Taxes, by legal definition, are mandatory contributions that individuals and businesses, who have income, must pay to the Philippine tax authority, known as the Bureau of Internal Revenue (BIR), every applicable tax year.
For years on end, we have been taught to loathe taxes as they were said to “eat our income.” However, these taxes do, in fact, serve a valuable purpose, especially when placed in the right hands and utilized efficiently. Are taxes important? Do they truly matter? We have compiled a list of all you need to know about taxes down below.
Why do taxes matter?
Governments use taxes to spur economic growth through investment in projects and different industries, which allow for sustainable funding for public investments and social programs and benefits. Such programs include healthcare benefits, retirement benefits, free public education, public transportation systems, and roadbuilding, among others.
Why do tax rates matter?
The amount a business or individual is taxed is necessary for investment and growth. To encourage further development of the private sector, it is vital for tax rates to be reasonable. Studies have shown that a tax rate increase of 1% GDP reduces business output/ profit over the subsequent 3 years by roughly 3%. Tax rates that reach too high too quickly have the potential to stifle business growth and development. Additionally, keeping modest tax rates is not alienating to micro, small, and medium enterprises.
For business, appropriate tax rates are important as they also provide the resources necessary to establish quality infrastructure, like roads and transport systems, as these are the cornerstones of economic development and in pinning locations of economic activity. This is necessary to provide jobs for people and attract different kinds of investments.
Why does the administration of taxes matter?
Effective and efficient tax administration and collection encourage companies to become formally registered entities, allowing for improved business growth and increasing tax revenues. Compliance with tax laws is important, and the proper and timely administration of such matters just as much.
Research has shown that countries with tax procedures shrouded in red tape often see a higher number of tax evasion cases compared to places where the process is streamlined. The ease of paying taxes is more likely to draw more companies to the formal sector as it involves much less hassle. For best results, seek professional help to best address BIR problems and solutions.
Why are tax audits important?
Measures that uphold transparency and accountability are the strongholds of society. Tax audits are an example of those measures, as they encourage accountability on the part of the business owners. In addition, tax auditing ensures that government budgets and allocations for growth-stimulating projects and programs are met.
Additionally, tax audits check for any errors in taxation, such as being overly or insufficiently taxed. Thus, apart from ensuring companies and workers pay their dues to the government, tax audits are also a measure of an individual’s or business’ credibility. For this reason, you need to get your accounting and bookkeeping organized to facilitate the audit process.
Why is it important to pay taxes?
Business owners and individuals benefit from paying their taxes. However, note that non-compliance with government tax laws often may result in a legal battle and the loss of hefty sums of resources. Apart from avoiding penalties and accessing government projects and programs, paying taxes is essential as it is a means of contributing to the growth and development of your community, which, in turn, will provide better opportunities for you.
You shouldn’t feel bad when it time to pay your contribution during tax season. Just remember that the money is used wisely for the growth of the country for the benefit of every Filipino citizen. Instead, make sure your tax revenues are correct and you pay the right dues at the right time to prevent penalties, fines, or a BIR investigation. Call our team for assistance. Take advantage of our free 30-minute consultations.