Basic Principles of a Sound Tax System

There are three basic principles of a sound taxation. These are fiscal adequacy, equality or

theoretical justice and administrative feasibility.

I. Fiscal Adequacy

Fiscal Adequacy means that the sources of revenue should be sufficient to meet the

demands of public expenditure. Taxation as a part of the country’s source of revenue, citizens

of our country should be aware on the importance of it.

As the lifeblood of our nation, taxation is very significant in making the government

perform its function to serve its people. The budget of the country comes from taxes paid by its

citizens. So payment of tax is a necessity and the government, thru Bureau of Internal Revenue

and Bureau of Customs, shall do its part on the collection of taxes. The question to our

government is whether we are generating enough revenue for the country and how do they

manage the proper distribution of its budget.

Considering the amount of debt we owe to the international banks, Philippines is not

generating enough income to pay for its expenses in running the country. The revenue is not

sufficient to pay for its debt and this is a bad sign that the fiscal budget is not enough or should

we say that the budget no longer goes to where it is appropriated. This misappropriation

includes corruption of public funds, over priced projects, under the table deals and the likes

that contribute to the country’s continuous poverty. And if the government properly handle its
funds and still lack the revenue to pay for its project, I guess the government should find a way

to raise its fiscal budget to adequately meet the demands for public expenditure.

In the Philippines, we think that the percentage of tax passed on its citizen is already a

burden. The amount of deduction to the salaries of an employee is considerable large amount

of money. So increasing the percentage of tax burden on the citizen is no longer an option in

raising the revenue of the government. Also, there are different kinds of tax to where the

government can pull out funds for the implementation of its projects. I recommend that the

government increase its tax on cigarettes and liquors, specifically those coming outside the

country. Since these commodities are not considered a necessity, people who tightens there

belt in saving money will no longer consider buying these unnecessary things. And this might as

well increase the income on tax of the government. The government can also raised its revenue

by increasing its tax on imported goods that are not considered a necessity for its citizens. This

will not only increase the government’s revenue but will also help the local producers of such

products.
 II. Equality or theoretical justice

This means that it is only appropriate for the government to base the tax that is being

collected to the declared salary of the payer. With this principle tax payers will have reasonable

taxes and will give a fair share of what they have earned to the government. This is the so-

called “ability to pay principle.”

The Philippines being a third world country and has a minimum wage salary of 426.00

Php per day, according to the Department of Labor and Employment in the National Capital

Region, only shows that not everyone could pay their taxes. With the ability to pay principle this

people who earn minimum wages are given tax exemptions to cope up with their daily living

cost and those who are earning above this minimum wage are obligatory to pay their monthly

taxes. The monthly income is proportional to the tax that is being paid. As the income increases

tax also increases. For those whose income after personal and additional exemptions is below

10,000 the tax rate would be 5%, for 10,000but not over 30,000 would be 500 + 10% of the

excess over 10,000, for 30,000 but not over 70,000 would be 2,500 + 15% of the excess over

30,000, for 70,000 but not over 140,000 would be 8,500 + 20% of the excess over 70,000, for

140,000 but not over 250,000 would be 22,500 + 25% of the excess over 140,000, for 250,000

but not over 500,000 would be 50,000 + 30% of the excess over 250,000 and for 500,000 and

above would be 125,000 + 32% of the excess over 500,000.

 III. Administrative Feasibility

Administrative Feasibility means that tax laws should be capable of convenient, just and

effective administration. This principle is very important in the collection of taxes and its

implementation.

Tax imposition in the Philippines involves three stages, first is the levy. It is the legislative

act or the tax law that determines the amount of tax or certain percentage shall be imposed on

the person, property or acts subjected thereto. After the levy, assessment follows; this action

involves computation of the sum due, giving notice to the taxpayer and making simultaneous

demand upon the payer for the tax or its deficiency. And lastly the collection; thru proper

government agencies, taxes are collected. This stage embraces the different remedies for

enforcement of the payment of taxes including prosecution on tax violators.

The government assigns two bureaus in the administration of tax collection; these are

Bureau of Internal Revenue and Bureau of Customs.

In enforcing the tax law, the administrative body of our government should be very serious

and sincere in their job. The revenue of the country lies in their hands. Every cent that they

collect should go and use only for public purposes and projects. They should detach any

personal interest on the money that they collected.

As a recommendation, every officer in the bureau should undergo a thorough process of

lifestyle checking and before hiring any office it should be very clear that they are hired as a
public servant not as a master waiting to be served. We believed that the root of all evil is

selfishness, and everyone in the government should not contain this undesirable character.

Another recommendation on the administration of taxation, officers of the bureau should

do a thorough lifestyle check on taxpayer with questionable payment of tax despite his/her

riches. And no tax evaders should be given with special treatment and proper dues and fines

should be enforced on the violators.

 Assessment and Recommendation
On Sound Tax System
In the Philippines

Submitted to:
Prof. Edna Q. Kinilitan

Submitted By:
Esquivel, Timothy John
Policarpio, Arvin
San Gabriel, Melvin