Taxes serve as the engine

For economic development

Introduction
Taxes: History

• Taxation has played a critical role in the lives of men and women
and their countries’ destinies.
• In Ancient Greece and Rome, taxes on income and wealth were
practically unknown.
• 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
Taxes: History (cont.)

• From the 14th century, as the feudal system was gradually broken up, these
rent-like revenues slowly gave way to taxes.
• Land became the primary source of taxation.
• Taxes on imports from foreign trade began as early as 14th century with the
growth of foreign and domestic relations between nations.
• Taxes from income of individuals did not give way until the early part of the
18th century when Great Britain adopted an income tax in 1798 and a death
transfer tax in 1796
• Taxes on customs levied on articles of trade and commerce flourished during this period
Taxes: History (cont.)

• From the 14th century, as the feudal system was gradually broken up, these
rent-like revenues slowly gave way to taxes.
• Land became the primary source of taxation.
• Taxes on imports from foreign trade began as early as 14th century with the
growth of foreign and domestic relations between nations.
• Taxes from income of individuals did not give way until the early part of the
18th century when Great Britain adopted an income tax in 1798 and a death
transfer tax in 1796
• Taxes on customs levied on articles of trade and commerce flourished during this period
Taxes

• 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 takes part in contributing a
share of his earnings for the support of the government he belong to.
• Any person who knowingly or willfully violates the provision of the Act shall be
punished by imprisonment of not less than one month or more than 3 years or
a fine not less than P1,000 and not more than P15,000 or both discretion of
the court
Taxation

Taxation 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.
Tax

Taxes are the enforced proportional contributions from persons and

property levied by the law-making body of the state by virtues of
it’s sovereignty for the support of the government.
Purpose and importance

Government needs funds to finance it’s tasks of promoting the

general welfare and protection of it’s citizens. Revenues from
taxation are the life-blood of the nation.
Characteristics of Tax

• It is an enforced contribution.
• It is generally payable in form of money.
• It is proportionate in character.
• It is levied on person or property.
• It is levied by the state, which has the jurisdiction over the person
or property.
• It is levied by the law-making body of the state.
• It is levied for public purposes.
Nature and power of taxation

1. 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 system

• Fiscal Adecuacy
This means that the resources of revenue should be sufficient to meet the
demands of public expenditures.

• Equality of theoretical justice

Tax burden should be proportioned to the taxpayers ability to pay.

• Administrative feasibility
Tax laws should be capable of convenient, just and effective administration.
Classification of taxes

According to subject
1. Personal, Poll or Capitalization
Tax of a fixed amount is imposed on individuals residing within the specified territory,
whether he is a citizen or not, regardless of his property or his occupation in which he
is engaged.

2. Property tax
This kind of tax imposed on property whether it is real or personal. It is proportion
either to it’s value, or in accordance with some reasonable method of appointment.

3. Excise tax
It is imposed upon the performance of an act, the enjoyment of a privilege or the
engagement of an occupation.
According to purpose
1. General Fiscal or Revenue
This type of tax is imposed for the general purpose of the government.

2. Special or Regulatory
It is a tax imposed for a special purpose, to achieve some special economic and
irrespective of whether it is actually raise or not
According to scope
1. National
This is the tax imposed by the national government.

2. Municipal or Local
It is the tax imposed by the municipal government (local government).
According to determination of amount
1. Specific
This is tax of affixed amount imposed by the head or number, or by some standard
of weight or measurement that requires no assessment.

2. Ad valorem
This is fixed proportion tax imposed on property with respect to it’s assessed
value. It requires the intervention of assessors or appraiser to estimate the value
of such property before the amount value.
According to it’s effect to taxpayer
1. Direct
This is a demand tax imposed to a person who usually taken the burden.

2. Indirect
This is the tax, which is imposed to most goods either local or imported as
mandated by laws.
According to graduation rate
1. Proportional
This tax is based on a fixed percentage of the amount of property, income and
other bases.

2. Progressive or graduated
This is the tax imposed in accordance to the specified bracket in which the tax is
based on.
3. Regressive
This is the tax imposed in accordance to the rate of which decrease as the tax
base bracket increases.
Distinction Of taxes from other related terms

1. Revenue
It refers to all the funds or income derived from the government, whether
it comes from tax or any other source.

2. Internal Revenue
It refers to taxes imposed by the legislature to duties on imports and
exports.

3. Custom duties (or simply duties)

They are taxes imposed on goods exported from a country and imported
into a country.
Distinction Of taxes from other related terms

4. Tariff
a) This may be the book of rates which is in alphabetical order. It contains names of several
lands or merchandise together with their corresponding payment
b) This may be the duties payable on goods imported or exported
c) This might be the system or principle of imposing duties on the importation or exportation
of goods
5. Debt – a tax is NOT a debt, although both are an obligation
Debt Tax
Based on contract Based on laws
Assignable Cannot be assigned
May be paid in kind Payable in money
Subject of set-off or compensation Not
Cannot be imprisoned of non- Imprisonment is a sanction for not
payment of debt paying
Distinction Of taxes from other related terms

6. Toll – defined as a sum of money for the use of something, generally applied
to consideration, which is paid for the use of roads, bridges or of public
purposes.
Toll Tax
Demanded based on ownership Demanded based on the sovereignty

May be imposed by the gov’t on Imposed only by the state

private individuals
Distinction Of taxes from other related terms

7. License or Permit fee – charge imposed under the police power for the
purpose of regulation

License Fee Tax

Imposed for regulation Levied for revenues

Exercise of police power Exercise of taxing power

Amount limited to the necessary There is no limit on the amount of
expertise or regulation tax that may be imposed
Distinction Of taxes from other related terms

8. Penalty – any sanction imposed as a punishment for violation of law or acts

injurious. Thus, the violation of tax may give rise to imposition of penalty

Penalty Tax
Designed to regulate conduct Aimed for raising revenue

Imposed by either the gov’t or Imposed only by the government

private entities
Taxation Sample Problem

• Mr. True Man, a citizen, single but with both parents dependent
upon him for support, is engaged in a service business in the Ph.
For taxable year 1998, he reported the following income, cost and
expenses:
Income from services rendered P520,000
Interest income from his bank deposit 64,000
Dividend income on his investment
In shares of stocks 6,000
Operating Expenses
Salaries and benefits 240,000
Shop Rental 60,000
 Supplies P12,000
Electricity and Water 36,000
Other business expenses 42,000
Quarterly Tax Payments 10,000

REQUIRED: Compute for the Income Tax still due or Refundable on his annual income tax
return for 1998
• Solution:
Income from service rendered: P520,000
Less: Operating Expenses: P390,000
Net Income: P130,000
Less: Personal Exemption as head of the family: P25,000
Net taxable Income: P105,000
Income Tax: 1st 70,000
Excess: 35,000 x 20% = 7,000
Total = 15,500
Less: Tax credit on quarterly tax payments (10,000)
Tax still due: 5,500