LEARNING KIT 1 – FUNDAMENTALS

OF ACCOUNTANCY, BUSINESS AND

Saint John School MANAGEMENT 2
of San Juan, San Ildefonso, Bulacan, Inc.

Lesson: Income Taxation

Date: April 5 - 9, 2021
Name: _____________________________________ Grade Level & Section: _____________________

Things to Learn
At the end of this learning kit, you will be able to:
1. Define income and business taxation and its principles and processes.

Think about it
Ask someone that is already working, if he /she is aware how much of their income is going through his/her tax? Why?
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Tackle it Out
Taxation
The process by which our government through our lawmakers, raises income to pay its necessary expenses.

Income Tax it is defined as the tax on the net income or the entire income realized in one taxable year. Both corporations
and individuals are required to pay their income tax.

Summary of Tax Base and Tax Rate

Type of Individual Tax Payer Basis of Tax Rate Tax Base
Net income from sources within and
Resident Citizen Sec. 24 (A) of NIRC
without the Philippines
Net Income from sources within the
Non-resident Citizen Sec. 24 (A) of NIRC
Philippines
Net income from sources within the
Resident Alien Sec. 24 (A) of NIRC
Philippines
Sec. 25 (A)(1) vis-à-vis Net income from sources within the
Engaged in trade or Business (NRA-ETB)
Sec. 24 (A) of NIRC Philippines
Not engaged in trade or business (NRA- Gross income from sources within the
Sec. 25 (B)
NETB) Philippines

Who are required to pay income tax in the Philippines? According to Section 23 of the National Internal Revenue
Code (NIRC) of 1997, the following are required to pay income tax:

1. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without
the Philippines;
2. A non-resident citizen is taxable only on income derived from sources within the Philippines;
3. An individual citizen who is working and deriving income abroad as an overseas Filipino Worker (OFW) is
taxable only on income from sources within the Philippines. Provide, that the OFW, who is a citizen of the
Philippines and who receives compensation for services rendered abroad as a member of the complement of a
vessel engaged exclusively in international trade shall be treated as an OFW;
4. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from
sources within the Philippines;
5. A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
6. A foreign corporation whether engaged or not in trade or business in the Philippines is taxable only on the
income derived from sources within the Philippines.
Format of Computation

Note that for the purpose of compliance with the requirements of the BIR, an individual has to file quarterly and
annual income tax returns.

Gross Compensation Income xxx

Less: Basic Personal Exemptions xx
a. Pure Compensation Additional Exemptions xx
Income Premium payment for health and/or
Hospitalization insurance xx xxx
Taxable Compensation Income xxx
Tax due (Sec. 24 A of the NIRC) xx
Less: Tax withheld on compensation xx
Foreign tax credits xx xxx
Tax Payable (over payment) xxx

Gross business/professional Income xxx

Less: Allowable deductions xxx
b. Pure Business or Net income before basic personal exemptions xxx
Professional income Less: Basic personal exemptions xx
Additional Exemptions xx
Premium payment for health and/or
hospitalization insurance xx xxx
Taxable Net Income xxx
Less: Tax credits/payments xx
Prior years’/payments xx
Tax payments for previous quarters xx
Creditable tax withheld (1st to
4th quarters) xx xxx
Tax payable (overpayment) xxx

Gross Compensation Income xxx

Less: Basic Personal Exemptions xx
Additional Exemptions xx
Premium payment for health and/or
Hospitalization insurance xx xxx
Taxable Compensation Income xxx
Gross business/professional Income xxx
Less: Allowable deductions xxx
c. Mixed Income Taxable Income xxx
Total taxable Income xxxx
Tax due (Sec. 24 A of the NIRC) xx
Less: Tax credits/payments xx
Prior years’/payments xx
Tax payments for previous quarters xx
Creditable tax withheld (1st to 4th quarters) xx
Tax withheld on compensation xx
Foreign tax credits xx xxx
Tax Payable (overpayment) xxx
 Tasks to Do

Cite for an illustration of income tax calculation. Rewrite or attached in space provided.

Things to Ponder

What do you have learned in this topic?

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Test Yourself

Answer the following

1. Who are considered resident citizen?

2. Who are considered resident alien?

 LEARNING KIT 2- FUNDAMENTALS
OF ACCOUNTANCY, BUSINESS AND
Saint John School MANAGEMENT 2
of San Juan, San Ildefonso, Bulacan, Inc.
Lesson: Income and Business Taxation: Solving
Date: April 12 - 16, 2021
Name: _____________________________________ Grade Level & Section: _____________________

Things to Learn
At the end of this learning kit, you will be able to:
1. Explain the procedure in the computation of gross taxable income and tax due.

Think about it
As a student, do you think you are already paying tax? Why?
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Tackle it Out

Philippine individual income tax is progressive. The tax rate increases with the tax base. It is based on the
principle that tax payers with more capacity to pay should pay more taxes. The table of income tax rate is given below:

Amount of Net Income Taxable

Over But Not Over Rate
10,000 5%
10,000 30,000 ₱ 500 + 10% of the excess over ₱ 10,000
30,000 70,000 ₱ 2,500 + 15% of the excess over ₱ 30,000
70,000 140,000 ₱8,500 + 20% of the excess over ₱ 70,000
140,000 250,000 ₱ 22,500 + 25% of the excess over ₱ 140,000
250,000 500,000 ₱ 50,000 +30% of the excess over ₱ 250,000
500,000 ₱ 125,500 + 32% of the excess over ₱ 500,000
Steps in Computing Income Tax Due for Individuals
Step 1: Look at the “Over” column of the income tax table
Step 2: In selecting the row with your amount, the taxable income must be greater than the “Over” column but
not higher than the “but not over” column.
Step 3: The given amount in the “Rate” column will be the equivalent of the amount from the “Over” column of
the same row Step 2.
Step 4: Get the excess from step 3. This is determined by subtracting the amount in the “Over” column from your
Taxable Income. Multiply it with the percentage in the “rate” column of the same row. Dot not jump
Rows for computing the tax due.
Illustration
1. If the taxable income of a purely compensation earning individual is ₱ 240,000 for the entire year, the income tax
due is computed as follows:

Taxable Income 240,000

From the Over Column 140,000 Tax Equivalent 22,500
Excess 100,000 Tax equivalent (100,000*.25) 25,000
Total Income Tax Due 47,500

2. If the taxable net income of a self-employed individual from his sari-sari store business is ₱ 500,000 for the entire
year, the income tax due is computed as follows:

Taxable Income 500,000

 From the Over Column 250,000 Tax Equivalent 50,000
Excess 250,000 Tax equivalent (250,000*.3) 75,000
Total Income Tax Due 125,000
Alternative Solution:
Taxable Income 500,000
From the Over Column 500,000 Tax Equivalent 125,000
Excess ----- Tax equivalent (100,000*.25) -----
Total Income Tax Due 125,000

Tasks to Do
Cite for example income of a public politician and prepare the computation of his/her income tax due.

Things to Ponder

What do you have learned in this topic?

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Test Yourself
Compute the following.
1. Compute for the total income tax due if taxable income is ₱ 70,000. Show the two methods (if any) for
computing the tax due.

2. A resident alien earned taxable income as follows:

a. Within the Philippines: ₱ 1.5M
b. Outside the Philippines: ₱ 3M

Saint John School
of San Juan, San Ildefonso, Bulacan, Inc.
Name: _____________________________________
LEARNING KIT 3- FUNDAMENTALS
OF ACCOUNTANCY, BUSINESS AND
MANAGEMENT 2
Lesson: Income and Business Taxation: Purposes
Date: March 15-19, 2021
Grade Level & Section: _____________________

Things to Learn
At the end of this learning kit, you will be able to:
1. Explain the principles and purposes of taxation.

Think about it

When you heard tax, what comes first in your mind?

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Tackle it Out

Taxation
The process by which our government through our lawmakers, raises income to pay its necessary expenses.

Purposes of Taxation
These can be classified into primary and secondary purposes:

1. The primary purpose of taxation is to provide the proper funding needed to run the government.
2. There various secondary purposes of taxation:
By imposing high customs duties or taxes on imported goods, local products made in the Philippines
would remain competitive.
By imposing progressive taxes, it will reduce the inequalities between the wealth and income of our
people.
By increasing taxes, the government may mitigate the effect of an impending inflation.

Basic Principles of a Sound Tax System

1. Fiscal Adequacy – the government should make sure that the amount of revenue collected would be enough
to shoulder the different expenses incurred by it. This would entail proper planning and budgeting on the part
of our government official concerned.
2. Theoretical Justice - The burden of taxation should be proportionate to the ability of the taxpayer to pay it. It
should be noted that proportionality does not necessarily mean equality in the amount of taxes to be paid.
Persons who are earning different amount of income should not to be forced to pay the same amount of
income taxes.
3. Administrative Feasibility - the tax laws being promulgated by our government should be capable of just and
equitable administration. They must be clear to the taxpayers and they can be easily implemented by the tax
authorities.

Three Inherent Powers of the Government

1. Eminent Domain - this is the power of the government to take private property, upon payment of just
compensation, to be used for public purposes.

2. Police Power – this is the power of our government to make laws that will promote public health, morals,
safety and welfare of the people.

3. Taxation – the power of the government to collect taxes that will be used to finance the different projects
needed by the people.

Tasks to Do
Define the following:
1. Fiscal Adequacy

2. Income Tax

3. Taxation

4. Theoretical Justice

5. Administrative Feasibility

Things to Ponder

What do you have learned in this topic?

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Test Yourself
Attached at least two receipt and determine what should be paid with and without tax.