Al-Assam Shariff Diego MAED-AS-II

Sittie Lyka Pampangan MAED-AS-II

Ed 608 - FISCAL MANAGEMENT IN EDUCATION

Prof. Sema G. Dilna, EdD

TAX BASE AND TAX RATE

 TAX

Taxes are involuntary fees levied on individuals or corporations and enforced

by a government entity—whether local, regional or national—in order to finance

government activities. In economics, taxes fall on whoever pays the burden of the

tax, whether this is the entity being taxed, such as a business, or the end

consumers of the business's goods (Uradu, 2020).

There are several very common types of taxes:

 Income Tax —a percentage of individual earnings filed to the federal

government

 Corporate Tax—a percentage of corporate profits taken as tax by the

government to fund federal programs.

 Sales Tax—taxes levied on certain goods and services

 Property Tax—based on the value of land and property assets

 Tariff—taxes on imported goods imposed in the aim of strengthening internal

businesses

 Estate tax—rate applied to the fair market value of property in a person's

estate at the time of death

 TAX BASE
 As stated by Kagan (2019), a tax base is a total amount of assets or

income that can be taxed by a taxing authority, usually by the government. It

is used to calculate tax liabilities. This can be in different forms, including

income or property.

Accordingly, governments must always consider how their decisions

will affect their tax base. The size and growth (or lack of growth) of the tax

base is crucial to the planning efforts of any local, state, or federal

government. Because the size of the tax base influences the taxable

revenues that are available to a government, there is a direct correlation

between the economic condition of a city as a whole and the budget of the

government that serves it (“Tax Base”, 2019). Hence, including the tax base in

government planning is important.

 Tax Base Formula

The tax liability is arrived at by multiplying the tax base into the tax rate.

Therefore, it would thus be the tax liability divided by the tax rate (“Tax Base”,

2020).

Tax Base Formula = Tax Liability / Tax Rate

Example of Tax Base

Mrs. Lucia a businesswoman who happened to earn $20000 last year. Of the

same $15000 was subject to tax.

Let us now consider the tax liability assuming a tax rate of 10%

Tax Liability =

Tax Base * Tax Rate

Hence we can back-

calculate to arrive at the tax base as tax liability/tax rate which would now be 15000

(1500/0.1).

 TAX RATE

A tax rate is the percentage at which an individual or corporation is taxed

(Segal, 2019). In a tax system, the tax rate is the ratio at which a business or

person is taxed. There are several methods used to present a tax rate:

statutory, average, marginal, and effective. These rates can also be presented

using different definitions applied to a tax base: inclusive and exclusive.

 Understanding Tax Rates

To help build and maintain the infrastructures used in a country, the government

usually taxes its residents. The tax collected is used for the betterment of the nation,

of society, and of all living in it. The money could be income earned from wages or

salary, investment income (dividends, interest), capital gains from investments,

profits made from goods or services rendered, etc. The percentage of the taxpayer’s

earnings or money is taken and remitted to the government (Segal, 2019).

In Philippines, the Personal Income Tax Rate is a tax collected from individuals

and is imposed on different sources of income like labour, pensions, interest and

dividends. The benchmark we use refers to the Top Marginal Tax Rate for

individuals. Revenues from the Personal Income Tax Rate are an important source

of income for the government of Philippines (Philippines Personal Income Tax Rate,

2020).

The Philippines taxes its resident citizens on their worldwide income. Non-

resident citizens and aliens, whether or not resident in the Philippines, are taxed only

on income from sources within the Philippines.

Rates of tax on income of aliens, resident or not, depend on the nature of their

income (i.e. compensation income, income subject to final tax, or other income).

 Tax rates for income subject to final tax

For resident and non-resident aliens engaged in trade or business in the

Philippines, the maximum rate on income subject to final tax (usually passive

investment income) is 20%. For non-resident aliens not engaged in trade or business

in the Philippines, the rate is a flat 25%.

 Tax rates for business income

An individual, whether citizen or resident alien, who is self-employed or

practices a profession, is also subject to the graduated income tax rates above.

However, an individual who has gross sales/receipts and other non-operating

income not exceeding the value-added tax (VAT) threshold (which is currently

pegged at PHP 3,000,000) may opt to be taxed either at:

  8% tax on gross sales/receipts and other non-operating income in excess of

PHP 250,000 in lieu of the graduated income tax rates and percentage tax

(business tax), or

 the graduated tax rates.

Business income subjected to graduated tax rates shall also be subject to business

tax (i.e. 12% VAT or 3% percentage tax, as applicable).

Source: Parallag, 2019

 References:

Kagan, J. (2019, June 5). Tax base. Investopedia.

https://www.investopedia.com/terms/t/taxbase.asp

Parallag, F. (2019, December 20). Individual - taxes on personal income. PWC.

https://taxsummaries.pwc.com/philippines/individual/taxes-on-personal
-income

Segal, T. (2019, May 6). Tax rate. Investopedia.

https://www.investopedia.com/terms/t/taxrate.asp

Tax base. (2019, October 1). Retrieved from

https://investinganswers.com/dictionary/t/tax-base

Tax base. (2020). Retrieved from https://www.wallstreetmojo.com/tax-base/

The personal income tax rate in Philippines. (2020). Retrieved from

https://tradingeconomics.com/philippines/personal-income-tax-rate

Uradu, L. D. (2020, April 30). Income tax terms guide: Tax. Investopedia.
https://www.investopedia.com/terms/t/taxes.asp