12

Fundamentals of
Accountancy, Business
and Management 2
Quarter 2 - Module
Week 4
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SCHOOLS DIVISION OF SURIGAO CITY

FABM2 - WEEK 4
First Edition, 2020

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Writer: Kurt-Airion H. Sumaylo

Editor:
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Printed in the Philippines by ______________________________

For the learner:

You will be enabled to process the contents of the learning resource while being an active learner.

WEEK
Writer:
Business and Income taxation and Its
KURT-AIRION H. SUMAYLO

Principles
School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division:
4
Email Address:
Surigao City
kurtairionsumaylo1981@gmail.com
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Name : ____________________________________________ Section : _______________

Objectives

A. Define Income Taxation, its principles, and processes

B. Explain the definition of tax, taxation, taxpayer, income, taxable income, and gross income

C. Differentiate National Taxes from Local Taxes

D. Identify the sources and kinds of income.

E. Define business taxation and its principles

F. Differentiate business tax from income tax

G. Identify the approaches and methods used to compute the taxable income.

What I know?

Directions: Identify the statements. Write the correct answer on the space provided.

1. Which of the government agencies implements the collection of taxes?

A. Bureau of Internal Revenue (BIR)
B. National Internal Revenue Code of 1997(NIRC1997)
C. Department of Finance
D. Department of Budget

2. Which of the government agencies is the governing tax law in the country?
A. Bureau of Internal Revenue (BIR)
B. National Internal Revenue Code (NIRC)
C. Department of Finance
D. Department of Budget
3. Which of the following is NOT a definition of Tax?
A. Tax is a mandatory fee imposed by the government to earning individuals or corporations.
B. Tax is the lifeblood of the government.
C. Tax is the source of funds of the government to finance government projects.
D. Tax is the income derived from whatever source of a person.
Writer: KURT-AIRION H. SUMAYLO
School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |4

4. Which of the following is NOT a Passive Income?

A. Compensation Income
B. Prizes and Winnings
C. Cash/Property Dividends
D. Royalties

5. Which of the following taxes is NOT collected by the National Government?

A. Value-Added Taxes
B. Real Property Taxes
C. Income Taxes
Excise Taxes

Lesson

What is Tax?
It is a mandatory fee imposed by the government to individuals or corporations
either local or national—to fund different government activities.
It is the lifeblood of the government.
It is the source of funds for the government to finance government projects.

What is Taxation?
- Taxation is the act of collecting money to earning individuals or corporations to
finance government expenditures.

Who implements the law?

https://www.thebalancesmb.com It is the Bureau of Internal Revenue that implements the law, comprehends the
assessment, and collects the national revenue taxes while the National Internal
Revenue Code (NIRC) of 1997 is the governing tax law in the Philippines.

https://www.bworldonline.com

Remember that:
Income – referred to as the cash or property that flows into the taxpayer.
Taxable Income – refers to the pertinent of gross income specified in the Tax Code.

Income Taxes - are defined as taxes that are deducted from a person’s income, profits arising from property, the
practice of the profession, or conduct of business.
Gross Income – this is an income derived from whatever source.

Who are responsible to pay the taxes?

- the term "taxpayer" means any person subject to tax. (NIRC Code of 1997) - the individual or corporation that earn
revenues.

Writer: KURT-AIRION H. SUMAYLO

School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |5

Who are these Taxpayers??

As General Principle of Income Taxation in the Philippines, taxpayers are classified as individuals and
corporations.
1. Resident citizens (Filipino Citizens) live and receive income from sources inside and outside the Philippines.
2. Foreigner (Resident Alien) lives in the Philippines who receive or earns income from sources within the Philippines.
3. Foreigner (Non-Resident Alien), a citizen of another country, does not live in the Philippines but engaged in
business within the Philippines.
4. OFW’s business within the Philippines is entitled to tax.
5. A domestic corporation’s income either within or outside the country is taxable.
6. A foreign corporation whose income is within the Philippines.

In the Philippines, the principles of income taxation allow Filipino citizens living in the Philippines and
domestic corporations to pay taxes wherever the income may come from, whether from within or outside the
Philippines.

How to File an Income Tax?

1. As mandated by law, employers are obliged to file the tax withheld from their employee’s salaries. The bases of this
tax withheld are the employees’ gross income.
Individuals who are engaged in personal businesses may file their tax withheld based on the gross income of the
business.

Let us recall the three classifications of income in the Philippines the Compensation Income, the Business
Income and Professional Income, and lastly the Passive Income.
Taxes collected by the government from the earnings of every person are used in the infrastructures,
education, health, and improvement of the environment of the country to better serve its people, therefore,
businessmen must religiously pay their taxes.
The focus of this module is the Business Income and Professional Income.
What is Self-Employed?
Self-Employed is a sole proprietor or an independent contractor and professionals whose income is derived purely
from the practice of the profession and not under an employer-employee relationship as per Regional Revenue 8-
2018.
What is trade, business, or profession?
According to NIRC of 1997 as Amended by RA 10963 (TRAIN Law) Item CC, trade, business, or profession shall
not include the performance of services by the taxpayer as an employee.

How does Business Income differ from Compensation Income?

The table shows how Business Income and Professional Income differ from Compensation Income.
Business Income and Professional Income Compensation Income

This income is taxed based on rates of net business This income is taxed based on gross income of an
income after deducting specified expenses. employee after deducting personal and additional
exemptions without deductions for expenses.

Business Income and Professional Income, and Compensation Income are called GROSS INCOME

Table 1 shows the difference of Business

Income from Compensation Income
When to file Income Taxes?

Writer: KURT-AIRION H. SUMAYLO

School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |6

As stated in Section 74 of TRAIN Law an individual who is receiving income as self-employed, whether it
constitutes the sole source of his income or in combination with salaries, wages, and other fixed or determinable
income, shall make and file a declaration of his estimated income for the current year on or before April 15.

What are the approaches for the computation of Income Tax of Business?
There are two methods to compute the taxable income tax of business:
1. Itemized Deduction – use the itemized expenses indicated in the Statement of Comprehensive Income (SCI) of
the business.

Illustrative Example. The table shows an example of Itemized Deduction: MCQ Enterprise is owned by Merriam
C. Quizon.

Table MCQ En terprise 2

Comprehen sive Income 2016
Year
Table 3
shows Sales P2,500,000.00 how
tax Cost of Goods Sold 850,000.00 due of
Gross Profit 1,650,000.00
Less: Operating Expenses
Salaries Expense 300,000.00
Rent Expense 100,000.00
Depreciation Expense 3,500.00
Commission Expense 150,000.00
Electricity Expense 100,800.00
Communication Expense 13,000.00
Miscellaneous 90,000.00
Total Expenses 757,300.00
Earnings Before Taxes P892,700.00
Merriam is computed.

MCQ En terprise
Comprehensive Income 2016
Year
Sales P2,500,000.00
Cost of Goods Sold 850,000.00
Gross Profit 1,650,000.00
Total Operating Expenses 757,300.00
Taxable Income from the business P892,700.00
Tax Due =
(P892,700.00 – P800,000.00) x 30% P157,810.00
Table 3
As stated in Revenue Regulations No. 8-2018 this Gross Income is above P800,000.00 a basic amount of
P130,000.00 is added to 30% in excess of Taxable Income. That gives Merriam P157,810.00 tax due for the year.

Writer: KURT-AIRION H. SUMAYLO

School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |7

Table 4 - RR8 -2018

https://www.bir.gov.ph

2. Optional Standard Deduction (OSD) Scheme – the entrepreneur can claim deductions up to a maximum of 40% of
gross receipts.
The OSD is allowed to individual taxpayers excluding the non-resident alien. An individual who is entitled
of OSD shall not be required to submit the tax return such as Financial Statement otherwise required under Tax
Code, stated in R.R. 8-2018.

Illustrative Example: Table shows the computation of OSD of the RVO Book Store.

RVO Servicing Company

Statement of Comprehensive Income Year 2018

Gross Service Revenue P5,250,000.00

Cost of Goods Sold 2,150,000.00
Gross Profit 3,100,000.00
Less: Operating Expenses 380,000.00
Taxable Income from the Business P2,720,000.00
Table 5 shows the computation of Taxable
Income from the Business
Gross Service Revenue P5,250,000.00
OSD (40%)= P5,250,000.00 x .4 2,100,000.00
Net Taxable Income 3,150,000.00
Tax Due
(P3,150,000.00 - P2,000,000.00) x 32% P368,000.00
Writer: KURT-AIRION H. SUMAYLO
School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |8

Table 6 shows the computation of Tax

Due of the Business

The basis of computing the Tax Due is based on Table 4 – Income Tax Rate.

What are the Principles of Business Taxation?

Under General Principles of Income Taxation in the Philippines, which was also mentioned in the previous module,
implied that a Filipino Citizen who is residing in the Philippines and whose all sources of income are within the
Philippines are subject to taxes.
Therefore, self-employed individuals earning income purely from selfemployment or practice of the
profession, gross sales/receipts, and other nonoperating income does not exceed the Value Added Tax (VAT)
threshold as stated in R.R. 8-2018 are obliged to file their Income Tax on their own or otherwise they have their
bookkeeper to file it for them.
Value Added Tax Threshold is the ceiling fixed by law to determine the VAT registrable taxpayers as per R.R. 8-
2018.

Activity Activity 1:

Directions: Copy a sample payslip and identify the tax withheld of the employee. For the protection of the
employee, do not copy his or her personal information.

Activity 2:
Directions: Research and paste the BIR Form use in filing employee’s Annual Income Tax Return.

Writer: KURT-AIRION H. SUMAYLO

School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 Page |9

Generalization

Taxation refers to the practice of a government collecting money from its citizens to pay for public services. One of
the most frequently debated political topics is taxation. Taxation is the practice of collecting taxes (money) from
citizens based on their earnings and property

Post-test

A. Directions: Complete the sentences by writing your answers to the space provided.

1. It is the role of the Bureau of Internal Revenue to implement the law, comprehend the assess,
and _________the national revenue taxes.

2. Income is the cash or _________that flows into the taxpayer.

3. According to the law, tax is a _______ fee imposed by the government to an earning individual
or corporation.

4. _______________ income is the income received by an employee through salaries, bonuses,

and allowances.

5. The basis of employee’s tax withheld is his or her_______ income.

B. Directions: Identify the following statements. Choose your answers from the given words. Write your answers
before the number.
Gross Receipts Gross Sales
Writer: KURT-AIRION H. SUMAYLO
School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com
 P a g e | 10

Self-Employed Optional Standard Deduction Scheme

Business Income Mixed Earner

1. It is a method used in computing the taxable income of an entrepreneur where he can claim
up to 40% deductions from gross receipts.

2. An individual that earns compensation income from the employer and income from other
sources of employment.

3. This refers to the total revenue reported in a year which is a net of Value Added Tax (VAT)
without any deduction.

4. The income that is taxed is based on rates of net business income after deducting expenses.

5. This refers to the amount of money received in rendering services or supplying materials to its
client and/or practicing his profession.

References:

Licuanan P. (2016). Teaching Guide for Senior High School

Fundamentals of Accountancy, Business and Management 1
Specialized Subject I ACADEMIC – ABM
Published by the Commission on Higher Education,

Accountingtheory(n.d) Retrieved from http://accountingtheory.weebly.com/nature-and-scope-

of-accounting

Writer: KURT-AIRION H. SUMAYLO

School/Station: CARAGA REGIONAL SCIENCE HIGH SCHOOL
Division: Surigao City
Email Address: kurtairionsumaylo1981@gmail.com