Taxation 101: Basic Rules and Principles in Philippine Taxation JR Lopez Gonzales 8 August 2011 Don’t be anxious, smile. What is Taxation? It is the inherent power by which the sovereign state imposes financial burden upon 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 financial charges or other levies, upon a taxpayer (an individual or legal entity) by a state such that failure to pay is punishable by law. It is the most pervasive and the strongest of all the powers of the government. . without which. Taxes are the lifeblood of the government. 2000).What is Taxation? It is a mode by which government make exactions for revenue in order to support their existence and carry out their legitimate objectives (Tax Law and Jurisprudence by Justice Vitug. it cannot subsist. History of Taxation • The first known system of taxation was in Ancient Egypt around 3000 BC . .2800 BC in the first dynasty of the Old Kingdom. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children". According to Genesis 47:24: "But when the crop comes in. give a fifth of it to Pharaoh. tax is already prevalent. • In Biblical times. taxes were first used as emergency measures. • In England. .History of Taxation • Earliest taxes in Rome are called as portoria were customs duties on imports and exports • Augustus Caesar introduced the inheritance tax to provide retirement funds for the military. The tax was five percent on all inheritances except gifts to children and spouses . being communitarian.History of Taxation in the Philippines The pre-colonial society. did not have taxes. . History of Taxation in the Philippines During the Spanish Period. new incomegenerating means were introduced by the government such as the : • Manila-Acapulco Galleon Trade • Polo Y Servicio (Forced Labor) • Bandala • Encomienda System • Tribute . .History of Taxation in the Philippines Manila-Acapulco Galleon Trade was 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. which is a round stock of rice stalks to be threshed. . Bandala is one of the taxes collected from the Filipinos. of men 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 called falla (which was worth one and a half real).History of Taxation in the Philippines Polo Y Servicio is the forced labor for 40 days. It comes from the Tagalog word mandala. 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. But in 1884. the tribute was replaced by the cedula personal or personal identity paper. equivalent to the present community tax certificate. partly. It may be paid in cash or kind.History of Taxation in the Philippines Encomienda are large tracts of land given to a person as reward for a meritorious act. or wholly. Did you know? That in the 19th century. Andres Bonifacio and other Katipuneros tore their cedulas in August 1896. . signaling the start of the Philippine Revolution. A person who could not present his or her cedula to a guardia civil could then be detained for being “indocumentado”. the “cedula” served as an identification card that had to be carried at all times. . mandating the imposition of a base residence tax of fifty centavos and an additional tax of one peso based on factors such as income and real estate holdings. 465 went into effect. Corporations were also subject to the residence tax. The payment of this tax would merit the issue of a residence certificate.The Development of the Community Tax The cédula was imposed by the Americans on January 1. when Commonwealth Act No. 1940. A sample cedula in the 1920s. . is a legal identity document in the Philippines.What is a “cedula”? Also known as a “residence certificate”. 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. . Issued by cities and municipalities to all persons that have reached the age of majority and upon payment of a community tax. Why is “cedula” important? A person is required to present a cedula when he or she acknowledges a document before a notary public. transacts official business. pays a tax or fee. or receives salary from a person or corporation. receives a license. . takes an oath of office upon election or appointment to a government position. certificate or permit from a public authority. receives money from a public fund. Redistribution 3. Representation . Revenue 2. Repricing 4.The Four R’s of Taxation Taxation has four main purposes or effects: 1. The Four R’s of Taxation Revenue The taxes raise money to spend on armies. schools and hospitals. roads. and on more indirect government functions like market regulation or legal systems. . and a carbon tax discourages use of carbon-based fuels. .The Four R’s of Taxation Redistribution This refers to the transferring wealth from the richer sections of society to poorer sections. tobacco is taxed to discourage smoking. Repricing Taxes are levied to address externalities. for example. and citizens demand accountability from their rulers as the other part of this bargain. .What is a “cedula”? Representation As what goes with the slogan "no taxation without representation" . it implies that: rulers tax citizens. 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 its functioning. the government will be paralyzed. .Why Tax? The main purpose of taxation is to accumulate funds for the functioning of the government machineries. The government’s ability to serve the people depends upon the taxes that are collected. Taxes are indispensable in the government operation and without it. . The 1987 Philippine Constitution sets limitations on the exercise of the power to tax. Paragraph 1). (Article VI.The Philippine Tax System Tax law in the Philippines covers national and local taxes. Section 28. The Congress shall evolve a progressive system of taxation. The rule of taxation shall be uniform and equitable. 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. and overdeclaration of deductions . and non-declaration of income and other items subject to tax.What is Tax Evasion? Tax evasion happens when there is fraud through pretension and the use of other illegal devices to lessen one’s taxes. under-declaration of income. Under-appraisal of goods subject to tariff . there is tax evasion. and subject to such limitations and restrictions as it may impose. tonnage and wharfage dues. and other duties or imposts within the framework of the national development program of the Government (Article VI.The Branches of Government vis-à-vis the Tax Law The Congress may. authorize the President to fix within specified limits. Paragraph 2). Section 28. . import and export quotas. tariff rates. by law. modify. Section 5. final judgments and orders of lower courts in “all cases involving the legality of any tax. The Supreme Court has the power to: review. Paragraph 2). or toll.The Branches vis-à-vis the Tax Law The President shall have the power to veto any particular item or items in an appropriation. reverse. Section 27. or any penalty imposed in relation thereto” (Article VIII. as the law or the Rules of Court may provide. revenue. or affirm on appeal or certiorari. but the veto shall not affect the item or items to which he does not object (Article VI. revise. Paragraph 2b). or tariff bill. . assessment. impost. The Forms of Taxes Imposed on Persons and Property A) Personal. Real Property Tax . machinery and other improvements affixed or attached to real property.an annual tax that may be imposed by a province or city or a municipality on real property such as land. . building. 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. 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.The Forms of Taxes Imposed on Persons and Property 2.a tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. Gift or Donor’s Tax . . 3. C. Capital Gains Tax .The Forms of Taxes Imposed on Persons and Property 4. Tax on all yearly profits arising form property. Those imposed are presumed to have been realized by the seller for the sale. classified as capital assets. trades or offices. possessions.Taxes imposed on the income of the taxpayers from whatever sources it is derived. . exchange or other disposition of real property located in the Philippines. Income Taxes .tax imposed on the sale or exchange of property . These are imposed on alcohol products.The Forms of Taxes Imposed on Persons and Property D. processed gas etc. Excise or License Taxes . . on mineral products such as coal and coke and quarry resources. grease.Taxes imposed on the privilege. occupation or business not falling within the classification of poll taxes or property taxes. on miscellaneous articles such as automobiles. on petroleum products like lubricating oils. on tobacco products. is imposed on any person who.Documentary Stamp Tax .The Branches of Government vis-à-vis the Tax Law Under these lies two other taxes: 1.a tax imposed upon documents. in the course of trade or business sells. barters. sales and transfers of obligation and etc. leases. renders services. instruments. loan agreements and papers and upon acceptance of assignments. exchanges. . goods or properties. or engages in similar transactions. Value added tax. 2. Products like Papawash have value-added taxes. too. . Trusts irrevocable both as to the trust property and as to the income. Foreign Corporations 3. Non-resident Aliens 2. . Resident Citizen b. Individuals a. Non-resident Citizen c. Corporations a. Resident Aliens d.Who Should Pay Taxes? 1. Domestic Corporations b. Estate under judicial settlement 4. Section 28. buildings and improvements actually.Who (or What) are those exempted in paying taxes? The Constitution expressly grants tax exemption on certain entities/institutions such as: 1. parsonages or convents appurtenant thereto. Paragraph 3). directly and exclusively used for religious. Charitable institutions. charitable or educational purposes (Article VI. and nonprofit cemeteries and all lands. mosques. . churches. and exclusively for educational purposes. Non-stock non-profit educational institutions used actually.Who (or What) are those exempted in paying taxes? 2. . otherwise known as the Cooperative Code of the Philippines • Non-stock and non-profit hospitals and educational institutions • Printer and/or publisher of books or other reading materials prescribed by DECS (now DepEd) as school texts or references. Section 4 (3)). (Article XVI. insofar as receipts from the printing and / or publishing thereof are concerned. 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. directly. Top Celebrity Taxpayers in 2010 . Maraming Salamat Po! .