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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Paying taxes is a fundamental aspect of everyday life for individuals and businesses alike, serving as a cornerstone of modern society’s functioning and development. The consequences of not paying taxes can have profound impacts on both individuals and society as a whole. As Benjamin Franklin said, “…but, in this world, nothing is certain except death and taxes”.
Taxes can indeed be considered the lifeblood of government, serving as the primary source of revenue that enables governments to fulfill their essential functions and responsibilities.
In fact, there are several theories regarding the importance of paying taxes.
First is the necessity theory which provides that exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. (National Power Corporation v. City of Cabanatuan, G.R. No. 149110, 9 April 2003)
The next one is the symbiotic theory. According to this theory, both the government and its citizens have reciprocal duties or responsibilities to one another. In the case of CIR v. Algue, Inc. (G.R. No. L-28896 February 17, 1988), the court held that:
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
And finally, we have the lifeblood theory from which gave rise to the lifeblood doctrine:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. (National Power Corporation v. City of Cabanatuan, G.R. No. 149110, 9 April 2003)
The essence of these theories is that governments cannot sustain themselves independently; they rely on the taxes we pay. Taxes are the lifeblood of government because they provide the necessary resources for governments to fulfill their essential functions, support economic development, promote social equity, ensure national security, and uphold accountable governance.
Paying taxes as a civic duty
Paying taxes is a civic duty that contributes to the collective well-being and prosperity of society as a whole. In fact, taxes are a part of everyone’s lives. It can be in the form of income or in the Value Added Tax (VAT) that we pay whenever we are purchasing goods.
Being a duty, there is also a corresponding penalty whenever such a duty is not made. The most common of which is tax evasion.
In Ungab v. Judge Cusi, Jr. (G.R. No. L-41919-24 May 30, 1980),the Court ruled that tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax.
Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. Thus, tax evasion integrates three factors: (a) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (b) an accompanying state of mind, which is described as being “evil,” in “bad faith,” “willful,” or “deliberate and not accidental”; and (c) a course of action or failure of action that is unlawful. (CIR v. Toda, G.R. No. 147188, 14 September 2004).
Tax evasion and tax avoidance
It should be noted though that tax evasion is different from tax avoidance. In the case of CIR v. Hong Kong Shanghai Banking Corporation Limited (G.R. No. 227121, December 09, 2020), the court held that:
A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits.This is called tax avoidance. It is the use of legal means to reduce tax liability. However, this method should be used by the taxpayer in good faith and at arms-length.
X x x x
Contrariwise, tax evasion is “a scheme used outside of those lawful means.” It “connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes.” To constitute tax evasion, the following factors must be proven: “(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being “evil,” in “bad faith,” “willful,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful.” In other words, the payment of lesser taxes does not necessarily constitute tax evasion. The taxpayer’s resort to minimize taxes must be in the context of fraud, which must be proven by clear and convincing evidence and cannot be based on mere speculation.
Indeed, paying taxes is a fundamental aspect of everyday life for individuals and businesses alike, serving as a cornerstone of modern society’s functioning and development. The consequences of not paying taxes can have profound impacts on both individuals and society as a whole. As Benjamin Franklin said, “…but, in this world, nothing is certain except death and taxes”.
Related Article/s:
Tax Deficiency vs. Tax Delinquency
When is there Double Taxation? – A Quick Guide on Double Taxation in the Philippines
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