2019 400309

VILLAROMAN, Janine Monica D.

TAX 1 3S

“Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure.” (CIR v BPI, 521 SCRA 373)

It has only been a week since we started studying Taxation, and it has
already been imbedded into our minds how significant tax is, especially
having read the phrase ‘taxes are the lifeblood of the government’ several
times in a number of the cases assigned. Indeed, without tax, government
agencies ceases to operate and the State’s functions could not be met for the
welfare of its constituents (CIR v Next Mobile Inc. 776 SCRA 343). In Avi-
Yonah’s The Three Goals of Taxation, he discussed about arguments on
whether tax should be based on income or consumption, as this was a
debate going on in the United States. Experts presented both tax bases in
terms of the criteria used traditionally for examining tax policy, and these
are administrability, equity, and efficiency (Avi-Yonah, 2006). However,
the author suggests that these ongoing debates do not consider the main
goals of taxation in the modern era. According to Avi-Yonah, the three
goals of taxation are: (1) raising revenue for the activities of the
government, (2) mitigating the evident unequal distribution of wealth in
the present society, and (3) regulating the private economic activity (ibid).

Raising Revenue

One of the goals of taxation is to raise revenue for the government

activities. As taxation is the power by which the sovereign raises revenue
to defray the necessary expenses of the government, it has become the
State’s way of allocating the government’s costs to its citizens who are
obliged to bear the burden accompanied with the enjoyment of the benefits
the State has to offer (Dimaampao, 2018). Under the Tax Reform for
Acceleration and Inclusion (TRAIN Law), Section 2(c), it was declared that
it is the policy of the State to ensure that the government is able to provide
for the needs of those under its jurisdiction and care through the provision
of better infrastructure, health, education, jobs, and social protection for the
people (RA 10963, 17th Congress, s. 2). For the government to be able to
achieve a policy such as this, it has a heavy obligation to raise revenues to
attain the efficacy of the policy. Without a sound tax system, the State shall
also fail to provide its people the benefits stated under the policy. The tax
schedule provided for in the said law under Section 5, Section 24 of the
National Internal Revenue Code as amended exhibits the rates of tax based
on an individual’s income. As such, it can be seen that the government
attempts to tax those individuals who earns more, and spares those who
has less. In this way, this move of the State is in line with the first goal of
taxation which is to raise revenue. In addition, domestic corporations are
also taxed at the rate of 20% upon the amount of interest on currency bank
deposit and yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements received by them, and
royalties derived from sources within the Philippines (Sec. 7, Section 27 of
NIRC as amended). Estate tax is also applied based on the value of said
estate (Sec. 22, Section 84 of NIRC as amended). Apart from these
mentioned, several other provisions of the TRAIN Law explicitly provides
for the tax to be collected from different sources. Taxing the upper class
could yield a higher percentage of revenues, thus creating more funds for
the institutions of the government to function accordingly.

Mitigate Unequal Distribution of Wealth

As discussed earlier, the State imposes tax upon individuals

depending on their income. Justice Dimaampao includes this purpose of
taxation too, presenting that taxation has the purpose to reduce social
inequality. The present tax system of the Philippines applies the
progressive system of taxation, in which the tax rate increases as the tax
base increases (Dimaampao, 2018). Such a system aims to reduce the
inequality in the distribution of the wealth among the State’s citizens
through the prevention of undue concentration in the pockets of a few
individuals (ibid). With the passage of the TRAIN Law and its
consideration on the income of taxpayers, their properties, and their
spending behavior, the second goal of taxation according to Avi-Yonah
could be met with the correct application of the TRAIN Law.

Regulate Private Economic Activity

President Taft, in proposing corporate tax in 1909 posits that by

adopting such tax, the government can achieve “supervisory control of
corporations which may prevent a further abuse of power” (Avi-Yonah,
2006). While this might have been overruled by tax experts and several
politicians, I believe that this holds true, especially in our country lead by
the few corporations who holds a huge percentage of the country’s income.
Several provisions of the TRAIN Law focus on taxing corporations and
amended the tax imposed upon such. Imposing excise tax on certain items
such as tobacco (Sec. 82, Section 288 as amended), alcohol (Sec. 47), and
gasoline (Sec. 43, Section 148 as amended) are also included in the law,
with the purpose of the government to regulate their consumption, is also
in line with the third goal of taxation according to the reading.

The TRAIN Law seeks to raise revenue, mitigate unequal distribution

of wealth, and regulate private economic activity. The passage of the
TRAIN Law, if completed and applied effectively, is in line with the three
goals of taxation as provided for by Avi-Yonah.