Direct taxes are those that cannot be shifted to another but are borne by those liable to pay
them. Direct taxes are computed on the basis of the taxpayer's income or personal assets so
that those with greater income pay a larger tax. Since direct taxes cannot be shifted to other
taxpayers, these do not tend to increase the prices of consumer goods and services and are, in
principle, more effective in achieving equality in society. ln practice, however, the effectiveness
of direct taxation in achieving equality may not be readily apparent, particularly when non-wage
income (business income, professional income, interest income, etc.) is hardly taxed. ln this
situation, wage earners pay their taxes, while businessmen and other professionals do not.
This is the case in the Philippines, where "otficial statistics show that an increasing share of
personal income taxes is accounted for by fixed income earners rather than by professionals
and businessmen." (Diokno, 2005)
"Greater reliance on direct taxes, especially on individual income taxes, increases the sense of
fairness of any tax system." (Diokno, 2005)
lndirect taxes are those paid by persons other than the one on whom the tax is legally imposed.
Persons liable for indirect taxation may shift or transfer their ta,x burden to others as part of the
purchasing price of a commodity or part of compensation for services rendered. Thus all
buyers of the same product or service pay exactly the same rate and amount of tax regardless
of differences in their incomes. But indirect taxation can increase inequality in society. This is
because when those who live in povefty pay the same amount of taxes as the rich, they are
actually paying proportionately more taxes than the rich are; the indirect tax is a bigger share of
their income, and they have less to spend for their needs than the rich do. lndirect taxes also
tend to increase the prices of consumer goods and services.
"Neo liberal economists traditionally hold that taxation distorts markets and obstructs their
ability to allocate resources efficiently. lt has become evident, however, that markets do not
always or naturally allocate resources fairly. The persistent rise in inequality in recent years,
both within and between countries, illustrates this and demonstrates the inadequacy of existing
tax systems to correct the bias that market-led economic policies have created. lncreasing tax
competition to attract foreign direct investments has caused a dramatic change in the structure
of tax systems. Many governments have tended to increase indirect taxes ... while reducing
progressive income tax rates. As a result, the tax burden on the wealthiest has fallen and in
many countries so have tax revenues ..." (lnternational Council on Human Rights Policy, 2010)
Philippine taxes programmed for fiscal year 2013 show that the country will continue to rely on
both direct and indirect taxation as its main sources of taxation revenues.
2011
Direct Taxes
lndirect Taxes
from
lnternational
and
Transactions
Taxes
Trade
Total
Percent
574,296
583,058
44,712
1,202,066
2012
Percent
2013
Percent
48%
673,771
47o/o
789,178
48%
49o/"
688,049
48o/"
783,O14
47"/"
4%
65,607
5o/o
79,065
5o/o
100%
1,427,427
lOOo/o
1,651,257
1AO/o
Source: Table C.1, "Revenue Program, By Source, 201 1-2013," Department of Budget and Management, Budqet of Expenditures
and Sources of Financino, FY2013.
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