Basic Principles of Taxation

TAXATION: ITS’ BASIC PRINCIPLES

This module comprises information about basic facts and information about
taxation. The data presented here are fully based on websites indicated in each set of
paragraphs.

It is clearly declared that these are solely taken from the websites acknowledged
in this module and no paraphrasing is applied.

From this https://www.ukessays.com/essays/economics/explaining-the-primary-

purpose-of-taxation-economics:
“Tax is an enforced fee that is charged on individuals and
organizations by government or its agency on a product, income, or
service. Despite many people complaining of making tax contributions to
government, these contributions are very important for the economy of a
country. This is because these financial contributions are used by
government for the implementation of various socio-economic
development projects such as the construction of roads and bridges,
schools, health facilities and provision of social services like national
security, provision of salaries for civil servants including the police, the
army, judges, doctors, nurses and teachers. However, to clearly
understand the rationale behind government charging of taxes terms such
as taxation, equity in relation to taxation, direct and indirect tax and
sources of income, need to be clearly understood.”
Purpose of Taxation (The information below is solely taken from the same
website cited above)
Purpose of taxation Primary purpose. To provide funds or property
with which to promote the general welfare of its citizens and to enable it to
finance its multifarious activities 30, 2014
Taxation is a means by which governments finance their
expenditure by imposing charges on citizens and corporate entities. The
main purpose of taxation is to accumulate funds for the functioning of the
government machineries. All governments in the world cannot run its
administrative office without funds and it has no such system incorporated
in itself to generate profit from its functioning. In other words, a
government can run its administrative set up only through public funding
which is collected in the form of tax. Therefore, it can be well understood
that the purpose of taxation is very simple and obvious for proper
functioning of a state. Taxes are charges levied against a citizen’s
personal income or on property or for some specified activity. As such,

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one purpose of taxation is to increase in effectiveness and productivity of

the nation as government is able to implement various socio-economic
development projects such as the construction of roads and bridges,
schools, health facilities and provision of social services.
Another reason is that taxation assists in reducing consumption of
unwanted goods. Taxes as such can be used as an effective tool to
reduce the consumption of unwanted goods like alcohol. Higher taxes on
such goods reduce the consumption as the price of the product will be
very high for the consumers. Government also uses taxes as a way to
protect local industries and as such make them more profitable. Increasing
tariffs on imports and charging lower taxes to local products may boost the
demand for goods and services produced by domestic industry. Taxes on
imports, which are called tariffs, can be used by government to correct an
unfavorable balance of payment situation by increasing the tariffs. This will
result in imports becoming expensive and will cause a fall in demand for
the imported goods.

Taxation in the Philippines

(shttps://en.wikipedia.org/wiki/Taxation_in_the_Philippines)

The policy of ‘’’taxation in the Philippines’’’ is governed chiefly by

the Constitution of the Philippines and three Republic Acts.

Constitution: Article VI, Section 28 of the Constitution states that

“the rule of taxation shall be uniform and equitable” and that “Congress
shall evolve a progressive system of taxation.” [1]
national law:

National Internal Revenue Code—enacted as Republic Act No.

8424 or the ‘’Tax Reform Act of 1997’’ [2] and subsequent laws amending
it; the law was most recently amended by Republic Act No. 10963 or the
‘’Tax Reform for Acceleration and Inclusion Act ‘’;[3] and,

Local laws: major sources of revenue for the local government units
(LGUs) are the taxes collected by virtue of Republic Act No. 7160 or the
‘’Local Government Code of 1991’’,[4] and those sourced from the
proceeds collected by virtue of a local ordinance.

Taxes imposed at the national level are collected by the Bureau of

Internal Revenue (BIR), while those imposed at the local level (i.e.,
provincial, city, municipal, barangay) are collected by a local treasurer’s
office.

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List of Taxes & Rates in the Philippines

from https://kittelsoncarpo.com/taxes

1. Capital Gains Tax

2. Donor’s Tax
3. Income Tax
4. Value Added Tax (VAT)
5. Expanded Withholding Tax
6. Withholding Tax on Government Money Payments
7. Documentary Stamp Tax
8. Estate Tax
9. Percentage Tax
10. Withholding Tax on Compensation
11. Final Withholding Tax
12. Capital Gains Tax – Philippines

Capital Gains Tax is a tax imposed on the gains presumed to have

been realized by the seller from the sale, exchange, or other disposition of
capital assets located in the Philippines, including pacto de retro sales and
other forms of conditional sale.

Documentary Stamp Tax is a tax on documents, instruments, loan

agreements, and papers evidencing the acceptance, assignment, sale, or
transfer of an obligation, rights, or property incident thereto.

Donor’s Tax is a tax on a donation or gift, and is imposed on the

gratuitous transfer of property between two or more persons who are living at
the time of the transfer.

Estate Tax is a tax on the right of the deceased person to transmit

his/her estate to his/her lawful heirs and beneficiaries at the time of death and
on certain transfers which are made by law as equivalent to testamentary
disposition.

Income Tax is a tax on all yearly profits arising from property,

profession, trades or offices, or as a tax on a person’s income, emoluments,
profits, and the like.

Percentage Tax is a business tax imposed on persons or entities who

sell or lease goods, properties, or services in the course of trade or business
whose gross annual sales or receipts do not exceed P550,000 and are not
VAT-registered.

Value Added Tax (VAT) is a business tax imposed and collected from
the seller in the course of trade or business on every sale of properties (real

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or personal), lease of goods or properties (real or personal), or vendors of

services. It is an indirect tax, thus, it can be passed on to the buyer.

Withholding Tax on Compensation is the tax withheld from individuals

receiving purely compensation income.

Expanded Withholding Tax is a creditable tax prescribed for certain

domestic (Philippine) payors and is creditable against the income tax due of
the payee for the taxable quarter year. The expanded withholding tax
normally covers services.

Final Withholding Tax is a withholding tax which is prescribed only for

certain payors and is not creditable against the income tax due of the payee
for the taxable year. Income Tax withheld constitutes the full and final
payment of the Income Tax due from the payee on the said income.

Withholding Tax on Government Money Payments is the withholding

tax withheld by government offices and instrumentalities, including
government-owned or controlled corporations and local government units,
before making any payments to resident suppliers of goods and services.