TAXATION

•History of Taxation •importance of taxation to the taxpayers and to the government•Kinds and Characteristics of Taxes•Taxation System in the Philippines

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

• 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

• In Modern Industrial Nations• The 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

• 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.

Taxation

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

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

Taxation in the Philippines

• 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

Taxation in the Philippines

• 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

Taxation in the Philippines

• 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• 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 located in the Philippines, classified as capital assets

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.

Withholding tax• Withholding tax for

compensation income: – Commonly referred to as pay as you go

or pay as you earn.

– A method of collecting the income tax at source upon receipt of the 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

AssignmentWrite your answer in a 1 whole sheet of

paper

1. Define the following:– Poverty– Poverty line– Degradation

2. Explain the causes of poverty

3. What are the effects of poverty?