Additional for chapter 1

Despite various reform efforts over the years, the tax system in the Philippines continues to suffer
from chronic weaknesses. Tax rates are high relative to the country’s ASEAN neighbors, yet
revenue productivity remains low. Filipino individual taxpayers are overburdened by personal
income tax brackets that have not been indexed to inflation, resulting in bracket creep. The real
value of excise tax rates on petroleum products have likewise been eroded by inflation, and the
schedule is characterized by a number of exemptions and rates that are low by international
standards. The value-added tax base has narrowed from excessive exemptions. (Rosario Manasan
(2017) , Assessment of the 2017 Tax Reform for Acceleration and Inclusion)

For Chapter 4 or 5

Tax policy is essentially a balancing act between efficiency and equity. We want to impose
progressive taxes to make society a fairer place to live in. But at the same time, we want to
make sure that such taxes do not reduce economic activity so much.

Unfortunately, the Philippine tax system is currently deficient in both respects. Not only do
our taxes disproportionately burden the poor and benefit the rich, but they also yield too
little revenue given the distortions they create. Needless to say, both problems need to be
resolved soon. Comprehensive tax reform in the country is long overdue. (JC Punongbayan,
2017)

Awareness

Awareness can be defined as knowledge or perception of a situation or fact. As well

as concern about and well-informed interest in a particular situation or development.

According to the last State of the Nation Address (SONA) of President Duterte he stated
that “Some have incorrectly blamed our efforts toward a fairer tax system for all the price
increases in the past months, and some irresponsibly suggesting to stop TRAIN’s
implementation. We cannot and should not. We need this for sustainable growth that
leaves no Filipino leave behind”. It also added that the Tax Reform for Acceleration and
Inclusion or TRAIN has generated much needed revenue to fund government projects.

The new Tax Reform for Acceleration and Inclusion (TRAIN) Law has an impact on the
take home pay of Individuals, prices of goods and services, and spending and
consumption patterns. It is therefore necessary to know the changes and consequences of
the new law to ensure compliance and avoid tax risks and exposures
(businesscoachohil.com)

According to a study conducted Gemesis Kebede (2012), the major VAT assessment
problem are the taxpayer not paying the required amount on time, lack of awareness of
the taxpayers, low attitude of taxpayers and involuntary to pay, and the taxpayer not
performing accurately with what they sold and the lack of supporting documents such as
sales receipt. And according to their findings one of the major problems encountered by
VAT administration in the town revenue office are lack of awareness of taxpayer and
employees. In addition i is recommended that to improve the awareness, attitude and
feeling of taxpayers the government should arrange seminars, workshop and conference
to make them aware the concern with regards to the taxation, why they pay tax, laws,
rules and regulations of tax, the advantage they get from VAT and giving training,
seminars and short term courses for employer and following up control are the employer
perform as a rule and regulation of a revenue office.

Importance of Awareness/ Taxation Knowledge

Among the modern criteria for a good tax system are the principles of efficiency and
equity. But another important principle is also awareness- that is the taxpayer should be
aware of the taxes they pay and the benefits they receive from government expenditures.
Being aware of taxes and communicating whether or not you feel there’s value for money
should be part of our membership in a vibrant and engaged democracy. And according to
Economist Stephen Gordon he noted that system of taxation have been one of the great
institutional achievements of humankind, providing for the collective mobilization of
resources for public benefit. He also added that taxes are indeed a price of civilization
and not an arbitrary punishments to be endured. (article published by Livio di Matteo)

It is very important to have taxation knowledge whether as an individual or a business

entity. The taxation knowledge includes tax laws which functions as a guide to mainly
minimize the chargeable income. It is a mandatory thing to update yourself as an
individual taxpayer or as a business entity with the latest tax laws. BY having sufficient
taxation knowledge, one can know the items that can be claimed for tax reliefs and
exemption given by the government of a country and can compute the tax rates accurately
based on the country’s tax rate schedule.

Importance of Taxation knowledge for Individual Taxpayer

Tax knowledge is an essential element in a voluntary compliance tax system, particularly

in determining an accurate tax liability. More recent studies undertaken in Malaysia (Loo
et al., 2009) also suggested tax knowledge to be the most influential factor to determine
taxpayers’ compliance behavior. On similar note, the absence of tax knowledge may lead
to noncompliance behavior among taxpayers, either intentionally or unintentionally.

Although a general knowledge of the taxation system was displayed by most taxpayers,
specific tax knowledge was still limited. That is, while taxpayers displayed an awareness
of relevant income and deductions, they knew little about tax administration and the level
of penalties.

It is very important to have the knowledge regarding taxation for individual taxpayers as
it determined the income tax rates that will be charge. Tax relief and exemptions that will
be deducted from the chargeable income can be identified by an individual who have tax
knowledge. (Scribd.com)

According to a tax awareness seminar held, people are not much inclined towards
taxation matters due to lack of awareness and motivation. He said that the awareness and
motivation in the public about the taxation system is much needed.

Knowing the right income tax return that an individual will pay can make his life better.
Individual taxpayer include employees and self-employed persons engaged in business or
practice of profession. The Philippines usually uses graduated income tax rates for
individuals, which is a form of progressive computation that increases the tax rate as the
taxable income increases. For 20 years, the Philippines follow the tax rates stated in the
Tax Reform Act of 1997.The TRAIN law will reduce the personal income tax rates of
each individual, while people earning a lower personal income will be free from tax.
The charges collected by the government are used to fund different government projects
that would int he end benefit the citizens of the country as a whole. Awareness of the
taxpayer is a person of good faith to fulfill the obligation to pay taxes.

Tax payer Awareness

Consciousness is the state of knowing or understanding whereas taxation is a mater of

taxes so that taxation is a state of consciousness to know or understand about taxes
(Jotoournimo and Yenni 2013). Jatmiko (2006) explains that consciousness is a state of
knowing or understanding. Irianto (2005), Widayati and Nuris (2010) describe some form
of consciousness of paying taxes that encourage taxpayers top pay taxes. First, the
realization that the tax is a form of participation in supporting development of the country.
Knowing this, the taxpayer would pay taxes because they are not disadvantaged in tax
collection is done. Second, the realization that the delay in payment of taxes and the
reduction of the tax burden is very detrimental for country. Taxpayer want to pay taxes
because it understands that the delay in payment of taxes and the reduction of the tax
burden impact on the lack of financial resources which could lead to delays in
development of the country. Third, the realization that the tax is set to legislation and can
be enforced. Taxpayers will pay the tax payment was realized to have a strong legal
foundation and is the absolute duty of every citizen.

The positive assessment of taxpayers’ community toward implementing state functions

represented by the government will mobilize the people to comply with obligations to pay
taxes (Suyatmin 2004 in Jatmiko, 2006).

Nugroho (2012) defines consciousness of paying taxes as a form of moral attitude which
gives a contribution to the state to support the development.

Meanwhile, according to Manik Asri in Rahayu (2010), the taxpayer is recognized as

having awareness if they: (1) recognize the existence of tax laws and regulations, (2)
knowing that the function is to finance the state, (3) understand that the task taxes must
be paid in accordance with the applicable rules.

Taxation

Brotodihardjo (2003), shows that the tax is a required contribution of people to the
government to fund expenditure for public use, without specific reference to the benefits
provided. Meanwhile, Rahayu (2010) defines that the tax is required contribution of
wealth a person or entity to the government for public services.

Eriksen and Fallan (1996) also argue that a taxpayer should be given better tax
knowledge to improve perception of fairness. They also recommended that tax education
should be included in the education curriculum as a compulsory subject

The Tax Reform will put more money in people’s pockets, adjust brackets to correct
income creeping wherein 99% of taxpayer will face a rate of 25% lower by 2019, shift to
simplified Personal Income Tax (PIT) system which will reduce avenues for tax leakages
and avoidance, Reduce PIT max rate to 25% over time, except for the highest income
earners to maintain progressivity.

The ideal VAT system is one with a low rate and with exemption limited to necessities
like raw food, health and education. This way, the VAT excess system becomes fair to
everyone. However, this is not the case in the Philippines.

In the Philippines, we have a VAT system with numerous exemptions leading to large
leakages. These exemption incentivize people to take advantage of the VAT system to pay
less ta.

Compared to our neighbors, we have 59 lines of exemptions in the VAT compared to only
37 in Indonesia, 35 in Thailand, 25 in Vietnam and around 14 in Malaysia. As a result, the
Philippines collects less VAT as a percent of GDP compared to these countries
(dof.gov.ph)

Why the government attention should focus on taxpayer awareness, The answer is
because the understanding and awareness of the people to obediently pay tax are still
relatively low. This is due to non optimal tax understanding obtained by the community.
Therefore the people need to be given the understanding of taxes so that their awareness
can be developed.

Theory of taxpayer awareness

Alabede et al (2011) believed that consciousness is a will accompanied by action from
reflection to reality. Taxpayer awareness is an effort or action accompanied by
self-encouragement and willingness to perform the rights and obligations of taxation in
accordance with the regulations. Taxpayer awareness is understood if the taxation
regulation has been known, acknowledged, respected and obeyed. If the tax regulation is
still limitedly known, then the taxpayer’s awareness is still low. The low awareness of
taxpayer is suspected to be caused by minimum knowledge and understanding of tax
regulations.

Munari (2005) also explained that taxpayers experience awareness when they: know the
existence of laws and provisions of taxation; know the function of paying taxes to the
state; understand the rights and obligations to be implemented.

Theory of Knowledge and understanding tax regulation

Nugroho and Zulaikha (2012) reported that the knowledge and understanding of taxation
regulation is intended for taxpayers sot hat they can understand the General Provisions
and Procedure of Taxation covering the delivery of Annual Tax Return, payment, place of
payment, the reporting of Annual Tax Return, fines as well as the due date of payment
and reporting.