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1. Define taxation.

Taxation refers to the practice of a government collecting money from its citizens
to pay for public services. Without taxation, there would be no public libraries or parks.
The money raised from taxation supports the government and allows it to fund police and
courts, have a military, build and maintain roads, along with many other services. Taxation
is the price of being a citizen, though politicians and citizens often argue about how much
taxation is too little or too much.
2. What are the kinds of taxes?
There are many different kinds of taxes in the Philippines. But we can group them
into two basic types, namely, national taxes and local taxes. National taxes are those
that we pay to the government through the Bureau of Internal Revenue. Our national
taxation is based on the National Internal Revenue Code of 1997 or the Republic Act No.
8424 otherwise known as the Tax Reform Act of 1997, as amended. The import and export
tariffs levied by the Bureau of Customs under Republic Act No. 1937 otherwise known as
the Tariff and Customs Code of the Philippines (as amended) can also be considered as
national government taxes or duties.
On the other hand, the local government taxation in the Philippines are based on
Republic Act 7160 or otherwise known as the Local Government Code of 1991, as
amended. These taxes, fees or charges are imposed by the local government units, such
as provinces, cities, municipalities, and barangays, who have been given the power to levy
such taxes by the code.
Business owners, professionals, employees, consumers, and every taxpayer should
be aware of the different kinds of taxes in the Philippines. The following are some of the
common national and local taxes in the Philippines:
National Taxes in the Philippines

Capital Gains Tax is a tax imposed on the gains presumed to have been
realized by the seller from the sale, exchange, or other disposition of capital
assets located in the Philippines, including pacto de retro sales and other
forms of conditional sale.

Documentary Stamp Tax is a tax on documents, instruments, loan

agreements and papers evidencing the acceptance, assignment, sale or
transfer of an obligation, rights, or property incident thereto. Examples of
documentary stamp tax are those that are charged on bank promissory
notes, deed of sale, and deed of assignment on transfer of shares of
corporate stock ownership.

Donors Tax is a tax on a donation or gift, and is imposed on the gratuitous

transfer of property between two or more persons who are living at the time
of the transfer. Donors tax is based on a graduated schedule of tax rate.

Estate Tax is a tax on the right of the deceased person to transmit his/her
estate to his/her lawful heirs and beneficiaries at the time of death and on
certain transfers which are made by law as equivalent to testamentary
disposition. Estate tax is also based on a graduated schedule of tax rate.

Income Tax is a tax on all yearly profits arising from property, profession,
trades or offices or as a tax on a persons income, emoluments, profits and
the like. Self-employed individuals and corporate taxpayers pay quarterly
income taxes from 1st quarter to 3rd quarter. And instead of filing quarterly
income tax on the fourth quarter, they file and pay their annual income tax
return for the taxable year. Individual income tax is based on graduated
schedule of tax rate, while corporate income tax in based on a fixed rate
prescribed by the tax law or special law.

Percentage Tax is a business tax imposed on persons or entities who sell

or lease goods, properties or services in the course of trade or business
whose gross annual sales or receipts do not exceed the amount required to
register as VAT-registered taxpayers. Percentage taxes are usually based on a
fixed rate. They are usually paid monthly by businesses or professionals.
However, some special industries and transactions pay percentage tax on a
quarterly basis.

Value Added Tax is a business tax imposed and collected from the seller in
the course of trade or business on every sale of properties (real or personal)
lease of goods or properties (real or personal) or vendors of services. It is an
indirect tax, thus, it can be passed on to the buyer, causing this to increase
the prices of most goods and services bought and paid by consumers. VAT
returns are usually filed and paid monthly and quarterly.

Excise Tax is a tax imposed on goods manufactured or produced in the

Philippines for domestic sale or consumption or any other disposition. It is
also imposed on things that are imported.

Withholding Tax on Compensation is the tax withheld from individuals

receiving purely compensation income. This tax is what employers withheld
in their employees compensation income and remit to the government
through the BIR or authorized accrediting agent.

Expanded Withholding Tax is a kind of withholding tax which is

prescribed only for certain payers and is creditable against the income tax
due of the payee for the taxable quarter year. Examples of the expanded
withholding taxes are those that are withheld on rental income and
professional income.

Final Withholding Tax is a kind of withholding tax which is prescribed only

for certain payers and is not creditable against the income tax due of the
payee for the taxable year. Income Tax withheld constitutes the full and final
payment of the Income Tax due from the payee on the said income. An

example of final withholding tax is the tax withheld by banks on the interest
income earned on bank deposits.

Withholding Tax on Government Money Payments is the withholding

tax withheld by government offices and instrumentalities, including
government-owned or -controlled corporations and local government units,
before making any payments to private individuals, corporations,
partnerships and/or associations.

Local Taxes in the Philippines

Tax on Transfer of Real Property Ownership tax imposed on the sale,

donation, barter, or on any other mode of transferring ownership or title of
real property.

Tax on Business of Printing and Publication tax on the business of

persons engaged in the printing and/or publication of books, cards, posters,
leaflets, handbills, certificates, receipts, pamphlets, and others of similar

Franchise Tax tax on businesses enjoying a franchise, at the rate not

exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.

Tax on Sand, Gravel and Other Quarry Resources tax imposed on

ordinary stones, sand, gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as amended, extracted from
public lands or from the beds of seas, lakes, rivers, streams, creeks, and
other public waters within its territorial jurisdiction.

Professional Tax an annual professional tax on each person engaged in

the exercise or practice of his profession requiring government examination.

Amusement Tax tax collected from the proprietors, lessees, or operators

of theaters, cinemas, concert halls, circuses, boxing stadia, and other places
of amusement.

Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or

Producers, Wholesalers of, Dealers, or Retailers in, Certain Products
an annual fixed tax for every truck, van or any vehicle used by
manufacturers, producers, wholesalers, dealers or retailers in the delivery or
distribution of distilled spirits, fermented liquors, soft drinks, cigars and
cigarettes, and other products as may be determined by the sangguniang
panlalawigan, to sales outlets, or consumers, whether directly or indirectly,
within the province.

Tax on Business taxes imposed by cities, municipalities on businesses

before they will be issued a business license or permit to start operations

based on the schedule of rates prescribed by the local government code, as

amended. Take note that the rates may vary among cities and municipalities.
This is usually what businesses pay to get their Business Mayors Permit.

Fees for Sealing and Licensing of Weights and Measures fees for the
sealing and licensing of weights and measures at such reasonable rates as
shall be prescribed by the sangguniang bayan of the municipality or city.

Fishery Rentals, Fees and Charges rentals, fees or charges imposed by

the municipality/city to grantees of fishery privileges in the municipal/city
waters, e.g., fishery privileges to erect fish corrals, oysters, mussels or other
aquatic beds or bangus fry areas and others as mentioned in the local
government code, as amended.

Community Tax tax levied by cities or municipalities to every inhabitant of

the Philippines eighteen (18) years of age or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive
working days during any calendar year, or who is engaged in business or
occupation, or who owns real property with an aggregate assessed value of
One thousand pesos (P1,000.00) or more, or who is required by law to file an
income tax return. Community tax is also imposed on every corporation no
matter how created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines.

Taxes that may be levied by the barangays on stores or retailers with

fixed business establishments with gross sales of receipts of the
preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the
case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of
municipalities, at a rate not exceeding one percent (1%) on such gross sales
or receipts.

Service Fees or Charges fees or charges that may be collected by the

barangays for services rendered in connection with the regulations or the use
of barangay-owned properties or service facilities, such as palay, copra, or
tobacco dryers.

Barangay Clearance a reasonable fee collected by barangays upon

issuance of barangay clearance a document required for many government
transactions, such as when applying for business permit with the city or

3. What is the importance of taxes in relation to economic development?
For economic development of a country, tax can be used as an important tool in the
following manner:
1. Optimum allocation of available resources

Tax is the most important source of public revenue. The imposition of tax
leads to diversion of resources from the taxed to the non-taxed sector. The revenue
is allocated on various productive sectors in the country with a view to increasing
the overall growth of the country. Tax revenues may be used to encourage
development activities in the less developments areas of the country where normal
investors are not willing to invest.
2. Raising government revenue
In modern times, the aim of public finance is not merely to raise sufficient
financial resources for meeting administrative expense, for maintenance of low and
order and to protect the country from foreign aggression. Now the main object is to
ensure the social welfare. The increase in the collection of tax increases the
government revenue. It is safer for the government to avoid borrowings by
increasing tax revenue.
3. Encouraging savings and investment
Since developing countries has mixed economy, care has also to be taken to
promote capital formation and investment both in the private and public sectors.
Taxation policy is to be directed to raising the ratio of savings to national income.
4. Reduction of inequalities in income and wealth
Through reducing inequalities in income and wealth by using an efficient tax
system, government can encourage people to save and invest in productive sectors.
5. Acceleration of Economic Growth
Tax policy may be used to handle critical economic situation like depression
and inflation. In depression, tax is set to increase the consumption and reduce the
savings to increase the aggregate demand and vice versa. Thus the tax policy may
be used to strengthen incentives to savings and investment.
6. Price Stability
In underdeveloped countries, there is another role to maintain price stability
to ensure growth with stability.
7. Control Mechanism
Tax policy is also used as a control mechanism to check inflation,
consumption of liquor and luxury goods and to protect the local poor industries from
the uneven competition. Taxation is the only effective weapon by which private
consumption can be curbed and thus resources transferred to the state. Thus the
economy can ensure sustainable development.
Thus it can be said that the economic development of a country depends
various reasons one of them are on the presence of an effective and efficient
taxation policy.