OBJECTIVE

At the end of the chapter, the students should

be able to:
1. define tax, know its significance in
national development;
2.enumerate the essential characteristics
of tax
3. know the principles of a sound taxation;
4. distinguish tax from other income-
generating sources.
INTRODUCTION
Historically, taxation has played a critical
role in the lives of men and women and their
countries destinies. As early as the 10
th

century, the underprivileged classes-slaves,
vassals, peasants and conquered peoples-
were already giving tributes, both in cash and
in kind. This had forced them to support the
ruling classes, whether they were the free
citizens of Athens and Rome, the lords and the
feudal barony, or courts of the kings and
emperors.
In ancient Greece and Rome, taxes on
income and wealth were practically
unknown. There were, however , income
from mines, tributes from wealthy citizens
which filled the coffers of the treasury for all
revenue needs, but these were not
considered as taxes imposed as a direct
charge upon the people. For the government
to survive, voluntary contributions were
given to the State for its use and
maintenance.

In the middle ages, taxes of any kind had
little space in the agrarian feudal system.
Rents were collected from the farmers. The
landlords collected rents from the
landholdings at their pleasure. The excess of
these rents were then given to the State as
their share on the hierarchical basis to form
part of the revenue for the use of the State.
From the 14
th
century, as the feudal system
was gradually broken up by dissipation of the
public domain, by the growth of commerce
and industry and by decentralization of
government.
These rent-like revenues slowly gave way
to taxes. During this period, land, which was
the primary source of wealth, became the
primary source of taxation. They began to
realize that the State soul no longer exist
without the imposition of taxes on the people
finance the needs of the State.
Throughout the ages, the public domain
was the chief source of public revenue, and
taxation consisted largely of exercise on
domestic consumption and custom duties on
foreign trade.
Taxes on imports from foreign trade began
as early as 14
th
century with the growth of
foreign and domestic relations between
nations. As civilization progressed, the nation
of the world had to devise ways and means of
raising taxes for their maintenance and
support. Within the expansion of trade
relation among nations, the direct bulk of
government revenues were derive from taxes
on articles of trade and commerce. France and
Spain were then commercial centers of the
world.
Taxes from income of individuals did not
give way until the early part of 18
th
century,
when Great Britain adopted an income tax in
1798 and a death transfer tax in 1796. What
flourished during this period was taxes on
customs levied on articles of trade and
commerce.
As civilization advanced and the need for a
more representative government was
established, taxes took on a new twist. The
need for taxation has been emphasized-the
individual is now taking part in contributing a
share of his earnings for the support of the
government.
MEANING OF TAXATION
TAXATION is the act of imposing tax, the
process or means by which the sovereign, law-
making body, raises revenue to defray the
necessary expenses of the government.
MEANING OF TAXES
TAXES are the enforced proportional
contributions from persons and property
levying by the law-making body of the state
by virtues of its sovereignty for the support of
the government.
PURPOSE AND IMPORTANCE
Government needs funds to finance
its tasks of promoting the general
welfare and protection of its citizens.
Revenues from taxation is the life-
blood of the nation. Thus, a nation of
faithful taxpayers assures a healthy
economy for everybody to enjoy.
Conversely, evasion or non- payment of
taxes undermines the nations
progress.
CHARACTERISTICS OF TAX
1. It is an enforced contribution.
2. It is generally payable in the form of money.
3. It is proportionate in character.
4. It is levied in person or property.
5. It is levied by the State.
6. It is levied by the law-making body.
7. It is levied for public purpose.

NATURE AND POWER OF TAXATION
1. It is inherent in sovereignty.
2. It is legislative in character.
3. It is subject to constitutional and inherent
limitations.

BASIC PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal Adequacy
2. Equality or theoretical justice
3. Administrative feasibility
CLASSIFICATION OF TAXES
A. According to Subject
1. Personal, poll or capitalization. ex. Residence
tax
2. Property Tax. ex. Real Estate Tax
3. Excise Tax. Ex. Donors tax, income tax,
business tax, estate tax, privilege tax
According to Purpose
1. General, Fiscal, or Revenue. Ex. Income tax
and sales tax.
2. Special or Regulatory. Ex. Protective tariffs
or custom duties.
According to Scope
1. National. Ex. National internal revenue
taxes.
2. Municipal or local. Ex. Real property tax.
According to Determination of Amount
1. Specific. Ex. Taxes on distilled spirits,
cigarettes
2. Ad valorem. Ex. Real estate tax most custom
duties.
According to its Effect to Taxpayer
1. Direct. Residence tax. Corporate tax.
Income tax.
2. Indirect Tax. Privilege tax. Sales tax.
Amusement tax
According to Graduation Rate
1. Proportional. Ex. Sales tax. Real property
2. Progressive or Graduated. Imposed in
accordance to the specified bracket.
3. Regressive.