Grade
12
FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS AND
MANAGEMENT 2
QUARTER 2 – MODULE 3
Income and Business
Taxation
I. INTRODUCTION
Many people believe that the tax compliance system is voluntary in nature,
yet many other also say that the tax compliance system is voluntary only in the
sense that it initially trusts the taxpayers rather than the government to calculate
and remit the tax due. A lot of business people believe that taxpayers are not free
to skip paying taxes without activating the government’s extensive and relentless
assessment and collection machinery.
II. Pre-Test
On the space provided before each number, write the word True if the statement
is correct, or False if the statement is incorrect.
_______1. Taxation is considered as the lifeblood of the government and the
government can enforce contributions upon its citizens in the form of
taxes.
_______2. The state can still exercise its taxing powers over its citizen.
_______3. Our congress, through our senators and congressmen, enacts tax
laws.
_______4. A domestic corporation is taxable on all income derived from sources
inside and outside the Philippines.
_______5. Income tax is the tax on the sale or lease of goods and is what is
known as “pass-through tax”.
III. DISCUSSION OF CONCEPTS
It is often quoted that there are only two permanent things in this world,
change and taxes. Paying taxes is one of the basic responsibilities of every
individual. In this chapter, the student will get a bird’s eye view on one of the
inherent powers of our government.
Definition of taxation
Taxation is the process by which our government, through our lawmakers,
raises income to pay its necessary expenses.
Our congress, through our senators and congressmen, enacts tax laws.
Tax laws give our government the authority to collect the necessary taxes from its
constituents.
Who are required to pay income tax in the Philippines? (Section 23 of the
National Internal Revenue Code [NIRC] of 1997)
- A citizen of the Philippines, living in the Philippines, is taxable on all
income earned inside and outside the Philippines;
- A non-resident citizen is taxable only on income earned in the Philippines;
- An OFW is taxable only on income earned in the Philippines.
- A foreigner living in the Philippines is taxable only on income earned in the
Philippines.
- A domestic corporation is taxable on all income derived from sources
inside and outside the Philippines; and
- A foreign corporation is taxable only on the income derived inside the
Philippines.
The difference between Income Tax and Business Tax
Most people when they see the word “tax”, they immediately cringe. One
thing noticeable from beginner taxpayer is a little confusion between income tax
and business tax.
Income tax- is a direct tax that you pay on your income. This is the tax
that every person been dealing with since they started earning/ working. All
countries have income taxes to comply with, they just differ in procedures of
compliance, and thus, filing of income tax return is a way of life.
Business tax- is the tax on the sale or lease of goods and is what is
known as a “pass-through tax”.
Unlike income tax, business tax is decided and administered by government only.
Merchants are required to collect business tax from their customers and remit it
back to the BIR, essentially acting as tax collectors.
Along with income tax, business tax is a major source of revenue for regions, so
they are very keen in ensuring that merchants comply with business tax laws.
KINDS OF INCOME
Individuals can earn from at least three kinds of income:
1. Compensation Income- this is the income by employees working for different
companies. This is usually in the form of salaries, bonuses, and allowances.
2. Business Income- this is the income generated by entrepreneurs (business)
or by different professionals like lawyers, doctors, and accountants (professional
income). They do not work as employees of other people.
3. Passive income- these are income generated by different investments made
by the individual.
For purposes of compensation income and business income (taken together will
be called as gross income), the following formula will be used:
Gross Income- Allowable Deductions= Taxable Income
The taxable income will then be subjected to this schedular rate to compute for
the income tax payable to the BIR:
A lesson on definition of terms used in taxation
Taxes- are enforced proportional contributions imposed by the Government
through its legislative body upon person, property, or rights within its territorial
jurisdiction for the purpose of raising revenues to be used for public purpose.
Resident citizen- is a Filipino citizen who stayed permanently in the Philippines
during a taxable year.
Resident alien -means a foreign individual whose residence is within the
Philippines.
Nonresident alien- means a foreign individual whose residence is not in the
Philippines. He may be engaged in trade or business in the Philippines or not
engaged in trade or business in the Philippines.
Corporation -shall include partnerships, no matter how created or organized,
joint-stock companies, joint accounts, associations, or insurance companies, but
does not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal and other energy operations pursuant to
an operating or consortium agreement under a service contract with the
government.
Taxable income- means the pertinent items of gross income specified in the Tax
code, less the deductions and/ or personal and additional exemptions, if any,
authorized for such types of income by the Tax code or other special Laws.
Taxable year- means the calendar of the fiscal year ending during such calendar
year, upon the basis of which the net income is computed under the Code.
IV. POST-TEST
List down those who are required to pay income tax in the Philippines.
1.
____________________________________________________________
____________________________________________________________
2.
____________________________________________________________
__________________________________________________________
3.
____________________________________________________________
____________________________________________________________
4.
____________________________________________________________
____________________________________________________________
5.
____________________________________________________________
____________________________________________________________
6.
____________________________________________________________
____________________________________________________________
V. REFERENCES
Josefina L. Beticon, James Cristopher D. Domingo, Fermin Antonio D. Yabut,
2016, Fundamentals of Accountancy, Business and Management 2, 1253
Gregorio Araneta Avenue. Quezon City, Vibal Group, Inc.
Teaching Guide for Senior High School, Fundamentals of Accountancy, Business
and Management 2, 4th Foor, Commission on Higher Education, C.P. Garcia
Avenue., Diliman Quezon City. Commission on Higher Education
VI. ANSWER KEY
Pre-test
1. T
2.T
3. T
4.T
5.F
Post-test
1. A citizen of the Philippines, living in the Philippines, is taxable on all
income earned inside and outside the Philippines;
2. A non-resident citizen is taxable only on income earned in the Philippines;
3. An OFW is taxable only on income earned in the Philippines.
4. A foreigner living in the Philippines is taxable only on income earned in
the Philippines.
5. A domestic corporation is taxable on all income derived from sources
inside and outside the Philippines; and
6. A foreign corporation is taxable only on the income derived inside the
Philippines.
Name: _____________________________________ Date: _____________
Grade/Section: ______________________________ Score: ___________
Title of the Activity: Income and Business Taxation
Most Essential Learning Competency: Define income and business taxation
and its principles and processes
I.
Directions: On the space provided before each number, write the word True if the
statement is correct, or False if the statement is incorrect.
______1. Resident citizen taxpayer is taxable from his income within and outside the
Philippines.
______2. Taxation is the process by which our government, through our lawmakers,
raises income to pay its necessary expenses.
______3. A foreign corporation is not taxable on the income derived inside the
Philippines.
______4. Income tax is a direct tax that you pay on your income.
______5. Taxable income means the pertinent items of gross income specified in the
Tax code, less the deductions and/ or personal and additional exceptions.
______6. A non-resident citizen is taxable on income earned outside the Philippines.
______7. Business tax is decided and administered by government only.
______8. Compensation income are income generated by different investments made by
` the individual.
______9. A Resident citizen is a Filipino citizen who stayed permanently in the
Philippines during a taxable year.
______10. Income tax is also known as the “Pass- through Tax”.
II.
Directions: On the space before each number, write the term/s that is being describe
in the sentence.
__________________1. The tax on sale or lease of goods, and is wat is known as a “pass
through tax.”
__________________2. A Filipino citizen who stayed permanently in the Philippines
during a taxable year.
__________________3. A foreign individual whose residence is within the Philippines.
__________________4. Means a foreign individual whose residence is not in the
Philippines. He may be engaged in trade or business in the
Philippines or not engaged in trade or business in the
Philippines.
__________________5. It means the pertinent items of gross income specified in the tax
code, less the deductions and/or personal exceptions, if any,
authorized for such types of income by the tax code or other
special laws.
III.
Directions: Discussion Questions. Answer briefly each of the following questions.
Rubrics:
Criteria 5 4 3 2 1 SCORE
1. Content Content is Content is Content is Content is Content is
well- generally less evident expressed absent
developed evident though it may be
vague or too
broad
2. Organization of Logically Clear Clear There is some There is no
thoughts organized
organizational organizational level of apparent
structure with structure with organization, but organization
some few digressions are of thoughts
digressions digressions too many
TOTAL SCORE
1. Differentiate income tax from business tax.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2. What is taxation?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3. Explain briefly what are the tax principles and its purposes?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
ANSWER KEY
I.
1. True 6. False
2. True 7. True
3. False 8. False
4. True 9. True
5. True 10. False
II.
1. BUSINESS TAX
2. RESIDENT CITIZEN
3. RESIDENT ALIEN
4. NONRESIDENT ALIEN
5. TAXABLE INCOME
III.
Answers may vary according to the rubrics.
