Why do we pay taxes?

By Joshua Corcuera

In this world, nothing can be said to be certain, except death and taxes. This saying by Benjamin Franklin, one of the founding fathers of the United States, remains true in the modern world. Whether we like it or not, we are all obliged to pay taxes to the government.

Last January 9, my column centered on several relevant changes in taxation for this coming year. To recap briefly, a new income tax table is effective since New Year’s Day, and some corporate taxes will change rates within the year. To give a few examples, minimum corporate income tax shall revert back to 2% from 1% of gross income starting July 1 this year. Starting at the same date, preferential tax rates for private schools shall revert back to 10% from 1% of net taxable income. Several other changes on taxation will occur this year.

Albeit my column last week was technical, its implications to us are real and profound. From income taxes imposed on our compensation income (for those earning in excess of PhP 250,000 annually) to businesses subject to corporate income tax, it is undeniable that we pay a fortune of our hard-earned earnings to the government.

There are several theories explaining why it is necessary and inevitable for governments to impose taxes. First, the necessity theory. This theory is of the belief that the existence of a government is necessary for a civilized society to exist. It logically follows, therefore, that the existence of taxation is necessary as well.

Second, the lifeblood theory. From the term lifeblood itself, one can understand that this theory argues that a government cannot exist without taxes just like a human being cannot live without blood. Consequently, the lack of a government in a state can result in a chaotic and disorderly society.

Lastly, the symbiotic theory or the benefits protection theory. According to this theory, both the government and its citizens have reciprocal duties or responsibilities to one another. On one hand, citizens are obliged to pay taxes to the government. In exchange, the government will provide protection to its citizens from danger both within the state and from external forces.

Some people may not be aware that they are actually paying taxes. A good example would be minimum wage earners since they are exempt from paying income tax. However, they still pay taxes whenever they buy goods or avail services from entities that are VAT-registered.

For context, value-added tax (VAT) is an indirect, business tax imposed on businesses that are passed on to end consumers. Its tax rate is 12% of the gross selling price and it is something we can see on the receipt of the things we buy.

As an example, when I buy a loaf of bread worth PhP 60, this amount is generally presumed to be inclusive of 12% VAT. To compute the VAT, gross-up the amount by dividing it by 1.12 then multiply by 12%, the product is the VAT. A shortcut to compute for the VAT is to directly multiply the amount by 12 over 112. Regardless of how you computed, the answer shall be PhP 6.43. Though it may be a small amount, keep in mind that most Filipinos spend tens of thousands of pesos annually on goods and services.

As you can see, we imminently pay taxes and Franklin was right; just like death, taxes are certain in life. To be fair, though, our taxes are used to fund infrastructure projects, free tuition in public educational institutions, and so forth. This is likewise the reason why it is crucial for the government to be transparent in its finances, so that citizens can be aware, speak up, and demand accountability against misuse of funds within public institutions. These funds, after all, did not come from politicians, but from people from all walks of life.

The writer is a graduating accountancy student from one of the leading educational institutions in the country. Late last year, he placed second in a quiz bee on accounting, auditing, and taxation involving participants from several Metro Manila-based universities. 

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