2. FORMS OF ESCAPE FROM TAXATION
• A. Shifting
• B. Capitalization
• C. Transformation
• D. Avoidance
• E. Exemption
• F. Evasion
3. A. SHIFTING
• process by which tax burden is transferred from statutory taxpayer to another
without violating the law.
• One way of passing the burden of the tax from one person to other (Black’s Law
Dictionary ,supra ). For Example, taxes paid by the manufacturer may be shifted to the
consumer by adding the amount of the tax paid to the price of the product.
• Kinds of Shifting
• 1. Forward shifting- when burden of tax is transferred from a factor of
production through the factors of distribution until it finally settles on
the ultimate purchaser or consumer
• 2. Backward shifting – when the burden is transferred from consumer
through factors of distribution to the factors of production;
• 3. Onward shifting- when the tax is shifted 2 or more times either
forward or backward.
4. B. CAPITALIZATION
• the reduction in the price of the taxed object equal
to the capitalized value of the future taxes which the
purchaser expects to be called upon to pay .
• This refers to the reduction in the price of the taxed
object to the capitalize value of future taxes which the
purchaser expects too be called upon to pay. An
example as the reduction made by the seller on the
price of the Real Estate, in anticipation of the future
tax to be shouldered by the future buyer.
5. C. TRANSFORMATION
• the manufacturer or producer upon whom the tax
has been imposed, fearing the loss of his market if
he should add the tax to the price, pays the tax and
endeavors to recoup himself by improving his
process of production thereby turning out his units
at a lower cost.
• Occurs when the manufacturer or the producer
upon whom the tax has been imposed pays the tax
and endeavor to “recoup” himself/herself by
improving his/her process of production (De Leon,
1991).
6. D. TAX AVOIDANCE
• exploitation by the taxpayer of legally
permissible alternative tax rates or methods of
assessing taxable property or income, in order
to avoid or reduce tax liability.
• The exploitation by the taxpayer of legally
permissible methods in order to avoid or reduce
tax liability. This is also known as “tax
minimization”. An example is exhausting and/or
utilizing all allowable deductions in law to lessen
or reduce the tax burden.
7. E. TAX EXEMPTION
• grant of immunity to particular persons or
corporations of a particular class from a tax
which persons and corporations generally within
the same state or taxing district are obliged to
pay.
• The grant of immunity or freedom from financial
charge, obligation, or burden to which others are
subjected.
8. . GROUNDS FOR TAX EXEMPTION
a) Contract, wherein the government is the
contracting party
b) Public policy
c) Reciprocity
9. . BASIC PRINCIPLES REGARDING TAX EXEMPTIONS
• 1. Exemptions are highly disfavored by law and he who claims an
exemption must be able to justify his claim by the clearest grant of
law.
• 2. He who claims tax exemption should prove by convincing proofs
that he is exempted
• 3. Tax exemptions should be strictly construed against the person
claiming it.
• 4. Taxation is the rule and exemption Is the exception
• 5. Constitutional grant of tax exemptions are self-executing
• 6. In the same way that taxes are personal, tax exemptions are also
personal
• 7. Deductions for income tax purposes partake of the nature of tax
exemptions, therefore deductions should also be construed strictly
against the taxpayer.
10. F. TAX EVASION
• use of taxpayer of illegal or fraudulent means to defeat or
lessen the payment of tax.
• The practice by the taxpayer through illegal or fraudulent
means to defeat or lessens the amount for tax. This is also
known as “tax dodging”. Tax evasion presupposes
malice, fraud, bad faith, or willful intent on the part of taxpayer
(Rep. v. Gonzales, 13 SCRA 633) as in the case of substantial
under declaration of income for four (4) consecutive years (
Perez v. CTA,L-10507). An example is the deliberate and/or
malicious failure to report income to defeat tax liability.
11. . INDICIA OF FRAUD IN TAX EVASION
Indicia of Fraud in tax evasion
• 1. Failure to declare for taxation purposes true and actual
income derived from business for 2 consecutive years;
• 2. Substantial under declaration of income tax returns of the tax
payer for 4 consecutive years coupled with intentional
overstatement of deductions .
