7

• Taxes


  Mandatory payments of the contributors to the budget and to the extra-budgetary funds in the amount determined by law and within the stipulated deadlines
• Functions of taxation


  • Fiscal
  • Redistributory
  • Regulating
  • Controlling
  • Promoting
• Fiscal function


  Taxes play their role in the formation of the state budget necessary for the realization of national and holistic state programs
• Allocation function


  Expresses the essence of taxes as a special centralized instrument of allocation relations and consists of the social income redistribution among various groups of citizens
• Regulatory function sub-functions


  • Stimulating
  • Destimulating
  • Replication (regeneration)
• Stimulating sub-function


  Aimed at the development of special socio-economic processes, and is implemented through a system of allowances, exemptions and preference arrangements
• Destimulating sub-function


  Inhibits some socio-economic processes through the conscious exaggeration of the taxation burden
• Replication (regeneration) function


  By taxing the utilization of natural resources, roads, mineral and primary resources, the state uses these proceeds in order to regenerate the exploited resources
• Controlling function


  Through taxation, the state controls the financial-economic activity of juridical and natural persons
• Incentive function


  Stipulates special taxation arrangements for a certain group of citizens, who are social achievers (participants in wars, etc.)
• Adam Smith laid down four principles or cannons of taxation in his famous book "Wealth of Nations"
• Canon of equality or ability

  People should pay taxes in proportion to their incomes, with the rate or percentage of taxation increasing with the increase in income and decreasing with the decrease in income
• Canon of certainty


  There should be certainty with regard to the amount which taxpayer is called upon to pay during the financial year
• Canon of convenience


  The tax should be levied at the time and the manner which is most convenient for the contributor to pay it
• Canon of economy


  The expenses of collection of taxes should not be excessive and should be kept as little as possible, consistent with administration efficiency
• Other principles of taxation

  • Canon of productivity
  • Canon of elasticity
  • Canon of simplicity
  • Canon of diversity
• Proportionate principle


  Taxes should be levied in proportion to the incomes of the individuals to extract equal sacrifice
• Modern principles of taxation

  • Rational combination of direct and indirect taxes
  • Universalization of taxation
  • One-time taxation
  • Scientific approach for the determination of the exact tax rate
• Universalization of taxation


  Equivalent efficiency requirements to all payers and an equivalent approach to the deduction of the tax amount irrespective of the income source, type of activity, or economic sector
• It is not acceptable to introduce additional taxes, increased and differentiated rates, or tax allowances for different types of ownership, organizational or juridical structure of the entity, citizenship of natural persons or other factors
• Taxes should not be established or applied on basis of political, economic, and ethnic factors, or other criteria of this type
• One-time taxation


  One object can only be taxed once through one tax type for a specific period of time indicated in the law
• Scientific approach for the determination of the exact tax rate

  Setting the deduction rate at a level that would allow the subject to have an income necessary for normal development
• The magnitude of the tax burden should allow the normal functioning of the taxpayer after paying the tax amount
• It is not acceptable to set the tax rates on basis of short-term interests of insuring state revenues and to the detriment of economic development or to the interests of the taxpayer
• Stability of taxation


  Endurance of taxation for a long period of time and the simplicity of deducting the payment
• Tax rates should be determined by law and should not be revised frequently
• Differentiation of tax rates

  In accordance to the level of income, which should not develop into an inhibitive progression nor should it be transformed into an individualization of rates
• Tax allowances system


  Lead to an actual stimulation of investments into entrepreneurship activities and comply with the principle of social justice, including the insurance of a minimum living standard of the citizens
• Allowances should not be established for certain payers only—they should be the same for everybody
• Benefit Theory


  The state should levy taxes on individuals according to the benefit conferred on them
• The benefit theory has been subjected to severe criticism as there is no direct quid pro quo in the case of a tax, and it is not possible to estimate the benefit enjoyed by a particular individual every year
• Cost of Service Theory

  The state charges actual cost of the service rendered from the people
• The cost of service principle can be applied to some extent in cases where the services are rendered out of prices and are a bit easy to determine, but most of the state expenditure cannot be fixed for each individual
• Ability to Pay Theory


  Citizens of a country should pay taxes to the government in accordance with their ability to pay
• The main viewpoints on measuring ability to pay are ownership of property, tax on the basis of expenditure, and income as the basis
• Keynesian Taxation Theory


  Fast economic development must be based on a market expansion and an associated increase in consumption, and state intervention is achieved at the level of effective demand
• Keynes argued that high level progressive taxation is necessary and that low tax rates lead to reduced state revenues and contribute to economic instability
• The basic source of Philippine tax law is the National Internal Revenue Law, which codifies all tax provisions, the latest of which is embodied in Republic Act No. 8424 ("The Tax Reform Act of 1997") and Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law)
• Sources of Philippine government revenues

  • Personal and income tax collection
  • Fees and licenses
  • Privatization proceeds
  • Income from other government operations and state-owned enterprises