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TAXATION

Taxation Is the act of laying a tax Life blood of our economy and society

Purpose and Importance of Taxation

To provide funds with which to promote general welfare

and protection of its citizens and to enable it to finance its

multifarious activities.

It is important because almost all revenues of the

government are derived from the taxes raised through taxation

TAXES These are the enforced proportional contributions from

persons and property levied by the law-making body of

the state by virtue of its sovereignty for the support of the

government and all public needs.

Essential characteristics of tax:

An enforced contribution. Generally payable in money. Proportionate in character. Levied on persons or property. Levied by the state which has jurisdiction over the persons

or property.

Levied by the law-making body of the state.

Levied for public purposes.Theory and Basis of Taxation

The power of taxation proceeds upon he theory that theexistence of government is a necessity; that it cannot

continue without the means to pay its expenses; and that

for these means, it has a right to compel all its citizens and

property within its limits to continue.

The basis of taxation is found in the reciprocal duties ofprotection and support between the state and its

inhabitants. In return for his contribution, the taxpayer

receives benefits and protection from the government.

(Benefits Received principle)

Nature of Power of Taxation

It is inherent in sovereignty. It is legislative in character.

It cannot be exercised by the executive andjudicial branch of the government, only the

legislative body (Congress) can impose taxes.

It is subject to constitutional and inherent limitations. Aspects of Taxation Levying or imposition of the tax which is legislative act. Collection of tax levied which is essentially administrative

in character.

Basic Principle of a Sound Tax System

Fiscal adequacy. Sources of revenue should be sufficient to meet

the demands of the public expenditure.

Equality or theoretical justice. Tax burden should be proportionate to the

taxpayers ability to pay.

Ability to pay principle Administrative feasibility.

Tax laws should be capable of convenient, just,and effective administration.

Classifications of Taxes

1. As to subject matter or object2. As to purpose3. As to scope (or authority imposing the tax)4. As to determination of account5. As to who bears the burden6. As to graduation or rate

1. As to subject matter or object

Personal, poll or object --- tax of a fixed amount imposedon the individuals, residing within a specified territory,whether citizens or not, without regard to their property

or the occupation in which they may be engaged. Ex.

Community tax

Property--- tax imposed on property, whether real orpersonal, in proportion either t its value or in accordance

with some other reasonable method of apportionment. Ex

Real estate tax

Excise---a charge imposed upon the performance of an actthe enjoyment of a privilege, or the engaging in an

occupation.

2. As to purpose

General, fiscal or revenue tax imposed for the generalpurposes of the government.

Special or regulatory tax imposed for a special purpose.3. As to scope (or authority imposing the tax)

National tax imposed by the national government. Municipal or local tax imposed by the municipality or

public corporations (local government)

4. As to determination of account

Specific tax of a fixed amount imposed by the head ornumber or by some standard of weight or measurement it

requires no assessment (valuation) other than listing or

classification of the subjects to be taxed.

Ad valorem tax of a fixed proportion of the value of theproperty with respect to which the tax is assessed.

according to value5. As to who bears the burden

Direct tax which is demanded from the person who alsoshoulders the burden of the tax; or the tax which the

taxpayer cannot shift to another.

Ex: community tax, corporate and individual income tax

Indirect tax which is demanded from one person in theexpectation and intention that he should indemnify

himself at the expense of another.

-- tax imposed on goods before they reach the customer

who ultimately pays for them, not as a tax but as a part of thepurchase to which it is added.

Ex: VAT, Percentage taxes

6. As to graduation or rate

Proportional tax based on a fixed percentage of theamount of the property, income or other basis to be taxed

Ex. Real property tax; all percentage taxes

Progressive or graduated tax based on the rate of whichincreases as the tax base or bracket increases.

Ex. Income tax; estate tax; donors tax

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Regressive tax based on the rate of which decreases asthe tax bas or bracket increases.

Taxes distinguished from other terms

Revenue all the funds or income derived by thegovernment; amount collected, while TAX refers to the

amount imposed.

Internal Revenue taxes imposed by the legislature otherthan duties on imports and exports.

Customs duties (duties) --- taxes imposed on goodsexported from o imported into a country.

Debta tax is NOT a debt. Penalty any sanction imposed as a punishment for

violation of laws or acts.

TAX EVASION AND TAX AVOIDANCE

Tax Evasionuse by the taxpayer of illegal or fraudulentmeans to defeat or reduce the payment of a tax. It is

punishable by law.

Tax Avoidance -- use by the taxpayer of legally permissiblemeans or methods in order to avoid or reduce tax liability.

It is NOT punishable by law.

INCOME TAX

INCOME (for tax purposes) means all wealth which flowsinto the taxpayer other than as a mere return on capital.

INCOME TAXtax on a persons income, profits and thelike, realized in one taxable year.

Nature and Purpose Of Income Tax

Regarded as privilege tax and not a tax on property. A tax on the privilege to earn an income. PURPOSE: to raise revenue.

GROSS INCOME

Refers to all income but not including exempt income andincome subject to final income tax.

Ex: salaries or wagesTAXABLE INCOME

refers to the base upon which an income tax systemimposes tax.

Generally, it includes some or all items of income and isreduced by expenses and other deductions. The amounts

included as income, expenses, and other deductions vary

by country or system.

ESTATE TAX

Estate Tax a tax on the right of the deceased person totransmit his estate to his lawful heirs or beneficiaries.

Inheritance Taxa tax on the right of the heirs orbeneficiaries to receive the estate of the deceased person.

It is no longer imposed.

DONORS TAX

Donation an act of liberality whereby a person disposesgratuitously of a thing or right in favor of another who

accepts it.

GIFT TAX

A tax imposed on the transfer without consideration ofproperty or money between two or more persons who are

living at the time the transfer is made.

Kinds of Gift Tax Donors Tax or the tax levied on the act of giving. Donees tax or the tax levied on the act of receiving.

VALUE-ADDED TAX (VAT)

A percentage tax imposed on every sale, barter, exchange,or lease of goods or properties (real or personal) or sale of

services in the course of trade or business and on every

importation of goods, whether or not in the course of

trade or business, based on the gross selling price or value,

or the gross receipts, payable by the seller, transferor,

lessor, or importer.

EXCISE TAX

is a tax on use or consumption of certain products sometimes included in the price of a product, such asmotor fuels, cigarettes, and alcohol. may also be imposed on some activities, like gambling. may be imposed by the federal government or by a state.

Kinds of Excise Tax

Specific tax--- based on physical unit of measurement. Ad Valorem tax --- based on selling price or other specified

value of the article.

Goods subject to excise taxes In general --- excise taxes apply:

Goods manufactured or produced in thePhilippines for domestic use or consumption

Goods imported from foreign countries.

In particular --- the Tax Code enumerates thegoods subject to excise taxes:

Alcohol products Tobacco products Petroleum products Miscellaneous goods Mineral products

DOCUMENTARY STAMP TAXES

A tax on documents, instruments and papers evidencingthe acceptance, assignment, sale or transfer of an

obligation, right or property incident thereto.

NATURE: A privilege tax PURPOSE: To raise revenue and not invalidate the contract

Documents subject to the tax:

Debentures and certificates of indebtedness Original issue of shares of stock Sales contracts and agreements Bonds, loan agreements, promissory notes and bills of

exchange

Insurance policies Powers of attorney Leases, mortgages and pledges

Documents not subject to the tax:

Insurance policies or annuities to members of fraternalsocieties

Certificates of oath administered to and certificates ofacknowledgement by any government official in his office

capacity

Affidavits of poor persons for the purpose of provingpoverty

Certificates of the assessed value of lands not exceedingP200.00 in assessed value, furnished to applicants for

registration of the title to land.

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