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Chapter 8

TAXATION
LESSON 1
MEANING, NATURE AND IMPORTANCE OF TAXATION
Overview
The power of taxation is inherent power of the state. It rests upon necessity, the
significance of which stems from the recognition that since government have been established to
promote and protect the general welfare, It is necessary that government should be provided with
the means by which it could carry out its exercise the power of taxation.
Taxation is very important to maintain the society we live in. People are always criticizing
the government for this but it is very important.

TAXATION is the supreme power of a sovereign state through its law-making body, to impose
burdens or changes upon persons, property rights for public purpose. It is the power vested upon
the legislature for the purpose of raising revenues to finance government expenditures and for
the general welfare and protection of its citizens.
TAXES are the enforced proportional contributions from persons and property, level by the
state for virtue of its sovereignty for the support of the government and for all public needs.
cooley!
"onsidered as the #$ifeblood% of a government that without w&c, a government may not
be able to perform and expenditures are financed by tax revenues.
THE ASIC OF TAXATION
'. The authority to tax is inherent to every sovereign state for w&o it( the government cannot
continue to promote the welfare of its citizens. )or this reason, it has the power to re*uire
all its inhabitants to pay.
+. The basic of taxation is found in the reciprocal duties of protection and support between
the state and those that are sub,ect to its authority. In return of their contribution, tax
payers en,oys services and protection from the government.
IMPORTANCE OF TAXATION
'. -aise revenue. .o government can exist w&o it, it cannot promote the welfare of the
people.
+. Protect locally , produced goods against competition from import by imposing higher
costum duties .
/. Protect new industries by granting tax exemptions.
0. -egulate property.
1. 2istribute e*ually the wealth of the nation.
ESSENTIAL CHARACTERISTICS OF TAXATION
'. It is an inforced contribution.
+. It is generally payable by money.
/. It is proportionate in character.
0. It is levied on persons, property or property rights.
1. It is levied by the state, which has ,urisdiction over the person or property.
3. It is levied by the legislative branch of the state.
4. It is levied for public purposes.
LESSON !
ASIC PRINCIPLES AND CLASSIFICATION OF TAXES
Overveiw
The people, as good citizens has the responsibility to contribute a # fair 5 share% to the
cost of government. "ertainly, the payment of tax is burden to all those who have the duty to pay
because of their income and wealth.
In order to compel the people to pay their taxes religiously and promptly, the government
has to initiate a sound tax system and that the system must also inform the public on the
different tax collected.
ASIC PRINCIPLES OF A SOUND TAX S"STEM
'. Fi#$a% A&e'(a$) - The source of revenue should be sufficient to address the
demands of public expenditures.
+. E'(a%%) *r The*reti$a% +(#ti$e 5 The tax burden should be proportionate to
the tax payer6s ability to pay.
/. A&,i-i#trative Fea#i.i%it) 5 The tax should be capable of convenience, ,ust and
effective administration.
CLASSIFICATION OF TAXES
'. Nati*-a% Ta/e# 5 taxes imposed by the national government under the .ational
Internal -evenue "ode and other laws particularly the Tariff and "ustom "ode.
+. L*$a% Ta/e# 5 Taxes imposed by the local government to meet particular needs under
the $ocal government code, such as real property tax and the community tax.
FORMS OF TAXES
'. Dire$t ta/e# 5 7 form of tax paid directly by the individual or corporations directly to
the government.
+. I-&ire$t ta/e# 5 Taxes imposed on a particular article or transaction w&c are paid by
others than those from whom the tax collector receives payment.
EXAMPLES OF DIRECT TAXES
'. I-$*,e ta/ 5 Tax is derived from the individuals, corporate estates and trusts income.
+. I-herita-$e ta/ 5 Paid on property passed on from a deceased person to those who
are to inherit it.
/. E#tate ta/ 5 7 tax on the right of the deceased person to transmit his&her estate to
his&her lawful heirs and benificiaries at the time of death and on certain tranfer, w&c are
made by law as e*uivalent to testamentory disposition.
0. D*-*r0# Ta/ 5 Tax levied on donation or gift and is imposed on the gratuitous transfer
of property between two or more persons who are living at the time of the transfer.
1. Capita% 1ai-# ta/ 5 Tax impose an income from the sale of capital assets,w&c
includes stocks bonds,real estate and partnership.
3. Pr*pert) ta/ 5 Tax levied on the assess value of land and permanent attached
improvements owned by individuals or corporations
4. D*w,e-tar) #ta,p ta/ - Tax imposed on documents, instruments , loan
agreements and papers evidencing the acceptance, assignment, sale or transfer of an
obligation.
EXAMPLES OF INDIRECT TAXES
'. 2a%(e a&&e& ta/ 5 7 tax imposed by the government at each stage in the production
of a good or service.
+. Sa%e# ta/ 5 7 tax levied on the sale of goods and services. The tax is a certain
percentage of the sale.
/. Per$e-ta1e ta/ 5 7 business tax imposed on persons or entitles who sell or lease
goods, properties or services in the course of trade or business whose gross annual sales or
receipts do not exceed P 118,888 and are not 97T registered.
0. E/$i#e ta/ 5 Is on the manufacture, sale or use of goods or services levied by local stae
or national governments.
S*,e 3ee#, $har1e# a-& .(r&e-# $*%%e$te& .) the (rea( *3 C(#t*,#
'! Har.*r 3ee 5 The amount w&c the owner , agent, operator, or master of a vessel has to
pay for each entrance into or departure from a port of entry in the Philippines.
+! 4har3a1e &(e 5 amount assessed against the cargo of a vessel engaged in the foreign
trade, based on the *uantity , weight or measure receive and&or discharged by such vessel.
/! erthi-1 $har1e 5 amount assessed against a vessel for mooring or berthing at a
pier,wharf,bulkheed-wharf,river channel marginal wharf at any part in the Philippines(
or for mooring or making fast to a vessel so berthed( or for berthing or mooring w&in any
slip, channel, basin river or canal under the ,urisdiction of any part of the Philippines.