Microsoft Excel tax spreadsheet template
Microsoft Excel tax spreadsheet template
This article provides details of Microsoft Excel tax spreadsheet template that you can download now.
Microsoft Excel software under a Windows environment is required to use this template
These Microsoft Excel tax spreadsheet templates, work on all versions of Excel since 2007.
Examples of a ready-to-use spreadsheet: Download this table in Excel (.xls) format, and complete it with your specific information.
To be able to use these models correctly, you must first activate the macros at startup.
The file to download presents tow Microsoft Excel tax spreadsheet template
- Income tax calculator sample template
This template enables users to perform annual income tax & monthly salary calculations based on multiple tax brackets (also referred to as a sliding income scale) and a number of other income tax & salary calculation variables. The template design incorporates seven default tax brackets but you can add additional tax brackets if your region requires more tax brackets. All the income tax & monthly salary calculations are automated and user input is limited to only a few earnings & deduction amounts.
- Income Tax Spreadsheet
Instructions for Use
1.The purpose of this spreadsheet is to help U.S. taxpayers calculate their own federal income tax returns.
The spreadsheet attempts to perform the mechanics of tax preparation (i.e. 'do the math') in accordance with IRS forms and instructions
2.This spreadsheet is designed for taxpayers who are capable of preparing their own federal income tax returns.
Users of this spreadsheet must know what information needs to be entered and where to enter it.
Users of this spreadsheet must also be sufficiently familiar with the IRS forms and instructions that apply to their tax return in order to detect and correct any and all user and spreadsheet errors that might occur.
Although some error checking is included, this spreadsheet will not prevent you from making mistakes.
3.The user must assume full responsibility as to the correctness and appropriateness of any and all amounts entered and results produced. Be sure to use current copies of actual IRS forms and instructions when validating the spreadsheet's results.
4.It is vitally important that all spreadsheet users promptly report any error(s) they find so that the spreadsheet can be corrected.
1.Unprotected data entry cells have a light blue fill color.
Cells containing calculated amounts are usually protected and have a darker blue fill color.
Form and worksheet areas are protected. However, users are able to adjust printing properties.
2."Manual override" cells are available for many calculated cells. The use of override cells is discouraged because manual overrides can defeat the spreadsheet's automatic updating feature. If you are having to use a manual override because of a spreadsheet error, be sure to report the error as soon as possible.
NOTE: To clear data from an override cell, highlight it and then press the key.
Do not press the bar because, although it is invisible, the character is treated the same as any visible character.
3.To check a checkbox, simply type an 'X' (any character will work) in the box and press .
NOTE: To clear an 'X' from an checkbox, highlight it and then press the key.
Do not press the bar because, although it is invisible, the character is treated the same as any visible character.
4.Prior to printing, to remove colors from all forms and worksheets, place an 'X' in Cell AJ2 on the '1040' sheet.
5.If using copy/paste to copy information from another source, be sure to paste using 'Paste-Values'.
Otherwise, cell properties could be inadvertently changed. (e.g. A normally unprotected cell could become protected.)
1.Click on the tab labeled '1040' and enter all of the information required for Form 1040, Page 1.
2.Enter your birthdate and, if filing Married - Filing Jointly, enter your spouse's birthdate to the right of the Form 1040.
4.Click on the tab labeled 'W-2s' and enter any employment income reported to you on Form W-2.
5.Click on the tab labeled '1099-INT' and enter any interest income reported to you on Form 1099-INT.
(Interest income information will automatically appear on Schedule B, Line 1.)
6.Click on the tab labeled '1099-DIV' and enter any dividend income reported on Form 1099-DIV.
(Dividend income information will automatically appear on Schedule B, Line 5.)
7.Click on the tab labeled '1099-R' and enter any IRA/pension/annuity income reported to you on Form 1099-R.
8.Click on the tab labeled 'SSA-1099' and enter any Social Security income reported to you on Form SSA-1099.
9.Begin a careful, line-by-line, review of the sheet labeled '1040'. If additional information is needed for a particular line, then look for a sheet associated with that line (e.g. "Line 9 (QBID)") to determine if additional information needs to be entered.
HINT: Recommend regularly checking and saving your spreadsheet.
10.Review every tab to determine it's applicability to your tax return and make sure each sheet is completed.
NOTE: At any time, you may change the tab color by right-mouse clicking on the tab. Also, at any time, you may click and drag sheet tabs to be arranged in any order you desire. Doing so will not affect the function of the spreadsheet.
11.Recommend printing your return and reviewing the printed copy against actual IRS forms and instructions.
12.Transfer results to an electronic filing service or hard copies of the forms.
DEFINITION OF TAXATION
Taxation as a power:
- Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.
Taxation as a process:
- It is the act of levying the tax, i.e., the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of the government.
- It is merely a way of apportioning the cost if the government among those who in some measures are privileged to enjoy its benefits and, therefore, must bear its burdens. (71 Am Jur. 2nd 342; 1 Cooley 72-73)
The power of taxation is inherently legislative. Thus, congress has the power to determine: [CONES]
- Coverage of taxation
- Object or purpose of taxation
- Nature or kind of product taxed
- Extent or rate of tax
- Situs of taxation
- NATURE OF INTERNAL REVENUE LAWS
Hilado v CIR and CTA (1956)
Petitioner’s contention that during the last war and as a consequence of enemy occupation in the Philippines “there was no taxable year” within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.
- It is a legal maxim, that excepting that of a political nature,
‘Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.’ (Joseph H. Beale)
As the same author says, in his Treatise on the Conflict of Laws
‘There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.’“ (Co Kim Chan vs. Valdes Tan Keh and Dizon)
- The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given.
(Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks)
- An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due.
(Ben Stocker, et al.)
- Art. 2254. — No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others. (New Civil Code)
- SCOPE OF TAXATION
Must be: Comprehensive ▪ Unlimited ▪ Plenary ▪ Supreme
Restrictions: Practical ▪ Useful ▪ Lawful ▪ Published
- Section 28, Art. VI, 1987 Constitution
(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.
- 71 Am Jur 2nd 394-395 & 397-398
- In the absence of constitutional restrictions, and subject to the will of the legislative bodies and discretion of the authorities which exercise it, the power of taxation is regarded as unlimited, plenary and supreme, the principal check upon its abuse resting in the responsibility of the members of the legislature to their constituents. Although the power may be exercised even to the point of destroying the commercial or use value of the thing taxed, it has been said, on the other hand, that even in the absence of constitutional restrictions, such exercise must rest upon justice.
- Personal property belonging to a foreign sovereign and temporarily located in a particular country is not subject to state taxation in that country.
- A sovereign state has inherent power to determine the subjects of taxation for general or particular public purposes, and may take appropriate changes in the selections and classifications of the properties made subject to or exempted from taxation.
- CREBA v Romulo (2010)
Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. Petitioner argues that the MCIT violates the due process clause because it levies income tax even if there is no realized gain. Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause because, like the MCIT, the government collects income tax even when the net income has not yet been determined. They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not on other business enterprises, more particularly those in the manufacturing sector.
- The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It came about as a result of the perceived inadequacy of the self-assessment system in capturing the true income of corporations.
- MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Besides, there are sufficient safeguards that exist for the MCIT:
(1) it is only imposed on the 4th year of operations;
(2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and
(3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances.
- The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses after operations of a corporation or consistent reports of minimal net income render its financial statements and its tax payments suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other stratagems. Since the tax base was broader, the tax rate was lowered.
- SC: MCIT is not violative of due process.
Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. 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 the common good.
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. It has the authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation carries a presumption of constitutionality.
- Income v Capital
- Income means all the wealth which flows into the taxpayer other than a mere return on capital.
- Capital is a fund or property existing at one distinct point in time while income denotes a flow of wealth during a definite period of time.
- Income is gain derived and severed from capital.
- For income to be taxable, the following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty from taxation.
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
- Creditable Withholding Tax (CWT) System
The withholding tax system is a procedure through which taxes (including income taxes) are collected. Under Section 57 of RA 8424, the types of income subject to withholding tax are divided into three categories:
(a) withholding of final tax on certain incomes;
(b) withholding of creditable tax at source and
(c) tax-free covenant bonds.
The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation that the rules and regulations must not override, but must remain consistent and in harmony with, the law they seek to apply and implement. It is well-settled that an administrative agency cannot amend an act of Congress.
We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is sanctioned by our tax laws.
The withholding tax system was devised for three primary reasons:
- to provide the taxpayer a convenient manner to meet his probable income tax liability;
- to ensure the collection of income tax which can otherwise be lost or substantially reduced through failure to file the corresponding returns and
- to improve the governments cash flow.
This results in administrative savings, prompt and efficient collection of taxes, prevention of delinquencies and reduction of governmental effort to collect taxes through more complicated means and remedies.
Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any person, national or juridical, residing in the Philippines.
- Passive Income
The BIR defines passive income by stating what it is not:
if the income is generated in the active pursuit and performance of the corporations primary purposes, the same is not passive income
It is income generated by the taxpayers assets. These assets can be in the form of real properties that return rental income, shares of stock in a corporation that earn dividends or interest income received from savings.
- Equal Protection Clause
The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. Stated differently, all persons belonging to the same class shall be taxed alike. It follows that the guaranty of the equal protection of the laws is not violated by legislation based on a reasonable classification.
- Classification, to be valid, must
(1) rest on substantial distinctions;
(2) be germane to the purpose of the law;
(3) not be limited to existing conditions only and
(4) apply equally to all members of the same class.
The taxing power has the authority to make reasonable classifications for purposes of taxation. Inequalities which result from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation. The real estate industry is, by itself, a class and can be validly treated differently from other business enterprises.
Sison v Ancheta (1984)
- The power to tax is not unconfined. There are restrictions set forth by the Constitution. As it adversely affects property rights, both the due process and equal protection clauses may be properly invoked.
- Justice Marshall: “The power to tax involves the power to destroy.”
- Justice Frankfurter: “The power to tax is not the power to destroy while this Court sits.” According to C.J. Fernando, so it is in the Philippines.
- Equality and uniformity in taxation means that all taxable articles of kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. There is a similarity to the standard of equal protection for what is required is that the tax applies equally to all persons, firms and corporations placed in a similar situation.
- It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.
- Sarasola v Trinidad (1919)
- The broad principle is that every taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of taxes. Usually a party will find a plain and sufficient remedy for the injuries complained of, or threatened, in the courts of law; in such instances, equity will not take jurisdiction. "Presumptively," Judge Cooley says, "the remedy at law is adequate." (Cooley on Taxation)
- Where, as in the Philippines, the taxpayer is permitted to pay the amount demanded of him under protest and then maintain an action at law to recover back the whole amount paid or so much of it as was illegally exacted, this is ordinarily regarded as an adequate remedy.
- Sec. 1578 of the Administrative Code: No court shall have authority to grant an injunction to restrain the collection of any internal revenue tax.
- Public policy decrees that, since upon the prompt collection of revenue there depends the very existence of government itself, whatever determination shall be arrived at by the Legislature should not be interfered with unless there be a clear violation of some constitutional inhibition.
- Re: Payment of Interest
Taxes only draw interest as do sums of money when expressly authorized: Interest is not to be awarded against a sovereign government, unless its consent has been manifested by an Act of its legislature or by lawful contract of its executive officers. If there be doubt upon the subject, that doubt must be resolved in favor of the State. There is no ground for charging the Crown with interest. Interest is only payable by statute or by contract. The State never pays interest unless she expressly engages to do so. But when an illegal tax has been collected, the citizen who has paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal exaction. The difference lies in the fact that the suit is against the collector and not the State, although the judgment is not be paid by the collector but directly from the treasury.
- UNDERLYING THEORY AND BASIS
- 71 Am Jur 2nd 346-347
- The existence of government is a necessity; it cannot continue without means to pay its expenses; and for those means it has the right to compel all citizens and property within its limits to contribute.
- The state demands and receives taxes so that it may be enabled to carry its mandates into effect and perform the functions of government. The citizen pays from his property the portion demanded, in order that he may, by means thereof, be secured in the enjoyment of the benefits of organized society.
- The general levy of taxes is understood to exact contributions in return for the general benefits of government, and it promises nothing to the person taxed beyond what may be anticipated from an administration of the laws for individual protection and the general public good.
- Although the duty to pay taxes by the individual is founded in his participation in the benefits arising from the expenditure, it does not mean that a man’s property cannot be taxed unless some benefit to him personally can be pointed out.
- CIR v Algue (1988)
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.
- Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.
SC Decision: The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
- 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.
- But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
Taxation is a power predicated upon necessity. It is a necessary burden to preserve the State’s sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the State’s territory and facilities and protection which a government is supposed to provide.
BENEFITS RECEIVED PRINCIPLE
This theory bases the power of the State to demand and receive taxes on the reciprocal duties of support and protection. The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of an organized society. Thus, the taxpayer cannot question the validity of the tax law on the ground that payment of such tax will render him impoverished, or lessen his financial or social standing, because the obligation to pay taxes is involuntary and compulsory, in exchange for the protection and benefits one receives from the government.
DOCTRINE OF SYMBIOTIC RELATIONSHIP
This doctrine states that “Taxes are what we pay for civilized 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 must contribute his share in the burden of running 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 material and moral values.”
- PRINCIPLES OF A SOUND TAX SYSTEM
- Fiscal adequacy - means that the sources of revenues should be sufficient to meet the demand of public expenditures.
- Equality or theoretical justice - means that the tax burden should be in proportion to the taxpayer's ability to pay. (ability-to-pay principle).
- Administrative feasibility - means that tax laws should be capable of convenient, just and effective administration
Abakada Guro Party List v Ermita (2005)
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional.
- For the delegation to be valid, it must be complete and it must fix a standard. A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it.
- The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his Canons of Taxation (1776), as:
- Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.
- It simply means that sources of revenues must be adequate to meet government expenditures and their variations.
- Due Process and Equal Protection
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-registered person, and
Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under the law.
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three possible scenarios may arise:
- If at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and passed on by the suppliers, then no payment is required;
- When the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the Bureau of Internal Revenue (BIR); and
- If the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.
Equal Protection Clause
The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.
The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars.
- Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times.
- Progressivity in Taxation
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam Smiths Canons of Taxation, and it states:
- The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income.
The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.