TAXATION

Principles of taxation
Sources of gross income from compensation
Gross income from businesses
 DEFINITION OF TERMS

Taxation is the process by which the government collects

revenue in order to pay for its expenses.

The primary purpose of taxation is to

• provide funds or property with which to promote the general welfare of
its citizens and to
• enable it to finance its multifarious activities.
 DEFINITION OF TERMS

Governing tax law in the Philippines is the National

Internal Revenue Code of 1997.

The Bureau of Internal Revenue (BIR) is the primary

implementing agency of this law.
 DEFINITION OF TERMS

Income tax is defined as the tax on the net income or the

entire income realized in one taxable year.
 Principles of Taxation

1. Benefit Received Principle states that the citizens of

the country who benefits from the goods and services
should pay in proportion to the amount of benefits they
received.

2. Ability to Pay Principle states that citizens should be

taxed according to their ability to pay. The more money you
have, the more money you should pay.
 Principles of a Sound Tax System

• Fiscal adequacy is the amount of tax collected should be

enough to be spend by the government in providing
service to the people.
• Equality or theoretical justice is based from the ability
to pay theory. The more money you have, the more taxes
you pay.
• Administrative feasibility the taxation system must be
easy to enforce. The collection system must not be hard
for both the government and the people.
Who is required to pay income tax in the Philippines?
RESIDENT CITIZEN
A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the
Philippines. 
A non-resident citizen is taxable only on income derived
from sources within the Philippines;
– (1) A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite intention to
reside therein.
– (2) A citizen of the Philippines who leaves the Philippines during the taxable year
to reside abroad, either as an immigrant or for employment on a permanent
basis.
• A domestic corporation is taxable on all income
derived from sources inside and outside the Philippines;
and
• A foreign corporation is taxable only on the income
derived inside the Philippines.
• A resident alien is an individual who is stateless or is a
national of another country and who lives in the
Philippines with no definite intention as to length of stay,
but who is not a mere transient or sojourner.
• An expatriate working in the Philippines on a contract for an indefinite
period potentially falls into this category.
• Most expatriates will be classified as non-resident aliens
because their contract will be for a specified period of
engagement.
• A non-resident alien individual who comes to the Philippines and stays
for more than 180 days during any calendar year will be deemed a
non-resident alien engaged in trade or business in the Philippines.
• If the aggregate stay in the Philippines during any calendar year
covered by the assignment period does not exceed 180 days, the
individual may be deemed a non-resident alien not engaged in trade or
business in the Philippines.
 SOURCES OF GROSS INCOME

• Compensation
• Gross income derived from the conduct of a trade or
business or the exercise of a profession
• Gains derived from dealings in property;
Exclusions from gross income