3. At the end of the lesson, the learners are able to:
▪ Define income and business taxation and its
principles and process;
▪ Explain the principles and purpose of taxation;
▪ Prepare the list of sources of gross income from
compensation and gross income from business;
▪ Prepare the BIR form; and
▪ Distinguish individual from business taxation.
FUNDAMENTALS OF ABM 2
4. What is TAXATION?
▪ Is an inherent power of
sovereignty by which a
state through legislature
raises and imposes revenues
to defray the expenses of
the government.
▪ No government can exist or
endure without any funds.
FUNDAMENTALS OF ABM 2
5. Principles of a SOUND TAX SYSTEM
FUNDAMENTALS OF ABM 2
1. Fiscal
Adequacy
2. Equality or
Theoretical
Justice
3. Administrative
Feasibility
6. 1. FISCAL ADEQUACY
FUNDAMENTALS OF ABM 2
• Means that the sources of revenue should be sufficient
enough to meet the requirements of the government and
the demanding public expenditures.
• This can be attained by changing the tax rates applicable
to existing laws so that revenue could substantially respond
to expanding needs for government and public
expenditures.
• Under this principle, revenue raised must be sufficient to
meet the needs of the public and the government. If
collection goes beyond or below the amount needed,
there is a violation of this principle.
7. 1. FISCAL ADEQUACY
FUNDAMENTALS OF ABM 2
• Ideally, taxes collected should be enough
for the operations of the government.
Government funds should not be lower
than what is needed. However, it should
also not be more than that because, if so,
the public would be overburdened with
tax.
8. 2. EQUALITY OR THEORITICAL JUSTICE
FUNDAMENTALS OF ABM 2
• This is called the “ability to pay” principle.
• This means that the imposition of tax is based on
the ability of the tax payer to pay.
• Under the principle of theoretical justice, the
taxpayers' ability to pay the tax must be taken
into consideration. "The rule of taxation shall be
uniform and equitable.
• The tax burden should be in proportion to the
taxpayer’s ability to pay.
9. 3. ADMINISTRATIVE FEASIBILITY
FUNDAMENTALS OF ABM 2
• This means that tax laws must be capable of
convenient, just and effective administration –
free from confusion and uncertainty.
• The tax laws and regulations must be effectively
administered and enforced with the least
inconvenience to the taxpayer.
• That tax laws, rules and regulations must be
capable of being administered and complied
with.
10. What is the PRIMARY PURPOSE OF taxation?
FUNDAMENTALS OF ABM 2
• Is to provide funds or
property with which to
promote the general
welfare and protection of
the country’s citizens and
to support the government
in financing its multifarious
activities.
11. WHAT ARE TAXES?
FUNDAMENTALS OF ABM 2
• Taxes are enforced proportional contribution from persons
and property levied by the lawmaking body of the State by
virtue of sovereignty for the support of the government and
all public needs.
• In cases where there is
an attempt to evade
tax, you can get
imprisoned for not less
than six (6) years but
not more than ten (10)
years.
12. What are the ESSENTIAL ELEMENTS of TAX?
FUNDAMENTALS OF ABM 2
1. Enforced contribution;
2. Proportionate in character;
3. Generally payable in money;
4. Levied on person, property on the exercise of right and
privilege;
5. Levied by the state which has jurisdiction over the subject of
taxation;
6. Levied by the lawmaking body of the state;
7. And levied by public purposes like for example, the construction
of roads and bridges and other infrastructure projects,
assistance to victims of calamities and social welfare and health
care projects, etc.
13. What are the SOURCES of Gross Income?
FUNDAMENTALS OF ABM 2
What is GROSS INCOME?
▪ means all income earned from whatever sources but are not
limited to the following:
1) Compensation from services in whatever form paid including
but are 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 professions.
3) Gains derived from dealings of property.
4) Interest
14. What are the SOURCES of Gross Income?
FUNDAMENTALS OF ABM 2
5) Rent
6) Royalties
7) Dividends
8) Annuities
9) Prizes and winnings
10) Pension and
11) Partner’s distributive share from
the net income of the general
professional partnership.
15. WHAT IS INCOME TAX?
FUNDAMENTALS OF ABM 2
• It refers to the tax on
net income realized
on one taxable year.
Both individuals and
corporation are
required to file and
pay income taxes
every 15th day of
APRIL of the
succeeding year.
16. Who are REQUIRED to pay INCOME TAX?
FUNDAMENTALS OF ABM 2
The following are required to pay income taxes according to the
National Internal Revenue (NIRC) of 1997:
INDIVIDUAL
• Resident citizens receiving income from sources within or outside the
Philippines
✓ Employees deriving purely compensation income from two or more
employers, concurrently or successively at any time during the taxable
year;
✓ Employees deriving purely compensation income regardless of the
amount, whether from a single or several employers during the calendar
year, the income tax of which has not been withheld correctly (i.e. tax
due is not equal to the tax withheld) resulting to collectible or refundable
return;
17. Who are REQUIRED to pay INCOME TAX?
FUNDAMENTALS OF ABM 2
INDIVIDUAL
• Resident citizens receiving income from sources within or
outside the Philippines
✓Self-employed individuals receiving income from the conduct
of trade or business and/or practice of profession;
✓Individuals deriving mixed income, i.e., compensation income
and income from the conduct of trade or business and/or
practice of profession;
✓Individuals deriving other non-business, non-professional related
income in addition to compensation income not otherwise
subject to a final tax;
18. Who are REQUIRED to pay INCOME TAX?
FUNDAMENTALS OF ABM 2
INDIVIDUAL
• Resident citizens receiving income from sources within or outside
the Philippines
✓ Individuals receiving purely compensation income from a
single employer, although the income of which has been
correctly withheld, but whose spouse is not entitled to
substituted filing.
• Non-resident citizens receiving income from sources within the
Philippines
• Aliens, whether resident or not, receiving income from sources
within the Philippines.
19. Who are REQUIRED to pay INCOME TAX?
FUNDAMENTALS OF ABM 2
NON-INDIVIDUALS
• Corporations including partnerships, no matter how
created or organized.
• Domestic corporations receiving income from
sources within and outside the Philippines.
• Foreign corporations receiving income from
sources within the Philippines.
• Estates and trusts engaged in trade or business.
