Fiscal Administration: Budgeting and Taxation

• Budgeting in fiscal administration involves planning, allocating, and managing government financial resources to achieve economic and social goals.
• The budgeting ensures the government can efficiently implement its programs while maintaining fiscal discipline.

Key Concepts in Budgeting

• Budgeting process involves preparation, authorization, execution, and accountability of government funds.
• A public budget is a tool for allocating financial resources to meet economic and social goals.

Philippine Tax System

• The Philippine tax system refers to the structure and methods used by the government to collect taxes from individuals, businesses, and other entities.

Taxation Principles

• The principles of taxation guide how taxes should be designed to ensure fairness, efficiency, and effectiveness.
• Certainty in taxation requires a clear and predictable system, ensuring taxpayers know how much they owe, when to pay, and where to pay.
• Convenience in tax collection means the method should be easy and convenient for taxpayers.
• Efficiency in the tax system minimizes economic distortions and avoids discouraging work or investment.
• Equity in taxation includes horizontal equity, where taxpayers with similar financial capacity pay the same amount of tax.
• Equity also includes vertical equity, where higher-income individuals contribute more taxes through progressive taxation.
• Flexibility in the tax system means it should be adaptable to economic and social changes.
• Simplicity in a tax system reduces administrative costs and tax evasion.
• Transparency ensures citizens understand how taxes are levied, collected, and used.
• Progressive taxes require people with higher incomes to pay a larger proportion of their earnings in taxes.
• Regressive taxes result in lower-income individuals bearing a heavier tax burden compared to high-income individuals.
• Proportional taxes require all taxpayers to pay the same percentage of their income or wealth, regardless of how much they earn.

BIR (Bureau of Internal Revenue)

• BIR collects national taxes such as income tax, VAT, and excise tax and conducts tax audits and investigations.

BOC (Bureau of Customs)

• BOC collects customs duties on imports and prevents smuggling and tax evasion on imported goods.

Taxpayers' Rights and Obligations

• Taxpayers have the right to be informed with clear information on tax laws.
• Taxpayers have the right to due process, ensuring disputes are handled fairly.
• Taxpayers have the right to confidentiality, protecting personal and financial data.
• Taxpayers have the right to refunds for overpaid taxes.

Types of Taxes

• National taxes are levied by the National Government.
• Direct taxes are paid directly by individuals or businesses.
• Income tax for individuals is a progressive tax imposed on employees, self-employed professionals, and business owners.
• Corporate income tax is levied on businesses at a standard rate of 25%, with lower rates for smaller corporations.
• Estate tax is imposed on the transfer of a deceased person's estate, with rates ranging from 5% to 20% based on the net estate value.
• Donor's tax is levied on gifts or donations given during a person's lifetime, with rates ranging from 2% to 15% depending on the amount.
• Withholding tax is collected at the source before payment is made.
• Expanded withholding tax (EWT) is imposed on income payments other than salaries.
• Final withholding tax (FWT) is applied to final income payments, such as interest from bank deposits.
• Indirect taxes are passed on to consumers as part of the price of goods/services.
• Value-added tax (VAT) is a 12% consumption tax on the sale of goods and services; some items are VAT-exempt or subject to lower rates.
• Excise tax is imposed on the production, sale, or use of specific goods like alcohol, tobacco, and fuel, and can be specific (fixed amount per unit) or ad valorem (percentage-based).
• Documentary stamp tax (DST) is applied to documents, instruments, loan agreements, and other paper-related transactions.
• Percentage tax is for businesses with annual gross sales below 3 million, at a 3% tax on gross receipts of small businesses.
• Customs duties are taxes imposed on imported goods, calculated based on value or quantity.
• Local taxes are levied by Local Government Units (LGUs)
• Real property tax (RPT) is levied on land, buildings, and other real estate properties based on assessed value.
• Business tax is imposed on businesses operating within a city or municipality.
• Professional tax is paid by professionals (e.g., doctors, lawyers, accountants) based on their income.
• Amusement tax is charged on entertainment establishments like cinemas, concerts, and sports events.
• Franchise tax is applied to businesses with government-granted franchises.
• Tax on transfer of real property ownership is levied on the sale or transfer of real estate.
• Sugar tax is P6 per liter on sweetened beverages like soft drinks and bottled teas.
• Travel tax is imposed on Filipino citizens traveling abroad, with rates varying based on travel class and destination.

Classification of Public Expenditure

• Public expenditure is government spending to promote national development, categorized by purpose, function, economic impact, and funding source.
• Classification by purpose includes capital expenditure, which are investments in infrastructure and long-term assets like roads, bridges, and schools.
• Current expenditure includes recurring operational expenses like salaries, office maintenance, and utilities.
• Transfer payments are government disbursements that do not result in direct production, such as social security, subsidies, and pensions.
• Classification by function includes social services, which are expenditures on education, healthcare, and housing programs.
• Economic services are investments in agriculture, industry, and infrastructure to boost economic development.
• General public services are administrative costs, salaries of government employees, and operating expenses.
• Defense and security include funding for military, police, and national defense operations.
• Classification by economic impact includes productive expenditure, which contributes to long-term economic growth, such as funding for education, infrastructure, and business development.
• Non-productive expenditure does not directly generate income, such as government administration and debt servicing.
• Classification by source of funding includes tax-financed expenditure, which is spending funded through government revenue collection.
• Debt-financed expenditure is spending covered by borrowing from domestic or foreign sources.
• Foreign aid or grants are government expenditures funded by international organizations or foreign countries.
• Special categories of public expenditure include public-private partnerships (PPP), which are collaborative projects.
• Climate change expenditure (CCE) is spending aimed at disaster preparedness, environmental sustainability, and mitigation of climate-related risks.

Zero-Based Budgeting (ZBB)

• Zero-Based Budgeting is a budgeting method where all expenses must be justified from zero, ensuring only necessary programs are funded.
• It requires detailed evaluation of all budget items before approval.
• It helps eliminate unnecessary spending and prioritizes essential projects.
• It is time-consuming and complex due to the need for full cost analysis.
• Commonly used during fiscal crises or when governments need to control spending.
• It encourages more responsible allocation of public funds.

Performance-Informed Budgeting (PIB)

• Performance-Informed Budgeting links funding to measurable performance outcomes, ensuring expenditures are based on effectiveness.
• It emphasizes results and impact rather than just how much was spent.
• It encourages accountability and transparency in government spending.
• It is used to improve service delivery and efficiency in public programs.
• Unlike ZBB, PIB considers past budgets but focuses on performance.
• It helps governments allocate funds to programs that provide the best public benefits.

Medium-Term Expenditure Framework (MTEF)

• Medium-Term Expenditure Framework is a multi-year budgeting framework providing a 3- to 5-year outlook for government expenditures.
• It ensures financial stability and alignment with national priorities.
• It ensures long-term fiscal planning and discipline.
• It reduces uncertainty by making government spending more predictable.
• It helps balance short-term and long-term financial needs.
• It is used to ensure consistent funding for priority programs.
• It supports economic stability by preventing sudden shifts in budget priorities.
• It ensures that budgets are based on realistic revenue forecasts.
• It helps governments manage debt more effectively by planning expenditures over multiple years.
• It prevents over-spending by imposing budget limits for the medium term.

Public Expenditure Management (PEM)

• Public Expenditure Management focuses on how government funds are allocated and spent efficiently.
• It ensures that expenditures align with policy priorities and are cost-effective.
• It primarily deals with budget execution, expenditure control, and monitoring public spending.
• It involves agencies such as the Department of Budget and Management (DBM) and Commission on Audit (COA).

Public Financial Management (PFM)

• Public Financial Management covers the entire financial management process, from revenue collection to auditing.
• It ensures fiscal discipline, transparency, and efficiency in managing public resources.
• It includes tax administration, public debt management, procurement, and financial accountability.
• It involves multiple agencies such as DBM, Department of Finance (DOF), Bureau of the Treasury (BTr), and Bureau of Internal Revenue (BIR).
• PEM only looks at government spending and making sure it is done properly, focusing on budget execution, expenditure control, and ensuring cost-effectiveness.
• PFM focuses on revenue collection (taxes), financial accountability, procurement, and auditing.
• PFM covers the whole financial system, including how the government earns, borrows, spends, and audits money.

Members of the Development Budget Coordination Committee (DBCC)

• Department of Budget and Management (DBM) is responsible for resource allocation and budget management.
• Department of Finance (DOF) handles revenue generation and debt management.
• National Economic and Development Authority (NEDA) oversees overall macroeconomic policy and planning.
• Office of the President (OP) provides presidential oversight on budget matters.
• Bangko Sentral ng Pilipinas (BSP) advises on monetary policies related to fiscal management.

Key Agencies of Public Financial Management (PFM)

• Congress reviews, approves, and oversees the national budget.
• Department of Budget and Management (DBM) prepares the national budget and ensures fund releases align with government priorities.
• Bureau of Treasury (BTr) manages government cash flow, borrowing, and public debt.
• Commission on Audit (COA) audits government agencies to ensure proper use of public funds.
• Department of Finance (DOF) oversees revenue generation, tax policies, and debt sustainability.
• Local Government Units (LGUs) handle local budgets and development projects, especially after the Mandanas-Garcia Ruling.
• Government Procurement Policy Board (GPPB) implements procurement reforms for transparency.
• National Economic and Development Authority (NEDA) aligns budget planning with economic development goals.

Reasons for Public Debt

• To finance development plans for infrastructure, agriculture, and industrial projects.
• To fund public enterprises that provide essential services for government.
• To expand education and health services.
• To finance defense and war efforts.
• To establish a welfare society through social programs and subsidies.
• To manage government cash flow by covering expenses before tax revenues are collected.
• To maintain public approval, governments sometimes borrow instead of raising taxes.

Budget Process

• Budget preparation involves determining financial priorities and revenue projections, with the DBM issuing guidelines, agencies submitting proposals, and proposals being reviewed and consolidated.
• Budget authorization is the approval process where Congress deliberates and enacts the budget, including hearings, reconciliation of versions, and presidential approval.
• Budget execution is the phase where government agencies implement their approved budgets through fund releases and program implementation, with financial reports being submitted.
• Budget accountability is the evaluation process to ensure responsible financial management, including COA audits, agency financial reports, and oversight body reviews.