TAXATION

 DATE: November 10,2018

 PRESENTED BY: MR. FLORANTE P. DE LEON,
MBA,CB
 TAXATION
 Refers to the inherent power of the state to exact an enforced contribution upon
persons, properties or rights for the purpose of generating revenues for the use
of the government.
 Refers to the act of levying a tax or the process by which the government,
through its law
 REPUBLIC ACT 10963: Tax Reform for
Acceleration and Inclusion (TRAIN)
 What is TRAIN?
 The goal of the first package of the CTRP or TRAIN is to create a simpler,
fair, and more efficient system, as per the constitution, where the rich will
have a bigger contribution and the poor will benefit more from the
government’s programs and services.
 PURPOSE OF TRAIN LAW

 The Purpose of TRAIN Law is to make our country’s tax system

 FAIR & EFFICIENT

 HIGHLIGHTS OF TRAIN LAW

 Lowering Personal Income Taxes

 Simplifying Estate Taxes and Donors Taxes
 Simplified Value Added Tax (VAT) System
 Increasing the excise tax on Petroleum products
 Increasing the excise tax on Automobiles
 Introducing Excise tax on Sweetened Beverages
 Introducing taxes on invasive cosmetic procedures
 DEFINITION OF TERMS

 Gross Receipts – refers to

 a. the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services; and
 b. deposits and advance payments actually or constructively received
during the taxable period for the services performed or to be performed for
another person, except returnable security deposits for purposes of these
regulations.
 DEFINITION OF TERMS

 Gross Sales – refers to the total sale transactions net of VAT, if applicable,
reported in a period, without any deduction. However, gross sales to be
subjected to the 8% income tax rate option, the following shall be allowed
as deductions:
 1. Sales returns and allowances - proper credit or refund was made
during the month or quarter to the buyer for sales previously recorded as
taxable sales.
 2. Discounts determined and granted at the time of sale, which are
expressly indicated in the invoice; part of the gross sales; duly recorded in
the books of accounts.
 DEFINITION OF TERMS

 Gross Income- means the total amount of income earned or received

without yet considering any deduction.
 Net Income- means the excess of the gross income over the amount of
deduction and exemptions permitted by law.
 Net Loss- means the excess of the amount allowed deductions over the
amount of the gross income. The negative amount is not subject to income
tax and subject for refund.
 DEFINITION OF TERMS
 Passive income- means gains or income items obtained from activities in which
the tax payer does not participate on a regular and continuing basis.

 Active income- means gains or income earned by the taxpayer from activities in
which he materially participated in producing said income.
 DEFINITION OF TERMS
 Minimum Income Earner/ Minimum Wage Earner (MWE) – refers to
a worker in the private sector who is paid with a statutory minimum wage
(SMW) rates, or to an employee in the public sector with compensation
income of not more than the statutory minimum wage rates in the
nonagricultural sector where the worker/employee is assigned. Such
statutory minimum wage rates are exempted from income tax.
 DEFINITION OF TERMS
 Likewise, the exemption covers the holiday pay, overtime pay, night shift
differential pay and hazard pay earned by MWE
 Mixed income earner – an individual earning compensation income from
employment, and income from business, practice of profession and/or
other sources aside from employment.
 Rank and file employee – refers to an employee holding neither
managerial nor supervisory position as defined under existing provisions
of the labor code of the Philippines, as amended.
 DEFINITION OF TERMS

 Self-employed – a sole proprietor or an independent

contractor/members and partners in a partnership who reports
income earned from self-employment. S/he controls who s/he
works for, how the work is done and when it is done. It includes
those hired under a contract of service or job order, and
professionals whose income is derived purely from the practice
of profession and not under an employer – employee relationship
 DEFINITION OF TERMS
 Professional/s – person formally certified by a professional body
belonging to a specific profession by virtue of having completed a required
examination or course of studies and/or practice, whose competence can
usually be measured against an established set of standards; also one who
engages in some art or sport for money, as a means of livelihood, rather
than as a hobby.
 It includes but is not limited to doctors, lawyers, engineers, architects,
cpas, professional entertainers, artists, professional athletes, directors,
producers, insurance agents, insurance adjusters, management and
technical consultants, bookkeeping agents, and other recipients of
professional, promotional and talent fees.
 DEFINITION OF TERMS
 VAT Threshold – refers to the ceiling fixed by law to determine VAT
registrable taxpayers, currently set at three million (P3,000,000.00) pesos;
same threshold to be used to determine the income tax liability of self-
employed and/or professionals under Sections 24(A)(2)(b) and 24(A)(2)(c)
(2) of the Tax Code, as amended.
 INCOME TAX RATES ON INDIVIDUAL CITIZEN
AND INDIVIDUAL RESIDENT ALIEN
 Individuals Earning Purely Compensation Income. – Individuals
earning purely compensation income shall be taxed based on the graduated
income tax rates prescribed.)
 Taxable income for compensation earners is the gross compensation
income less non-taxable income/benefits such as but not limited to the
13th month pay and other benefits (subject to limitations), de minimis
benefits, and employee’s share in the SSS, GSIS, PHIC, Pag-ibig
contributions and union dues.
 Income Taxation…..
 Husband & wife shall compute their individual income tax separately
based on their respective taxable income; if any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
between the spouses for the purpose of determining their respective
taxable income.
 Income Taxation…..
 Minimum wage earners shall be exempt from the payment of income tax
on their statutory minimum wage rates. The holiday pay, overtime pay,
night shift differential pay and hazard pay received by such earner are
likewise exempt.
ANNUAL TAX TABLE
 ILLUSTRATION 1
 Mr. Cso, a minimum wage earner, works for G.O.D., Inc. He is not
engaged in business nor has any other source of income other than his
employment. For 2018, mr. Cso earned a total compensation income of ₱
135,000.00.
 The taxpayer contributed to the sss, philhealth, and hdmf amounting to
p5,000.00 and has received 13th month pay of p11,000.00.
 Compute the income tax liability of Mr. CSO
 ILLUSTRATION 1
 Computation :
 Total compensation income ₱ 135,000.00
 less: mandatory contributions ₱5,000.00
 non-taxable benefits 11,000.00 (16,000.00)
 Non-taxable income – mwe ₱119,000.00

 *taxpayer is exempt since he is considered a minimum income earner

(mwe).
 ILLUSTRATION 1

 The following year, Mr. CSO earned, aside from his basic wage, additional
pay of ₱140,000.00 which consists of the overtime pay- ₱80,000.00, night
shift differential- ₱30,000.00, hazard pay- ₱15,000.00 and holiday pay-
₱15,000.00. The same benefits and contributions.
 * Is taxpayer still considered to be an MWE?; Is he subject to income tax
and consequently, to withholding tax on compensation? * Compute the
income tax due, if any.
 ILLUSTRATION 1
 Total Basic Income ₱ 135,000.00
 Add: Overtime, night shift, holiday & hazard pay 140,000.00
 Total Income ₱ 275,000.00
 Less: Mandatory contributions ₱ 5,000.00
 Non-taxable benefits 11,000.00 (16,000.00)
 Net compensation income ₱ 259,000.00
 Tax Due EXEMPT-MWE 0
 Analysis
 * Taxpayer is tax exempt as a MWE. The statutory minimum wage as well
as the holiday pay, overtime pay, night shift differential pay and hazard
pay received by such MWE are specifically exempted from income tax
under the law.
 ILLUSTRATION 2
 Mr. Jeryy KHO, works for JADE Enterprises. For 2018, Mr. KHO earned
a total compensation income of ₱ 280,000, Overtime pay of
30,000,Holiday pay of 15,000, night differential 5,000.
 The taxpayer contributed to the sss, philhealth, and hdmf amounting to
p10,000.00 and has received 13th month pay of p25,000.00.

 Compute the income tax liability of Mr. KHO

Illustration 2
Co m p e nsa tio n Inc o m e 280,000.00
Ad d : O v e rt im e Pa y 30,000.00
Ho lid a y Pa y 15,000.00
Nig h t d iff 5,000.00
Gro ss Inc o m e 330,000.00
Le ss: Ma n d a t o ry b e n e fit s (10,000.00)
No n Ta xa b le b e n e fit s (25,000.00)
NET TAXABLE INC O ME 295,000.00

Ta x C o m p u t a t io n :
[250,000-295,000]*20%
45,000.00 *20%
Ta x d ue 9,000.00
 SW-ACTIVITY NO.1

 1. Ms. P has the following data in the three year periods:

 2016 2017 2018
Compensation Income P 380,000 P 400,000 P 420,000
Overtime Pay 55,000 60,000 65,000
Holiday Pay 12,000 14,000 16,000
Mandatory Benefits 15,000 15,000 15,000
13th Month Pay 30,000 30,000 30,000

Required: Compute for Net Taxable Income and Tax Liability for the years 2016-2018
 SW-Activity 1
 2. Ms. Fe Rah a minimum wage earner has the following information for
the years 2016-2018.
2016 2017 2018
Compensation Income P 118,000 P 120,000 P 122,000
Overtime Pay 150,000 160,000 165,000
Holiday Pay 18,000 18,000 18,000
Mandatory Benefits 10,000 10,000 10,000
13th Month Pay 9,000 9,000 9,000

Required: Compute for Net Taxable Income and Tax Liability for the years 2016-2018
 ANSWER KEY
2016 2017 2018
Co m p e nsa tio n Inc o m e 380,000.00 400,000.00 420,000.00
Ad d : O v e rt im e Pa y 55,000.00 60,000.00 65,000.00
Ho lid a y Pa y 12,000.00 14,000.00 16,000.00
Gro ss Inc o m e 447,000.00 474,000.00 501,000.00
Le ss: Ma n d a t o ry b e n e fit s ( 15,000.00) ( 15,000.00) ( 15,000.00)
No n Ta xa b le b e n e fit s ( 30,000.00) ( 30,000.00) ( 30,000.00)
NETTAXABLE INCOME 402,000.00 429,000.00 456,000.00

Ta x C o m p u t a t io n :
Ba sic Ta x: 30,000 30,000.00 30,000.00 30,000.00
[400,000-402,000]*25% 500.00
[400,000-429,000]*25% 7,250.00
[400,000-456,000]*25% 14,000.00
Ta x d ue 30,500.00 37,250.00 44,000.00
 No. 2
2016 2017 2018
Co m p e nsa tio n Inc o m e 118,000.00 120,000.00 122,000.00
Ad d : O v e rt im e Pa y 150,000.00 160,000.00 165,000.00
Ho lid a y Pa y 18,000.00 18,000.00 18,000.00
Gro ss Inc o m e 286,000.00 298,000.00 305,000.00
Le ss: Ma n d a t o ry b e n e fit s ( 10,000.00) ( 10,000.00) ( 10,000.00)
No n Ta xa b le b e n e fit s ( 9,000.00) ( 9,000.00) ( 9,000.00)
NETTAXABLE INCOME 267,000.00 279,000.00 286,000.00

Ta x C o m p u t a t io n :
Ba sic Ta x:
Ta x Exe m p t : MWE

Ta x d ue 0.00 0.00 0.00

 Correcting Trial Balance
 The June 2018 trial balance for Dasmarinas Duplicators, owned by
Vivian Pascual is presented below. The regular bookkeeper has
resigned and left the following trial balance. It did not Balance
 Correcting Trial Balance
Dasmarinas Duplicators
Trial Balance
June 2018

Debit Credit
Cash 44,800
Accounts Receivable 189,600
Supplies 70,800
Equipment 560,000
Accounts Payable 72,600
Pascual, Capital 513,000
Pascual, Withdrawals 50,000
Revenues 371,600
Salaries Expense 35,000
Rent Expense 10,000
Utilities Expense 6,400
Total 916,600 1,017,200
 Correcting Trial Balance
 Upon reviewing the trial balance and the process of transferring the
amounts in the ledger accounts to the trial balance, two errors were
discovered:
1. The debit column in the trial balance was footed incorrectly
2. The balance in the accounts payable ledger account of P62,700 was
transferred as P72,600
 Correcting Trial Balance
 When the balances of the ledger accounts were recomputed, two more
errors were discovered:
 1. The utilities expense account balance was overstated by P 1,800
 2. The total debits in the cash account amounted to P 184,600 and the
credits totaled P 149,800
 Correcting Trial Balance

 Discovered four more errors when posting were retraced from the
journal to the ledger:
 1. A debit posting to accounts receivable in the amount of P 52,000
should have been P 5,200
 2. A debit posting to accounts payable for P 46,000 was missing.
 3. A credit posting to revenues in the amount of P 7,600 was missing.
 4. A credit of P 31,000 was posted to Accounts payable rather than P
30,100
 Required: Prepare a correct trial Balance
 IMPORTANCE OF RESEARCH
 Research is as important as any field of study. Its significance cuts
across all disciplines— engineering, architecture, medicine, arts and
sciences, education, management, tourism, among others. It also
benefits all strata of society—people with diverse jobs, different
income rates, varying financial status, or distinct social and political
capabilities.