THEORY
and
CONCEPT of TAXATION
Edna Lucia G. Bisquera
February 2018
Theory and Concept of Taxation
Tax is “a compulsory contribution from the person to the
government to defray the expenses
incurred in the common interest of all without preference 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
Features of a tax:
- Enforced contribution
- Payable in money
- Proportionate in character
- Levied on persons, properties or transactions
- Levied by the state which has jurisdiction over the
person, property or transaction
- Levied by the lawmaking body of the state
- Levied or public purpose
Principles of an ideal tax system:
1. Equity –
- Must be based on the taxpayer’s ability to pay
- Must be based on size of wealth and income taking
into account the responsibilities and/or disabilities of
the taxpayers
2. Certainty –
- Taxpayers should know which taxes are imposed, the
amount to pay, and the manner of payment
3. Convenience –
- Collection offices must be located at places where they
are easily accessible to taxpaying public
4. Economy –
- The cost of its collection must be minimal
Classification of taxes:
1. As to purpose
- a tax may be fiscal
- a tax may be regulatory
2. As to incidence
- who bears the burden of the tax
• Direct (ex. income tax)
• Indirect (ex. value added tax)
3. As to rate
- Proportional
- Progressive
- Regressive
4. As to authority
- imposed by the national government (income tax)
- imposed by the local government (real estate tax)
5. As to object
- personal occupation (community tax)
- professional tax (medicine, accounting, engineering)
6. As to scope
- general (general public benefits)
- specific (Special Fund Tax, Anti-TB Stamp Tax)
7. As to the amount paid
- specific tax (paid in fix)
- ad valorem tax (fix value of the property is assessed)
The Philippine Tax System
A. The Constitutional Mandate
- The rule of taxation shall be uniform and equitable
- Mandates Congress to evolve a progressive system
of taxation.
B. The Major Revenue Agencies
1. The Department of Finance (DOF)
- The principal fiscal and administrative arm of the
government
- Operating Bureaus under DOF
* Bu. of Internal Revenue (BIR)
* Bu. of Customs (BOC)
* Bu. of Treasury
* Securities and Exchange Commission (SEC)
2. Bureau of Internal Revenue
- premier agency in charge of all matters pertaining to
internal national taxation
- taxes collected by the BIR:
*Income Tax, Estate and Gift Taxes, Excise Taxes,
Taxes on Business, Documentary Stamp Tax, Mining
Taxes,
*Miscellaneous Taxes, Fees and Charges imposed by
NIRC (a) taxes on banks, finance companies and
insurance companies) (b) franchise taxes (c) taxes on
amusement (d) charges on forest products
(e) tobacco inspection fees (f) other taxes as imposed
and collected by BIR
3. Bureau of Customs
- enforce tariff and customs laws
- acts as BIR collector (internal revenue taxes imposed
on imported articles
C. Major Philippine Taxes
1. Income tax – tax on all incomes earned by
individuals and corporations.
a. Income Tax of Individuals: compensation income,
business income, passive income
• Compensation income – refers to earnings from
employment
• Business income – refers to profit from business
operations
• Passive income – refers to royalties, prizes worth
over P3,000.00
b. Corporate Income Tax – corporations refer to
partnerships, joint accounts, associations and
insurance companies; pay a uniform rate of 35% on
net income
2. Transfer Taxes
- Estate tax – if the property passes to another by
inheritance
- Gift tax – if transferred through donation
- Donor’s tax – imposed on the donor for transmitting
property to another during his lifetime
• 3. Value Added Tax – tax on the privilege of selling
merchandise and of importation; VAT is imposed as
10% of the value of the goods sold or imported.
• 4. Customs Duties – levied on the exportation and
importation of goods.
Kinds of customs duties:
• Ad valorem customs duty – based on the market
value or price of the imported article.
• Specific customs duties – based on the weight or
volume of the imported articles.
• Alternate customs duties – based either on the weight
or volume or on the value of the imported article
whichever is higher.
• Compound duties – based both on the weight or
volume and the value of the imported article.
Special customs duties:
* Dumping duty -
• Countervailing duty
• Marking duty
• Retaliatory or discriminatory duty
5. Local Taxes – local government units are empowered
to levy a variety of taxes and other fees
6. Real Property Taxes – assessed on real properties
located within the territory of a local government unit
in proportion to its value.
III. Since not all corporations are created for profit,
some of them are exempt from income tax.
1. Labor, agricultural or horticultural organization not
organized for profit.
2. Mutual savings bank not having capital stock
represented by shares, and cooperative bank without
capital stock organized and operated or mutual
purposes and without profit.
3. Fraternal beneficiary society, order or association,
operating under the lodge system
4. Cemetery company owned and operated exclusively
for the benefit of its members
5. Corporation or association organized and operated
exclusively for religious, charitable, scientific,
athletic, or cultural purposes
6. Business league, chamber o commerce, or board of
trade, not organized for profit…….
7. Civic league or organization not organized for profit
but operated exclusively for the promotion of social
welfare
8. Club organized and operated exclusively for pleasure,
or recreation, and other non-profitable purposes, no
part of the net income of which inures to the benefit
of any stockholder or member
9. Farmers’ or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like
organization of a purely local character, the income of
which consists solely of assessments, dues, and fees
collected from members for the sole purpose of
meeting its expenses.
10. Farmers’, fruit growers’, or like organizations
organized and operated as a sales agent for the
purpose of marketing the products of its members and
turning back to them the proceeds of the sales, less
the necessary selling expenses, on the basis of the
quantity of produced finished by them.
11. Corporation or association organized for the
exclusive purpose of holding title to property,
collecting income there from, and turning over the extra
amount thereof less expenses, to an organization
which is itself exempt from the tax imposed by the
Title.
12. Government educational institution
Reference
Leonor M. Briones. Philippine Public Fiscal Administration.
Volume 1, Second Edition
