ARCH 159

SHORT RATED ASSESSMENT NO. 2

Taxation

Romina Legaspi Jose

2014-21920

Submitted to:
Professor Maria Lisa V. Santos

Submitted on:
October 20, 2020
1. Illustrate the instances in your future practice where taxation will impinge on your practice
of architecture and cite some relevant tax concepts/provisions.
2. (Use the Unit materials to source out the various instrumentalities in taxation that you see
as being relevant in a future conduct of the profession)

Professionals from all corners of the world find filing taxes as a complicated and
confusing process. No matter how important we know taxes to be for the betterment of society,
computing for such and organizing our finances can be really tricky and oftentimes
bothersome. There are many ways in which taxation can cause impingement on professional
practice due to misuse and neglect of the stakeholders. In this short rated assessment, I will be
discussing these instances in the form of illustrations/drawings and tax concepts related to the
practice of the architectural profession.

Firstly, taxation can impinge practice mostly because this is

not taught in primary and secondary education. The processes,
scope, purposes, and effects of taxation are barely given any
light, as the basic ideas are only tackled at the surface-level. In
the illustration on the left side of the page is a girl going through
the levels of education, yet when has already begun working
professionally as an architect, she has no clue as to what taxes
actually are and how these should be handled. These scenarios
are common among newly graduated professionals, leaving them
wondering why they should pay taxes in the first place.

Architects who work under different entities, either a

company or self-employed, must also be made aware of the
modes of taxation they must process. Normally, in the case of
companies, there are in-house financial departments that assess
receipts and files the taxes; thus, the architects in these studios
may not have to give this a second thought. The firm would be
required to pay the Corporate Income Tax (CIT), a tax based on
total net profits. Meanwhile, architects who decide to do
freelance work may have a different taxation scenario at play.
The Bureau of Internal Revenue (BIR) have different registration
procedures for self-employed professionals in their filing for
income taxes, as well as an outline in properly assessing the
income tax which is presented in the BIR Income Tax Table. In
any case, professionals must be fully aware of their civic
responsibilities.

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Unit II – Short Rated Assessment 2 Page 1 of 3
 Taxation, being an imposition of financial fees on all individuals, businesses, and other
entities, is an important government power that all citizens should be made aware of. In the
same way, the end-products of taxes must also be made clear to the public.

The illustration above features an architect speaking to her client at the construction
site. Apparently, she is caught unaware that her client neglects or does not pay the real property
tax, even while the project is on the way. The real property tax is an annual tax imposed by a
municipality on property and buildings. This type of tax is usually accompanied, when
scenarios apply, by the estate or inheritance tax, the gift or donor’s tax, and capital gains tax.

The avoidance of real property taxes can lead to cumulative interest rates or the sale of
the property – both of which can impinge on the architectural practice. In being fined with
interest rates, the client may then choose to downscale the project and adjust the overall budget
in order to satisfy the interest requirements. This may be a feat easily managed by the architect
when the project is at the project definition phase, schematic design phase, or design
development phase. However, the downscaling of the budget and the project may not be easily
accounted for when the project is at the contract document phase and, most especially, the
construction phase. Changing these may entail the addition of fees on top of the new budget,
or may even force the project into a pause or a freeze. On the other hand, in the worst case
scenario, the client may be forced to sell the property in order to pay for the accumulated real
property tax. This impinges on the architectural practice since efforts and materials were
wasted in the process if such a scenario happened in the middle of construction. To avoid such
wasteful scenarios, the architect must make sure all documents and requirements are in order,
including the proper filing of taxes.

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Unit II – Short Rated Assessment 2 Page 2 of 3
 In the illustration above, a young architect is rummaging through her drawer looking
for transaction receipts. She is visibly stressed over losing these documents. This illustration
presents a situation that many architects avoid as much as possible, but may end up here despite
best efforts.

Architects deal with many transactions in the whole architectural design process. In
preparing for construction, architects must source quality materials and labor. Whatever item
the architect inputs in the Bill of Quantities, there is a corresponding indirect tax or the Value
Added Tax (VAT). This tax is levied on consumers of goods and services to give to retailers
or producers, who serve as intermediary prior to returning these earnings to the government.
Architects must understand the principles and processes related to the VAT. When presenting
cost projections to the client, the VAT is ideally included to give a more accurate estimate,
since these may amount to 5-20%. Materials, labor, and consultations sourced for the project
include VAT, thus proper bookkeeping of transactions and accounts are necessary in the
organization of a project. Improperly doing so causes impingement on the practice.

To conclude, architects must familiarize themselves with the following taxation

concepts to avoid the tax-related problems mentioned above:
• Income Tax
• Corporate Income Tax
• Real Property Tax
• Value Added Tax

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Unit II – Short Rated Assessment 2 Page 3 of 3