Taxation Issues Essay Example for Free

Taxation Issues Essay The individual income tax consists of taxes on compensation income (from employment), business income, and passive income (interests, dividends, royalties, and prizes). In 1998 compensation income tax rates were restructured into 6 bands with marginal rates ranging from 5% to 35%. Exemption levels are 20,000 pesos (about $400) for individual, and 32,000 pesos (about $640) for married couples. In 2000, the business income tax rate was lowered from 33% to 32%. The tax rate on passive income is 30%. For resident foreign corporations, after-tax profits remitted abroad are subject to a 15% tax, except for corporations registered with the Philippine Economic Zone Authority (PEZA), the Board of Investment (BOI), the Bases Conversion Development Authority, or operating in independent special economic zones (ecozones), all of which are eligible for special tax and customs incentives, exemptions and reductions designed to attract foreign, new, necessary and/or export-oriented foreign investmen t. The Omnibus Investment Code of 1987 lays out tax incentives administered by the BOI of the Department of Taxation and Development, and the annual Investment Priorities Plan (IPP) sets out the investment areas, national and regional, to which these incentives currently pertain. In 2002 the national list included export activities, industrial development and mining, agricultural/fishery production and processing, logistics, drugs and medicine, engineered products, environmental projects, IT services, Infrastructure, mass housing projects, R and D activities, social service, tourism, patriotic and documentary motion pictures and new projects with a minimum cost of $2 million. Special economic zones (SEZs) can be designated as export processing, free trade and/or information technology (IT) parks, each designation providing a schedule of tax holidays, exemptions from import duties on capital goods and raw material, and preferential income tax rates with more favorable treatment accorded pioneer industries over non pioneer or expanding companies. Taxes on transactions include a value-added tax (VAT) of 10%. For smaller businesses not registered with the VAT a percentage sales tax of 3% to 5% is applied, although higher for activities involving issues of public morality: cockpits are taxed 18%, caberets, 18% and jai-lai and racetracks, 30%. Excise taxes are imposed on selected commodities such as alcoholic beverages, tobacco products, jewelry and petroleum products. In addition, the government levies a variety of other taxes, including mining and petroleum taxes, residence taxes, a head tax on immigrants above a certain age and staying beyond a certain period, document stamp taxes, donor (gift) taxes, estate taxes, and capital gains taxes. A document stamp tax is charged on stock certificates, proofs of indebtedness, proofs of ownership, etc, and normally amount to .75% to 1% of the par or face value of the certificate. A progressive schedule of donor taxes begins with gifts above P 100,000 (about $18,500), and lays out seven bands (2%, 4%, 6%, 8%, 10%, 12%, and 15%) with the top marginal rate applying to gifts above P 10,000,000 (about $186,520). The progressive estate tax begins at P 200,000 (about $37,000) and lays out five bands (5%, 8%, 11%, 15% and 20%) up to P 10,000,000 (about $186,520). The capital gains tax is 6% on real property; 5% on gains of P 100,000 or less from the sale of stock not listed on the stock exchange, and 10% on gains over P 100,000. Some cities, such as Manila, levy their own wholesale and retail sales taxes. Government revenues in 2001 amounted to 14.8% of GDP, short of total expenditures and net lending for the year, which came to 19.1% of GDP, leaving a deficit of over 4% of GDP. The US State Department reports that the main factor underlying the deficit is inadequate revenue collections due to widespread tax evasion. Attempts by the Bureau of Internal Revenue to increase compliance have met with strong resistance. HMRC issues tax warning A warning has been sent to all consumers who are required to send in a tax return for 2009-10. In a message, HM Revenue Customs (HMRC) noted that the deadline for paper tax returns, which was October 31st, has now passed. Therefore, in order to avoid a penalty of  £100, all those yet to complete theirs must do so online. The organization pointed out that anyone who has not done this before will have to register for online filing by visiting its website. When they go through this process, they will be given a user ID and an activation code, which will be posted to them within seven working days. Once they have received this information, they will be able to file their returns. Meanwhile, in a word of advice to those who have used the system before , it added: Make sure that you have your user ID and password it can take seven working days to get replacements, so dont leave it to the last minute if you need them. The deadline for online self-assessments is Monday January 31st. Meanwhile, those who are unsure how to go about the process can get help and information on the HMRC website. Of course, there is also help for those who need to use an income tax calculator or another type of tax calculator. Such people can find these resources in various places on the web. In order to ensure they get their returns right, an income tax calculator or other form of tax calculator can be very helpful. Consumers are also advised to ensure that they save up enough money to pay the tax when the time comes, otherwise they may find themselves in financial difficulty. Students issued tax warning The vast majority of people who earn money are keen to ensure they do not pay too much income tax. For this reason, some use an income tax calculator or PAYE calculator to help them assess whether or not they have. Students may be among those who can benefit most from such activity, research conducted by one organization suggests. According to the Low Incomes Tax Reform Group (LITRG), around six million people are likely to now be receiving tax calculations having not paid the right tax under Pay As You Earn (PAYE), and students are particularly at risk of this. The reason for this, the organization claimed, is that such people can find that the system struggles to keep up with their working patterns. For example, undergraduates may be working in several jobs at once, frequently moving between roles, doing irregular work with agencies or be involved in a sandwich course during which they work for a year. Students are advised to keep on top of their income deductions, which may involve using an income tax calculator or PAYE calculator. Not only may mistakes mean they overpay, but they may also result in such people paying too little. In such cases, they could be hit with an unexpected bill at a later date. With this in mind, LITGR issued advice to students. For example, it stated: If you start a new job without a P45, but your former employer later gives you one you can still give it to your new employer for them to adjust your tax code. But otherwise, you might need to keep an eye on your pay slips and contact HMRC to chase up processing of your P46 to make sure you get put back on a cumulative code if it doesnt appear to be done automatically. Earlier this year, HM Revenue Customs revealed that a number of people had either under paid or overpaid tax and it sent out correspondence to inform these individuals of the errors. An insight into Joint Ventures and Tax issues If you have had the chance to interact with a London accountant online and have discussed the kind of potential that different enterprises have when they are in the start-up stage, he/she would inevitably point to a joint venture as one that allows for the best capitalization on research development tax credits as well as the best way to reap in profits while running the least amount of risk. Partnership accounting too, according to most chartered tax accountants, is easier to monitor and account for, rather than solo enterprises or massive corporate public entity firms. However, this particular category of entrepreneurship is on the decline – which is more courtesy of lack of knowledge and joint venture tax issues, than failure of the whole model in the business arena. So what exactly is a joint venture as far as tax issues and accounting for partnerships is concerned? Well, for starters, it is not very different from a solo investment enterprise. The only fact here is that the firm or venture has two or more people as investors, each of whom have a share in the revenue as well as profits and losses that the venture accrues during its runtime. The usual joint venture tax issues that most investors encounter is with the Tax ID numbers from IRS as well as legal agreements. While the legal agreement can double up as the word on which the investors decided to distribute and share their revenues from the venture, it is also required during partnership accounting measures as well as for varied detailed statistics and formalities for clinical accounting for partnerships and firms. The taxes from employee salaries are called withholding taxes, and the taxes levied on Medicare and security is also to be deducted from the firms employees. Often, a conflict of interest arrives, when a person is both an employee as well as a fellow investor in the joint venture – tax issues need to be sorted out for these situations too. This is exactly why joint ventures tax issues allied with the same is considered more complex for partnership accounting rather than for solo enterprises. Moreover, accounting for partnerships often need professional and veteran chartered tax accountants for the job – exactly where professional London accountants come into the picture. While ad-hoc accounting for partnerships almost always is recipe for disaster, professional accounting can maximize both your profits as well as your research and development tax credits. So if you are an investor and your fellow entrepreneurs are not willing to hire a professional London accountant for the sake of savings and cost-cutting measures. For the kind of money you will save with the help of a professional chartered tax accountant on accounting for partnerships, you will have enough capital to start another joint venture sans tax issues as well!