Investment and Taxation Flashcards
INVESTMENT AND TAXATION
Golden Rules of Investment:
1. Invest ________.
2. Invest ________.
3. Invest _____________________________.
- Invest early
- Invest regularly
- Invest for the long term and not short term.
INVESTMENT AND TAXATION
Money you earn is partly spent and the rest saved for meeting future expenses.
Investment
NOW: Money spent
FUTURE: Payoff/ return
Investment
Needs of investment
1.
2.
3.
- Earn return on your idle resources
- Generate a specified sum of money for a specific goal in life.
- Make a provision for an uncertain future.
____________ – not needed for other needs/expenses.
Idle money
Rate at which the cost of living increases.
Inflation
_________ – added cost after production.
Inflation rate
Mark-up
Consider inflation in __________.
investing
Inflation considers the performance of _____________.
other countries
_____________ is simply what it costs to buy the goods and services you need to live.
Cost of living
__________ causes money to lose value.
Inflation
Explain and state why knowing inflation is important in investment.
If there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years.
Forecast
Inflation rate & mark-up. Inflation is ____________ from mark-up.
different
Explain why this happens.
Luxury goods do not have that much mark-up.
Food and other needs’ mark-up is usually 100% depending on how much it is needed.
Share your thoughts on having an entrepreneurial mindset.
Business
Everyone wants to be an employee (comfort-zone) – no risk
Think about opening up a business connected to your field/ interest.
_________ above inflation rate to ensure that investment does not decrease in value.
Return
Explain the connection of the return, inflation rate, and investment
If the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value.
If the after-tax return on your investment is less than the inflation rate, then your assets have actually decreased in value.
Return > ____________ – no decrease in value and investment.
Business – ROI (___________________).
Inflation rate; Return of Investment
Education is an investment. The return is what?
(high) investment (_____) payoff (_____) return
Return – salary after graduation when working.;
high; high
Explain the difference between the three:
Mutual funds
Stocks
Bonds
Mutual funds → risk-neutral
Stocks – part-owner
Bonds – owner liable to you
What should we keep in mind when investing in cryptocurrency or any other investments?
Always monitor
Unknown determinants
Always doubt if the return is super big.
100%>
In a short period of time.
Short-term financial option investment
First banking product people use. Offers low interest (4%-5% p.a.). Interest is taxable in the hand of Investor.
Money market/ liquid funds. Fixed deposits with banks
Saving Bank Account
_________ – a product whose value is derived from the value of one or more basic variables, called underlying.
Underlying assets can be equity, index, foreign exchange (forex), commodity or any other assets.
Derivative
___________: Underlying commodity (foreign exchange -forex– popular in Philippines)
Derivative
Long-Term Financial Investment
A low risk saving instrument. Provides an interest rate of 8% per annum paid monthly.
Not much in the Philippines.
Post Office Saving Scheme
__________ – Total equity capital of a company is divided into equal units of small denominations.
The holders of such are members of the company and have voting rights.
Share
Long-Term Financial Investment
A long term savings instrument with a maturity of 15 years.
PPF accounts can be opened through a nationalized bank.
Public Provident Fund
Long-Term Financial Investment
These are short-term to medium-term borrowings at fixed rates of interest.
Payable monthly, quarterly, semi-annually or annually. Interest received after deduction of taxes.
Company Fixed Deposits
Long-Term Financial Investment
Fixed income instrument issued for a period of more than one year. Purpose of raising capital.
A promise to repay the principal along with a fixed rate of interest on a specified date.
Bonds & Debentures
Long-Term Financial Investment
Operated by an investment company which raises money from the public and invests a group of assets.
Substitute for those who are unable to invest directly in equities or debt because of resource, time, or knowledge constraints.
Mutual Funds
Short-term financial option investment
Specialized form of mutual funds that invest in extremely short-term → Primarily protect your capital and then, aim to maximize returns. →
→ Money market funds usually yield better than saving accounts, but lower than bank fixed deposits.
Money Market/ Liquid Funds
Short-term financial option investment
Referred to as term deposits. Minimum investment period for bank FDs is 30 days.
FDs with bank are for investor with low risk appetite
FD is lower than money market. fund returns.
Fixed Deposits with Banks
When we borrow money, we are expected to pay for using it. An amount charged to the borrowers for the privilege of using the lender’s money.
Calculated as a percentage of the principal balance.
Interest
Options for Investment
Real Estate, Gold/Jewellry, Commodities
Car, not an investment.
Antiques, appreciating.
Physical assets
Options for Investment
Fixed Deposit, Small Saving Instruments, Mutual Funds, Pension funds, and securities market instruments.
Banks.
Financial assets
Options for Investment
Explain. Stocks & bonds
Stocks: somehow a form of ownership
Bonds: Less risks and first to be paid
Explain.
Controlling inflation rate by controlling money supply.
Explain Bangko Sentral & Discount rates.
(high) Discount% (high) people want you to have more money
(low) Discount% (low) BSP wants you to have less money
(low) Reserve Requirements (high) Bank transaction (high) People’s money
(high) Reserve Requirements (low) People’s money
TAXATION
Purpose of Taxation
- To ______________ from all possible sources to support government expenditures and services and to promote the general well-being and protection of its citizens.
- To ____________________ industries by extending tax exemptions to pioneering and new industries and other enterprises.
- To ___________________ by levying a much higher custom duties on imported goods.
raise revenues;
safeguard newly-opened;
shield domestic producers
Give suggestions/ advice to the following:
- If risk-lover,
- If risk-averse,
- If risk-neutral,
- If risk-lover, stocks (high return, but big risk)
- If risk-averse, banking, savings, and trust funds.
- If risk-neutral, mutual funds:
Slowly but surely.
Not that high a return, but a sure return.
__________________ – Refers to an instance when an income, a property, or a transaction was imposed with two or more taxes by taking authority in the same year.
Ex: Inheritance (Lupa and bahay)
Inheritance tax & property tax
DOUBLE TAXATION
______________ – passing of tax burden from one person to another.
Ex: lupa
SHIFTING
______________ – reducing the price of the taxable product or service to lower the tax that will be imposed on its consumption.
CAPITALIZATION
______________ – refers to the availing by the taxpayer of legally allowable means in reducing or minimizing the tax due to on certain properties, items, and services.
TAX AVOIDANCE
_______________ – refers to use by the taxpayer of illegal means in escaping, defeating, or lessing the tax due.
TAX EVASION
________________ – immunity by the taxing community on the taxpayer from the obligation of payment.
TAX EXEMPTION
ONUS, latin term “burden” or “obligation.” An enforced proportional contribution from persons and property, levied by the state by virtue of its sovereignty for the support of government and for public needs.
TAX
It is an obligatory or a forced contribution to the government. It is usually monetary in form.
CHARACTERISTICS OF TAX
It is proportionate in character. It is imposed on persons and properties. It is levied by the state that has jurisdiction over the person or property.
CHARACTERISTICS OF TAX
It is levied by the legislative body of the state. It is levied for public purposes.
CHARACTERISTICS OF TAX
Imposed at a progressive rates.
Considered as a privilege tax.
Purpose is to earn revenue.
INCOME TAX
FUNCTIONS OF INCOME TAX
1. provide _________
2. ______ regressive sales and consumption taxes
3. mitigate the evils arising from the _________ in the distribution of income and wealth.
revenues;
offset;
inequalities
Canons of Taxation
__________________ – taxes collected by the BIR must be sufficient enough to fund the necessary government expenditures and basic services in a given year.
FISCAL ADEQUACY
Explain the first two limitations on Taxation:
1. Tax revenues must only be used for public purposes.
- There should be proper delegation of legislative power to tax.
- Government entities are exempted.
- There are territorial jurisdictions.
- There is an observance of international law.
e.g. ayuda, 4Ps, public infrastructures, etc.
Canons of Taxation
__________________ – payment of taxes must be taxpayer friendly, accessible and convenient.
ADMINISTRATIVE FEASIBILITY
Canons of Taxation
_________________ – “ability to pay” principle, tax burden must be in proportion to the taxpayer’s level of income.
THEORETICAL JUSTICE
