CHAPTER 7

Taxation
Learning Objectives
At the end of this chapter, the learners are expected to:
1. Define and explain taxation and its essential features;
2. Evaluate the moral and social obligation of paying taxes;
3. State the purpose of TRAIN law; and
4. Assess the pros and cons' of taxation in the Philippines.
Paying Taxes is a Social and Moral Obligation
President Duterte once said, in one of his speeches, there are two things that will
surely come to us, death and taxes, and we can't run away from them. Paying taxes is
our moral obligation, not just social. It is the payment we give to the government in
exchange of the services she is providing us. The currency we give for being part of a
civilized society. Taxes are given to the government to support those who are not
considered to be financially productive like the disabled, sick or unemployed, for
salaries of government workers, for the construction of public infrastructures and for
education to name a few.
Some commercial establishment s are not honest in dealing with the government
in terms of paying their taxes. They consider taxes as financial burden to be shouldered
by the company, and not as an obligation and responsibility to the state, nation and its
citizens. That is why, these companies try to reduce their taxes illicitly. This is wrong
and immoral. The payment of corporate tax should not be interpreted as a cost of doing
business but as one’s responsibility to society. On the other hand, those people who
illegally influence the rules on taxation like to lessen or escape from paying taxes, which
deprive the general public financially and immorally. At the end of the day, honest
people pay their taxes justly because they feel it’s their responsibility. But the moral
question is, how government improve the collection of taxes and how it will be used.
The Nature of Taxation
We always hear President Rodrigo Roa Duterte says "we are just workers of this
government... We are paid by the people." What does it mean? It means that the money
utilizes by government to pay public expenditures like salaries of government workers,
comes from the people's pocket and coffers of corporate institutions, and it is called
"taxes." So, when the government, through laws and legislation, imposes charges on
citizens and corporate entities, to put up schools, public markets, bridges, roads, water
stations and other infrastructures, that will help the people to have a good life in society,
that is taxation. A tax is a payment, whereas, taxation is a process.
Purpose of Taxes
The purpose of taxes is to finance the expenses of the government for the
protection and general welfare of its constituents. Besides, taxes are used to carry out
the objectives of the government's programs for social and economic progress. Like
granting tax exemption or incentives to small businesses and use as an instrument in
trade negotiations with other countries, etc.
Classification of Taxes
There are two types of taxes in the Philippines, the national and local tax. The
National tax is the one we pay to government through the Bureau of Internal Revenue,
an agency in the government that collect taxes. The other one is the local tax, payment
we give to local government units, such as the municipalities and cities, to name a few.
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.
Kinds of National Taxes:
(Source: http://www.full-suite.com/blog/tax-type-101-different-tax-types/)
1. Capital Gains Tax is tax coming from the sale, exchange, or other disposition of
capital assets located in the Philippines. Examples of sold assets that are subject to
capital gains tax include properties, stocks, pieces of jewelry, and other high-value
goods.
2. Documentary Stamp Tax is imposed on documents, instruments, loan agreements,
and papers that are used as evidence of acceptance, assignment, sale or transfer of
obligation, rights, or property. Documentary stamps are usually found on deeds of sale
and bank promissory notes, among others.
3. Donor's Tax is levied on a donation or gift for the gratuitous transfer of property
between two or more persons who are both still living at the time of transfer. Even relief
goods sent for donation are charged this type of tax.
4. Estate Tax is required to be paid before an estate is transferred to the rightful
beneficiary or heir of a deceased person. This is based on a graduated schedule of tax
rate.
5. Excise tax is tax on goods produced for sale and subsequently sold within the
country. It is considered an indirect tax which means the manufacturer is supposed to
recover it by adding the amount to the selling price. Sin tax on tobacco and alcohol is an
example of excise tax.
6. Income tax is imposed on all compensation and income received or earned from
practice of profession, conduct of trade in business, and from properties.
7. Percentage tax is a business tax imposed on businesses not covered by Value
Added Tax and where gross annual receipts for sale of goods and services do not
exceed Php750,000.
8. Value Added Tax or VAT is another kind of indirect tax that is passed on to the end
consumer. It is a form of consumption tax making it the most common tax type because
all final sales are almost always charged this tax.
9. Withholding tax on compensation is tax deducted from salaries of employees and it is
the company's responsibility to remit the same to the government. Other kinds of
withholding tax are Expanded Withholding Tax, Final Withholding Tax, and Withholding
Tax on Government Money Payments.
Kinds of Local Taxes
(Source: http://www.full-suite.com/blog/tax-type-101-different-tax-types/)
1. Basic Real Property Tax is tax on real properties classed as follows: agricultural
commercial, industrial, residential, timberland, and mineral.
2. Franchise Tax is imposed by LGUs on business franchises at a rate not more than
50% of 1% of the gross annual receipts of the previous taxable year.
3. Business of Printing and Publication Tax is collected from any business that does
printing or publication of printed materials such as books, cards, pamphlets, posters, or
tarpaulins.
4. Professional Tax is collected from doctors, lawyers, engineers, and other
professionals engaged in the exercise or practice of professions that require
government examination or acquisition of license to practice.
6. Community Tax, more commonly called Cedula, is required from individuals from a
base fee of Php5.00 and additional Php1.00 for every Php1,000 income.
7. Annual Fixed Tax for Delivery Trucks and Vans amounting to Php500 is collected by
the LGU from trucks and vans which deliver goods such as beer, soda, and/or
cigarettes.
8. Barangay Tax is subjected on sari-sari stores and retailers whose annual gross sales
do not exceed Php50,000 and is accrued on the first day of January of each year.
9. Barangay Clearance is paid as a legal permission for particular individuals, hosts, or
companies to conduct an event or start a business in a barangay.
Principle of Taxation in the Philippines: The TRAIN has arrived…
The TRAIN Law
(Source: Department of Transportation, Philippine Statistics Authority, Department of
Public Works and Highways, Bureau of Internal Revenue and Department of Finance
websites)
On December 19, 2017, Pres. Rodrigo Duterte signed Republic Act RA 10963 or
Tax Reform for Acceleration and Inclusion or the TRAIN law. Its objective is to increase
Filipino’s take-home pay or salary by bringing down income tax rates while increasing
and rationalizing tax rates in other goods and services.
The Tax Reform for Acceleration and Inclusion (TRAIN) is the first package of the
comprehensive tax reform program (CTRP) expected by President Duterte's
administration. Its purpose is to correct a number of defects in the tax system in order to
make it simpler, fairer, and more efficient. It also includes justifying measures that are
designed to reallocate some of the incomes to the poor.
Besides the TRAIN law will remove poverty and lessen inequality that will put
progress in the country. Every Filipino, likewise, contributes in financing more
infrastructure and social services.
Purpose of TRAIN Law
Train law will subsidize the following government programs in:
1. Education
The tax reform will be able to finance investments in education, achieving a more
conducive learning environment with sufficient numbers of teachers for the students.
This means,
a) Achieving the 100% enrollment and completion rates
b) Building 113,553 more classrooms
c) Hiring 181,980 more teachers between 2017 and 2020
2. Healthcare Services
 With the tax reform, we can spend more in our country's healthcare by providing
better services and medical facilities, such as;
a) Upgrading 704 local hospitals and establish 25 local hospitals
b) Achieving 100% PhilHealth coverage at higher quality of services
c) Upgrading and/or relocating 263 rural and urban health units to disaster resilient
facilities
d) Building 15,988 new barangay health stations
e) Building 2,424 new rural health units and urban health centers
Between 2017 and 2022, the program of the government is to hire an additional
2,424 doctors, 29,466 nurses, 1,114 dentists, 3,288 pharmacists, 2,682 medical
technologists, 911 public health associates, and 2,497 UHC implementers
3. Infrastructure Programs
The additional income raised by the tax reform will be utilize to finance
infrastructure program of the Department of Public Works and Highways (DPWH),
which consists of the following, major and minor thoroughfares, and flood control
projects.