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Rationalization on the Gross Income in the

Philippines

By:

Atty. Zehan Loren Emban Tocao, REB

A Research Paper

Submitted in Partial Fulfillment of the

Requirements For the Master Degree in Law

The Graduate College

University of Sto. Thomas

April 17, 2018
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Also. taxation was used to support the colony. Also. several taxes and monopolies were established. taxes were first used as emergency measures. It is defined as an inherent power by which the sovereign state imposes financial burden upon persons and property as a means of raising revenues in order to defray the necessary expenses 2 . Taxation is defined in many ways. rice. there was the bandala ( from the tagalog word mandala. an annual forced sale and requisitioning of goods such as rice. a round stack of rice stalks to be threshed). the buwis (tribute) which could be paid in cash or in kind with tobacco. cotton. In the Philippines. The first known system of taxation was in Ancient Egypt around BC 2800 in the first dynasty of the old kingdom. blankets or other products depending on the region of the country. chickens. in Rome earlier taxes were called as portoria and in England.

2 It can be said that taxation is the most pervasive and the strongest of all the powers of the government. taxes are the lifeblood of the government. 2000. 2002.3 Primarily. the purposes of taxes is to generate funds or revenues use to defray expenses incurred by the government in promoting the general welfare of its citizenry and to equitable contribute to the wealth of the nation. 2 Tax Law and Jurisprudence by Justice Vitug. 3 . 1 Tax Digest by Cresencio Co-Untian. it cannot subsist. 3 Commissioner v Pineda.1 It refers to the imposition of financial charges or other levies. protect the local producers and new industries. Indeed.of government. upon a taxpayer by a state such that failure to pay is punishable by law and also considered as a mode by which government make exactions for revenue in order to support their existence and carry out their legitimate objectives. 21 SCRA 105. without which.

capital gain and passive income not subject to final tax. and after deducting the sum of allowable deductions from business or professional income. residence principle. as well as personal and additional exemptions. in the case of individual taxpayers. business or professional income. capital gain and passive income not subject to final tax. and other income are added together to arrive at the gross income. and the source principle and the Philippine income tax system is a combination of the global and schedular systems of taxation. the compensation income. progressive where tax base increases as the tax rate increases. the characteristics of Philippine Income Tax Law is direct where tax is imposed on the income-earner. the taxable income is subjected to 4 . comprehensive where the Philippines adopts the citizenship principle. Here. and other income. in the case of corporations. Presently.

one set of graduated tax rates. which flows into the taxpayer 4 Guiterrez v Collector of Internal Revenue  5 CIR v Tours Specialists Inc 5 . provides that income tax in general are based on net income of taxpayers whether corporations orindividuals after deductions in the gross income. method of taxation under the NIRC. as amended. Gross income means all income from whatever source. gross receipts do not include money or receipts entrusted to the taxpayer which do not belong to them and do not redound to the benefit of the taxpayer. Income means all wealth. All income not expressly excluded or exempted from the class of taxable income.4 However.5 Income may include illegal income or from illegal business like jueteng. At present. the National Internal Revenue Code of 1997 of the Philippines.

by the Tax Code or other special laws. if any. less the deductions and/or personal and additional exemptions. Gross income includes. including but not limited to fees. authorized for such types of income. salaries. commissions and similar item  Gross income derived from the conduct of trade or business or the exercise of profession  Gains derived from dealings in property  Interest  Rents  Royalties  Dividends 6 . Taxable income means the pertinent items of gross income specified in the Tax Code as amended. but is not limited to the following:  Compensation for services. in whatever form paid. wages.other than as a mere return of capital.

gratuities. pensions. bequests and devises  Compensation for injuries or sickness  Income exempt under treaty  Retirement benefits.  Miscellaneous items income derived by foreign government income derived by the government or its political subdivision 7 .  Annuities  Prizes and winnings  Pensions  Partner's distributive share from the net income of the general professional partnerships The following are the exclusions from gross income?  Life insurance  Amount received by insured as return of premium  Gifts. etc.

Medicare and other contributions gain from the sale of bonds. or Itemized Deductions Bad Debts.an amount not exceeding 40% of the net sales for individuals and gross income for corporations. The system of Gross Income Taxation is utilized for the following incomes: Certain passive Incomes of Individual citizens and individual resident alien such as interest cash/property 8 . debentures or other certificate of indebtedness gain from redemption of shares in mutual fund A taxpayer may opt to avail any of the following allowable deductions from gross income: Optional Standard Deduction . SSS.prizes and awards in sport competition prizes and awards which met the conditions set in the Tax Code 13th month pay and other benefits GSIS.

the following are the kinds of gross income taxation: Pure gross income taxation.dividends and capital gains from sale of real property. Nonresident alien individual not engaged in trade or business within the Philippines (interest wages premiums capital gains a tax equal to 25% of such income. Alien Individual employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies(interest wages premiums capital gains a tax equal to 15% of such income. Other kinds of income derived from business. business or exercise of profession. Further. practice of profession. Alien Individual 9 . Under the National Internal revenue Code provides for a uniform income tax rate imposed on individuals irrespective the income is derived from compensation. tax base is the total gross income of an individual or corporation during the taxable year without any deduction. compensation subject to certain deductions.

it will be considered as an easy built-in business model not 10 . Alien Individual Employed by Petroleum Service Contractor and Subcontractor (interest wages premiums capital gains a tax equal to 15% of such income and Adjusted or modified gross income taxation. However. There are some opinions that the same would be beneficial in the community considering that it will simplify doing business.Employed by Offshore Banking Units (interest wages premiums capital gains a tax equal to 15% of such income.the tax base is reduced by some items of deduction. there are discussions on whether or not a System of taxation which is based on the gross rather than on the net income would be more advantageous. discounts and allowances and cost of goods sold. Gross income derived from business for corporation shall be equivalent to gross sales less sales returns.

if coupled with withholding tax system it would provide for more returns to the government and the same will entail less administrative work in the Bureau of Internal Revenue tax examiners. But. unfortunately. the procedure for the computation of income taxation will be simpler. examination or investigation of tax returns can be made faster. 11 . taxpayers may suffer net loss if the rule wherein system of taxation will be based on gross income rather than on net income will be observed.only for new enterprises but also even for existing ones so long as issue invoice with respect to goods or receipt for the sale of services. less discretion will be allowed to the Bureau of Internal Revenue tax examiners thereby minimizing graft and corruption in the government. the rule on taxation may not be equitable and uniform and it may serve as a disincentive to further employment in the community.

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