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    SCRBD Tax 1

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    dailydoseoflaw
    The document discusses features of final income taxation in the Philippines. It describes the final withholding system which imposes responsibility on the payer to withhold tax on payments made. The tax withheld is considered final so the payee does not need to file a return. Final taxation only applies to certain passive income earned domestically and from non-residents not engaged in business in the Philippines due to territorial limitations. It is intended to promote taxpayer convenience and tax compliance for income that is difficult to monitor and tax otherwise.

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    SCRBD Tax 1

    Uploaded by

    dailydoseoflaw
    17 views2 pages
    The document discusses features of final income taxation in the Philippines. It describes the final withholding system which imposes responsibility on the payer to withhold tax on payments made. The tax withheld is considered final so the payee does not need to file a return. Final taxation only applies to certain passive income earned domestically and from non-residents not engaged in business in the Philippines due to territorial limitations. It is intended to promote taxpayer convenience and tax compliance for income that is difficult to monitor and tax otherwise.

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    SCRBD TAX 1

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    The document discusses features of final income taxation in the Philippines. It describes the final withholding system which imposes responsibility on the payer to withhold tax on payments made. The tax withheld is considered final so the payee does not need to file a return. Final taxation only applies to certain passive income earned domestically and from non-residents not engaged in business in the Philippines due to territorial limitations. It is intended to promote taxpayer convenience and tax compliance for income that is difficult to monitor and tax otherwise.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    17 views2 pages

    SCRBD Tax 1

    Uploaded by

    dailydoseoflaw
    The document discusses features of final income taxation in the Philippines. It describes the final withholding system which imposes responsibility on the payer to withhold tax on payments made. The tax withheld is considered final so the payee does not need to file a return. Final taxation only applies to certain passive income earned domestically and from non-residents not engaged in business in the Philippines due to territorial limitations. It is intended to promote taxpayer convenience and tax compliance for income that is difficult to monitor and tax otherwise.

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    © All Rights Reserved
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    CHAPTER 5

    Features of Final Income Taxation


    1. Final tax
    2. Tax withholding at source
    3. Territorial Imposition
    4. Imposed on certain passive income and persons not engaged in business.

    The Final withholding system


    The final withholding system imposes upon the person making income payments the responsibility to
    withhold the tax. The tax which will be deducted at source is final. The tax payer receives the income net
    of tax and there would be no need for him to file an income tax return to report the same.

    The final withholding system is inherently territorial. It applies only to certain passive income earned
    from sources within the Philippines. Note that taxation is territorial and we cannot impose tax obligation
    (filling or withholding) against non-resident subjects of foreign sovereignty. Hence, all items of income
    earned from sources abroad, passive or active, are subject to tax under the general scope of the regular
    income tax.

    Rationale of Final Income Taxation


    The final withholding tax is built upon taxpayer convenience. It relieves the taxpayer of the obligation to
    file an income tax return. This is very convenient for taxpayers who are limited by distance, time and
    cost to comply. For the government, the final withholding system is the most convenient and effective
    system in collecting taxes on income where there is high risk of non-compliance or tax evasion.

    Under the NIRC, final income tax is imposed on certain passive income and upon non-resident persons
    not engaged in business in the Philippines.

    Passive Income
    Items of passive income are earned with very minimal involvement from the taxpayer and are generally
    irregular in timing and amount. Unlike items of active income, they are not usually specifically
    monitored by taxpayers. When not recorded by the taxpayer, their existence can be difficult to predict
    while their actual amount may be difficult to determine. Thus, the final withholding at source is the most
    favored scheme in taxing items of passive income.

    Non-resident persons not engaged in business in the Philippines.


    Non –resident persons not engaged in trade or business in the Philippines, such as non-resident aliens
    not engaged in trade or business (NRA-NETBs) and non-resident foreign corporations (NFRCs), have igh
    risk of non-compliance. These taxpayers do not have offices or fixed places of business ion the
    [Philippines making tax compliance very unlikely due to their absence and distance in the Philippines.
    Also, the Philippine government cannot impose upon them the obligation to file return due to territorial
    consideration.
    Thus, the law subjects them to final income tax wherein Philippine residents paying them income,
    passive or active are obligated to withhold the following final tax:
    Non-resident person not engaged in trade or General Final Tax Rate
    business
    Non-resident alien not engaged in trade or 25%
    business
    Non-resident foreign corporation 30%

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