INCOME TAXATION

I. Definitions
Define or give the meaning of the following. (5 points each)
1. Taxation -
2. Alien
3. Non-resident Citizen
4. Principle of Territoriality
5. Principle of Fiscal Adequacy

II. Discussions
1. Purpose of Taxation. (5 points)
2. Situs of Taxation. (5 points)
3. Distinguish a Direct Tax from an Indirect Tax. (5 points)
4. How does Income differ from Capital? Explain. (5 points)
5. Distinguish a Global Tax System from Schedular Tax System.
(5 points)

III. Problems
Explain or state briefly the rule or reason for your answers.
1. Juan, a Filipino citizen, has immigrated to the United States where he
is now a permanent resident. He owns certain income-earning
property in the Philippines from which he continues to derive
substantial income. He also receives income from his employment in
the United States on which the US income tax is paid. On which of
the above income is the taxable, if at all, in the Philippines, and how,
in general terms, would such income or incomes be taxed?
(30 points)

2. Mr. Javier is a non-resident senior citizen. He receives a monthly

pension from the GSIS which he deposits with the PNB-Makati
Branch. Is he exempt from income tax and therefore not required to
file an income tax return? (20 points)

If anyone of you lacks wisdom, he should ask God, who gives generously to all
without finding fault, and it will be given to him. James 1:5
Answer: Juan, shall be taxed on both his income from the Philippines
and on his Income from the United States because his being a citizen
makes him taxable on all Income wherever derived. For the income he
derives from his property in the Philippines, Juan shall be taxed on his
net income under the Simplified Net Income Taxation Scheme (SNITS)
whereby he shall be considered as a self-employed individual. His
income as employee in the United States, on the other hand, shall be
taxed in accordance with the scheduler graduated rates of 1%, 2% and
3% based on the adjusted gross income derived by non-resident
citizens from all sources without the Philippines during each taxable
year.

Answer: Mr. Javier is exempt from income tax on his monthly GSIS
Pension but not on the interest income that might accrue on the
pensions deposited with PNB which are subject to final withholding tax.
Consequently, since Mr. Javiers sole taxable income would have been
subjected to a final withholding tax, he is not required anymore to file
an income tax return.

If anyone of you lacks wisdom, he should ask God, who gives generously to all
without finding fault, and it will be given to him. James 1:5