CORPORATE DUTY TO

PAY CORRECT TAXES

 Taxation

• Means by which governments finance their expenditure by imposing

charges on citizens and corporate entities. Although, principally, taxation
should be neutral in its effects on the different sectors of an economy,
governments use it to encourage or discourage certain economic
decisions. For example, reduction in taxable personal (or household)
income by the amount paid as interest on home mortgage loans results in
greater construction activity, and generates more jobs.
taxation
• is an organized mandatory system of raising money or
revenue to finance government, support existence, and
carry out its legitimate objectives. It is an imposed
regulation (hence mandatory and organized), without
referring to the special benefits conferred on the one
making the payment. It is every sovereign state’s
inherent power to impose a charge upon persons,
property or rights for the use of government
infrastructure and other social services. Without taxes
to fund itself and its activities, government could
never exist.
• Grounded on the principle of the just distribution of
burdens and ultimately on the redistribution of created
wealth
• Principle of distributive justice – there should be a fair
distribution of society’s benefits and burdens.
• Distribution of burdens – in taxation, requires proportionate
equality, and proportionate equality is not necessarily an
equal share but a fair share of carrying the burden of taxes.
Government vary the tax rates to distribute the tax burden
between individuals or classes of the population involved in
taxable activities, such as business, and redistribute the
created resources in favor of the less privileged of society

• Two things to be justified:

1. Imposing a tax burden
2. Determining its distributive impact
• Distributive justice or fair distribution – is the chief
justification of a progressive tax system, where poor
members of society pay little and the rich pay more.

• Fare share – established on the principle of ability to

pay. It means those earners in the lower-income
bracket should not be taxed as much as those in the
high-income bracket.

• Ability-to-pay principle – holds that people’s taxes

should be based upon their ability to pay, usually
measured by income or wealth.
• Implications of this principle:

• Horizontal equity – states that people in equal

positions should pay the same amount of tax

• Vertical equity – the idea that a tax system should

distribute burdens fairly across people with different
abilities to pay. This ideas implies that a person with
higher income should pay more in taxes than one with
less income
• Proportional tax – takes the same percentage of income from all
people

• Progressive tax – takes a higher percentage of income as income rises

– rich people not only pay a larger amount of money than poor people,
but a larger fraction of their incomes.
• Regressive tax – takes a smaller percentage of income as income rises –
poor people pay a larger fraction of their incomes in taxes than rich
people. For example: some economists consider sales taxes regressive
because individuals with higher incomes spend a smaller portion of their
incomes on sales taxes than those with lower incomes

• A poor person and a rich person who spend the same amount on groceries
each year will pay the same amount in sales taxes, even though the rich
person earns more money. However, rich people consume more than poor
people, the rich person will pay roughly the same proportion of his/her
income in sales taxes as the poor person
• Types of taxes:

• Individuals pay taxes when they earn money – income

tax
• Consumption taxes when they spend it - VAT
• Property taxes when they own a home or land
• Transfer of ownership inter vivos or mortis causa
• Estate taxes when they die
• Local government also collect taxes – community tax
• The state also taxes the incomes of corporations
• Corporate income tax – one of the most controversial
type of tax. Although the law treats corporations as if
they have an independent ability to pay tax, many
economists not that only real people – such as the
shareholders who own corporations – can bear a tax
burden.
• It leads also to double taxation of corporate income.
Income is taxed once when it is earned by the
corporation, and a second time when it is paid out to
shareholders in the form of dividends. However,
individuals are also subject to double taxation. For the
individual, the state sales tax that is levied on taxable
income has already been taxed at the federal level.
• LIBERTARIAN PHILOSOPHY
• Jean-Baptiste Colbert, a 17th century, statesman, who
declared that the art of taxation is the art of plucking
the goose as to get the largest possible amount of
feathers with the least possible squealing. In reaction,
the libertarians take a very strong position against
paying taxes, claiming that, every month at least one
third of their income is taken by the government –
without their consent.
• Libertarians oppose initiatives that would seek to
forcibly “redistribute” resources in an egalitarian
manner.
• LIBERTARIAN PHILOSOPHY
• Jean-Baptiste Colbert, a 17th century, statesman, who
declared that the art of taxation is the art of plucking
the goose as to get the largest possible amount of
feathers with the least possible squealing. In reaction,
the libertarians take a very strong position against
paying taxes, claiming that, every month at least one
third of their income is taken by the government –
without their consent.
• Libertarians oppose initiatives that would seek to
forcibly “redistribute” resources in an egalitarian
manner.
• REASONS:
• 1. Welfare programs serve as a perverse incentive to
keep individuals from working to earn a living and that
they tend to perpetuate unemployment and poverty.
They assert that maximization of economic freedom
would reduce poverty by making the economy more
efficient.

• 2. They believe that any temporary equality of outcome

gained by redistribution would quickly collapsed
without continuous coercion, reasoning that people’s
differing economic decisions would allow those that
were more productive to quickly gain disproportionate
wealth again.
• Libertarianism – is a political philosophy whose
highest value is defending and preserving the personal
and economic liberty or freedom of individuals. It
holds that all individuals should have the right to do as
they please (with themselves and their property), to
the extent that doing so does not infringe the same
liberties of others. It is often defined by the principle
that no one may initiate coercion against another.
• Libertarianism do not subscribe to the notion of
paying taxes to enjoy such services as medical care,
roads, postal deliveries, railways, police protection,
etc.
• Libertarians would much rather be allowed to keep
their money and purchase whatever good and services
they desire from those who offer to supply them.
• Libertarians have a different view of helping those in
need. They say people should be given the right to all
the fruits of their labor and the freedom to distribute as
they wish.
• TAX EVASION
• – an “intentional negligence” of the obligation to pay
correct taxes to the government
• -It is also known as tax dodging and it is intentional
because the pro-profit company eliminates or reduces
payment of its correct and proper tax by fraudulent
means. It is considered negligence because it is a form
of abandonment of economic duties which is mandated
of a corporate citizen.

• THREE ELEMENTS OF TAX EVASION

• The intention to cheat
• Knowledge that tax evasion is wrong
• By fraudulent means
• Examples of tax evasion:

• Omitting to report one’s corporate income

• Intentional understatement of income
• Improper overstatement of deductions
• Claiming false personal exemptions
• Misdeclaration or underdeclaration of the estate in
the estate tax return
• TAX AVOIDANCE
• – is when taxpayers exploit legally permissible
alternative methods of assessing taxable property or
income in order to avoid or reduce tax liability.
• -Also known as tax minimization or tax planning and
it not punishable by law
• -Like tax evasion, is a deliberate escape from taxation
but accomplished by legal procedures that may be
contrary to the intent of the sponsors of the tax law but
nevertheless do not violate the letter of the law
• Examples of tax avoidance:

• arranging some corporate affairs that can legally

reduce tax liabilities,
• off-shoring of business activities,
• individuals may add dependents to increase
personal exemption,
• individuals may claim family health insurance as
tax deduction
WHEN DOES MANIPULATION HAPPEN
VIS-À-VIS CORPORATE TAXATION?
• Attractive incentive package – controllers of some
companies (not all) are tempted to manipulate and
engage in creative accounting in order to satisfy the
shareholders’ need and oftentimes earns financial
rewards for themselves along the way either by
engaging in acts commensurate to tax evasion and tax
avoidance
• Salary tax shelter as part of their hiring package
THE DUTY TO PAY TAXES
• In his book Christian Ethics, Fr. K.H. Peschke, SVD,
says “the duty to pay taxes is derived from the
citizens’ obligation to contribute their share to the
necessities of the state, whose help they need, by
which profit, and which also assumes certain
obligations in the citizens’ place and stead.” The
payment of taxes is therefore an essential part of one’s
public responsibility. Tax paying is the sign of
communal spirit and good citizenship.