Principles of Economics with TAR

1. Principles of
Taxation
Prepared by:
Haide H. Hamor
BEED II
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2. • Taxes collected by the
government may be
classified as direct or
indirect taxes.
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3. Direct Taxes
• are levied on people and are
paid directly to a tax collecting
agency of the government.
• These include income taxes,
inheritance, and residence
taxes.
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4. Indirect Taxes
• are levied against goods and
services and only indirectly on
people, such as sales taxes and
import duties.
• These taxes can be shifted to the
ultimate users of the goods
because they are included in the
prices of goods and services.
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5. Taxation
• is the system of payments that
individuals and businesses are
required to pay the government.
• The systems by which a
government may impose taxes are
progressive, regressive, or
proportional.
• This system shows the relationship
between the tax rate and tax base.
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6. Tax Rate
• Is the percentage of the tax
that has to be paid by the
tax payer.
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Tax Base
• Is the value that is
subject to the tax.

7. Progressive Tax System
• In a progressive tax system, the tax
rate tends to increase in the tax
base.
• The Philippine income tax is best
described as progressive.
• This system is usually associated
with direct taxes and is normally
accepted to be the ideal system
since it taxes people according to
their ability to pay. 7

8. Regressive Tax System
• Is one where tax rates are high for
low bases, and decrease with high
bases.
• This system is described as
onerous since those with greater
ability to pay are taxed less and
the poor people with less ability to
pay are taxed more.
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9. • This system is normally
associated with indirect taxes.
• The ease with which indirect
taxes are collected has made the
government highly dependent on
them and has prevented the
abolition of the system even if it is
considered highly unjust.
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10. Proportional Tax System
• Imposes a uniform tax rate on all
income levels.
• Thus, if the government sets of
10%, the taxpayers who earns
50,000PHP pays a tax of
5,000PHP. One who earns
100,000PHP pays a tax of
10,000PHP.
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11. Burden of Taxation
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12. • Taxes are always unwanted.
• Taxes have the effect of
decreasing a person’s
disposable income.
• This means that the individual
gives money that would
otherwise go to consumption.
• Taxes are thus considered a
burden.
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13. 2 Types of Tax Burden
1.The impact of the tax
2.Its incidence
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14. 1. Impact of tax
• Is the burden of the
person who pays the tax
for the first time.
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15. 2. Incidence
• Is the burden of the
person who ultimately
has to pay for the tax.
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16. In the case of direct taxes,
• the impact and incidence are shouldered
by the same person.
• If Juan dela Cruz pays a 10,000php tax
to BIR on income he earned last year, he
shoulders the impact of the tax.
• Since he cannot pass on the tax to
somebody else, the ultimate burden is
also his and he shoulders the incidence
of the tax as well.
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17. For indirect taxes,
• the impact and the incidence
of the tax fall on different
people.
• An importer of textiles pays
his import duties and
shoulders the impact of the
tax.
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18. • When he sells these textiles to
direct users, he can shift on the
tax to them by including it in the
price of the good.
• The buyer therefore, shoulders
the incidence of the tax.
• The shifting of a sales tax will
depend primarily on the nature
of the demand for the supply of a
specific good.
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