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Transcript of TAXATION
needs so that people may be enabled to live in a civilized society.
Classification of Taxes
PURPOSE OF TAXATION
Classification to Purpose
According to Object
It also serves a variety of purpose;
Mr. Roger B. Trajano
HEALTH ECONOMICS WITH LRT
NATURE OF TAXATION POWER
BASIS OF TAXATION
The power of taxation is both inherent and legislative in character because it has been reserved by the State for it to exercise.
The power of taxation originated from the theory that the existence of a government is a necessity.
Defined as the power of the sovereign to impose burden or charges upon persons, property or property rights for the use and support of government In order to enable it to discharge its function.
The power of taxation is legislative in character because only the legislature can make tax laws.
It is inherent because the sustenance of government requires contribution from them.
It may be increased in order to stabilize prices and stimulate greater production.
Taxes on imports may be increased to favor domestic production
Or decreased to encourage foreign trade
It can also mobilize capital to be poured into capital deficient fields
BASIC PRINCIPLES OF TAXATION
Thus, Taxation is an instrument of fiscal policy, and fiscal policy Influences the direction and structure of money supply, prices and of the national economy.
No government, whether democratic or despotic, can exist without resources to finance its operation.
A true tax is an exaction for revenue that is for the support of the government.
Inherent Limitation of the Power of Taxation
Limitation of public purpose
A tax is for the public purpose where it is for the support of government, or any of the recognized object of the government, or where it will directly promote the welfare of the community in equal measure.
Limitation of territorial jurisdiction
it follows that its taxing power does not extend beyond its territorial limits, but within its limit, it may tax persons, property, income or business.
Limitation of double taxation
understood as direct duplication taxation which means taxing twice by the same authority for the same purpose during taxing period.
Limitation of non-delegation of taxing power
the constitution provides that sovereignty resides in the people and all government authority emanates from them.
Limitation of exemption of government agency or instrumentality
the general rule is that agencies and instrumentalities of the government is exempted from taxation.
emphasizes that the source of revenue, as a whole, must be sufficient to meet the expanding governmental expenses regardless of business conditions, exports taxes, trade balances and problems of economic adjustments
Equality or Theoretical Justice
refers to the use of revenues which must be believed base on the taxpayer’s ability to pay
means that the tax system must be clear to the taxpayers, can be enforced and is convenient and not burdensome or discouraging to a business activity.
– designed to raise revenue for governmental need.
– designed to achieve some social and economic goals irrespective of whether revenue is actually raised or not.
Personal, Captivation or Poll Tax
– imposed on individuals within the jurisdiction of taxing power, regard to the mount of their property or occupation in which they are engaged.
Ex. Residence tax
– computed upon the valuation of property and assessed at the owner’s domicile, although privileges may be included in the valuations.
Ex. Real estate tax
– imposed directly by the legislature and the sum is measured by the amount of business done or the extent to which the privilege has been enjoyed or Exercised.
According to Subject
According to determination of
Tax of fixed amount by the hear or member, or by some standards of weight and measurement, and requires no assessment other than a listing or classification of the subjects to be tax.
Ex. Excise taxes on wines and liquors.
Ad Valorem Tax
(according to value)–
of fixed proportion of the value of the property respect to which the taxes are assessed, and require the intervention of assessors to appraise the value of such property before the amount due from each tax payer can be determined.
Ex. Real estate tax
when the person on whom the tax is imposed absorbs the tax or bears it.
Ex. Income Tax
– charge paid by a person other than the one on whom it is legally imposed.
Ex. Value-Added Tax
According to Authority imposing the tax
– levied and collected by the national government.
Ex. Income Tax
– levied and collected by the municipal government.
Ex. Real Estate Tax
According to Rate
based on a fixed percentage regardless of the amount of income, property or other bases to be taxed, a single rate being applied to different objects with different values.
the tax rate increases as the tax base increases.
Ex. Income Tax
the effective rate decreases as the base increases.
Ex. Value-Added Tax
Forms of Escape from Taxation
transfer of the burden of a tax by the original payer on the one on whom the tax was assessed or imposed to another or someone else.
special form of backward shifting. It occurs when the good is durable good, the whole series of future taxes is to be shifted backward at the time of purchase. And the future taxes must be capitalized and deducted in a lump sum from the price offered.
NOTE: Backward Shifting – occurs when the burden of tax is transferred from the consumer to the producer or manufacturer.
this is effected through the process of production. When the producer pays the taxes himself and recovers the additional expenses by improving his production thereby turning out units of his production at lower cost.
illegal effort to avoid payment of tax.
use of legally permissible(allowable)means to reduce tax liability
grant of immunity to a particular person or corporation from a tax upon properties which they are obligated to pay.
1. To impose taxes, fees and charges on persons engaged in any occupation or business or exercising privileges in their respective jurisdiction.
2. To collect fees and charges for services rendered by them.
3. To regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within their jurisdiction.
Under Republic Act 7160, otherwise known as the Local Government Code of 1991, all provinces, municipalities, cities and barangays shall have authority:
4. To levy for public purpose just and uniform taxes, fees and charges.
1. Income tax, except on banks and other financial institutions.
2. Documentary stamp tax.
3. Taxes on estates, inheritances, gifts, legacies and other acquisitions by mortis causa.
4. Custom duties, registration fees of vessels and warfage, except when it is operated and maintained by LGUs concerned.
5. Taxes, fees and other charges and other imposition on goods carried into or out of, or passing through, the territorial jurisdiction of LGUs.
6. Taxes, fees or charges on agricultural and aquatic products then sold by marginal farmers or fisherman
7. Taxes on business enterprises certified to by the Bureau of Investment as pioneer or non-pioneer for a period of 6 to 4 years respectively, from the date of legislation.
8. Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes on petroleum products.
9. Percentage of value-added tax on sales, barters, or exchange of goods and services.
10. Taxes on gross receipts of transportation contractor and persons engaged in transportation of passengers and freight
11. Taxes on premiums paid by way of reinsurance or retrocession.
12. Taxes, fees or charges for the registration of motor vehicles, except tricycles, and issuance of all licenses or permits.
13. Taxes, fees or charges on Philippines products actually exported.
14. Taxes, fees or charges on countryside and barangay business enterprise and cooperatives duly registered.
15. Taxes, fees or charges of any kind of the national government agencies and instrumentalities and LGUs.
KINDS OF LOCAL TAXES
Real Property Tax – covers the administration, appraisal, assessment, levy and collection of real property taxes, on land and buildings and other structures and improvements on it including machineries.
Estate Tax – refers to the tax on the right or privilege of person to transmit his property by reason of his death to his lawful heirs.
Inheritance Tax – tax on the privilege of the succeeding to or only inheriting property by will or by ascendancy, to become operative only at or after death.
Donor’s Tax – imposed on the transfer by any person resident or non-resident, of property by gift.
- imposed on the gross receipt of the proprietor, lessee, or operator of:
a. cockpits, cabarets, night or day clubs
b. boxing exhibitions
c. Professional basketball games
d. Jai-alai and race tracks
Documentary Stamps Tax
– tax on documents, instruments, and papers evidencing the acceptance, assignment, sale or transfer of obligation, right or property.
a. The document shall not be recorded
b. Such document shall not be admitted or used as evidence in any court until the requisite stamp shall be affixed and cancelled
c. No notary public or other officer authorized to administer oath shall add his acknowledgement until the document is properly stamped.
d. The person who fails to affix the proper documentary stamp shall be liable to in addition to the amount of tax required to be paid, an amount equivalent to 25% of such unpaid amount
Effects of failure to stamp taxable documents
- taxes levied by government on the importation or exportation of goods in and out of the country
a. Ordinary or Regular Custom Duty - imposed and collected mainly as a source of revenue
b. Specific Tax – the duty is based on weights or volume of imported articles
c. Ad Valorem – the duty is based on the market value of imported articles
d. Special Custom Duty – imposed and Collected in addition to the ordinary custom duty, usually to protect local industries from unfair competition
– tax imposed on person residing within a specified territory by reason of his being such a resident
i. Basic – refers to Residence Certificate Class A issued to every person paying the basic residence tax of P1.00
ii. Additional – refers to the Residence Certificate Class B tax in accordance with the schedule laid down by law
i. Basic – refers to Residence Certificate Class C issued to every corporation paying the basic residence tax of P50.00
ii. Additional – refers to Residence Certificate Class C-1 issued to every corporation paying additional residence tax in accordance with the schedule laid down
- refers to Residence Certificate Class D issued to any person or corporation, not liable to the payment of the residence tax but desiring to have one upon payment of P1.00
Subject to inherent limitation on the power of taxation and to provisions and restrictions embodied in the constitution, the power, control and discretion vested in the legislature in respect to the subject of taxation is broad and biding upon all persons and property subject to its jurisdiction. And in the absence of constitution prohibition, a state legislature has the power to impose tax upon income
Income tax has been referred to as a tax on the yearly profits arising from property, professions, trades or offices, or a tax on a person’s income emoluments, profits, and the like.
Income, for tax purposes, means all wealth which flows into the taxpayer other than mere return of capital. It may also be defined as the gain derived from labor or from both combined. Provided it be understood to include profit gained through a sale or conversion of capital assets.
Gross income include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever from paid from profession, vocation, trade, business, commerce, sales or dealing in property growing out of ownership or use of or interest in such property.
Net income means gross income less allowable deductions. The tax base upon which the tax rate is computed is the taxable income
INCOME SUBJECT TO TASK
1. Compensation income - payable in cash or in forms other than cash, includes income arising from employer-employee relationship
2. Business or commercial transaction income, including income from profession.
3. Capital gains
Persons Subject to Individual Income Tax
Citizens of the Philippines
a. Resident citizens
b. Non-resident citizens
a. Resident aliens – upon their taxable compensation, business and other income received from all source in the Philippines
b. Non-Resident Aliens
i. Engaged in trade or business in the Philippines
ii. Not engaged in trade or business in the Philippines based on their entire income received from all sources within Philippines
Amount allowed as exemption
Personal exemption is the amount allowed by law to an individual as a deduction in computing taxable income depending upon his status. While additional exemption is given to taxpayer on account of his qualified dependents.
Amount allowed as exemption
a. Personal exemption
Amount allowed as exemption
a. Personal exemption
P50,000 – if taxpayer is single, legally separated, or widow/widower with no qualified dependents
P50,000 – if taxpayer is head of the family (single, legally separated, widow/widower with qualified dependents
P50,000 – if taxpayer is married
P25,000 each Qualified Dependent
Qualifications of qualified dependent
1. Must be parents, children, brother or sister
2. Must be minor, unmarried and unemployed
3. Must depend upon the taxpayer for chief support
4. For dependents over 21 years old, must be incapable of self-support due to mental or physical defect
Note above minimum is taxable
Computation of Income Tax
Less: Allowed exemption (personal +additional exemption
Equals: taxable Income (then refer to tax table for computation of tax due)
The refer to tax table for computation of tax due
Tax Due: (based on computed tax)
Less: Withholding tax (base on W-2)
Equals: Tax Payable or refundable
iii. Aliens employed by Regional or Area headquarters of Multinational Corporations, offshore banking units, Service contractors engaged in petroleum operations in the Philippines
Essential Characteristics of Taxes
1. It is an enforced contribution
2. It is exacted pursuant to legislative authority
3. It is levied upon person, property and property rights
4. It is contribution in money
5. It is for the purpose of raising revenue
6. It must be for public purpose
7. It must be proportionate in character
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