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MAC438 Notes

The document outlines the fundamentals of tax planning and management, emphasizing the importance of legally minimizing tax liabilities and ensuring compliance with tax laws. It details various types of taxes, their purposes, and the distinctions between direct and indirect taxes, as well as different tax structures in the Philippines. Additionally, it discusses the government's inherent powers related to taxation and the Lifeblood Doctrine, which underscores the necessity of taxes for government functionality.

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5 views

MAC438 Notes

The document outlines the fundamentals of tax planning and management, emphasizing the importance of legally minimizing tax liabilities and ensuring compliance with tax laws. It details various types of taxes, their purposes, and the distinctions between direct and indirect taxes, as well as different tax structures in the Philippines. Additionally, it discusses the government's inherent powers related to taxation and the Lifeblood Doctrine, which underscores the necessity of taxes for government functionality.

Uploaded by

Kaneki Ken
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Study Notes on Tax Planning and Tax Management

I. Basics of Tax Planning and Tax Management


A. Definition

●​ Tax Planning – The process of legally minimizing tax liabilities through strategic
financial decisions.
●​ Tax Management – The administration and compliance with tax laws, ensuring timely
and accurate filing and payment.

B. Importance

●​ Reduces tax burden while ensuring compliance.


●​ Prevents penalties and legal issues.
●​ Optimizes financial resources for business growth and investments.

C. Features

●​ Legally reduces tax liabilities.


●​ Requires knowledge of tax laws and regulations.
●​ Ensures compliance with government requirements.
●​ Involves proper documentation and record-keeping.

D. Types of Tax Planning

●​ Short-range Tax Planning – Immediate tax-saving strategies implemented within a


fiscal year without altering long-term financial goals.
●​ Long-range Tax Planning – Strategic tax-saving methods designed for future benefits,
such as retirement planning or capital investments.
●​ Permissive Tax Planning – Utilization of legal provisions, deductions, and exemptions
to minimize tax liability.
●​ Purposive Tax Planning – Aligns tax-saving strategies with broader business or
investment goals, such as mergers or asset acquisitions.
●​ Marginal Tax Planning – Applying specific tax-saving measures in critical financial
decisions, such as tax-efficient investments and transactions.
●​ Structural Tax Planning – Organizing financial activities in a way that legally reduces
tax liability, such as choosing the appropriate business entity (e.g., sole proprietorship
vs. corporation).

E. Fiscal Year

●​ A 12-month period used for accounting and tax purposes that may or may not align with
the calendar year.
●​ Calendar Year: January 1 – December 31 (default).
●​ Fiscal Year: Corporations may choose a fiscal year different from the calendar year
(e.g., April 1 – March 31).

II. Purpose of Taxation


1. Primary Purpose: Revenue Generation

●​ Taxes fund government operations, including infrastructure, education, healthcare, and


public safety.
●​ Taxes are the lifeblood of the government, ensuring its ability to function and serve
citizens.

2. Secondary Purposes: Regulatory & Compensatory

●​ Regulatory: Used to regulate businesses and consumption (e.g., higher taxes on


harmful products like cigarettes and alcohol to discourage use).
●​ Compensatory: Encourages economic activities through tax incentives, exemptions,
and deductions to promote business growth and investment.

III. Understanding the Different Taxes


A. National Taxes (Under BIR Jurisdiction)

1. Income Tax

●​ Levied on individuals and corporations based on taxable income.


●​ Includes personal income tax, corporate income tax, and capital gains tax.

2. Business Tax

●​ Covers VAT (Value-Added Tax) and Percentage Tax:


○​ VAT (12%) – Applied to sale of goods/services exceeding ₱3M annual gross
sales.
○​ Percentage Tax (3%) – Applied to businesses below the VAT threshold.
●​ Excise Tax
○​ A privilege tax imposed on certain goods, meaning it is paid for the right to
manufacture, sell, or use these items.
○​ Also refers to a duty on specific goods, usually those considered harmful or
luxurious.
○​ Types:
■​ Specific Tax – A fixed amount per unit (e.g., ₱55 per pack of cigarettes).
■​ Ad Valorem Tax – A percentage of the selling price (e.g., 20% tax on
luxury cars).

3. Transfer Tax

●​ Imposed on the transfer of ownership of property.


○​ Estate Tax – Tax on the net estate of a deceased person (6%).
○​ Donor’s Tax – Tax on inter vivos (during life) transfers (6% after exemptions).

4. Documentary Stamp Tax (DST)

●​ Imposed on documents, agreements, and instruments such as loan agreements, share


transfers, and property deeds.

B. Local Taxes (Under LGU Jurisdiction)

●​ Governed by the Local Government Code (RA 7160).


●​ Examples:
○​ Real Property Tax – Annual tax on land and buildings.
○​ Business Tax – Tax on business gross receipts.
○​ Professional Tax – Imposed on professionals like CPAs and lawyers.
○​ Community Tax (Cedula) – Paid by individuals and corporations annually.

IV. Types of Taxes in the Philippines


A. Direct vs. Indirect Taxes
Type Definition Examples

Direct Paid directly by individuals or businesses to the government. Income Tax,


Taxes Cannot be shifted to another person. Estate Tax

Indirect Passed on to consumers as part of the price of goods and VAT, Excise Tax
Taxes services. Businesses act as collecting agents for the
government.

V. Differences in Tax Structures


Tax Structure Definition Example in the Philippines
Proportional Flat tax rate applied Corporate Income Tax (25% for all
Tax regardless of income level. corporations)

Progressive Tax rate increases as income Individual Income Tax (0% to 35% under
Tax increases. TRAIN Law)

Regressive Tax burden is heavier on VAT (12%) – same percentage for all but
Tax lower-income earners. impacts lower-income earners more.

Mixed Tax A combination of different tax Excise Taxes (some are specific, others are
structures. ad valorem).

VI. The Lifeblood Doctrine


●​ The Lifeblood Doctrine states that taxes are essential for the government to exist and
function effectively.
●​ Without taxes, the government cannot provide public services or enforce laws.
●​ Justifies strict tax enforcement and limitations on taxpayer resistance (e.g., courts
generally don’t allow injunctions to delay tax collection).

VII. The Three Inherent Powers of the Government


1. Power of Taxation

●​ The government's right to impose and collect taxes for public needs.
●​ Limitations: Must be for a public purpose and within jurisdiction.

2. Police Power

●​ The power to regulate behavior for public welfare, safety, and health.
●​ Example: Imposing zoning laws, environmental regulations, and health protocols.

3. Power of Eminent Domain

●​ The government’s right to expropriate private property for public use, with just
compensation.
●​ Example: Buying land to build highways or public schools.
VIII. Tax Comparison Table
Category Income Tax Business Tax Transfer Tax Documentary
Stamp Tax (DST)

As to National National (BIR) National (BIR) National (BIR)


Authority (BIR)

As to Purpose Fiscal Fiscal Fiscal Fiscal

As to Subject Excise Excise Excise Excise


Matter

Incidence Direct Indirect Direct Indirect

Amount Ad Valorem Ad Valorem & Ad Valorem Ad Valorem &


Specific Specific

Rate Mixed Proportional & Proportional Proportional &


Progressive Progressive

Object of Income Business Activity Gratuitous Document Issued


Taxation Transfer

Frequency of Quarterly & Quarterly & One-Time One-Time


Payment Annually Annually Transaction Transaction

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