Republic of the Philippines

City of Taguig
Gen. Santos Avenue, Central Bicutan, Taguig City

Taguig City University

Graduate School – Master in Public Administration

Funding the national government

Through Operations of Business Organizations

A Report

Submitted in Partial Fulfillment of the

Subject Requirements

Financial Management and Policy

Submitted by:

Vanessa Me R. Araza
MPA Student

Submitted to:

LAURENCE M. VICENCIO, FRIPAr, FRIFM, FRIEdr, MPA, DPA

Associate Professor
Introduction

As a person, you may be wondering how does that government generate their income. Like me,
working in a private sector, our company generate income through our clients.

Today, I am going to share with you how our National government generate their income so
they can provide the necessary budgets to their projects. ( Tax )

Sole proprietorship

A sole proprietorship is an unincorporated business with one person or a married couple

as the owner. Sole proprietors report business income and losses on their personal tax return
and are personally responsible for the business’s debts and legal obligations.
The 8% tax is applicable only to self-employed individuals (sole proprietors and professionals)
whose gross receipts or gross sales and other non-operating income for the year do not exceed
the three million pesos (P3,000,000) value-added tax (VAT) threshold and are not subject to
other types of percentage tax.

When the TRAIN law became effective, many self-employed individuals and small
business owners have been keenly following the developing rules for the 8% tax applicable to
them
If the small business is owned by a corporation, the 8% tax will not apply. The 8% tax is
applicable to various types of business activities that can be undertaken by a sole proprietor,
such as the practice of a profession, consultancy services, or convenience store business.

Section 12 of Revenue Regulations No. 8-2018 requires percentage taxpayers to submit

their taxpayer registration update form (BIR Form 1905) to the BIR to end-date the percentage
tax.
If taxpayers fail to end-date their percentage tax registration, they must continue to file the
percentage tax return reflecting zero-amount of tax with a notation that they are availing of the
8% income tax rate for the taxable year

Examples of Sole proprietorship

Virtual Assistant
Tutoring
Catering Company

If you're a sole proprietor filing Schedule C on your personal tax returns, the April 15,
2019 deadline applies to you too. April 15 is also the deadline to file for an extension to file your
individual tax return.

PARTNERSHIP

Formed by persons for the sole purpose of exercising their common profession, is a
formal arrangement in which two or more parties cooperate to manage and operate a business.
The personal income tax rate is 25 percent between P34,000 and P82,000.
Various partnership arrangements are possible in which all partners might share liabilities and
profits equally or some partners may have limited liability.

For example, if you want to keep $35,000 of your profits in the partnership, that money
will still be taxed as your personal income, most likely at a rate of 25-28 percent.
Example 2, Partner A contributes $400,000 of capital and has a majority of the
responsibility in the partnership. Partner B contributes $100,000 of capital and does not help
much in partnership responsibility. The partners can agree that Partner A receives 10 percent of
profits and partner B receives 90 percent of profits, or vice versa. The partners must agree but
absent on agreement, they share profits evenly.

March 15, 2019 - S corporation and partnership tax returns due

Corporation

A corporation is a legal entity that is separate and distinct from its

owners. Corporations enjoy most of the rights and responsibilities that an individual possesses:
enter contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay
taxes.
The applicable CIT rate for both resident and non-resident corporations is 30 % based on net
taxable income. Royalties, interest, dividends, and other passive income of domestic and
resident foreign corporations are subject to different rates

In Philippines, the Corporate Income tax rate is a tax collected from companies. Its
amount is based on the net income companies obtain while exercising their business activity,
normally during one business year.
The benchmark we use refers to the highest rate for Corporate Income.
Revenues from the Corporate Tax Rate are an important source of income for the government
of Philippines.

March 15, 2019 - S corporation and partnership tax returns due

Cooperatives

A cooperative (also known as co-operative, co-op, or coop) is "an autonomous

association of persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through a jointly-owned and democratically-controlled enterprise".
Cooperatives are single taxed like all other businesses except for C-corporations, which are
double taxed at the entity and the stockholder levels.

Cooperatives are created by mostly poor individuals who contributed small amount to
the organization on one collective purpose which is to alleviate them from poverty, with less
financial support from the Government but the tax exemption. This tax exemption is a social
justice measure and can never be considered as fiscal incentive to business. It is clearly provided
under the Cooperative Code which is a legislative measure.
2,450 registered cooperatives.

Cooperatives conduct their business activities not for profit but for the sustenance of its
members. The net margin (income-expenses) is NOT considered taxable income because it is
returned to the patrons.
REGISTERED COOPERATIVES under R.A. 9520 as of December 31, 2015

Cooperative is a self-help organization this is the reason why Tax exemptions are granted
to cooperatives. The Code requires the cooperatives to set aside thirty percent (30%) of their
profit to be reserved for specific purposes.

RA No. 9520 or Philippine Cooperative Code of 2008 shall be controlling: “ART.61. This is the
reason why Tax exemptions are granted to cooperatives. The grant of this privilege to
cooperatives may not literally help the government raise revenue, but it fulfills the mandate of
alleviating the lives of the people form poverty, which is the ultimate goal of raising revenue.
The Code requires the cooperatives to set aside thirty percent (30%) of their profit to be
reserved for specific purposes. They cannot spend anything from their money until and unless
the requirement on statutory reserves is complied with. These reserves will redound back to the
members themselves and the community as a whole, through certain projects specifically
required by law. Only the excess of which may be returned back to the members or finance the
operations of the coop.

Tax and Other Exemptions. Cooperatives transacting business with both members and
non-members shall not be subjected to tax on their transactions with members.
In relation to this, the transactions of members with the cooperative shall not be subject to any
taxes and fees, including not limited to final taxes on members' deposits and documentary tax.
Cooperatives with accumulated reserves and undivided net savings of not more than Ten million
pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay
taxes of whatever name and nature.

Zubiri, primary author of the new Philippine Cooperative Code of 2008 and who is the
chairman of the JCOCC, said the Joint Rules and Regulations would now allow cooperatives in
the country to better serve their members, without worry of restraints due to lack or shortage
of funds. Under the IRR, all duly-registered cooperatives enjoy exemption from transactions
with insurance companies and banks.
 Also, cooperatives dealing exclusively with members are exempt from payment of any
taxes and fees, including but not limited to, income tax, percentage tax, donor's tax, excise tax,
documentary tax, and the annual registration fee of P500. Electric cooperatives are also exempt
from payment of Value Added Tax (VAT) on systems loss and VAT on the distribution of
electricity to their members.

Small and Medium Enterprises (S M E)

In the Philippines, SMEs are defined as any enterprise with 10 to 199 employees and/or
assets valued from P3 million to P100 million. SMEs and micro enterprises combined make up
99.6% of establishments in the country.

Republic Act no. 9501 – defines micro enterprises as entities with total assets of not
more than $3,000,000, small enterprises as The New law, R.A. 9501 amends the 17 year old R.A
6977 or the Magna Carta for Small Medium Enterprises. SME’s are defined in two major ways,
by assets or employment size. DTI defines small and medium enterprises as provided under the
Magna Carta of SMEs

According to the Asian Development Bank, small and medium enterprises (SMEs) are
the backbone of Asian economies, making up 98% of all enterprises and 66% of the national
labor force from 2007-201

But who are these SMEs exactly? Filipino SMEs are the Instagram entrepreneurs, the tech
startups, the grocery store owners; your nosey neighbor, your high school classmate, your
cousin running the family business. It’s anyone and everyone who’s had the initiative to start
their own business.

Asset Size
Micro - less than Php3, 000,001
Small - Php3, 000,001 up to Php15, 000,000
Medium - Php15, 000,001 up to Php100, 000,000
Large – Above Php 100M

Employment Number:
Micro - regular employs less than 10 workers
Small - 10 – 99 workers
Medium - 100 – 199 workers

The total assets inclusive of those arising from loans but exclusive of the land of which
the particular business entity’s office, plant and equipment are situated, must have value falling
under the following categories:

The TRAIN Law VAT threshold is now at P3 million as compared to the previous pre-
TRAIN VAT threshold of P1.9-million. This means that those SMEs earning below P3-million will
be exempted from the 12% VAT and has the options of paying the flat tax of 8% income tax or
the schedular personal income tax rates less business costs and expenses. This is where Republic
Act No. 9178, or the Baranggay Micro Business Enterprise (BMBE) Law, comes in.Enacted in
2002, the BMBE Law aims to scale-up MSMEs – helping them drive the economy better – by
giving them several benefits, such as tax exemption and market assistance, among others.
 Department of Finance Secretary Carlos Dominguez III said, the increase in the
percentage and income tax collections as compared to the 2017 January to June period
indicated that SMEs and self-employed taxpayers that have not exceeded the P3 million VAT
threshold are choosing to pay the eight percent income tax on gross sales or the percentage tax
and the graduated income tax rates provided by TRAIN.

Best Small Business Ideas in the Philippines for 2015

1.Sari-Sari Store Business

2. Rice Retailing Business
3. Food Cart Business
4. Printing Business
5. Buy and Sell Business
Observations

With the present Government projects, with the new TRAIN law that these
organizations are paying, will give much help and benefit to all of the people and will
help the Government complete its build build build projects.

Conclusion

With these Business Organizations, Government gets higher Funds to help with its
projects to provide income Generating fund even though the TRAIN law and the taxes for
individual payers have been changed

References:

https://www.entrepreneur.com/encyclopedia/sole-proprietorship
https://www.investopedia.com/terms/s/soleproprietorship.asp
https://en.wikipedia.org/wiki/Sole_proprietorshi
https://www.thebalancesmb.com/sole-proprietorship-2947269
https://www.shopify.com/encyclopedia/sole-proprietorship
https://en.wikipedia.org/wiki/Cooperative
https://www.ica.coop/en/cooperatives/what-is-a-cooperative
www.co-oplaw.org/co-op-basics/what-are-cooperatives/
https://www.entrepreneur.com/encyclopedia/corporation
https://www.investopedia.com/terms/c/corporation.asp
https://en.wikipedia.org/wiki/Small_and_medium-sized_enterprises
https://www.thebalancesmb.com/sme-small-to-medium-enterprise-definition-2947962