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FABM2 Q2 MOD5 Priciples-of-Taxation

accounting (Western Visayas College of Science and Technology)

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Fundamentals of
Accounting, Business
and Management 2
Quarter 2 – Module 5:
Priciples of Taxation

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SENIOR HS MODULE DEVELOPMENT TEAM

Author : Andrea Marie D. Aldueza

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Fundamentals of
Accounting, Business
and Management 2
Quarter 2 – Module 5:
Principles of Taxation

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Introductory Message
For the facilitator:

Welcome to the Fundamentals of Accounting, Business and Management 2 – Grade

12 Alternative Delivery Mode (ADM) Module on the Principles of Taxation!

This module was collaboratively designed, developed, and reviewed by educators

both from public and private institutions to assist the teacher or facilitator in helping
the learners meet the standards set by the K to 12 Curriculum while overcoming
their personal, social, and economic constraints in schooling.

This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration their
needs and circumstances.

In addition to the material in the main text, you will also see this box in the body of
the module:

Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.

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For the learner:

Welcome to the Fundamentals of Accounting, Business and Management 2 – Grade

12 Alternative Delivery Mode (ADM) Module on the Principles of Taxation!

The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
accomplish. Hence, the hand in this learning resource signifies that you as a learner
is capable and empowered to successfully achieve the relevant competencies and
skills at your own pace and time. Your academic success lies in your own hands!

This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.

This module has the following parts and corresponding icons:

What I Need to Know This will give you an idea of the skills or
competencies you are expected to learn in the
module.

What I Know This part includes an activity that aims to

check what you already know about the
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.

What’s In This is a brief drill or review to help you link

the current lesson with the previous one.

What’s New In this portion, the new lesson will be

introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.

What is It This section provides a brief discussion of the

lesson. This aims to help you discover and
understand new concepts and skills.

What’s More This comprises activities for independent

practice to solidify your understanding and
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.

What I Have Learned This includes questions or blank

sentence/paragraph to be filled in to process
what you learned from the lesson.

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What I Can Do This section provides an activity which will

help you transfer your new knowledge or skill
into real life situations or concerns.

Assessment This is a task which aims to evaluate your

level of mastery in achieving the learning
competency.

Additional Activities In this portion, another activity will be given

to you to enrich your knowledge or skill of the
lesson learned. This also tends retention of
learned concepts.

Answer Key This contains answers to all activities in the

module.

At the end of this module you will also find:

References This is a list of all sources used in developing

this module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.

We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!

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What I Need to Know

From the last module, we have understood the bank reconciling items. These items
are important in preparing for bank reconciliation statement.

At the end of the lessons, you should be able to:

1. Explain the principles and purposes of taxation

(ABM_FABM12-IIh-j-19)

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What I Know

Select the letter of the best answer.

1. It is the process by which the government, through our lawmakers raises

income to pay its necessary expenses.
a. Tax
b. Taxation
c. Tax due
d. Taxable income

2. What is the primary purpose of taxation?

a. To impose taxation to rich people
b. To mitigate the impending inflation
c. To fund the government projects
d. To impose higher tax on imported goods.

3. Which of the following is the basic principle of taxation?

a. Fiscal adequacy
b. Theoretical justice
c. Administrative feasibility
d. All of the above

4. What are the inherent powers of the government?

a. Eminent Domain and Taxation
b. Taxation and Police Power
c. Eminent Domain, Taxation and Police Power
d. Taxation only

5. Which is a true about tax?

a. It is an enforced contribution.
b. Rich and poor pay same amount of tax.
c. Tax makes people poorer.
d. None of the above.

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Lesson
Principles of Taxation
1
Albert Einstein once said that income tax is one of the most complicated topics to
understand. While it seems quite intriguing, the question of why the government
collects and how the government gets the power to collect taxes can be answered by
the Principles of Taxation.

What’s In

In the past modules, we have understood the computation of taxes from individuals.
Activity: Complete the chart below with the classification of taxpayers.

TAXPAYERS

(1) (2)

(3) (4) (5) (6) (7)

Just like in an organization, people are important in the government. The principle
why individuals create business is not only for profit motive but to provide the
necessity of the people. In this sense, businesses and individuals make economic
progress. However, for the government to continuously provide the long-term
economic security for these businesses, government needs funds to support projects
for the welfare of the people. And one way to make funds is through taxation.

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What’s New

Definition of Taxation
“Taxation is the process by which our government, through our lawmakers, raises
funds to pay its necessary expenses.” (Beticon, Domingo and Yabut 2016)
Our Congress, which is composed of the House of Senate and House of
Representatives, is the lawmaking body who enacts tax laws.

Activity: In your own opinion, what are the benefits of taxation? You may add as
more circles if necessary.

1.
________

5. 2.
________ BENEFITS ________
OF
TAXATION

4. 3.
________ ________

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What is It

Three Inherent Powers of the Government (Beticon, Domingo and Yabut 2016)

1. Eminent Domain. It is the power of the government to take private property,

upon payment of just compensation, to be used for a public purpose.
Example: If the government sees that a property or a site is needed for the
construction of a public road or public hospital, they can pay for just
compensation for that said property.
2. Police Power. It is the power of the government to make laws that will promote
public health, morals, safety, and welfare of the people.
3. Taxation. It is the power of the government to collect taxes that will be used
to finance different projects needed by the people.

Essential Characteristics of Tax (Ong and Gomendoza 2017)

1. Enforced Contribution. Tax is not voluntary; however, people are required to

pay when the capacity is seen.
2. Generally payable in money. It should be in the form of currency that is
considered as the legal tender of a country. In the Philippines, it should be in
Philippine Peso.
3. Proportionate. The Ability to Pay principle applies. The rich citizens should
pay more than the ordinary citizens.
4. Placed on Persons or Property. It can be imposed on a person (through his
transactions, right and privilege) or on a property of a person.
5. Has authority and power over person or property within the State or
country. The person or property being taxed should be within the boundaries
of the State. People who earn and use the country’s resources should be taxed,
despite citizenship.
6. Enacted by the law-making body of the State. In the Philippines, that is the
Congress who enacts tax laws.
7. For public purpose. Collections are made for the betterment of a country’s
economy and welfare of the public.

Purposes of Taxation
1. Funds to Run the Government. All people in a country are being served by
the government. That is why the government needs to make certain projects
to continue providing the people with health care, social/economic/national

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security, improved infrastructures, and other government projects that will

promote the general welfare of its people.

2. To Make Local Products Competitive. Tax is part of selling price

computation, so just as when imported products are imposed of higher taxes,
it will make products of the Philippines more competitive.

3. Progressive Tax. The law is fair for all citizens, and tax law has the same
principle. Under the tax law, the rich should pay higher taxes, the poor should
pay less. The economic status of an individual or his capacity to pay will
dictate how much is his tax obligation to his country.

4. Mitigate Inflation. Inflation is the rise with prices of goods thus making weak
purchasing power. With good economic conditions, inflation is inevitable.
When people have so much disposable income in hands, and sellers see this
as an opportunity to increase price. To hinder this, taxes can be increased to
make businesses fall back their prices.

Basic Principles of a Sound Tax System

1. Fiscal Adequacy. The amount of revenue collected is enough to shoulder the

government expenses. It should be properly planned and budgeted.
2. Theoretical Justice. The persons who are earning more should pay more
taxes.
3. Administrative Feasibility. The law is clear to taxpayers and can be easily
implemented by the tax authorities.

Notes to the Teacher

Emergency Subsidy Program (ESP) – A social amelioration program to
provide cash or non-cash subsidy to eighteen (18) million household
beneficiaries, for basic food, medicine, and toiletries. (Official Gazette
2020)
The funds distributed to household beneficiaries came from taxes.

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What’s More

Activity 1: Identify which characteristic of tax best describes the situations below
and explain your answer.
1. In an article from Forbes; “Manny Pacquiao Lands $75 Million Blow in Tax
Evasion Case (Wood 2014)”. The issue is about Pacquiao’s earnings in the US
not paid from 2006 to 2010. Pacquiao claims that his winnings cannot be
taxed twice due to a treaty between Philippines and the US.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

2. In the amendment of the tax code, it lifts the P10,000 taxable income to above
P250,000 annual income with 20% tax rate. The rate favors minimum wage
income earners or businesses who earns less than P250,000 as they become
exempted in tax, thus makes more income kept.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

3. The Bureau of Internal Revenue can forfeit properties of individuals as their

“last resort” in order to pay tax obligations.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

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What I Have Learned

Identification. Provide the correct answer for each item.

1. Characteristic of tax wherein tax is not voluntary; however, people are

required to pay when the capacity is seen.

2. Characteristic of tax wherein it can be imposed on a person (through his

transactions, right and privilege) or on a property of a person.

3. A principle of taxation in which persons who are earning more should pay
more taxes.

4. It is the power of the government to collect taxes that will be used to finance
different projects needed by the people.

5. Characteristic of tax where collections are made for the betterment of a

country’s economy and welfare of the public.

6. It is the power of the government to take private property, upon payment of

just compensation, to be used for a public purpose.

7. The Ability to Pay principle applies. The rich citizens should pay more than
the ordinary citizens.

8. The principle of taxation in which the law is clear to taxpayers and can be
easily implemented by the tax authorities.

9. Purpose of taxation which says that under the tax law, rich should pay higher
taxes, poor should pay less. The economic status of an individual or his
capacity to pay will dictate how much is his tax obligation to his country.

10. The person or property being taxed should be within the boundaries of the
State. People who earn and use the country’s resources should be taxed,
despite citizenship.

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What I Can Do

Activity 2: Search on the internet or cut out from a newspaper an article that
shows the purpose of taxation. Properly cite the source of the article at the end of
the page.

Summarize or paste the article here.

a. Source: _____________________________________________________________

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Assessment

Activity: Read the article below.

BIR GUIDELINES OUT ON TAX BREAKS TO BE ENJOYED BY HEALTH

FRONTLINERS (de Vera 2020)

By: Ben O. de Vera - Reporter / @bendeveraINQ

Philippine Daily Inquirer / 05:20 AM October 18, 2020

MANILA, Philippines — The special allowances and hazard pay of health

and medical professionals in the fight against COVID-19 will not be taxed if
the country is under a state of national emergency.

The Bureau of Internal Revenue (BIR) on Saturday published Revenue

Regulations No. 29-2020, which serves as the guidelines on the income tax
exemption provisions of Republic Act No. 11494, or the Bayanihan to
Recover as One law, or Bayanihan 2.

Compensation
Bayanihan 2 exempts from tax the hazard duty pays of temporarily hired
health workers as well as the COVID-19 special risk allowance for both
public and private health workers.
RR 29-2020 also noted the monthly special risk allowance being extended
1
to health workers who were in contact with COVID-19 patients during the
state of national emergency.
President Duterte extended last month the state of national emergency by
one more year, or up to Sept. 12, 2021. He first declared the emergency in
March at the onset of the pandemic.
Besides the special allowance and hazard pay, also exempt from taxes is
the compensation for health workers who were infected by the coronavirus 2
while performing their duty or who died “while fighting COVID-19,” the
BIR said.
The exemption covers P1 million for those who died of COVID-19;
P100,000 for those who got critically ill; and P15,000 for those with mild
or moderate infections.
The tax-free compensation covered amounts granted from Feb. 1 and
during the state of national emergency if these amounts were paid within
three months after confinement or death.

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Retirement benefits
In the case of death, the compensation will be also excluded from the gross
3
estate of the deceased that will later be subjected to estate tax, the BIR
said.
Also exempt from taxes are the retirement benefits of both officials and
employees of any private company received between June 5 and Dec. 31 4
this year.
The tax exemption will be granted “provided that the amount received is
in accordance with a retirement plan duly registered with the BIR,”
according to RR 29-2020.

However, reemployment within the next 12-month period will be

considered nonretirement, the BIR said.
“If the reemployment happens within calendar year 2020, the employer
shall include the said retirement benefits in the gross income of the
concerned official or employee for 2020. However, if the reemployment will
occur in 2021 and within the 12-month period, the concerned employee
shall pay the taxes due on the retirement benefits received within 30 days
from date of reemployment, or on the due date for the payment of the
second installment payment of 2020 income tax, whichever comes later,
without penalties,” the BIR explained.

Retroactive
Tax exemptions for health workers and retirees will be retroactive, such
that they must receive a refund from their employers for deductions made
before Bayanihan 2 took effect.
“Concerned employers of the public or private health workers and human
resources for health [temporary workers] shall likewise refund the income
tax withheld from the said income payments after the year-end adjustment
by the employer for purposes of determining the taxable compensation and
the corresponding tax due of the employees. The said adjustment will
determine which employee has been withheld with more or less than the
tax due. If the adjustment resulted in excess tax remittance, such excess
shall be deducted or applied as deduction in the succeeding withholding
tax remittance,” the BIR said.

COVID-19-related items
Another set of guidelines issued on Saturday, under a separate RR 28-
2020, grants tax perks to the manufacture and importation of essential
5 goods and equipment in pandemic response.
The BIR said COVID-19-related items imported between June 25 and Dec.
6 19 are exempt from the value-added tax and excise tax, among other fees.
Among the tax-exempt products are personal protective equipment;
laboratory, medical and surgical devices, equipment and supplies;
medicines and vitamins; testing kits; cleaning and sanitation materials,

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and other goods that may be included by the health and trade
departments.
Also covered are waste management equipment, as well as raw materials
7
for the local manufacture of essential COVID-19 mitigation items.
Activity 2: From the previous article, analyze and enumerate the tax benefits
received by the health front-liners in the Philippines during the Covid-19 Pandemic.

Example: 1. Exempts from tax the hazard duty pays of temporarily hired health
workers as well as the COVID-19 special risk allowance for both public and private
health workers.

1. ___________________________________________________________________________
___________________________________________________________________________

2. ___________________________________________________________________________
___________________________________________________________________________

3. ___________________________________________________________________________
___________________________________________________________________________

4. ___________________________________________________________________________
___________________________________________________________________________

5. ___________________________________________________________________________
___________________________________________________________________________

6. ___________________________________________________________________________
___________________________________________________________________________

7. ___________________________________________________________________________
___________________________________________________________________________

8. ___________________________________________________________________________
___________________________________________________________________________

9. ___________________________________________________________________________
___________________________________________________________________________

10. ___________________________________________________________________________
___________________________________________________________________________

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Additional Activities

Activity: The Republic Act 10963 or Tax Reform for Acceleration and Inclusion
(TRAIN) aims to make the Philippine Tax System simpler, fairer, and more efficient
to promote investments, create jobs and reduce poverty.

In your own opinion, what are the good and bad points of the TRAIN Law. List at
least three (3) each.

GOOD POINTS BAD POINTS

1. 1.

2. 2.

3. 3.

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What I Know:
1. B
2. C
3. D
4. C
5. A
What’s in
What’s New
Student’s answer may vary
What’s More (Students need to elaborate answers)
1. Has authority and power over person or property within the State or country
2. Enforced Contribution and Proportionate
3. Placed on persons or property
Answer Key
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What I have Learned:
1. Enforced contribution
2. Placed on person and property
3. Theoretical justice
4. Taxation
5. For public use
6. Eminent domain
7. Proportionate
8. Administrative feasibility
9. Progressive tax
10. Has authority and power over person or property within the State or country
What can I Do:
Student’s answer may vary.
Assessment:
Students answer may vary
Additional Activity:
Students answer may vary
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References
Beticon, Josefina L, James Christopher D Domingo, and Fermin ANtonio D. Yabut.
2016. Fundamentals of Accounting , Business and Management 2 (Teacher's
Manual). Vibal Group, Inc.
n.d. Bureau of Internal Revenue. Accessed October 10, 2020.
https://www.bir.gov.ph/index.php/tax-information/income-tax.html.
de Vera, Ben O. 2020. Business Inquirer.Net. October 18. Accessed October 21,
2020. https://business.inquirer.net/309899/bir-guidelines-out-on-tax-
breaks-to-be-enjoyed-by-health-front-liners.
n.d. National Internal Revenue Code (As Amended by RA 10963). Accessed 10 12,
2020. https://www.bir.gov.ph/index.php/tax-code.html.
2020. Official Gazette. Accessed October 21, 2020.
https://www.officialgazette.gov.ph/downloads/2020/03mar/20200328-
JOINT-MEMORANDUM-CIRCULAR-NO-1-S-2020.pdf.
Ong, Flocer Lao, and Janelle Gomendoza. 2017. Fundamentals of Accounting,
Business and Management 2 for Senior High School. C & E Publishing, Inc.
Wood, Robert W. 2014. Forbes. Aug 22. Accessed October 18, 2020.
https://www.forbes.com/sites/robertwood/2014/08/22/manny-pacquiao-
lands-75-million-blow-in-tax-evasion-case/#146778f86669.

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For inquiries or feedback, please write or call:

Department of Education – Region III,

Schools Division of Bataan - Curriculum Implementation Division
Learning Resources Management and Development Section (LRMDS)

Provincial Capitol Compound, Balanga City, Bataan

Telefax: (047) 237-2102

Email Address: bataan@deped.gov.ph

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