TAXATION

MEANING OF TAXATION:
Taxation – is a system of raising money to finance
government.
Government use tax revenues
• to pay soldiers and police,
• to build dams and roads,
• to operate school and hospitals,
• to provide food for the poor and
• medical care to the elderly, and for hundreds of
other purposes. Without taxes to fund its
activities, government could not exist.
Without taxes to fund its activities, government
could not exist.
Taxation is the supreme power of a sovereign
state to impose burdens or charges upon
persons, property or property rights for public
purpose.
Taxation is the method of apportioning the cost
of government among those who in some
measure are privileged to enjoy its benefits
and must therefore, bear its burden,
Taxation does not confine itself on government
expenditures. It also regulates the flow of
income in our economic system. When there
is too much money in the system, the
government withdraws some of this money to
check inflation.
Meaning of Tax
According to Cooley, taxes are enforced
proportional contributions from persons and
property, level by the state for virtue of its
sovereignty for the support of government
 and for all public needs.
Taxes are compulsory contributions to support
the State. It considered as the “lifeblood” of
the government that without which, a
government may not be able to perform and
expenditures are financed by tax revenues. It
is but right and proper that we pay our taxes.
Basis of Taxation
1. The authority to tax is inherent to every
sovereign state for without it, the government
cannot continue to promote the welfare of
Citizens. For this reason, it has the power to
require all its inhabitants to pay.
2. The basis of Taxation is found in the reciprocal
duties of protection and support between the
state and those that are subject to its authority.
In return of their contribution, taxpayer enjoys
services and protection from the government.
Importance of Taxation
The people, as good citizen, have the
responsibility to contribute a fair-share to the
cost of government in order for the state to:
1. Raise revenue. No government can exist
without it, it cannot promote the welfare of
the people.
2. Protect locally produced goods against
competition from import by imposing higher
custom duties.
3. Protect new industries by granting tax
exemptions.
4. Regulate property.
5. Distribute equally the wealth of the nation.
Essential Characteristics of Taxation:
1. It is an enforced contribution. All citizens are
required to pay their taxes. Failure to do so
subjected to penalty provided by law.
2. It is generally payable in money. Payments of
checks, promissory notes, or in kind are not
accepted. The taxpayer must pay their taxes in
terms of prevailing currency.
3. It is proportionate in character. collection of taxes
is based upon the income and the property of the
taxpayer. The higher the income, the higher the
tax and the lesser the
Lesser the income, the lesser the tax.
4. It is levied by the state, which has jurisdiction over
the person or property, In real property taxation,
the rule is: “the place or state where the property
subject to tax is located has authority and
jurisdiction to impose tax.” In movable property,
the rule is: “mobilia sequntur personan,” a Latin
phrase which means “movable follow the law
person.”
5. It is levied on persons, property or property rights.
A person who receives an income based on skills
and practice of profession are required to pay their
taxes. He is also taxed on
Acquired properties deemed taxable.
6. It is levied by legislation branch of the state.
There must be a law enacted by Congress
before assessment and collection may be
implemented. The power of taxation may be
delegated by Congress to local government
units subject to conditions and terms
prescribed.
7. It is levied for public purposes. It is intended
to raise revenue for public purposes. It is
considered for public purpose if the proceeds
Thereof are used for the support of the
government, or for the welfare of the community.
Basic Principles of a Sound Tax System:
1. Fiscal adequacy. This means that the source of
revenue should be sufficient to address the
demands of public expenditures.
2. Equality or theoretical justice. This means that
the tax burden should be proportionate to the
taxpayer’s ability to pay.
3. Administrative feasibility. This means that the tax
should be capable of convenience, just and
effective administration.
Classification of Taxes
1. National Taxes – These are taxes imposed by
the national government under the National
Internal Revenue Code and other laws
particularly the Tariff and Custom Code; and
2. Local Taxes – These are taxes imposed by the
local government to meet particular needs
under the Local Government Code, such as
real property tax, and the community tax.
Forms of Taxes:
3. Direct Taxes – This is a form of tax paid directly
by the individual or corporations
Directly to the government.
2. Indirect Taxes – These are taxes imposed on a
particular article or transaction which are paid by
others than those from whom the tax collector
receives payment.
Examples of Direct Taxes:
1. Income Tax – This kind of tax is derived from
individuals, corporate, estates and trust income.
2. Inheritance Tax – inheritance tax is paid on
property passed on from a deceased person to
those who are to inherit it. The term may be
applied on two different taxes:
a. A tax on the property before it is divided;
b. A tax given to the heirs. Technically, these two
taxes should be called estate taxes and
inheritance taxes respectively.
3. Estate Tax – This is a tax on the right of the
deceased person to transmit his/her lawful heirs
and beneficiaries at the time of death and on
certain transfer, which are made by law
equivalent to testamentary disposition.
4. Donor’s Tax – This is a tax levied on donation or
gift and is imposed on the gratuitous transfer of
property between two persons who are living at
the time of the transfer.
5. Capital Gain Tax – A kind of tax impose on
Income from sale of capital asset, which includes
stocks, bond, real estate, and partnership.
6. Property Tax – A tax levied on the assess value of
land and permanently attached improvements
owned by individuals or corporations.
7. Documentary Stamp Tax – A tax imposed on
documents, instruments, loan agreements and
papers evidencing the acceptance, assignment,
sale or transfer of an obligation.
Documents subject to such tax are the following:
1. Debentures and certificate of indebtedness
2. Original issue of shares of stocks
3. Sales contracts or agreements
4. Bonds, loans agreements, promissory notes
and bills of exchange
5. Insurance policies
6. Powers of attorney
7. Leases, mortgages and pledges
Examples of Indirect Taxes:
1. Value-added Tax – This is a tax imposed by the
government at each stage in the production of a
good or services. The tax paid by every company
that handles a product during its transformation
from raw materials to finished goods. The amount
of the tax is determined by the amount that a
company adds to the materials and services it buys
from other firms. Most firms that pay value-added
tax try to pay this expense on to the nest buyer. As
a result, most of the burden of this tax in time falls
on the consumer. In this sense, the final effect is
equal to that of a retail sales tax.
2. Sale Tax – This is a tax levied on the sale of
goods and services. The tax is a certain
percentage of the state.
3. Percentage Tax – it is a business tax imposed on
persons or entities who sell or lease goods,
properties ore services in the course of trade or
business whose gross annual sales or receipts do
not exceed P550,000 and are not VAT registered.
4. Excise Tax – is on manufacture, sale or use of
goods or services levied by local state or
national government. Excise taxes include fees
paid for business licenses. Most excise tax
Revenues comes from the sale of tobacco,
alcohol and gasoline.
LIMITATION ON THE POWER OF TAXATION

Under the Constitutional limitations on taxation,

they are the following;
1. Due process of law.
2. Equal protection of the law
3. Rule uniformity and equity in taxation
4. Prohibition for imprisonment for non-payment
of a poll tax
5. Non-impairment of the obligation of contracts.
6. Non-infringement of religious freedom
7. No appropriation for religious purpose
8. Exemption from taxation of religious
institutions, charitable institutions, non-profit
and non-stock educational institutions and
non-profit cemeteries.
9. Concurrence by a majority of all the members
of Congress for the passage of a law granting
exemption.