TAXATION

Chapter Outline:
1. What is Taxation
2. Philippine Taxation
3. Legal Basis of Philippine Taxation
4. Kinds of Taxes
5. Brief History of Philippine Taxation

1. What is Taxation
Taxation refers to compulsory or coercive money collection by a levying authority,
usually a government. The term "taxation" applies to all types of involuntary levies, from
income to capital gains to estate taxes. Though taxation can be a noun or verb, it is
usually referred to as an act; the resulting revenue is usually called "taxes."
(Investopedia, 2016)
Taxation is a means by which governments finance their expenditure by imposing
charges on citizens and corporate entities.
Governments use taxation to encourage or discourage certain economic decisions.
For example, a reduction in taxable personal (or household) income by the amount paid
as interest on home mortgage loans results in greater construction activity and
generates more jobs. (Business Dictionary, n.d.)
Taxation refers to the practice of a government collecting money from its citizens to
pay for public services. Without taxation, there would be no public libraries or parks.

2. Philippine Taxation
What are taxes?
According to the Department of Finance, Republic of the Philippines, taxes are
mandatory contributions of everyone to raise revenue for nation-building. The revenue
is used to pay for our doctors, teachers, soldiers, and other government personnel and
official as, as well as for building schools, hospitals, roads, and other infrastructures. It
is our duty to pay our taxes.
Why does the government collect taxes?
The government collects taxes to provide basic services such as education, health,
infrastructure, and other social services for all. These taxes are used to pay for our
doctors, teachers, soldiers, and other government personnel and officials. These are
also used to build schools, hospitals, roads, and various infrastructure for connectivity,
and industrial and agricultural facilities.
Who pays taxes?
We all pay taxes, either directly or indirectly. We pay taxes according to our income
and / or level of consumption.
Income tax is based on the ability-to-pay principle wherein people with higher
income should pay more.
Consumption tax is based on the amount of goods and services utilized such that
the more you consume, the higher the tax you pay.
Filipinos residing in the Philippines are taxed based on income earned here and
abroad. In the case of Filipinos living abroad, they are only taxed based on their income
earned in the Philippines. Similarly, resident aliens and non-resident aliens in the
Philippines are taxed based on their income earned in the country.
Where do my taxes go?
 Taxes are used to fund social services and investment in infrastructure and human
capital development. Part of our taxes get directly transferred to the poorest through
targeted transfers (e.g. 4Ps, pension to qualified senior citizens, allowance for PWDs,
and PhilHealth).

3. Legal Basis of Philippine Taxation

The policy of Taxation in the Philippines is governed chiefly by the Constitution of
the Philippines and three Republic Acts.
a. Constitution
Article VI, Section 28 of the 1987 Philippine Constitution states that “the
rule of taxation shall be uniform and equitable” and that “Congress shall
evolve a progressive system of Taxation”

b. National Law
National Internal Revenue Code – enacted as Republic Act No. 8424 or
the Tax Reform Act of 1997
Subsequently amended by Republic Act No. 10963 or the Tax Reform
for Acceleration and Inclusion Act of 201.
Republic Act No. 7160 or the Local Government Code of 1991, and
those sourced from the proceeds collected by virtue of a local ordinance.

4. Kinds of Taxes
According to the Department of Finance, taxes can either be direct or indirect.
Direct taxes are those that are paid from your income and properties.
Examples include personal and corporate income taxes, property and capital
taxes.
Indirect taxes are collected based on consumption. Examples include excise
taxes, Value Added Tax (VAT), percentage tax, and documentary stamp tax.

a. Direct Taxes
Income Tax – a direct tax paid by an individual or organization imposed on
Compensation Income, Business Income, and Passive Income.

b. Indirect Taxes
1. Value-Added Tax – is a type of indirect tax imposed on goods and services. It is
typically passed on to the buyer as part of the selling price. The value-added tax
(VAT) rate since 2016 is 12%. Both imported and domestic goods and services
are covered by VAT, but there are many exemptions. The list of exemptions can
be found in Section 109 of the Tax Code.
2. Percentage Tax – is a business tax imposed on persons or entities/transactions:
who sells or lease goods, properties or services in the course of trade or
business and are exempt from value-added tax (VAT) under Section 109 of the
National Internal Revenue Code, as amended, whose gross annual sales and/or
receipts do not exceed Php 1,919,500 and who are not VAT-registered; and
engaged in business specified in Title V of the National Internal Revenue Code.
3. Excise Tax – is an indirect tax on selected goods that have negative externalities
and are non-essentials. Excise tax can be either specific or ad valorem.
 National Taxes – the taxes imposed by the national government of the
Philippines include, but are not limited to:

 Income tax (Compensation, Business, Passive)

 Estate Tax
 Donor’s Tax
 Value-added Tax
 Percentage Tax
 Excise Tax
 Documentary Stamp Tax
Local Taxes – one of the main sources of revenues of the local government
units is the real property tax, which is a tax imposed on all types or real
properties including lands, buildings, improvements, and machinery. Another
source of revenue are local ordinances such as parking fees and the like.

5. Brief History of Philippine Taxation

Marcos administration
In 1965, Commissioner Misael Vera implemented the "Blue Master
Program" to curb the abuses of both the taxpayers and BIR personnel;
and the "Voluntary Tax Compliance Program" to encourage professionals
in the private and government sectors to report their true income and to
pay the correct amount of taxes.
In 1970, each taxpayer was provided with a permanent Tax
Account Number (TAN) which resulted into faster verification of tax
records.
Similarly, the payment of taxes through banks, and the package
audit investigation by industry were implemented.
During the Martial Law years, several tax amnesty decrees were
issued by the President to enable erring taxpayers to start anew.
In 1976, the Bureau's National Office was transferred from the
Finance Building in Manila to its own building in Quezon City.
In 1977, President Marcos promulgated the National Internal
Revenue Code of 1977, which updated the 1934 Tax Code.
In 1980, Commissioner Ruben Ancheta further reorganized the
Bureau.

Aquino administration
After the EDSA Revolution in February 1986, "Operation: Walang
Lagay" was launched to promote the efficient and honest collection of
taxes.
On January 30, 1987, Commissioner Bienvenido Tan, Jr
reorganized the Bureau.
In 1988, the value-added tax (VAT) was introduced. The adoption
of the VAT system was one of the structural reforms provided for in the
1986 Tax Reform Program, which was designed to simplify tax
administration and make the tax system more equitable.
In 1989, Commissioner Jose Ong improved tax collection and
simplifed tax administration. The Tax Account Number (TAN) was
replaced by the Taxpayer Identification Number (TIN) and adopted the
New Payment Control System and Simplified Net Income Taxation
Scheme.
Ramos administration
In 1993, Commissioner Liwayway Vinzons-Chato implemented the
Action-Centered Transformation Program (ACTS) to realign and direct the
entire organization towards the fulfilment of its vision and mission.
In 1994, a five-year Tax Computerization Project (TCP) was
undertaken, which involved the establishment of a modern and
computerized Integrated Tax System and Internal Administration System.
In July 1997, the BIR was further streamlined to support the
implementation of the computerized Integrated Tax System.

Estrada administration
Commissioner Beethoven Rualo enhanced voluntary compliance
and implemented the Economic Recovery Assistance Payment (BRAP)
Program, which granted immunity from audit and investigation to
taxpayers who have paid 20% more than the tax paid in 1997 for income
tax, VAT and /or percentage taxes.
In 1999, the raffle promo "Humingi ng Resibo, Manalo, ng Libo-
Libo" was institutionalized to encourage consumers to demand sales
invoices and receipts.
In 2000, Commissioner Dakila Fonacier implemented the full
utilization of tax computerization in the Bureau's operations; expansion of
the use of electronic Documentary Stamp Tax metering machine and
establishment of tie-up with the national government agencies and local
government units for the prompt remittance of withholding taxes; and
implementation of Compromise Settlement Program for taxpayers with
outstanding accounts receivable and disputed assessments with the BIR.
The Large Taxpayers Service (LTS) and the Excise Taxpayers
Service (ETS) were established to reinforce the tax administration and
enforcement capabilities of the BIR. The BIR also implemented a Full
Integrated Tax System (ITS) Rollout Acceleration Program to facilitate the
full utilization of tax computerization in the Bureau's operations.

Arroyo administration
In 2001, Commissioner, Atty. René G. Bañez implemented
changes that made the the tax system simpler and suited to the Philippine
culture, more efficient and transparent.
He also implemented the Voluntary Assessment Program and
Compromise Settlement Program and expansion of coverage of the
creditable withholding tax system. A technology-based system that
promotes the paperless filing of tax returns and payment of taxes was also
adopted through the Electronic Filing and Payment System (FPS).
In 2002, Commissioner Guillermo L. Parayno, Jr. offered a
Voluntary Assessment and Abatement Program (VAAP) to taxpayers with
under-declared sales/ receipts/ income. He adopted the Reconciliation of
Listings for Enforcement or RELIEF System to detect under-declarations
of taxable income by taxpayers and the electronic, broadcasting system to
enhance the security of tax payments.
 The BIR expanded its electronic services to include the web-based
TIN application and processing; electronic raffle of invoices/ receipts;
provision of e-payment gateways; e-substituted filing of tax returns and
electronic submission of sales reports.

Aquino administration
Under Commissioner Kim S. Jacinto-Henares, the BIR focused on
the filing of tax evasion cases. The BIR was able to collect more than one-
half of the total revenues of the government.

Duterte administration
Rodrigo Duterte signed the Republic Act 10963 or the Tax Reform
for Inclusion and Acceleration Act of 2017, which lowered personal income
tax rates but increased taxes on certain goods, leading to a net increase in
revenue. This excess revenue will be used to fund the major expansion in
public infrastructure in the country.