VANISHING DEDUCTION **Proportionate Deduction

= 𝑰𝒏𝒊𝒕𝒊𝒂𝒍 𝑩𝒂𝒔𝒊𝒔

101 Vanishing Deductions

Transfers for Public Use

9 _{If NRA, Allowable Deduction wrt ELIT =} 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒

102 Retirement Benefits received by heirs

Net Estate

Less: (Special Deductions10) Standard Deduction Family Home Medical Expenses

Amounts received by heirs

Net Taxable Estate (before share of surviving spouse)

Less: Share of Surviving Spouse

Net Taxable Estate Multiply by Tax Rate Estate Tax Due

Less: Tax Credit11, if any ESTATE TAX DUE

10 _{These are not allowable deductions when TP is NRA.} 11 _{Applies only to RC/NRC/RA}

2

. Donor’s Tax

ON FIRST DONATION

Gross Gift xxx

Less: Deductions (those not beneficial to the done e.g. mortgage)

xxx

Net Gift xxx

Less: Exemptions, if applicable xxx

Net Taxable Gift xxx

Multiply by Tax Rate xx%

Donor’s Tax Due xxx

If only 1 country is involved: (whichever is lower) Estate Tax Credit = 𝑁𝑒𝑡 𝐸𝑆𝑡𝑎𝑡𝑒 𝑖𝑛 𝑡ℎ𝑒 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦

𝑊𝑜𝑟𝑙𝑑 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥

OR actual estate tax paid to foreign country If two or more countries are involved: (whichever is lower) Estate Tax Credit = 𝑁𝑒𝑡 𝐸𝑆𝑡𝑎𝑡𝑒 𝑝𝑒𝑟 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦

𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥

OR 𝑁𝑒𝑡 𝐸𝑆𝑡𝑎𝑡𝑒 𝑜𝑓 𝐴𝐿𝐿 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦

𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐸𝑠𝑡𝑎𝑡𝑒 𝑇𝑎𝑥

103 Less: Tax Credit , if any

xxx DONOR’S TAX DUE

xxx

ON SUBSEQUENT DONATIONS w/in the same calendar year

Gross Gift xxx

Less: Deductions (those not beneficial to the done e.g. mortgage)

xxx

Net Gift xxx

Less: Exemptions, if applicable xxx

Net Taxable Gift xxx

Add: All previous net gifts during the year xxx

Aggregate Net Gifts xxx

Multiply by Tax Rate xx%

Donor’s Tax on Aggregate Net Gifts xxx

Less: Donor’s tax on previous net gifts during the year xxx

Donor’s Tax Due xxx

Less: Tax Credit13, if any xxx DONOR’S TAX DUE

xxx

12 _{Applies only to RC/NRC/RA} 13 _{Applies only to RC/NRC/RA}

If only 1 country is involved: (whichever is lower) Tax Credit = 𝑁𝑒𝑡 𝐷𝑜𝑛𝑎𝑡𝑖𝑜𝑛𝑠 𝑜𝑢𝑡𝑠𝑖𝑑𝑒 𝑃ℎ𝑖𝑙

𝑁𝑒𝑡 𝐷𝑜𝑛𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑤/𝑖𝑛 𝑎𝑛𝑑 𝑤/𝑜 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟 ′_{𝑠 𝑇𝑎𝑥}

If two or more countries are involved: (whichever is lower)

Tax Credit = 𝑁𝑒𝑡 𝐷𝑜𝑛𝑎𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝐶𝑜𝑢𝑛𝑡𝑟𝑦 𝑁𝑒𝑡 𝐷𝑜𝑛𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑤/𝑖𝑛 𝑎𝑛𝑑 𝑤/𝑜 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟′𝑠 𝑇𝑎𝑥 OR 𝑁𝑒𝑡 𝐷𝑜𝑛𝑎𝑡𝑖𝑜𝑛 𝑤/𝑜 𝑁𝑒𝑡 𝐷𝑜𝑛𝑡𝑎𝑡𝑖𝑜𝑛𝑠 𝑤/𝑖𝑛 𝑎𝑛𝑑 𝑤/𝑜 𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟 ′_{𝑠 𝑇𝑎𝑥}

104

ESTATE TAX

DONOR’S TAX DEATH

NOTICE OF DEATH to RDO

by Eor/Aor Get TIN for ESTATE

Prepare the LIST of assets and liabilities and their supporting documents

ESTATE TAX RETURN + PAYMENT

(NB: Date of payment may be extended, 5yrs or 2yrs), if estate exceeds 200,000php

Transfer properties to the heirs GR: w/in 6m after death

E: extension of 30d COMPLETION/ PERFECTION OF DONATION Liable Exempt Partial Exemption Full Exemption

DONOR’S TAX RETURN + PAYMENT (NB: Date of payment may be extended ≤ 6 months)

w/in 30d after gift was made

NO TAX RETURN NECESSARY

No Notice of Donation Necessary

105

D. VALUE-ADDED TAX (VAT)

CONCEPT

VAT is a consumption tax imposed at every stage of distribution process on (i) the sale, barter, exchange, or lease of goods or properties and (ii) rendition of services in the course of trade or business, or the (iii) importation of goods, whether such imported goods are for use in business or non-business purposes. (Sec. 4.105-2, RR 16-2005)

The taxpayer (seller) determines his tax liability by computing the tax on the gross selling price or gross receipt (output tax), and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the purchase of service (input tax) against the tax due on his own sale

Constitutionality of VAT

ABAKADA Guro Party List, et. al. v Ermita (2005):

The validity of raising the VAT rate from 10% to 12% by the President was upheld by SC.

With respect to Sec. 8, amending Sec. 110 (A), which provides for 60-month amortization of the input tax on capital goods purchased: It is not oppressive, arbitrary, and confiscatory. The taxpayer is not permanently deprived of his privilege to credit the input tax. For whatever is the purpose, it involves executive economic policy and legislative wisdom in which the Court cannot intervene.

The tax law is uniform: it provides a standard rate of 0% or 10% (or 12% now) on all goods or services. The law does not make any distinction

as to the type of industry or trade that will bear

the 70% limitation on the creditable input tax, 5-year amortization of input tax on purchase of capital goods, or the 5% final withholding tax by the government.

It is equitable: The law is equipped with a threshold margin (P1.5M). Also, basic marine and agricultural products in their original state are still not subject to tax. Congress also

provided for mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt from paying franchise tax.

VAT, by its very nature, is regressive. BUT the Constitution does not really prohibit the imposition of indirect taxes (which is essentially regressive).

What it simply provides is that Congress shall “evolve a progressive system of taxation”. In Tolentino v. Sec. of Finance (1995), the Court said that direct taxes are to be preferred, and as much as possible, indirect taxes should be minimized… but not avoided entirely because it is difficult, if not impossible, to avoid them. Tolentino v. Secretary of Finance (1995):

Regressivity is not a negative standard for courts to enforce.

What Congress is required by the Constitution to do is to “evolve a progressive system of taxation.”

This provision is placed in the Consti as moral incentives to legislation, not as judicially enforceable rights.

The regressive effects are corrected by the zero rating of certain transactions and through the exemptions

CHARACTERISTICS/ELEMENTS OF A