TAX Principles and Types (Philippines) PDF

**TAX** is the main source of government revenue. (lifeblood of the government) no projects, no programs. thru tax, dito kumukuha ng pera ang gobyerno. it is very important  - A compulsory contribution to state revenue, levied (pinapataw) by the govenment on worker\'s income and business prof...

**TAX** is the main source of government revenue. (lifeblood of the government) no projects, no programs. thru tax, dito kumukuha ng pera ang gobyerno. it is very important  - A compulsory contribution to state revenue, levied (pinapataw) by the govenment on worker\'s income and business profits, or added to the cost of some goods, services, and transactions.  - Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity---whether local, regional, or national--- in order to finance government activities. in economics, taxes fall on whoever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business\'s goods. - It is to help fund public works and services---and to build and maintain the infrastructures used in a country--- the government usually taxes its individual and corporate residents. the tax collected is used for the betterment of the economy and all living in it.  **SYSTEM OF TAXATION** In order to have an effective tax system, the government must have different parameters by which to judge the merit of taxes it imposes. The criterion is that. 1. Tax should yield more revenue; 2. Tax laws should also be written so that both taxpayers and tax collector can uderstand the policies; 3. Tax should also be easy to collect it also include convenience and efficiency of collection; and 4. Tax should be imposed impartially and justly. **PRINCIPLES OF TAXATION** [Benefit Principle] which is based on two ideas. - Those who benefit more from the government services should be the ones to pay for them; - People should pay taxes in proportion to the amount of services or benefits they receive. - E.g. road user's tax [Ability to pay principle], people should be taxed accordingly to their ability to pay no matter what benefits or services they receive. It is based on three things, - It is not possible measure the benefits derived from government spending; - Persons with higher income are more affected than persons with lower income taxes; - The only means most people have for paying taxes is the income they earn. **CLASSIFICATION OF TAXES** There are different ways to classify taxes in accordance to the relationship of income to the relationship of income to the tax rate [According to rate of increase ] **Proportional Tax,** imposes the same percentage rate of taxation on everyone regardless of his or her income **Progressive Tax**, imposes higher percentage rate of taxation on persons with high income that those with low income **Regressive Tax,** imposes higher percentage rate of taxation on low income individuals than those who have higher income [According to Payment ] **Direct Tax** is considered as a hard form of tax for it is imposed to persons who are expected to pay the tax. It is not transferable. (e.g. income tax) **Indirect Tax** is imposed on the value of products and services which are shouldered by the end users (nabili ng candies or ballpens, VAT --- value added tax) [According to Purpose] - **Capital Gains Tax** is a tax Imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale. (tax sa nabenta. Meaning, hindi mo makukuha ng buo ung 100k kasi may tax pa un) - **Documentary Stamp Tax** is a lax on documents, Instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto. - **Income Tax** is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a person\'s income, emoluments, profits and the like. - **Donor\'s Tax** is a tax on a 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 transter. (pwede hindi kamag anak) - **Estate Tax** is 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. (kailangan kamag anak) - **Percentage Tax** is a business tax imposed on persons or enties who soll or lease goods, properties or services in the course of trade or business whose gross annual sales or recepts do not exceed P550,000 and are not VAT-registered. - **Value-Added Tax** is a business tax Imposed and collected from the seller in the course of trade or business on every sale of propertles (real or personal) lease of goods or properties (real or personal) or vendors of services. (everytime you buy or purchase something)\ It is an indirect tax, thus, it can be passed on to the buyer. - **Excise Tax** is a tax on the production, sale or consumption of a commodity in a country. It apples to goods manufactured or produced in the Phillppines for domestic sale or consumption or for any other disposition; and to impoorted goods. (one way to protect local industry. E.g. mas mahal mnms mess sa nips) - **Withholding Tax** on Compensation is the lax withheld from iindividuals recelving purely compensation income. (purely income from work) - Expanded Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and Is creditable against the Income tax due of the payee for the taxable quarter year. - Final Withholding Tax Is a kind of withholding tax which is prescribed only for certain payors and is not creditable against the Income tax due of the payee for the taxable year. Income Tax withheld conslitutes the full and final payment of the Income Tax due from the payee on the said income. - Withholding Tax on Government Money Payments Is the withholding tax withheld by government offices and instrumentalities, Including goverment owned or controlled corporations and local government units, before making any payments to private Individuals, corporations, partnerships and/or assoclations. It takes an enormous amount of money to run a government. There are different kinds of taxes that are levled on products and services. **Value Added Tax (VAT)** - Is placed on the value of the product at each stage of production. It is a consumption tax that is levied on a product repeatedly at every point of sale at which value has been added. That Is, the tax Is added when a raw materials producer sells a product to a factory, when the factory sells the finished product to a wholesaler, when the wholesaler sells it on to a retaller, and, finally, when the retailer sells it to the consumer who will use It. - A value-added tax (VAT) Is paid at every stage of a product\'s production from the sale of the raw materials to its final purchase by a consumer. **Expanded Value Added Tax (E-VAT)** - On May 5, 1994, President Fidel V. Ramos signed Into law Republic Act No. 7716 popularly known as the Expanded Value Added Tax Law. - It aims to gain 18 billion pesos every year by including products not covered by VAT. - With Its Implementation, all consumers have to pay ten percent (10%). **Reformed Value Added Tax (RVAT)** - President Gloria Macapagal-Arroyo signed Republic Act No. 9337 or Reformed Value Added Tax (RVAT). From ten percent (10%) tax to twelve percent (12%) additional tax. VAT is commonly expressed as a percentage of the total cost. For example, if a product costs P100.00 and there is a 12% VAT, the consumer pays Pl 12.00 to the merchant. The merchant keeps P100.00 and remits 12.00 to the government. **Other Sources of Government Funds** **[Income from Government Owned and Controlled Corporations]** (GOCCs) Income generated from the rent of government properties, treasury bills that are sold by the government, Interest in the savings of government and earning of government-owned businesses. **[Income from the sale of capital owned by government]** With the sale of corporations and other properties of the government it provide funds. **[Grants-in-aid]** The income of local government is given to the national government as a contribution of the different government agencles. **[Income from the Philippine Amusement and Gaming Corporation]** (PAGCOR) **[Income that comes from casinos]** operated by the Philippine Amusement and Gaming Corporation (PAGCOR). **[Money]** is an instrument used by individuals to buy products and services that will satisfy their needs and wants. It originated in the form of a commodity, having physical property to be adopted by market participants as a medium of exchange. Money is commonly referred to as currency. Economically, each government has its own money system. Cryptocurrencies are also being developed for financing and international exchange across the world. **EVOLUTION OF PHILIPPINE MONEY** - Before the coming of the colonizers, our forefathers used different money that underwent a long process of evolution. - The first coin in our country that Dr. Gilbert Perez discovered was called the penniform gold barter ring. Piloncitos are believed to be the earliest form of coinage used by the ancient Filipinos - The first Spanish coin, which was used in the entire island, bore the face of Queen Isabella of Spain. The bronze coin with little value known as hilis kalamay because of its unconventional shape was also used during Spanish period. - The Spanish Barilla was the first coin produced in our country during Spanish regime. It became the circulating coin in our country. - The first paper money called \"Peso Fuertes\" was issued by the first bank in our country El Banco Español-Filipino de Isabella II. **MONETARY STANDARDS** It is a particular kind of standard money used in the country. It is the lype of money issued in circulation by the government. There are two kinds of monelary standards: commodity standard and non-commodity standard. ** Commodity Standard** **[A. Gold Standard]** \- A country is under this standard when the money in circulation or the standard Money redeemed equivalent - The United States use this standard through the gold coin standard and the gold bullion standard. Money has a definite weight in terms of gold bullion. - The gold exchange standard which was the monetary standard in the Philippines during the American occupation. A gold reserve tund was established in the Philippines in which the money Issued in the country is redeemable in gold but the gold coins did not circulate. **[B. Silver Standard]** - This standard consists of two types, the silver coin standard and silver bullion standard. - The monetary unit under the two types is redeemable and has equivalent in silver. **Monometallism and Bimetallism** - A country that uses one metal like gold or silver as monetary standard was under the monometallicmstandard. - If it uses two, like gold and silver as monetary standard, it falls under the bimetallic. Its weakness was exposed by Gresham\'s Law, wherein people tend to keep the money with high metal value. **Non-commodity standard** - The government opted for an alternative in using monetary standard because of high value and cost of metal. - **Paper standard**, it is the issuance of paper money in circulation regardless if metal equivalent. What is needed in this standard is the guarantee if the government that akl monetpy in circulation, particularly the paper money, is in its responsibility in all transactions. Our country has been under this standard since 1949. +-----------------------------------+-----------------------------------+ | **MERITS** | **DEMERITS** | +===================================+===================================+ | Economical | Lacks confidence | | | | | Elastic | | +-----------------------------------+-----------------------------------+ | Price stability | Lacks durability | | | | | Portable | | +-----------------------------------+-----------------------------------+ | Easy to count | Unstable | +-----------------------------------+-----------------------------------+ | Easy to store | Token Money | | | | | Cognizable | | | | | | Rellacable | | +-----------------------------------+-----------------------------------+ **FORMS OF MONEY** Money has various forms that are used in all economic transactions. **Commodity Money** - Our forefathers used anything as a medium of exchange, different products such as rice, corn, clolhing, necklace, bracelet and other valuables to get and buy products they need. - Later on, they valued the metal like gold, silver, and bronze as medium of exchange. These metals have intrinsic value which refers to the value of metal used in producing the money or the amount of metal contained in the money **Fiat Money** - This kind of money can only be accepted if it is considered as a legal tender. - Legal tender means that the government guarantees the use of money in all kinds of transactions, like payment of debt and in buying goods and services. - Money that the government guarantees as a legal tender. - Fiat money derives its value from government regulation or law. - It has no intrinsic worth. What it is orinted in is worthless. **Credit Money** - Any credit instrument accepted as payments for products and services consumed by an individual. - Promissory note is a written promise in paying the debt in a specific date. Check is a piece of paper where the amount of money, name of bank, and to whom it will be paid is written. Credit card or the so called plastic money is also considered as credit money. **Plastic Money** - ATM\'s and credit cards belongs to this form of money. **CHARACTERISTICS OF MONEY** All economic transactions become easy and smooth through the use of money. But like all the things around us, money possesses ils own characteristics for people to identity. **[Durability]** Objects used as money must withstand physical wear and tear. Good money not easily torn and destroyed. Usually paper money can last for five years while in colns can last for ten years. **[Easy to Recognize]** Can be easily identified and recognized through color, shape, and design. It has a distinct color compared to other currencies. - Counterfeiting is an act of imitating the original form of money, **[Acceptability]** Money is an instrument of exchange is widely accepted by everyone in all economic transactions. **[Stability]** It should not be easily affected by the fluctuation of prices in a short period of time **[Divisibility]** Money must be easily divided into smaller denomination or units of value. Money is divided into different denominations with its real value not affected. **[Portability]** People need to be able to take the money with them as they go about their business. Ease and convenience in carrying. **[Uniformity]** Any two units of money must be uniform, that is, the same, in terms of what they will buy. Every denomination currency has specific color, shape, weigh and design. **[Flexibility]** The increase and decrease of money supply depends on the needs of the economy. If the inflation is high, then the money in circulation is orals, of lesser. **FUNCTIONS OF MONEY** **[Medium of exchange]** It eliminated the existence of barter transactions. All transactions in the economy are done by the use of money as the medium of exchange for all products, which means that money acts as an intermediary between the buyer and the seller. **[Store of value]** It can be kept and stored for a long period of time for future use without directly affecting its value unlike the other commodities like corn, rice, and other perishable goods.You know that you do not need to spend il immediately because it will still hold its value the next day, or the next year. This function of money does not require that money is a perfect store of value. In an economy with inflation, money loses some buying power each year, but it remains money. **[Standard of value]** Commodities are valued with a specific amount of money to acquire the standard value. It serves as a ruler by which other values are measured. Money is the measuring rod of everything. By acting as common denominator it permits everything to be priced, that is, valued in terms of money. Thus, people are enabled to compare different prices and thus see the relative values of different goods and services. **[Standard of deferred payment]** Goods and services can be acquired immediately without paying cash money. This means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future. Loans and future agreements are stated in monetary terms and the standard of deferred payment is what allows us to buy goods and services today and pay in the future. **Merits of the Paper Standard** **[Economical]** The paper standard is cheaper than gold or silver standard. There is no need to waste gold or silver for coinage purposes. Rather precious metals can be used for productive purposes and for making payments to foreign countries. As paper money is not convertible, there is no need to keep gold in the form of reserves. The monetary authoritles keep only a fixed quantity of gold in reserve for reasons of security. Thus the paper standard is cheap and economical and even a poor country can easily adopt it. **[Elastic]** The paper standard is a highly useful monetary system because it possesses great elasticity. The monetary authority can easily adjust the money supply in accordance with the requirements of the economy. This was not possible under the gold standard. The supply of money can be increased by printing more notes in times of financial emergency, war, and for economic development. It can also be reduced when the economic situation so demands. Thus there is also freedom in the management of the money supply in the economy. **[Price Stability]** As a corollary to the above, the paper standard ensures price stability in the country. The monetary authority can stabilise the price level by maintaining equilibrium between demand and supply of money by an appropriate monetary policy. **[Free from Cyclical Effects]** The paper standard is free from the effects of business cycles arising in other countries. This merit was not available to other monetary standards, especially the gold standard, where cyclical movements in one country were automatically passed on to other countries through gold movements. **[Full Utilization of Resources]** The gold standard had a deflationary bias whereby the resources of the country remained unutilized. Whenever there was a gold outflow prices tell and resources became unemployed. But this is not the case under the paper standard in which the monetary authority can manipulate the monetary policy in order to ensure full utilisation of the country\'s resources. **[Equilibrium in Exchange Rate]** One of the merits of the paper standard is that it Immediately restores equilibrium in the exchange rate of a country whenever disequilibrium occurs in the demand and supply of Its currency in the foreign exchange market. **[Portable]** It is very convenient to carry large sums of paper money from one place to another. **[Easy to count]** It is easier to count paper money than metallic money. **[Easy to store]** It is easier to store large sums of paper money in a small space. **[Cognizable]** It is easy to recognize paper notes of different denominations. **[Replaceable]** Paper notes of one type and denomination can be easily replaced by printing notes of different types of the same denomination. **Demerits of the Paper Standard** **[Inflationary Bias]** One of the serious defect of the paper standard is that it has an inflationary bias. As paper notes are inconvertible, there is every likelihood of the government printing notes in excess of the requirements. Or, the government may deliberately resort to the printing press to meet a financial emergency or war or even to meet ordinary budget deficits. This leads to excess of money supply and to inflation in the country. **[Price Stability a Myth]** It has been pointed out in the merits of the paper standard that it leads to price stability. In actuality, price stability is a myth as has been the experience of the majority of countries on the paper standard. **[Inflationary Bias]** One of the serious defect of the paper standard is that it has an inflationary bias. As paper notes are inconvertible, there is every likelihood of the government printing notes in excess of the requirements. Or, the government may deliberately resort to the printing press to meet a financial emergency or war or even to meet ordinary budget deficits. This leads to excess of money supply and to inflation in the country. **[Price Stability a Myth]** it has been pointed out in the merits of the paper standard that it leads to price stability. In actuality, price stability is a myth as has been the experience of the majority of countries on the paper standard. **[Exchange Instability]** It leads to instability in exchange rates whenever there are large fluctuations in external prices as against internal prices. Such wide and violent fluctuations in exchange rates are harmful for the growth of international trade and capital movements among countries. These have led governments to adopt exchange control measures. **[Lacks Confidence]** Paper money lacks confidence as it is not backed by gold reserves. **[Lacks Durability]** Paper money has less durability than metallic coins. It can be easily destroyed by fire or insects. **[Unstable]** Paper money lacks stability because its supply can be changed easily. **[Uncertainty]** Instability in the value of paper money leads to uncertainty in the economy which adversely affects business and econ-+ **[Token Money]** Paper money is token money and in the event of demonetization of notes, they have no intrinsic value and are simply like waste paper. **[Not Automatic]** The paper currency standard does not operate automatically. It is a highly managed standard which requires much care and caution on the part of the monetary authority. A little carelessness may bring disaster to the economy