Understanding Taxation

• Taxation is the lifeblood of the state.

Definition of Taxation

• Taxation is the inherent power of the state, acting through the legislature to impose and collect revenue to support the government and its recognized objects.
• Taxation is the power of the state to collect revenues for public purposes only.
• The burden of taxation must be shouldered by those who enjoy the government services and benefits.

Taxation Factors

• Taxes must be based on an individual's ability to pay.

Characteristics of Taxes

• All citizens, concerning their ability, have to pay taxes.
• A tax must be discharged alone in money which must be in legal tender.
• A person will pay taxes for income and owned states.
• The imposition must be anchored on the enactment of statuses and ordinances made by the Legislative branch of the government
• A charge or burden imposes to provide income for public purposes

Kinds of Taxes: Who Bears the Burden

• Taxes takes on different forms, depending on several factors.
• Direct taxes are paid and shouldered directly by the taxpayer such as; personal income taxes and or estate taxes
• Indirect taxes are those that can be shifted or passed to others, goods and services such as; value added tax (VAT) and or tariffs

Kinds of Taxes: Subject Matter or Object

• Taxes takes on different forms, depending on several factors.
• A personal, poll, or capitation tax is a set amount imposed on an individual residing within a specified territory such as community tax.
• Property tax is the amount imposed on property whether real or personal such as a real estate tax.
• Excise tax is charged or imposed upon the performance of an act, the enjoyment of privilege, and in engaging an occupation which include; estate tax, donors, income taxes, VAT and business taxes.

Four Canons of Good Taxation

• Must be based on the ability to pay
• The amount to be paid and the manner for payment must be precise
• The time for payment and the manner of the collection must not be oppressive
• The tax to be levied must be just enough to sustain the government and its function

Three Phases of Taxation

• Levy or imposition, involves the impact of taxation, free to select the person or properties or the business, interest, or privileges that may be subjected to imposition or burdens as long as the legislative body does not violate constitutional restrictions or limitations
• Assessment and collection, the basic guidelines on the assessment are laid down, and the administrative authorities are responsible for the details in the collection of taxes
• Payment is referred to as the incidence of taxation

Purpose of Taxation

• To raise revenue or provide funds to promote the general welfare and protection of its citizens, and to enable the government to finance its various activities
• Equitably distribute the wealth of the nation, referring to the case of Estate and Donor's taxes
• Protect new industries in which the rate of taxation may be increased to regulate the proliferation of unnecessary industries and competition with foreign investments
• Basis of Taxation: Benefits received principle

Characteristics of a Sound Tax System

• The sources of revenue must be adequate or enough to defray the expenses

Administrative Feasibility

• Tax law must be clear and concise
• It is capable of proper enforcement
• It is not burdensome

Classification of Taxes: Purpose

• General, fiscal, or revenue tax; imposed for the general purpose of the government to raise funds for its needs for example; income taxes
• Individual or regulatory tax; imposed for a particular purpose to achieve some social or economic ends for example; Protective tariff's or customs

Classification of Taxes: Determination

• Taxes include Specific tax which refer to fixed amount imposed by the head or number or by some standard measurement which requires assessment other than a listing or classification of the subjects to be taxed
• Ad valorem tax which is a fixed proportion of the value of the property concerning which the tax and assessed and determines the amount due to each taxpayer for example; excise tax on cigarette

Classification of Taxes: Who Bears the Burden

• Direct Tax - demanded the person who also shoulders the burden of the tax
• Indirect Tax - demanded from the person in the expectation that he should Indemnify himself at the expense of another

Classification of Taxes: Graduation or Rate

• Professional Tax - based on a fixed percentage of the amount of the property, income, or other bases to be taxed
• Progressive or Graduated Tax - refers to the rate which increases as the tax base or bracket Increases
• Regressive Tax - refers to the rate, which decreases as the tax base or bracket increases

The Kinds of Taxes Under Existing Laws

• National Taxes - implied by the national government under the National Internal Revenue Code and other laws, particularly the Tariff and Custom Code.
• Local Taxes - those imposed by local governments to meet particular needs under the Local Government Code, such as real property tax and the community tax

Kinds of National Internal Revenue Taxes

• Income Tax - a tax on a person's income, emoluments, profits, and the like realized in one taxable year
• Estate Tax - a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.