TAXATION

Things to be discussed:

• Definition of taxation
• History of Taxation
• Importance of taxation to:
-the taxpayers
-the government
• Kinds and Characteristics of Taxes
• Taxation System in the Philippines
 What is TAXATION?
• Taxation is a term for when a taxing authority, usually a
government, levies or imposes a tax in order to fund public
expenditures.
• The term "taxation" applies to all types of involuntary levies,
from income to capital gains to estate taxes (a tax levied on the
net value of the estate of a deceased person before distribution
to the heirs).
• Though taxation can be a noun or verb, it is usually referred to
as an act; the resulting revenue is usually called "taxes."
 History of Taxation
• During the reign of Egyptian Pharaohs
• Scribes as tax collectors
• In Greece
• A tax referred to as Eisphora was imposed only in times of war
• In Athens
• A monthly tax called Metoikon was collected to foreigners
• Ancient Greek Taxation
• Taxation was used as an emergency power. Additional resources gained from
war were used to refund tax previously collected from the people
• 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. The tax was five percent on all inheritances except gifts to
children and spouses
• In England
• Taxes were first used as an emergency measure
• Taxes on income or capital were a recent development as a result of
increasing government intervention in the economy
• In the Philippines
• The pre-colonial society, being communitarian, did not have taxes
• 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 tax payers to convey,
transfer and pay to the public authority
 History of Taxation in the Philippines
• Tribute and Cedula
 Purposes Taxation
• To raise revenues for public needs so that people can live in
a civilized society.
• The government increase taxes in order to stabilize prices
and stimulate greater production.
• An instrument of fiscal policy influences the direction and
structure of money supply, investments, credits, production,
interest rate, inflation, prices and in general, of the national
economy
 The Four “R” of Taxation

Revenue : collection of funds to spend on services

Redistribution : transferring wealth from rich to the poor

Repricing : encourages/discourages consumption

Representation : rulers tax citizens, who then demand

accountability
Characteristics of a sound Tax system
• Fairness
• Clarity and Certainty
• Convenience
• Efficiency
 Effects of Taxation
• Personal Income Tax which is presumed to fall entirely on the
legal taxpayers influences decisions to work, save, and invest.
These decisions affect other people.
• Corporate Income Tax may simply result to lower corporate
profits and dividends. It may reduce their income of all owners
of property and businesses. The company may move toward
raising the prices of their products
 Taxation in the Philippines
• The legislative branch enacts laws to continually
revitalize the taxation policy of the country.
• BIR (Bureau of Internal Revenue)
– Mandated to comprehend the assessment and collection of all
national internal revenue taxes, fees and charges so as to
promote a sustainable economic growth
• Republic Act No. 8424 (Comprehensive Tax Reform
Act of 1997)
– Tax Payer: any person subject to tax whose sources of
income is derived from within the Philippines
– TIN (Taxpayer Identification Number) is required for any
individual taxpayer
• Tax Reforms:
– Lower income tax rates to enhance the competitiveness of the
Philippines in the region.
– Removal of areas which provide avenues for tax avoidance and abuse
– Exemption of OFWs from payment of tax for income earned outside
the Philippines.
– Simplification of the tax system which encourages payments from tax
payers including those from the underground economy.
• Taxes are collected within a particular period of
time know as taxable year.
• This is the calendar year or the fiscal year that covers an
accounting period of 12 months ending on the last day of
any month other that December.
 Kinds of taxes
• Income Tax
– Tax on all yearly profits arising form property, possessions, trades or
offices
– Tax on a person’s income, emoluments and profits
• 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
• Value-added Tax (VAT)
– Tax imposed and collected on every sale, barter, exchange or
transaction deemed sale of taxable goods, properties, lease of goods,
services or properties in the course of trade as they pass along the
production and distribution chain
• 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, classified as capital assets
• Excise Tax
– Tax applicable to specified goods manufactured in the
Philippines for domestic sale or consumption.
– Specific tax: imposed on certain goods based on weight or
volume capacity or any other physical unit of measurement
(Specific tax = volume x tax rate)
» Alcohol products, petroleum products, tobacco products
– Ad valorem tax: imposed on certain goods based on selling
price or other specified value of the goods
(Ad valorem tax = selling price x tax rate)
» Mineral products, automobiles
• Documentary 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
 Withholding tax
• Expanded withholding tax:
– A system of collecting taxes whereby the taxes withheld on certain
income payments are intended to equal or at least approximate the tax
due of the payer on said income.
• Final withholding tax:
– A system of collecting taxes whereby the amount of income tax
withheld by the withholding agent is constituted as a full payment of
the income tax due form the payer on the said income. The payer is
not required to file an income tax return for the particular income.
• Withholding tax for compensation income:
– Commonly referred to as pay as you go or pay as you earn.
– A method of collecting the income tax at source upon receipt
of the income.
 Shifting the incidence of taxation
– Shifting taxation is the process of passing the burden of the
tax to others.
– A tax can be shifted when the taxpayer is able to obtain a
higher price for something he sells or when he pays a lower
price for a commodity he purchases.
 Tax Evasion
• When there is fraud through pretension and the use of other
illegal devices to lessen one’s taxes, there is tax evasion
– 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
-The End-