Las - Week 3.fabm II.
Las - Week 3.fabm II.
FUNDAMENTALS OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 2
LEARNER'S ACTIVITY SHEET
Quarter 2 – Week 3:
Republic Act 8293, section 176 states that: No copyright shall subsist in
any work of the Government of the Philippines. However, prior approval of
the government agency or office wherein the work is created shall be
necessary for exploitation of such work for profit. Such agency or office
may, among other things, impose as a condition the payment of royalties.
Marilyn B. Siao
Roberto N. Mangaliman
Ma. Luz I. Orbe
Cecilia A. Arga
Ma. John Ray Rosales
General Reminders: Use this activity sheet with care. Do not put
unnecessary mark/s on any part of the activity sheet. Use a separate sheet
of paper in answering the exercises. Read the directions carefully before
doing each task. Return this activity sheet to your teacher/facilitator once
you are through with it.
Explore
Below is an article about Tax Evasion, read the article and answer the questions
that will follow.
MANILA, Philippines - The Bureau of Internal Revenue (BIR) yesterday filed tax
evasion cases against five individuals and corporations led by actor Zoren Legaspi
in line with the governments sustained campaign to run after tax dodgers.
In a complaint lodged before the Department of Justice, the BIR said Legaspi
willfully and deliberately underdeclared his income and failed to provide correct
information in his income tax returns (ITRs) for 2010 and 2012 in violation of
sections 254 and 255 of the National Internal Revenue Code.
An investigation conducted by the BIR showed that Legaspi earned P9.64 million in
2010 and P6.49 million in 2012.
Documents submitted to the BIR, however, revealed that Legaspi declared only
P6.79 million as gross income in his 2010 ITR and P1.82 million in his 2012 ITR.
Reacting to the tax case, Legaspi said, am more than willing to comply and
cooperate regarding the ongoing investigation of my tax liabilities.
He said they would review their tax records to determine what went wrong or if they
had committed any lapses at all.
“Im glad that the BIR brought their initial findings to the DOJ, that means they are
doing their job”, he said. I love my country... I will never evade any tax
obligation.
Aside from Legaspi, the BIR also filed yesterday a criminal complaint against
proprietress Gigi Donaire Chua, who owns Wangler Commercial; and Edgardo
Vazquez, president of Vazquez Building Systems Corp.
Chua had a tax deficiency of P329.79 million for 2007 consisting of P238.41 million
in income tax and P91.38 million in value added tax (VAT).
Vazquez, on the other hand, had a tax liability of P84.35 million for 2008. His firm
is engaged in the construction of buildings and residential houses and supply of
construction materials.
According to the BIR, Chua and Vazquez were served the corresponding Letter
Notice, Letters of Authority, Preliminary Assessment Notices, Final Assessment
Notices and Formal Letters of Demand with details of the discrepancies but they
failed to contest the assessments, making them final, executory and demandable.
The respondents obstinate failure and continued refusal to pay their long overdue
deficiency tax assessments, despite repeated demands, constitute willful failure to
pay the taxes due to the government,the BIR said.
The BIR has so far filed 242 cases against tax dodgers under its Run After Tax
Evaders program since Kim Henares took the reins of the tax collection agency.
The BIR aims to collect P1.46 trillion in revenues this year, 20 percent higher than
the P1.22 trillion collected in 2013.
To achieve its goal, the government has launched several public information
campaigns to encourage self-employed individuals and small businesses to pay the
right taxes.
The campaigns include the Department of Finances, Tax Watch shame campaign,
which involves the weekly publication of lists of individual and corporate taxpayers
in various industries.
Follow-up Questions:
1. Base on the article, what is tax evasion?
Our topic for this Learning Activity Sheet is closely related to our topic in our
Learning Activity Sheet for week 3 to 4. So be sure to refer always to the previous
LAS while studying our topic here.
Again, taxation is the process by which the government collects revenue from
individuals and non-individuals in order to pay its expenses. There are many forms
of taxes in the Philippines. A few examples of taxes imposed in the Philippines are
Value Added Tax (VAT), income tax, real estate tax, and capital gains tax. We will
limit our discussion in withholding an individual income tax for a pure
compensation earner. A pure compensation earner is an individual whose sole
income comes from an employer-employee relationship.
We learned from our previous lesson that Individual Income Tax is a tax on a
person’s taxable income. We also learned that taxable income is arrived at by
deducting exclusions and allowable deductions from the Gross Income. Familiarize
yourselves with these exclusions and allowable deduction prescribed by law in
order to compute properly the Taxable Income and the Income tax due.
The Gross Income of an individual might come from sources such as compensation,
business and/or the exercise of profession. Individuals who derive income solely
from compensation such as employees essentially pay their income tax dues
periodically through payroll deductions. This means, that employers deduct income
tax from their salaries and remit those to the government (BIR) on a monthly basis.
When you hear of employees (probably your parents) talk a lot of their monthly
withholding taxes, they are actually referring to individual income tax due taken
out of their salaries.
On December 19, 2017, President Rodrigo Duterte enacted into law the Republic
Act no. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion
or the TRAIN law as it is commonly referred to in daily parlance. With the advent of
this bill's signing into law, the government aims to address the decade’s long
inequity in the taxation policies from past administrations that hurt the poor and
the middle class. Personal income tax was diminished and in some cases, even
completely removed.
In the next page is a table showing the new matrix for computing withholding tax.
ON COMPENSATION
Compensation Income xxxxxx
Less: Non-taxable Income xxxxxx
13th month pay and other benefits (maximum) 90,000
Taxable Compensation Income xxxxxx
Multiply by tax rate (0% to 35%) xxxxxx
Income Tax Due on Compensation xxxxxx
The deductions in our compensation income refer to the Exclusions from our Gross
Income previously discussed in the Learning Activity Sheet (LAS) for week 3 and 4.
Once the taxable income is already known, you can now compute the withholding
tax or the income tax due based on the withholding tax table.
For us to compute their prescribed withholding tax or monthly income tax due, we
need to refer to the BIR revised withholding tax table effective January 1, 2018 to
December 31, 2022 in the previous page.
As you notice on the given table it shows brackets for daily, weekly, semi-monthly
and monthly. For this illustration let us focus our attention to the monthly bracket.
For employee 2, the taxable compensation income is P32,000. Bracket no.2 will be
applicable. 20% tax rate is applied to the amount over the compensation level.
Therefore, the monthly withholding tax or monthly income tax due for employee 2
is P2,233.40.
Lastly, assuming there was proper withholding done by the employer. The employee
is then qualified for a substituted filing wherein the employer being the authorized
withholding agent, will be the one filing the BIR form 1700 which is the income tax
return of the employee. BIR form 2316 shall be issued to employees receiving
salaries, wages and other forms of remuneration by each employer indicating
they’re in the total amount paid and the taxes withheld during the calendar year.
Even with periodic withholding, income tax is computed at the end of the year
based on all compensation income derived during the year. Again, Taxable Income
is computed after deducting exclusions and/or allowable deductions prescribed.
Applicable tax rate is then applied on the taxable income to get the tax due. The
objective of the periodic withholding is that the tax due computed at the end
of the year will be equal to the total amount withheld. However, this isn’t
always the case. At the end of the year, the employee could have remaining tax
liabilities or have tax refund receivable. The difference between total tax due and
total income tax withheld may be due to changes in salaries during the year which
could result from pay increase, promotion or change of employer.
Let us drop on employee 3 again. It is December 31 and we are computing for the
annual income tax due for this employee. There were no changes in their
compensation income during the year. Compute for the income tax due of employee
3. In computing the year-end tax due, we refer to the table in the next page.
The P540,000 is the Taxable Income and it falls in the 400,000 to 800,000
bracket.
As you notice in the above computation. Annual income tax due is equal the Total
Tax withheld during the year, so Tax Payable for employee 3 is zero.
Let us have other illustrations in the computation of year-end tax due, this time
taking into account the three classifications of individual income taxpayers.
1. Pure Compensation Earner (employee)
2. Business Income Earner or Professional Income Earner (self-employed)
3. Mixed Income Earner (an individual earning compensation income from
employment, and income from business, practice of profession and/or other
sources aside from employment).
Let us first discuss the Income Tax Rates in computing the year-end tax for
Individual Citizens and Resident Aliens Earning Purely Compensation Income and
individuals engaged in Business and Practice of Profession.
A. Graduated Income Tax Rate under Section 24(A)(2) of the Tax Code of 1997,
as amended by R.A. no. 10963. This is the new Income Tax Table for the
year 2018-2022.
B. For purely self-employed individuals and/or Professionals whose Gross
Sales/Receipts and other Non-operating Income Do Not Exceed the VAT
Threshold of P3,000,000, the tax shall be, at the taxpayers option:
ON BUSINESS INCOME
Gross Sales/ Receipts xxxxxx
Add: Non-operating income xxxxxx
Taxable Business Income xxxxxx
Multiply by tax rate 8%
Income Tax Due on Business Income xxxxxx
ILLUSTRATION 1:
A minimum wage earner, who isn’t engage in business nor has any other source of
income other than from employment, earned a total annual compensation income
of P 135,000.00
The taxpayer contributed SSS, Philhealth, and HDMF totalling P5,000.00 and
received 13th month pay of 11,000.00 The income tax liability is computed as
follows.
Please refer to Exclusions from Gross Income in the LAS for week 3 and 4.
Minimum wage earners are exempt from income tax (refer to LAS week 3-4).
ILLUSTRATION 2:
Mr. Malubay operates a drug store while he offers his medical services to his
patients in a clinic located inside the drugstore. In 2019, his gross sales amounted
to P800,000, in addition to his receipts from his medical services of P 300,000. He
already signified his intention to be taxed at 8% income tax rate in his 1 st quarter.
Mr. Malubay is a purely self-employed individual and a professional at the
same time.
Referring to the New income tax table, the P 300,000 taxable income falls to the
250,000 to 400,000 bracket. Therefore, the total income tax shall be computed as
follows:
Gross Sales or Total Sales of P6,500,000 for the 4 th Quarter Exceeded the VAT
Threshold of P3,000,000, the taxpayer shall be liable to pay Income Tax under the
Graduated Income Tax rates pursuant to section 24 (A) (2a) of the Tax Code as
amended. Taxpayer shall also be allowed an income tax credit of quarterly payment
initially made under the 8% income tax option computed net of the allowable
deduction of P 250,000 granted for purely business income.
In this illustration taxpayer is also liable for business taxes in addition to income
tax.
The Taxable Income of P2,060,000 for the 4th Quarter falls under P2,000,000 to
P8,000,000 bracket in the New Income Tax Table.
2. On Business Income
Gross Sales P2,400,000
Add: Non-operating income 100,000
Taxable Business Income 2,500,000
Multiplied by income tax rate 8%
Income Tax due on business income P 200,000
The option of 8% income tax rate on Gross Sales or receipts is applicable only to
taxpayers whose earning income purely from self-employment or practice of
profession.
Practice Exercises/Activity
Requirement:
1. Compute for the income tax due, assuming she failed to signify her intention
to be taxed at 8% income tax rate (Provide solution).
2. Compute for the income tax due, assuming she signified her intention to be
taxed at 8% income tax rate (Provide solution).
Practice Exercise No. 4
Ms. May Yongs is a sole proprietorship who owns and operates a bakery store in
town. Her Total Sales for the first three (3) quarters amounted to P 2,500,000. On
the 4th quarter, sales amounted to the same amount. Ms. May Yongs signified his
intention to be taxed at 8% income tax rate on the first three quarters.
Requirement:
He is also Paediatrician and provides services in his own clinic. His gross receipt
from such activity in a year is P 3,300,000.
Requirement:
1. Compute for the Taxable Income (Provide solution).
2. Compute for the annual income tax due (Provide solution).
Instruction: Source copies of the National Internal Revenue Code. Discuss the
importance of your familiarity with this code.
Post Test
B. Direction: Using the same information above and assuming no changes occurred
during the year, compute for the annual income tax due for the above three
taxpayers.
REFERENCES:
https://www.youtube.com/watch?v=ay7zlG0QTgY
https://sprout.zendesk.com/hc/en-us/articles/360030534534-
How-to-Compute-Withholding-Tax-Based-on-the-Newly-Enacted-
TRAIN-Law-Tax-Reform-for-Acceleration-and-Inclusion-
https://www.bir.gov.ph/index.php/tax-information/income-
tax.html