Taxation is the inherent power of governments to impose and collect taxes from individuals, properties, and transactions in order to generate revenue for public purposes. There are several principles and theories of taxation, including the benefit principle, ability-to-pay principle, and equal-distribution principle. A tax system can be proportional, regressive, or progressive depending on how tax rates and amounts change relative to income. Taxes are an enforced contribution used by governments to fund programs and services that benefit citizens.

1. CONCEPTS OF TAXATION
Chapter 16
ECONOMICS: its concepts and principles
By: BKG Gabay
RM Remotin, Jr.
EAM Uy

2. Definition of Terms
TAXATION is defined in many ways.
Commonly heard definitions include:
It is the process by which the sovereign, through its law making
body, races revenues use to defray expenses of government.
It is a means of government in increasing its revenue under the
authority of the law, purposely used to promote welfare and
protection of its citizenry.
It is the collection of the share of individual and organizational
income by a government under the authority of the law.

3. Concept of Taxation
Taxation is the inherent power of the state to
impose and demand contribution upon
persons, properties, or rights for the purpose of
generating revenues for public purposes.
The power of taxation upon necessity and is
inherent in every government or sovereignty.

4. Principles and Theories of Taxation
 The Benefit Principle. This principle holds the individuals
should be taxed in proportion to the benefits they receive from
the governments and that taxes should be paid by those people
who receive the direct benefit of the government programs and
projects out of the taxes paid.
 The Ability-to-Pay Principle. This principle holds that taxes
should relate with the people’s income or the ability to pay, that
is, people with greater income or wealth and can afford to pay
more taxes should be taxed at a higher rate than people with less
wealth. Ex. Individual income tax.
 The Equal-Distribution Principle. This principle that
income, wealth, and transaction should be taxed at a fixed
percentage; that is, people who earn more and buy more should
pay more taxes, but will not pay a higher rate of taxes.

5. Structures of a Tax System
 A tax is proportional. Meaning the government takes an amount of
money from a person which is indirect proportion to his income. Ex. Ben
salary is 10,000pesos and the government is deducting 10% of his salary
for tax. After a year his income increases to 15,000pesos and the
governments now deducts 12% of his salary for tax. The said tax is
proportional.
 A tax is regressive. Meaning that the governments takes a larger
percentage of a persons income per tax, while he is receiving a lower
income. Ex. Ben’s salary 10,000pesos and government is asking him to
pay 15% of his salary for tax which is contrary to our given example in
number 1.
 A tax is progressive. Meaning that the government takes a lager
percentage of his salary for tax due to his high salary. Ex. Ben has a
monthly income of 30,000pesos and the governments deducted 20% of
his salary for tax. The tax amount is proportionately equal to someone’s
status in the society. A rich man should pay more than a poor man.

6. Significance of Taxation
Primary purpose: generates funds or revenues use to defray
expenses incurred by the government in promoting the general
welfare of its citizenry.
Other purposes:
 to equitably contribute to the wealth of the nation
 to protect new industries
 to protect local producers

7. Characteristics of Tax
 It is enforced contribution. Its payment is not voluntary
nature, and the imposition is not dependent upon the will of the
person taxed.
 It is generally payable in cash. This means that payment by
checks, promissory notes, or in kind is not accepted.
 It is proportionate in character. Payment of taxes should be base
on the ability to pay principle; the higher income of the tax payer
the bigger amount of the tax paid.
 It is levied (to impose; collect) on person or property. There are
taxes that are imposed or levied on acts, rights or privileges. Ex.
Documentary tax.

8.  It is levied by the state which has jurisdiction over the person or
property. As a general rule, only persons, properties, acts, right
or transaction with in the jurisdiction of the taxing state are
subject for taxation.
 It is levied by the law making body of the state. This means that
a prior law must be enacted first by the congress before
assessment and collection may be implemented of the 1987
constitution.
 It is levied for public purposes. Taxes or imposed to support the
government for implementation of projects and programs.

9. Basic Principles of a Sound Tax System
 Fiscal adequacy. Means that the sources of revenue taken as a whole should be
sufficient to meet the expanding expenditures of the government regardless of
business, export taxes, trade balances, and problems of economic adjustment.
Revenues should be capable expanding or contracting annually in response to
variations of public expenditures.
 Equality or Theoretical Justice. Means the taxes levied must be base upon the
ability of the citizen to pay.
 Administrative Feasibility. This principle connotes that in a successful tax
system, such tax should be clear and plain to taxpayers, capable of enforcement by
an adequate and well-trained staff of public office, convenient as to the time and
manner payment, and not unduly burdensome upon on discouraging to business
activity.
 Consistency or Compatibility with Economic Goals. This refer to the tax laws
that should be consistent with economic goals or programs of the government.
This are the basic services intended for the masses.

10. Classification of Taxes
1. As to subject matter
 Personal, Poll or Capitation Tax (ex. Residence Tax)
 Property Tax. (ex. Real State Tax)
 Excise Tax (ex. RVAT)
2. As to who bears the burden
 Direct Tax (ex. Income Tax)
 Indirect Tax (ex. Buying of goods and services (RVAT) )
3. As to determination of account
 Specific Tax (ex. Taxes on wines)
 Ad Valorem Tax (ex. Tax according to value such as Real Estate
Tax.

11. 4. As to purpose
 General Tax (ex. Almost All Taxes)
 Special Tax
5. As to scope
 National Tax (ex. National Revenue Taxes)
 Local Tax

12. Distinction of Tax
Tax distinguished from Toll
- A tax is demand of sovereignty, while toll is demand for
proprietorship.
- A tax is paid for the use of the government’s property, while
a toll is paid for the use of another’s property.
- A tax may be imposed by the government only, while a toll is
enforced by the government or a private individual or entity.
Tax distinguished from Penalty
- A tax is intended to raise revenue, while penalty is designed
to regulate conduct.
- A tax may be imposed by the government only while a
penalty may be imposed by the government or a private
individual.

13. Tax distinguished from Debt
- A tax is base on law, while a debt is based on contract.
- A tax may not be assignable, while a debt is assignable.
- A tax is generally payable in cash, while debt is payable in
cash or in kind.
- A person may be imprisoned for a non-payment of taxes, but
any person may not be imprisoned for non-payment of debt.
Tax distinguished from other Terms
- Revenue. This refers funds or income derived by the
government whether from tax or any other source in another
sense.
- Internal Revenue. It refers to taxes imposed by the legislature
other than duties on imports and exports.
- Customs Duties. These are taxes imposed on goods exported
into a country.

14. Entities Exempted from Taxation
 Religious Institutions
 Charitable Institutions
 Non-Profit, Non-Stock Educational Institutions
 Non-profit Cemeteries
 Government Institutions
 Foreign Diplomats

15. Situs of Taxation
Situs is a latin term which means “situation”,
“location”, or “place.” In short, its literal meaning
refers to a place taxation. In real property, the rules is
tax is imposed to a place or state where the property is
located and subject to be tax has a jurisdiction over the
said property.

16. Double Taxation
 Direct Duplicate  Indirect duplicate
Elements: Indirect duplicate
 Taxing twice taxation, on the other
hand, occurs when taxes on
 By the same taxing authority
the property are not imposed
 Within the same taxing
by the same taxing authority.
jurisdiction
The local and national
 For the same purpose
governments imposed taxes
 In the same taxable period on the same property during
 Involving the same purpose one taxable period. This kind
of imposition is legal.

17. Forms of Escape from Taxation
6 forms of escape from taxation
1. Shifting. It is one way of passing the burden of tax
from one person to another. Ex. Taxes paid by the
manufacturer may be shifted to the consumer by
adding the amount of the tax paid to price of the
product.
Kinds of Shifting
 Forward shifting occurs when the burden of the tax is transferred
from a factor of the production to the factor of distribution.
 Backward shifting occurs when the burden of tax is transferred
from the consumer to the producer or manufacturer.
 Onward shifting occurs when tax is shifted to two or more times
either forward or backward.

18. 2. Capitalization. This refers to the reduction in the price of the
tax object to the capitalized value of future taxes which the
purchaser expects to be called upon to pay. Ex: A reduction
made by the seller on the price of the real estate, in
anticipation of the future tax to be shouldered by the future
buyer.
3. Transformation occurs when the manufacturer or producer
upon whom the tax has been imposed pays the tax and
endeavor to “recoup” (make up for) himself by improving his
process of production
4. Tax Evasion is the practice by the taxpayer through illegal or
fraudulent means to defeat or lessen the amount for tax. This is
also know as “tax dodging.”

19. 5. Tax Avoidance is the exploitation by the taxpayer of legally
permissible methods in order to avoid or reduce tax liability.
This is also known as “tax minimization.”
6. Tax Exemption is the grant of immunity or freedom from a
financial charge or obligation or burden to which others are
subjected.
Grounds for tax exemption:
Contract, wherein the government is the contracting party.
Public policy
Reciprocity

20. THE END
Prepared by:
Glaiza E. Mata
Gregar Donaven E. Valdehueza, MBA