Taxation 3

 It is a process by which sovereign state imposes
financial burden upon persons and property as a means
of raising revenues in order to defray the necessary
expenses of the government
 It is also the imposition of financial charges or other
levies upon a taxpayer (a individual or legal entity) by a
state such as that failure to pay is punishable by law.
 It is a mode by which government make exactions for
revenue in order to support their existence and carry out
their legitimate objectives. It is also the most pervasive
and the strongest of all the powers of the government.
Taxes are the “Lifeblood” of the government, without
which,it cannot subsist.

 To support the government’s operating
expenditure
 To provide a business environment
 To attract a foreign investments and
accelerate economic activities
 To enhance well-being and quality of life.

 The Philippine Tax System
-Tax law in the Philippines covers national and local
taxes referes to national internal revenue taxes
imposed and collected by the national
government through the Bureau of Internal
Revenue(BIR) and local taxes refer to those
imposed and collected by the local
government.The 1987 Philippine Constitution sets
limitations on the exercise of the power to the
tax.The rule of taxation shall be uniform and
equitable.
The Congress evolve a progressive system of
taxation.(Article V1,Section 28,Paragraph 1)

 During the 17th and 18th centuries, the Spanish
perform their duties as tax collectors. During
these times ,taxes that were collected from the
inhabitants varied from tribute or head tax of one
gold maiz annually; tax on value of jewelries and
gold trinkets; indirect taxes on tobacco ,wine
cockpit, burlas and powder .From 1521 to
1821,the Spanish treasury had to subsidize the
the Philippines in the amount of P 250,000.00 per
annum due to the poor financial condition of the
country, which can be primarily attributed to the
poor revenue collection system.

 Progressive Tax since the tax base
increases as the tax rate increases. Taxation
is founded on the ability of the taxpayer to
pay.It is also a combination of the global and
scheduler systems of taxation.

 Personal,capitation or poll taxes
-These are taxes of fixed amount upon residents
or persons of a certain class without regard to
their property or business.
 Property Taxes
1.Real Property Tax-An annual tax that may be
imposed by a province or city or a land
municipality on real property such as
land,building,machinery and other
improvements affixed to real property.

 Income Tax
-Taxes imposed on the income of the taxpayers from
whatever sources it is derived .Tax on all yearly profits
arising from property, possessions,trades or offices.
 Gift or Donor’s Tax-a tax on the privilege of transmitting
one’s property or property rights to another or others
without adequate and full valuable consideration.
 Estate Tax (Inheritance Tax)
-a tax on the right of transmitting property at the time of
death and on the privilege that a person is given in
controlling to a certain extent the disposition of his
property to take effect upon death.

 Value-added Tax (VAT)
-Tax imposed and collected on every sale,barter exchange
or transaction deemed sale of taxable
goods,properties,lease of goods,services or properties
in the course of trade as they pass along the production
and distribution chain.
 Capital Gains Tax
-Tax imposed on the gains presumed to have been
realized by seller for the sale,exchange or other
disposition of real property located in the
Philippines,classified as capital assets.

 Excise or License Tax
-Taxes imposed on the privilege ,occupation or
business not falling within the classification of
poll taxes. These are imposed on alcohol
products ;on tobacco products; on petroleum
products like lubricating oils, grease, processed
gas etc; on mineral products such as coal and
coke and quarry resources ;on miscellaneous
articles such as automobiles.

-Ad Valorem tax:Imposed on certain goods based
on selling price or other specified value of the
goods.
(Ad valorem tax=selling price x tax rate)
Example:Mineral products,automobiles
 Documentary Stamp Tax
-Tax on documents,instruments,loan agreements
evidencing the acceptance,assignments,sale or
transfer of an obligation,rights or property
incident thereto

 Consumption Tax
-Is a tax on the money people spend,not the
money people earn.
-Sales taxes,which state and local government
use to raise revenue,are a type of
consumption.
Example:An excise tax on a specific good,such
as the gas tax.

1.TRAIN or Tax Reform for Acceleration and
Inclusion
-To make it easily understandable, we
simplified the contents of the bill and
summarized and showed below highlights of
the proposed Tax Reform Package.
Here are 5 key Highlights of the Duterte
administrations’s proposed Tax Reform Bill.

1.Lowering of personal income taxes, except
for high income earners
-In the proposed tax reform package which will
be used until 2019, those earning P250,000 per
year and below will be exempted from paying
personal income taxes.According to the
DOF,this will benefit 83% of taxpayers who
supposedly fall under this tax bracket.

BRACKET INCOME PER YEAR TAX RATE
1 Below P250,000 0%
2 P250,000-P400,000 20% of the excess over
P250,000
3 P400,000-P800,000 P30,000 + 25% of the
excess over P400,000
4 P800,000-P2,000,000 P130,000 + 30% of the
5 P2,000,000-P5,000,000 P490,000 + 32% of the
excess over P2,000,000
6 Over
P5,000,000
P1,450,000 + 35% of the

BRACKET INCOME PER YEAR TAX RATE
1 Below P250,000 0%
2 P250,000-P400,000 15% of the excess over
P250,000
3 P400,000-P800,000 P22,500 + 20% of the
4 P800,000-P2,000,000 P102,500 + 25% of the
5 P2,000,000-P5,000,000 P402,000 + 30% of the
6 Over
P5,000,000
P1,302,500 + 35% of the

FUEL
PRODUCTS
CURRENT
TAX
2018 2019 2020
Diesel None P3.00
Per liter
P5.00
Per liter
P6.00
Per liter
LPG,
Kerosene,
bunker oil
P3.50 to
P5.35 per liter
or kg
Additional
P3.00 per liter
or kg
Additional
P5.00 per liter
or kg
Additional
P6.00 per liter
or kg
Gasoline,
Lubricating
oils, and
greases
P3.50 to
P5.35
Additional
P8.00 per liter
or kg
Additional
P9.00 per liter
or kg
Additional
P10.00 per
liter or kg

The DOF also proposes to remove certain
exemptions on the 12% VAT in order to
generate more revenues.At present, the
following entities are exempted from
paying VAT but will start to pay the tax
once the bill is approved:
• Lease of residential units
• Low-cost and socialized housing
• Power transmission

• Domestic shipping information
• Boy scouts and girl scouts
• VAT exemptions found in special laws
,except those covering senior citizens and
people with disability.
• The threshold for VAT exemptions was
increased to P5 million and indexed to
inflation every three years.

• For self-employed and professionals
• within the VAT threshold of P5 million,
the substitute bill will require them to pay
an 8% tax on gross sales or receipts in
lieu of the income and percentage taxes.
• The tax for those above the VAT
threshold will be based on the 30%
corporate income tax rate with
minimum tax.

Automobile’s Net
Selling Price
2018 2019
Below
P600,000
3% 4%
P600,000 to P1.1 million P18,000 + 30% in
excess of P600,000
P24,000 + 40% in
excess of P600,000
P1.1 million to P2.1
million
P168,000 + 50% in
excess of P1.1 Million
P224,000 + 60% in
P2.1 million to P3.1
million
P668,000 + 80% in
P824,000 + 100% in
Above P3.1 million P1,468 million + 90% in
P1,824 Million + 120% in
excess of 2.1 Million

 Soft drinks –from P16.00 –P25.00 per liter
 Bottled Iced Tea-from P25.00 –P30.00
 3 in 1 instant coffee mix- from P5.00-P8.00
 Ready-to-drink juice-from P20.00-P26.00
 Powdered juice drink (including powdered
iced tea)-from P9.00 to P20.00 per 1-liter
sachet

 Withholding Tax on Compensation
-the tax withheld from individuals receiving
purely compensation income
 Expanded Withholding Tax
- is a creditable tax prescribed for certain
domestic (Philippine) payors and is creditable
against the income tax due of the payee for the
taxable quarter year. The expanded
withholding tax normally covers services

 Final Withholding Tax
-is a withholding tax which is prescribed only
for certain payors and is not creditable against
the income tax due of the payee for the taxable
year. Income Tax withheld constitutes the full
and final payment of the Income Tax due from
the payee on the said income.

 Withholding Tax on Government Money
Payments
-is the withholding tax withheld by government
offices and instrumentalities, including
government-owned or controlled corporations
and local government units, before making any
payments to resident suppliers of goods and
services.

 Percentage Tax
-is a business tax imposed on persons or
entities who sell or lease goods, properties, or
services in the course of trade or business
whose gross annual sales or receipts do not
exceed P550,000 and are not VAT-registered.

 Progressive Tax
-It gets steeper for tax-payers with more
money.
Example: In the US Federal income tax ,
wealthy people are taxed at a higher rate than
middle class Americans

 Regressive Tax
-It is a tax that is not progressive.
-It could either mean that the tax is lower on
wealthy individuals or that the tax is flat.
Example:To someone making $30,000/year , a
15% tax would mean serious dent in spending
power.

 Proportional Tax
-It is the same as a flat tax
-Tax payers at all income level would pay the
same proportion in taxes.
Example:You would pay 10% to business
transaction tax , 10% to personal income tax
and 10% to federal sales tax.

 Payroll Taxes
-These taxes cover your contribution to Medicare ,
to Social Security retirement , disability and
survivor benefits and to federal unemployment
benefits.
Example: If you take your annual salary and divide
it by the number of times you get paid each year ,
chances are that number is higher than your
actual paycheck.

 The main purpose is to accumulate funds for
government machineries.
 No government in the world can run its
administrative office without funds and it has
no such system incorporated in itself to
generate profit from its functioning.

 To achievethe goals of social progress and economic
development.
 It serves as a device to encourage the growth of certain
activities by a way of giving exemptions.
 Discourage usage of harmful products by imposing
heavier taxes like on tobacco or for pollution.
 To reduce inequities of inequalities in wealth.
 Protect locally produced goods against competition from
import by imposing higher custom duties.

The Four R’S OF Taxation
1.Revenue
2.Redistribution
3.Re-pricing
4.Representation

 The taxes raise money to spend on
armies,roads, schools and hospitals, and on
more indirect government functions like
market regulation or legal systems.

 This refers to the transferring of wealth from
the richer sections of society to poorer
sections.

 Taxes are levied to address externalities;for
and example tobacco is taxed to discourage
smoking,and a carbon tax discourages use
of carbon-based fuels.

 As it goes with the slogan, ‘no taxation
without representation’,it implies that:
 Rulers tax citizens.
 Citizens demand accountability from their
rulers as the other part of this bargain.

COUNTRY CORPORATE
TAX
PERSONAL
INCOME TAX
TAX ON GOODS
AND SERVICES
Philippines 30% Progressive from
5% to 32%
12%
Malaysia 24% Progressive from
0% to 28%
6%
Singapore 17% Progressive from
0% to 22%
7%
Indonesia 25% Progressive from
5% to 30%
10%
Thailand 20% Progressive from
0% to 35%
7%
Vietnam 20% Progressive from
5% to 35%
10%

 VAT stands for Value Added Tax. VAT is a
type of sales tax which is levied on
consumption on the sale of goods, services
or properties, as well as importation, in the
Philippines.
 To simplify, it means that a certain tax rate
(0% to 12%) is added up to the selling price
of a goods or services sold. It is also
imposed on imported goods from abroad.

 Any person or entity who, in the course of his trade
or business, sells, barters, exchanges, leases
goods or properties and renders services subject to
VAT, if the aggregate amount of actual gross sales
or receipts exceed One Million Nine Hundred
Nineteen Thousand Five Hundred Pesos
(P1,919,500.00).
 A person required to register as VAT taxpayer but
failed to register
 Any person, whether or not made in the course of
his trade or business, who imports goods

 On sale of goods and properties – (12%) of the gross selling
price or gross value in money of the goods or properties sold,
bartered or exchanged
 On sale of services and use or lease of properties – (12%) of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties
 On importation of goods – (12%) based on the total value used
by the Bureau of Customs in determining tariff and customs
duties, plus customs duties, excise taxes, if any, and other
charges, such as tax to be paid by the importer prior to the
release of such goods from customs custody; provided, that
where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the
landed cost plus excise taxes, if any.

 Zero-rated is a sale, barter or exchange of
goods, properties and/or services subject to
0% VAT pursuant to Sections 106 (A) (2) and
108 (B) of the Tax Code.
 Zero-rated is usually pertaining to export
sale of service or those zero-rated as
approved by special laws such as PEZA or
Economic Zone registered companies.

 A sale of goods or transactions is considered
VAT Exempt if it falls under SEC 109 –
Exempt Transactions.
 Normally VAT Exempt transactions are basic
necessities such as agricultural products,
tuition fees, lending activities, real properties,
books, transportation, etc.

 VAT INCLUSIVE must be used when
describing a price that already includes the
tax, and the term VAT EXCLUSIVE when
describing a price to which tax is yet to be
added to arrive at the final cost.

 Tax Exclusive Method Formula:
-Gross sales/Gross Sales Receipts (excluding
VAT) X 12% =VAT e.g Gross Sales of a
Restaurant in a day.
P50,000 X .12 =P6,000
 VAT Inclusive Method Formula:
 Invoice Price/Invoice Receipts (including
VAT) x (12/112)=VAT
P56,000 x (12/112)= P6,000

Taxation 3

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