Taxation Overview and Legislative Power

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Questions and Answers

What is the primary purpose of taxation?

To reduce economic competition

To limit individual wealth

To provide proper funding for the government (correct)

To enforce laws on businesses

Which type of taxpayer is classified as a Large Taxpayer?

From ₱20 million to less than ₱1 billion

₱1 million and above

₱1 billion and above (correct)

Less than ₱3 million

What characteristic makes taxation an 'enforced contribution'?

It is a voluntary agreement

It can be avoided with sufficient wealth

It is based on taxpayer preferences

Its imposition does not depend on the taxpayer's will (correct)

Which branch of government has exclusive power to create tax laws?

Legislative Signup and view all the answers

How do non-revenue objectives of taxation function?

They regulate behavior towards government goals Signup and view all the answers

What does it mean for taxation to be 'generally payable in money'?

Tax payments must be made with legal tender Signup and view all the answers

What limitation is placed on the government's power to tax?

It must operate within constitutional and inherent limitations Signup and view all the answers

What characteristic of taxation refers to the tax amount being based on a person's capacity to pay?

Proportional Signup and view all the answers

What must occur for a state to enforce its power to tax on a person or property?

The person or property must be within the territorial boundaries of the state. Signup and view all the answers

Who is responsible for creating sources of revenue and levying taxes as per Article X, Section 5 of the 1987 constitution?

The congress. Signup and view all the answers

What is 'tax evasion' characterized by?

The illegal or fraudulent means to escape or lessen tax payment. Signup and view all the answers

Which of the following is an inherent power of the state?

Taking private property for public use with compensation. Signup and view all the answers

What does 'tax avoidance' refer to?

Legal strategies sanctioned by law to reduce tax liability. Signup and view all the answers

What is the role of taxpayers whose income comes from within the area governed by a tax authority?

They are characterized as individual taxpayers. Signup and view all the answers

Which term refers to the general pardon granted by the state for tax evasion?

Tax amnesty. Signup and view all the answers

Which of the following describes a 'non-resident citizen'?

A Filipino citizen not residing in the Philippines. Signup and view all the answers

What classification describes a foreign citizen residing in the Philippines during the taxable year?

Resident Alien Signup and view all the answers

Which of the following types of income is specifically generated by businesses or professionals?

Business Income Signup and view all the answers

What is the basic personal exemption amount allowed for qualified individuals?

P50,000 Signup and view all the answers

Which of the following is NOT an allowable deduction for those earning purely compensation income?

Interest expenses Signup and view all the answers

What is the additional personal exemption amount allowed for each qualified dependent child?

P25,000 Signup and view all the answers

Which type of income is defined as income generated from investments?

Passive Income Signup and view all the answers

What is a characteristic of non-resident aliens not engaged in trade or business?

They do not reside in the Philippines. Signup and view all the answers

Which of the following qualifies as an allowable deduction for business income?

Charitable contributions Signup and view all the answers

Study Notes

Taxation

Government collects revenue to fund its operations.
Primary purpose of taxation is to provide funding for government operations.
Income tax is levied on net income or realized income.
- Individuals are taxed.
- Corporations are also taxed.
Business tax is levied on businesses.
- Micro taxpayers: less than ₱3 million.
- Small taxpayers: ₱3 million to less than ₱20 million.
- Medium taxpayers: ₱20 million to less than ₱1 billion.
- Large taxpayers: ₱1 billion and above.

Nature of Tax

Inherent in sovereignty: A state's ability to tax exists naturally, essential for operation.
Not explicitly stated in a constitution, still a power of the state.

Legislative Power

Congress holds primary authority for national tax laws, ensuring fairness and accountability.
Local government units (LGUs) manage taxes on a local level, adhering to national guidelines.
Taxes are subject to constitutional and inherent limitations.

Purpose of Taxation

Always has a public purpose.
Essential for government operations & public welfare.
Generates revenue for public services.
Can be used to regulate behavior.

Essential Characteristics of Taxation

Enforced contribution: Not voluntary, imposed without consent of the taxpayer.
Generally payable in money: Tax payments must be made in legal tender.
Proportionate: Tax amount should be commensurate to taxpayer's ability to pay.
Placed on persons or property: Tax can be imposed on acts, transactions, rights, or privileges.
Taxing authority: Must have power over the person or property being taxed.
Geographic limitation: Tax jurisdiction restricted to the state's territorial boundaries.

Taxed by Law-Making Body

Congress has power to create tax laws.
Set and regulate guidelines for taxes.
Must adhere to the constitution (Article X, Sec. 5 of the 1987 Constitution).
Primarily for use in government administration.

Ways to Evade Taxation

Shifting: Transferring the tax burden to someone else—not payment.
Capitalization: Deduction of future tax from the price of an object.
Transformation: Seller improves productivity, not burdening consumer with the tax.
Evasion: Illegal or fraudulent means to reduce tax liability.
Avoidance: Legal ways to decrease tax liability.
Exemption: Government grants immunity to certain persons or types of businesses.
Tax Amnesty: Precursor to tax reform.

Inherent Powers of the Government

Eminent domain: Government takes private property for public use, with fair compensation.
Police power: Ability to enact reasonable regulations for public health, safety, and morals.
Taxation: Provides revenue for government operations.

Individual Taxpayers

Taxed on income within the governing area.

Resident vs. Non-Resident Citizens

Resident Citizen: Filipino citizens living in the Philippines.
Non-Resident Citizen: Filipino citizens living outside the Philippines.
Resident Alien: Foreign citizens residing in the Philippines.
Non-Resident Alien: Foreign citizens not residing in the Philippines.

Kinds of Income

Compensation income: Income from employment (salaries).
Business income: Income from business ventures.
Passive income: Income from investments.

Allowable Deductions

Business expenses can be deducted, such as interest, taxes, bad debts, deprecation, charitable contributions, research, and basic personal exemptions.
Additional personal exemptions may be given for dependents.

Basic Personal Exemption

A basic personal exemption is granted to most individuals, excluding nonresident aliens not engaged in trade or business (₱50,000).
Additional exemptions may be granted for dependents (21 years or younger, seeking support).

Non Resident Alien Taxable Income

A non-resident alien (NRA) taxpayer is entitled to a personal exemption as long as their home country grants reciprocity to Philippines citizens.
The NRA files a true and accurate statement of their income derived in the Philippines.
The amount of allowable personal exemptions is lower between the amount allowed by the Philippines and the amount allowed by the NRA's home country.
Changes in tax laws in the past resulted in distinctions between single, married, and head of household personal exemptions.
Nowadays, the personal exemption amount is ₱50,000.

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Description

This quiz covers the fundamentals of taxation, including the types of taxes levied on individuals and corporations. It also explores the inherent nature of tax as a function of sovereignty and the role of Congress and local government units in tax legislation. Test your understanding of how taxation funds government operations and the classification of taxpayers.