True or Truelse or False ?

Dear Mouse,

The news article is entitled to Tax or not to Tax.

Let me express my agreement /disagreement on the ff: statements made by the PIDS senior research fellow by writing true or false as my response.

PIDS senior research fellow Rosario G. Manasan said the shift to gross income taxation is perceived by many sectors to be a "bad tax." "This measure will not reduce the scope for negotiations between taxpayers and tax examiners as its proponents aver; rather, it will widen it. Instead of plugging loopholes, it will create more."

True

Businesses are now taxed based on Net Income i.e. Net Sales less Cost of Sales =Gross Profit less Operating Expenses=Net Operating Income-Other Expenses +Other income.

Assuming that there are no OI and OE, a company will pay higher tax using gross income taxation.

Ex.

Net Sales $ 100

Cost of Sales 60

Gross Profit 40

Operating Exp. 30

Net income 10

Assuming tax is 25 per cent on the first 100 k

In the present system where the basis is $ 10.= Tax is 2.5

Proposed GIT where the basis is $ 40 the Tax is 10.0

During tax audit, there are expenses that are rejected by the tax examiners. The exlusion of such expenses lead to higher income tax assessments. Tawaran na pagdating dito.

With the implementation of the GIT, the issue will be the allowance of the treatment of expenses as part of the cost of sales as overhead.

All the bean counter has to do is to transfer operating expense items in the manufacturing overhead.As to its allowance, it depends on the tax examiners' "valued" discretion.

She also said gross income taxation tends to violate the tax neutrality principle. Under the scheme, the effective tax burden of firms will vary according to cost structures, with firms in the services sector likely to be hit hardest.

Truelse

Unlike manufacturing concerns, the service industries have no costs of sales to present as deductions. Their net incomes subject to tax are derived by deducting the expenses from the sales.

She is right.

If the reporting system however would allow recognition of gross income as the difference between the sales and direct costs attributed to the services rendered e.g. as consultancy fees received as against consultant's paycheck then gross income could be determined.

Thus, I said Truelse, it can be true and false.

Ms. Manasan said three of the eight tax measures proposed by the administration are not likely to be helpful. These include the adoption of the gross income tax, imposition of the windfall tax on telecommunications companies, and tax amnesty. The same is also true of the proposal to reduce the corporate and individual income tax rates to stimulate supply side effects.

True.

It boggles my mind how a reduction of individual and corporate income taxes help the country increase tax revenue collections.

The individual income taxpayers pay their taxes not because they want to but because they are being withheld from their salaries.

Single proprietorships are entirely another story.

The corporations on the other hand lower their income taxes by padding their operating expenses with expenditures that are not even corporate expenses.

Enron execs charged their private parties expenses to the corporate account.

The IRS people did not know? They can be easily charged as entertainment expenses, travel,representations,promotion, blahblagblah.

Family or closed corporations can even charge their family leisure trips as travel expenses.Who would know?

Tax examiners, if they are diligent enough to itemize the expenses.

Who audit the examiners. No one.

The Ca t