PUBLIC FISCAL ADMINISTRATION

Tue&Thurs (7:30-9:00PM)/PA10/ROOM 218/BPA I2021

Chapter 6:
TAXATION FOR DEVELOPMENT

Submitted to: Prof. Andres P. Mago

Submitted by Group 5:

Forteza, Renalyn A.
Gallenero, Andrie Kurt D.
Gulmatico, Marc James

2023
 THEORY AND PURPOSE OF TAXATION

A. Definition and Essential Characteristics

Legally, a tax is a compulsory contribution from the person to the government

to defray the expenses incurred in the common interest of all without
reference to special benefits conferred upon taxpayer." Taxation is an
important tool which the government employs to keep overall money
expenditure for goods and services from advancing or falling too rapidly ? it
claimed that the most important aspect of taxation is not the amount of
revenue which it produces, but its effect on the level of total money that
expenditure. Others express more concern on whether it is really promoting
equity the distribution of income and efficiency in the allocation of resources.
Both are equally important for developing countries like the Philippines where
come disparity is very much a problem and government resources are scarce.

In De Leon's "The Fundamentals of Taxation" (1988) the following features of

a tax are cited:

1. It is an enforced contribution;

2. It is generally payable in money:

3. It is proportionate in character;

4. It is levied on persons, properties or transactions;

5. It is levied by the state which has jurisdiction over the person, property or
transaction;

6. It is levied by the lawmaking body of the state; and,

7. It is levied for public purposes.

From the point of view of economics, taxes are classified as follows:

1. Those imposed in the product or factor markets,

2. Those imposed on the seller's or the buyer's side of the market;

3. Those imposed on households or firms, and

4. Those that enter on the sources or uses side of the taxpayer's account

B. Bases and Purposes

Literature on taxation tells us that the existence of government (and ultimately

that of the state) is a necessity since the state is ultimate socioeconomic and
political human organization. The most basic function of taxation is to fund
government expenditures. In addition, the state provides the people an
apparatus or a machinery where they could cooperate and consolidate their
resources for the satisfaction of their common needs. The state supplies an
organizational structure for the provision of social (public) goods, like national
defense, parks, fire stations and the construction of roads, etc., because no
private individual has the incentive to provide them on his own.

Like all other organizations the state needs resources for its operation -
specifically for the support of its government. This became one of the
justifications for taxation. It is often stated that to justify taxes is to justify the
existence of the state itself. In fact, one Supreme Court ruling stated that
taxes are the lifeblood of the government, hence, ultimately that of the state.
Through time, the government has been expanding the scope of its services,
which now includes housing, water services, insurance and job recruitment.
They are now deemed essential to civilized societies, thus giving more
opportunities for self- development of the people or for the pursuit of higher
non- economic goals.
Taxation for development. Taxation had been used as an instrument of
directing the economy of the state to prosperity. More specifically, taxation
has been employed to effect equitable distribution of wealth (progressive of
taxation) and to stabilize the economy (inducing savings or investment or
employment opportunities).

One of the enduring theories of taxation relevant to a design of a

development-oriented tax system is Adam Smith's canons of taxation.

1. Equity, The principle prescribes that taxes must be based on the taxpayer's
ability to pay, as measured by his size of income. Thus, a reasonable
classification of the subjects or objects which are to be subjected to a tax
must be designed. This permits a determination of a tax differentiation
between two taxpayers based upon a relevant difference.

2. Certainty, This second criterion specifies that taxpayers should know which
taxes are imposed, the amount to pay, and the manner of payment. A
taxpayer for example, must be informed whether or not a tax is applicable to
him, and if applicable, how much tax he should pay the government and how
to pay such.

3. Convenience, Smith's third canon takes into account the convenience of

the place, time, and manner of payment. This principle demands that the
government must locate its collection offices at places where they are easily
and conveniently accessible to taxpaying public.

4. Economy, Tax administration according to Smith, must not involve too

much expense on the government. If a tax is to be economical, the cost of its
collection must be minimal, otherwise the cost of collecting tax will be greater
than the revenue realized.
C. Classification of Taxes

Taxes may be classified according to: purpose, incidence, rate, author- y

imposing it, object, scope and determination of amount paid.

1. As to purpose. A tax may be fiscal, designed solely for raising revenues. It

may also be regulatory, intended to achieve social or economic goals
regardless of whether revenue is actually raised or not.

2. As to incidence, incidence has reference to the point at which the burden

of the tax is actually borne. This is concerned with who bears the burden of
the tax. Under this category, tax may be direct or indirect. It is of direct type
when the person on whom the tax is imposed absorbs the burden. A classic
example of this type is the income tax. On the other hand, a tax is direct when
the charge is paid by a person other than the one on whom it legally imposed.

3. As to rate. A tax may be proportional, progressive or regressive. It

proportional when it is based on a fixed percentage, regardless of the amount
of the income or value of property, a single rate being applied to different
objects with different values. A tax is progressive when the rate increases as
the tax base increases. An example of this is the modern Income tax. On the
other hand, a tax is regressive when the effective rate decreases as the tax
base increases.

4. As to authority. A tax may be imposed by the national government as in

the case of the income tax, or by the local governments (provincial, municipal
or barangay) as in the case of the real estate tax.

5. As to object. A tax may be charged on personal occupation engaged in by

the taxpayers. Usually, a fixed amount is imposed upon all persons of a
certain class within the jurisdiction of the taxing power without regard for the
value of their property or the occupation.
6. As to scope. Taxes under this classification may he general or specific
General taxes are those impulsed throughout the state for the purpose of
financing general public benefits.

7. As to the amount paid. An example of this is the specific tax which is paid in
fixed amount as appraised by the head or number, or by some standard of
weight or measurement. No assessment is required other than a listing or
classification of the subject to be taxed.

II. DEVELOPMENT REQUIREMENTS

A responsive tax system must be able to support and promote a nation's
economic and social objectives. For developing countries, this is easier said
than done. In a country like the Philippines, taxation (like any other fiscal tool)
has to contribute towards realizing the requirements of development, namely,
(1) the generation of capital and savings necessary to economic growth; (2)
the reduction of inequalities in income and wealth for social justice and equity;
(3) the proper allocation and utilization of resources for a balanced
development; and (4) the protection of the "exposed" economy from external
forces so as to attain stability and unimpeded economic growth.

A. Capital Formation
Capital formation is considered the key to economic development. In
developing countries, taxation is increasingly assigned the role of generating
capital savings in an economy where capital resources are scarce. The
scarcity of capital to finance economic growth and production may be traced
to the low level of income and savings, and the high propensity for
consumption

In poor countries, taxation must be able to regulate consumption in order to

encourage people to save. Likewise, it has to provide incentives to attract the
savings into productive investment.
In sum, taxation for capital formation should maximize savings, mobilize them
for productive socioeconomic investment and provide, where the private
sector fails or refuses, the necessary revenues for social and economic
infrastructures needed for development.

B. Allocation of Resources
Tax measures, through exemptions and incentives, should be able to
enhance the efficiency of resource allocation and maximize the benefits of
allocated resources such that not only full utilization and productivity for
economic growth is achieved but also balanced economic and social
development

Balanced development is achieved through taxation, when incentives and

subsidies on economic sectors result in the proper mix of economic and social
goods.

C. Redistribution of Income and Wealth

Among developing countries, the wide disparity in income and wealth among
social classes is increasingly becoming an urgent focus of development
efforts. In the Philippines, it is the avowed policy of the state to reduce this
disparity by the principle of social equity.

Taxation for development requires that the tax system should narrow the gap
of resources and opportunities. In addition to the generation of resources to
finance public expenditures which provide economic and social opportunities
for the less advantaged, tax systems are formulated to exert a direct impact
on income inequities and other inequities in the economy.

Finally, when taxes which are raised through a progressive tax structure are
channeled towards expenditures which improve the income generating
capacities of the disadvantaged,education, health, employment generating
projects, etc., such taxes in the long run contribute to redistribution of income
and wealth.
D. Stability
A development-oriented tax system must be able contend with the instabilities
of the "exposed" economies of developing countries. An "ex- posed economy"
is essentially that which is highly vulnerable to world market developments
which are beyond its control. This exposed position is generally caused by: (1)
the heavy dependence of the local economy on the export of its agricultural or
mineral products as a source of national income and foreign exchange, (2)
dominance of foreign investments in the economy, and (3) the dependence on
foreign sources for manufactured products, including oil, machinery,
foodstuffs and others not met by local production.

As a fiscal measure for economic stabilization, taxation should be able to: (1)
shield the economy from the negative impact of the world market forces in the
short-run, (2) promote the diversification of the economy in the long-run.

Flexible export and import tax administration, along with monetary measures,
can be effective in exploiting to the advantage of the local economy sudden
shifts in world market prices. It is also a powerful instrument for counteracting
the usual high propensity of the economy to import consumer goods.

The Philippine Tax System

The Constitution contains one basic principle of taxation which embodies the
desired correlation of taxation to development goals and strategies, The
Constitution expressly provides that the rule of taxation shall be uniform and
equitable and mandates Congress to evolve a progressive system of taxation.

The 1986 tax reform program in the Philippines introduced several changes,
including the introduction of the Value Added Tax System (VAT) and the
introduction of separate computation of income for married couples. The VAT
system has been met with mixed reactions, with critics pointing to its resistivity,
bias against labor and employment, inflationary at turnover, costly to comply
and administer, and requirement for massive information. However,
proponents argue that the advantages outweigh the disadvantages, such as
its self-checking feature, visibility and neutrality, and the additional exemption
for each taxpayer's qualified dependent children. Separate computation of
income for married couples was introduced, but they still need to file a joint
return. For legally separated couples, the additional exemption for dependent
children can only be claimed by the spouse to whom the custody of the
children was awarded.

The Taxation and Customs (VAT) system in the Philippines, aims to

increase tax consciousness, compliance, and fiscal flexibility. It restructured
and replaced existing taxes in the Tax Code, removing privilege, fixed, or
graduated taxes, benefiting even those not covered by VAT. The new system
uses the tax credit system, which has been used since 1578 on the
manufacturer's or producer's level and in 1986 on the importer's level. VAT
favors export of goods and services and allows tax credit in all levels of
distribution. The new system requires mandatory registration of subsidiary
books, with sales exceeding P200,000 requiring registration. The
Commissioner of Internal Revenue can impose penalties for failure to issue
receipts, file VAT returns, understate sales, and failure to register a VAT
taxpayer. Excisable articles were declassified as excitable and subject to VAT,
while non-essential goods, mineral products, and automobiles were
transferred to the excise tax system. The collection of fees and charges was
transferred to other government agencies and instrumentalities.

The Department of Finance (DOF)- The principal fiscal and administrative

arm of the government is the Department of Finance. "It is responsible for the
judicious and effective management of the government's tax programs and
borrowings to achieve national development goals.

The Bureau of Internal Revenue(BIR)- The BIR is the premier agency in

charge of all matters pertaining to internal national taxation.
The Bureau of Customs (BOC)- The second major revenue collection
agency of the national government is the Bureau of Customs like the BIR, the
BOC is placed under the supervision of the Department of Finance.

1. Income Tax- income tax is a tax on all incomes earned by Individuals and
corporations. Income includes salaries and wages, honoraria and
commissions, winnings in gambling and lotteries, dividends, bank interests
and profits from business.

2. Transfer Taxes- Gratuitous transfer of properties is also taxed. It is called

estate tax if the property passes to another by inheritance and gift tax if
transferred through donation.

3. Value Added Tax- This is a tax on the privilege of selling merchandise and
of importation. Unless excepted or considered zero- rated by law, VAI is
imposed as 10% of the value of the goods sold or imported.

4. Customs Duties- Customs duties are levied on the exportation and

importation of goods.

5. Local Taxes- Under the Local Government Code pursuant to the mandate
of the Constitution, local government units are empowered to levy a variety of
taxes and other fees.

6. Real Property Taxes- The real property tax is assessed on real properties
located within the territory of a local government unit in proportion to its value
or in accordance with some other reasonable method of apportionment.

7. Exemption and Taxation- is the grant of immunity to particular persons or

corporations from tax. There are two grounds for grant of exemptions:
contract and reason of public policy.

A. Developments Under The Martial Law Regime:

This section discusses the various developments that took place during the
time when martial law was in effect. It highlights the changes and actions
implemented by the government during this period.

1. Organizational Reforms
Presidential Decree (PD) No. 1 issued under the New Society enjoined major
revenue agencies to gear their efforts towards development objectives 68 The
Decree updated and streamlined the operation of tan collect agencies. It also
provided for a new staffing pattern, intensified and expanded tax functions,
abolished obsolete divisions, and streamlined the agency functions into two
major functional areas one for administration and another for operations.

Personnel reforms were directed towards the separation of unfit and erring
employees from the service, the adoption of a new staffing pattern with higher
salary scales, and the adoption of an intensified training program. New
recruits were taken in to augment the existing staff and to enable the
personnel system to cope with the increasing magnitude of its new functions
and responsibilities. 69

The tax and revenue collection agencies of the government were the Best to
undergo restructuring. Because of their important role in providing Logistical
support to government's expanded functions and financing requirements, the
BIR and the BOC were reorganized. In the past, these offices have been
invariably subjected to political interference in matters of policy as well as
operations. Employee morale was low, and graft and corruption were rampant.
Both bureau were overstaffed and some of their units were duplicating each
other's functions. Furthermore, the bureaus were performing functions beyond
their basic tasks of tax assessment and collection. 70

At the Bureau of Customs, some of the innovations in the staffing patterns

were: (1) the creation of the Tax Exempt Division to pass upon importation of
BOI-registered firms and other tax exempt industries; (2) the integration of the
national customs police; (3) the installation of a computer system to monitor
processing of documents and assignments; and (4) the streamlining of the
Manila International Airport operations.

The creation of industry group audit teams in the BIR facilitated investigation
of tax returns through the so-called package audit system. Under the system,
the various types of returns of a taxpayer are investigated simultaneously only
once a year. Formerly, each type of tax return was audited singly and
independently without regard to the taxpayer's other types of tax returns. This
practice caused constant irritants between the tax authorities and the taxpayer
and also provided opportunities for harassment, negotiation and manipulation.

The package audit system which prescribes an annual audit minimized these
problems. At the same time, it ensured the investigation of all facets of the
taxpayer's business and, therefore, brings about the discovery of interrelated
transactions. The latter may be resorted to as a means of reducing tax liability
through shifting of income and unfounded claims for deductions of new ones.

The BIR launched a positive recruitment program for operational positions to

augment and reinforce the existing staff which was earlier reduced by the
separation of unfit and erring personnel. Some specific major changes
introduced in the Bureau of Internal Revenue included: (1) the creation of the
special audit teams by industry group; (2) the conversion of the tax fraud unit
to a division; (3) creation of the Tax Incentive Division to facilitate the
processing of the tax exempt industries; (4) the elevation of the Data
Processing Center into a department to provide an integrated system of data
collection and information for policy making and effective tax admin istration;
(5) the creation of revenue attache positions; and (6) the reduction of the
number of regional offices.

2. Substantive Reforms
Aside from organizational and procedural innovations in the major revenue
raising agencies of the government, there were substantive reforms
Introduced on the strength of the reform momentum of the Martial Law. These
reforms included the revision of the Tariff and Customs Code (P.D. No. 34),
and of the National Internal Revenue Code (P.D. No. 09).

In order to ensure more efficient revenue administration procedures and

systems, several innovations were introduced. Among the more significant
were the grant of a series of tax amnesties, the revision and codification of
customs laws, the property tax reforms, and the tax measures to increase
revenues.

The BIR Tax Collection from 1961-1990 showed a decline in tax revenues to
its lowest point at 9.9% of GDP. This was partly offset by easy access to
external financing. However, the fiscal deficit soared to 4.2% of GDP in 1982.
The actual collections only steadily surpassed the goals from 1972 to 1976,
and from 1977 to 1983, collection performance was below the targets. Only in
1984, 1987, and 1989 did collections exceed the targets. The actual collection
percentage increased over the preceding years, but the percentage growth
rate in 1966 over 1965 may be incorrect due to different data sources
between the two periods.

The Bureau of Customs' collection efforts in 1984 showed a significant

increase, with a total revenue collection of P19,068,000,000.00, a 17.53%
increase from the 1983 collection of P16,223,000,000. This collection
exceeded the budgetary target of P19.028 billion by 0.21%. Imports saw a
9.47% increase, while exports saw a 498.03% increase, above 60% from the
target. However, the collection fell short by 3.55% compared to the budgetary
target. Strengthening tax administration is crucial, as it complements tax
policy and structure, and ineffective tax administration weakens the entire tax
system. The most urgent problems in revenue administration are the lack of
tax handles and the assessment of revenue.

Tax handles refer to the sets of information used for tax assessment and
collection, which can be attributed to high costs, lack of socioeconomic
profiles, negative public attitudes, low compliance, and the nature of the
economy. The administration of business taxes is hampered by the inability of
the tax administrator to accurately assess the volume of sales, while small-
scale and retail trades lack accounting records. Taxing multinational
corporations (MNCs) is even more difficult due to manipulation of accounting
and evasive tactics. Inadequacies in accounting systems and procedures
prevent the generation of valid data for taxing foreign corporations.
Socioeconomic data is also lacking, which is crucial for designing tax systems
and schemes. For example, the gross income taxation scheme is perceived
as too rigid for middle-income families, ignoring factors like school expenses
and house rents. Revenue administration is also inadequately performed, with
fiscal and performance audits being an important part of this. Revenue audits
help identify, analyze, and solve problems behind tax policies and systems,
ensuring the regularity and completeness of income derived from the regular
tax system.

The Philippines faces a persistent problem of low capital formation in the

private sector, leading to the government relying on tax revenue to capitalize
major projects. However, the government faces difficulties in generating
resources from within and has increasingly resorted to foreign borrowings to
augment the low tax-GNP ratio of capital formation. The country is under-
taxed, with some taxable sectors not contributing what is due. Continuous
efforts should be made to maximize capital investment from domestic sources.
Tax efforts have had some success, but revenues compared to actual public
expenditures remain inadequate. To increase tax revenues, the usual tax
strategy has been to raise indirect taxes, which have indiscriminate effects on
the population. The current structure of tax incentives and disincentives,
particularly granting tax incentives to foreign investors, is a major issue. The
ideal situation is complicated by several problems, including snipping losses
from additional capital infusion, preventing foreign capital from exploiting local
domestic savings, and encouraging reinvestment.

The tax provides a comprehensive overview of Philippine public finance,

including the National Internal Revenue Code (NIRC), the International
Bureau of Fiscal Documentation, and various sources. It also discusses the
role of indirect taxation in Latin America and the development of taxation
under the new society. The text also discusses the Revised Administrative
Code and the Philippine Tax Research Council (RAC). The text also provides
a brief guide to Philippine taxes and the concept of indirect taxation in the
context of the Bureau of Customs.

B. Post Edsa Revolution Development

This section focuses on the developments that occurred after the Edsa
Revolution, which marked a significant turning point in the country's history. It
covers the reforms, changes, and progress made in different aspects of
society following the revolution.

In aid of proper understanding of taxation as a developmental tool, it is

Imperative that we examine more closely how Philippine taxes operate or are
imposed.

For every change in the administration, among the first to be reorganized are
the revenue agencies with the purpose of purging them from corrupt officials
supposedly belonging of the former administration. This is because these
offices, being involved in the collection of public funds, easily attracts
employees who want to get rich quick the irregular way. It may be said,
Therefore, that most "reforms" involve personnel changes.

Along with changes in the persons of the employees were the person- e-
oriented enhancements. In Martial Law Philippines, this included increase in
the salaries of revenue personnel faster than those of other bureaus, yearly
increase in appropriations for the maintenance and operations of the BIR, and,
in general, provision of facilities for wholesome 86 environment for efficient
revenue administration. Among the early assess of the personnel oriented
reform strategies in that era stated that:

The response of the BIR personnel to the concern of the Administration has
been rewarding: the gross revenue collections of the BIR of P2.501 billion in
1971 is 20% over its 1970 collections of P2.084 billion, and the cost (tax effort)
to collect every peso of revenue went down by 18% from P0.022 in 1970 to
P0.018 in 1971.87

When the Aquino government took over in 1986, personnel reforms long the
same lines were also Implemented. Comparatively speaking, the
organizational set up of the BIR in 1964 possess striking semblance with that
of the Martial Law Regime and that of the present administration, with many of
the offices bearing the same or similar names.

In 1986, even with attention focused more on pressing problems like debt
repayment, economic growth and restoration of democracy, organizational
reforms have been mostly on changes of personnel with the existing
organizational set up substantially retained. This is an implied recognition that
the prevailing organizational set up was correct, and the problem seems to
pertain to the partisan loyalty of men at the helm of the organization, which if
not addressed to may adverse affect the implementation of the more
substantive reforms.

In 1986, side by side with the dismantling of the authoritarian structures, the
new dispensation was faced with an even greater task of reversing the fiscal
difficulties of the almost bankrupt government. This situation was made more
complicated by the interplay of various negative factors like "low level of
economic activity", "low productivity of a diverse collection of taxes, some with
high rates and narrow base due to the proliferation of tax exemptions" and a
"low tax effort of 10.6 percent in 1986. This was the factual backdrop when
the 1986 Tax Reform Package, "a comprehensive set of measures
rationalizing the tax burden on various sectors, was launched. The highlights
of the Tax Package are:

1. Income Taxes
Executive Order No. 37, dated July 31, 1986 introduced major developing
Income Taxation. Among them are the following.

a. For Individual Income Taxation

(1) The most significant development was the shift from scheduler to partial
global income tax system as a step into full globalization. Formerly, three
income types (compensation, business, passive) have different rate structures.
Now, the uniform rate structure of 0-35% for compensation income is also
imposed on business and other income. Passive incomes, such as interests,
royalty, Prize and winnings on the other hand, are uniformly subjected to a
final tax of 20%. The 15% final tax on dividends was eliminated in 1989.

(2) Personal exemptions were raised supposedly to avoid taxing in- come
below the poverty line

2. Travel Tax
Executive Order No. 25 exempts qualified Filipino overseas workers from the
payment of travel tax. This is in recognition of their dollar earning contribution..

3. Export Duties
Export duties imposed on all export products under Section 514 of the Tariff
and Customs Code were abolished pursuant to Executive Order No. 26 as a
step towards trade liberalization. However, the 20% export duty on logs is
retained in consonance with ecological policy of the government.

4. The Value Added Tax System (Executive Order No. 273)95

The Value-Added Tax system is considered as one major component of the
1996 tax reform program. According to the administration "it is the most
aggressive step ever taken to effectively source revenues for the government,
by completely overhauling the old sales tax system.

5. Reclassification of Excisable Articles (Executive Order No. 273)96

Many articles were declassified as excisable and were only subjected to VAT,
such as watches, video tapes, solvents and compounded liquor. However,
other articles were transferred to the excise tax system such as non- essential
goods, mineral products and automobiles. In addition to the excise tax
imposed on the articles, the VAT rate of 10% is also imposed.
6. Transfer of Collection (Executive Order No. 273)
EO 273 transferred the collection of fees and charges to other government
agencies and instrumentalities, as in the imposition of occupation fees and
rentals on mining claims by the municipality or city where the claim is situated
and charges on forest products by the Forest Management Bureau of the
Department of Environment and Natural Resources.

C. Growth And Revenue Collection

This section highlights the growth and revenue collection efforts of the
government. It provides an overview of the strategies and measures
implemented to stimulate economic growth and increase revenue generation
for the country.

In view of the reforms introduced in the BIR and in the BOC, it can be noted
that revenue collections have been increasing. It was observed that in the BIR,
a substantial portion of the additional tax revenue was due to stricter
administration of existing taxes and duties. 98 Table I shows that there is an
average annual growth of 20.17% in the collection of taxes from 1961 to 1990.
In the pre Marcos years (1961 to 1965) the annual growth rate was 14.59%,
while during the first term of Marcos (1967 to 1971) it was 13.46%. Growth
rate was highest during the New Society era (1972 to 1985) at 28.53% and
declined to 20.35% in the post-Marcos years (1986 to 1990). It is significant to
note that the first two years of Martial Law posted the highest growth rate of
an average of 82.62% reflective of serious efforts of government collection
effort coupled with taxpayers' positive response.

Issues and problems

A. Revenue Administration:
This section addresses the issues and problems related to revenue
administration. It focuses on the challenges faced in managing and collecting
revenue for the government, including issues with tax collection, enforcement,
and efficiency.
Revenue administration complements the tax policy and structure. Where it is
ineffective, it weakens the entire tax system. It renders tax reforms Impractical.
Thus, strengthening tax administration is imperative. Among the numerous
problems of revenue administration, the more urgent are: (1) the lack of tax
"handles" and (2) the assessment of revenue administration.

1. Lack of tax "handles"

Tax handles refer to the sets of information on the tax subject which are used
as bases for tax assessment and collection. The lack of such information can
be attributed to the high costs of data collection and analysis, the lack of
records pertaining to the object or person's socioeconomic profile, negative
public attitude and low compliance on and business structures of the economy

2. Assessment of Revenue Administration

An important part of revenue administration which remains inadequately
performed is the conduct of fiscal and performance audits to assess revenue
administration. Audit of agency operations, if done objectively and oriented
towards problem-solving, can provide useful information as a basis for the
Improvement of revenue administration. A special type of external audit, the
revenue audit, can assist the tax administrator in the identification, analysis
and solution of the problems behind the administration of tax policies and
systems.

C. Tax Structures

This section discusses the issues and problems related to tax structures. It
highlights the challenges and shortcomings in the current tax system,
including the complexity of tax laws, loopholes, inequities, and the need for
reforms to ensure a fair and efficient taxation system.
1. Capital Formation and Allocation of Resources

A tax structure for generation of resources encounters the problem of

reconciling tax efforts and performance with the capacity of the taxpaying
public.

It has attracted foreign capital at a pace which alarms some sectors of the
society. There are possibilities still open. It is claimed that the Philippines is
still under taxed. It is even officially conceded that we are one of those
countries with lowest rate of taxes, particularly with income taxation, 109
Furthermore, it is believed that some taxable sectors have not been
contributing what is due from them. An example of such sectors is the higher
income class which consume highly. taxable luxury and other imported items.
Continuous efforts should therefore be exerted to maximize the generation of
capital investment from domestic sources (local and foreign

2. Redistribution of Income and Wealth

The problem of redistributing income and wealth through the various

measures like the gross income taxation scheme or tax incentives for
investments in lagging areas and sectors, poses the question of how and to
what extent is the present tax structure equitable and progressive. In
Philippine experience, the evolution of the tax structure towards the
redistribution of income and wealth is characterized by efforts to institute
progressive by strengthening the direct system of taxation. The introduction of
the Gross Income Taxation scheme is one of such efforts

3. Economic Stability

A tax structure that can promote economic stability is ideally that which can
respond swiftly to the impact of world market forces in the short-run, and
enhance the long-run efforts to diversify the economy, and realize the
maximum socioeconomic benefits from the participation of foreign investment.