General Principles of Income taxation in the Philippines
1. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; 2. A non-resident citizen is taxable only on income derived from sources within the Philippines; 3. An individual citizen who is working and deriving income abroad as an OFW is taxable only on income from sources within the Philippines Provided, that the OFW, who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an OFW. 4. An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines. 5. A domestic corporation is taxable on all income derived from sources within and without the Philippines; and 6. A foreign corporation whether engaged or not in trade or business in the Philippines is taxable only on the income derived from sources within the Philippines. Seven principles for taxation are that it should be stable, sustainable, adequate, progressive, efficient, transparent and responsive to economic, social and environmental externalities. Stable – Stable – A stable tax system should be based on sources of revenue that do not
fluctuate excessively as part of economic cycles. For example, this will require taxes on wealth, as well as income and consumption. Taxes on wealth (such as property tax) tend to be more stable during a recession. Property tax is common in many countries and is used to fund local government. Sustainable – Sustainable – A sustainable tax is drawn from a source that will not become
exhausted. Similarly, a sustainable tax system is not undermined by excessive tax expenditure. Adequate –A Adequate –A country’s tax system must provide sufficient revenue to pay for the level
of public services that people want, as well as other state liabilities, such as servicing the national debt. Progressive – Progressive – A progressive tax system is one where those who gain more from the
economy (in terms of wealth and income) make a proportionately larger contribution. This should be the net effect across the whole tax system, not just income tax. Public services are one way of making the net benefit from the economy more progressive for people on lower incomes. Efficient – Economically efficient tax is one which minimises economic distortion. The
tax system should seek to encourage economic activity. Transparent – All taxes, and to whom they apply, should be clear. In addition, all
exemptions, tax relief, etc. should be transparent. Responsive – The tax system also has role to play in influencing behaviour, by being
responsive to market failure/externalities. Taxes can be used as policy tools to achieve economic, social and environmental goals. For example, carbon taxes discourage carbon-heavy activity such as burning of fossil fuels. Nature and purposes of income tax
1. It is a national tax or one imposed by the national government under the National Internal Revenue Code; 2. It is an excise tax because it is imposed on the right to generate or receive income through labor, capital and others, and not or persons or property; 3. It is a direct tax since it is imposed on the person who is personally bound to pay the tax, a burden he cannot shift to another 4. Income tax is a general tax because it is primarily intended to provide large amounts of revenue to the government and secondarily to offset the regressive sales and consumption taxes, and to mitigate the evil of inequalities in the distribution of wealth; 5. It is progressive because the tax rate increases as the tax base increases.
