Professional Documents
Culture Documents
Accounting, Business
and Management 2
Quarter 2 – Module 3:
Income and Business Taxation
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Team Leaders:
School Head : Reynaldo B. Visda
LRMDS Coordinator : Melbourne L. Salonga
This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.
In addition to the material in the main text, you will also see this box in the body of
the module:
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You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.
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For the learner:
The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
accomplish. Hence, the hand in this learning resource signifies that you as a learner
is capable and empowered to successfully achieve the relevant competencies and
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This module was designed to provide you with fun and meaningful opportunities for
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What I Need to Know This will give you an idea of the skills or
competencies you are expected to learn in the
module.
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What I Can Do This section provides an activity which will
help you transfer your new knowledge or skill
into real life situations or concerns.
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We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!
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What I Need to Know
From the last module, we have understood the bank reconciling items. These items
are important in preparing for bank reconciliation statement.
1. Define income and business taxation and its principles and processes.
(ABM_FABM12-IIh-j-15)
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What I Know
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Lesson
Income and Business
1 Taxation
Income is one way a person strives to have because he/she must live with every day’s
expenditure, too. To cope, one must be employed and/or engage in business to gain
income. Just as that of the government, to improve the economy, it needs funds to
finance infrastructures, social developments, and maintenance of public security.
These government funds come from the collection of taxes from its citizens.
Just like that of an employee being paid by the employer for its job performance,
citizens pay taxes to government and the government provides services in return.
Government, for example, collects taxes on employees to cover their health
insurances, retirement pays and social security, and on business in exchange for
excellent infrastructures and economic security.
But collecting from its citizens cannot be as easy as demanding a portion from their
hard-earned money and expect to be given. This is the reason there is an established
law to regulate the collection of taxes and that taxes will be put to its purpose.
Business Taxation
Business taxation is the process of collecting taxes from the activities of a business
organization. Examples are value-added tax (VAT), corporate tax, and income tax.
For this module, the lesson will focus on income tax.
Income Taxation
Income Tax is a tax on a person's income, emoluments, profits arising from property,
practice of a profession, conduct of a trade or business or on the pertinent items of
gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the
deductions if any, authorized for such types of income, by the Tax Code, as amended,
or other special laws (Bureau of Internal Revenue n.d.).
2. The gain must be realized or received. – The gain does not have to be received.
Realized gain happens when a seller fulfills a transaction and is expecting
payment from the buyer.
Example: A piece of land is sold, and the buyer will pay on a future date.
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Received gain happens when the buyer pays for a transaction.
Example: A piece of land is sold, and the buyer pays the full amount.
3. The gain must not be excluded by law from taxation. – there is income which
are excluded from being taxed. These are enumerated in Sec. 32B of the
National Internal Revenue Code. Some examples are life insurance proceeds,
prizes and awards in sports competition (for national or international athletes)
and 13th month pay and other benefits not exceeding P90,000 (National
Internal Revenue Code (As Amended by RA 10963) n.d.). Unless the gains
received or realized do not belong to the list under Sec 32B, these gains are
taxable.
Corporations are juridical persons which also possesses rights and responsibilities
as that of an individual person. Their taxes are imposed on the net income of the
business.
Individuals, in a conceptual definition in taxation, are persons who gain income from
one to all the following sources:
a. Compensation Income
Income received from working as an employee in different companies. This
comes in the form of salaries and wages, bonuses, and allowances.
b. Business Income
Income generated from the conduct of business or profession like lawyers,
doctors, and accountant.
c. Passive Income
Income generated from investments by the individual like interest income in
bank accounts, time deposits, royalties from patents or compositions, cash
prizes, lotto winnings and dividends.
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What’s In
Non-resident Alien:
1. Engage in Trade or Business - NRA-ETB: Resides in the Philippines for
(NRA-ETB) more than 180 days
2. Not Engage in Trade or Business - NRA-NETB: Resides in the Philippines for
(NRA-NETB) less than 180 days
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Activity: Identify whether the following individuals are resident citizen (RC), non-
resident citizen (NRC), resident alien (RA), non-resident alien-engage in trade (NRA-
ETB) or non-resident alien-not engage in trade (NRA-NETB). The taxable calendar
year is December 2020.
4. Nikita, a Filipino and a renowned chef in Singapore and resides there for a
decade now.
6. Vico Sotto, a Pasig City Mayor, travelled to other provinces to benchmark best
practices of frontliners against COVID-19.
7. Lucas, a French national, who stayed for a corporate project in Bataan from
February to October 2020.
10. Sally, a Filipino who works for an Indian company in the Philippines.
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What’s New
For income taxation, let us compare the old tax code from TRAIN Tax table effective
January 1, 2018 to December 31, 2022.
(Up: Old tax table | Down: TRAIN Law. Source: (National Tax Research Center 2018))
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The tax percentage levied on taxable income on compensation or business income
are presented in the table.
Here are some key impact points of TRAIN Law on income and business taxation.
Bonus and other benefits of P82,000 Bonus and other benefits of P90,000
and above are taxable and above are taxable
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Allowable Deductions
Deductions are amounts that reduces the gross income to arrive at a taxable income.
The following are the allowable deductions in gross income:
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What is It
TRAIN Law is said to have helped many minimum wage earners whose annual
income does not excess P250,000, as they are all tax exempted. It gives employees
more take-home pay from their gross income.
Let us examine:
Below is tax due computation for both old and new tax code.
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As previously discussed, there are different classification of individuals in income
taxation. An individual can have one, both or all of compensation, business income
and/or passive income. These incomes can take part of the taxable income depending
on their classification. Everyone is different in the treatment of taxable income.
Summary of Tax base and Tax rate
Let us examine:
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The following sources of income that are taxed differently for everyone.
The sum of all sources of income is called GROSS INCOME. The gross income less
the allowable deductions and the respective expenses from the sources is called
TAXABLE INCOME.
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What’s More
Activity 1:
Compute for the tax due of the following individuals using the RA 10963 tax table.
Show computations.
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Activity 2: Identify the income and expenses to be recognized in the taxable income
of the following individual.
NON-RESIDENT ALIEN
ENGAGED IN
TRADE/BUSINESS (NRA-ETB)
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What I Have Learned
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What I Can Do
Pay slip is a document issued to employees where it states the basic salary, monthly
deductions, and taxes during the month.
Paste here.
Guide questions:
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Assessment
A. True or False: Read the statement and write your First Name if the statement
is true and Last Name is the statement is false.
B. Identification
Write RC for resident citizen, NRC for non-resident citizen, RA for resident
alien, NRA-ETB for non-resident alien engaged in trade or business or NRA-
NETB for non-resident alien not engaged in trade or business.
Compute for the tax due of the following individuals using the RA 10963 tax
table. Show computations.
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6. A business has net income before tax of P5,910,000.
Identify the income and expenses to be recognized in the taxable income of
the following individual.
8. NON-RESIDENT CITIZEN
(NRC)
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Additional Activities
Compute for the tax due of the following individuals using the RA 10963 tax table.
Show computations.
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What I Know:
1. C
2. A
3. B
4. A
5. D
What’s in (For reference only. Complete the details of your
answers.)
1. RA
2. RC
3. NRA NETB
4. NRC
5. NRA NETB
6. RC
7. NRA ETB
8. RC
9. NRA NETB
10. RC
What’s More (For reference only. Complete the details of your
answers.)
Activity 1:
1. 6880
2. 621200
3. 48000
4. 127500
Activity 2:
RC – A,B,C,D,E
NRC – A,D
RA – A, D
NRA ETB – A, D
NRA NETB - A
What I have Learned:
Student’s answer may vary.
What can I Do:
Answer Key
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Assessment: (For reference only. Complete the details of your
answers.)
A.
1. T
2. T
3. T
4. F
5. F
6. T
7. F
8. T
9. F
10. F
B. (For reference only. Complete the details of your answers. Show
computations.)
1. RC
2. NRC
3. RA
4. NRANETB
5. 73100
6. 1741200
7. RC – A, B, C, D, E, F, G, H, I, J
8. NRC – A, B, D, F, G, I
9. RA - A, B, D, F, G, I
10. NRA ETB - A, B, D, F, G, I
11. NRA NETB – A,B, D
Additional activities: (For reference only. Complete the details of your
answers. Show computations.)
1. 112100
2. 12000
3. 175600
4. 189700
5. 0
References
Beticon, Josefina L, James Christopher D Domingo, and Fermin ANtonio D. Yabut.
2016. Fundamentals of Accounting , Business and Management 2 (Teacher's
Manual). Vibal Group, Inc.
n.d. Bureau of Internal Revenue. Accessed October 10, 2020.
https://www.bir.gov.ph/index.php/tax-information/income-tax.html.
n.d. National Internal Revenue Code (As Amended by RA 10963). Accessed 10 12,
2020. https://www.bir.gov.ph/index.php/tax-code.html.
National Tax Research Center. 2018. Tax Changes You Need To Know. March.
Accessed October 9, 2020.
https://www.ntrc.gov.ph/images/Publications/train/tax-changes-you-need-
to-know.pdf.
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