TAXATION

OBJECTIVEAt the end of the chapter, the students should be able to:1. define tax, know its significance in national development;2.enumerate the essential characteristics of tax3. know the principles of a sound taxation;4. distinguish tax from other income-generating sources.

INTRODUCTIONHistorically, taxation has played a critical role in the lives of men and women and their countries’ destinies. As early as the 10th century, the underprivileged classes-slaves, vassals, peasants and conquered peoples-were already giving tributes, both in cash and in kind. This had forced them to support the ruling classes, whether they were the free citizens of Athens and Rome, the lords and the feudal barony, or courts of the kings and emperors.

In ancient Greece and Rome, taxes on income and wealth were practically unknown. There were, however , income from mines, tributes from wealthy citizens which filled the coffers of the treasury for all revenue needs, but these were not considered as taxes imposed as a direct charge upon the people. For the government to survive, voluntary contributions were given to the State for its use and maintenance.

In the middle ages, taxes of any kind had little space in the agrarian feudal system. Rents were collected from the farmers. The landlords collected rents from the landholdings at their pleasure. The excess of these rents were then given to the State as their share on the hierarchical basis to form part of the revenue for the use of the State. From the 14th century, as the feudal system was gradually broken up by dissipation of the public domain, by the growth of commerce and industry and by decentralization of government.

These rent-like revenues slowly gave way to taxes. During this period, land, which was the primary source of wealth, became the primary source of taxation. They began to realize that the State soul no longer exist without the imposition of taxes on the people finance the needs of the State.Throughout the ages, the public domain was the chief source of public revenue, and taxation consisted largely of exercise on domestic consumption and custom duties on foreign trade.

Taxes on imports from foreign trade began as early as 14th century with the growth of foreign and domestic relations between nations. As civilization progressed, the nation of the world had to devise ways and means of raising taxes for their maintenance and support. Within the expansion of trade relation among nations, the direct bulk of government revenues were derive from taxes on articles of trade and commerce. France and Spain were then commercial centers of the world.

Taxes from income of individuals did not give way until the early part of 18th century, when Great Britain adopted an income tax in 1798 and a death transfer tax in 1796. What flourished during this period was taxes on customs levied on articles of trade and commerce.As civilization advanced and the need for a more representative government was established, taxes took on a new twist. The need for taxation has been emphasized-the individual is now taking part in contributing a share of his earnings for the support of the government.

MEANING OF TAXATIONTAXATION is the act of

imposing tax, the process or means by which the sovereign, law-making body, raises revenue to defray the necessary expenses of the government.MEANING OF TAXES

TAXES are the enforced proportional contributions from persons and property levying by the law-making body of the state by virtues of its sovereignty for the support of the government.

PURPOSE AND IMPORTANCEGovernment needs funds to finance its tasks of promoting the general welfare and protection of its citizens. Revenues from taxation is the life-blood of the nation. Thus, a nation of faithful taxpayers assures a healthy economy for everybody to enjoy. Conversely, evasion or non- payment of taxes undermines the nation’s progress.

CHARACTERISTICS OF TAX1. It is an enforced contribution.2. It is generally payable in the form of money.3. It is proportionate in character.4. It is levied in person or property.5. It is levied by the State.6. It is levied by the law-making body.7. It is levied for public purpose.

NATURE AND POWER OF TAXATION1. It is inherent in sovereignty.2. It is legislative in character.3. It is subject to constitutional and inherent limitations.

BASIC PRINCIPLES OF A SOUND TAX SYSTEM1. Fiscal Adequacy2. Equality or theoretical justice3. Administrative feasibility

CLASSIFICATION OF TAXESA. According to Subject

1. Personal, poll or capitalization. ex. Residence tax

2. Property Tax. ex. Real Estate Tax3. Excise Tax. Ex. Donors tax, income

tax, business tax, estate tax, privilege tax

According to Purpose1. General, Fiscal, or Revenue. Ex. Income tax and sales tax.2. Special or Regulatory. Ex. Protective tariffs or custom duties.

According to Scope1. National. Ex. National internal revenue taxes.2. Municipal or local. Ex. Real property tax.

According to Determination of Amount1. Specific. Ex. Taxes on distilled spirits, cigarettes2. Ad valorem. Ex. Real estate tax most custom duties.

According to its Effect to Taxpayer1. Direct. Residence tax. Corporate tax. Income tax.2. Indirect Tax. Privilege tax. Sales tax. Amusement tax

According to Graduation Rate1. Proportional. Ex. Sales tax. Real property2. Progressive or Graduated. Imposed in accordance to the specified bracket.3. Regressive.