Principlesoftaxation.final

It is the inherent
power by which the
sovereign state imposes
financial burden upon
persons and properties as
a means of raising
revenues in order to
defray the necessary

“An inherent power of
the state to demand
enforced contributions
from the people for public
purposes.”
“Referred to as the
act of levying a tax that is
the process or means by
which the

Taxation is therefore
a mode by which the
government makes
exactions for revenue in
order to support their
existence and carry out
their legitimate
objectives. It is the most

The first known system
of taxation was in Ancient
Egypt around 3000BC- 2800BC
in the first dynasty of the
Old Kingdom. In biblical
times, tax is already
prevalent.
Genesis 47:24
“But when the crop
comes in, give a fifth
of it to Pharaoh. The
other four-fifths you
may keep as seed for
the fields and as food

Earliest taxes in Rome
are called as portoria
which were customs duties
on imports and exports.
Augustus Caesar
introduced the inheritance
tax to provide retirement
funds for the military. The
tax was 5% on all
inheritances except gift

The pre-colonial
society, being
communitarian, did not have
taxes. During the Spanish
period, new income generating
means were introduced by the
government such as the:
• Manila Acapulco Galleon
Trade
• Polo (Forced Labor)

It is considered as the
main source of income
for the colony during
the early years.The
trade brought silver
from Nueva Castilla and

Polo is the forced
labor for 40 days of men
ranging from 16 to 60
years of age who were
obligated to give
personal services to
community projects. One

It is the one of the
taxes collected from
the Filipinos. It comes
from the Tagalog
word
“Mandala”, which is a

They are large tracts
of land given to a person
as reward for a
meritorious act. The
enconmienderos were
given full authority to
manage the enconmienda

In the 19th century, the
“cedula” served as an
identification card that
had to be carried at all
times. A person who
could not present his or
her cedula to a guardia
civil could be detained

The cedula was imposed
by the Americans on January
1, 1940, when Commonwealth
Act No.465 went into
effect, mandating the
imposition of a base
residence tax of one peso
based on factors such as
income and real estate

Corporations are
also subject to the
residence tax. Also
known as a “residence
certificate”, is a legal
identity document in

Tax law in the Philippines
covers national and local
taxes.
National taxes refer to
national internal revenue
taxes imposed and collected
by the national government
through the Bureau of

The Congress, by
law, authorize the President to
fix within specified limits and
subject to such limitations and
restrictions as it may
impose, tariff rates, import and
export quotes, tonnage and

Purposes of Tax
1. To raise revenue for the government to
cover its own expenditures on the provision
of social services such as
education, health, public
infrastructures, etc., as well as the salaries
and benefits of public servants.
• Revenue -the taxes raise money to spend on
armies, roads, schools and hospitals, and on
more indirect government functions like
market regulation or legal systems.

Purposes of Tax
2. As instrument of fiscal policy in regulating the
level of total spending in the economy so as to
stabilize the economy.
3. To alter the distribution of income and
wealth.
4. To control the volume of imports (and
sometimes exports of certain goods) into the
country.

1. As to subject matter or object:
• Personal, poll, or capitation
• Property -
• Excise
2. As to who bears the burden:
• Direct
• Indirect
3. As to determination of amount:
• Specific tax
• Ad valorem

4. As to purpose:
• General, Fiscal, or Revenue
• Special or Regulatory
5. As to scope (or authority imposing the
tax):
• National
• Municipal or local
6. As to graduation or rate:
• Proportional
• Progressive or graduated

As to subject matter
or object:a. Personal, poll, or capitation – tax of a fixed amount imposed on
persons within a specified territory, whether citizens or not, without
regard to their property of the occupation or business in which they
may be engaged
• Example: community (formerly residence) tax
b. Property - tax imposed on property, whether real or personal, in
proportion either to its value, or in accordance with some other
reasonable methods of apportionment
• Examples: real estate tax
c. Excise - any tax which does not fall within the classification of a
poll tax or a property tax. Thus, it is said that an excise tax is a
charge imposed upon the performance of an act, the enjoyment of a
privileged, or the engaging in an occupation, profession, or business.
• Example: income tax; value added tax; estate; donor’s tax

As to who bears the
burden:
a. Direct – are taxes levied by the
government on the income and
wealth received by households and
businesses in order to raise
government revenue and as an
instrument of fiscal policy.
• Examples: corporate and individual
income taxes; community tax; estate
tax; donor’s tax

As to determination of amount:
a. Specific tax – imposed by the head or number, or by
sums standard of weight or measurement; it requires no
assessment (valuation) other than a listing or
classification to be taxed.
• Examples: taxes on distilled spirits, wines and
fermented liquors; cigars and cigarettes, and others
b. Ad valorem – tax of a fixed proportion of the value
of the property with respect to which the tax is
assessed; it requires the intervention of assessors or
appraisers to estimate the value of such property
before the amount due from each tax payer can be
determined.
• Examples: real estate tax; excise tax; excise taxes
on automobiles, nonessential goods such as jewelry

As to purp se:
a. General, Fiscal, or Revenue – imposed for the general
purposes of the government, i.e., to raise revenue for
governmental needs.
• Examples: income tax; value added tax; and almost all
taxes
b. Special or Regulatory – imposed for a special
purpose, i.e., to achieve some social or economic ends
irrespective of whether revenue is actually raised or not.
• Example: protective tariffs or customs duties on
imported goods to enable similar products manufactured
locally to compete with such imports in the domestic
market

As to scope (or authority
imposing the tax):
a. National – tax imposed by the national
government.
• Examples: national internal revenue taxes;
customs duties; and national taxes imposed by
special laws
b. Municipal or local – imposed by municipal
corporations or local government units.
• Examples: real estate tax; professional tax

As to graduation
or rate:a. Proportional – taxes that place an equal
burden on the rich, the middle class, and the
poor.
• Examples: real estate taxes; value added
tax; and other percentage taxes
b. Progressive or graduated – taxes that
place a greater burden on those best able to
pay and little and no burden on the poor.
• Examples: income tax; estate tax; and
donor’s tax

Basic Principles of
Taxation (Adam
Smith’s Canons of
Taxation)

Basic Principles of
Taxation
1. Adequacy – taxes should be just enough
to regenerate revenue required for
provision of essential public services
like health, education and national
defense and police protection.
2. Broad basing – taxes should be spread
over as wide as possible to all sectors
of the population or economy so as to
minimize the individual tax burden.
3. Compatibility – taxes should be
coordinated to ensure tax neutrality
and overall objectives of good

4. Convenience – taxes should be enforced
in a manner that facilitates voluntary
compliance to the maximum extent
possible.
5. Earmarking – tax revenue from a specific
source should be dedicated to a specific
purpose only when there is a direct cost-
and-benefit link between the tax source
and the expenditure, such as use of motor
user’s tax for road maintenance.
6. Efficiency – tax collection efforts of
government should not cost an
inordinately high percentage of tax
Basic Principles of
Taxation

7. Equity – taxes should equally burden
all individuals and entities in similar
economic circumstances.
8. Neutrality – taxes should not favor
any one group or sector over another
and should not be designed to interfere
with or influence individual decision
making.
9. Predictability – collection of taxes
should reinforce their inevitability and
regularity.
Basic Principles of
Taxation

11. Restricted exemptions – tax
exemptions must only be for
specific purposes (such as to
encourage investment) and for a
limited period.
12. Simplicity – tax assessment
and determination should be
easy to understand by an average
Basic Principles of
Taxation

1. Ability to pay – states that taxation should be
levied according to an individual’s ability to
pay.
Originated in the 16th century but was
scientifically extended by the Swiss philosopher
Jean Jacques Rouseau, French political
economist Jean Baptiste Say and English
economist John Stuart Mill.
Approaches to Taxation

2. Benefit Approach
– proposes that taxation should be levied
broadly in relation to the benefits that people
receive in public services.
– developed in the 17th century by the English
philosopher Thomas Hobbes and John Locke.

3. Tax Incident Approach – proposes that the major
duty of a tax system is to analyze the effect of a
particular tax on the distribution of tax welfare.
• Tax Welfare – refers to the ultimate payers of a tax.
• This approach was proposed mainly by the
Physiocrats.
• Physiocrats- believed that the inherent natural
order governing society was based on land and its
natural products as the only true form of wealth.

Philippine Tax
Rates
• Income Tax Rates –
32%
• Corporate Tax Rates – 30%
• Value Added Tax – 12%

Different Forms of
Escaping Taxation
1.Shifting – is the transfer of the
burden of a tax by the original
payer or the one on whom the
tax was assessed or imposed to
another or someone else.
2. Capitalization – means the
reduction in the price of the taxed
object equal to the capitalized

3. Transformation – is the
method of escape from taxation
whereby the manufacturer or
producer upon whom the tax has
been imposed, fearing the loss of
his market if he should add the
tax to the price, pays the tax and
endeavors to recoup himself by
Different Forms of
Escaping Taxation

4. Evasion – is the use by the
taxpayer of illegal or fraudulent
means to defeat or lessen the
payment of a tax.
5. Avoidance – is the use by the
taxpayer of legally permissible
alternative tax rates or methods
of assessing taxable property or
Different Forms of
Escaping Taxation

Bureau of Internal
Revenue
The Bureau of Internal
Revenue (Kawanihan ng Rentas
Internas, or BIR) is an attached
agency of Department of Finance.
BIR collects more than one-half of
the total revenues of the
government.

The powers and duties of the Bureau
of Internal Revenue are:
• Assessment and collection of all internal revenue
taxes, fees and charges; and
• enforcement of all forfeitures, penalties, and fines
connected therewith, including the execution of
judgments in all cases decided in its favor by
the Court of Tax Appeals and the ordinary courts;
• It shall also give effect to the administer
supervisory and police powers conferred to it by the
National Internal Revenue Code and special laws.

Highest Tax
Payers in the
Philippines

( ecent)
• Kris Aquino (celebrity) - P49,871,657.37
• Gregory Reichow (Sunpower Philippines) - 38,196,685.00
• Lauro Baja Jr. - P34,257,368.88
• Manuel V. Pangilinan (PLDT, Metro Pacific) - P25,992,131.86
• Aurelio Montinola III (BPI) - P24,472,645.10
• Gerardo Ablaza (Manila Water)- P22,645,262.00
• Philippe Lhuillier (Cebuana Lhuillier) - 21,645,000.00
• Victor Angeles - P21,202,815.34
• Roberto Panlilio P19,613,943.97
• Felipe Gozon (GMA Network) - P19,587,983.60
• Vincent Nguyen - P18,593,063.34
• Jean Henri Lhuillier - P18,439,656.00
• Jospeh Mitchell Gault - P17,987,312.29
• Estelito Mendoza - (lawyer) P 17,637,964.00
• Henry Sy, Sr. - (SM group) P16,582,952.00
• Orland Vea - (Smart Communications)- P16,248,921.88
• Agnieszka Romanczuk P16,062,048.76
• Anthonie Jansen P14,851,304.45
• Marvic "Vic" Sotto (TV host, actor) - P14,728,940.14
• Ray Espinosa (Mediaquest) - P14,483,402.44

REFERENCES:
http://en.wikipedia.org/wiki/Bureau_of_Internal_Revenue_(Philippine
s)
THE FUNDAMENTALS OF TAXATION 2000 EDITION, Hector S. De
Leon

Principlesoftaxation.final

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Principlesoftaxation.final