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Taxation

The system of compulsory contributions levied by a

government or other qualified body 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.

Purposes Taxation
to raise revenues for public needs so that persons can live in a civilized society The government increase taxes in order to stabilize prices and stimulate greater production. An instrument of fiscal policy influences the direction and structure of money supply, investments, credits, production, interest rate, inflation, prices and in general, of the national economy

Characteristics of a sound Tax system


Fairness
Clarity and Certainty Convenience

Efficiency

Effects of Taxation
Personal Income Tax which is presumed to fall entirely on

the legal taxpayers influences decisions to work, save, and invest. These decisions affect other people. Corporate Income Tax may simply result to lower corporate profits and dividends. It may reduce their income of all owners of property and businesses. The company may move toward raising the prices of their products

Kinds of taxes
Income Tax
Tax on all yearly profits arising form property,

possessions, trades or offices Tax on a persons income, emoluments and profits

Estate Tax
Tax on the right of the deceased person to transmit

property at death

Kinds of taxes
Value-added Tax (VAT)
Tax imposed and collected on every sale, barter,

exchange or transaction deemed sale of taxable goods, properties, lease of goods, services or properties in the course of trade as they pass along the production and distribution chain Capital Gains Tax Tax imposed on the gains presumed to have been realized by the seller for the sale, exchange or other disposition of real property.

Kinds of taxes

Excise Tax Tax applicable to specified goods manufactured for domestic sale or consumption
Specific tax: imposed on certain goods based on weight or volume capacity or any other physical unit of measurement (Specific tax = volume x tax rate) Alcohol products, petroleum products, tobacco products Ad valorem tax: imposed on certain goods based on selling price or other specified value of the goods (Ad valorem tax = selling price x tax rate) Mineral products, automobiles

Kinds of taxes
Documentary Tax Tax on documents, instruments, loan agreements and papers, agreements evidencing the acceptance, assignments, sale or transfer of an obligation, rights or property incident thereto.

Shifting the incidence of taxation


Shifting taxation is the process of passing

the burden of the tax to others. A tax can be shifted when the taxpayer is able to obtain a higher price for something he sells or when he pays a lower price for a commodity he purchases.

Tax Evasion
When there is fraud through pretension and the use of

other illegal devices to lessen ones taxes, there is tax evasion


Under-declaration of income

Non-declaration of income and other items subject to

tax Under-appraisal of goods subject to tariff Over-declaration of deductions