A Healthy Society is one of the main goals that the government wants to achieve. But how will the government will achieve that goal if its citizens consume goods detrimental to health such as alcohol and cigarettes?
In 2012, during the Aquino Administration, Republic Act 10351 or the Sin TaxReform Law has been passed to support the government’s goal. It is mainly a health measure but it comes out as a way of earning revenue of the government.
The Sin Tax Reform law concept is this: ‘if prices of sin products increase, most likely, the Filipinos will no longer buy the said products.’ Such increase in prizes is a result of the increased excise tax charged to sin goods, thereby resulting to additional revenue for the government. The general public usually accepts sin taxes because they are indirect taxes that only affect those users of the sin products.
Effective January 1, 2016, the sin tax law charges a tax of Php25.00 per pack of cigarette if the net retail price is Php11.50 and below excluding taxes and Php29. 00 per pack if the net retail price is above Php11.50 excluding taxes. Effective January 1, 2017, the taxes increased to Php30.00 per pack of cigarette packed by machine. While for fermented liquors including beer, lager beer, ale, porter and other fermented liquor (except for tuba, basi, tapuy), the charged sin tax is Php21.00 per liter if the net retail price per liter is Php50.60 and below excluding taxes, Php23.00 if the net retail price is more than Php50.60 excluding taxes effective January 1, 2016. Effective January 1, 2017 the tax on all fermented liquors shall be Php23.50 per liter.
The republic Act 10351 requires manufacturers and importers to submit to the commissioner a sworn statement of the volume of the sales for each particular brand sold for the three-month period immediately preceding within 30 days from the effective date of the Act and within the first five days of every month thereafter. Any manufacturer or importer who violates, misdeclares or misrepresents any pertinent data or information in his sworn statement shall be penalized by a summary cancellation or withdrawal of his permit to engage in business of manufacturing or importing.
Effect of Sin Tax
As a result of the implementation of this Act, the industry sales of sin products dropped down. As a proof, the sales of cigarettes reflects the said decrease, from 102 billion sticks in 2012 to 86 billion sticks in 2013 and to 83-84 billion sticks in 2015. But excise tax revenues of the government grew significantly from 32 billion in 2012 to 141 billion in 2016. The said revenue collected in excise tax will be allocated to Department of Health and Department of Agriculture’s budget for their projects.
Thus, the government’s objective of discouraging the consumption of sin products to prioritize the health of the people while earning revenue was achieved. Sin Taxes are not mainly for government revenues as consumers perceived it but rather another way for the government to increase the well-being of its citizens.
Health insurance is an insurance against the risk of incurring medical expenses among individuals. The insurer can develop a routine finance structure, such as the monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. According to the Health Insurance Association of America, health insurance is “coverage that provided for the payments of benefits as a result of sickness or injury. Includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment.”
For Philippine income tax purposes, premium payments on health and hospitalization insurance may be deducted from the gross compensation income or the gross business/professional income of a family of a resident citizen, non-resident citizen, and resident alien. Health and hospitalization payments are deductible only in the following conditions that must be encountered:
1. The insurance shall be taken by the individual taxpayer himself for his family; 2. The amount being claimed shall not exceed P2,400.00 a year or P200.00 a month per family; 3. The family has a gross income of P250,000.00 or less for the taxable year.
The total family income includes primary income and other income from sources received by all members of the family. For married taxpayers, only the wife or the husband entitled to claim for additional exemption for dependents is allowed this deduction.
Any other type of insurance tends to be out of the running for a deduction, even if it is not clearly related to getting sick includes life insurance policies; policies providing payment for loss of earnings (disability insurance); policies that pay for loss of limb or sight; policies that pay a guaranteed amount each week for a stated number of weeks if hospitalized for sickness or injury; the part of car insurance premiums that provides medical insurance coverage for all persons injured in or by the car, because the part of the premium for, the spouse and the dependents is not stated separately from the part of the premium for medical care for others.
Sample Problem: Health and Hospitalization Insurance
Angel, a single mother, is a government employee who earns a monthly gross compensation income of P18,000. Effective, January 1, 2017, she took a hospitalization insurance for her and her 3 year old son. She right away paid the annual premium of P2,400.However, had she opted to pay this premium monthly, an additional P50.00 pesos per month is charge. How much is the deduction for the health and hospitalization premiums?
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The first condition that the insurance shall be taken by the individual taxpayer himself for his family has been satisfied.
The second condition speaks for the annual limit of P2,400 and monthly limit of P200.00 for each family. The actual premium paid by Angelu for the whole year was P2,400. This qualifies her to claim the maximum P2,400. Of the annual premium were lower than P2,400, the lower amount shall be allowed. Had she chosen to pay the premium monthly, the total payment would have been P3,000 (250 X 12). If this is the case, she can only claim P2,400- the maximum limit.
The third condition is likewise satisfied. The family gross income, she being the sole bread winner, is 216,000, far lower than the 250,000 maximum gross income limit.
Taxation is one of the primary powers of government over the people. The process where by charges are imposed on individuals or property by the legislative branch of the federal government and by many state governments to raise funds for public purposes. Taxation is a mode of raising revenue for public purposes. The term is ordinarily used to express the exercise of the sovereign power to raise revenue for the expenses of the government. It is the act of levying a tax; i.e., the process or means by which the taxing power is exercised (Cooley on taxation, Sec. 6p.72). Taxation is an inherent power of the state. It may not be conferred expressly by the people. The power exists even if a state’s constitution does not contain an express grant of such power. Hence, constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government but instead merely constitute limitations upon a power which would otherwise be without limit.
Taxation is a power emanating from necessity. As explained in one case, a tax 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 designed for enjoyment of the citizenry and those which come within the states territory and facilities and protection which a government is supposed to provide. (Phil. Guarantee Co. Inc. vs. Com. Int. Rev. GR L-22074, April 30, 1965). The theory that underlies taxation is that charges are imposed to support the government in exchange for the general advantages and protection afforded by the government to the taxpayer and his or her property.
The existence of government is a necessity that cannot continue without financial means to pay its expenses; government can neither exist nor endure. The government has the right to compel all citizens and property within its limits to share its costs. The state and federal government both have the power to impose taxes upon their citizens. The government ability to serve the people depends upon the taxes that collected. Taxes are indispensable in the government operation and without it, the government will be paralyzed. The main purpose of taxation is to accumulate funds for the functioning of the government machineries. No government in the world can run its administrative office without funds and it has no such system incorporated in itself to generate profit from its functioning.
The Government can also use taxation to encourage or discourage certain economic decisions. For example, reduction in taxable income(or household) income by the amount paid as interest on home mortgage loans results in greater construction activity, and generates more jobs. Taxation upon a taxpayer (an individual or legal entity) by state such that failure to pay is punishable by law. When taxes are not fully paid, civil penalties (such as an incarceration) may be imposed on the non paying entity or individual. It is a mode by which government make exactions for revenue in order to support their existence and carry out their legitimate objectives. (Tax law and Juris prudence by Justice Vitug. 2000). It is the inherent power by which the sovereign state imposes financial burden upon persons and property as a means of raising revenues in order to defray the necessary expenses of the government (Tax Digest by Crescencio Co Untian 2002 Ed). Nonetheless, it is the most pervasive and the strongest of all the powers of the government. Taxes are the lifeblood of the government, without which, it cannot subsist (Lifeblood Doctrine).
History of Taxation
In history of taxation, the first known system of taxation was in ancient Egypt around 3000 BC- 2800 BC in the first dynasty of the old kingdom. In Biblical times, tax is already prevalent. According to Genesis 47:24. But when the crop comes in, give a fifth of it to pharaoh the other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children. Earliest taxes in Rome, taxes known as Portoria were customs duties on imports and exports. Augustus Caesar introduced the inheritance tax to provide retirement funds for the military. In England, taxes were first used as an emergency measure. In the Philippines, the pre-colonial society, being communitarian, did not have taxes.
In order to survive, the State or in other words, the government, has three inherent powers. Since they are inherent, laws are not needed in order for them to exist. What are the three inherent powers of the state?
The Power of Taxation
The Power of Eminent Domain and
Taxation is the power of the state to enforce proportional contribution from the people, property and exercise of the right within its territory to raise revenue for the purpose of defraying the necessary expenses of the state. It is stated in the “ LIFEBLOOD DOCTRINE ” that taxes are the lifeblood of a nation which means that without the revenue raised from Taxation the state will not survive. It would be paralyzed and could not operate in an effective and efficient manner.
The power to tax is the most important inherent power of the state because it raises revenue in order to support the operations of the government. The state cannot continue to operate or exist without financial means, as provided by taxation.
It is the power of the state to forcibly take the private property for public use upon payment of just compensation. Like police power it is based on the public necessity and is exercised by the legislative branch of the state. However, unlike police power, Eminent domain may be exercised by the private entities with the express valid delegation from the legislature. It can likewise be exercised by the President of the country or even the Administrative agencies and local governments. The power is usually exercised through the formal expropriation proceedings.
This is the state power to promoting the public welfare, peace and order by restraining and regulating the use of both liberty and property of all the people. It may be exercised only by the government. It is also considered as the most powerful among the three inherent powers of the state. Police power permits the state to take liberty, property, or even the life of a person for the better good of the society as a whole.