“TAX SYSTEM OF THE PHILIPPINES: ITS ASSESSMENT”
I. INTRODUCTION
Taxation: Defined
As defined by Cooley, taxation is the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of government. It is expressed in another way as a method of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must, therefore, bear its burdens. In order to finance the necessary expenses of the government, there is a need to collect money from those people under its jurisdiction who are also the ones benefiting from the said expenditures. Taxation is the imposition of a mandatory levy on the citizens and/or the businesses of a country by their government. In almost every country, the government derives a majority of its revenues for financing public services from taxation. Most individuals will feel the impact of quite a number of taxes during their lifetimes. In addition, taxes have become a powerful instrument for policy makers around the world to use in attaining economic and social goals.
Also, taxation is a system of raising money to fund the government for them to be able to finance activities and projects. The government requires payment from the citizen to pay government officials like police, soldiers, public school teachers, and government workers including the president, his cabinet, the senate, the congress and many more. The money collected is also used to build roads, bridges, highways and other infrastructure, to 1|Page
operate hundreds of public schools and hospitals around the country, to provide help to the poor, to endow elders and children with medical care and for hundreds of other purposes. Without taxation, government could not also exist because they will have no money to use to fund their activities.
The money collected through taxation is called tax. TAX is defined as the lifeblood of the state. It is an enforced proportional contribution levied by the law making body of the state to raise revenue to support the indispensable and all the necessary expenses of the government. It is enforced in the sense that it is mandated by the law to those who are covered by it. It is also proportional because theoretically, it is proportioned as to the ability of the person to pay through a certain rule of apportionment. It is to raise revenue where the heart of taxation is to earn income for the government.
Our country is currently in the phase of development trying to enhance the lives of its people. In relation, there must be an effective system devised to ensure that the government is collecting enough money to support its expenditures. As of today, there is a big fiscal problem that our economy is facing and the government needs to effectively collect and manage its revenue. In this research, The Philippine Tax System is discussed and other related information relating to the Philippine Tax System.
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II. DISCUSSION
HISTORY OF TAXATION IN THE PHILIPPINES Tribute and Cedula
The tribute (buwis) may be paid in any kind. It was fixed at 8 reales and later, increased to 15. Ten reales goes to the government, 1 to the town community chest and 3 to the Church. Another one real was for tithes (diezmo prediales). Also collected is the bandala, an annual enforced sale and requisitioning of goods such as rice. Custom duties and income tax are also collected. Later, they imposed Cedula personal or personal identity paper, wherein all indios are required to pay for personal identification. Indios from the age of 18 to 60 are obliged to pay. Forced Labor (Polo y Servicio)
Polo is the forced labor for 40 days of men ranging from 18 to 20 years of age who were obligated to give personal service to community projects. One could be exempted from polo by paying the falla, a daily fine of one and a half real. In 1884, it was reduced to 15 days. Encomienda System
The encomienda system is a land management system similar to the feudal system in Europe. Here, a meritorious Spaniard (called an encomendero) is given control over a piece of land and all its inhabitants. The encomendero is duty-bound to defend his encomienda and keep peace and order there. In return, he was granted the right to collect
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tribute according to the limit. Part of this tribute goes to the encomendero and the rest to the Church and government. This is subject, however to several abuses. Manila-Acapulco Galleon Trade
The Manila-Acapulco Trade is generally a trade between the Chinese and Spaniards in Manila and the Spaniards in Mexico. This has resulted into economic progress. But the negative effects of it far outbalanced the advantages. Some income producing economies were completely neglected and too much burden were given to Filipinos during their annual polo y servicio. THE PHILIPPINE TAX SYSTEM
Basically, there are two types of taxes that are covered by the tax laws in the Philippines, namely the national taxes and local taxes. NATIONAL TAXES refer to the national internal revenue taxes imposed and collected by the national government through the Bureau of Internal Revenue (BIR), such as income tax, Value Added Tax (VAT) or percentage tax, excise tax, estate tax, capital gains tax, and documentary stamp tax. On the other hand, LOCAL TAXES are the taxes imposed and collected by the local government units, such as real property tax, local business taxes, professional tax, amusement tax, and community tax. National Tax Law
The 1987 Philippine Constitution sets limitations on the exercise of the power to tax. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. (Article VI, Section 28, paragraph 1)
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All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government. (Article VI, Section 29, paragraph 3).
The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restriction as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government (Article VI, Section 28, paragraph 2).
The President shall have the power to veto any particular item or items in an appropriation, revenue or tariff bill, but the veto shall not affect the item or items to which he does not object. (Article VI, Section 27, second paragraph).
The Supreme Court shall have the power to review, revise, reverse, modify or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in all cases involving the legality of any tax, impost, assessment, or toll or any penalty imposed in relation thereto. (Article VIII, Section 5, paragraph).
a National Internal Revenue Code. This code underwent substantial revision with passage of the Tax Reform Act of 1997. This law took effect on January 1, 1998. Taxation is administered through the Bureau of Internal Revenue which comes under the Department of Finance. The chief executive of the Bureau of Internal Revenue is the Commissioner who has exclusive and original jurisdiction to interpret the provisions of 5|Page
the code and other tax laws. The commissioner also has the powers to decide disputed assessments, grant refunds of taxes, fees and other charges and penalties, modify payment of any internal revenue tax and abate or cancel a tax liability. Taxpayers can appeal decisions by the Commissioner directly to the Court of Tax Appeals.
Local Government Tax Law
Local government taxation in the Philippines is based on the constitutional grant of the power to tax to the local governments. Local taxes may be imposed, as the Constitution grants, to each local government unit, the power to create its own sources of revenues and to levy taxes, fees, and charges which shall accrue to the local governments (Article X, Section 5). With respect to national taxes, local Government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them (Article X, Section 6). Local government taxation and other fiscal matters are contained in Book II of the Local Government Code. These include real property taxation, shares of local governments in the proceeds of national taxes, credit financing and local budgets including property and supply management. Fundamental Principles of LGU Tax Powers (a) Taxation shall be uniform in each local government unit; (b) Taxes, fees, charges and other impositions shall: 1. be equitable and based as far as practicable on the taxpayer's ability to pay; 2. be levied and collected only for public purposes; 3. not be unjust, excessive, oppressive, or co nfiscatory; 6|Page
4. not be contrary to law, public policy, national economic policy, or in restraint of trade; (c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person; (d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, (e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
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III. CONCLUSION If we will review the tax laws or tax system of the Philippines, it is viewed by some as a complicated system. Our country‟s existing tax structure, where different tax rates are imposed on different income levels and on different industries, could be one of the reasons hampering the full potentials of revenue collection by the government. It is also to be observed that under the country‟s tax system, the more advanced business sectors are, such as those composed of multinational companies, the higher the tax while the less progressive ones such as agriculture were taxed much less. In this case, people will not pursue advancement and modernization because it would mean higher taxes on their business. Graft and corruption is also one of the main reasons why most Filipinos would rather not pay their taxes because they think that the money they are paying will just unfortunately end up in the pockets of these corrupt government officials.
Other important notes
Tax in the Philippines doesn‟t only concern business owners, but it also involves almost every Filipino citizen and every resident of the country. Employees who are earning salaries and wages are usually taxed through withholding of their tax on compensation by their employers. Also, employees are not allowed to claim most of their expenses related to their employment as deductions to their taxable income, like transportation, communication and food allowance, unlike business owners who can
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claim an allowable deduction to income tax from their expenses that are directly related to their business.
The imposition of Value Added Tax and other indirect taxes on certain goods and services also affect most of us. Since VAT is a form of sales tax and an indirect tax, which may be shifted or passed on to buyers of goods, properties or services, consumers may shoulder VAT. This means that even the children who are buying and consuming candies, in which, price are subjected to VAT, will carry the burden of tax.
But tax is tax, and it is the lifeblood of our country. It is under the law of our land that deserves obedience. Thus, no matter how burdensome it is, we always have to respect it and do our duties as a good citizen or a faithful taxpayer.
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IV. RECOMMENDATION THE NEED OF REFORM
As our country is in a serious fiscal problem, the low -yielding, complicated and inflexible tax system needs a major overhaul. The focus of the reform program should be: (a) heavier reliance on corrective taxes; (b) higher rate and broader VAT base, (c) rationalization of fiscal incentives, and (d) flat and lower income taxes.
Higher corrective taxation. The share of taxes on cigarettes, liquor and petroleum products to total taxes has progressively shrunk. By imposing higher taxes on cigarettes, liquor and petroleum products, the government would be able to raise higher revenues with minimum deadweight loss and at the same time „correct‟ the negative externalities associated with the use of these commodities.
Higher and broader VAT base. The Philippine VAT system has been severely weakened by Republic Act 8241 which limited considerably the VAT base. The focus of the next round of tax reforms is to broaden the base by recovering what was lost in 1996, expand in other areas, and increase the VAT tax rates gradually from 10 percent to 12 percent and eventually to 14 percent. Proposals to introduce multi-tier VAT s ystem in the Philippines should be rejected because it will unnecessarily introduce complexity for the administrative weak tax collecting machinery.
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Rationalizing fiscal incentives. This is perhaps the most important component of the 1997 tax reform program but was not legislated. The tax base has become narrower as a result of many tax laws passed in recent years. The existence of too many tax incentive laws has increased foregone revenues, complicated tax administration, and provided greater opportunities for special-interest deal-making. Flat and lower income taxes. After achieving higher revenue yield from corrective taxation, improved VAT system and rationalization of incentives, the government may then consider joining the flat-tax bandwagon. The flat tax may replace both the personal income tax and corporate income tax. It is already working in Hong Kong and many former communist nations like Estonia, Lithuania, Latvia, Russia, and the list of countries that has adopted flat tax has grown. The most progressive income tax system has also been the most complicated to implement. One of the advantages of the flat tax is the ease by which it can be administered. By making our country‟s tax system simpler, it may reduce the the tax obligation of some sectors but the simplified scheme would make it easier for everyone to pay taxes, thus encourage tax compliance and increase revenue collection. It may reduce tax rates but it can lead to an increased overall collection.
It is also ideal to impose the same tax rates on different sectors. This will encourage those who are still not modernized industries to pursue advancement because same tax is imposed whether advanced or not.
The government should also impose stricter policies relating to graft and corruption so as to show the public that the money they paid is worth paying for. Public
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officials should be held accountable for the right or wrong handling of revenues generated from tax-collections. Those who have committed bribery or mishandled the said revenues should be penalized for graft and corruption.
Lastly, our government must also take into action the need for stricter implementation of rules like in cases of the many tax-evaders in our country. These tax evaders cause economic problems and must therefore be penalized to discourage them from doing so.
As a result, our country will have a better tax system and these should lead to solving the fiscal problems of our country and u plift the life of the Filipinos.
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V. REFERENCES
de Leon, Hector S. The Law on Income Taxation 13 Ed. Quezon City: Rex Printing Company, Inc.,2009 Johny S. Natad, Local Government Taxatiion in the Phiilliippiines, August 2008 “Taxation: Why is It Important?” at http://www.lawgiants.com/2010/04/taxation-why-isit-important/ “Taxation and Nation Building” at http://www.studymode.com/essays/Taxation-And Nation-Building-407600.html “General Principles - Part I” http://philtaxation.blogspot.com/2009/05/basic-principlesof-philippine-taxation.html “Tax in the Philippines” http://businesstips.ph/tax-in-the-philippines/ “Expert says Philippine tax system a „complicated mess‟at http://business.inquirer .net/10205/expert-says-philippine-tax-system-a%E2%80%98complicatedmess%E2%80%99 “My Opinion On Taxation in Philippines” at http://ireport.cnn.com/docs/DOC-848959
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