It is the inherent power by which the sovereign state imposes financial burden upon persons and properties as a means of raising revenues in order to defray the necessary expenses of the government such that failure to pay is punishable by law.

TAXATION

What is ?

“An inherent power of the state to demand enforced contributions from the people for public purposes.”

“Referred to as the act of levying a tax that is the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of the government.”

What isTAXATION

?

Taxation is therefore a mode

by which the government makes

exactions for revenue in order

to support their existence and

carry out their legitimate

objectives. It is the most

pervasive and strongest of all

the powers of the government.

History of

TAXATI N

The first known system of taxation was in Ancient Egypt around 3000BC- 2800BC in the first dynasty of the Old Kingdom. In biblical times, tax is already prevalent.

Genesis 47:24“But when the

crop comes in, give a fifth of it to

Pharaoh. The other four-fifths you may

keep as seed for the fields and as

food for yourselves and your

households and your children."

Earliest taxes in Rome are called as portoria which were customs duties on imports and exports.

Augustus Caesar introduced the inheritance tax to provide retirement funds for the military. The tax was 5% on all inheritances except gift to children and spouses. In England, taxes were first used as emergency measures.

History of

TAXATIONin the

PHILIPPINES

The pre-colonial society, being communitarian, did not have taxes. During the Spanish period, new income generating means were introduced by the government such as the:• Manila Acapulco Galleon Trade• Polo (Forced Labor)• Bandala• Enconmienda

It is considered as the main source of income for the colony during the early years.The trade brought silver from Nueva Castilla and silk from China by way of Manila.

Manila Acapulco Galleon Trade

Polo is the forced labor for 40 days of men ranging from 16 to 60 years of age who were obligated to give personal services to community projects. One could be exempted from the polo by paying a fee called “falla”.

Polo (Forced Labor)

It is the one of the taxes collected from the Filipinos. It comes from the Tagalog word “Mandala”, which is a round stock of rice stalks to be threshed.

Bandala

They are large tracts of land given to a person as reward for a meritorious act. The enconmienderos were given full authority to manage the enconmienda by collecting tribute from the inhabitants and govern people living on it.

Enconmienda

In the 19th century, the “cedula” served as an identification card that had to be carried at all times. A person who could not present his or her cedula to a guardia civil could be detained for being “indocumentado”.

The cedula was imposed by the Americans on January 1, 1940, when Commonwealth Act No.465 went into effect, mandating the imposition of a base residence tax of one peso based on factors such as income and real estate holdings.

The payment of this tax would merit the issue of a residence certificate.

Corporations are also subject to the residence tax. Also known as a “residence certificate”, is a legal identity document in the Philippines.

 What is

 What

is“It is levy imposed by

the government on the income, wealth and capital gains of person’s businesses, on spending on goods and services, and on properties.”

TAX?

The Philippine

Tax System

Tax 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) and;Local taxes refer to those imposed and collected by the local government.

The Congress, by law, authorize the

President to fix within specified limits and

subject to such limitations and restrictions as

it may impose, tariff rates, import and export

quotes, tonnage and wharfage dues, and other

duties or imposts within the framework of the

National Development Program of the

Government. (Article VI, Section 28, Paragraph

2)

Purposes

of

Purposes of Tax1. To raise revenue for the government to

cover its own expenditures on the provision of social services such as education, health, public infrastructures, etc., as well as the salaries and benefits of public servants.

 • Revenue -the taxes raise money to spend on

armies, roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems.

Purposes of Tax2. As instrument of fiscal policy in regulating the level of total spending in the economy so as to stabilize the economy.

3. To alter the distribution of income and wealth.

4. To control the volume of imports (and sometimes exports of certain goods) into the country.

Classifications and

Distinctionsof

Taxes

Classifications and Distinctions of Taxes1. As to subject matter or object:• Personal, poll, or capitation • Property -• Excise

2. As to who bears the burden:• Direct • Indirect 

3. As to determination of amount:• Specific tax • Ad valorem

4. As to purpose:• General, Fiscal, or Revenue • Special or Regulatory

5. As to scope (or authority imposing the tax):• National• Municipal or local

6. As to graduation or rate:• Proportional• Progressive or graduated • Regressive

Classifications and Distinctions of Taxes

As to subject matter or object:

a. Personal, poll, or capitation – tax of a fixed amount imposed on persons within a specified territory, whether citizens or not, without regard to their property of the occupation or business in which they may be engaged• Example: community (formerly residence) tax

b. Property - tax imposed on property, whether real or personal, in proportion either to its value, or in accordance with some other reasonable methods of apportionment• Examples: real estate tax

c. Excise - any tax which does not fall within the classification of a poll tax or a property tax. Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a privileged, or the engaging in an occupation, profession, or business. • Example: income tax; value added tax; estate; donor’s tax

As to who bears the burden:

a. Direct – are taxes levied by the government on the income and wealth received by households and businesses in order to raise government revenue and as an instrument of fiscal policy.• Examples: corporate and individual

income taxes; community tax; estate tax; donor’s tax

b. Indirect - are taxes levied by government on goods and services in order to raise revenue and as an instrument of fiscal policy.• Examples: value added tax; excise

taxes on certain specific goods; percentage taxes; customs duties

As to determination of amount:a. Specific tax – imposed by the head or number, or by sums standard of weight or measurement; it requires no assessment (valuation) other than a listing or classification to be taxed.• Examples: taxes on distilled spirits, wines and

fermented liquors; cigars and cigarettes, and others

 b. Ad valorem – tax of a fixed proportion of the value of the property with respect to which the tax is assessed; it requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each tax payer can be determined.• Examples: real estate tax; excise tax; excise

taxes on automobiles, nonessential goods such as jewelry and perfumes and others; customs duties (except on cinematographic films)

As to purp se:a. General, Fiscal, or Revenue – imposed for the general purposes of the government, i.e., to raise revenue for governmental needs.• Examples: income tax; value added

tax; and almost all taxesb. Special or Regulatory – imposed for a special purpose, i.e., to achieve some social or economic ends irrespective of whether revenue is actually raised or not. • Example: protective tariffs or customs

duties on imported goods to enable similar products manufactured locally to compete with such imports in the domestic market

 As to scope (or authority

imposing the tax):a. National – tax imposed by the national government.• Examples: national internal revenue

taxes; customs duties; and national taxes imposed by special laws

b. Municipal or local – imposed by municipal corporations or local government units.• Examples: real estate tax;

professional tax

As to graduation or rate:a. Proportional – taxes that place an

equal burden on the rich, the middle class, and the poor.• Examples: real estate taxes; value

added tax; and other percentage taxes

b. Progressive or graduated – taxes that place a greater burden on those best able to pay and little and no burden on the poor.• Examples: income tax; estate tax; and

donor’s tax

c. Regressive – taxes that fall heavily on the poor than on rich. It is a structure of taxation in which taxes are levied at a decreasing rate as income rises. We have no regressive taxes in the Philippines.

Basic Principles of Taxation (Adam

Smith’s Canons of Taxation)

Basic Principles of Taxation

1. Adequacy – taxes should be just enough to regenerate revenue required for provision of essential public services like health, education and national defense and police protection.

2. Broad basing – taxes should be spread over as wide as possible to all sectors of the population or economy so as to minimize the individual tax burden.

3. Compatibility – taxes should be coordinated to ensure tax neutrality and overall objectives of good governance.

4. Convenience – taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible.

5. Earmarking – tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost-and-benefit link between the tax source and the expenditure, such as use of motor user’s tax for road maintenance.

6. Efficiency – tax collection efforts of government should not cost an inordinately high percentage of tax revenues.

Basic Principles of Taxation

7. Equity – taxes should equally burden all individuals and entities in similar economic circumstances.

8. Neutrality – taxes should not favor any one group or sector over another and should not be designed to interfere with or influence individual decision making.

9. Predictability – collection of taxes should reinforce their inevitability and regularity.

Basic Principles of Taxation

11. Restricted exemptions – tax exemptions must only be for specific purposes (such as to encourage investment) and for a limited period.

12. Simplicity – tax assessment and determination should be easy to understand by an average tax payer.

Basic Principles of Taxation

Approaches

to

Taxation

1. Ability to pay – states that taxation

should be levied according to an

individual’s ability to pay.

Originated in the 16th century but was

scientifically extended by the Swiss

philosopher Jean Jacques Rouseau, French

political economist Jean Baptiste Say and

English economist John Stuart Mill.

Approaches to Taxation

2. Benefit Approach

– proposes that taxation should be

levied broadly in relation to the

benefits that people receive in

public services.

– developed in the 17th century by

the English philosopher Thomas

Hobbes and John Locke.

Approaches to Taxation

3. Tax Incident Approach – proposes that the major duty of a tax system is to analyze the effect of a particular tax on the distribution of tax welfare.

• Tax Welfare – refers to the ultimate payers of a tax.

• This approach was proposed mainly by the Physiocrats.

• Physiocrats- believed that the inherent natural order governing society was based on land and its natural products as the only true form of wealth.

Approaches to Taxation

Philippine Tax Rates

Philippine Tax Rates

• Income Tax Rates – 32%• Corporate Tax Rates – 30%• Value Added Tax – 12%

Different

Forms of

Escaping

Taxation

Different Forms of Escaping Taxation

1.Shifting – is the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else.

2. Capitalization – means the reduction in the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay.

3. Transformation – is the method of escape from taxation whereby the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost.

Different Forms of Escaping Taxation

4. Evasion – is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax.5. Avoidance – is the use by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability.

Different Forms of Escaping Taxation

ofnterna

levenu

e

ureau

Bureau of Internal Revenue

The Bureau of Internal Revenue (Kawanihan ng Rentas Internas, or BIR) is an attached agency of Department of Finance. BIR collects more than one-half of the total revenues of the government.

The powers and duties of the Bureau of Internal Revenue

are:• Assessment and collection of all internal revenue taxes, fees and charges; and

• enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts;

• It shall also give effect to the administer supervisory and police powers conferred to it by the National Internal Revenue Code and special laws.

Highest Tax Payers in the Philippines

( ecent)• Kris Aquino (celebrity) - P49,871,657.37• Gregory Reichow (Sunpower Philippines) - 38,196,685.00• Lauro Baja Jr.  - P34,257,368.88• Manuel V. Pangilinan (PLDT, Metro Pacific) - P25,992,131.86• Aurelio Montinola III (BPI) - P24,472,645.10• Gerardo Ablaza (Manila Water)- P22,645,262.00• Philippe Lhuillier (Cebuana Lhuillier) - 21,645,000.00• Victor Angeles - P21,202,815.34• Roberto Panlilio P19,613,943.97• Felipe Gozon (GMA Network) - P19,587,983.60• Vincent Nguyen - P18,593,063.34• Jean Henri Lhuillier - P18,439,656.00• Jospeh Mitchell Gault - P17,987,312.29• Estelito Mendoza - (lawyer) P 17,637,964.00• Henry Sy, Sr. - (SM group) P16,582,952.00• Orland Vea - (Smart Communications)- P16,248,921.88• Agnieszka Romanczuk P16,062,048.76• Anthonie Jansen P14,851,304.45• Marvic "Vic" Sotto (TV host, actor) - P14,728,940.14• Ray Espinosa (Mediaquest) - P14,483,402.44

REFERENCES:

http://en.wikipedia.org/wiki/Bureau_of_Internal_Revenue_(Ph

ilippines)

THE FUNDAMENTALS OF TAXATION 2000 EDITION, Hector S.

De Leon