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INCOME TAXATION I. General Principles Features of Philippine Income Taxation 1) Income tax is a direct tax because the tax burden is borne by the income recipient upon whom the tax is imposed. 2) Income tax is a progressive tax since the tax base increases as the tax rate increases. (ability to pay principle) 3) The Philippines has adopted the most comprehensive system of imposing income tax by adopting the citizenship principle, resident principle and the source principle.
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  INCOME TAXATIONI.   General PrinciplesFeatures of Philippine Income Taxation 1)   Income tax is a direct tax  because the tax burden is borne by the income recipient upon whom the tax is imposed.2)   Income tax is a proressi!e tax since the tax base increases as the tax rate increases. ( ability to pay principle) 3)   The Philippines has adopted the most comprehensi!e s stem of imposin income tax  by adopting the citizenship principle resident principle and the source principle. ã   renders citizens regardless o! residence and resident aliens sub ect to income tax liability on their income !rom allsources) and o! the generally accepted and internationally recognized income taxable base (that can sub ect non#resident aliens and !oreign corporations to income tax on their income !rom Philippine sources.$)   The Philippines !ollows the semi#schedular or semi#lo$al s stem o! income taxation. %nder which % allcompensation and other income not sub ect to !inal tax are added together to arri&e at the gross income and a!ter deducting the sum o! allowable deductions !rom business or pro!essional income capital gain and passi&e incomeand other income not sub ect to !inal tax in the case o! corporation as well as personal and additional exemptionsin the case o! indi&idual taxpayers the taxa$le income (gross income less allowable deductions and exemptions) issub ected to one set o! graduated tax rates (i! an indi&idual) or normal corporate income tax rate (i! a corporation).')   The Philippine income tax law is a law o! American oriin. ence the decisions o! the % courts ha&e !orce and persuasi&e e!!ect in the Philippines. Tax &itus # literally means the place o! taxation or the country that has urisdiction to le&y a particular tax on persons property rights or business. 'asis * ymbiotic relationship. The urisdiction state or political unit that gi&es protection has the right to demandsupport.The situs o! taxation is determined by a number o! !actorsa)   &u$(ect matter # or what is being taxed. e may be a person or it may be a property an act or acti&ity+ b)   Nature of tax # or which tax to impose. It may be an income tax an import duty or a real property tax+c)   Citi)enship  o! the taxpayer d)   *esidence  o! the taxpayer.,nly resident citi)ens  and domestic corporations  are taxable on their worldwide income (both income inside andoutside the Philippines) while the other types o! indi&idual and corporate taxpayers (i.e. non#resident citizen non#resident alien !oreign corporation) are taxable only on income deri&ed !rom sources within the Philippines.    Situs of taxation  literally means place o! taxation. G*+ The taxing power cannot go beyond the territorial limits o! the taxing authority. -asically the state where thesub ect to be taxed has a situs may right!ully le&y and collect the tax+ and the situs is necessarily in the state whichhas urisdiction or which exercises dominion o&er the sub ect in uestion. ã   *esident citi)ens  and domestic corporation  are taxable on all income deri&ed !rom sources within or withoutthePhilippines. ã   / non#resident citi)en  is taxable on all income deri&ed !rom sources within the Philippines. ã   /n alien  whether a resident or not o! the Philippines and a !oreign corporation whether engaged or not in trade or  business in the Philippines are also taxable only !rom sources within the Philippines.The taxable situs will depend upon the nature o! income as !ollows*1)     Interests # Interest income is treated as income !rom within the Philippines i! the debtor or lender whether anindi&idual or corporation is a resident o! the Philippines.2)   ,i!idends    0i&idends recei&ed !rom a domestic corporation   are treated as income !rom sources within the Philippines.     0i&idends recei&ed !rom a !oreign corporation   are treated as income !rom sources within the Philippines unless 'o! the gross income o! the !oreign corporation !or the three#year period preceding the declaration o! such di&idendswas deri&ed !rom sources within the Philippines+ but only in an amount which bears the same ratio to such di&idendsas the gross income o! the corporation !or such period deri&ed !rom sources within the Philippines bears to its grossincome !rom all sources.3)   &er!ices # er&ices per!ormed in the Philippines   shall be treated as income !rom sources within the Philippines$)   *entals and *o alties # ain or income !rom property or interest located or used in the Philippines   is treated asincome !rom sources within the Philippines.')   &ale of *eal Propert # ain !rom sale o! real property located within the Philippines   is considered as incomewithin the Philippines.4)   &ale of Personal Propert # ain pro!it or income !rom sale o! shares o! stoc5s o! a domestic corporation   is treatedas deri&ed entirely !rom sources within the Philippines regardless o! where the said shares are sold ains !rom saleo! other personal property can be considered income !rom within or without or partly within or partly withoutdepending on the rules pro&ided in &ec. - E  o! the Tax 6ode. The source of an income  is the property acti&ity or ser&ice that produced the income. It is the physical sourcewhere the income came !rom.
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