Taxation 101 basic rules and principles

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Taxation 101:

JR Lopez Gonzales8 August 2011

Basic Rules and Principles in Philippine Taxation


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Dont be anxious, smile.


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It is the inherent power by which the

sovereign state imposes financial burdenupon persons and property as a means

of raising revenues in order to defray the

necessary expenses of the government

(Tax Digest by Crescencio Co Untian,

2002).

Taxation is the imposition of financialcharges or other levies, upon a taxpayer

(an individual or legal entity) by a state

such that failure to pay is punishable by

law.

What is Taxation?


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It is a mode by which government make exactions

for revenue in order to support their existence andcarry out their legitimate objectives (Tax Law and

Jurisprudence by Justice Vitug, 2000).

It is the most pervasive and the strongest of all thepowers of the government. Taxes are the lifeblood

of the government, without which, it cannot

subsist.

What is Taxa

tion?


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The first known system of taxation was in

Ancient Egypt around 3000 BC - 2800 BC inthe first dynasty of the Old Kingdom.

In Biblical times, tax is already prevalent.According to Genesis 47:24:

"But when the crop comes in, give afifth of it to

Pharaoh. The otherfour-fifths you may keep asseed for the fields and as food for yourselves andyour households and your children".

History of Taxation


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Earliest taxes in Rome are called asportoriawere customs duties on imports and exports

Augustus Caesar introduced the inheritance taxto provide retirement funds for the military.The tax was five percent on all inheritancesexcept gifts to children and spouses .

In England, taxes were first used as emergencymeasures.

History of Taxation


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History of Taxation in the Philippines

The pre-colonial society, being communitarian,did not have taxes.


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During the Spanish Period, new income-

generating means were introduced by thegovernment such as the :

Manila-Acapulco Galleon TradePolo Y Servicio (Forced Labor)

Bandala

Encomienda System

Tribute



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Manila-Acapulco Galleon Tradewas the main source of income

for the colony during its early

years.

The Galleon trade brought silver

from Nueva Castilla and silk from

China by way of Manila.



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Polo Y Servicio is the forced labor for 40 days, ofmen ranging from 16 to 60 years of age who were

obligated to give personal services to community

projects. One could be exempted from the polo by

paying a fee calledfalla (which was worth one and ahalf real).

Bandala is one of the taxes collected from the

Filipinos. It comes from the Tagalog word mandala,which is a round stock of rice stalks to be threshed.



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Encomienda are large tracts of land given to a personas reward for a meritorious act. The encomenderos

were given full authority to manage the encomienda by

collecting tribute from the inhabitants and govern

people living on it.

Tribute was the residence tax during the Spanish times.

It may be paid in cash or kind, partly, or wholly.

But in 1884, the tribute was replaced by the cedula

personalor personal identity paper, equivalent to the

present community tax certificate.



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That in the 19th century, the

cedula served as an identificationcard that had to be carried at all

times. A person who could not

present his or her cedula to aguardia civil could then be detained

for being indocumentado.

Andres Bonifacio and otherKatipuneros tore their cedulas in

August 1896, signaling the start of

the Philippine Revolution.

Did you know?


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The cdula was imposed by the

Americans on January 1, 1940, whenCommonwealth Act No. 465 went into

effect, mandating the imposition of a

base residence tax of fifty centavos and

an additional tax of one peso based onfactors such as income and real estate

holdings.

The payment of this tax would merit the

issue of a residence certificate.

Corporations were also subject to the

residence tax.

The Development of the Community Tax


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A sample cedula in the 1920s.


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Also known as a residence certificate, is a

legal identity document in the Philippines.

Issued by cities and municipalities to all

persons that have reached the age of majorityand upon payment of a community tax, it is

considered as a primary form of identification

in the Philippines and is one of the closest

single documents the Philippines has to a

national system of identification, akin to a

driver's license and a passport.

What is a cedula?


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A person is required to present a cedula whenhe or she acknowledges a document before a

notary public; takes an oath of office upon

election or appointment to a government

position; receives a license, certificate or

permit from a public authority; pays a tax or

fee; receives money from a public fund;

transacts official business; or receives salary

from a person or corporation.

Why is cedula important?


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Taxation has four main purposes or effects:

1. Revenue

2. Redistribution3. Repricing

4. Representation

The Four Rs of Taxation


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RevenueThe taxes raise money

to spend on armies,

roads, schools and

hospitals, and on more

indirect government

functions like market

regulation or legal

systems.



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Redistribution

This refers to the transferring

wealth from the richer sections

of society to poorer sections.

Repricing

Taxes are levied to address

externalities; for example,

tobacco is taxed to discouragesmoking, and a carbon tax

discourages use of carbon-based

fuels.



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Representation

As what goes with the

slogan "no taxation

without representation"

, it implies that: rulerstax citizens, and citizens

demand accountability

from their rulers as theother part of this

bargain.

What is a cedula?


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The main purpose of taxation is to accumulate funds forthe functioning of the government machineries. No

government in the world can run its administrative

office without funds and it has no such system

incorporated in itself to generate profit from itsfunctioning.

The governments ability to serve the people depends

upon the taxes that are collected. Taxes areindispensable in the government operation and without

it, the government will be paralyzed.

Why Tax?


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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

Internal Revenue (BIR) and local taxes refer to

those imposed and collected by the local

government. The 1987 Philippine Constitution

sets limitations on the exercise of the power to

tax. The rule of taxation shall be uniform andequitable. The Congress shall evolve a

progressive system of taxation. (Article VI,

Section 28, Paragraph 1).

The Philippine Tax System


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Tax evasion happens whenthere is fraud through

pretension and the use of other

illegal devices to lessen ones

taxes, there is tax evasion,

under-declaration of income,

and non-declaration of income

and other items subject to tax,Under-appraisal of goods

subject to tariff , and over-

declaration of deductions

What is Tax Evasion?


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The Congress may, by law, authorize thePresident to fix within specified limits, and

subject to such limitations and restrictions as it

may impose, tariff rates, import and exportquotas, tonnage and wharfage dues, and other

duties or imposts within the framework of the

national development program of the

Government (Article VI, Section 28, Paragraph 2).

The Branches of Government vis--vis the Tax Law


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The President shall have the power to veto any

particular item or items in an appropriation,revenue, or tariff bill, but the veto shall not affect the

item or items to which he does not object (Article VI,


The Supreme Court has the power to: review, revise,

reverse, modify, or affirm on appeal or certiorari, as the

law or the Rules of Court may provide, final judgments

and orders of lower courts in all cases involving the

legality ofany tax, impost, assessment, or toll, or any

penalty imposed in relation thereto (Article VIII,

Section 5, Paragraph 2b).

The Branches vis--vis the Tax Law


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A) Personal, capitation or poll taxes

These are taxes of fixed amount upon

residents or persons of a certain class without

regard to their property or business

B) Property taxes

1. Real Property Tax - an annual tax that may

be imposed by a province or city or a

municipality on real property such as land,

building, machinery and other improvements

affixed or attached to real property.

The Forms of Taxes Imposed on Persons and Property


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2. Estate Tax (Inheritance Tax) - a tax on the right

of transmitting property at the time of death

and on the privilege that a person is given in

controlling to a certain extent the disposition

of his property to take effect upon death.

3. Gift or Donors Tax - a tax on the privilege of

transmitting ones property or property rights

to another or others without adequate and

full valuable consideration.



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4. Capital Gains Tax - tax imposed on

the sale or exchange of property .

Those imposed are presumed to

have been realized by the seller for

the sale, exchange or other

disposition of real property locatedin the Philippines, classified as

capital assets.

C. Income Taxes - Taxes imposed on

the income of the taxpayers from

whatever sources it is derived. Tax on

all yearly profits arising form property,

possessions, trades or offices.


The Forms of Taxes Imposed on Persons and


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D. Excise or License Taxes - Taxes

imposed on the privilege, occupation or

business not falling within the

classification of poll taxes or property

taxes. These are imposed on alcoholproducts; on tobacco products; on

petroleum products like lubricating oils,

grease, processed gas etc; on mineral

products such as coal and coke andquarry resources; on miscellaneous

articles such as automobiles.

The Forms of Taxes Imposed on Persons and

Property


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Under these lies two other taxes:

1.Documentary Stamp Tax - a tax imposed upon

documents, instruments, loan agreements and

papers and upon acceptance of assignments, sales

and transfers of obligation and etc.

2. Value added tax- is imposed on any person

who, in the course of trade or business sells,

barters, exchanges, leases, goods or properties,

renders services, or engages in similar

transactions.

The Branches of Government vis--vis the Tax Law


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Products like Papawash have value-added taxes, too.

Wh Sh ld ?


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1. Individuals

a. Resident Citizenb. Non-resident Citizen

c. Resident Aliens

d. Non-resident Aliens

2. Corporations

a. Domestic Corporations

b. Foreign Corporations

3. Estate under judicial settlement

4. Trusts irrevocable both as to the

trust property and as to the

income.

Who Should Pay Taxes?

Wh ( Wh t) th t d i


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The Constitution expressly grants taxexemption on certain

entities/institutions such as:

1. Charitable institutions, churches,

parsonages or convents appurtenant

thereto, mosques, and nonprofit

cemeteries and all lands, buildings andimprovements actually, directly and

exclusively used for religious, charitable

or educational purposes (Article VI,


Who (or What) are those exempted in

paying taxes?

Wh ( Wh t) th t d i i t ?


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Who (or What) are those exempted in paying taxes?

2. Non-stock non-profit educational institutions used actually,

directly, and exclusively for educational purposes. (Article XVI,

Section 4 (3)).Exempted to tax as stated in the Article 283 of Rules and

Regulations Implementing Local Government Code of 1991 (RA

7160):

Local water districts

Cooperatives duly registered under RA 6938, otherwise known

as the Cooperative Code of the Philippines

Non-stock and non-profit hospitals and educational

institutionsPrinter and/or publisher of books or other reading materials

prescribed by DECS (now DepEd) as school texts or references,

insofar as receipts from the printing and / or publishing thereof

are concerned.

Top Celebrity Taxpayers in 2010


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Top Celebrity Taxpayers in 2010


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Maraming Salamat Po!

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Taxation 101 basic rules and principles

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