Professional Documents
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Corporate Tax Evasion and Its Impact On The Economy
Corporate Tax Evasion and Its Impact On The Economy
Feisty Virgin
Jovi Romero
Roselyn Salazar
Andrei Santos
Jay-Anne Subala
Ramir Ruedas
2A14
Introduction
Tax evasion has been a pressing issue with the BIR recently. A lot of
cases were filed against popular individuals and corporations that
caught the attention of the people and the media. Although tax
evasion is presumably as old as the history of taxation, the recent
cases filed gave an alarming awareness to everyone. With the
prevalence of tax evasion in an economy, it deprives its country of
national funds needed for its development that could lead to a serious
problem or crisis. Our stand is that corporate tax evasion is a major
factor in the impediment of economic growth. This research aims to
raise awareness on responsibility of every taxpayer especially the
corporation as to how these taxes contribute to economic growth. The
paper is organized as follows; in the opening part we discuss the
definition of terms and the conceptual difference between tax evasion
and tax avoidance. In the body, we explored the tax system
implemented in our country, the importance of taxes and ethical issues
arising from tax evasion. Also, the factors that affect the evasion of
taxes, how they evade taxes, and the evidences that supports the
thesis statement are further discussed. On the last part, we are going
to reiterate our thesis statement and propose a possible solution and
also the implications of the prevalence of tax evasion if not resolved in
the future. We are limiting this research to corporate tax evasion and
its effect on the economy only.
Body
THE PHILIPPINE TAX SYSTEM
Taxation is the imposition of financial charges or other levies, upon
a taxpayer by a state that failure to pay is punishable by law
(Gonzales, 2011). It is a rule by which a government makes extractions
or collection for revenue in order to support their existence and carry
out their legal objectives. It is the most common and strongest power
of a government. Taxes are the blood and life of a government, without
it, a government cannot meet its objectives.
The main purpose of taxation is to accumulate funds for the
functioning of the government machineries (Gonzales, 2011). No
government in the world can run its administrative office without funds
and it has no system incorporated in itself to generate profit for its
governments.
Local
taxes
may be imposed,
as the
All
income,
revenues,
assets
of
non-stock
and
non-profit
Prizes and winnings from a charity horse race sweepstakes from the
Philippine Charity Sweepstakes Office
unfairly high level of taxes (Witte and Woodbury, 1985). Some people,
commonly in corporations, think that they pay higher taxes than that
of others and as a result, they tend to make ways on how to lessen
their taxes.
On the other hand, administrative and legal aspects include
dishonest tax reporting or accounting fraud, manipulation of records,
and corruption. Common practices of tax evasion include: underreporting of income, over-statement of expenses, use of fictitious
receipts, the keeping of double sets of books, false or fictitious entries
in books, fictitious transactions in the name of dummies, non-recording
of sales, and others. Dishonest tax reporting is mainly done by
accountants by hiding the true status of the firm to the tax authorities.
They simplify records so that the firm will pay less taxes and being able
to generate more profit. Tax evasion commonly arises when a person
overstates the expenses (false receipts) or counts in ineligible
expenses. As a result, less income will be recorded but in reality, they
gained more profit and spent less for their expenses than what is
indicated in their financial statements.
Corruption is also a major contributor to tax evasion. Based on the
Latin American experience, Herschel believes that knowledge of
widespread corruption of senior policymakers in a country may signal
the mismanagement of public funds and hence induce resistance to
comply with tax laws. People tend to make ways not to pay their taxes
because they believe that their money will not be used properly by
their government in making their country better.
From the above table are the corporate tax rates of Philippines,
Korea, and Sudan from the years 2009-2014. We chose to compare
Korea and Sudan to the Philippines because they are just some of the
most corrupt countries in the world. Koreas major issues can be traced
back to a number of natural disasters and the collapse of the Soviet
Union while Sudan has been wrapped thoroughly in the grasp of war
for many years. The table shows that Philippines had a constant 30%
corporate tax rate from 2009-2014. Korea had 24.2% corporate tax
rate from the given years except in the year 2011 in which they had
22%. Lastly, Sudan had 15% from 2009-2010 but has increased to 35%
for 2011-2014. This implies that the high corporate tax rates of Sudan
and Korea are understandable because of their economic situations.
corporations which violated the same law, Sec 27 and 28 of the Tax
Reform Act of 1997. Republic Act 8424 Sec 27 discusses the rate of
income tax of domestic corporations which is 35% imposed upon the
taxable income derived during each taxable year from all sources
within and without the Philippines by every corporation taxable under
this Title as a corporation, organized in, or existing under the laws of
the Philippines. On the other hand, Sec 28 tackles the rate of income
tax of foreign corporations a corporation organized, authorized, or
existing under the laws of any foreign country, engaged in trade or
business within the Philippines, shall be subject to an income tax
equivalent to 35% of the taxable income derived in the preceding
taxable year from all sources within the Philippines.
In economics, taxes are often considered economically inefficient,
which suggests tax evasion may potentially have a positive impact
on an economy. The theory is that since taxes operate by increasing
According to the
report, the top 10 developing countries with the highest illicit financial
outflows were China ($2.74 trillion), Mexico ($476 billion), Malaysia
($285), Saudi Arabia ($210 billion), Russia ($152 billion), Philippines
($138 billion), Nigeria ($129 billion), India ($123 billion), Indonesia
($109 billion ) and the United Arab Emirates ($105 billion). The same
report also said that of these illicit cash flows, 60%-65% was for tax
avoidance and 30%-35% from criminal activities. Illicit cash flows from
corruption, bribery and theft among government officials accounted for
3%-5%. The most depressing news for us is that the Philippines ranked
6th in the list of developing countries in terms of illicit cash flows. We
can only dream of the positive effect on our economy and on the
number of jobs that would have been created if the Philippine elite had
decided to keep and invest the $135 billion here instead of stashing
them abroad.
Tax evasion take away money that could be invested in productive
resources needed to diversify the economy and address urgent social
problems. Tax evaded money is not spent on productive investments
that can have a multiplier effect on an economy and benefit the
significant majority of a population, rather than just a select few. The
government must spend resources attempting to recoup taxes it is
owed, which is wasteful to society. If no one underpaid taxes, more
money could be attributed toward beneficial programs instead of being
spent on collecting it. Also compare a corporation that pay its tax
liability correctly to the one that evade taxes, it creates an artificial
advantage for the company evading taxes. This could lead to
companies with less business practices outlasting those with more
efficient practices, which would be detrimental to the economy
because those companies that evade taxes outlasted which means
lower national funds and the companies closed would result to
unemployment.
Corporation
Personal
Ethics
Three major views have evolved over the last 500 years regarding
tax evasion. One view takes the position that tax evasion is always or
almost unethical, either because there is a duty to God to pay taxes, or
because there is a duty to some community or to society. Another view
is that there is never or almost never a duty to give anything to a
corrupt government. The third view is that there is some ethical
obligation to support the government of the country where you live but
that duty is less than absolute.
Taxes are the charges that the government imposes on citizens and
corporate businesses. The charges collected by the government are
used to fund different government projects that would in the end
benefit the citizens of the country as a whole. It also plays a key role in
building up institutions, markets and democracy through making the
state accountable to its taxpayers. Paying taxes plays an important
role for the benefit of the society and businesses by providing funds for
the projects of the government and unexpected events like recession
and turmoil.
The society is the main beneficiary of paying taxes. Taxes are used
to fund projects related to health care systems, education systems,
and public transports which is very essential for the everyday living of
the citizens. Also, the money collected can also be used to give
unemployment benefits, pensions, and other matters that can benefit
the society as a whole. Without tax, the government would not be able
to fund the essential projects and services that people need. People in
the society can also be more responsible citizen by imposing taxes on
liquor, cigarettes and gambling ,specifically the Sin Tax law , so that
they may not purchase these items immediately because of its higher
cost . Taxes also promote economic growth by generating the revenue
needed to finance governments economic development policies and
create a framework for development of private sector activities.
Conclusion
The result of the study is that corporate tax evasion filed has a
greater number than that of the personal tax evasion cases. This just
simply means, a decrease in the national budget that could have been
put into a lot of projects that benefits the common good such as
infrastructures, roads, education and especially economic sector. This
research also found out the underlying cause of tax evaders is that the
government is known to be corrupt, but in reality, the economic sector
is the 2nd with the highest budget allocation in our country which
means these corporate tax evaders benefit a lot from the taxes put
into public service. Corporate tax evasion also leads to budget deficit
which result to foreign debts that hinder the countrys economic
growth.
As practitioners, addressing these crucial issues head on be it
corruption,
tax
evasion
or
bloated
public
sectoris
our
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