THE ROLE OF GOVERNMENT IN THE ECONOMY

ASSESSING THE AWARENESS OF PEOPLE IN PHILIPPINE TAXES AS PART OF

THE ROLE OF THE GOVERNMENT IN THE ECONOMY
Kris Anne F. Malicdem, CPA, Florinda G. Vigonte, Ph.D.,
Marmelo V. Abante, Ph.D, DIT, MBA
World Citi Colleges, Graduate School Department
960 Aurora Boulevard, Bagumbuhay, Quezon City

ABSTRACT
The government's engagement in the economy is required because the private sector cannot
meet some duties and obligations. Governments are responsible for directing and guiding the
country's economic activity. In addition, it must ensure constant growth, substantial employment,
and price stability. Governments must also modify tax rates and spending to boost or hinder
economic growth. The study aims to evaluate one of the government's financial duties, income
redistribution through taxation, and to develop an information dissemination campaign for
Filipinos. PRISMA was employed in the study to obtain and communicate information about
awareness. According to the findings, approximately 26 million Filipinos pay taxes out of a total
population of 100 million, and a public awareness initiative is required to understand the
significance of taxation. The importance of taxes should be highlighted because they contribute
to building up the nation. Every nation's lifeblood is taxation; without it, the government cannot
function. As citizens, we contribute to these efforts' success by paying income taxes, which
allows the government to work on new social schemes and programs.

Keywords: Economy, Government, Philippine Taxes, Redistribute Income, Tax Awareness

INTRODUCTION
Government has an essential role in every nation; without a strong government, society
will collapse. There are six significant roles of government in market economies as identified by
economists, which are the following: government (1) maintains legal and social framework, (2)
maintains competition, (3) provides goods and services, (4) manages externalities, (5) stabilizes
the economy, and (6) redistribute income (Aftrica et al., 2023).

Redistribution of income is the distribution of wealth and income from one member of
society to another (Hadji, 2019). In most cases, this was accomplished through government-
mandated taxation and monetary policy. The government seeks to provide for all of its citizens
through these programs. Taxation is the primary way through which governments redistribute
wealth and income. Through government assistance programs, the government redistributes all
tax revenue to members of society who are in need. Income, purchases of goods and services,
and property ownership can all be subject to these taxes. Businesses must also pay these
taxes.

The income distribution in the Philippines is highly unequal, with more excellent poverty
rates than in other ASEAN countries. Furthermore, while poverty has decreased over time, it
has decreased slower than in other countries, and income inequality has persisted. These
realities result from historically weak economic growth, partly due to inadequate policies and
previous failures to overcome structural hurdles to a more equitable income distribution. Despite
recent reforms, it will likely take some time to undo the effects of previous policies (IMF, 2016).
Furthermore, greater inequality may lead to a loss of trust in the government and its ability to
implement policies that benefit the many rather than the few. Government's capacity to level the

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THE ROLE OF GOVERNMENT IN THE ECONOMY

playing field for everyone by ensuring equal opportunity and a basic standard of living is crucial
to preventing social unrest and encouraging well-being.

Collecting development financing through tax revenue presents a significant challenge.

This is one of the issues in Indonesia where there still needs to be a higher level of awareness
and tax compliance in Indonesian society. According to the OECD Tax Ratio data in the
Revenue Statistics in Asian Countries 2015: Trends in Indonesia, Malaysia, and the Philippines,
the tax ratio in Indonesia remains around 13%, while the Philippines is 16%, Malaysia is 17%,
and many countries have reached 34% (Said, L.2018).

Hence, the purpose of this literature review is two-fold, 1) to assess the awareness of
Filipino people in the role of taxation in economic growth, and 2) to inform individuals about the
importance of taxes in the nation.

The contribution of this review will draw the public's attention to how the government
redistributes revenue, as well as how taxes as a government method contribute to the
strengthening of our society.

METHODOLOGY

The Preferred Reporting Items for Systematic Reviews and Meta-Analyses, or PRISMA,
a flow diagram that describes the flow of information through the several phases of a systematic
review, was utilized in this analysis of related literature. Figure 1 shows the number of records
found, included, and excluded, as well as the reasons for exclusions. (PRISMA, 2020).

The researcher identified the review's objectives. Google Scholar was used to search for
and collect pertinent information through web searches. The information used in the research
was obtained from publications published by its contributors while doing their research.
The researcher gathered information on Filipino people's awareness of taxation's role in
economic growth through documentary analysis, published and readily available online.

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THE ROLE OF GOVERNMENT IN THE ECONOMY

Figure1. Prisma flow diagram

RESULTS AND DISCUSSION

Assessing the awareness of the role of taxation in the economic growth

Economic growth is an increase in an economy's capacity to create goods and services

from one period to the next. Governments bear the task of providing specific basic infrastructure
for citizens. A government's critical responsibilities to its citizens include economic stabilization,
income redistribution, and the provision of financial services.

The importance of taxation in an economy cannot be overstated. However, this can only
be accomplished if the country develops and implements a tax policy to mitigate the stated

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THE ROLE OF GOVERNMENT IN THE ECONOMY

problems with its tax system. If taxation is to contribute to economic progress, it must be
efficient and effective, and accountable to revenue agencies and the government. In general,
taxes should be few, broad-based, and revenue-generating. They should also be adaptable
enough to allow for changes in economic circumstances to be easily absorbed into the tax
system (Nwafor, 2020).

Variables such as gender, age, position, and number of years in the establishment all
impacted the knowledge about the subject under research. In contrast, the study anticipated
that participants' educational attainment would influence their tax awareness. Furthermore,
research revealed that educational attainment, penalties, and tax awareness are statistically
significant predictors of tax compliance (Paco, 2022).

Building tax awareness is a challenging and fast job. Tax awareness should be instilled
from an early age through education and occur on an ongoing basis from time to time. Tax
awareness should be the character of the nation's generation as part of the love of the country
and defend the country. Tax awareness should be a culture of citizens in the future to realize a
prosperous and independent Indonesian nation. She suggested in her study the inclusion of Tax
awareness in Higher Education (Said, L.2018).

Based on the statistics that the Statistical Research Department issued on August 10,
2022, an estimated 26. 8 Million Filipino people are classified as individual taxpayers
(statistica.com, 2021). This is a large discrepancy in the total adult population of the
government; thus, there may be a need for more awareness of where these taxes go.

Information Dissemination on the Importance of Taxation

The government's ability to meet these tasks is primarily determined by the amount of
revenue it generates through the many (internal and external) sources available to it. Taxation is
one example. One of the oldest methods of paying government spending is taxation. It is also
one of the tools for increasing the potential of public sector performance and repaying public
debt. Taxation is critical to any nation's aim of self-sufficiency and achieving its economic
regulation demands. Taxation is critical to any nation's aim of self-sufficiency and achieving its
economic regulation demands.

Taxation can be used to affect or guide citizens' consumption patterns. It can be used to
stimulate or discourage investment in specific industries. The government can drastically lower
the amount of 'damaging' and 'antisocial' economic activities, not criminal ones. It can also
protect local and small firms while repositioning them to compete with larger, overseas
competitors.

Most importantly, taxation is a significant source of government revenue (Prichard W. et

al., 2018). The government uses tax proceeds to perform traditional functions such as road
maintenance, law, and order enforcement, defense against external aggression, and trade and
business regulation to ensure social and economic stability. The provision of these social
services and infrastructure contributes significantly to the overall cost of running a firm. This
means that firms can expand rather than attempt to supply these services and infrastructures. It
means businesses can expand their operations rather than strive to provide these services and
infrastructures.

Taxation's aim and influence can be separated into four categories: raising and
generating resources, equity and growth, behavior, and social contract. The primary goal of

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THE ROLE OF GOVERNMENT IN THE ECONOMY

taxation is to raise funds for governments to provide necessary public services (Burgess &
Stern, 1993). Taxation pays for many of the things that are essential to the operation of
societies all around the world, such as health care, education, and social services. According to
studies, a country's bare minimum tax revenue should be at least 15% of its gross domestic
product to provide essential services to its population. Taxation is also one of the primary lenses
for gauging a society's state capacity, state creation, and power relations (Di-John, 2006).
Taxation encourages or discourages specific behavior forms, remedies market flaws, and alters
income or wealth distribution. However, at a fundamental level, the main reason for a tax
system to exist is to allocate the cost of government in a fair manner (Bird and Zolt, 2005).

According to K. Amirthalingam (2013), taxes are a crucial tool for achieving a good
pattern of resource allocation, income distribution, and economic stability to disperse economic
development's advantages evenly. However, many developing countries need help to raise tax
revenue to the levels required to promote economic growth. In actuality, tax income as a
percentage of GDP is meager in many developing nations compared to wealthy countries due to
poor economic performance, weak economic structure and administration, political instability,
and a lack of a clear-cut political rationale on taxes.

Taxation is an effective weapon for boosting a country's development and being a

source of funds. Corbacho et al. (2013) argue for fiscal and tax reform to create progressive
systems that encourage economic growth, mobility, and social equality. "Taxation is more than
just a source of revenue; it is a tool for development." All governments require revenue, but the
issue lies in carefully selecting the level of tax rates and the tax base. Participants at the
Platform for Collaboration on Tax (PCT) global conference expressed concern that the trend
toward reduced capital taxes (to encourage growth) is making it more challenging to combat
rising income and wealth disparity. These growing income and wealth gaps can undermine
social cohesion and economic growth. It should be a priority to ensure an equitable allocation of
the tax burden among taxpayers through a system that helps poorer households preserve their
income.

Many countries have historically used taxes to encourage healthy behaviors while
discouraging unhealthy ones. Two examples are tobacco taxation to reduce tobacco
consumption and green taxes to aid the environment (Bader P., 2011). Taxation has a
significant impact on the outcome of human growth. Another illustration is the possible impact of
taxation on advancing gender equality. This subject is receiving increased attention in the policy
debate on public finance and the government's responsibility toward its citizens. Taxation has
been shown to influence people's behavior and choices, with consequences for health
outcomes, gender equity, and environmental sustainability. A government's decisions can make
or break a society. Taxes have been shown to influence people's behavior and choices, with
consequences for health outcomes, gender justice, and environmental sustainability. A
government's decisions either make or break a society (Vlaev I. et al., 2019).

Finally, effective tax administration can influence citizens' interactions with the
government. Taxation is a fundamental component of the social compact between citizens and
the government since it pays for public goods and services. "How taxes are raised and spent
can determine the legitimacy of a government." Citizens are more likely to obey tax rules if they
believe the tax system is fair and value the public benefits they receive. Trust in government is
vital for developing tax morale: the degree to which people recognize a moral need to pay taxes
as part of their societal contribution. As a result, governments must continue to earn public trust
by improving the design and administration of their tax systems (Quak, E. 2019)

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THE ROLE OF GOVERNMENT IN THE ECONOMY

CONCLUSION

Several inferences have been drawn from the literature. In general, it is argued that
collecting taxes and fees is an essential means for governments to produce public revenues
that allow them to finance expenditures in human resources, infrastructure, and services to
citizens and enterprises.

First, approximately 26 million Filipinos pay taxes out of a total population of 100 million.
This may be due to other Filipinos' need to understand where their taxes go. The tax system
must be fair and equal. The government needs to balance achieving goals like enhanced
revenue mobilization, sustainable growth, lower compliance costs, and ensuring that the tax
system is fair and equitable. The relative taxation of the poor and the rich; corporate and
individual taxpayers; cities and rural areas; formal and informal sectors, labor and investment
income; and the older and younger generations are all fairness considerations.

Second, an education campaign is needed to educate people about the need for
taxation. The importance of taxes should be highlighted because they strengthen the nation.
Taxation is the lifeblood of every nation; without it, the government cannot function. We, the
citizens, contribute to achieving these initiatives by paying income tax, allowing the government
to work on more social schemes and programs. Instead of seeing income tax as a burden, strive
to understand its significance, and people will recognize the various roles their money plays in
the country's success. People should be responsible citizens by paying their income taxes on
time because it is only via tax payments that the country can stay up with other developed
countries and grow further.

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