II. Taxation and Revenue Administration

TAXATION AND REVENUE ADMINISTRATION

•History of Taxation •Definition of taxation•Purpose and Importance•Essential Characteristics•Theory and Basis of Taxation•Nature of power of taxation•Aspect of Taxation •Effects of Taxation •Basic Principles of Taxation•The Philippines Taxation System•Kinds of Taxes

History

During the reign of Egyptian Pharaohs Scribes as tax collectors

In Greece A tax referred to as Eisphora was imposed only in

times of war

In Athens A monthly tax called Metoikon was collected to

foreigners

Ancient Greek Taxation Taxation was used as an emergency power.

Additional resources gained from war were used to refund tax previously collected from the people

History

Earliest taxes in Rome Taxes known as Portoria were customs duties on imports

and exports Augustus Caesar introduced the inheritance tax to provide

retirement funds for the military. The tax was five percent on all inheritances except gifts to children and spouses

In England Taxes were first used as an emergency measure Taxes on income or capital were a recent development as

a result of increasing government intervention in the economy

In the Philippines The pre-colonial society, being communitarian, did not

have taxes

History

In Modern Industrial NationsThe government designates a tax base (such as income, property holdings, or a given commodity)

A Tax Law is a body of rules passed by the legislature by which the government acquires a claim on tax payers to convey, transfer and pay to the public authority

Definition of Taxation

Taxation is the act of laying a tax..the process or means by which the sovereign, through

its law making body raises revenue to defray the necessary expenses of

government.

Definition of Taxation

It is a method of apportioning the cost of

government among those who in some measure are

privileged to enjoy its benefits and must

therefore, bear it burdens.

Purpose and Importance

The purpose of taxation on the part of government is to

provide funds which to promote the general welfare and protection of its citizens, and to enable it to finance its

multifarious activities

Definition of taxes

It is an enforced proportional contribution from persons and

property levied by the law making body of the state by

virtue of its sovereignty for the support of the government and

all public needs.

Essential Characteristics of Tax

(1) It is an enforced contribution-A tax is not a

voluntary payment or donation and its imposition is in no way

dependent upon the will or assent of the persons taxed.


(2) It is generally payable in money- It is understood to be

a pecuniary burden-an exaction to be discharged

alone in money which must be in legal tender.


(3) Proportionate in Character-A tax is laid by

some rule of apportionment according to which the

persons or property share the public burden.


(4) It is levied on persons or property-A tax may also be

imposed on acts or transactions or contracts.

Essential Characteristics of Tax(5) It is levied by the state which has

jurisdiction over the person or property. The person and property must be subject to the jurisdiction of the taxing state. The taxing power of the state necessarily stops at its boundary lines.

Essential Characteristics of Tax(6) IT is levied by the law-making body

of the state. The power to tax is a legislative power which only the

legislative statutes or ordinances. The power to tax is also granted by the Constitutions and by the law to

local government unit.


(7). It is levied for public purposes. Taxation involves and a tax constitutes, a change in

burden imposed to provide income for public purposes the support of the government, the administration of the law, or the

payment of public expenses.

Theory and Basis of Taxation (1).The power of taxation proceeds

upon the theory that the existence of government is a necessity; that it cannot continue without the means to pay its expenses; and that for these means, it has a right to compel all its citizens and property within its limit to contribute.

Theory and basis of taxation(2) The basis of taxation is found in the

reciprocal duties of protection and support between the state and its inhabitants. In return for his contribution, the taxpayer receives benefits and protection from the government. This is the so called benefits received principles.

Nature of power of taxation (1) It is inherent in sovereignty. The

power of taxation is inherent in sovereignty being essential to the existence of the government.

(2) It is legislative in character. The power to tax is legislative. It cannot be exercised by the executive or judicial branch of the government.

(3) It is subject to constitutional and inherent limitation.

Aspect of Taxation

(1)Levying or imposition of the tax which is a legislative in act.

(2)Collection of the tax levied which is essential in character

Basic principles of a sound tax system(1)Fiscal Adequacy, which means that the

sources of revenue should be sufficient to meet the demands of public expenditure.

(2)Equality or theoretical justice, which means that the tax burden should be proportionate to the taxpayer's ability to pay.

(3) Administrative feasibility, which means that the tax laws should be capable of convenient, just and effective administration.

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.

Taxation in the Philippines

The legislative branch enacts laws to continually revitalize the taxation policy of the country

BIR (Bureau of Internal Revenue) Mandated to comprehend the

assessment and collection of all national internal revenue taxes, fees and charges so as to promote a sustainable economic growth


Republic Act No. 8424 (Comprehensive Tax Reform Act of 1997) Tax Payer: any person subject to

tax whose sources of income is derived from within the Philippines

TIN (Taxpayer Identification Number) is required for any individual taxpayer


Tax Reforms: Lower income tax rates to enhance the

competitiveness of the Philippines in the region Removal of areas which provide avenues for

tax avoidance and abuse Exemption of OFWs from payment of tax for

income earned outside the Philippines Simplification of the tax system which

encourages payments from tax payers including those from the underground economy


Taxes are collected within a particular period of time know as taxable year

This is the calendar year or the fiscal year that covers an accounting period of 12 months ending on the last day of any month other that December.

Kinds of taxes

Income Tax Tax on all yearly profits arising form

property, possessions, trades or offices Tax on a person’s income, emoluments and

profits Donor’s Tax

Tax imposed on donations inter-vivos or those made between living persons to take effect during the lifetime of the donor.

Estate Tax Tax on the right of the deceased person to

transmit property at death

Kinds of taxes

Excise Tax Tax applicable to specified goods

manufactured in the Philippines 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

Withholding tax

Expanded withholding tax: A system of collecting taxes whereby the taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payer on said income.

Withholding tax

Final withholding tax: A system of collecting taxes

whereby the amount of income tax withheld by the withholding agent is constituted as a full payment of the income tax due form the payer on the said income. The payer is not required to file an income tax return for the particular income.

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 one’s 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

Tax Avoidance

It is the use by the taxpayer of legally permissible means of method in order to avoid or reduce tax liability. It is not punishable by law.

Distinction between tax evasion and tax avoidance Tax evasion should be applied to the

escape from taxation accomplished by breaking the letter of the tax law-deliberate omission to report a taxable item, Tax avoidance on the other hand, covers escape, accomplished by legal means which may be contrary to the intent of the sponsors of the tax law but nevertheless do not violate the law.

Documents

II. Taxation and Revenue Administration