FABM 2 STUDY GUIDE PDF

1. TAXATION -government collects revenue in order to pay for its expenses. PRIMARY PURPOSE OF TAXATION -provide the proper funding needed to run the government. INCOME TAX -the tax on the net income or the entire realized in year. *INDIVIDUALS *CORPORATION BUSINESS TAX -tax levied on taxpay...

1. TAXATION -government collects revenue in order to pay for its expenses. PRIMARY PURPOSE OF TAXATION -provide the proper funding needed to run the government. INCOME TAX -the tax on the net income or the entire realized in year. *INDIVIDUALS *CORPORATION BUSINESS TAX -tax levied on taxpayers engage in business. Micro Taxpayer: Less than ₱3 million. Small Taxpayer: From ₱3 million to less than ₱20 million. Medium Taxpayer: From ₱20 million to less than ₱1 billion. Large Taxpayer: ₱1 billion and above. 2. NATURE OF TAX INHERENT IN SOVEREIGNTY -state’s ability to tax exists naturally, not because of specific laws, but because it’s essential for its existence and operation. -being essential to the existence of every government.Hence,even if not mentioned in the constitution, the state can still exercise the power. LEGISLATIVE -branch of government, typically Congress, has the exclusive power to create and implement tax laws. -Congress holds the primary authority for national tax laws, ensuring accountability and uniformity, while Local Government Units (LGUs) address regional needs with local taxes under national guidelines to maintain fairness. This balance supports both national and local public services effectively. SUBJECT TO CONSTITUTIONAL AND INHERENT LIMITATIONS -action, power, or authority must operate within the restrictions and principles set by the constitution and any basic, fundamental limits inherent in a legal or governmental system. -makes sure the government uses its power of taxation fairly and responsibly that helps everyone. 3. PURPOSE OF TAXATION -Always a public purpose -it is a necessity for every Government since the taxes are The source of life of every state. EARN REVENUE -money collected by the government is used To provide for various public services to promote The welfare of the people. NON REVENUE OBJECTIVES -used to regulate the behaviour Of people towards a particular purpose the Government seeks to achieve. 4. ESSENTIAL CHARACTERISTICS ENFORCED CONTRIBUTION -not voluntary and its imposition is in no way dependent upon the will or consent of the person being taxed. GENERALLY PAYABLE IN MONEY -money to be paid is understood to be legal tender. PROPORTIONATE -amount a person pays is dependent on his capacity to pay. PLACED ON PERSONS OR PROPERTY -tax may be placed on an act, a transaction, a right, or a privilege, it is still an individual who must pay the tax. TAXED BY THE STATE WHICH HAS AUTHORITY AND POWER OVER THE PERSON OR PROPERTY -must be within the territorial boundaries of the state so that the state can enforce its power to tax on them. TAXED BY THE lAW-MAKING BODY OF THE STATE -Refers to the congress -Article X. sec. 5 of the 1987 constitution *power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the congress may provide, consistent with the basic policy of the local autonomy. FOR PUBLIC PURPOSES -It is necessary for “the support of the government, administration of law, or payment of public expenses. 5. FORMS TO ESCAPE FROM TAXATION SHIFTING -What is transferred is not the payment but the burden of tax. CAPITALIZATION -total amount of future taxes expected to be paid for the object is deducted from the purchase price of the object. TRANSFORMATION -The seller maintains his selling price and margin of profit not by shifting the tax to his customers but by improving his method of production. EVASION -use of illegal or fraudulent means to scape of lessen the payment of tax. AVOIDANCE -A legal way for taxpayers to avoid paying taxes -means sanctioned by law to avoid or reduce tax liability. EXEMPTION -government grants immunity to particular persons, corporations, or a particular class of persons or nature of business. TAX AMNESTY -A prerequisite to genuine tax reform” (Commission Dulay) -general pardon of the state by internationally overlooking its authority to impose penalties on persons guilty of tax evasion or violation of a particular revenue or tax law. 6. INHERENT POWERS -power of a state or branch of Government that are not expressly written In a Constitution. EMINENT DOMAIN -power of a local, state or federal Government agencies to take private Property for “public use” so long as the government pays “just compensation.” POLICE POWER -defined as the inherent authority of the State to establish reasonable regulations aimed At maintaining public order, health, safety and Morals within the boundaries set. TAXATION -allows a state to levy taxes from its Citizens in order to raise the revenue required for the Government to operate. 7. INDIVIDUAL TAXPAYERS -the individuals whose income Comes from within the area governed by A tax authority. RESIDENT CITIZEN -Filipino citizen and lives or resides in the Philippines. NON-RESIDENT CITIZEN -Filipino citizen that does not reside in The Philippines. RESIDENT ALIEN -citizen of another foreign country but Resides in the Philippines during the taxable year. NON-RESIDENT ALIEN -citizen of another foreign country But does not reside in the Philippines. Engaged in trade or business (NRA-ETB)- aliens who have business income derived from the Philippines. Not engaged in Trade or business (NRA- NETB)- aliens who have no business income derived from the Philippines. 8. KINDS OF INCOME COMPENSATION INCOME -This is the income received by employees working for different companies. This is usually in the form of salaries, bonuses, and allowances. BUSINESS INCOME -This is the income generated by entrepreneurs (business) or by different professionals like lawyers, doctors, and accountants (professional income). PASSIVE INCME -This are income generated by different Investments made by the individual. ALLOWABLE DEDUCTIONS -The allowable deduction for qualified individuals would depend on the kind of income they earned: IF HE OR SHE IS EARNING PURELY COMPENSATION INCOME: a. Basic personal exemptions b. Additional personal exemptions c. Premium payments on health and hospitalization insurance IF HE OR SHE IS EARNING BUSINESS OR PROFESSIONAL INCOME ONLY, THE FOLLOWING ARE ALLOWED DEDUCTIONS: a. Regular expenses incurred by the business b. Interest expense c. Taxes expense d. Losses e. Bad debts expense f.Depreciation and depletion expense g. Charitable contributions h.Research and development expenses i. Basic personal exemptions j. Additional personal exemptions k. Premium payment on health insurance 9. PERSONAL EXEMPTION -amounts that can be deducted from certain individuals gross income before it will be subjected to the income tax table. It can be classified into basic personal exemptions and additional exemptions for dependent children. BASIC PERSONAL EXEMPTION -All kinds of individuals, except those classified as nonresident alien not engaged in trade or business, are Allowed for a basic personal exemption of P50,000 a Year. -This is applicable to qualified individuals, whether Single, married, or a widow/widower ADDITIONAL PERSONAL EXEMPTION -deductible allowance in Addition to the basic personal exemption allowed for qualified Dependent children of an Individual taxpayer. -The new R.A. 9504 provides That the amount of additional Exemption for each qualified Dependent child (not Exceeding four) is P25,000. Not more than 21 years old Not gainly employed Seeking for chief support AN NRA-ETB -is entitled to a personal exemptions as long as the following requisites are present: a. The foreign country of the non-resident alien has a tax law that grants personal exemptions to Filipinos who are also non-resident of that country. This is known as the concept of reciprocity b. The NRA files a true and accurate statement of all his or her income derived in the Philippines. THE AN AMOUNT OF ALLOWABLE PERSONAL EXEMPTIONS FOR NRA-ETB -is lower berween the amount allowed under Philippine tax laws (P50,000) and the allowable personal exemption being given by such NRA’s foreign country to Filipinos classified as NRA in such foreign country. CHANGE OF STATUS -There was a time in the history of Philippine tax laws when there is a difference between the personal exemptions allowed for single, married, and persons considered as head of the family. There is no such distinction nowadays. The allowed personal exemption is P50,000,