tax shield?

Tax shield is a strategy of reducing income tax liabilities by an individual or corporation achieved through claiming allowable deductions such as interest expenses, charitable donations, amortization and depreciation. These deductions reduce taxpayers' taxable income for a given year.

For example. The sales of a corporation for year 2008 is P1,000,000. If you do not claim any deductions then the tax base shall be 1M so that the corporate income tax payable is P350,000 ( P1,000,000 x 35%)

However, if you claim deductions, you will be saving on taxes (because there will be a tax shield)

For example.

Sales= P1,000,000
Less: cost of sales, salaries expense, depreciation, charitable contributions other expenses= P700,000*

taxable income= P300,000

tax payable= P105,000 (P300,000 x 35%)

*the P700,000 deduction is like your shield from taxation

For some, tax shielding is employed by lowering the basic salary and increasing the fringe benefits and allowances. This way, the tax base becomes lower.

fbsensei wrote:For some, tax shielding is employed by lowering the basic salary and increasing the fringe benefits and allowances. This way, the tax base becomes lower.

sir i am familiar with this scheme. It is mostly applied to managerial employees wherein they just declare a minimal salary. The allowances and benefits are greater than the salary but they are not declared for taxation purposes. with these, the take home pay of the employee concerned is bigger