Chapter 1: Nature and Scope of Economics

“There is no such thing as abundance…that’s why there is Economics”

What is Economics?
Economics is the proper allocation and efficient use of available scarce resources for the maximum satisfaction
of the unlimited human wants and needs. It is also called the art and science of decision making.

Economics as a Science of Choice

Opportunity Cost - is the value of the best alternative forgone when an item or activity has been chosen
Implicit Cost vs Explicit Cost
Implicit Cost – the cost incurred without monetary lay-out
Explicit Cost – the value of the alternative forgone in term of monetary lay-out

The Circular Flow Diagram

Spending Revenue
Product Markets

Goods and Services Goods and Services

Purchased Sold

Flows of Goods and Services

Households Firms

Flows of Dollars

Labor, Land, Capital Inputs for

and Entrepreneur Production

Factor Markets
Income Wages, Rent, Interest and Profile

Factors of Production
Land – refers to all natural resources such as terrain of land, trees, animals, plants, water, air and others
Labor – refers to all physical and mental efforts used to produce goods and services
Capital – all physical things which are used to produce goods and services

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Entrepreneur – pertains to the individual who invest capital, takes the risk to produce goods and services and
manages the mentioned factors of production
Goods and Services
Goods are type of products which are tangible and can be consumed.
Services refers to the intangible product that we consume in terms of experience.

Branches of Economics
1. Macroeconomics studies the overall or aggregate behavior of the economy
 Overall price (inflation/deflation)
 Employment in national level
 National Output or Production
 National Income

2. Microeconomics deals with the individual behavior of firms and household

 Price of rice
 Employment in San Miguel Corporation
 Production of Montery Products
 Wage of Employees at Fortune Cement Corporation

Positive and Normative Economics

Positive economics refers to the statement of what is happening in current situation
Example:
 The price of bangus increases from Php110.00 per kg to Php115.00 per kg
 Unemployment of the Philippines rises by 10%
 The GDP of the country is 3% higher than GDP of Thailand
Normative economics refers to the statement of opinion and stating what should happen. This cannot be proved
and disapprove by anyone since this is an opinion
Example:
 The government should monitor the supply of bangus in wet market to avoid over pricing
 Individual must look on opportunities outside the country to lessen the unemployment in the
country
 Economic policy maker should maintain the good performance of our country

Chapter II: Demand and Supply Analysis

Demand
Demand is the schedule which shows the various amount of products which consumers are willing and able to
purchase at a given price time and place

The Law of Demand

The law states that, all else being equal, as the price of a product increases (↑), quantity demanded falls(↓);
likewise, as the price of a product decreases(↓), quantity demanded increases(↑)

Determinants of Demand

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1. Income – the changes of incomes of people likewise change their demand for goods and services
2. Population – more people means more demand conversely less population means low demand for goods and service
3. Taste and Preferences – increased advertising can increase consumer demand and Bad news about a product can
decrease demand
4. Price Expectations - If consumers expect a price to rise in the future, current demand increases and If consumers
expect a price to fall in the future, current demand decreases -
5. Prices of related goods - as the price for one good rises compared to a similar good, consumers will substitute the
similar good for their purchases

Demand Schedule Demand Curve

Price Quantity Demanded
1 5
2 4
3 3
4 2
5 1

Supply
Supply is the schedule which shows the various amount of products which producers are willing and able to
produce and make available for sale in the market at a given price time and place.

Determinants of Supply
1. Technology – as technology used decreases cost of production suppliers are encourage to increase their
production
2. Cost of production – producers are encourage to produce more if the incur less cost of production and are
discourage as cost of production increases
3. Prices of other goods – the opportunity cost of producing and selling any good is the forgone opportunity
to produce another good
4. Price Expectations - if suppliers expect prices to rise in the future, they may store today's supply to reap
higher profits later
5. Taxes and subsidies - when taxes go up, costs go up, and profits go down, leading suppliers to reduce
output; when government subsidies go up, costs go down, and profits go up, leading suppliers to increase
output

Law of Supply
The law states that, all else being equal, as the price of a product increases (↑), quantity supplied
increase (↑); likewise, as the price of a product decreases (↓), quantity supplied decreases (↓)

Supply Schedule Supply Curve

Price Quantity Supplied
1 1
2 2
3 3
4 4

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5 5

Chapter 3: Elasticity’s of Demand and Supply

Elasticity – the degree to which a demand or supply curve reacts to a change in the price and other determinants
 A good or service is considered to be highly elastic if a slight change in price leads to a sharp change in
the quantity demanded or supplied
- The elasticity coefficient is greater than 1
 An inelastic good or service is one in which changes in price is greater than changes in the quantity
demanded or supplied
- The elasticity coefficient is lesser than 1
 Unitary when a percentage change in demand/ supply is equal to the percentage change in price
- The elasticity coefficient is equal to 1

Factors Affecting Demand Elasticity

1. The Availability of Substitutes – this is probably the most important factor influencing the elasticity of a
good or service. In general, the more substitutes, the more elastic the demand will be
2. Amount of income available to spend on the good – This factor affecting demand elasticity refers to the
total a person can spend on a particular good or service.
3. Time – If the price of cigarettes goes up Php4 per pack, a smoker with very few available substitutes
will most likely continue buying his or her daily cigarettes

Q 2−Q1
Q1
Price Elasticity of Demand: EP=
P 2−P1
P1

Example: Steak sells at a price of P250/kilo. An increase in its price by 10 % causes your demand to decrease
from 10 to 7 kilos a month.

Q2−Q1
Q1
Income Elasticity of Demand: EDy =
Y 2−Y 1
Y1

Legend:
ED = Elasticity of Demand
Q = Quantity

P = Price

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Example: Bob has just received a P10, 000.00 increases in his salary, giving him a total of P80, 000.00 per
annum. With this higher purchasing power, he decides that he can now afford air travel twice a year instead of
his previous once a year

Cross Elasticity of Demand

This is the proportionate change in the demand for one item in response to a change in the price of
another item
It is positive where the two items are mutual substitutes and any increase in the price of one (say butter) will
increase the demand for another (say margarine).

It is negative when the items are complementary and any increase in the price of one (say cars) will decrease the
demand for another (say tires).

This measures the % change in QD for a good after the change in price of another.
Q2−Q 1
%Change∈QD good A Q1
EC = %change∈ price good B ¿
Y 2−Y 1
Y1

Substitute goods are alternative

Complementary goods, these are goods which are used together

Examples:

1. An increase in the price of Good Y from P25 to P35 causes the quantity demanded for Good X to
derease by 25% from level of 120 units.

2. A decrease in the price of Good A from P100 to P75 causes the quantity demanded for Good B to
decrease by 15 % from level of 200 units.

3.
Original New
Price Quantity Price Quantity
Demand for:
Commodity X 50 30
Commodity Y 10 100 15 60

Seat Work:
1. The quantity of a good demanded rises from 1000 to 1500 units when the price falls from P150 to P100
per unit. (Price elasticity)
2. You are a supplier of peanuts. Your research department estimates that the price elasticity of demand for
peanuts is 2.5. By what percentage will quantity demanded rise if you lower price from P4 to P2?

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 3. The quantity demanded or product A has increased by 12% in response to a 15% increase in price of
product B. Calculate the cross elasticity of demand and tell whether the product pair is (a) apples and
oranges, or (b) cars and gas.
4. An increase in the price of good A from P5.00 to P6.00 causes the demand for good B to decrease from
1000 to 700 units.
Solve for EC and Determine whether Commodity X and Y are substitutes or Complementary
Chapter IV: National Income Accounting

Gross National Product – the market value of all the final products produced by the resources of the economy
during a specified period of time usually one year
- GNP refers to the money value of the total national production
*market value – measurement in money terms
Three Limitations of GNP
1. Does not include products which are not produced by the resources of the economy like imports
2. Includes those products that can no longer be used for higher stages of production
3. Time which eliminates those products not produced by the economy within the period of time accounted

GNP ACCOUNTING: EXPENDITURE APPROACH

Equation: GNP = C + I + G + (X-M) +- NFY
Where: C = Consumption Goods and Services
I = Investment Goods
G = Government Spending
X = Exports
M = Imports
X-M = Net Imports
NFY = Net Factor income from abroad

Consumption Goods and Services (C)

- These goods and services directly satisfy human wants and are used up or consumed during the income period

Investment Goods (I)

- consists of capital goods and inventories which are used to produce more goods and services

Government Spending (G)

- refers to all government expenditures used to maintain the operations of the bureaucracy

Exports (X)
- These are the goods that are being sold to other countries

Imports (M)
- These are the goods that we buy from other countries

Net Imports (X-M)

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- Export minus Import ; the ratio between the country’s import to export

Net Factor income from abroad (NFY)

- The difference between aggregate flow of factor payments from (+) and to (-) the rest of the world
*Positive (+) --- inflows
*Negative (-)--- outflows

 Statistical Discrepancy is an account assigned to the expenditure approach. Statistical Discrepancy is a

theoretical account used to even out the practical difference between the GNP figures arrived in the
computation of GNP using the 2 approaches. This account may register a positive or negative sign to adjust
the overstated or understated GNP estimate.

GNP ACCOUNTING: INCOME APPROACH

Equation: GNP = PY + CY + GY = NY
add: IT - S
DA
Where: PY = Income of persons
CY = Corporate income
GY = Government income
NY = National Income
IT = Indirect Tax
S = Subsidies
DA = Depreciation allowance
Income of Persons (PY)
- Income received by resource owners

Corporate Income (CY)

- Income earned by the corporations which is conserved to be undistributed

Government Income from Capital (GY)

- refers to the income earned by the government when they assume the business role and becomes a factor
contributor in essential areas where private enterprises creates a vacuum

Indirect Tax (IT)

- These are taxes indirectly paid to the government and are usually shouldered by the consumers

Subsidies (S)
- These are the financial help granted by the government to private and public enterprises

Capital Consumption Allowance or Depreciation Allowance

- This represents payments to the resource owners for the consumption of capital goods in the production
process and likewise considered as a factor contribution
- Depreciation allowance represents the fee for the present use of machine and equipment which have been
installed in the past

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Example of GNP computation using Expenditure and Income Approach:
Compute GNP 2005 using expenditure and income approach.
Given: GNP accounts in Millions
Personal Consumption Expenditure Php 2, 565, 200
Capital Formation (Investment Goods) 125, 000
Government expenditures 628, 000
Export 895, 300
Import 903, 200
Net Factor Income from abroad (12, 500)
Factor Income of persons Php 1, 850, 000
Corporate income 450, 200
Government income from capital 734, 600
Indirect taxes 49, 350
Subsidies 10, 500
Capital consumption allowance 15, 900
Solution:
GNP Expenditure Approach
Personal Consumption Expenditure C Php 2,565,200.00
Gross Domestic Capital Formation or Investment I 125,000.00
Government Expenditures G 628,000.00
Php 3,318,200.00
Export Php 895,300.00
Less: Import 903,200.00 (7,900.00)

Statistical Discrepancy (207,450.00)

Gross Domestic Product (GDP) 3,338,600.00

Net Factor Income from Abroad (NFY) (12,500.00)

Gross National Product 3,090,350.00

GNP Income Approach

Income of Persons (PY) Php 1,850,800.00
Corporate Income (CY) 450,200.00
Government Income (GY) 734,600.00
National Income (NY) 3,035,600.00

Add: Indirect Taxes (IT) 49,350.00

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 Less: Subsidies (S) 10,500.00
38,850.00

Depreciation Allowance (DA) 15,900.00

Gross National Product (GNP) 3,090,350.00

Exercises:
Given: GNP accounts in Millions

Personal Consumption Expenditure Php 3, 605, 150

Capital Formation (Investment Goods) 101, 000
Government expenditures 882, 000
Export 999, 900
Import 635, 720
Net Factor Income from abroad (45,000)

Factor Income of persons Php 1, 980, 000

Corporate income 550, 200
Government income from capital 838, 600
Indirect taxes 71, 350
Subsidies 14, 250
Capital consumption allowance 14, 700

Solution:
Personal Consumption Expenditure C Php
Gross Domestic Capital Formation or Investment I
Government Expenditures G
Php

Export Php
Less: Import

Statistical Discrepancy

Gross Domestic Product

Net Factor Income from Abroad (NFY)

Gross National Product

Income of Persons (PY) Php

Corporate Income (CY)
Government Income (GY)
National Income (NY)

Add: Indirect Taxes (IT)

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Less: Subsidies (S)

Depreciation Allowance (DA)

Gross National Product (GNP)

Chapter V: Labor and Employment

Human Resources are the most important factor of production. They are the key to economic
development. What the people will attain how they think about work and their goals, how skillful and creative
they are and how motivated and intelligent they are will determine how a country will develop.

Labor Problems
- A working situation or conflict which is considered below the ideal

Areas of Labor Problems

1. Unemployment and Underemployment
 Unemployment is both economic and social problem. Unemployment can lead to social
dissatisfaction and petty crimes.
Forms of Unemployment
a.Unproductive and Unemployed is a situation wherein people are not gainfully employed by choice
b. Frictional unemployment is a situation where some workers have special skills but these skills cannot
be utilized in any type of work.
c. Disguised unemployment is a situation when workers who are laid off when their contractual work are
completed.
Underemployment. This is a situation wherein people are employed but they work for less than forty (40)
hours per week despite the fact that they want to work for more than 40 hours.
Underemployment is subsided into two:
a. Visible underemployment is a situation wherein people are working for less than 40 hours a week and
wanting additional hours of work.
b. Invisible underemployment exist when workers work for more than 40 hours or more per week and still
wanting additional hours of work.
2. Inadequate Wage
 Wages which are insufficient and fail to provide the minimum requirements for his family to live a
comfortable life is considered inadequate wage.
3. Industrial and Labor Management Conflict
 When the management of any company has been unfaithful and has not fully implemented what is
due to employees, the labor-management conflict arises. When workers resorted to strike or when
employers resorted to lockout, inconvenience will follow and will be harmful to both to the
employer and employee

Strike – temporary stoppage of work by the concerted action of employees as a result of labor or
industrial dispute

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 Lockout – temporary refusal of an employer to furnish work as a result of labor or industrial dispute

4. Economic Insecurities
 People need to provide funds for emergencies like illness, accidents, and threats of strikes or lockout.
If workers cannot provide funds for all these because their wages are just enough to meet
subsistence, therefore, provisions for emergencies could not be met.
Chapter VI: Prices and Inflation

Inflation means any sustained or continuing increase in prices. It is a condition of general price increase which
reduces the amount of goods and services that the money can buy.
Inflation Losers:
1. Fixed income earners are affected during inflation.
 Pensioners from the SSS and GSIS are also inflation losers since the amount of the monthly pension that
they receive is fixed and is not adjusted with inflation hike.
2. Creditors lose out during inflation because the fixed amount of principal and interest they lent out would
now have lesser value once the money will be returned to them.
Inflation Gainers:
1. Flexible Income earners. Business would gain more if prices of commodities they produce and sell go
up.
2. Speculators. They will buy goods at cheaper prices and then sell them later at higher prices because of
increase in inflation rate.
3. Debtors. Gainers because the value of the money they borrowed before would now have more value
considering the present value of money before an inflation hike.
4. Borrowers from SSS and GSIS. Through housing loan, they are gainers since they have built houses
before where prices of all construction materials were still affordable.
Theories of Inflation
1. Demand Pull Inflation. This inflation occur due to pressure on prices brought about by excess demand
over supply
It occurs under the following situations:
1. Increase in the supply of money
2. It occurs during high investment
3. During wartime period
4. During elections
2. Cost Push Inflation. The increase in the expenses incurred in production push prices up
1. Increase in price of oil results to major increase in the general price level of all the commodities
2. Increased salary and wage would increase in the prices of goods and services
3. Monopolies in the society
4. Devaluation of Peso
Measurement of Price Increases:
a. Consumer Price Index. The most used measure of price increase as it reflects what happens to the living
standard of the household.
b. Retail Price Index. This is designed to measure monthly changes of the prices at which retailers dispose
of their goods to consumer and end users

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 c. Whole Sale Price Index. Measure monthly changes in the general price level of commodities that flow
into wholesale trade intermediaries
d. Stock Price Index. Serves as a measure of the changes in, and to trace the movement of the average
prices of company shares of stock traded in the Stock Exchange.

Inflation Rate - This refers to a general rise in prices measured against a standard level of purchasing power.
Chapter VI: Theory of Consumer Behavior
“Choices lies on what do we want and what can we afford…”

Utility as Satisfaction
Levels of satisfaction is measured as utility and the unit of satisfaction is called utils.
Two methods of measuring utility
1. Ordinal Method is done when an individual ranks the utility for commodity
Example: Andrew ranks apple, orange and mango according to level of satisfaction he derived in
consuming 1 unit of fruit. Then using the ordinal method Andrew will answer this way”
Andrew prefers apple than orange but the other person prefers orange than mango. From this,
Andrew ranks apple as rank 1, orange 2 and mango 3.
2. Cardinal method is the process in which individual give the intensity of utils he derive in 1 unit of
goods. Andrew may rate apple as 7 utils while orange has 4 utils and mango has 1 util
Example: You asked the level of satisfaction in consuming water since water is free. Considering that
you just finish jogging for 3 hours. The table below shows the total utility and marginal utility for every
glass of water you drink.

Glass of Water Total Utility Marginal Utility
TU
0 0
1 5
2 9
3 12
4 14
5 14
6 13
7 10
Marginal Utility is the additional or extra utils the
MU individual gains when he or she consumes additional 1
- unit of commodity.
5
4 Law of Diminishing Marginal
3 Utility states that as we consume
2 more and more units of goods, the
0 marginal utility decreases.
-1
-3

Indifference Curve is a tool which shows the different combinations of goods and services that an individual
consumes of goods and services that an individual consumes that yields the same level of satisfaction or utility
Indifference Curves Assumptions:
1. There are only two goods available in the market
2. Indifference Curve vows against the origin
3. Any point along the curve utilizes the same level of satisfaction
4. Indifference curve never intersects.

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Example: We have two commodities, the food and cloth. An individual feels indifferent what combination of
food and clothes should he consume.

Budget Line is the line that represents the combination of goods that can be purchased by consumer’s income.

Consumer Equilibrium is the point where budget line tangent to the indifference curve.
MUx Px MUx MUy
Consumer Equilibrium can be expressed in terms of: = ∨ =
MUy Py Px Py
Let us say that Xyntia wants to buy pizza and render Video Rentals. Suppose that she has a
monthly budget for two commodities of P36.00, each video rental of P6.00 and each pizza cost P3.00
Availing the video rentals Consumption of Pizza
Q TU MU MU/P Q TU MU MU/P
0 0 0 0
1 200 200 33.33 1 250 250 83.33
2 290 90 15 2 295 45 15
3 370 80 13.33 3 335 40 13.33
4 440 70 11.67 4 370 35 11.67
5 500 60 10 5 400 30 10
6 550 50 8.33 6 425 25 8.33
7 590 40 6.67 7 445 20 6.67

Exercise: During month end, Homer loves to drink beer and eat crackers as the side dish. The units of beer are
express in glass while crakers are express in packs. The price of crackers is P1.50 per pack while the price of
beer is P3.00 per glass. His budget every month for the two commodities is P18.00.
Packs of TU MU MU/P Glass of TU MU MU/P
Cracker Beer
0 0 0 0
1 10 1 18
2 18 2 33

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 3 24 3 45
4 28 4 54
5 31 5 60
6 33 6 0
1. Compute for the MU and MU/P for each point for both commodities.

2. How many glass of beer and packs of crackers should homer consume to attain the consumer
equilibrium?
CHAPTER VII: THEORY OF PRODUCTION AND COST

“Success cannot be achieved unless you sacrifice something”

Profit – the gain for the effort, time and risks exerted by the entrepreneur or business man
- Profit is computed as the difference of Total Revenue and Total Cost
Total Profit = TR - TC
 Total Revenue – the amount of goods being sold or services being rendered multiplied by its price
TR = P x Q
 Total Cost – the market value of the inputs a firm uses in production; it also includes the opportunity
costs in making its output of goods and services as well as explicit and implicit costs
1. Explicit Costs – input costs that require direct outlay of money by the firm
2. Implicit Costs – input costs that does not require outlay of money by the firm

Opportunity Cost
- The value of the next best alternative that is forgone when another alternative is chosen
- The opportunity cost of a particular alternative is the payoff associated with the best of the alternative that
are not chosen
Law of Diminishing Marginal Productivity or Marginal Return
- States that as the firm adds extra units of inputs, the marginal product declines, holding other variables
constant
THE VARIOUS MEASURES OF COST
1. Fixed Costs – costs incurred by the firm which does not vary with the volume of production
2. Variable Costs – cost incurred by the firm which varies with the volume of production
The sum of your fixed cost and variable cost is the total cost
TC = FC + VC

Average Total Cost is the cost divide by total output

ATC = TC / Q

Average Fixed Cost is the total fixed cost divide by output

AFC = TFC / Q

Average Variable Cost is the total variable cost divide by output

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 AVC = TVC / Q

Marginal Cost (MC) – measure the increase in total cost that arises from an extra unit of production
c h ange∈total cost ∆ TC TC 2−TC 1
MC= = =
c h ange ∈quantity ∆Q Q 2−Q1

Applying the formula, we may fill up the table:

Q TC TFC TVC ATC AFC AVC MC

0 Php 3.00 Php 3.00
1 3.30 3.00 Php 0.30 Php 3.30 Php 3.00 Php 0.30 Php 0.30
2 3.80 3.00 0.80 1.9 1.5 0.40 0.50
3 4.50 3.00
4 5.40 3.00
5 6.50 3.00
6 7.80 3.00
7 9.30 3.00
8 11.00 3.00
9 12.90 3.00
10 15.00 3.00

Time Frame
a. Short-run is the timeframe which requires an immediate concern
b. Long-run require planning before you can make a decision

SHORT-RUN LONG-RUN
Q FC Q TC
0 Php 3.00 0 Php 3.00
1 3.00 1 6.00
2 3.00 3 9.00
3 3.00 6 12.00
4 3.00 10 15.00
5 3.00 15 18.00
6 3.00 21 21.00
7 3.00 28 24.00
8 3.00 36 27.00
9 3.00 45 30.00
10 3.00 55 33.00

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Exercise:
Ligaya Food Corporation is selling processed food. Their main product is the oil and flakes sardines.
The following are the information about the cost incurred in the production.
Utilities expense - Php 300.00
Per day Wage - Php 37.00
Per hour Direct - Php 9.00 per unit
Materials Expense:
Factory Overhead - Php 5.50 per unit
Rent Expense - Php 2,000.00 a month

Q TFC TVC TC AFC AVC ATC MC

5
10
15
20
25
30
35
40
45
50

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 CHAPTER IX: TAXATION

“Tax is vital for a country’s progress”

FUNDAMENTALS

There are various ways for the government to generate funds. In some countries, the government
borrows funds from local and international banks, sells public lands and other government properties, and
invests in corporation. But among these, collecting taxes generates most of the country’s revenues.

One of the government primary duties is to provide for the basic needs of its citizens through social
services. But the government needs to have enough funds to cover the expenses for these services. Thus, the
constitution mandates the government to collect fees from individuals who earn income or who own properties
or businesses. These process of collecting these fees is called taxation.

PURPOSE

The purpose of taxation is to raise revenues from all possible sources to support government
expenditures and services and promote the general well-being and protection of its citizens.

TAXATION – is a means for a state, through laws and legislation, to obtain income to finance public
expenditures. Through taxation, the government is able to provide public education, health
and infrastructure that benefit its citizens.

NATURE OF TAX

TAX – is an onus, a Latin term for “burden” or “obligation”.

– is a fee imposed upon individuals, properties, transaction, and business entities to support the
necessary expenses and services of government.

AVIODING TAXATION

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1. Shifting
2. Capitalization
3. Tax Avoidance
4. Tax Evasion
5. Tax Exemption

CLASSIFICATION OF TAXES

1. According to object
a. Personal tax 5. According to scope or authority imposing tax
b. Property tax a. National tax
c. Consumption tax b. Local tax

2. According to who bears the burden 6. According to tax system

a. Direct tax a. Proportional tax
b. Indirect tax b. Progressive tax
c. Regressive tax
3. According to the determination of amount of tax to be paid
a. Specific tax
b. A valorem

4. According to purpose
a. General tax
b. Special tax

OTHER TERMS RELATED TO TAX Public Officers in charge of Tax Collections

1. Revenue 1. Finance Secretary

2. Customs Duty 2. Commissioner on Internal Revenue
3. Internal Revenue 3. Commissioner of Customs
4. Toll 4. Provincial Treasurer
5. Debt 5. City/Municipal Treasurer
6. Penalty 6. Barangay Treasurer

INCOME TAXATION

- For the tax purposes, income is defined as all wealth that flow into the taxpayer other than as mere
return on capital.
- Income tax is imposed at progressive or graduated rates. There is one set of scheduled rates for
compensation or employment income, and for business, professional, and other types of non-
compensation income.

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Taxable Income – the gross income less deductions of personal and additional exemptions.

Deductions – those amounts which law allows to be deducted from the gross income to arrive at taxable
income.

Gross Income – all income, regardless of kind or form, derived from any sources. All kinds of income are
taxable.
Net Income – the gross less allowable deducions.

CLASSIFICATION OF TAXPAYERS STATUS OF TAXPAYERS

A. Individuals 1. Married Taxpayers

1. Citizens 2. Single Taxpayers
a. Resident
b. Non-resident
2. Aliens
a. Resident Aliens
b. Non-resident Aliens

B. Corporations C. General Partnership

1. Domestic 1. CPA’s
2. Foreign 2. Lawyers

TAX RATES
– are percentages by which an individual or a corporation is being taxed. Its ranging from 5% to
maximum of 32%.

Individuals Required/Not Required to File Income Tax Return

Required:
1. Every resident citizens, regardless of the sources of his/her income, within or outside of the Philippines.
2. Every non-resident citizen and resident alien, as to their income from sources within the Philippines.
3. Every non-resident alien engaged in trade or business or in the exercise of his/her profession in the
Philippines, as to his/her income from sources within the Philippines.

Not Required:
1. any individual whose gross income does not exceed his/her total personal and additional exemptions for
dependents, except if engaged in business or practice of profession, regardless of the amount of gross income.

2. Any individual earning from a single employer pure compensation income not exceeding Php60,000, the
income tax on which has already been correctly withheld by the employer, re no longer required to file the
annual income tax returns. Hence, the following are not exempted:
a. those who do not derive income purely from compensation;
b. those whose pure compensation income for the taxable year exceeds Php60,000;

19 Principles of Economics w/ Taxation and Agrarian Reform

 c. those deriving compensation income concurrently from two or more employers at any time during the
taxable year even if it does not exceed Php60,000.

3. Any individuals whose income consists purely of interest, prizes, royalties, etc., subject to final income tax
which is required to be withheld by the payor and paid by him/her to the BIR.

4. Any individual who is exempt from tax under the Tax Code or other laws.

20 Principles of Economics w/ Taxation and Agrarian Reform