Public Finance and the Philippine Tax System

• These are concise study notes related to public and private finance, public expenditures, the Philippine tax system and economic impacts

Public Finance Fundamentals

• Public finance examines the government's role in the economy and its financial operations.
• Finance involves money, resources, or revenue, reflecting an individual's or a group's resources.
• Public finance studies government finances and economic intervention.

Government Intervention in the Economy

• Governments intervene due to market failures like inefficiencies in market outcomes.
• Redistribution aims to shift resources among societal groups.
• Intervention methods include taxing, subsidizing, public good provision, and regulating private sales.
• Government interventions have direct and indirect effects, influencing individual behavior.
• Political economy studies how political processes affect individual and economic decisions.

Scope of Public Finance

• Public debt is a common way for governments to obtain income by raising loans, considered capital income.
• Public revenue can include income from taxes, fees, assessments and borrowings to classify as taxes.
• Public expenditures determine the allocation of state revenue.
• Financial administration examines the processes of public expenditure, revenue, and debt.

Government Tools and Regulations

• Regulations, requiring little financing, are used to allocate resources, stabilize economies, and redistribute income.
• Conscription involves governments appropriating time/work from individuals.
• Governments own assets (land, buildings, resources).
• Contingent liabilities are implicit liabilities needing governmental attention.
• Timing maneuvers are used by governments to delay payments as needed.
• Fines and fees are ways for governments to raise revenue.
• Maturity of public debt changes can reduce borrowing costs and promote objectives

Tax System

• Tax amnesties can raise short-term revenue but they may reduce long-term revenue.
• Appeals to patriotism can assist governments facing financial crises.
• Privatization uses private enterprises/consultants for government functions.
• Rationing and price controls can allocate scarce goods and regulate prices during emergencies.
• Both individual and government financial management involves resources.
• Individual and government has to spend money to get advantage or maximise advantage

Public vs. Private Finance

• Private finance looks at personal needs being satisfied.
• Public finance ensures needs like welfare.
• Public and Private finance balances both income and expenditures of each other
• Both private and public finance need efficient management and administration.
• Public authorities adjust income based on expenditures
• Individual budgets framed for short term and government for long term
• Sources for individual income is limited whereas public have enourmous sources
• Private are constrained but public do not have restrictions
• All borrowings of individuals are external and governments can borrow internal and external
• Governments can manipulate money, individuals cannot
• Private fincance is micro and public is macro
• Public authorities collect tax revenue compalsorily where individuals cannot force for revenue
• Individuals benefit from surplus, government budget may cause negative opinions.
• GOvernments must publish statements of income, and individuals have privacy

Purpose and Objectives of Taxation

• Taxation provides funds for the state to promote welfare and protection.
• Taxation has regulatory power.
• There is promotion of general welfare for the people.
• Taxations reduced social inequality by preventing wealth to concentrate in wealthy.
• Taxation helps with economic growths
• Taxation helps with trade activities

Philippine Tax Policies

• The taxation policy in the Philippines is mainly governed by the following tax
• The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act)
• Tax Reforms for Acceleration and Inclusion (TRAIN) Law
• Article VI, Section 28 of the Constitution
• The National Internal Revenue Code
• Local Government Code of 1991

Types of Taxes

• National taxes are collected by the national government and local taxes are collected locally
• There are income tax, VAT, excise tax, percentage tax and capital gains tax
• National government has power to imposed, local must be followed

Types of Taxpayers

• Taxpayer types are resident citizens, non-resident citizens, foreigners.
• Tax liability varies with income source and residency status.

Principles of Taxation

• The lifeblood doctrine says that taxation is essential for government operation and public services.
• The necessity theory states that taxation sustains the government.
• The symbiotic theory emphasizes mutual dependence between government and citizens.
• The social contract theory requires citizens to consent to taxation.

Canons of a Sound Tax System

• Tax revenue will be allocated toward general programs like education and healthcare.
• The tax system has to be flexible and ensure that the government can fund public services without excessive deficits
• The tax system must be simple and easy to administer and minimise coasts

Uniformity, Progressivity and Equity in Tax

• The tax must be fair
• those who have greater financial capacity should contribute more to public funds
• The tax system must apply equally to everyone and same for income levels
• Philippine tax system follows a progressive income taxation system.

Major Classes of Tax

• Major classes of tax are taxes on income, property, and domestic goods/services.

Government Revenue

• Government revenue refers to all cash inflows coming into an economy.

Non Revenue Tax

• All tax that imposed on the impositions or collections by government

Current Operating Expenditures

• Expenses being paid on salaries, wages, allowance and social security

Non Taxable and other Revenue

• Either employees pay on behalf of themselves, self- employed or unemployed
• Includes grants non compsulsory currents
• Government is not allowed to classify for rent

Key Functions in the Economy

• Taxation helps promotes the General Welfare of Citizens
• Taxation has a regulatory power as in cases levied on exercises or privileges.
• Taxation prevents wealth from concentrating, reducing social inequality.
• Purpose to grant incentives or exemptions to encourage investments and thereby promote the country's economic growth

Public Expenditures

• This are the expenditure to have wants
• Are made for maintainance

Canons of Expenditures

• Helps with spending policy for government
• Is an economy
• According to benfits
• helps to avoid
• Should support the economy and should have benefit

Types and trends of Expenditures

• Public expenditures are allocated at Capital Expenditure, and Revenues and transfers.
• Governemnt spending decreasded a bit with trend
• Government can increase from allocations