i. Shifting of Tax Burden

a. Shifting of tax burden

The economic burden of a tax is passed from the statutory taxpayer to another person without transferring the statutory taxpayer’s legal liability.

Ways of shifting the tax burden (FBO):

• Forward shifting: The transfer of burden from the producer to distributor until it finally reaches the ultimate purchaser or consumer
• Backward shifting: The reverse of forward shifting, e.g. the manufacturer has agreed to buy the supplier’s product only if the price is reduced by the amount of tax
• Onward shifting: The tax burden is shifted twice or more either forward or backward

Taxes that can be shifted

• VAT
• Percentage tax
• Excise tax on excisable articles
• Specific excise taxes on petroleum products paid upon removal from the place of production (NIRC, Secs. 129 and 148, as amended)

Meaning of impact and incidence of taxation

• Impact of Taxation – point on which the tax is originally imposed or the one on whom the tax is formally assessed.
• Incidence of Taxation – point on which the tax burden finally rests or settles down.

Example: VAT is originally assessed against the seller who is required to pay the said tax, but the burden is actually shifted or passed on to the buyer.

It is important to know where the impact of taxation lies (i.e. who the statutory taxpayer is) because it will generally determine:

• The proper party to claim a refund of erroneously imposed indirect taxes; and
• Whether the indirect taxes can be passed on to an exempt buyer.