a) Compensation income Earned without any active Arise from the sale of 2 types
from being an employee action on the part of the of the capital assets, namely:
b) Income from trade, taxpayer. a) Real property in the
business, or practice of a Philippines classified as
profession capital assets; and
c) Gain from sale of ordinary b) Share of domestic
assets; corporations
d) Net capital gain from sale
of “other capital assets”
and
e) Other taxable income not
subject to FT and CGT
a) Interest from any currency bank deposit (usually Peso) 20% 20% 25%
b) Yield or monetary benefit from deposit substitutes, trust funds, and 20% 20% 25%
similar arrangements
f) Interest from a depositary bank under the expanded foreign currency 15% E E
deposit system Excluding NRC
g) Interest income from long term deposit or investment of 5 years or more E E 25%
h) Cash or property dividend received from a DC, or ROHQ of a MNC 10% 20% 25%
i) Share of an individual partner in the after-tax net income of a business 10% 20% 25%
partnership, or an organization, JV, or consortium taxable as corporation
Notes:
1) Deposit substitutes – alternative form of obtaining funds from the
public other than deposits. (Banker acceptance, repurchase
agreeements, gov’t debt instruments and securities)