PUBLIC FINANCE
The budget is a plan of what the
What is Public Finance?
Public finance is the management of a
country’s
revenue, expenditures, and debt load
through various
government and quasi-government
institutions. This guide
provides an overview of how public
finances are managed,
what the various components of public
finance are, and how to
easily understand what all the
numbers mean. A country’s
financial position can be evaluated in
much the same way as a
business’ financial statements.
COMPONENTS OF PUBLIC FINANCE
● Tax collection
● Expenditures
● National budget
● Deficit/Surplus
● National budget
Tax collection
Tax collection is the main revenue
source for governments.
Examples of taxes collected by
governments include sales tax, income
tax (a type of progressive tax), estate
tax, and property tax. Other types of
revenue in this category include duties
and
tariffs on imports and revenue from
any type of public services
that are not free.
Budget
government intends to have as
expenditures in a fiscal year. In the
Philippines, for example,
the president submits to Congress a
budget request, the House
and Senate create bills for specific
aspects of the budget, and
then the President signs them into law.
CHANGE THE
DEFINITION
Expenditures
Expenditures are everything that a
government actually spends
money on, such as social programs,
education, and
infrastructure. Much of the
government’s spending is a form of
income or wealth redistribution, which
is aimed at benefiting
society as a whole. The actual
expenditures may be greater
than or less than the budget.
Deficit/Surplus
If the government spends more then it
collects in revenue there
is a deficit in that year. If the
government has less expenditures
than it collects in taxes, there is a
surplus.
National Debt
If the government has a deficit
(spending is greater than
revenue), it will fund the difference by
borrowing money and
issuing national debt. The U.S.
Treasury is responsible for
issuing debt, and when there is a
deficit, the Office of Debt
Management (ODM) will make the
decision to sell government
securities to investors.
Managing Public Finance
Let’s take a closer look at how taxes,
expenditures, and the deficit work.
Next page is a diagram of how the
three are connected, and how the
government determines how much
financing it needs in a given fiscal year.
● Revenue (tax collection)
● Expenditures (National budget)
● Deficit
● Borrowing/debt
Total government revenue or tax
collection is represented by
the blue bar. This is a source of cash
for the government.
Expenditures are a use of cash, and to
the extent that they are
greater than revenue, there is a
deficit.
The difference between revenue and
expenditures is the deficit
(or surplus) that is funded with
national debt.
2020 PHILIPPINE FIGURES
Now that the concept has
illustrated, let’s look at a real public
finance
example with the Philippine
government in 2020.
Revenue was approximately
P1.68trillion(down by 6.8% from last
year’s
P1.8trillion)
Spending was P2.388trillion (23.78%
higher than the Jan to July 2019)
Deficit was P 700.6billion from Jan. to
July (494% higher as compared to
2019)
PUBLIC REVENUE
MEANING OF PUBLIC REVENUE
Government needs to perform political,
social and economic duties so as to
maximize social and economic welfare.
In order to perform these duties and
functions government requires large
amount of resources.
These sources of revenue to the
governments, viz. central , State and
local Governments, are called Public
Revenues.
THE MAIN CHARACTERISTIC OF A
TAX ARE AS FOLLOWS:
● A tax is a compulsory payment ●
There is no direct, quid pro quo
between the tax-payers and the
public authority.
● A tax is levied to meet public
been spending incurred by the
 government in the general
interest of the nation. PUBLIC REVENUE - tax revenue,
● It is a payment for an indirect non-tax revenue.
service to make by the TAX REVENUE - direct tax, indirect
government to the community tax.
as a whole.
● A tax is payable regularly and TAX REVENUE
periodically as determined by
the taxing authority. Tax is a compulsory contribution of the
wealth of a person that is to say, it
CLASSIFICATION OF TAXES involves a sacrifice on the part of the
contributor.
ON THE BASIS OF FORM - direct
tax, indirect tax. Tax revenue is the income gained by
ON THE BASIS OF NATURE - income governments through taxation.
tax, property tax, taxes on production,
taxes on consumer goods, tax on DIRECT TAX
capital goods.
ON THE BASIS OF VOLUME - single ● Direct tax is a tax imposed and
tax, multiple tax. collected directly from person on
ON THE BASIS OF ESSENCE - whom it is legally imposed.
advolrem tax, specific tax. ● The burden of it falls on one
ON THE BASIS OF METHOD - person and cannot be shifted to
proportional tax, progressive tax, another person.
regressive tax, deregressive tax. ● Income tax, wealth tax,
corporate tax, capital gains tax,
SOURCES OF PUBLIC REVENUE estate duty are direct taxes.
MERITS OF DIRECT TAX
The government derives revenue in ● Economy
different ways from the public, the ● Equity
common method of raising the ● Elasticity
resources are taxes, prices, fess, fines ● Easy to understand
and penalties, gifts, grants, special ● Reduction in inequality
assessment. ● Certainty

Generally, tax revenue and non-tax

revenue are considered as the sources DEMERITS OF DIRECT TAXES
of government revenue. But in a ● Inconvenience
broader sense, the government also
● Unpopular
receives revenue from foreign aid.
● Possibility of evasion
● Non suitable to underdeveloped
 economies
● Disincentive to work and save
INDIRECT TAX
● Indirect tax is collected by an
intermediary from the person
who bears the ultimate burden.
● As indirect tax is one that can be
shifted by the taxpayer to
someone else.
● Value Added Tax (TAX), customs
and octroi duties, excise duty,
professional tax, municipal tax,
entertainment tax, etc. are
indirect taxes.
MERITS OF INDIRECT TAXES
● Convenience
● No possibility of evasion
● Equity
● Elastic
● Wider coverage
● Easy to collect
DEMERITS OF INDIRECT TAXES
● Inflationary
● Discourage savings
● Uncertainty
● Regressive character
DIREC TAXES
● It is levied on income and
activities conducted.
● The burden of tax cannot be
shifted in case of direct tax.
● It is paid directly by person
concerned.
● It is paid after the income reaches CONLCUSION
in the hands of the taxpayer
● Tax collection is difficult.
● Example income tax, wealth tax according to the ability of the end
etc.
INDIRECT TAXES
● It is levied on product or services.
● The burden of tax shifted for
indirect taxes.
● It is paid by one person but he
recovers the same from another
person i.e. person who actually
bear the tax ultimate consumer.
● It is paid before goods/service
reaches the taxpayer.
● Tax collection is relatively easier.
● Example GST, excise duty custom
duty sale tax service tax
NON-TAX REVENUE
Non tax revenue is the recurring
income earned by the government
from sources other than taxes.
It arises on account of administrative
function of the government. These are
incomes which the government gets in
the form of interest, dividend, profit,
fees, fines, and external grants as
explained below.
● FEES
● FINES & PENALTIES
● FORFEITURES
● PRICE
● ESCHEATS
● GIFTS AND GRANTS
● BORROWINGS
● PRINTING OF PAPER MONEY
Direct and indirect taxes are defined
taxpayer to shift the burden of taxes to
someone else. Direct taxes allow the
government to collect taxes directly
from consumers and is a progressive
type of tax, which also allows for
cooling down of inflationary pressure
on the economy. Indirect taxes allow
the government to expect stable and
assured returns and brings into its fold
almost every member of the society -
something which the direct tax has
been unable to do.
Both direct and indirect taxes are
important for the country as they are
intricately linked with the overall
economy. As such, collection of these
taxes is important for the government ESSENTIAL CHARACTERISTICS OF TAX
as well as the well-being of the
country. Both direct taxes and indirect
taxes are collected by the central and
respective state governmments
according to the type of tax levied.
Introduction to Taxation
Taxation
● System of raising money to finance
government.
● All governments require payments
of money-taxes-from people.
● Governments use tax revenues to TYPES OF TAXES IN THE PHILIPPINES
pay soldiers and police, to build
dams and roads, to operate schools
and hospitals, to provide food to
the poor and medical care to the
elderly, and for hundreds of other
purposes. Without taxes to fund its
activities, government could not
exist.
● Taxation is the most important
source of revenues for modern
governments, typically accounting
for 90 percent or more of their
income.
CONCEPT OF TAXATION
● Taxation is the inherent power of
the state to impose and demand
contribution upon persons,
properties, or right for the purpose
of generating revenue for public
purposes.
● Taxes are enforced proportional
contributions from persons and
property levied by the lawmaking
body of the state by virtue of its
sovereignty for the support of the
government and all public needs.
1. It is an enforced contribution
2. It is generally payable in money
3. It is proportionate in character,
usually based on the ability to pay
4. It is levied on persons and property
within the jurisdiction of the state
5. It is levied pursuant to legislative
authority, the power to tax can only
be exercised by the law making
body or congress
6. It is levied for public purpose
7. It is commonly required to be paid
a regular intervals.
- There are many different kinds of
taxes in the philippines. But we can
group them into two basic types,
namely, national taxes and local
taxes. National taxes are those
that we pay to the government
through the Bureau of Internal
Revenue.
NATIONAL TAXES
- National taxation is based on the
National Internal Revenue Code of
 1997 or the Republic Act No. 8424
otherwise known as the Tax Reform
Act of 1997, as amended. The
import and export tariffs levied by
the Bureau of Customs under
Republic Act No. 1937 otherwise
known as the tariffs and customs
code of the philippines (as
amended) can also be considered
as national government taxes or
duties.
- Capital gains tax is a tax imposed
on the gains presumed to have
been realized by the seller from the
sale, exchange, or other disposition
of capital assets located in the
philippines, including pacto de retro
sales and other forms of conditional
sale.
- Documentary stamp tax is a tax
on documents, instruments, loan
agreements and papers evidencing
the acceptance, assignment, sale or
transfer of an obligation, rights, or
property incident thereto. Examples
of documentary stamp tax are
those that are charged on bank
promissory notes, deed of sale, and
deed of assignment on transfer of
shares of corporate stock ownership LOCAL TAXES
- Value added tax is a business tax
imposed and collected from the
seller in the course of trade or
business on every sale of properties
(real of personal) lease of goods or
properties (real or personal) or
vendors of services. It is an indirect
tax, thus, it can be passed on to
the buyer, causing this to increase
the prices of most goods and
services bought and paid by
consumers.
- Excise tax is tax imposed on
goods manufactured or produced in
the philippines for domestic sale or
consumption or any other
disposition. It is also imposed on
things that are imported.
- Expanded withholding tax is a
kind of withholding tax which is
prescribed only for certain payers
and is creditable against the income
tax due to the payee for the taxable
quarter year. Examples of the
expanded withholding taxes are
those that are withheld on rental
income and professional income.
- Final withholding tax is a kind of
withholding tax which is prescribed
only for certain payers and is not
creditable against the income tax
due of the payee for the taxable
year. Income tax withheld
constitutes the full and final
payment of the Income tax due
from the payee on the said income.
Ax example of final withholding tax
is the tax withheld by banks on
interest income earned on bank
deposits.
- Professional tax an annual
professional tax on each person
engaged in the exercise or practice
of his profession requiring
government examination.
- Amusement tax tax collected
from the proprietors, lessees, or
operators of theaters, cinemas,
concert halls, circuses, boxing
stadia, and another places of
amusement.
- Tax on transfer of Real Property
 Ownership tax imposed on the
sale, donations, barter, or on any
other mode of transferring
ownership or title of real property.
- Tax on Business of Printing and
Publication tax on the business of
persons engaged in the printing
and/or publication of books, cards,
posters, leaflets, handbills,
certificates, receipts, pamphlets,
and others of similar nature.
- Franchise Tax tax on businesses
enjoying a franchise, at the rate not
exceeding fifty percent (50%) of
one percent (1%) of the gross
annual receipts for the preceding
calendar year based on the
incoming receipt, or realized, within
its territorial jurisdiction.
- Tax on Sand, Gravel and Other
Quarry Resources tax imposed on
ordinary stones, sand, gravel, earth
and other quarry resources, as
defined under the National Internal
Revenue Code, as amended,
extracted from public lands or from
the beds of seas, lakes, rivers,
streams, creeks, and other public
waters within its territorial
jurisdiction.
- Annual Fixed Tax For Every
Delivery Truck or Van of
Manufacturers or Producers,
Wholesalers of, Dealers, or
Retailers in, Certain products
- Tax on Business taxes imposed
by cities, municipalities on
businesses before they will be
issued a business license or permit
to start operations based on the
schedule of rates prescribed by the
local government code, as
amended. Take note that the rates
may vary among cities and
municipalities. This is usually what
businesses pay to get their
Business Mayor’s Permit.
- Fees for Sealing and Licensing
of Weights and Measures fees
for the sealing and licensing of
weights and measures at such
reasonable rates as shall be
prescribed by the sangguniang
bayan of the municipality or city.
- Fishery Rentals, Fees and
Charges rentals, fees or charges
imposed by the municipality/city to
grantees of fishery privileges in the
municipal/city waters, e.g., fishery
privileges to erect fish corrals,
oysters, mussels or other aquatic
beds or bangus fry areas and
others as mentioned in the local
government code, as amended.
- Taxes that may be levied by the
barangays on stores or retailers
with fixes business
establishments with gross sales
of receipts of the preceding
calendar year of fifty thousand
pesos (50,000.00) or less, in the
case of cities and thirty thousand
pesos (30,000.00) or less, in the
case of municipalities, at a rate not
exceeding one percent (1%) on
such gross sales or receipts
- Service Fees or Charges fees or
charges that may be collected by
the barangays for services rendered
in connection with the regulations
or the use of barangay-owned
properties or service facilities, such
as palay, copra, or tobacco dryers.
- Community Tax tax levied by
 citied or municipalities to every
inhabitant of the philippines
eighteen (18) years of age or over
who has been regularly employed
on a wage or salary basis for at
least thirty (30) consecutive
working days during any calendar
year, or who is engaged in business
or occupation, or who owns real
property with an aggregate
assessed value of One thousand
pesos (1,000.00) or more, or who
is required by law to file an income
tax return.
- Barangay Clearance a reasonable
fee collected by barangays upon
issuance of barangay clearance - a
document required for many
government transactions, such as
when applying for business permit
with the city or municipality
References:
Bureau of Internal Revenue, Department
of Republic Act No. 8424 (as amended),
and Republic Act 7160 (as amended),
Republic Act No. 1937 (as amended. )