economics;00

John Carlo V. Pineda

BAMP-2A

an example of CRITICAL ANALYSIS

 

What could be the best Tax system for the Philippines?

I.INTRODUCTION

In every corner of the world, poverty is always present. A nation without impoverished citizens is virtually unimaginable. In the Philippines, poverty is not a new problem. In fact, poverty is considered one of the oldest problems ever to arise in the Philippines. It may be true that poverty will always be there as long as there is corruption in the government, but what can we do to reduce poverty if we cannot extinguish it? On the way to school, or anywhere outdoors, it is inevitable to see homeless people with sheets covering their bodies, street children running around, and beggars asking for alms from passers-by along the sidewalks. These people we are all familiar with are labeled as the poor people of society.

What does the word poor mean? According to RA 8425, or the Social Reform and Poverty Alleviation Act, the poor people are “individuals and families whose income is far below the poverty threshold as defined by the National Economic and Development Authority (NEDA) and/or cannot afford, in a sustained manner, to provide their minimum basic needs of food, healthcare, education, housing, and other essential amenities of life.” Unable to meet their basic needs most of the time, they search garbage cans for leftovers, look for new places to sleep in, and sometimes steal from those who have what they need. We feel sorry for them, but what is the use of sympathy to them? All we do is sympathize, yet we expect our nation to progress.

      Poverty is widespread in the Philippines. From the north of Luzon to the southernmost island of Mindanao, poverty can be witnessed among the inhabitants of the country. According to a 2011 survey done by the National Statistical Coordination Board, 26.9% of Filipino families, or 32.9% of Filipinos were living below the poverty threshold–the minimum income or expenditure required for a family or individual to meet the basic food and nonfood requirements.

      It is indeed factual that subject Economics is truly very helpful for us to realize the importance of our resources.

II.ADAM SMITH’S PRINCIPLES

Although Adam Smith is often quoted, the so-called "Father of Economics" has rarely been read, either by his detractors or his admirers. Consequently he is often misunderstood.

Smith, who made such a strong stand against the protectionist mercantile system of trade of his day, devoted over ONE THIRD of his masterpiece An Inquiry into the Nature and Causes of the Wealth of Nations, to discussing the subject of government revenue and the methods by which it may be best collected, including new taxes. This is not generally known.

When examining the different forms of taxation, Smith adheres to four maxims which a good tax should conform to:

1.      "The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State."

------ This simply say that everyone must pay a heed for this kind of economic tactics for it contributes a lot in developing a progressive country which can sustain our general welfare as a citizens.

2.      "The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person."

------ The need of an individual to be satisfied in a clear manner of  taking part of his/her income must always present in every contribution transaction.

3.      "Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it."

------ So, in this case, it is also considered, the time that a person is convenient to pay for the contributor.

4.      "Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State."

------ All of the purposes for the collection must always inclined in good hand to avoid graft and corruption.

Bearing all these things in mind, there are two types of taxation which obtain Smith's recommendations: a tax on luxury consumables and a tax on ground-rents (the annual value of holding a piece of land).

On the subject of luxury consumables, he is fixedt about the definiton of 'luxury' and of 'necessary.' By his definition, a 'necessary' may vary from place to place and from time to time. At the time of his expalnation, linen shirts, leather shoes and a minimum of food and shelter were definitely to be regarded as essential to a minimum decent standard of living. Taxes on salt, soap, etc., he harshly criticized as inequitably taking from the poorest elements of society. Taxes on luxuries, which were to include tobacco, he considered excellent in that no one is obliged to contribute to the tax: "Taxes upon luxuries have no tendency to raise the price of any other commodities except that of the commodities taxed ... Taxes upon luxuries are finally paid by the consumers of the commodities taxed, without any retribution.

More deserving of praise is the tax on ground-rents: "Both ground- rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them."

Excise, customs, taxes on profits, were, according to Smith, either expensive to collect, as in the case of excise, or disincentives to produce, as in the tax on profits. He reserves harsh words for taxes which occasion the invasion of privacy, and on the subject of excise he says: "To subject every private family to the odious visits and examination of the tax-gatherers ... would be altogether inconsistent with liberty."

So, Philippine tax system such as excise, customs, taxes on profits were not inclined with the country upon its being a democratic and these systems resemble how good is the leader of a country.

The harshest condemnation of all, however, was for taxes upon labour: "In all cases, a direct tax upon the wages of labour must, in the long run, occasion both a greater reduction in the rent of land, and a greater rise in the price of manufactured goods, than would have followed from a proper assessment of a sum equal to the produce of the tax, partly upon the rent of land, and partly upon consumable commodities."

III. DEFINITION OF TERMS

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.

Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.

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 transfer.

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.

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.


Percentage Tax is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts 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 properties (real or personal) lease of goods or properties (real or personal) or vendors of services. It is an indirect tax, thus, it can be passed on to the buyer.

Withholding Tax on Compensation is the tax withheld from individuals receiving purely compensation income.

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 constitutes the full and final payment of the Income Tax due from the payee on the said income.

With holding Tax on Government Money Payments is the withholding tax withheld by government offices and instrumentalities, including government-owned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.