TAXATION

Vivienne Jonnah R. Cemine

Department of Political Science, MSU-IIT

A. Taxation, In General

B. History of Taxation

C. Taxation in the Philippines

D. Kinds of Taxes

Taxation Defined• The inherent power of the state

- exercised through the legislature

• To impose burdens- upon subjects and objects

- within its jurisdiction

• For the purpose of raising revenues

• To carry out the legitimate objectives of the government

Theory of Taxation

• Lifeblood Theory

- Without revenue raised from taxation, the government will not survive, resulting in

detriment to society

- Performance of governmental functions redounds to the benefit of the populace in general

- Revenues could be raised to defray expenditures for public purposes

Basis of Taxation

• Symbiotic Relationship

- The reciprocal relation of

protection and support between

the state and the taxpayers

- The state gives protection and for it to continue giving protection, it must

be supported by the taxpayers in the form of taxes

Purposes of Taxation• The basic purpose

- Revenue purpose: to raise funds to meet the objectives of government

• To secondary purposes

- Sumptuary or regulatory purpose: to promote the general welfare; ex. Sin Tax

- Compensatory purpose: to maintain high level of employment thru the acceleration of infrastructure projects

Canons of Taxation

• Principles of a Sound Tax System

- Fiscal adequacy: must be able to provide sufficient revenues to meet the objectives

of government

- Administrative feasibility: should easily be implemented to assure the smooth flow into the treasury of the fiscally adequate amounts

- Theoretical justice: should be collected premised on the ability to pay

History• Reign of Egyptian Pharaohs

- Pharaoh would conduct a biennial tour

of the kingdom

• Earliest taxes in Rome- Taxes known as Portoria were customs

duties on imports and exports

- Augustus Caesar introduced the inheritance tax to provide retirement funds for the military.

History• In England

- Taxes were first used as an emergency measure

• In the Philippines- The pre-colonial society, being communitarian,

did not have taxes

History• In Modern Industrial Nations

- The government designates a tax base (such as income, property holdings, or a given commodity)

- A Tax Law is a body of rules passed by the legislature by which the government acquires a claim on taxpayers to convey, transfer and pay to the public authority

Taxation in the PhilippinesTax law in the Philippines covers national and local taxes:

• National taxes: refer to national internal revenue taxes imposed and collected by the national government through the Bureau of Internal Revenue (BIR)

• Local taxes: refer to those imposed and collected by the local government.

Taxation in the Philippines

• The 1987 Philippine Constitution sets limitations on the exercise of the power to tax:

“The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. 

(Article VI, Section 28,

paragraph 1)

Taxation in the Philippines• The Constitution expressly grants tax exemptions:

“Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and non-profit cemeteries and all lands, buildings and

improvements actually, directly and exclusively

used for religious, charitable or educational purposes.”

(Article VI, Section 28, paragraph 3)

Taxation in the Philippines

• National Internal Revenue Law: codifies all tax provisions, the latest of which is embodied in Republic

Act No. 8424 (The Tax Reform Act of 1997)

- Taxpayer: any person subject to tax whose sources of income is derived from within the Philippines

- Taxpayer Identification Number (TIN) is required for any individual taxpayer

Kinds of Taxes• Income Tax

- Tax on a person's income, emoluments, profits arising from property, practice of profession, conduct of trade or business

• Donor’s Tax- Tax imposed on donations inter-vivos or those made between living persons to take effect during the lifetime of the donor

• Estate Tax- Tax on the right of the deceased person to transmit property at death

Kinds of Taxes• Value-added Tax (VAT)

- Tax on consumption levied

on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines

• Capital Gains Tax- Tax imposed on the gains presumed to have been realized by the seller for the sale, exchange or other disposition of real property located in the Philippines

Kinds of Taxes

• Excise Tax- Tax applicable to specified goods manufactured in the Philippines for domestic sale or consumption

• Documentary Stamp Tax- Tax on documents, instruments, loan agreements and papers, agreements evidencing the acceptance, assignments, sale or transfer of an obligation, rights or property incident thereto

Who Pays Taxes

• Resident citizens- Taxed on all their net income derived from sources within and without the Philippines

• Alien individuals - Whether a resident or not, is

taxable only on income derived from sources within the Philippines

Philippine Tax Rates

• Income Tax Rate - 32%

• Corporate Tax Rate - 30%

• Value Added Tax Rate – 12%

Tax Avoidance

• The exploitation by the taxpayer of legally permissible alternative rates or methods of assessing taxable property or income to reduce or entirely avoid tax liability

- Availing of all deductions allowed by law of refraining from engaging in activities subject to tax

Tax Evasion

• A scheme used outside those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities:

- Under-declaration of income

- Non-declaration of income and other items subject to tax

- Under-appraisal of goods subject to tariff

- Over-declaration of deductions

Tax Avoidance v. Tax Evasion

VALIDITY:

Legal; not subject to illegal; subject to

criminal penalty criminal penalty

EFFECT:

Minimization of taxes Almost always results in absence of tax payments

MEANS & METHOD

Legal; valid means Illegal methods

Thank you!

Vivienne Jonnah R. Cemine

Department of Political Science, MSU-IIT