Week 8 Scope and Taxation Reforms of The Philippines

WEEK 8
SCOPE AND TAXATION REFORMS OF THE PHILIPPINES
What is Taxation?
TAXATION
- A power by which an Independent State, through its law-making body, raises and
accumulates revenue from its inhabitants to pay the necessary expenses of the government.
-A process of act of imposing a charge by governmental authority on property, individuals or
transactions to raise money for public purposes.
-A means by which the Sovereign State through its law-making body demands for revenue in
order to support its existence and carry out its legitimate objectives.
NATURE OF THE POWER OF TAXATION
1. Inherent in sovereignty - the power exists as an incident or attribute of sovereignty, as it is
essential to the existence of every government. The power can therefore be exercised even
without the constitution or any law expressly conferring such power.
2. Legislative - the power can only be exercised by the law making body (Congress) not the
executive or the judicial branch of the government, except when delegated by the national
legislative body to a local legislative body or to the executive branch, subject to limitations as
may be provided by law;
3. It is subject to constitutional and inherent limitations. Most of this limitations are
specifically provided in the fundamental law or implied therefore while the rest spring from
of the taxing power itself.
Scope of the power of taxation
- it is comprehensive ,unlimited, supreme and plenary, but subject to constitutional and
inherent limitations.
The following are the inherent limitations :
1. Purpose - taxes may be levied only for public purpose ;
2. Territoriality - the state may tax persons and properties under its jurisdictions
3. International Comity - the property of the foreign state may not be taxed by another.
4. Exemption - Government agencies performing governmental functions are exempt from
taxation.
5. Non - delegation - The power to tax being legislative in nature may not be delegated.
Constitutional Limitations
1. Observance of due process of the law and equal protection of the laws.(Sec. 1, Art 3)The
power of tax can be exercised only for a constitutionally public purpose and the subject of
taxation must be within the taxing jurisdiction of the state. The government may not utilize
any form of assessment or review which is arbitrary, unjust and which denies the taxpayer a
fair opportunity to assert his rights before a competent tribunal. Persons and properties to be
taxed shall be group and all the same class shall be subject to the same rate and the tax shall
be administrated impartially upon them.
2. Rule of Uniformity and equity in taxation (sec28(1) Art (VI) - all taxable articles or
properties of the same class shall be taxed at the same rate. Uniformity implies equality in
burden not in amount. Equity requires that the apportionment of the tax burden be more or
less just in the light of the taxpayers ability to bear the tax burden.
3. No imprisonment for non-payment of poll tax (sec.20,Art III)
- a person cannot be imprisoned for non payment of community tax, but may be imprisoned
for other violations of the community tax law, such as falsification of the community tax
certificate, or for failure to pay other taxes.
4. Non- impairment of obligations contracts, sec.10, Art.III
- the obligation of a contract is impaired when its terms and conditions are changed by law or
by a party without the consent of the other, thereby weakening the position or the rights of the
latter. If a tax excemption granted by law and of the nature of a contract between the taxpayer
and the government is revoked by a later taxing law, the said law shall not be valid, because it
will impair the obligation of contract.
5. Prohibition against infringement of religious freedom Sec.5, Art.III
- it has been said that the constitutional guarantee of the free exercise and enjoyment of
religious profession and worship, which carries the right to disseminate religious belief and
information, is violated by the imposition of a license fee on the distribution and sale of
bibles and religious literatures not for profit by a non-stock, non-profit religious corporation.
SCOPE OF PHILIPPINE TAXATION
PROVISIONS :
 The Philippines taxes aliens, whether or not resident in the Philippines, only on income
from sources within the Philippines.
 The tax year runs from January 1st to December 31st.
METHODS OF CALCULATING PHILIPPINE TAX
Income taxes for aliens are levied at the following rates :
1. Progressive rates between 5% and 32% for non resident aliens engaged in trade or business
in the Philippines.
2. Final flat rate of 25% for non resident aliens deemed not engaged in trade or business in
the Philippines, and
3. Final Tax of 15% for alien executives of special entities. For a list of special entities,
please refer to the discussion under Taxation of Alien Executives of Special entities.
HUSBAND AND WIFE

-For tax purposes , a husband and wife must file one consolidated income tax return , but the
tax is computed separately.
RESIDENT ALIENS
- a resident aliens is an individual who is stateless or is a national of another country and who
lives in the Philippines with no definite intention as to length of stay, but who is not a mere
transient or sojourner. An expatriate working in the Philippines on a contract of an indefinite
period potentially falls into this category.
NON RESIDENT ALIENS
- most expatriates will be classified as non resident aliens, because their contract will be for a
specified period engagement. A non resident alien individual who comes to the Philippines
and stays there for more than 180 days during any calendar year will be deemed a non
resident alien engaged in trade or business in the Philippines.
-if the aggregate stay in the Philippines during any calendar year does not exceed 180 days,
the individual may be deemed a non resident alien not engaged in trade or business in the
Philippines.
Scope of Taxable Capacity: 5 Factors | Taxation

Factor # 1. Income:
The level of income is no doubt the primary determinant of taxable capacity. But its nature of
distribution and the rate of growth of national (also per capita income) are also important. In
fact, the higher the level of income the lower the propensity to consume and the greater the
scope for taxation.
Moreover, the rate of increase in income is also to be considered. A major portion of
incremental income may be taxed away without any loss of incentives.
Factor # 2. The Rate of Taxes:
-there is not much scope for rising revenue through direct taxes because very few people have
taxable income (due to high exemption limit). Contrarily high rates of such taxes encourage
tax evasion and avoidance. There is scope of widening the tax base only in case of indirect
taxes.
Factor # 3. The Way the Resources are Used:
If the tax revenue is spent on productive activities more income is likely to be generated in
the process. This would give more scope for rising tax revenue. But, if the money is spent for
providing refugee relief it will be a waste of national resources.
Factor # 4. The Attitude of the People:
The extent to which people can be taxed largely depends on their attitude. If most citizens are
conscious of their responsibility to society the scope for taxation would be unlimited. The
government will have to instill confidence among the people that tax revenues will be used
for their benefit.
Factor # 5. Special Circumstances:
It is very difficult to decide what is the taxable capacity of the people, for it largely depends
on what the government does with the revenue from the taxes. The limit of taxable capacity
might be considered to be the point beyond which additional taxation would produce
economically harmful results such as fall in national income that exceeds the gain from the
services provided by the state from this additional taxation.
Where the government uses taxes to provide services for the community it is really returning
to taxpayers the money they have paid in taxes However, depending on their income, the gain
to the taxpayer maybe more or less than the sacrifice made by paying taxes.

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WEEK 8

SCOPE AND TAXATION REFORMS OF THE PHILIPPINES

HUSBAND AND WIFE

Scope of Taxable Capacity: 5 Factors | Taxation

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