A primer in taxation in the Philippines

1. TAXATION

2. Taxation- refers to the act of collecting taxes.
- it means raising of funds for operations of the
government, especially its multifarious public services.

3. Taxes- are compulsory payments associated with income,
consumption or holding of property that individuals and
corporations are required to make each year to governments
(Medina).
- these are the enforced proportional contributions from
persons and property levied by the law making body of the
state by virtue or its sovereignty for the support of the
government and all public needs.

4. APPROACHES OR PRINCIPLES TO TAXES
.

5. 1. Benefit received Principle
- Refers to the amount of benefit received and protection from the
state in giving services to its citizen.
- This principle also states that the burden of tax on an economic
entity should be directly proportional to the amount of benefits it
receives from the use of public goods or services provided by
government.
Ex. Highway tolls, bridge tolls, park tickets, train fares.

6. Pros
- people are motivated to pay taxes when they perceive that the
money they pay to government is being used for their own benefit.
-in other words, this principle lowers tax evation.
Cons
- It conflicts with income redistribution programs.
-It is just like a government asking homeless people to pay for
their own welfare.

7. 2. Ability-to-pay- Principle
- refer to the tax or contribution in proportion to revenue or income
one person enjoying under protection of the state.
- a progressive taxation principle that maintains that taxes should be
levied (collected) according to a taxpayer`s ability to pay.
- this increased tax burden on individuals, partnerships, companies,
corporations, trusts, and certain estates with higher incomes.
The theory of this principle is “Those individuals to earn more money can
afford to pay more taxes”.
This Principle has the potential to increase government`s revenue.
- the tax rate increases as a percentage along with income.

8. 3. Proportional or Equal Distribution Principle
-those with higher income must pay same taxes without ruining
their economic efficiency. This means income, wealth, services
rendered, must be taxed fixed regardless on the economic status of
individual.
-Proportional tax is imposed so that the tax rate is fixed, with no
change as the taxable base amount increases or decreases.
- “Proportional” describes a distribution effect on income or
expenditure, referring to the way the rate remains consistent (does
not progress for low to high or high to low as income consumption
changes.

9. Tax Structure
1. Progressive tax
-is one of whose rate of tax increases as income increases (eg.
Income tax)
-when the rate increases as the tax base increases.
-(5% tax below 10k and up to 34% 500k)
2. Proportional Tax (Proportional or Equal Distribution Principle)
- is one whose rate of tax remains constant regardless of the size
of the increase (Eg 10% tax (10k, 20k and 30k)
-tax is proportional if it is based on a fixed percentage of the
amount of property, income, or other factors. (EX: sales tax & real
property tax)

10. 3. Regressive Tax
- is when the rate of tax decreases as income (expenses) increases (eg
indirect taxes)
- the effective rate decreases as the tax base increases.

11. CLASSIFICATION OF TAXES
1. PERSONAL, POLL OR CAPITATION
- imposed on individual residing within a specified community.
(Cedula)
2. PROPERTY
- imposed on property (real or personal) in proportion to its
value.
3. EXCISE
- imposed upon the performance of an account that do not
qualify from the above mentioned.
- any of various taxes levied on the production or sale of certain
goods, especially on luxuries, tobacco, alcohol, etc.

12. ACCORDING TO SCOPE
1. NATIONAL
- tax is collected by the National Government as set by National
Internal Revenue/ BIR.
2. MUNICIPAL OR LOCAL
- tax that is collected by Municipal government under the Local
Government Code.

13. ACCORDING TO DETERMINATION OF AMOUNT
1. SPECIFIC TAX
- a fixed amount imposed by the head or number or by some
standard of weight or measurement.
2. AD VALOREM TAX
- a fixed proportion of value of property based on the
assessment. It means according to value.

14. ACCORDING TO ITS EFFECT TO TAXPAYERS OR TAX
BURDEN
1. DIRECT TAX
- a tax that is demanded from person who shoulders the burden
and cannot shift to another. (Withholding Tax)
2. INDIRECT TAX
- a tax that is demanded from another person in the intention
that the taxpayer passed his burden at the expense of another.
(VAT passed by firms to consumers)

15. INCOME TAX
• INCOME
- (for tax purposes means all wealth which flows into the taxpayers other than as a mere
return on capital.
• INCOME TAX
- is a tax on person`s income, profits and the like realized in one taxable year. It is
imposed at progressive or graduated rated.
• GROSS INCOME
- is all income but not including exempt income and income subject to final income tax.
• TAXABLE INCOME
- is gross income as defined less the deductions allowed by law, including in the case of
individuals allowable personal and additional exemptions.
• DEDUCTIONS
- are items or amounts which the law allows to be deducted from gross income to arrive at
taxable income.
• TAX RETURN
-is a sworn statement wherein the taxpayer states the facts as to the nature and extent of
his tax liability for that taxable year.

16. • NET DISPOSABLE INCOME
- income is derived by the taxpayer after deductions and the additional
allowable exemptions added therein.
• SELF-EMPLOYED
- means persons engaged in business and who derive their personal
income from such business. These include single proprietorship.
• PROFESSIONALS
- means persons who derive their income from the practice of their
profession e.g doctors, lawyers, teachers, engineers, etc.
• HEAD OF THE FAMILY
- is an individual who actually support and maintains in one household one
or more individuals who are closely related with him by blood relationship,
relationship by marriage adoption.
• RECOGNIZED NATURAL CHILD
- is one born outside of wedlock between a man and wife who at the time
of conception of the child were legally free to marry each other and is recognized
by both party.