#AskTheTaxWhiz: How come some of PH’s richest are not top taxpayers?

Do rich people pay more taxes? How come some of the richest businessmen are not among the top taxpayers?

Not exactly! Being rich is not taxable. Tax is imposed on the activities they engage in like earning income, managing a family business or transferring properties through sale, donation or inheritance.

Being born rich is not subject to tax until they start buying goods or services (subject to VAT), selling properties (subject to capital gains tax), or receiving dividends from their family corporations (subject to final tax).

The list of individual top taxpayers is entirely based on the income tax return, which reports only the income tax on consolidated income from compensation and sole proprietorship business.  Other sources of income like dividends, interest and capital gains from sale of stocks or properties are subject to final tax, not income tax; thus, not included in the computation for ranking individual top taxpayers.

Are bribes or gains from corruption taxable? Can those who give bribe money claim it as deductible expense? How about losses due to embezzlement or fraud?

Yes. Income from whatever source is subject to income tax. We should actually see politicians in the list if only they declare it in their SALN.

However, those who give bribes cannot claim it as deductible expenses.

Casualty loss due to embezzlement or fraud is a deductible expense provided they submit a Sworn Declaration of Loss to their revenue district office (BIR RDO) within 45 days from the date of incurrence.

What is tax evasion? Is this crime only for the rich?

Under Sec. 248 (B) of the Tax Code, under-declaration of taxable income by more than 30% constitutes a prima facie case of fraud called tax evasion.

No. Anybody can be guilty of tax evasion as long as there is under-declaration of income.

To know how we can address tax evasion in the private sector and corruption in the government, join us in the 2014 Integrity Summit at the Dusit Thani Hotel on September 19. Learn from company presentations and the best practices in ethics, good governance, discussion of real integrity issues faced by organizations like yours (such as bribery, corruption and fraud), and internal controls to mitigate corruption in organizations.

Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. – Rappler.com

Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon’s tax handbook, “Got a Question About Taxes? Ask the Tax Whiz!” is now available in all bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.