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TAXATION

TAXATION
Value Added Tax (VAT)

Submitted By:
Robin Cristopher M. Reyes John Adam Arco Anthony C. Arjona Peregrino Fernandez III ESE 21 ESE 21 ESE 21 ESE 11

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TAXATION

ABSTRACT
A fiscal policy could create economic and social problems if it is excessive oriented to the formation of financial resources necessary for a state. Extremely high taxes and fees rise the burden of taxpayers. They reduce consumption, demand and supply implicitly. Thus, they are leading to economic and social problems. A tax system combines the principles of taxation in a country, choosing one way or another to resolve conflicting situations. This reflects political, economic and social priorities. The main purpose of taxation is to provide financial resources to finance public services. The tax practice is using various methods, techniques and procedures for imposing and collecting, which varies depending on the nature of duty, the status of the taxpayer, on the assessment of base, etc. The question which arises is which is the most equitable method of taxation? This paper proposes a short structural analysis through the classification of different sampling methods on certain types, currently practiced in the European countries. The result of this short review is meant to be an answer to the question above formulated.

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TAXATION

TABLE OF CONTENTS
Title Page«««««..««««««««..«««««««««,,,,,,,,,,.................1|Page Abstract«««......««..««««««««««...««««««,,,,,,,,,««««..2|Page Table of Content«...««««...«««««...««««««,,,,,,,,,«««3|Page ± 4|Page Tax«««««««««««...«««..«......««««««««,,,,,,,,,,«««....5|Page What is Taxation««««««««««...«««««««««««,,,,,,,,,«««6|Page The Four ³R´s«««««««««..«««««««««.««««..«6|Page ± 7|Page History of Taxation«««««..««««««««««««««..««.7|Page ± 9|Page Theory and Basis of Taxation«««««««...«««««««««.«««...«.9|Page Distinction of Taxation«««««««««««««..««««««..«..............9|Page Taxation Law««««««««««««««..««««««..«««9|Page ± 13|Page Issues about Taxation«««««««««..«,,,,«««««««.«...13|Page ± 15|Page Direct and Indirect««««««««««««««««««««««...13|Page Tax Incidence««««««««««««««««««««««««...14|Page Deadweight Cost of taxation««««««««.««««««««««..14|Page Pigovian taxes«««««««««...««««««...«««««.««...15|Page Transparency and simplicity«««««««««««««««««««15|Page Costs of compliance««««««««««««««««...««.«««.15|Page Kinds of taxes««««««««««««««««««...«««...«16|Page ± 26|Page Ad valorem««««««««««««««««««..«««««...«.16|Page Bank tax««««««««««««««««««««««..««««.16|Page Capital gains tax««««..«««««««««««««««««««16|Page Consumption tax««««««««««...««««««««««««...17|Page Corporate tax««««««««««««««««..««««««««.17|Page Currency transaction tax«««««««««««««««..«««««17|Page Environmental Tax««««««««««««««««««««««..17|Page Excises«««««««««««««««««««««.««17|Page ± 18|Page
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..««««...««.....««25|Page Value Added Tax / Goods and Services Tax«««««««...........«««««..«««««««.«««««««««««««««..26|Page ± 27|Page History««««««««««««««««««..««««««««.......27|Page ± 28|Page Coverage«««««««««««««««.....23|Page ± 24|Page Tariffs«««««««...19|Page ± 20|Page Inflation tax««««««..«««««««««««28|Page Aims And Expectations««««««««««««««.19|Page Financial transaction tax««........«««««««««««29|Page Interview«««««««««««««««..««30|Page ± 31|Page Analysis and Reaction«««..22|Page ± 23|Page Sales tax««««.19|Page Income tax«««««.....««««««««««..«25|Page ± 26|Page Wealth (net worth) tax««««««««««««««««««....21|Page ± 22|Page Social security tax...«««««««««««««««««....«««««««««««««.24|Page ± 25|Page Transfer tax«««««««....««..........18|Page Financial activities tax««««««««««««««««...««««««««««....««««......«18|Page .32|Page 4|P a ge .............20|Page Inheritance tax««.29|Page Disadvantages«««««««««««««.«««««««««««««««......4|P ag e TAXATION Expatriation Tax«««««««««««««««««««««««.21|Page Poll tax««««««««....20|Page ....«««««««««««««...«««««...26|Page What is Value Added Tax (VAT) & (E-VAT)?.««««««««««««««««««««24|Page Toll«««...29|Page Advantages«««««««««««««««««............«««««««««««««««...«««21|Page Property tax«««««««««««««««««««««..«««««««..........««««««««««««««««««.««««««««««««««««««...

. impost.g. Taxes consist of direct tax or indirect tax. through voluntary gifts (e. and may be paid in money or as its labour equivalent (often but not always unpaid labour). exacted pursuant to legislative authority" and is "any contribution imposed by government [«] whether under the name of toll. by borrowing. traffic fines). tribute. but an enforced contribution." A tax "is not a voluntary payment or donation. custom. Tax is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.. excise. Examples include tuition at public universities and fees for utilities provided by local governments. Taxes are also imposed by many subnational entities.5|P ag e TAXATION Tax Tax came from the Latin taxo. From the view of economists." The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. which in turn is from tang . A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government [«] a payment exacted by legislative authority. or other name. "I estimate". and by confiscating wealth. 5|P a ge . Governments also obtain resources by creating money (e. tallage. For example. subsidy. supply. "I touch". gabel. printing bills and minting coins). contributions to public universities and museums). aid.g.g. duty. some transfers to the public sector are comparable to prices. a tax is a non-penal. yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received.by imposing penalties (e..

Over the years. for example. was tasked with ensuring business sector representation and participation in the enactment of laws and policies on tax administration. schools and hospitals. A fourth. Taxes are levied to address externalities: tobacco is taxed. Taxation is almost never a simple transfer of wealth. or properties rights. A second is redistribution. and Representation. property. The Taxation Committee. for the use and support of the government ant to enable it to discharge its appropriate functions. The American revolutionary slogan "no taxation without representation" implied this: rulers tax citizens. and on more indirect government functions like market regulation or legal systems. consequential effect of taxation in its historical setting has been representation. The Four ³R´s Taxation has four main purposes or effects: Revenue.6|P ag e TAXATION What is Taxation? Taxation is the power of the state to impose charge or burden upon the persons. and a carbon tax discourages use of carbon-based fuels. taxation transfers wealth from households or businesses to the government of a nation. Repricing. roads. to discourage smoking. this means transferring wealth from the richer sections of society to poorer sections. and citizens demand accountability from 6|P a ge . which is under the Banking and Finance Division. the Committee was able to formulate well-researched and well studied position papers on issues. Normally. The main purpose is revenue: taxes raise money to spend on armies. Redistribution. The side-effects of taxation and theories about how best to tax are an important subject inmicroeconomics. In economic terms. A third purpose of taxation is repricing. Economic theories of taxation approach the question of how to minimize the loss of economic welfare through taxation and also discuss how a nation can perform redistribution of wealth in the most efficient manner.

Babylon was assessed for the highest amount and for a startling mixture of commodities .) The quantities demanded from the various provinces gave a vivid picture of their economic potential. four months supply of food for the army. it states "But when the crop comes in. For instance.the New International Version). It was the responsibility of the Satrap to collect the due amount and to send it to the emperor. collecting tax revenues from the people. Studies have shown that direct taxation (such as income taxes) generates the greatest degree of accountability and better governance. A share (20%) of the crop was the tax. Other records are granary receipts on limestone flakes and papyrus. Records from the time document that the pharaoh would conduct a biennial tour of the kingdom. while indirect taxation tends to have smaller effects. was already fabled for its gold. after deducting his expenses (The expenses and the power of deciding precisely how and from whom to raise the money in the province. a regulated and sustainable tax system was introduced by Darius I the Great in 500 BC. 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. verse 24 . (Pyramid Age) The first known system of taxation was in Ancient Egypt around 3000 BC . History of Taxation Taxation levels Egyptian peasants seized for nonpayment of taxes. Early taxation is also described in the Bible." Joseph was telling the people of Egypt how to divide their crop. In Genesis (chapter 47. At differing times there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. providing a portion to the Pharaoh. the Persian system of taxation was tailored to each Satrapy (the area ruled by a Satrap or provincial governor). India clearly. Later. offer maximum opportunity for rich pickings.2800 BC in the first dynasty of the Old Kingdom. the province was to supply gold dust equal in value to the very large amount of 4680 silver 7|P a ge . in the Persian Empire.7|P ag e TAXATION their rulers as the other part of this bargain.1000 silver talents.

Peter Mathiasand Patrick O'Brien found that the tax burden increased by 85% over this period. Another study confirmed this number. 49.8|P ag e TAXATION talents. but.7% in the United States. and among allOECD members an average of 40. But taxation levels are hard to compare to the size and flow of the economy sinceproduction numbers are not as readily available.5% in France.30 million livres in 1600-10 to about 126.7%. During the war-filled years of the eighteenth and early nineteenth century. taxes were lower but the burden was mainly on landowners.6% in the United Kingdom. Quite a few records of government tax collection in Europe since at least the 17th century are still available today. This was exclusively a tax levied on subject peoples. finding that per capita tax revenues had grown almost sixfold over the eighteenth century. In 1780-89 it reached 421. they were liable at any time to serve in the army.2% in Ireland. but that steady economic growth had made the real burden on each individual only double over this period before the industrial revolution. the Netherlands. Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th century. 35. Egypt was known for the wealth of its crops. tax rates in Europe increased dramatically as war became more expensive and governments became more centralized and adept at gathering taxes. but they were mostly placed on international trade. 54. In France. Taxation as a percentage of production of final goods may have reached 15% .50 million livres. It was abolished by Akbar. Government expenditures and revenue in France during the 17th century went from about 24.20% during the 17th century in places like France.86 million livres in 1650-59 to about 117. This increase was greatest in England. individuals.6 billion livres. and internal trade and thus created far more resentment. it was to be the granary of the Persian Empire (as later of Rome's) and was required to provide 120.1% in Denmark.0% in the Euro area. and Scandinavia.99 million livres in 1700-10 when government debt had reached 1. Persians and Medes paid no tax. Average tax rates were higher in Britain than France the years before the French Revolution. In India. 35. 42. Taxation as a percentage of GDP in 2003 was 56. 8|P a ge . twice in per capita income comparison.000 measures of grain in addition to 700 talents of silver.

As to persons affected ± Operate upon community or a class of individuals. AMENDING FOR 9|P a ge . the State is supposed to make adequate and full compensation in the form of benefits and protection which it gives to his life. 4. 3. 5. In return for the citizen¶s contribution for the support of the government. that it cannot continue without means to pay its expenses. As to authority which exercise the power ± Taxation is exercised only by the government. The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants. 2. As to benefits received ± It is assumed that the individual receives the equivalent of the tax in form of benefits and protection he receives from the government. liberty and property. As to Effect ± The money contributed becomes part of public funds. 9294 AN ACT RESTORING THE TAX EXEMPTION OF OFFSHORE BANKING UNITS (OBUs) AND FOREIGN CURRENCY DEPOSIT UNITS (FCDUs). 2. and that for these means it has a right to compel all its citizens and property within its limits to contribute.9|P ag e TAXATION Theory and Basis of Taxation 1. Taxation Law (The National Internal Revenue Code) REPUBLIC ACT NO. As to purpose ± The property (generally in the form of money) is taken for the support of the government. Distinctions of Taxation 1. Taxation is necessary to enable the state to exercise its police power to promote the general welfare. The power of taxation proceeds upon the theory that the existence of governing is necessity.

"Any income of nonresidents. Rates of Income Tax on Domestic Corporations. "(A) Tax on Resident Foreign Corporations. "(D) Rates of Tax on Certain Passive Incomes. 2. 27. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents. paragraph (D) (3) of the National Internal Revenue Code. Section 1. as amended. upon recommendation by the Monetary Board to be subject to the regular income tax payable by banks: Provided. - 10 | P a g e . That interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than offshore banking units in the Philippines or other depository banks under the expanded system shall be subject to a final tax at the rate of ten percent (10%). 27. whether individuals or corporations. Rates of Income Tax on Foreign Corporations. 28. Sec. "(3) Tax on Income Derived under the Expanded Foreign Currency Deposit System. is hereby further amended to read as follows: "Sec.10 | P a g e TAXATION THE PURPOSE SECTION 27 (D) AND SECTION 28. except net income from such transactions as may be specified by the Secretary of Finance. Sec. local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system shall be exempt from all taxes. PARAGRAPHS (A) (4) AND (A) (7) (b) OF THE NATIONAL INTERNAL REVENUE CODE AS AMENDED. however. from transactions with depository banks under the expanded system shall be exempt from income tax." Sec. 28. paragraph (A)(4) and (A)(7)(b) of the same Code are hereby amended to read as follows: "Sec. offshore banking units in the Philippines.

"(3) International Carrier. a corporation organized. Their income and expenses for the fiscal year shall be deemed to have been earned and spent equally for each month of the period.A minimum corporate income tax of two percent (2%) of gross income. "In the case of corporations adopting the fiscal-year accounting period the taxable income shall be computed without regard to the specific date when sales. .An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on this 'Gross Philippine Billings' as defined hereunder: "(a) International Air Carrier. authorized. shall be imposed. under the same conditions. . on a resident foreign corporation taxable under paragraph (1) of this SubSec. cargo and mail originating from 11 | P a g e . "The reduced corporate income tax rates shall be applied on the amount computed by multiplying the number of months covered by the new rates within the fiscal year by the taxable income of the corporation for the period. 2000 and thereafter. however.'Gross Philippine Billings' refers to the amount of gross revenue derived from carriage of persons. 27(A). 1999. "(2) Minimum Corporate Income Tax on Resident Foreign Corporations. engaged in trade or business within the Philippines. shall be subject to an income tax equivalent to thirty five percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: Provided. excess baggage. That effective January 1. "Provided. 1998. the rate of income tax shall be thirty-four percent (34%). or existing under the laws of any foreign country. . as prescribed under Sec. purchases and other transactions occur. 27(E) of this Code. effective January 1.-Except as otherwise provided in this Code. and effective January 1. as provided in Sec. the rate shall be thirty-three percent (33%). the rate shall be thirty-two percent (32%).11 | P a g e TAXATION "(1) In General. divided by twelve. That a resident foreign corporation shall be granted the option to be taxed at fifteen percent (15%) on gross income under the same conditions.

only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings. cargo or mail originating from the Philippines up to final destination. local commercial banks.'Gross Philippine Billings' means gross revenue whether for passenger. That for a flight which originates from the Philippines. "4) Offshore Banking Units. upon recommendations of the Monetary Board which shall be subject to the regular income tax payable by banks: Provided. from foreign currency transactions with nonresidents.Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits 12 | P a g e . including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore banking units shall be exempt from all taxes except net income from such transactions as may be specified by the Secretary of Finance. . "Any income of nonresidents. That any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks. "(5) Tax on Branch Profits Remittances.The provisions of any law to the contrary notwithstanding. "(b) International Shipping. income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP). shall be subject only to a final tax at the rate of ten percent (10%). including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units.12 | P a g e TAXATION the Philippines in a continuous and uninterrupted flight. however. exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided. That tickets revalidated. whether individuals or corporations. irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided. . from transactions with said offshore banking units shall be exempt from income tax. . regardless of the place of sale or payments of the passage or freight documents. further. other offshore banking units. but transshipment of passenger takes place at any port outside the Philippines on another airline.

a tax on the sale of property would be considered an indirect tax. 592 (1977)). Indirect taxes are imposed on events. annuities. In U. which are based on simple existence or ownership. Optimal Taxation and the Direct Versus Indirect Tax Controversy. Thus. rents. 22(DD) shall not be subject to income tax. Issues About Taxation Direct and indirect Taxes are sometimes referred to as direct taxes or indirect taxes. In law. J.S. "(a) Regional or area headquarters as defined in Sec.. salaries. whereas the tax on simply owning the property itself would be a direct tax. privileges. 13 | P a g e . royalties. 57 and 58 of this Code: Provided. Atkinson. That interests. the terms may have different meanings. direct taxes refer to poll taxes and property taxes. B. states that ". rights. wages. but can be important under the law. whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller. for example. for instance. 590. 10 Can. dividends. An economic definition. profits. including remuneration for technical services. The meaning of these terms can vary in different contexts. and activities. The tax shall be collected and paid in the same manner as provided in Sec. "(6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. by Atkinson. premiums.direct taxes may be adjusted to the individual characteristics of the taxpayer." (A. which can sometimes lead to confusion. income tax is "direct". emoluments or other fixed or determinable annual. constitutional law. periodic or casual gains. income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines.13 | P a g e TAXATION applied or carmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). According to this definition. The distinction between direct and indirect taxation can be subtle. Econ. and sales tax is "indirect"..

The only way to avoid deadweight costs in an economy which is generally competitive is to refrain from taxes which change economic incentives. Arguably a windfall profits tax which is entirely unanticipated can also fall into this category. Such taxes include the land value tax. 14 | P a g e . Deadweight costs of taxation Taxes generally reduce economic efficiency by introducing a deadweight loss. If the elasticity of supply is low. And contrariwise for the cases where those elasticities are high. who ultimately pays the tax (the tax "burden") is determined by the marketplace as taxes become embedded into production costs. the price of a particular economic good adjusts to ensure that all trades which benefit both the buyer and the seller of a good occur. Most taxes²including income tax and sales tax²can have significant deadweight costs. a lump sum tax such as a poll tax (head tax) which is paid by all adults regardless of their choices. However. The deadweight cost is dependent on the elasticity of supply and demand for a good. Depending on how quantities supplied and demanded vary with price (the "elasticities" of supply and demand). taxes are imposed on business (such as corporate taxes or portions of payroll taxes).14 | P a g e TAXATION Tax incidence Law establishes from whom a tax is collected. the price received by the seller is less than the cost to the buyer. landowners (in the form of lower rents) and entrepreneurs (in the form of lower wages of superintendence). If the elasticity of demand is low. and is known as the 'deadweight cost of taxation'. or by the buyer (in the form of higher post-tax prices). this includes workers (in the form of lower wages). This means that fewer trades occur and that the individuals or businesses involved gain less from participating in the market. the tax burden flows back to the factors of production depending on the elasticities thereof. more will be paid by the customer. capital investors (in the form of loss to shareholders). a tax can be absorbed by the seller (in the form of lower pre-tax prices). After introducing a tax. If the seller is a competitive firm. more of the tax will be paid by the supplier. In a competitive market. This destroys value. In many countries.[17] where the tax is on a good in completely inelastic supply.

If there is a negative externality associated with a good. Perverse incentives also occur because of non-taxable 'hidden' transactions. for instance. The more details of tax policy there are. but if the same goods were shipped from one branch of a corporation to another. after economist Arthur Pigou. the more opportunities for legal tax avoidanceand illegal tax evasion. these not only result in lost revenue. payments made for tax advice are essentially deadweight costs because they add no wealth to the economy. for instance. can be replaced with a value added tax which disregards intermediate transactions. then a free market will trade too much of that good. taxes on goods which incur public healthcare costs (such as alcohol or tobacco). These are collectively called costs of compliance. This fact can be used as the basis for practical or moral arguments in favor of tax simplification. Costs of compliance Although governments must spend money on tax collection activities. no tax would be payable. This type of tax is called a Pigovian tax. are borne by businesses and by private individuals. a sale from one company to another might be liable for sales tax.15 | P a g e TAXATION Pigovian taxes The existence of a tax can increase economic efficiency in some cases. meaning that it has negative effects not felt by the consumer. Sales tax. some of the costs. the government can increase overall welfare as well as raising revenue. Transparency and simplicity Another concern is that the complicated tax codes of developed economies offer perverse economic incentives. By taxing the good. economists often suggest simple and transparent tax structures which avoid providing loopholes. More complex tax systems tend to have higher costs of compliance. 15 | P a g e . To address these issues. but involve additional deadweight costs: for instance. and charges for existing 'free' public goods (likecongestion charging) are another possibility. particularly for keeping records and filling out forms. Possible Pigovian taxes include those on polluting fuels (like petrol).

then selling an asset for twice the price it was purchased for five years earlier represents no gain at all. 16 | P a g e . European jurisdictions have a similar rate reduction to nil on certain property transactions that qualify for the participation exemption. However. it can act as a de facto probate or inheritance tax. In many cases. in an inflationary environment. such as the United States. inheritance taxes. An alternative to ad valorem taxation is an excise tax. Bank tax A bank tax ("bank levy") is a proposed tax on banks. some jurisdictions. In Canada. capital gains may be to some extent illusory: if prices in general have doubled in five years. service.16 | P a g e TAXATION Kinds of taxes Ad valorem An ad valorem tax is one where the tax base is the value of a good. Sales taxes. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). the amount of a capital gain is treated as income and subject to the marginal rate of income tax. Partly to compensate for such changes in the value of money over time. tariffs. In India. regardless of its price. give a favorable capital gains tax rate based on the length of holding. If such a tax is levied on inherited property. or property. Capital gains tax A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. Short Term Capital Gains Tax (arising before 1 year) is 10% flat rate of the gains and Long Term Capital Gains Tax is nil for stocks & mutual fund units held 1 year or more and 20% for any other assets held 3 years or more. 50% of the gain is taxable income. One of the earliest modern uses of the term "bank tax" occurred in the context of the Financial crisis of 2007±2010. where the tax base is the quantity of something. and value added taxes are different types of ad valorem tax. property taxes.

17 | P a g e TAXATION Consumption tax A consumption tax is a tax on non-investment spending. This term has been most commonly associated with the financial sector. which then creates deferred tax assets and liabilities for the corporation. giving rise to booktax differences. The stated purpose is to reduce the environmental impact by repricing. Environmental Tax This includes natural resources consumption tax. Taxable profits are generally considered gross revenue less expenses and cost of property sold. Corporate tax Corporate tax refers to a taxes levied by various jurisdictions on the capital or profits of companies or associations and often includes capital gains of a company.86¢/L) of gasoline. Excises Unlike an ad valorem. For example. in the United States. the most prominent being the Tobin tax and the Spahn tax. an excise is not a function of the value of the product being taxed.4 cents per U. Currency transaction tax A currency transaction tax is a tax placed on a specific type of currency transaction. Excise taxes are based on the quantity.S. as opposed to consumption taxes paid by consumers. If the book-tax difference is carried over more than a year. Most remain unimplemented concepts. while state governments levy an additional 8 to 28 17 | P a g e . "sulfuric tax". the Federal government imposes an excise tax of 18. Expenditures providing benefit over multiple periods are often deducted over the useful life of the resulting asset as depreciation oramortization. not the value. of product purchased. it is referred to as a temporary difference. There are several types of currency transaction taxes that have been proposed. Accounting rules about deductible expenses and tax rules about deductible expense may differ. gallon (4. and can be implemented by means of a sales tax or by modifying an income tax to allow for unlimited deductions for investment or savings. greenhouse gas tax (Carbon tax). and others. which are carried on the balance sheet.

and natural gas. for instance. etc. A special form of hypothecation arises where an excise is used to compensate a party to a transaction for alleged uncontrollable abuse. A carbon tax is a tax on the consumption of carbonbased non-renewable fuels. The object is to reduce the release of carbon into the atmosphere.18 | P a g e TAXATION cents per U. For example. the IMF proposed three types of global taxes on banks: First. Critics charge that such taxes blindly tax those who make legitimate and illegitimate usages of the products. jet fuels. Excises on particular commodities are frequently hypothecated. 2010. pornography. where any individual who has a net worth of $2 million or an average income-tax liability of $127. Similar taxes may exist on tobacco. Expatriation Tax An Expatriation Tax is a tax on some who renounce their citizenship of some governments.000 who renounces his or her citizenship and leaves the country is automatically assumed to have done so for tax avoidance reasons and is subject to a higher tax rate. the "Financial Stability Contribution" is a straight tax on a bank's gross profits²before deducting compensation. for example. on April 16. It would initially be at a flat rate. a blank media tax is a tax on recordable media such as CD-Rs. One example is the United States under the American Jobs Creation Act. relative to other goods. For example. such as petrol. whose proceeds are typically allocated to copyright holders. vehicle excise duty is an annual tax on vehicle ownership. diesel-fuel. this would eventually be refined so that 18 | P a g e . In the United Kingdom. a fuel excise (use tax) is often used to pay for public transportation. This may be combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol abuse. Excises (or exemptions from them) are also used to modify consumption patterns (social engineering). a high excise is used to discourage alcohol consumption. Financial activities tax As a regulatory response and proposal to the financial crisis of 2007-2010.. gallon. and they may be collectively referred to as "sin taxes". especially roads and bridges and for the protection of the environment.S. a person or corporation using CD-R's for data archival should not have to subsidize the producers of popular music.

There are several types of financial transaction taxes. Personal income tax is often collected on a pay-as-you-earn basis. Various income tax systems exist.19 | P a g e TAXATION riskier businesses paid more. gambling wins). and additional write-offs). The rates for different types of income may vary and some may not be taxed at all.g. which was not endorsed by the IMF. may be considered as personal earnings (similar to wages) or as a realized property gain (similar to selling shares). The "tax net" refers to the types of payment that are taxed. and business income. When the tax is levied on the income of companies. These corrections take one of two forms: payments 19 | P a g e . or corporation tax. Financial transaction tax A financial transaction tax is a tax placed on a specific type (or types) of financial transaction for a specific purpose (or purposes). Second. corporate income tax. some of which remain unimplemented concepts. with small corrections made soon after the end of the tax year. they may be defined broadly to include windfalls (e. which included personal earnings (wages). as opposed to consumption taxes paid by consumers. proportional. while corporate income taxes often tax net income (the difference between gross receipts. is a financial transaction tax. but not ruled out as administratively difficult. Income taxation can be progressive. In some tax systems. Business income may only be taxed if it is significant or based on the manner in which it is paid. when shares are sold) or when incurred (e. Individual income taxes often tax the total income of the individual (with some deductions permitted).g. corporations. with varying degrees of tax incidence. in others. Some types of income. expenses. capital gains. the "Financial Activities Tax" aims directly at excess bank profit and pay. skill. Capital gains may be taxed when realized (e. such as interest on bank savings. when shares appreciate in value). or regressive. it is often called a corporate tax.g. Income tax An income tax is a tax levied on the financial income of persons. This term has been most commonly associated with the financial sector. The third. wages). or other legal entities. personal earnings may be strictly defined where labor. or investment is required (e.g.

and death tax or duty are the names given to various taxes which arise on the death of an individual. a loss on the stock market may be deducted against taxes paid on wages. This particular tax can be understood to be levied on future generations that would have benefited from economic growth. estate tax. as they hold a larger fraction of their income in cash. imposing a financial charge on some as a result of the policy. One example of a strong supporter of this tax was the former Federal Reserve chair Beardsley Ruml. wages or pensions. they are much less likely to receive the newly created monies before the market has adjusted with inflated prices. Many economists[who?] hold that the inflation tax affects the lower and middle classes more than the rich. and therefore increase investment risk. For example. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. which are also definitively taxing. Some argue that inflation is a regressive consumption tax.20 | P a g e TAXATION to the government. Inflation tax An inflation tax is the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of expansionary monetary policy. and tax refunds from the government for those who have overpaid. and more often have fixed incomes. In United States tax law. for taxpayers who have not paid enough during the tax year. Economic bubbles increase market instability. which acts as ahidden tax that subtracts value from those assets. there is a 20 | P a g e . and it has a 100% transfer cost (so long as people are not acting against their interests. increased uncertainty benefits no-one). There are systemic effects of an expansionary monetary policy. Because the effects of monetary expansion or counterfeiting are never uniform over an entire economy. Other tax systems may isolate the loss. They may allow losses from one type of income to be counted against another. Inheritance tax Inheritance tax. creating economic bubbles where the new monies are first introduced. the policy influences capital transfers in the market. creating the conditions common to a recession. such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.

A common type of property tax is an annual charge on the ownership of real estate. It is an example of the concept of fixed tax. but more popularly referred to as the Poll Tax). The introduction of a poll tax in medieval England was the primary cause of the 1381 Peasants' Revolt.g. However. the supply of people is in fact not fixed over time: on average. if using this terminology UK inheritance tax would be an estate tax. where the tax base is the estimated value of the property. while the latter taxes the beneficiaries of the estate. is a tax that levies a set amount per individual. known colloquially as the 'Poll Tax riots'.21 | P a g e TAXATION distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased. Scotland was the first to be used to test the new poll tax in 1989 with England and Wales in 1990. or capitation tax. Real estate or realty is the combination of land and improvements to land.. Poll tax A poll tax. couples will choose to have fewer children if a poll tax is imposed. In addition. Property tax can be defined as "generally. buildings) and personal property (movable things). also called a per capita tax. improvements to land (immovable man-made things. e. 30:1116) was a form of poll tax.g. poll taxes are very unpopular because poorer people pay a higher proportion of their income than richer people. yearly). Poll taxes are administratively cheap because they are easy to compute and collect and difficult to cheat. One of the earliest taxes mentioned in the Bible of a half-shekel per annum from each adult Jew (Ex. The change from a progressive local taxation based on property values to a single-rate form of taxation regardless of ability to pay (the Community Charge." There are three species of property: land. Economists have considered poll taxes economically efficient because people are presumed to be in fixed supply. for example. However. this distinction does not apply in other jurisdictions. For a period of over 150 years from 1695 a window 21 | P a g e . Property tax A property tax is a tax put on property by reason of its ownership. tax imposed by municipalities upon owners of property within their jurisdiction based on the value of such property. Property taxes are usually charged on a recurrent basis (e. led to widespread refusal to pay and to incidents of civil unrest.

These often differ from comprehensive income taxes in that they are levied only on specific sources of income. Any otherwise non-exempt object can lose its exemption if regularly kept outside the household. with the result that one can still see listed buildings with windows bricked up in order to save their owners money.. because the artworks have then become subject to personal property tax If an artwork had to be sent to another state for some touch-ups.22 | P a g e TAXATION tax was levied in England. fund those systems with specific dedicated taxes. A further difference is that the total amount of the taxes paid by or on behalf of a worker is typically 22 | P a g e . A similar tax on hearths existed in France and elsewhere. Thus. with similar results. which provide income to retired workers. generally wages and salary (in which case they are called payroll taxes). a land value tax is levied only on the unimproved value of the land ("land" in this instance may mean either the economic term. all natural resources. or the natural resources associated with specific areas of the Earth's surface: "lots" or "land parcels"). Proponents of land value tax argue that it is economically justified. it may have become subject to personal property tax in that state as well. In contrast with a tax on real estate (land and buildings). as it will not deter production. In many jurisdictions (including many American states). Household goods are often exempt when kept or used within the household. and inheritance tax. tax collectors often monitor newspaper articles for stories about wealthy people who have lent art to museums for public display. the taxing authority may receive a payment in lieu of taxes to compensate it for some or all of the foregone tax revenue. there is a general tax levied periodically on residents who own personal property (personalty) within the jurisdiction. charged upon change of ownership.e. which is imposed in many countries on the estates of the deceased. The tax is often designed with blanket coverage and large exceptions for things like food and clothing. The two most common type of event driven property taxes are stamp duty. Social security tax Some countries with social security systems. When real estate is held by a higher government unit or some other entity not subject to taxation by the local government. distort market mechanisms or otherwise create deadweight losses the way other taxes do. Vehicle and boat registration fees are subsets of this kind of tax. i.

pays at the same rate up to a specified cap. only Alaska and New Hampshire do not levy a state sales tax.S. and the National Insurance Contributions (NICs) collected from employers and employees in theUnited Kingdom to fund the country's national insurance system. the state is able to reduce the tax burden on its citizens. In this way. allowing the state to benefit from taxes from people the state would otherwise not tax. South Dakota.23 | P a g e TAXATION considered in the calculation of the retirement benefits to which that worker is entitled. Florida. 23 | P a g e . in the United States. Additionally. as those states do not levy a state income tax. replacing a higher percentage of a lower-paid worker's pre-retirement income. New Hampshire and Tennessee levy state income taxes only on dividends and interest income. It is therefore common to exempt food. The question of whether they are generally progressive or regressive is a subject of much current debate. The U. This is the classic "You pay for what you spend" tax. For example. Examples of retirement taxes include the FICA tax. luxury) items pay the tax. Additional information can be obtained at the Federation of Tax Administrators website. states rely entirely on sales taxes for state revenue. People with higher incomes spend a lower proportion of them. Washington state. as only those who spend money on non-exempt (i. so a flat-rate sales tax will tend to be regressive. Retail organizations contend that such taxes discourage retail sales. Of the above states. Sales tax Sales taxes are levied when a commodity is sold to its final consumer.e. Texas. A small number of U. states that do not levy a state income tax are Alaska. so such exemptions make the tax more progressive. and Wyoming. Nevada. whatever his or her income. Such states tend to have a moderate to large amount of tourism or inter-state travel that occurs within their borders. but income over the cap is not taxed. These taxes are sometimes regressive in their immediate effect. since poor people spend a higher proportion of their incomes on these commodities. each worker. a payroll tax that is collected from employers and employees in the United States to fund the country's Social Security system. The benefit payments are similarly disproportionate.S. utilities and other necessities from sales taxes. Tennessee.

Saskatchewan. Tariffs An import or export tariff (also called customs duty or impost) is a charge for the movement of goods through a political border. and they may be used by governments to protect domestic industries. there is a growing movement for the replacement of all federal payroll and income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. and Newfoundland & Labrador have harmonized their provincial sales taxes with the GST . road and tunnel projects. New Brunswick. The tax proposal is named FairTax. A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other. The province of Quebec collects the Quebec Sales Tax [QST] which is based on the GST with certain differences. In Canada. A customs union has a common external tariff. tariff and trade rules in modern times are usually set together because of their common impact on industrial policy. and so effectively it is the final consumer who pays the tax. canal. and agricultural policy. the federal sales tax is called the Goods and Services tax (GST) and now stands at 5%. Most businesses can claim back the GST. tunnel. Historically tolls have been used to pay for public bridge. Tariffs discourage trade. bridge. and thus is a full VAT. possibly graduated for vehicle type. The toll is likely to be a fixed charge. and the participating countries share the revenues from tariffs on goods entering the customs union. Tax. Toll A toll is a tax or fee charged to travel via a road. investment policy.24 | P a g e TAXATION In the United States. They have also been used in privately constructed transport links. 24 | P a g e .Harmonized Sales Tax [HST]. The provinces of Nova Scotia. Ontario and Prince Edward Island also have a provincial sales tax [PST]. The classic ways of cheating a tariff are smuggling or declaring a false value of goods. or for distance on long routes. A proportion of tariff revenues is often hypothecated to pay government to maintain a navy or border police. waterway or other transportation facilities. HST and QST they pay. and possibly to impose protective tariffs on imports from outside the bloc. The provinces of British Columbia. Manitoba.

in many countries.25 | P a g e TAXATION Shunpiking is the practice of finding another route to avoid payment of tolls. That manufacturer will pay the VAT on the purchase price. but it is paid at differing points in the process. Its modern derivatives. applies the equivalent of a sales tax to every operation that creates value. a contract needed to have a stamp affixed to make it valid. also known as 'Goods and Services Tax' (G. are respectively charged on transactions involving securities and land. selling the machine for a higher price to a wholesale distributor. informal shunpiking by individuals escalated into a form of boycott by regular users.S. but will remit to the government only the excess related to the "value added" (the price over the cost of the sheet steel). 25 | P a g e .T). but remitting only the amount related to the distribution mark-up to the government. with the goal of applying the financial stress of lost toll revenue to the authority determining the levy. or Turnover Tax in some countries. To give an example. the total tax paid is the same. The wholesale distributor will then continue the process. Transfer tax Historically. Single Business Tax. stamp duty reserve tax and stamp duty land tax. sheet steel is imported by a machine manufacturer. The manufacturer will then transform the steel into a machine. In some situations where tolls were increased or felt to be unreasonably high. The charge for the stamp was either a fixed amount or a percentage of the value of the transaction. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. Stamp duty has the effect of discouraging speculative purchases of assets by decreasing liquidity. In the United States transfer tax is often charged by the state or local government and (in the case of real property transfers) can be tied to the recording of the deed or other transfer documents. Stamp duty is levied in the UK on the purchase of shares and securities. For a VAT and sales tax of identical rates. In most countries the stamp has been abolished but stamp duty remains. Value Added Tax / Goods and Services Tax A value added tax (VAT). The manufacturer will collect the VAT on the higher price. and certain partnership transactions. the issue of bearer instruments. remitting that amount to the government. charging the retail distributor the VAT on the entire price to the retailer.

It differs from a sales tax. which is levied only at the point of purchase. and from that exact a tax on net worth (assets minus liabilities). which is a type of indirect sales tax levied on goods and services at each production and 26 | P a g e . The disgust over E-VAT resurfaced when a former finance secretary recommended that this administration take measures in taxation. the Value Added Tax (VAT) has been identified as one way to secure macroeconomic stability and growth as it contributes to domestic revenue mobilization.26 | P a g e TAXATION VAT is usually administrated by requiring the company to complete a VAT return. It expands the coverage of the value added tax. The tax may be levied on "natural" or legal "persons". as a percentage of the net worth. Wealth (net worth) tax Some countries' governments will require declaration of the tax payers' balance sheet (assets and liabilities). calling the proposition. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution. including increasing the VAT rate from 12 percent to 15 percent and reducing corporate and income tax rates to secure fiscal sustainability. E-VAT stands for expanded value added tax that is specific to the Philippines. giving details of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to as output tax). The difference between output tax and input tax is payable to the Local Tax Authority. If input tax is greater than output tax the company can claim back money from the Local Tax Authority. The E-VAT is imposed in the Philippines. VAT is is a form of consumption tax. or a percentage of the net worth exceeding a certain level. ultimately passed on to the consumer. What is Value Added Tax (VAT) & (E-VAT)? Around the world. It is also called the value added tax reform act and RVAT or the reformed value added tax. This was immediately opposed by President Benigno Aquino III.

in order to balance the government¶s budget and to curb the existing fiscal deficit. 2005 Republic Act No. and since then has been scrutinized by the public. the EVAT law was passed on May 11. the extended value added tax was increased from 10% to 12%. Senator Ralph Recto lost in the elections. 2005 by the Senate. 1. and subjecting to tax transactions not previously covered by tax.A.4 B in 2006. Despite the positive turnout of the law. We are all aware that the EVAT law was famously advocated by Senator Ralph Recto. Also known as RA 9337. thus the people not so keen on voting for him. The extended value-added tax law is one of the most recent instruments of fiscal reform in the Philippines. such as petroleum. Some of the salient features of R. In addition. as he served as the spokesperson in the Senate. This newly law implemented taxation on commodities that in the past were tax-exempt. It also increases the rate of corporate income tax and aims to reduce tax on particular petroleum products. lifting of exemptions. also known as the Expanded Value-Added Tax Act of 2005. The said law was enacted to streamline and restructure the present VAT system and to provide additional revenue for the government through the increased tax rates. In February 2006. The law was formally passed on the 11th of May 2005. Some people have saying that his name was associated with higher taxes. or taxes on alcoholic beverages and cigarettes. Through this new law. 2005. electricity and services to name a few.27 | P a g e TAXATION distribution step. History Philippine president Gloria Macapagal-Arroyo signed the E-VAT bill in May 2005 and it was passed by the Philippine congress in the same month. which will take effect starting July 1. 2005. Aside from this. It was implemented by the country on Nov. 9337 are as follows: (1) 27 | P a g e . 9337. the law also increased sin taxes. This law was actually designed by international creditors so that the country can pay its international loans. however. corporate tax also moved from 32% to 35%. President Gloria Macapagal-Arroyo had signed into law on May 24. the government was able to obtain additional revenues of PHP 81.

fuel and petroleum products. shipping and airfreight. among others. (b) the necessary information to be contained in the VAT invoice or official receipts (c) the separation of VAT from the gross value of goods or services on the face of the VAT invoice or official receipts. taxis. goods and supplies by international shipping or air transport operators. importation or lease of passenger or cargo vessels and aircraft. provided that effective January 1. fighting cocks and race horses. hotels.28 | P a g e TAXATION increase in corporate income tax from the current rate of 32% to 35%. and on services of doctors and lawyers. (6) the new invoicing and accounting requirements for VAT-registered persons. films and cable television. (3) the ³stand-by power´ of the President to increase the VAT rate from 10% to 12% upon the recommendation of the Secretary of Finance under certain conditions starting January 1. the said rate will be reduced to 30%. resorts. telegram. tourist buses. 2009. imported meat and pest control products. (7) the option granted to VAT exempt taxpayer to register for VAT. including (a) the clarifications of the kind of transactions when to issue VAT invoice or official receipts. 2006. trucking. Coverage E-VAT extends to services provides by rental car companies. (5) additional exemption from VAT for the sale. use of satellite transmission. (4) lifting of VAT exemptions on the sale of power and electricity. (8) the limit on the application and carry-over of input tax credits which shall not exceed 70% of the total output tax for the quarter. and (9) the removal of the option to claim for refund or credit against other internal revenue taxes for the input tax attributable to the domestic purchase or importation of capital goods. 28 | P a g e . non-life insurance and professional fees. (2) the new rate of limitation for the deductibility of interest expense from 38% to 42%. including engine equipment and spareparts thereof for domestic or international transport operations as well as the importation of fuel. radio and telephone franchise. feeds for aquarium fish. clubs and restaurants. air and sea transport services. television. property rights.

and provide more jobs for the citizens. Book 2008. dollars) in additional revenues annually.S. education and health systems. According to "The CIA World Factbook." the E-VAT strengthened the Philippine peso and made it East Asia's healthiest currency in the fiscal year 2005 to 2006. the population of the Philippines was estimated at 92 million.29 | P a g e TAXATION Aims And Expectations The aim of the E-VAT was to meet the budget deficit levels set by the IMF. These revenues can be used to improve the infrastructure. Disadvantages The higher tax rate imposed by E-VAT puts additional burden on its citizens. widen its scope and enhance its administration. 29 | P a g e . Advantages The E-VAT imposes a higher tax rate on goods and services. especially its lower class citizens. According to the United Department of Economic and Social Affairs Population Division. which translate to higher revenues for the government. According to "Human Rights in Developing Countries. President Fidel Ramos enacted the Republic act 7716 (or the new expanded VAT law) in 1994 to restructure the value added tax.9 percent live below the poverty line.5 billion pesos (approximately 124 million U." the E-VAT initially imposed a 10 percent tax on most services and goods. It was estimated that the E-VAT would result in approximately 5. environment. of which approximately 32.

we are also able to enjoy its advantages. The poor became very less fortunate. resulting into more unemployment. on the prices of prime commodities would be minimal and limited only to the transport component and warehousing portion of the cost of these commodities. since it is regressive by nature. The more we strive harder. Filipinos will suffer from spending more. More goods and services in the VAT system lead to efficiency gains as it reduces tax cascading (making the tax system more regressive). You heard it right. making taxation fairer and more equitable. First. which means that the rate goes up depending on the resources of the person being asked to pay. The impact of E-VAT. all the sufferings spared by the people will just put into nothing. And worst.30 | P a g e TAXATION Interview We interviewed some people about E-VAT. the more money will go into these officials. 30 | P a g e . and a lot or almost all of them didn¶t agree. if corrupt government officials start to work on their 'dirty' hands. The truth is VAT is the contradiction of this. This is the heaviest disadvantage of all. Under the VAT. corrupt public officials now have more reason to run for public office for another term. Of course people disagree for the reason of. The concern that user charges limit the access of the poor to critical public services is misplaced. Although regressive in nature. tough E-VAT has some advantages ideally. Low class household now gets to pay much of what they pay the government before through taxes. Yes. a rich man who buys a cigarette pays the same tax as the taho vendor who buys the same commodity. Large corporations are also under the E-vat law. for example. taxation must be progressive. the VAT made sure that everyone shares the burden of taxation proportionally. It redounds only to not more than a few pesos or centavos. Some of them have to cut off labor to compensate for how much they pay for E-vat.

*Mahihirapan lalo ang mga mahihirap sa pagbili ng mga pagkain. *Suseptible sa corruption.31 | P a g e TAXATION Other Interviews about the Advantage and Disadvantages of VAT / EVAT Advantages of EVAT: *National budget expands which will be used for something else like improved education. 31 | P a g e . The more we strive harder. *Mas lalaki pag kukunan ng emergency funds ng government. *If corrupt government officials start to work on their 'dirty' hands. *Makakatulong sa pag-unlad ng bansa. dahil tataas ang mga presyong mga bilihin * Filipinos will suffer from spending more. jobs for Filipinos. * Mas mabilis mababayaran ang liabilities kasi dadami ang pondo. Disadvantage of EVAT: *Dagdag pasanin sa mga mamamayan. the more money will go into these officials. *Mas malaki ang makukuhang pondo ng gobyerno mula sa mamamayan. all the sufferings spared by the people will just put into nothing.

32 | P a g e TAXATION Analysis / Reaction The objective of this external study is to provide more information about the extent of cross-border inheritance tax problems. tutal maliit na porsyento lang naman ito sa paningin nila. dahil wala namang nakikitang pagbabago. tapos dadagdagan pa nila ng EVAT. Hindi sa tax payers ang problema sa pera kundi yung sa humahawak ng taxes sa gobyerno. Sabi ng ilan ay wala rin namang nangyayari sa Evat na yan. Dahil ditto naapektuhan ang mga mahihirap. Nakakadagdag problema ito sa pagbubudget ng mga magulang para sa kanilang mga anak. 10%.dahil sa EVAT nadagdagan ang mga kailangan problemahin at intindihin ng mga mamamayan.Parang ginawa lang yung EVAT upang ibulsa ng gobyerno. We notice that most of the citizens who are affected by VAT & E-VAT are really embarrassed because even though they are paying taxes they can¶t really experience or feel the benefits which must given by the government to those tax payers. 32 | P a g e . Sobrang taas na nga ng dagdag ng vat eh.