Philippine Taxation System Essay

I. IntroductionOn hearing the word valuate, what usu aloney springs to mind be images of infrastructures, businesses and projects beneficial to the general welf atomic number 18 of the battalion, or ofttimes negatively, the idea of corruption and dirty tricks particularly nowadays when numerous issues ar colouring the revenueation system of the cl deliverish. With these, today, its importance seems to be overlooked and is viewed to a greater extent than negatively as a burden to the people. Currently, the individual income evaluate roll in the Philippines stands at 32 percent, which is third highest in the entire connection of South East Asian democracy (ASEAN) region, next to Thailand and Vietnam. A identification number of the countrys law take shapers already have their hands on this liaison and encourages the regimen to take actions in lowering it down. This matter has become especially in-chief(postnominal) now that the Asean integration free-for-all market place in 2015 is nearing. It is strategic to beneathstand valuate income and to determine how headspring it fits the prudence of a country for it is a key circumstanceor on its growth.The taxation system has been a hot stinting issue and has been causing rage and fury among the people. Clearly, it is a national issue that call for immediate attention and action as it make a motions the whole of the nation. It leave behind be an agonizing thought if what is known to be the brioblood of the political sympathies volition be the very one thing that sucks life out of its people. Whats supposed to be used to finance the basic services such as education and health cargon as well as infrastructurewhich ar all vital to the economys growth and the improvement of the lives of the people could be the very kindred thing that seem to limit the force of the people to improve their own lives and unforgivingly take away the food in the Filipinos tables. Or is it non?Objectives of t he StudyThe study is aimed to determine the following1. The fiscal adequacy2. administrative feasibility3. justice4. And the consistency and compatibility of the Philippine taxation system with the Nations Economic Direction.Signifi cance of the StudyThe study is intended to addition the awareness of the readers on the Philippine taxation system. It is specifically addressed to tax hireers, students and educators.compass and Limitation of the studyThe study involves 7 participants who pay taxes for at least(prenominal) 3 years. The participants are selected to represent divers(prenominal) social and industry classes.II. polish up of Related LiteratureNature and Purpose of TaxationTaxation whitethorn be defined as the inherent right of the conjure up to bill and collect a portion of each individual and entitys income from profitable endeavors within the states political scienceal boundaries.Since taxation is inherent right of the state, meaning, absolute right, taxation law s were enacted to limit this right. That is the reason why taxation is graduated, and in most countries, it is innovative. Graduated, meaning, that taxes to be paid are divided into several brackets of income and progressive, meaning, that the higher(prenominal)(prenominal) the income, the higher get out be the tax rate to be paid, and vice-versa.Taxation is very important for the politics to exist. Without it, no brass can ever exist, as taxes are the lifeblood of the government.Citizens pay taxes in the expectation that the government leave alone protect them with the undeniable environment to enable them to live in safety and perform them with the prerequisite environment to enable them to live in safety and perform their arable activities without fear or hesitation.The Bureau of Internal Revenue is the tax-collecting arm of the government for individual and corporate income taxes. The Bureau of Customs is the government-collecting arm for import taxation. (Cuevas et al. , 2012) mental process of TaxationTaxation is legislative in character. As such, all tax measures emanate from the Congress. The House of Representatives enact taxation bills. Then it goes to the Senate. Then to the fit conference committee and finally, to the Malacaang Palace for the Presidents approval or in few instances, veto.Once the tax measure is approved and produce in the official gazette, it becomes a law. It is then forwarded to the tax collecting authorisation concerned for implementation. Normally, the concerned agency drafts an implementing guideline for the guidance of the line soulfulnessnel whol will actually implement the law to eliminate some(prenominal) realistic misinterpretation of its implementation.The tax measure normally provides for sanctions and penalties for violators. Principal violations include tax evasion and tax avoidance. (Cuevas et al. 2012) Sound Taxation SystemA sound recording taxation system should have financial Adequacy, Administr ative Feasibility, Equity and ordered and compatible with the nations economic direction. The level of taxes imperturbable should be sufficient enough to fund government operations and projects. A tax collection that is slight than sufficient will cause fiscal minusculefall that can stoke inflation. Taxation laws should be easy to understand that the alive personnel and otherwise administrative resources of the tax collecting office are sufficient and capable of implementing existing taxation laws. Taxation should be progressive and fair. For example, those individual some should pay higher tax rates, and those with low income should all be exempted from taxes or pay negligible amounts of taxes. The governments tax collection efforts should be supportive of the economys short- and long-term plans. (Cuevas et al., 2012)EquityRecently, the public officials have been confronted with allegations of corruptions and ineffective populist schemes. To name a few, the PDAF scam, DAP sc am, political grandstanding to bring down 2016 election potential rivals, the alleged overpricing of Makati City lay lot and the 700 million Iloilo convention center. These facts combined with unforgiving tax collection campaign has resulted to negative sentiments about the equit baron of taxation in the country. The tax macrocosm impose by the government is too much. They even want to tax us my sari-sari store. The mere payment of business requirements already hurts my store. I am working for my family non for the government. The government wants to take all our earnings. said by a sari-sari store owner in Del Pilar, Castillejos. My take home pay is cut into half because of the set offions and tax imposed to us. My gross salary, to be ethical is not enough, then they will deduct us (tax and contributions) and you will follow out from the media that our taxes were corrupted by a syndicate in the government said by a college instructor in Gor male parent College.People respond to IncentivesAn inducing is something that induces a person to act, such as the prospect of a punishment or a reward. Because rational people make decisions by comparing costs and benefits, they respond to incentives. Incentives are crucial to analyzing how market work. For example, when the wrong of an orchard apple tree climbs, people decide to eat fewer apples. At the same, time, apple orchards decide to hire more than than workers and harvest more apples. In other words, a higher price in a market provides and incentive to buyers to consume less and an incentive for sellers to produce more. (Mankiw, 2013)Public policymakers should never halt about incentives Many policies change the costs or benefits that people human face and, therefore, alter their behaviour. A tax on gasoline, for instance, encourages people to drive smaller, more fuel effective cars. (Mankiw, 2013)Fiscal tailFiscal string happens when the governments crystalize fiscal position ( consumption minus taxation) fails to cover the net savings desires of the privy economy, excessively called the private economys spending gap (earnings minus spending and private coronation). The resulting lack of aggregate select leads to deflationary pressure, or drag, on the economy, essentially due to lack of state spending or to excess taxation. mavin cause of fiscal drag whitethorn be bracket creep, where progressive taxation cast ups automatically as taxpayers move into higher tax brackets due to inflation. This tends to moderate inflation, and can be characterized as an automatic stabilizer to the economy. Fiscal drag can also be a result of a hawkish stance towards government finances. (www.wikipedia.org) wall bracket creep describes the process by which inflation pushes nominal wages and salaries into higher tax brackets. Many progressive tax systems are not correct for inflation. As wages and salaries rise in nominal terms under the influence of inflation they become more highly tax ed, even though in real terms the abide by of the wages and salaries has not change magnitude at all. The net effect is that in real terms taxes rise unless the tax rates or brackets are modify to compensate. (www.wikipedia.org) fork over-Side Effects of Fiscal PolicyThe changes in tax rates, particularly marginal tax rates, affect aggregate supply through their impact on the relative drawing card of productive activity in comparison to leisure and tax avoidance. Supply side tax cuts are a long-term growth-oriented strategy that will finally step-up both SRAS and LRAS.Keynesian ModelKeynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression.Keynes advocated ontogenyd government expenditures and lower taxes to piddle demand and pull the global economy out of tGrohe Depression. Subsequently, the term Keynesian economics was used to refer to the concept that optimal economic writ of executio n could be achieved and economic slumps prevented by influencing aggregate demand through activistic stabilization and economic intervention policies by the government. Keynesian economics is considered to be a demand-side theory that focuses on changes in the economy over the short run. (www.investopedia.com)Crowding-out ModelCrowding out is a kind of expansionary fiscal policy, reduces investment spending. The increased borrowing crowds out private investing. Originally, crowding out was tie in to an increase in interest rates from the borrowing, but that was broadened to multiple convey that might leave total out retch little changed or smaller. (Blanchard, 2008)One channel of crowding out is a reduction in private investment that occurs because of an increase in government borrowing. If an increase in government spending and/or a decrease in tax revenues leads to a shortage that is financed by increased borrowing, then the borrowing can increase interest rates, leading to a reduction in private investment. at that place is some controversy in modern macroeconomics on the subject, as different schools of economic thought differ on how households and financial markets would react to more government borrowing under various circumstances. (Tyson, 2012)The Benefits PrincipleThe benefits formula states that people should pay taxes outdoor staged on the benefits they receive from government services. This principle tries to make public proficients similar to private good enoughs. It seems fair that a person who lots goes to the movies pays more in total for movie tickets than a person who rarely goes. Similarly, a person who gets great benefit from a public good should pay more for it than a person who gets little benefit. The benefits principle can also be used to argue that wealthy citizens should pay highertaxes than poorer ones simply because the wealthy benefit more from public services. For example, the benefits of police force tribute from t heft.Citizens with much to protect benefit more from police than do those with less to protect. Therefore, according to benefits principle, the wealthy should contribute more than the poor to the cost of maintaining the police force. The same argument can be used for many another(prenominal) other punlic services, such as fire protection, national defense, and the court system. It is even accomplishable to use the benefits principle to argue for antipoverty programs funded by taxes on the wealthy. (Mankiw, 2013)The Ability-to-Pay PrincipleThe ability-to-pay principle states that taxes should be levied on a person according to how well that person can shoulder the burden. This principle is sometimes justified by the introduce that all citizens should make and equal sacrifice to support the government.1. What is tax?A B yan yung pahirap satin lahat. Ayaw ko nga magbayad nyan kasi hindi naman sa maganda mapupunta yang tax na yan. Sobra na nga yung paniningil ng gobyerno. Kahit sa s ari-sari store gusto nilang kuhanan ng tax. Yung simpleng pambayad nga lang ng business permit ang hirap na eh. Gusto ata nila para sa kanila magtrabaho. C it is the life blood of the governmentD The property extorted from productive people to fill the govt bank accounts. F Kaltas sa sahod. 336 na lang babawasan pa nilaG It is the specie collected by the government from its citizens2. What do you think is the purpose of taxation?A Para may pondo ang gobyerno pampagawa ng projectB pampagawa ng mga daan at sweldo ng mga emplyado sa gobyerno C It is used to fund different government projects. Some economists word that taxation reallocates wealth from the rich to the poor because of the progressive taxation system that we have. D The purpose of tax is to fund public necessities, services and improvements needed by all citizens with no bias to their status in society. F para sa mga projects ng gobyernoG For the general welfare and protection of the countrys citizens and for the development of the economy.3. For you what is equitable taxation?A wala ako ideaB dapat yung mayayaman mas malaki babayaran na tax kasi kaya nila magbayad di ba? Sila pa nga nandadaya pagdating sa bayaran ng tax tapos kaming mahihirap yung gigipitin ng BIR dyan sa pagbabayad ng tax. C Progressive taxation because this type of taxation uses the give capability of the taxpayer as a basis on how much he or she will be taxed. D Equitable tax will aim on how much good public services are and how much improvement to be done. F basta pantay-pantayG its when taxes are collected depending on the social class or income bracket.4. How much is your annual income?C My take home pay is cut into half because of the deductions and tax imposed to us. My gross salary, to be honest is not enough, then they will deduct us (tax and contributions) and you will find out from the media that our taxes were corrupted by a syndicate in the government5. How much do you pay for taxes each year?D 32% of my annual income. Which I would not want to get wind as per q4. Hehe 6. Do hire an accountant to deal with tax payments?A Nope. Bookkeeper lang.B HindiC NopeD No. My employer hires accountants to do our taxes F Hindi.7. What do you step about our countrys economic observatory?A Sabi nila tumataas daw economic growth ng pilipinas pero di ko masyadong ramdam.D Asean economic is on hype right now and will eventually peak after 15 or 20years if no war will occur. Philippine econ is growing by single digit but the market per industry per capita is growing double digits faster than national econs totality. It is safe to say that now is the best time to invest in ph market.8. are you satisfied on how the government provide its services to the public? wherefore? A di masyado satisfied, wala pa ding nakikitang improvement. D Yes. There are many improvements on public services. The only problem is the public is not well aware of those improvements and how they can utiliz e it. G No, I think priorities are not being properly set and attended to.9. For you what is the most efficient tax rate?A Dahil medyo nag hihirap pa ang pilipinas, ok na siguro ang tax rate ngayon, basta wag lang makurakot, pag konti konti umaangat yung economy dapat baba din yung tax rate. B 5 %C 20%D 9.3%E I dont give interviews this way. But Ill answer question 9. As other questions can be answered through interment and books. The most efficient tax system is the flat tax. I propose a 10 % flat rate across the board. This most fair and efficient of all. through with(p) in more than 43 countries and by the most successful ones. delight research on my interviews. Just google my name and flat tax. Youll find all you need for this issue. Thanks F 10%G less than 30%V. DiscussionMost of the respondents conform to that an equitable tax system should take away the taxpayers to contribute to the cost of public services based on ability to pay. Tax payments are indeed the life blood of the government, any government will not stand without funding from its people. Taxes are also used to create social order. It is used to protect its citizens. Taxes are used to pay for the salaries of the police and armies. A farmer will not plant his crops if he knows that it will be stolen in the morning, then economic productivity would be impossible. In our incumbent system, the top tax bracket are those earning at least P500,000 or those earning at least P41,667. Those earning P41,667 per month pays the same taxes as to those earning P1,000,000. Everyone will agree that the situation is already inequitable. The tax bracket thus should be adjusted according to the salaries of the taxpayers. All of the respondents does not directly uses accountingservices for the fact that it may be costly for the since they are in the middle class. look on for your money, the government must make their taxpayers feel that they get value from the money (tax) that they pay. A customer w ho felt that he/she did not get the value for his money will not return to that restaurant, store or any other business establishment. The same goes with taxpayers they will avoid paying taxes if they feel that it will only be corrupted by public officials. The computer science for the most efficient tax rate would be very intemperate since it entails factors such as inflation, purchasing power, income, consistency with economic direction and a lot more, which are varying from a day-to-day or every week basis. If the tax rate was set too low, administrative feasibility would be impossible and if the tax rate was set too high it would be consficatory which is unconstitutional and will lead to tax evasion.VI. ConclusionA good taxation system should provide an appropriate level of revenue on a timely basis, distribute the cost of taxation fairly, promote economic growth and efficiency, be easily administered and ensure accountability. People will avoid paying taxes if they feel that the taxes imposed are confiscatory in nature and this in turn reduces the tax base. The inequity of the tax system negates the command of the Constitution. The perennial complains of the middle class towards the strict tax collection drive of the BIR may be lessened if they feel that there equity, or the rich is paying more taxes than them. The middle class should not be burdened more than the higher class. The BIR collected 1.2 trillion for 2012 however the government budget deficit still bloated from 197.8 billion in 2011 to P235 B.The Philippines, with the current taxation system, is always on budget deficit. And these year after year deficits includes huge amount of money thus resulting to higher public debt that the taxpayers also pay, with interest. It is time to change on how the government tax its people. big(p) the tax rate will not necessarily mean that it will lessen the budget of the government. Lowering tax will increase the tax base of the government and it will inc rease the cash flow in the economy, let the people decide where to put their money. Whichever way they use it, it will be productive to the economy since they are spending, when someone is spending another one is profiting and through profits is where the government gets its taxes. Unlikeif taxes are corrupted and stored into secret bank accounts.VII. RecommendationThe recommends that more respondents be included in the study. The taxation system of the country needs a lot of reforms. The taxation system should be based on the taxpayers ability to pay and should not be confiscatory in nature. Lowering the tax rate and increasing the tax bracket ceiling will initially lower tax collection but will increase it by the next year or two because the tax base will enlarge.BibliographyBooksAbola, Victor, Villegas, Bernardo, (2001). Economics An Introduction. Pasig City, Philippines Inkwell Publishing Company, Inc. Cuevas, R.C., Paraiso O.C., Larano, L.C., (2011). Macroeconomics. Malabon Cit y Mutya Publishing House, Inc. Mankiw G.N., (2013). Principles of Economics. Pasig City, Philippines Cengage knowledge Asia Pte Ltd (Philippine Branch). McCaCandless, G.T. (1991). Macroeconomics theory. New Jersey Harper and Row.InternetFiscal drag. (2014, April 16). Retrieved from Wikipedia.org. October 10,2014. Fiscal Drag Definition Investopedia. (n.d.). Retrieved October 10, 2014.