MODULE 4: GROUP 4

• Taxation is the process by which a sovereign, through its law-making body, raises revenue to defray the necessary cost of governance
• Taxation is a way of apportioning cost of government among those who in some measure are privileged to enjoy its benefits and therefore must share its burdens It is an inherent power of the state to demand forced contributions for public purposes
• Characteristics of Taxation

  • Enforced Contribution - it is not a voluntary payment or donation
  • Proportionate in character - it is based on the ability to pay or some other criteria
  • Generally payable in money - it is a pecuniary burden which be paid by legal tender
  • Levied upon persons or property - it may be for income earned or use/enjoyment of a thing
• Principles of Taxation (according to Adam Smith)

  • Fairness
  • Certainty
  • Convenience
  • Efficiency
• Fairness (in taxation) - taxation should be compatible with taxpayers' conditions, including their ability to pay in line with personal and family needs
• Certainty (in taxation) - taxpayers are clearly informed about why and how taxes are levied
• Convenience (in taxation)- the ease of compliance for the taxpayers
• Efficiency (in taxation) - the costs of tax collection should not be greater than the benefit
• 2 Approaches to Taxation

  1. Benefit-based
  2. Ability to pay
• Benefit-based approach in which taxes are based on a politically-revealed willingness to pay for benefits received, like VAT. All tax payer pay 12% VAT regardless of income.
• Ability to pay approach in which taxes should be levied according to a taxpayer's ability to pay, like income taxes
• Classifications of Taxation

  • Direct
  • Indirect
• Direct tax is an individual or organization pays directly to the imposing entity, like income tax
• Indirect tax can be passed on to another entity or individual and usually imposed on a manufacturer or supplier who then passes on the tax to the consumer like excise tax on cigarettes and alcohol
• Types of National Internal Revenue Taxes

  • Income
  • Business (value-added and percentage taxes)
  • Excise
  • Documentary stamp taxes
• Tax Policy is the choice by a government as to what taxes to levy, in what amounts, and on whom
• The tax laws of the Philippines are enshrined in Republic Act No. 109563 otherwise known as the Tax Reform for Acceleration and Inclusion Law (TRAIN Law)
• Goals of Taxation

  • To raise revenue for the services and income supports the community needs
  • Taxes should be levied equitably, according to ability to pay
• Ways Taxes can be Shifted

  • Forward shifting - the burden falls entirely on the end-user
  • Backward shifting - the cost of the tax is borne by those engaged in producing it
  • Not shifted at all - e.g. a tax on business profits may reduce the net income of the business owner
• Income Tax is a tax on all yearly profits from property, business, trades, or offices, or it can be thought of as a tax on a person's salaries, wages, profits, and other similar earnings.
• Value Added Tax is a tax that is charged to and collected from sellers of goods or services. The buyer can be charged for it as well since it is an indirect tax
• Percentage tax is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed P550,000 and are not VAT-registered.
• Excise tax is a tax on the production, sale or consumption of a commodity in a country. It applies to goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition; and to imported goods
• Under excise tax:

  • Specific Tax
  • Ad Valorem Tax
• Documentary Stamp Taxes is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.
• Tax policy is the foundation of fiscal governance, which embodies the government's strategic decisions on imposing and regulating taxes
• Tax policy operates on two faces:

  • Microeconomics
  • Macroeconomics
• Tax Reform for Acceleration and Inclusion (TRAIN) Law, which was assigned into law by Pres Rodrigo Duterte on Dec 19, 2017. The TRAIN law is a comprehensive tax reform program aim at restructuring the Philippines tax system to make it simpler, fairer and more efficient.
• The TRAIN Law in the Philippines promises more than just revenue generation—it offers benefits like increased employment, enhanced public services, and improved infrastructure, paving the way for sustainable economic growth and inclusive development. Additionally, tax policies, such as progressive taxation and simplified rules, promote

  fairness, efficiency, and economic growth by redistributing wealth, encouraging investment, and striking a balance between tax rates to support long- term economic development.
• Key Republic Acts governing taxation policies in the Philippines

  • The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act)
  • Article VI, Section 28 of the Constitution
  • The National Internal Revenue Code of 1997 (Republic Act No, 8424), also known as the Tax Reform Act of 1997
  • Republic Act No. 1937, the Tariff and Customs Code of the Philippines
  • Republic Act 7160, also known as the Local Government Code of 1991
• Tax shifting refers to the phenomenon where the burden of a tax is passed from the party legally responsible for paying it to someone else. In simpler terms, it's not always the person who cuts the check for the tax that actually bears the cost.
• Forward shifting is the most common type, where businesses raise prices to consumers to compensate for the tax they have to pay. For example, if a sales tax is imposed, businesses may increase the price of their goods and services to cover the cost of the tax
• Backward shifting happens when businesses try to reduce their costs to absorb the tax burden. This could involve lowering wages, reducing benefits for employees, or negotiating lower prices with suppliers
• No shifting, in some cases, the tax burden cannot be shifted and simply reduces the profits of the business or the income of the individual who is legally responsible for

  paying it.