JAMES D.

GUINANOY
Meaning of Taxation

• Taxation is a power inherent in every sovereign state to

impose a charge upon persons, properties or rights, to
raise revenues, for the use and suport of the government,
and to enable it to discharge its appropriate functions.
• Nature and scope of taxation
As to nature, taxation is an inherent power of the state,
and is essentially a legislative power. As to scope, in the
absence of limitations prescribed by the constitution, the
power of taxation is unlimited and comprehensive.
• Limitations on the power of taxation
• a) Inherent limitations
1. The tax must be levied for a public purpose.
2. The power of taxation cannot be delegated
3. The rule on double taxation(double taxation means taxing
a person, property or right twice within the same year by the
same authority)
4. Government instrumentalities and agencies through
which the government exercises sovereign powers are
exept from tax
5. The power of taxation is limited to the territorial
jurisdiction of the taxing state
6. The tax laws cannot apply to the property of foreign
governments.
Constitutional limitations

1. No law impairing the obligations of contracts shall be

passed.
2. No person shall be imprisoned for deb or non-payment of
a poll tax.
3.The rule on taxation shall be uniform and equitable.
4. Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, and non-profit cemeteries,
and all kinds of lands, buildings and improvements actually,
directly or exclusively used for religious or chritable
purposes shall be exempt from taxation.
Basic Principles of a sound Tax system

A). Fiscal adequacy--the sources of revenues, as a whole,

should provide enough funds to meet the expanding
expenditures of the government.
B). Theoretical justice--taxes must be based on the
taxpayer's ability to pay.
C). Administrative feasibility--the tax must be clear to the
taxpayer, not unduly burdensome and discouraging to
business, convenient as to time and manner of payment,
and capable of enforcement by competent public officials.
Tax

A tax is forced burden, charge, exaction, imposition or

contribution assessed in accordance with some reasonable
rule of apportionment, by authority of a sovereign state,
upon the person, or property, or rights exercised, within its
jurisdiction, to provide public revenues for the support of
government, the administration of law, or the payment of
public expenses.
Essential characteristics of tax

1. It is a forced contribution.
2. It is exacted pursuant to legislative authority in the
exercise of the taxing power.
3. It is proportionate in character.
4. It is payable in money.
5. It is imposed for the purpose of raising revenue.
6. It is to be used for a public purpose.
Tax distinguished from license

Taxes are imposed under the taxing power of the state for
purposes of revenue. taxes are forced contributions for the
purpose of maintaining government functions, while license
fees are exacted primarily to regulate certain businesses or
occupations.
Classification of Taxes

A). As to the subject matter:

1. Personal, capitation or poll tax-- a fixed amount upon all
persons, or upon all persons of a certain class, residents
within a specified territory, without regard to their property or
occupation.
2. Property tax--a tax assessed against all properties, or all
properties of a certain class, located within the jurisdiction
of the taxing authority, in proportion to its value, or some
other method of appointment.
3. Excise tax--a charge upon the performace of an act, the
enjoyment of a privilege, or the engaging in an occupation.
An excise tax is a tax which is not a personal tax or a
property tax.

B.) As to who bears the burden:

1. Direct tax--are taxes levied by the government on the
income and wealth received by househols and businesses
to raise government revenue and to act as an instrument of
fiscal policy. Taxes that are levied on households are called
individual income taxes. These are taxes in particular
persons. If you earn a certain amount, you must pay tax.
Taxes on businesses are called corporate income tax. If a
corporation earns a profit, it must pay a corporate income
tax. This is considered direct tax.
2. Indirect taxes-are taxes levied by government o goods
and services to raise revenue and to act as an instrument of
fiscal policy. Observe that these are not taxes on people but
on goods and services that people purchase and consume.
Taxes on goods and services include the value-added
tax(VAT) and excise taxes on certain product.
Business Opportunities

Principles, Tools and Techniques

Business and Industry

Business--is defined as “an organization or economic
system where goods and services are exchanged for one
another or for money. It is an enterprising entity engaged in
commercial, industrial, or professional activities.
How does a company transact business activities?
1. Production of a good
2. Offering of a service
3. Retailing of manufactured products.

How does business take place?

Business takes place when there is a transaction or
exchange of value between one company and another.
What is the purpose of business?
While profit is the financial measure of how efficient a
business is, it is not the sole objective of a business.
Businesses must also take into consideration the
development of goodwill, relations, wealth and social
factors.
Business can refer to a specific industry.
Industry--is defined as “the collection of competitors that
produces similar or substitute products or services to a
defined market. It is an organized economic activity
concerned with the processing of raw materials to create
goods and provide services.
When a business starts production, industry becomes its
business activity. In otherwords, the production side of a
business is called an industry.
Production--as a business activity, can be related to
manufacturing or processing of products, or it can refer to
provision of services.
What do we call the products created?
The products created are called consumer goods which we
ultimately use. Ex. food, clothing, houses and appliances.
Producer goods are goods used by businesses to produce
other goods. Examples of producer goods include tools,
equipment and machinery.
Economics of strategy: Industry and Environmental
Analysis
There are different ways of looking at the business
environment to see the level of competition among
cpmpanies and harness different factors to each one's
advantage.
One step taken by smart entrepreneurs before launching
their businesses is conducting a study or research on the
industries they want to venture into. This is called industy
analysis.
What is industry analysis?
Industry analysis is a business function completed by
business owners and otr individuals to assess the current
business environment. This analysis helps businesses
understand various economic pieces of the marketplace
and how these pieces may be used to gain a competitive
advantage.
Why is there a need to study the industry?
For a firm to understand its competition and know how it
can compete with other companies, it must first become
familiar with the industry.
As industries change, several conditions occur which can
affect the decisions of firms. The following conditions are”
1. More intense competition
2. Changing customers' needs and tastes
3. Technological innovation
4. entry of major competitors
5. Changes in regulations
6. Globalization
Being aware of these changes helps firm formulate sound
business strategies that can help them achieve their goals.
A good industry analysis can help a firm assess the
profitability of the industry it is engaged in, forecast
competition, then help it strategize to boost its profitability.
Another way to study a potential business is to conduct an
environmental analysis.
What is environmental analysis?
An environmental analysis considers the market where a
firm operates.
The objective is to identify target customers for the niche
market--ex. athletes for sports gear, or young professionals
for technological trends such as ipads or iphones.
Environmental analysis involves external(beyond the firm's
control) and internal(within the firm) elements affecting a
firm or an organization's performance.
The analysis considers the level of threat and opportunity
for the firm. Businesses are affected by environmental
factors, such as a country's status in terms of investments,
trade, market, and political situation. A firm must be able to
analyze and adjust to these factors.
External analysis can be done through PESTLE analysis,
while the SWOT analysis can be used for an internal
analysis of the business environment.
PESTLE is the most common environmental analysis tool.
Political-Government policies, taxes, stability of government
Economic-interest rates, inflation, credit, forex
Social-culture, education, gender, wealth distribution
Technological-new innovations, technological advancement
Legal-product regulation, employment laws, patent, health
Environmental factors--geographical location, weather
SWOT analysis--focuses on the strengths, weaknesses,
opportunities, and threats of a company. Learning about the
SWOT factors helps firms do the following:
1. Work on their strengths-factors that allow the firm to
stand out;
2. Eliminate their weaknesses--factors that increase the
firm's cost or reduce revenues;
3. Pursue opportunities--new business initiatives for growth
and improvement;
4. Prepare for threats such as instability, that can negatively
affect the firm's performance.
Example of a SWOT Analysis
STRENGTHS WEAKNESSES

Expertise and design Limited service lines

INTERNAL Cost advantages Marketing deficiency
Capital Staff
Technology

OPPORTUNITIES THREATS

EXTERNAL lack of dominant competition New frims which increase

New generation is recycling competition
Possible economic slowdown
Adverse changes in
government policies
Porter's Five Forces of Competition Framework

Firms basically exist for profit and they certainly must

analyze their internal force, that is, competitors. This force
affects prices that, in turn, affect profitablity and external
forces, such as the competitors, suppliers, buyers,
substitutes, and entrants in the industry. All of these can
be sources of threats to a firm's profits.
Industry rivalry
Economic models on competition make firms strive for a
competitive advantage over their rivals.
When can a firm have a competitive advantage over its
rivals?
A firm can have a competitive advantage over is rivals when
it gains and sustains profits that are higher than the average
for its industry. If a company is able to deliver the same
benefits as its competitors but is able to provide the benefits
at a lower cost then that company possesses a competitive
advantage.
Rivalry among firms happens, especially among established
companies. For instance, Coca-cola Co. and Pepsi Cola
Co.hve been famous rivals in the soft drinks market.
What are the effects of rivalry? Would it be
disadvantageous to the consumers?
Rivalry dissipates the firms' prfits because of aggressive
competition. This drives down prices and often leads the
rival firms to incure losses.
Competition
In an industry, competition among firms is always present
since this is a major determinant of their profitability. When
firms compete, prices are pushed down as firms offer the
same goods. One example is the competition among
carmakers such as Toyota, Mitsubishi, and Honda. Prices of
vehicles are pushed down because each firm wants to
attract more buyers than the other. Consumers benefit from
this competition. However, competition may hurt an
industry's profitability because competitors are trying to
capture or steal profits from one another.
Aggresive Industry involves the following factors:

1. Concentration--pertains to the number and size

distribution of firms. In industries dominated by one or two
firms( coke and Pepsi), these established companies tend
to earn higher returns on capital over the other firms that
produce the same products. In industries with many
competitors, such as cell phone manufacturing, competition
can be really tough, and firms' profit tend to be very low.
2. Diversity of competitors--this facto identifies firms'
differences in goals, strategies, objecives, and cost
structures.
3. Product differentiation--firms need to make their product
unique so these will stand out in the market. In an industry
where similar products are produced, firms need to
differentiate their products to gain an advantage.
How to differentiate products?
1. price
2. changing the form, size, shape of the product
3. change the overall physical structure of the product.
Differentiation also includes: features, performace, quality,
relaibility, style and durability
What is the effect of differtiation?
When products are differeniated, meaning they are not
homogenous, it becomes hard for customers or buyers to
switch between firms' products. In effect, firms get to
maintain their prices becaus competition is not too stiff. On
the other hand, the more similar the offered products are,
the easier it is for customers to switch from firm to firm, and
try similar products these companies offer.
4. Excess capacity-- in economics, we refer to capacity as
the ability to produce something. Excess capacity refers to
a firm's abiity to create more products than what customers
demand. In other words, there is more supply than what is
actually demanded. An industry with an excess capacity will
experience more rivalry, since firms will cut their price in
order to keep up with the competition.
5. Exit barriers--refer to the ease with which firms can exit
the industry. What high exit barriers do is that they prevent
a firm from exiting an industry. This makes firms operate at
a marginal profit or loss, driving competition even higher.
6. Cost conditions--excess capacity causes price
competition. When cost are high, example, fixed costs
relative to variable costs, companies can adjust their prices
if there are no other hindrances to do so.
• Kailangang isaliiiiii!!!!!!
Bargaining power of buyers: Customers as
Consumers

The objective of a business is to create customers or

markets that will cater to society.
Customers are persons or organizations that purchase
goods and services and who have the right to choose
between different products offered by different suppliers.
They can be individuals, households, public and private
industries, and governments.
Market, in economics, refers to the “place' where price is
determined since this is where buyers (demand) and sellers
(supply) meet. Their actual or potential interactions
determine the price of a product.
In business terms, market is defined as a potential client
that becomes a source of revenue. Markets are larger than
customers. Businesses consider a market's potential size,
growth prospects and attractiveness. Businesses also
consider a market's cost structure, price sensitivity,
technology, and its maturity.
Buyers have the capacity to exert pressure on prices, which
can affect the profits of firms. Buyers are powerful when
they can do the following:
1. buy in large volumes
2. have full information on market prices and supplier cost
3. purchase products that represent a significant
percentage of their costs or purchases
Market structures: A primer

Economists determine market structures primarily by

considering the number of sellers and buyers, product
differentiation, size distribution of sellers and buyers, and
barriers to entry. The most common market structures are
perfect competition, monopolistic competition, monopoly
and oligopoly.
Market Structure characteristics
Perfect Monopolistic Oligopoly Monopoly
Competition competition

Concentration: Many Many Few One

Number of firms

Product Identical Different identical/different No close

Differentiation substitute

Entry and Exit None None Moderate/difficult Blocked

barrier
Bargaining Power of Suppliers

In economics, suppliers are the ones who produce goods

and services. As part of the supply chain, suppliers may
also be producers who provide inputs, such as raw
materials, equipment and sercvices to another organization
or firm.
Suppliers have the power to drive competition up by
threateing to increase their products or services' prices or to
reduce the quality of the goods they provide. This results in
a reduction of firm's profitability to the point that it becomes
difficult to recover costs solely from the prices of the
products.
A supplier is powerful when there is no competition with
substitute products and the products make up an important
part of their buyers' businesses.

Threat of substitutes
Substitute goods are goods that are interchanged with
another good. When the price of a good increases,
consumers tend to look for closely related commodities.
Substitute goods are generally offered at a cheaper price,
thus making it more attractive for buyers to purchase.
To illustrate, Juan wants to buy n iPhone. Unfortunately, he
cannot afford to buy a phone worth Php 25,000.
Considering the price and Juan's lower budget of Php
15,000, he eventually opts for an alternative brand with a
lower price, such as an Oppo phone. In this situation,
iPhone is the preferred brand but given his limited
resources, the buyer chooses Oppo as the substitute.
When customers are not sensitive to changes in the price of
a product, this can mean thet there is no close substitute for
it. For example, there is no substitute for gasoline that can
run the engines of a vehicle.
On the other hand, if substitute goods are easy to find,
buyers can easily switch to substitutes when the price of the
originally preferred good rises. In this case, the demand
becomes elastic.
The presence of substitutes makes competition in an
industry tougher. With the invention of computers, for
example, makers of typewriters were driven out of the
industry. Computer innovation gave typewriters serve
competition, to the point that typewiter manufacturers had to
shut down their businesses.
Threat of new entrants

New entrants to an industry, or new businesses in an

industry, certainly drive competition, which further heightens
rivalry among firms. The threat of a new entrants says
something about the industry, as it shows how easy it is for
a firm to enter the industry. For instance, in the cosmetic
industry, Avon and Mary Kay have been two of the famous
makeup brands in the country. But the entry of cosmetics
brands that use organic and natural ingredients has brought
noticeable changes in the landscape of the makeup
industry.
As customers swithch to makeup brands with lower costs,
there is high probability that new entrants will continue to
join the industry. But new entrants still have to take
precautions since there is still the factor of emotions,
particularly brand loyalty, and customers may continue to
choose products of companies who have already been in
the cosmetic incdustry for a long time.
Types of Industry

1. Primary Industry
Primary industries engage in the production of goods
through nature, which needs very minimal human
intervention. Some examples include the agricultural
industry, farming, forestry, fishing and horticulture. These
forms of industry are largely provided by nature.
2. Manufacturing Industry
Firms that are engaged in transforming raw materials into
finished products by using equipment, machines, and
manpower belong to the manufacturing industry.
3. Construction Industry
This type of industry covers the construction of
infrastructure such as buildings, roads, bridges, and water
systems.
4. Service Industry
Businesses involved in the service industry usually render
work for customers for a fee. This usually does not involve
manufacturing or processing. Firms in the service industry
earn revenue by providing intangible products to clients.
Examples include the hotel industry and the entertainment
industry.
5. Extractive Industry--refers to any business activity that
involves the extraction of raw materials from the earth for
consumer use. This usually entails extractive processes
such as those used for oil and gas, mining, and quarrying.
6. Genetic Industry--covers firms that are engaged in the
reproduction of products from plants and animals to create
objects for sale. Poultry raising, cattle breeding, and hog
raising are examples of activities in the genetic industry.
7. Import-Export Industry--involves buying and selling of
foreign goods.
Export refers to the sale of goods to a foreign country while
import is the purchase of foreign goods and bringing these
into the buter's local market. Exporting and importing help
an economy expand its global market.
8. Retail Industry--Copanies whose activities involve selling
commodities directly to consumers fall under the retail
industry. Seasons that usually push people to shop and
spend give a huge boost to the retail sector. Shopping malls
like SM and Robinsons, and other retail companies such as
bookstore are examples of retail industry.
Philippine Industry Sector

The Philippines has diverse businesses involved in different

industries. The main industries include electronics
assembly, business process outsourcing, food
manufacturing, shipbuilding, chemicals, textiles, garments,
metals, petroleum refining and fishing.
Three Broad Industry Groups

In the Philippines, there are three broad industry groups or

sectors of the economy: Agriculture, Industry and Services.
1. Agriculture sector--includes agriculture, forestry and
fishing.
2. Industry sector--includes mining and quarrying(sector B);
manufacturing(sector C); electricity, gas, steam and air-
conditioning supply(sector D); water supply, sewerage,
waste management, and remediation activities(sector E);
and construction(sector F).
3. Services sector insists of the wholesale and retail trade,
and repair of motor vehicles and motorcycles(sector G);
transportation and storage(sector H); accomodation and
food service activities(sector I).information and
communacation(sector J);financial and insurance activities
(sector k); real estate