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Taxation

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E-commerce Taxation: Towards its Legalization Have you ever wanted to buy something with just one click without having to pay much as the usual? With the easy access and affordable prices, online purchasing has become the most convenient way of shopping for most teenagers. The popularity of the Internet particularly Facebook, Instagram and other social networking sites attracted many retailers to invest their businesses online without having to pay taxes like any other retailers do. By this, e-commerce continues to grow with the advancement in technology as it overshadows the traditional way of running a business by the insignificant purpose of the physical interaction between the buyer and the seller. E-commerce in itself is classified into three types: business-to-consumer in which online stores sell products to final consumers; consumer-to-consumer just in the case of eBay and Amazon and; business-to-business which involves job recruiting, online advertising, credit, sales, and the like (U, 2002, p.6). With the emergence of e-commerce, brick and mortar stores are slowly starting to degrade, thus alarming the government on the collection of lesser tax since the law regarding electronic commerce taxation is still being debated. This income generating phenomenon has been an attractive target to the government to cope with its huge loss on tax collection. So why pay tax? Richard Carlson (2002) once said, “At tax time, it helps to remember that if your tax obligation has increased from the previous year, it’s usually because you’re enjoying more income. That’s a situation to which most of us aspire. Higher taxes are a price that we pay for greater success.” For this reason, the imposition of tax to online sellers in social networking sites plays an important role for the increase in tax collection of the government and for the equality with other physically-present stores yet it still continues to expand e-commerce due to the essential benefits of online sales. This paper presents the researchers’ line of reasoning on the legalization of electronic commerce taxation in three parts. The first part illustrates the importance of taxation on the increase in tax collection of the government. The second part mentions how taxation establishes fairness between online stores and physically-present stores. The final part sights the continuing growth of e-commerce by the reason of indispensable benefits given by online sales. The imposition of tax to online sellers enables the government to boost their tax collection. Having been considered as the government’s “lifeblood”, it is only right and just to push through taxation without doubt since it is the primary source of the government’s funding. Globally, tax accounts for about 80% of the entire revenue and as a third – world country, Philippines generates 58.35% of tax returns (Jones & Basu, 2002, p. 2). By this statistical data, tax to online sellers would yield a massive contribution as well as an increase in the tax revenue. Approximately 6% of Filipinos have purchased products for $16 million through the internet by the end of 1997. By 2002, $38 million was the expected increase of its value having an upswing of 30% online Filipino merchants (U, 2002, p.5). For instance, the owner of MyHauteCloset, Milysan Troche, decided to put up an online store where her followers could shop effortlessly and find out anything that’s offered in Instagram (Mulvey, 2012). Likewise, Amazon.com, the leading online bookstore, has earned an annual income of $1.2 billion by only spending $56 million in tangible materials which encourages their other competitors to also invest their businesses online (Khanser,2001, p.9). One of our interviewees who is also a successful e-retailer said that the absence of rental, capital, maintenance, and salary of her workers led her to invest on Facebook and Instagram. Moreover, the “hashtag” feature enabled her customers to easily locate her products (Catan, 2013). With this rapid success of online businesses, just like in the Philippines, the United States also has increasingly been aware of its losses for not levying taxes on e-commerce sales but their plan is tremendously opposed by the Internet Freedom Act of 1998 allowing E-commerce services free from tax (Baumer & Poindexter, 2002, p. 379-380). This was testified by the studies that have been conducted by the University of Tennessee which highlighted that $52 billion was sacrificed for not taxing e-commerce for the past six years and this loss was expected to be more than $261 million in 2012 or $149 million a year (Wieffering, 2012). This only proves that businesses nowadays have adapted the trend of the tremendous change of this world making it a perfect target of the government to remedy the huge loss of revenue on untaxed purchases. The failure to properly allocate the appropriate goods and services to be taxed hindered the government to fully fulfill its responsibilities. As what the BIR officer said, the revenues collected by the government will be allocated to the basic services and improvement of society for the common good of the people like building bridges, roads, airports, piers, and the services of the policemen and teachers which would create an economic activity where everybody benefits. Similarly, in the United States, the loss of $15 billion could have been significantly compensated for the libraries by two and a half times more. At the same time it could have provided 300,000 teachers with 50 thousand annual individual salaries. Public services including education, job training, library, child care and the like could have been properly maintained by the substantial contribution of tax (Jones & Basu, 2002, p.9). Sales tax pays for the roads that people drive on, the schools that kids go to, and the fire and policeman people depend on. And the society doesn’t want to see a situation where other taxes will have to be raised to cover basic local services because these online retailers are not collecting the sales tax that is owed on their products. Henceforth, even with the unwillingness to pay, it is still an obligation of wage earners to hand over a portion of their income for the compliance of their legal responsibilities to the government. Since physically present store retailers have always had to pay tax, then the implementation of tax to online sellers is just fair. According to BIR Revenue District 79 officer-in-charge, Richard Oquendo (2013), physically present stores in the Philippines pay an annual registration of Php 500. They are also entitled to pay business taxes which vary for non-VAT and VAT taxpayers. For non-VAT taxpayers, they disburse 3% of their taxable income which is payable on or before the following month while for VAT taxpayers, a 12% is charged on their taxable income with the result called output VAT. This output VAT is still to be deducted by the VAT from purchases called the input VAT. The result would then be the VAT due or payable. Furthermore, individual retailers are also required to pay their income tax based on a progressive system which means higher tax is paid for higher income. The rates range from 5% for Php10, 000 taxable income to 32% of income over Php500, 000. In contrast, corporations are required to return 30% of their net income. With these, it would not be a huge loss on the income of online sellers since no physically present businesses have been closed just because of paying these taxes. Even in the United States, brick and mortar traders have come upon the realization that due to the unclear tax regulations, it has placed them to a biased position over the online retailers who are tax-exempt (U, 2002, p.25). Referring to the 1997 tax code, Presidential Deputy Spokesperson Abigail Valte (2012) remarked, “The national internal revenue [code] states that if you’re a seller and that you are engage in retail then, you are subject to tax unless you can show the BIR that you are exempted under a particular law.” For example, sari–sari stores are exempted from paying income tax since they are small business enterprises. Because of that concept, imposing income tax on online sellers should be based on their income (Mirasol, 2013). On the other hand, the BIR Revenue District 79 officer-in-charge, Richard Oquendo (2013), claimed that as long as one is engaged in business, whether earning one peso or one billion, one must file the returns. Even with the absence of the bill, one is still entitled to register in the BIR, submit all the necessary documentary requirements as the BIR will issue the certificate of registration that one is engaged in online selling. Therefore, being considered as retail, online selling should not be exempted with the business regulations of the BIR. As both are engaged in trading goods and services to the consumers, brick and mortar stores and online shops, are of no disparity. There’s not much difference of a person who sells offline that is being taxed and a person who sells online that is not being taxed for both persons enjoyed the privilege of earning income. Hence, to keep it fair for everybody’s concern, online retailers should also pay the appropriate tax (Mirasol, 2013). In China, the State Administration of Taxation (SAT) affirmed that online selling is just similar to physically-present stores, having to trade most likely the same kind of products and thus should be levied with tax (Greenstein & Vasarhelyi, 2002, p.167). Consequently, the Electronic Commerce Act of the Philippines section 3 principle pointed out that, “transactions conducted using the electronic commerce should receive neutral tax treatment in comparison to transactions using non-electronic means and taxation of electronic commerce shall be administered in the least burdensome manner (U, 2002, p.29).” To further illustrate their utmost similarity, both online and structured stores exercise three basic principles in business grounds. The first principle is location. In the traditional way, retailers rent buildings and offices which satisfies their legal presence and which also constitutes the most costly part in establishing a venture. While through online, location makes the life of shopkeeper unpretentious because literally their shop is inside their laptops, inside their own rooms. The second principle is customers. The old–style needs consistent and loyal clientele and must continue to develop certain advancement in their own stores whereas e-retailers could spread globally by just creating a particular website. Anyone can access the website and can be a possible customer although it needs to be updated as part of the natural way of coping in terms of online retailing. The last principle is the workforce. In stable firms, the human labor is a vital asset which mirrors the kind of workplace they function while with the Internet, human labor in itself is the software created to instantly perform transactions. This clearly testifies how the government can exercise their power of taxation over e-retailers who manifest the same target and demand with stable firms. Apparently, because of the unclear tax regulations here in the Philippines, many businesses fail to conform to their tax obligation (Internet taxation in the Philippines, 2013). Having been based on the laws in Spain and America, the Philippine’s judiciary section has encountered difficulties in updating the laws due to the advancement in technology and outgrowth of the internet. A concrete example is the Love Bug virus created by a Filipino which was responsible for the close down of computers in New York. The person behind the incident wasn’t put behind bars even with the massive destruction he had done since there was still no law regarding internet crimes in the Philippines. How much more on internet taxation? (Mirasol, 2013). As Muscovitch branded e-commerce as “a new international trade route,” tax laws should be modified in order to attend to the new scheme of activities occurring online (Adam, Dogramaci, Gangopadhyay, & Yesha, 1999, p.152). One of our interviewees, Richard Oquendo (2013), asserted that the prevailing reason of the BIR for not yet taxing e-retailers is because of the difficulty in tracing their presence. As what he said, even without the proposed bill, as long as there is a program coming from the national office, the BIR can rightly go after the online sellers because there is already enough evidence of the said activity by just printing online advertisements and products posted. The BIR has come upon the “Oplan Kandado” program whereby they can automatically close businesses that have not complied the registration uphold by the BIR. Retailers can be punished if they are not able to report their returns due to their avoidance of paying tax or the so called “tax evasion.” The E-commerce Act of the Philippines also exhibits a huge role in helping the government to have an easier collection of tax by subjecting some documents such as invoices, receipts and the like into an electronic format. The absence of sales invoices makes it difficult for the seller to ascertain the sales they have and the equivalent income they are obliged to pay. The Revenue Memorandum Order No. 21-2000 was amended by the BIR for the principles regarding the production of the stated receipts (U, 2002, p. 31). Likewise, TaxCloud, a sales tax software of a Seattle-based company, was made for the e-retailers so they could comply their tax payments without the burden to pay it on their own. In this program, the seller will simply key in the price, state of sale and the zip code as TaxCloud accepts the money in return as it is held responsible to issue the account for it to be divided into the different sectors of the government . So, with the unambiguous rules regarding Internet taxation, retailers’ self-voluntary compliance to pay tax will be established. This will not only help increase the revenue of the government but also to provide general welfare to the businesses. One of our interviewees said, taxation helps the government regulate activities. One particular example is the night clubs. Night clubs cannot be closed because it is not illegal and cannot be banned, however it can only be regulated. So, how does the government regulate these? The government can be strict on implementing taxes even so high taxes like the sin tax bill that gives high taxes to liquor and cigarettes. As a matter of fact, the utmost purpose of the administration is not so much of income generating but to discourage people from engaging into night clubs, illegal activities, producing cigar and liquor. It is one of the means of the government to regulate internet transactions since illegal things or activities are made possible without internet, how much more with the help of it. So, illegal activities are controlled through the imposition of tax (Mirasol, 2013). Although many have opposed on online taxation, it has never hindered the growth of e-commerce because its benefits still overweigh the negative feedbacks. Electronic commerce allows start up and small and medium enterprises to potently compete with huge corporations in the international market. By posting eye-catching pictures of the goods and services, an online seller is still able to encompass the wide scope of the products of huge companies. Online selling also has become globally competent due to the marketing strategies they engage in such as online advertising, discounts, hyperlinks to other web sites and other ad gimmicks. With online advertising, branding is the most desirable benefit. As observed, Amazon willingly spends much of its revenues for publicity because many customers would use brand as a preference over price. These strategies used by e-retailers have given accessibility to consumers and thus gaining a wide market. Due to the convenience offered by the online transactions, a vast number of buyers are able to access several products easily. Most shoppers nowadays especially teenagers are time-sensitive that they tend to look for products on stable firms but buy them through the internet to save time and money. Through the Web, consumers can also do an intensive research about an item, giving them an idea on what they’re dealing with. Additionally, these shoppers are unwilling to waste their efforts just to look for the most affordable piece. Since both are competing for the total consumption of their goods, online sellers can be of the same level with big companies in spite of its one room operation. Basically, as retailers, they endorse most likely the same product and they have matching marketing objectives but one thing is evident: there is an extreme pressure for dropping Internet prices. With the ability of the consumer to search for the most affordable price of an item through the Internet, the old way of pricing strategy has changed which makes the buyer more powerful than the sellers. Aside from the competition between e-retailers and brick and mortar store retailers, there is also an ongoing battle within the online world being dynamically aware of the opponents pricing strategies resulting in a match of who can proffer the lowest price. With the fast-paced trading that is occurring online, high prices are rapidly disregarded. One concrete example is the penetration pricing scheme used by America Online in levying low prices for products to acquire a great percentage of total market sales. Despite incurring losses and negative feedbacks, AOL took the risk of pursuing every user they could potentially serve with the thought of building a much bigger number of users. And indeed their strategy never failed. In fact, it is one of the largest internet hub. Internet can also even out small online retailers with big companies because it can’t make any distinction as to a one-room store located in a remotest area or a company in a multistory building. What counts is how these firms operate and how they strategize to go beyond their limits. The main reason of the online community for criticizing the plan is the apprehension that taxation would curb the growth of the country’s sprouting e-commerce. But will it really decline? Definitely not. There was never an incident in the brick and mortar world that they have shut down just because of paying taxes. So, why not create a fair play? It may be a sacrifice for online sellers because surely the number of shoppers would decrease but looking at the bigger picture, it would be a big help in the economic status of the country. One of our interviewee who is an online seller said that even though her customers would decrease, she would still continue her business because she loves her job. In addition, taxation is an economic activity where everybody benefits. When you pay tax, you receive the services you ought to have. It’s simple; It’s just a symbiotic relationship. Therefore, as thoroughly presented, it is right and just that E-commerce taxation is legalized. After all, a law is just a tool and the success and effectiveness of this enactment greatly depends on the people making it and the people following it. Thus, it is possible that while there could be some tax losses at the start, the long run benefits will outweigh it.

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...BASICS OF TAXATION (Income Tax Ordinance, 1984) Updated till Finance Act. 2012 Of all the direct taxes, Income Tax ranks foremost. By nature and heritage, many of us tend to be just “free riders” in the society. We are little emotional and sometimes unreasonable in demanding more and more state services without the mentality to yield our due share to the cost of the exchequer. Tax laws and personnel connected therewith are many often thought to be inimical by the taxpayers. But it’s a reality that to safeguard our existence and interest in the society, every one of us must pay tax according to our abilities to keep the statecraft running. Taxation is not only a major means of public finance but also it plays a crucial role in ensuring a social and economic justice. The incidence of direct taxes Viz. Income-Tax, gift-tax cannot be shifted on others and it has to be borne by the person on whom it is levied. My efforts today will be to enlighten the participants of this course on the different aspects of the direct taxes. We shall confine ourselves to the contents only without going into the details of relevant sections of the laws which can be had from the IT. Ordinance, 1984 as amended from time to time through annual Finance Act. Income-Tax: Income Tax is a dynamic but mostly a practical subject. It is indeed a difficult task to acquire within this short time at least a working knowledge of income tax especially when the laws of it originate from more than one source,......

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Taxation

...The Proposed Salary Income Tax Slab Rates 2011-12 In Pakistan Federal Budget Bill are as follows: 1.   Where the taxable income does not exceed Rs.350,000 0% 2.   Where the taxable income exceeds Rs.350,000 but does not exceed Rs.400,000 1.50% 3.   Where the taxable income exceeds Rs.400,000 but does not exceed Rs.450,000 2.50% 4.   Where the taxable income exceeds Rs.450,000 but does not exceed Rs.550,000 3.50% 5.   Where the taxable income exceeds Rs.550,000 but does not exceed Rs.650,000 4.50% 6.   Where the taxable income exceeds Rs.650,000 but does not exceed Rs.750,000 6.00% 7.   Where the taxable income exceeds Rs.750,000 but does not exceed Rs.900,000 7.50% 8.   Where the taxable income exceeds Rs.900,000 but does not exceed Rs.1,050,000 9.00% 9.   Where the taxable income exceeds Rs.1,050,000 but does not exceed Rs.1,200,000 10.00% 10.   Where the taxable income exceeds Rs.1,200,000 but does not exceed Rs.1,450,000 11.00% 11.   Where the taxable income  exceeds Rs.1,450,000 but does not exceed Rs.1,700,000 12.50% 12.   Where the taxable income exceeds Rs.1,700,000 but does not exceed Rs.1,950,000 14.00% 13.   Where the taxable income exceeds Rs.1,950,000 but does not exceed Rs.2,250,000 15.00% 14.   Where the taxable income exceeds Rs.2,250,000 but does not exceed Rs.2,850,000 16.00% 15.   Where the taxable income exceeds Rs.2,850,000 but does not exceed Rs.3,550,000 17.50% 16.   Where the taxable income  exceeds Rs.3,550,000 but......

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Premium Essay

Taxation

...How would you handle the case and what aspects would you consider in the evaluation of the restructuring? In this essay, I will address why it is in The Group’s main interest to support the Tax Director’s decision about restructuring the company and re-incorporating The Group’s headquarters from US Inc. to the newly incorporated UK PLC, which would be the new holding company. As a result, the distribution functions of European subsidiaries would be centralized in the newly incorporated company based in Switzerland (SWISSCO.) Through identifying and considering all the variables, I will evaluate the restructuring of the company. My conclusion is supported by a number of variables and only applies if all the variables mentioned are considered. As a Chief Financial Officer (CFO) I have to consider all the variables for a restructuring of The Group. I must take into consideration the non-tax and tax risks for re-establishing the headquarters from US Inc. to UK PLC. As a CFO I believe that moving the headquarters to the UK is a good decision because of the following reasons. Non-tax reasons: Economically, the UK has a large presence in relation to profit as it generates approximately 30% of The Group’s overall income. Re-incorporating the headquarters from the US to the UK means that they have an economic reasoning for the shift as they make a large proportion of the company’s income in Europe and specifically in the UK. Also, moving the headquarters to the UK......

Words: 785 - Pages: 4