Econ 101

TAXES AND TAXATION

TAXATION
- Is the act of lying a tax
- the process or means by sovereign raises revenues to defray the necessary expenses of
government.
- It is the most pervasive and the strongest of all the powers of the government. Taxes are the
lifeblood of the government, without which, it cannot subsist

TAXES

- An enforced proportional contributions from persons and property levied by the law making
body of the state.
- The system of compulsory contributions levied by a government on people, corporations and
property in order to fund public expenditures
- An inherent power of the state to raise income and to demand enforced contributions for
public purposes.

PURPOSE AND IMPORTANCE OF TAXES

 Primary purpose: generates funds or revenues used to defray the necessary expenses incurred by the
government in promoting the general welfare of its citizenry.
- The taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect
government functions like market regulation or legal systems.

Other purposes:
 To equitably contribute to the wealth of the nation
 To protect new industries
 To protect local producers

- Almost all revenues of the government are derived from the taxes raised through taxation -

Essential Characteristics of a Tax

1. It is an enforced contribution
- A tax is not voluntary payment or donation
2. It is generally payable in money
- Unless qualified by the law, the term “taxes” or “tax” is usually understood to be a precautionary
burden.
3. It is proportionate in character
- A tax is laid by some rule of apportionment according to which the person or property share the
public burden.
4. It is levied by the state, which has jurisdiction over the person or property
- a tax may also be imposed on acts or transactions or contracts.
5. It is levied by the law-making body of the state
- the power to tax is a legislative power
6. It is levied for public purposes
- the support of the government

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CLASSIFICATION OF TAXES

A. According to Subject

1. Personal, poll or capitation

- tax of a fixed amount imposed on individual
2. Property
- tax imposed on property, whether real or personal
3. Excise
- any tax which does not fall within the classification of a poll tax or property tax

B. According to Purpose

1. General, Fiscal or Revenue

- raise revenue for government needs
2. Special or Regulatory
- to achieve some social or economic ends irrespective of whether revenue is actually raise or not.

C. According to Scope

1. National
- taxes imposed by the national government

Example: income taxes, e-vat

2. Local
- tax imposed by municipal or local governments

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Tax law in the Philippines covers national and local taxes. National taxes refer to national internal revenue taxes
imposed and collected by the national government through the Bureau of Internal Revenue (BIR) and local
taxes refer to those imposed and collected by the local government. The 1987 Philippine Constitution sets
limitations on the exercise of the power to tax. The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation. (Article VI, Section 28, Paragraph 1).

D. According to Determination of Amount

1. Specific
- tax of a fixed amount imposed by the head or number, or by some standard of weight measurement
2. Ad Valorem
- means “according to value”

E. According to the Bearer of the Burden

1. Direct
- tax which is demanded from the person who also shoulder the burden of the tax
2. Indirect
- tax which is demanded from one person in the expectation and intention that should indemnify
himself at the expense of another

F. According to Graduation Rate

1. Proportional
- tax is based on a fixed percentage of the amount of the property, income or other bases to be taxed.
2. Progressive or Graduated
- the tax rate which increases as the tax base or bracket increases
3. Regressive
- the tax rate which decreases as the tax base or bracket increases

TAXES AND VARIOUS TERMINOLOGIES

1. Revenue
2. Internal Revenue
3. Custom Duties
4. Tariff
5. Debt
6. Toll
7. License or Permit fee
8. Penalty

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Kinds of National Internal Revenue Taxes

1. Income Taxes
- it is a tax on a person’s income, profit
2. Estate and inheritance taxes
3. Donor’s tax or gift tax
- tax imposed on the transfer without consideration of property or money between

Kinds of gift tax

1. Donor’s tax - the tax levied on the act of giving
2. Donee’s tax - the tax levied on the act of recieving

4. Extended Value-Added Tax (E-VAT)

5. Other percentage tax
6. Excise Tax (Ex. Alcohol and Tobacco)
7. Documentary Stamp

National Taxes Imposed by Special Laws

A. Customs Duties
B. Travel Tax
- The Travel Tax is a levy imposed by Philippine government on individuals who are leaving the
Philippines irrespective of the place where the air ticket is issued and form or place of payment, as provided
for by Presidential Decree (PD)1183.

Business Class /Economy Class: PHP1,620.00 Full Travel Tax, PHP810.00 Standard Reduced Travel Tax,
PHP300.00 Privileged Reduced Travel Tax for dependents of Overseas Filipino Workers (OFWs)
Source: PAL

C. Energy Tax
- In line with the objective of conserving energy and promoting efficient utilization thereof, there is
hereby imposed, levied, and collected a tax on the monthly electric power consumption of every residential
customer of electric power utilities,
D. Private Motor Vehicle Tax
- all motor vehicles classified as "private" shall, upon every annual registration, pay a "private motor
vehicle tax"

Who Should Pay Taxes?

1. Individuals
a. Resident Citizen - is a citizen of the Philippines who has a permanent home or place of
abode in the Philippines
b. Non-resident Citizen - is a citizen of the Philippines who establishes the fact of his/her
physical presence abroad with the definite intention to reside therein and shall include any Filipino
who leaves the country as immigrant, permanent employee, and contract worker.
c. Resident Aliens - is an individual who is not a citizen of the Philippines but whose
residence is within the Philippines.
d. Non-resident Aliens - is an individual who is not a citizen of the Philippines and whose
residence is not within the Philippines.

2. Corporations
a. Domestic Corporations
b. Foreign Corporations

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3. Estate under judicial settlement
4. Trusts irrevocable both as to the trust property and as to the income.

Who (or What) are those exempted in paying taxes?

• The Constitution expressly grants tax exemption on certain entities/institutions such as:

1. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and nonprofit
cemeteries and all lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes (Article VI, Section 28, Paragraph 3).

2. Non-stock non-profit educational institutions used actually, directly, and exclusively for educational
purposes. (Article XVI, Section 4 (3).

Exempted to tax as stated in the Article 283 of Rules and Regulations Implementing Local Government Code
of 1991 (RA 7160):
• Local water districts
• Cooperatives duly registered under RA 6938, otherwise known as the Cooperative Code of the
Philippines
• Non-stock and non-profit hospitals and educational institutions
• Printer and/or publisher of books or other reading materials prescribed by DECS (now DepEd) as
school texts or references, insofar as receipts from the printing and / or publishing thereof are
concerned.

TOP 10 INDIVIDUAL TAX PAYER (as of Oct. 2014)

TOP 10 NON-INDIVIDUAL TAX PAYER (as of Oct. 2014)

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TOP CELEBRITY TAX PAYERS (as of Oct. 2014)

What is Tax Evasion?

• Tax evasion happens 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, and non-declaration of income
and other items subject to tax, Under-appraisal of goods subject to tariff , and over-declaration of
deductions

Sources:

Sources: http://www.ntrc.gov.ph/files/Chapter-I-Income-Taxes.pdf
http://www.bir.gov.ph/

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