Economic Taxation by Abegail Alabastro

            Taxation is one of the inherent powers of the government.  The obvious, primary, and specific purpose of the power to tax is to raise revenue for the expenditure of the government.  However, from the earliest days of history of the power of taxation, the power to tax has been recognized as an instrument of national economic and social policy. 

            Another aspect of the power to tax is protection.  This is the foundation of imposition of tariffs designed for the encouragement and protection of locally produce goods against competition from imports.  The enactment and enforcement of number of customs revenue laws drawn with a motive of maintaining a system of protection – wisdom of protection policy.  Again, the obvious reason is for economic status of the citizen, thus resulting the economic stability of a nation.

            What is the general limit on the power to tax?  The power to tax exists for the general welfare.  Hence the implicit in the power is the limitation that it should be exercised only for a public purpose.  The power to tax is an attribute of sovereignty.  In fact, it is the strongest of all the powers of government.  But for its all plenitude, the power to tax is unconfined as there are restrictions.  Adversely affecting as it does property rights, both due process and equal protection clause of the constitution may invoke to invalidate in appropriate cases a revenue measure.  To lay, with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is none the less a robbery because it is done under the forms of law and is called taxation.  Thence, the power to tax involves the power to destroy.

            What are the specific limits on the power to tax?  The rule of the taxation shall be uniform and equitable.  The congress shall evolve a progressive system of taxation.  Uniformity does not signify an intrinsic, but simply a geographical uniformity.  A tax is uniform when it operates with the same force and effect in every place where the subject is found.  The word “equitable” seems to add nothing except by way of emphasis.  What is progressive system of taxation?  A tax system is progressive when the rate increases as the tax base increases.  The explicit mentioned of progressive taxation in the constitution reflects the wish of the Commission that the legislature should use the power of taxation as an instrument for a more equitable distribution of wealth.

            The progressive rate of personal and corporate income taxes implies that the Philippines tax system makes the distribution of income more nearly equal.  But in fact, these taxes contain a number of important legal loopholes, that is, provisions which give favorable tax treatment to certain kinds of income.  Because these loopholes generally favor high income recipient and those too much low income recipient, the victims are those middle incomes, the after tax distribution is less nearly equal than would otherwise be the case.

In Philippines, a lawmaker must create a law that recommended the government should employ its power to tax in such a way as to lessen the likelihood of wage push inflationary pressure.  Specifically, a special excess wage settlement tax might be imposed upon firms which grant inflationary wage increases-say, in excess of 3%.  The more the wage increases exceeds 3%, the larger would be the special surtax on the firm’s profit.  The purpose of the tax would be to stiffen management resistance to union wage demand and thus result in collective bargaining agreement more conducive to price stability.

            In apportioning the tax burden, the very nature of social goods and services makes it exceedingly difficult to measure precisely the manner in which their benefits are apportioned among individuals and institutions in the economy.  It is virtually impossible to determine accurately the amount by which “Juan Dela Cruz” benefits from military installations, a network of highway, a public school system, a local police, fire protection and the like.  The situation is a bit different from taxation side of the picture.  Statistical studies reveal rather clearly the manner in which the overall tax burden is apportioned.  Needless to say, this is a question which affects each of us in a vital way.  Although the average citizen is concerned with the overall level of taxes, chances are he is even more interested in exactly how the tax burden is allocated among individual taxpayer.

            Personal income tax.  The incidence of personal income tax generally falls on individual upon whom the tax is levied; little chance exists fro shifting.  But their might be exceptions to this.  Individual and groups who can effectively control the price of their labor and services may able to shift a part of taxes.  For example doctor, lawyers, engineer and other professions may readily increase their fees may do so because of the tax.  Generally, however, we can conclude that the individual upon whom the tax is initially levied bears burden of the personal income tax.  The sum ordinarily holds true of inheritance tax.  Here in Philippines, the current prevailing personal exemption is for individual is Php.50,000.

            Corporate income tax.  The incidence of the corporate income tax is much less certain.  The traditional view has it that firm which is currently charging the profit maximizing price and producing profit-maximizing output will have no reasons to change price output when a corporate income tax is imposed.  That the price and output combination which yields the greatest profit before the tax will still be the most profitable after the government taxes a fixed percentage of the firms profit in the form of income taxes. In Philippines, the MCIT-Minimum Corporate Income Tax is 2%.

            The Valued Added Tax (Expanded Valued Added Tax).  The most controversial tax that imposed to Philippines citizen is the Value Added Tax/Expanded Valued Added Tax (VAT/EVAT).  Everything that you are going to purchase is subject to 12% taxes.  Even, the services that you will render are subject to 12%.  That incidence of that tax burden is the worse scenario to all citizens, the gradual valued added tax for all goods and services accumulate huge amount in favor of the government.  And that taxes did not estimated by the individual, how much an annual contribution he makes to the revenue of the government.  It is the opinion of the author that the said taxes are timely to lower it.  True, during previous time, the government needs revenue to defray the expenses of the government.  But this time, our government accumulated huge amount for the expenses.  Least to say, our legislative department must pass a new bill to lower the Valued Added Tax.

            Taxes as an inherent power of the government are necessary to defray the necessary expenses of our government.  It need for the continuance of the life of the government.  However, if it is excessive, it is a burden to citizen that treats citizen like a carabao animal that needs to pull the plow everyday.