Why do we pay taxes?

MANILA, Philippines – Filipinos are angry over the pork barrel scam, where at least P10 billion in public funds were allegedly pocketed by lawmakers.

These funds, after all, were taxpayers’ hard-earned money.

With the controversial issue and the April 15 deadline of income tax returns nearing, a question may be nagging in some taxpayers’ minds: why do we even pay taxes?

Taxes are “the lifeblood of government.” These are used to finance basic services such as education and health care as well as infrastructure – all vital to the economy’s growth and improvement of Filipinos’ lives.

Rules and regulations on tax collections are specified in the Tax Reform Act of 1997. It identifies whose duty it is to pay taxes in the country:

• A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
• A nonresident citizen is taxable only on income derived from sources within the Philippines;
• An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines;
• An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines;
• A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
• A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines.

All year-round, these individuals and corporations remit money to the government in the form of various taxes.

The money, in turn, is used to fund the expenditures of government.

A report published by the National Tax Research Center in 2011 showed that tax collections cover more than half of government’s expenditures.

“With more tax collections, the government would be able to enlarge the scope of its priorities or expenditures,” NTRC said.

Yet NTRC said that on the average, the government still spends more than the taxes that every Filipino pays. 

In 2010, for example, the government spent nearly P18,391 per person, while each person contributed about P12,885 in taxes.

“With more tax collections, the government would be able to enlarge the scope of its priorities or expenditures,” NTRC said.

When tax collections fall short of government expenditures, the deficit is funded by borrowings, which represent additional expense for the country.

In 2013, the government posted a deficit of P164.1 billion, lower than the P238-billion ceiling set by fiscal authorities, and lower than the P242.8-billion deficit recorded in 2012. – Rappler.com