Taxation July 19, 2014

Purpose of Income Tax:

1. to provide large amounts of revenue
2. to offset regressive sales and consumption taxes
3. to mitigate the evils arising from the inequalities in the
distribution of income and wealth which are considered
deterrents to social progress, by a progressive scheme of
taxation
- income tax is regarded as the best measure of a persons ability
to pay
Income tax is source blind does not matter from where the source of
income
History:
- United States Revenue Act of 1913
- Revenue Act of 1916, War Revenue Act of 1917
- Act No. 2833 Philippine Legislature
- CA No. 466 National Internal Revenue Code of 1939 codified
- PD 1158 NIRC of 1977
- PD 1994 NIRC of 1986
- RA 8424 January 1, 1998 took effect (RA9504, 9337 amendments)
Source of Income Tax Laws NIRC
Return of capital return of capital itself not subject to income tax
Return on capital profit from capital subject to income tax
Schedular system of taxation applicable to individual taxpayers
Global system of taxation applicable to corporate taxpayers
Modified gross income taxation
gross income without deductions except only personal and
additional exemptions
Individual graduated income tax rates
Corporation fixed income tax rates
Deemed Realized
- earning process is complete or virtually complete and exchange
is complete
Stock dividend not taxable since it is not realized
- except if not all stockholders are given such dividend

Self-help income not taxable, no economic benefit

Net effect test if not clear if there is gain
- substance of the whole transaction, regardless of its form
- net asset before vs net asset in the present
- transfer of share transaction look at FS, tax declarations, etc
Capital Asset Sec. 39
- means property held by the taxpayer (whether or not connected
with his trade or business), but does not include stock in trade of
the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close
of the taxable year, or property held by the taxpayer primarily
for sale to customers in the ordinary course of his trade or
business, or property used in the trade or business, of a
character which is subject to the allowance for depreciation
provided in Subsection (F) of Section 34; or real property used in
trade or business of the taxpayer.
Capital gains tax income tax
Percentage tax business tax stock transaction tax
Sales
1.
2.
-

of shares of stocks
listed and traded in local stock exchange
of 1% of gross selling price
percentage tax business tax stock transaction tax
not listed or traded in local stock exchange
capital gains tax
first 100k 5%; excess of 100k 10% of net capital gain
a. not listed
b. listed but not traded in PSE

SEC. 32. Gross Income. (A) General Definition. - Except when otherwise provided in this
Title, gross income means all income derived from whatever source,
including (but not limited to) the following items:
(1) Compensation for services in whatever form paid, including, but
not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the
exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;

(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general
professional partnership.