Department of Education

National Capital Region

S CHOOLS DIVIS ION OF FICE
MARIK IN A CITY

Fundamentals of Accountancy,
Business and Management II
Income and Business Taxation
Quarter 2 – Module 2

Writer: Rosalinda G. Ruiz

Cover Illustrator: Shiela Mae A. Malesido, MBA, LPT
Layout Artists: Dunhill Jan E. Elmido, MBA, LPT

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 MODULE 2

What I Need to Know

At the end of the module you shall be able to:

1. discuss the principles and purposes of taxation;
2. define income and business taxation; and
3. explain the principles and processes of income and business taxation.

What I Know?

Select the correct answer and write it on a clean sheet of paper

1. Which of the following is/are the nature of the power of taxation?

I. It is an I. inherent attribute of sovereignty.
II. It is legislative in character.
III. It is regarded as comprehensive, unlimited, plenary
and supreme.
a. I only
b. I and II only
c. II and III
d. I and III only
2. The process by which the state raises money to defray the necessary expenses of
the government is
a. Eminent domain
b. Police power
c. Judicial power
d. Taxation
3. Gross income is income from whatever source derived less exclusions.
a. True
b. False
4. Expenses are deductible only if connected to trade or business or property held to
produce income.
a. True
b. False

5. Taxpayers may deduct all of the expenses attributable to the rental of a vacation
home, regardless of the gross income generated by the property.
a. True
b. False

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 What’s In?

From what you have learned in module 1, answer the following questions by
drawing a smiley face ☺ if the statement is true and sad face ☹ if the statement is
false. Write your answer on a separate sheet.

_______1. NSF stand for Non-sufficient fund checks.

_______2. Deposit in transit already made but not yet received by bank or received
by the bank but not yet credited to the depositor’s bank account.

_______3. Errors committed by bank is called bank errors.

_______4. Outstanding checks are the checks drawn and released to payees but are
not yet encashed with the bank.

_______5. Debit memos are deductions (bank debits) made by the bank to the
depositor’s bank account but not yet recorded by the depositor.

Lesson

2 Income and Business Taxation

Figure 1

Taxes are withheld from income throughout the year. If too much tax is witheld,
you receive some money back after filing a return. If not enough tax is withheld, you
may owe additional taxes to the IRS after filing a return.

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 What is It?

Taxation is the power by which the sovereign raises revenue to defray the necessary
expenses of the government from among those who in some measure are privileged to
enjoy its benefits and must bear its burden.
Duterte signed into law Package 1 of the Comprehensive Tax Reform Program (CTRP)
also known as the Tax Reform for Acceleration and Inclusion (TRAIN) as Republic Act
(RA) No. 10963. The Law took effect on January 1, 2018. The TRAIN aims to make
the Philippine Tax System.
Under TRAIN, those with annual taxable income below PHP 250,000 are now exempt
from paying personal income tax, while the rest of taxpayers, except the richest, will see
lower tax rates ranging from 15 percent to 30 percent by 2023.

Purposes of Taxation
The TRAIN aims to make the Philippine Tax System simpler, fairer, and more
efficient to promote investments, create jobs and reduce poverty;
Taxes help the government fund their projects for economic development. It's also
the lifeblood of outstanding government employees, like teachers. Contributing your
share of the pie greatly helps in the development of the Philippines as a whole;
To promote sustainable economic growth through the rationalization of the
Philippine internal revenue tax system, including tax administration;
To provide, as much as possible, an equitable relief to a greater number of tax payers
in order to improve levels of disposable income and increase economic activity;
And, to create a robust environment for business to enable firms to compete better
in the regional as well as the global market, at the same time that the State ensures
that Government is able to provide for the needs of those under its jurisdiction and
care.

Principles of a sound tax system

1. Fiscal Adequacy - the source of revenue should be sufficient to meet the

demands of public expenditure. (In a perfect environment, yung nakolekta yun
lang dapat ang panggagastos. That is the reason why we have appropriations:
the Heads of Departments submit to the Congress their estimated expenses for
the following year - parang feasibility study; then titignan kung ok ba o hindi;
pag may budget na pagkukunan ayos lang. Paano kung kulang ang budget pero
kailangan talaga? Magbebenta and gobyerno o kaya mangungutang)
2. Theoretical Justice - the burden should be in proportion of the taxpayer's ability
to pay. (Base ang buwis sa kakayahan na mgbayad. Hindi porke pogi maliit na
ang tax na babayaran tapos ung pangit naman malaki!!! ano bale? wala na
matitira sa sweldo ko?)

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 3. Administrative Feasibility - it should be capable of being enforced; not
burdensome; convenient as to time and manner of payment. (Sa madaling salita,
hindi dapat pahirap sa pagbabayad. Halimbawa: (1) kaya madami ang opisina o
Districts para hindi mahirapan ang madlang people, (2) kaya in-accredit and mga
banko (hindi ibig sabihin nito na walang tiwala ang BIR sa mga collection agent)
para mapadali ang pangongolekta at pagbabayad, (3) yung Electronic Filing and
Payment System o EFPS ginawa nila para hindi hassle)

Tax is the enforced proportional contribution from persons and the properties levied by
the State by virtue of its sovereignty for the support of government and for public needs.

NATURE:

1. It is inherent in sovereignty - it is essential to the existence of every government.

2. It is legislative in character - the power to tax is pecuniary and exclusively vested
to the Congress.
3. It is subject to limitations - inherent and constitutional.
4. It is awesome - I don't know why. Baka dahil maganda lang pakinggan Hahaha

LIMITATIONS
Inherent Limitations - (by its nature)

1. Public purpose - for general welfare. (Para sa madlang people lang gagastusin
ang perang nakulimbat este nakolekta)
2. Non-delegability of legislative taxing power - the Congress cannot delegate the
"power to tax" to others. (Inutos na nga sa kanila ng Constitution tapos iuutos
pa nila sa iba)
3. Exemption of Government Agencies/Instrumentalities exercising essential
governmental function. (Bawal singilin ang kakampi)
4. International comity - the property of a foreign state or government may not
be taxed by another. (Kasama na jan ung mga ambassador at iba pang
diplomatik).
5. Situs or territoriality - As a rule, the taxing power cannot go beyond the
territorial limit of the taxing authority. Situs of taxation is the State or
country which has jurisdiction to tax a person, property or interest.

Constitutional Limitations - (Naaayon sa ating saligang batas)

1. Due process and equal protection clause
2. Freedom of religious profession and worship
3. Non-impairment of contracts
4. No imprisonment for non-payment of tax
5. Revenue, appropriation, and tariff bills to originate from the House of
Representatives (iyung iba sabi nila Lower House - parang hindi naman tayo
parliamentary form of government)
6. Uniformity and equality
7. Exemption of property, directly and exclusively used for religious, charitable,
and educational purpose (Section 30 of the Tax code)

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 STAGES, ASPECTS OR PROCESSES OF TAXATION
1. Levy - it is the legislative act that determines that a tax of a certain amount or of
a certain percentage shall be imposed on the persons, properties, or acts subject,
sum or sums to be raised, due date thereof and time and manner of levying and
collecting taxes.(Basically, ito yung pag gawa ng batas)
2. Assessment - it is the official action of an officer authorized by law in ascertaining
the amount of tax due under the law from a taxpayer. (Sa BIR eto iyung mga
Examiner or Revenue Officer (Assessment); mga Special Investigators sa Special
Investigation Division) Examples: Real Property Taxes and Business Taxes are
the examples of assessment.
3. Collection - It is the getting by the concerned government agencies of the taxes
imposed. (Sa BIR sila iyung Revenue Officer - Collection) Examples: Income tax,
Estate tax, Donor’s tax, Value-added tax, Excise tax and Documentary stamp
tax.

Income – Income is the consumption and saving opportunity gained by an entity within
a specified timeframe, which is generally expressed in monetary terms.

Income Tax
It is a tax on a person’s income derived from employment, business, trade, practice of
profession, or from property, after excluding the deductions allowed under the law.

Business Tax
It is a tax on the production, sale, or consumption of goods and services, leasing or
property, or other business activities.

Income Taxation
Income includes all inflows of wealth to the taxpayer other than those that represents a
mere return of capital.

Gross Income
Refers to all income derived from whatever source, including (but not limited to):
a) Compensation income
b) Business income, including income from practice of profession
c) Passive income (such as, interest income, royalty income, prizes and winnings, and
cash or property dividend income)

Gross Compensation Income

Compensation income-is income that is typically derived from employment. Examples:

Salaries and wages

Salaries – compensation that is normally quoted on a per month (per year) basis and is
paid periodically (e.g., twice a month) for the performance of a regular work, e.g., salary
of a policeman or a teacher.

Wages – a compensation that is quoted on a per hour basis and is paid based on the
number of hours worked, e.g., wages of a manual laborer.

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 What’s More

Match the job (1st Column) to the picture (2nd Column) to get the information you
needed to be able to work out the wages for each of the five (5) jobs and write (/) on the
applicable compensation or enumeration. Write the answer on a separate sheet or on
your notebook.

Job Picture Piece Hourly Weekly Monthly

Rate Rate Rate Rate
1.Technical
Support

a.
2.Crew

b.
3.Employees

c.
4.Sewer

d.
5.Construction

e.

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 What I have learned

Place an X on a given principles of tax in the appropriate box. Write your answer on a
separate sheet or on your notebook.

Fiscal Adequacy Theoretical Justice Administrative

Feasibility
1.Sources of
revenue should be
sufficient to meet
the demands
expenditures

2.Evolve a
progressive system
of taxation
3.Must be capable
of convenient, just,
and effective
administration
4.Ability to pay
principle
5.Capable of
uniform
enforcement

What I Can Do
Town Manager for a Day

Imagine that you are the town manager of a city. You received a P20,000000
grant from the federal government to help support certain public services. Congress has
recently voted to reduce this funding to P10,000000 next year. One of your primary
goals as town manager is to avoid cutting services. Together you, and several city council
members have proposed various ways to raise additional revenue. Some have proposed
increasing property taxes. Others want to increase the local sales from 1 percent to 2
percent. Another proposal is to charge individual income taxes at a flat rate of 2 percent.
How will you each proposal affect the taxpayers of town city.

Choose only one (1) question to answer and explain why.

1. Do you increase the property tax?
2. Do you increase the local sales from 1 percent to 2 percent? or
3. Do you increase the individual income taxes with a flat rate of 2 percent?

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 Assessment
Write the letter of the correct answer on a separate sheet or on your notebook.

1. Assessments or fees imposed for specific privileges or services are not

deductible as taxes.
a. True
b. False

2. Compensation that is quoted on a per hour basis and is paid based on the
number of hours worked, e.g., wages of a manual laborer.
a. Salary
b. Wages
c. Basic salary
d. Piece Salary

3. Tax based on the production, sale, or consumption of goods and services, leasing
or property, or other business activities.
a. Income Tax
b. Property Tax
c. Business Tax
d. Real Property Tax

4. Determine the tax of a certain amount or of a certain percentage shall be imposed

on the persons, properties, or acts subject thereto.
a. Assessment
b. Collection
c. Levy
d. Associated

5. It is derived from employment, business, trade, practice of profession, or from

property, after excluding the deductions allowed under the law.
a. Business tax
b. Tax
c. Property tax
d. Income tax

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 Additional Activity

Identify the following if it is Inherent Limitation (IL) or Constitutional

Limitation (CL). Write your answer on a separate sheet or on your notebook.

1. Public purpose
2. Revenue, appropriation of tariff bills
3. Freedom of religious
4. Exemption of government agencies
5. Situs or territoriality
6. Due process and equal protection
7. Uniformity and equality
8. Non-impairment of contracts
9. International comity
10. No imprisonment for non-payment of tax

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 References

https://vicgudani.weebly.com/my-take/basic-principles-of-income-
taxationm=isch&rlz=1C1CHZL_enPH849PH849&hl=en&sa=X&ved=0CJwBE
KzcAigCahcKEwiYvv_fwc3sAhUAAAAAHQAAAAAQLg&biw=1349&bih=657#i
mgrc=hcpVRj0OAdPtUM

https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.theamegroup.com%2Fthe-importance-
of-tech-support-for-your-small-
business%2F&psig=AOvVaw0hw10TtR0LtClFfZOjlDmU&ust=1607168282853000&source=i
mages&cd=vfe&ved=0CAIQjRxqFwoTCODS6dGetO0CFQAAAAAdAAAAABAD

https://149410334.v2.pressablecdn.com/wp-content/uploads/2016/12/8-Ways-to-
Help-Your-Employees-Manage-Their-Workload.jpg

https://sourcingjournal.com/topics/labor/better-work-ilo-piece-rate-134553/

https://image.shutterstock.com/image-photo/construction-site-workers-concrete-
pouring-600w-598781612.jpg

https://4.bp.blogspot.com/Ib0G4tfAH0s/XJt6nqpsMaI/AAAAAAAAzFc/0VGmjaoVEqs
uj6EeiysVBF_fMSEPv1fTACLcBGAs/s1600/cherry-1.jpg

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 Development Team of the Module

Writer : Rosalinda G. Ruiz (SEHS)

Internal Reviewer : Emily G. Santos (PSDS)
External Reviewer : Kevin Rey G. Torrente (ADMU)
Cover Illustrator : Shiela Mae A. Malesido (SEHS)
Layout Artists : Dunhill Jan E. Elmido (NHS)
Management Team:
Sheryll T. Gayola
Assistant Schools Division Superintendent
OIC, Office of the Schools Division Superintendent

Elisa O. Cerveza
Chief, CID
OIC, Office of the Assistant Schools Division Superintendent

Emily G. Santos
Public School District Supervisor

Ivy Coney A. Gamatero

Education Program Supervisor– LRMS

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