TAXATION Taxation Is the act of laying a tax Life blood of our economy and society Purpose and Importance

nce of Taxation To provide funds with which to promote general welfare and protection of its citizens and to enable it to finance its multifarious activities. It is important because almost all revenues of the government are derived from the taxes raised through taxation TAXES These are the enforced proportional contributions 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: An enforced contribution. Generally payable in money. Proportionate in character. Levied on persons or property. Levied by the state which has jurisdiction over the persons or property. Levied by the law-making body of the state. Levied for public purposes. Theory and Basis of Taxation The power of taxation proceeds upon he 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 limits to continue. 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. (Benefits Received principle) Nature of Power of Taxation It is inherent in sovereignty. It is legislative in character. It cannot be exercised by the executive and judicial branch of the government, only the legislative body (Congress) can impose taxes. It is subject to constitutional and inherent limitations. Aspects of Taxation Levying or imposition of the tax which is legislative act. Collection of tax levied which is essentially administrative in character. Basic Principle of a Sound Tax System Fiscal adequacy. Sources of revenue should be sufficient to meet the demands of the public expenditure. Equality or theoretical justice. Tax burden should be proportionate to the taxpayers ability to pay. Ability to pay principle Administrative feasibility. Tax laws should be capable of convenient, just, and effective administration.

Classifications of Taxes 1. As to subject matter or object 2. As to purpose 3. As to scope (or authority imposing the tax) 4. As to determination of account 5. As to who bears the burden 6. As to graduation or rate 1. As to subject matter or object Personal, poll or object --- tax of a fixed amount imposed on the individuals, residing within a specified territory, whether citizens or not, without regard to their property or the occupation in which they may be engaged. Ex. Community tax Property--- tax imposed on property, whether real or personal, in proportion either t its value or in accordance with some other reasonable method of apportionment. Ex. Real estate tax Excise---a charge imposed upon the performance of an act the enjoyment of a privilege, or the engaging in an occupation. 2. As to purpose General, fiscal or revenue tax imposed for the general purposes of the government. Special or regulatory tax imposed for a special purpose. 3. As to scope (or authority imposing the tax) National tax imposed by the national government. Municipal or local tax imposed by the municipality or public corporations (local government) 4. As to determination of account Specific tax of a fixed amount imposed by the head or number or by some standard of weight or measurement it requires no assessment (valuation) other than listing or classification of the subjects to be taxed. Ad valorem tax of a fixed proportion of the value of the property with respect to which the tax is assessed. according to value 5. As to who bears the burden Direct tax which is demanded from the person who also shoulders the burden of the tax; or the tax which the taxpayer cannot shift to another. Ex: community tax, corporate and individual income tax Indirect tax which is demanded from one person in the expectation and intention that he should indemnify himself at the expense of another. -- tax imposed on goods before they reach the customer who ultimately pays for them, not as a tax but as a part of the purchase to which it is added. Ex: VAT, Percentage taxes 6. As to graduation or rate Proportional tax based on a fixed percentage of the amount of the property, income or other basis to be taxed Ex. Real property tax; all percentage taxes Progressive or graduated tax based on the rate of which increases as the tax base or bracket increases. Ex. Income tax; estate tax; donors tax

Regressive tax based on the rate of which decreases as the tax bas or bracket increases. Taxes distinguished from other terms Revenue all the funds or income derived by the government; amount collected, while TAX refers to the amount imposed. Internal Revenue taxes imposed by the legislature other than duties on imports and exports. Customs duties (duties) --- taxes imposed on goods exported from o imported into a country. Debt a tax is NOT a debt. Penalty any sanction imposed as a punishment for violation of laws or acts. TAX EVASION AND TAX AVOIDANCE Tax Evasion use by the taxpayer of illegal or fraudulent means to defeat or reduce the payment of a tax. It is punishable by law. Tax Avoidance -- use by the taxpayer of legally permissible means or methods in order to avoid or reduce tax liability. It is NOT punishable by law. INCOME TAX INCOME (for tax purposes) means all wealth which flows into the taxpayer other than as a mere return on capital. INCOME TAX tax on a persons income, profits and the like, realized in one taxable year. Nature and Purpose Of Income Tax Regarded as privilege tax and not a tax on property. A tax on the privilege to earn an income. PURPOSE: to raise revenue. GROSS INCOME Refers to all income but not including exempt income and income subject to final income tax. Ex: salaries or wages TAXABLE INCOME refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. ESTATE TAX Estate Tax a tax on the right of the deceased person to transmit his estate to his lawful heirs or beneficiaries. Inheritance Tax a tax on the right of the heirs or beneficiaries to receive the estate of the deceased person. It is no longer imposed. DONORS TAX Donation an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. GIFT TAX A tax imposed on the transfer without consideration of property or money between two or more persons who are living at the time the transfer is made. Kinds of Gift Tax Donors Tax or the tax levied on the act of giving. Donees tax or the tax levied on the act of receiving.

VALUE-ADDED TAX (VAT) A percentage tax imposed on every sale, barter, exchange, or lease of goods or properties (real or personal) or sale of services in the course of trade or business and on every importation of goods, whether or not in the course of trade or business, based on the gross selling price or value, or the gross receipts, payable by the seller, transferor, lessor, or importer. EXCISE TAX is a tax on use or consumption of certain products sometimes included in the price of a product, such as motor fuels, cigarettes, and alcohol. may also be imposed on some activities, like gambling. may be imposed by the federal government or by a state. Kinds of Excise Tax Specific tax--- based on physical unit of measurement. Ad Valorem tax --- based on selling price or other specified value of the article. Goods subject to excise taxes In general --- excise taxes apply: Goods manufactured or produced in the Philippines for domestic use or consumption Goods imported from foreign countries. In particular --- the Tax Code enumerates the goods subject to excise taxes: Alcohol products Tobacco products Petroleum products Miscellaneous goods Mineral products DOCUMENTARY STAMP TAXES A tax on documents, instruments and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. NATURE: A privilege tax PURPOSE: To raise revenue and not invalidate the contract Documents subject to the tax: Debentures and certificates of indebtedness Original issue of shares of stock Sales contracts and agreements Bonds, loan agreements, promissory notes and bills of exchange Insurance policies Powers of attorney Leases, mortgages and pledges Documents not subject to the tax: Insurance policies or annuities to members of fraternal societies Certificates of oath administered to and certificates of acknowledgement by any government official in his office capacity Affidavits of poor persons for the purpose of proving poverty Certificates of the assessed value of lands not exceeding P200.00 in assessed value, furnished to applicants for registration of the title to land.