Taxation and Fiscal Policy

FISCAL POLICY
Refers to the measures employed by the government to stabilize
the economy, specifically by manipulating the levels and
allocations of taxes and government expenditures.

Fiscal measures are frequently use in tandem with monetary

policy to achieve certain goals

In the Philippines this is characterized by continuous and

increasing levels of debt and budget deficits , though there
have been improvements in the last few years.
Sources and Uses of Public Funds
A. Taxes- include income taxes of individuals and businesses,
property taxes, residence taxes, import taxes , inheritance
taxes , gift taxes and other specific taxes.

Two Collecting agencies:

- Bureau of Internal Revenue
- Bureau of Customs
 B. Non –tax revenues- include collection of fines and fees,
licenses and registration charges and profits earned by the
government –operated and controlled corporations.
Fiscal policy during Marcos
administration was primarily focused
on indirect tax collection and on
government spending on economic
services and infrastructure
development.
The first Aquino administration
inherited a large fiscal deficit from the
previous administration, but managed to
reduce fiscal imbalance and improve tax
collection through of 1986 Tax Reform
Program and the value added tax.
The Ramos administration experience
budget surpluses due to substantial gains
from the massive sale of government
assets and strong foreign investments
years and administrations.
The Estrada administration faced a large
fiscal deficit due to decrease in tax effort
and the repayment of the Ramos
administration `s debt.
During the Arroyo administration , the
Expanded Value Added Tax law was
enacted , national debt- to GDP ratio
peaked, and under spending on public
infrastructure and other capital
expenditures was observed.
During the Aquino`s administration the
government under spend , there is a lower deficit.

Economist say a lower than target fiscal deficit could

mean the administration is unable to make use of the
money collected from its citizen to provide services
and build better infrastructure.
The expansionary fiscal policy will be
characterized by increased government
spending, particularly on public infrastructure
and social services.

This fiscal strategy will made possible by

maintaining the deficit to GDP ratio at 3
percent while improving revenue effort
through tax policy and tax administration
reforms.
Annual Taxable Income Income Tax Rate
Less than 10,000 5%
Over 10,000 but not over 500+10%of the excess over
30,000 10,000
Over 30,000 but not over 2,000+15% of the excess over
70,000 30,000
Over 70,000 but not over 8,000+20% of the excess over
140,000 70,000
Over 140,000 but not over 22,000+ 25% of the excess over
250,000 140,000
Over 250,000 but not over 50,000+30% of the excess over
500,000 250,000
Over 500,000 125,000 +32% of the excess
over 500,000
 The Expanded Value Added Tax (E-VAT)
 is a form of sales tax that is imposed on the sale of goods and
services and on the import of goods into the Philippines.

 It is a consumption tax (those who consume more are taxed

more) and an indirect tax, which can be passed on to the buyer.
The current E-VAT rate is 12% of transactions. 
 Some items which are subject to E-VAT include petroleum, natural
gases, indigenous fuels, coals, medical services, legal services,
electricity, non-basic commodities, clothing, non-food agricultural
products, domestic travel by air and sea.
  Exemptible from the E-VAT are:
 Agricultural and marine products in their original state (e.g. vegetables, meat,
fish, fruits, eggs and rice), including those which have undergone
preservation processes (e.g. freezing, drying, salting, broiling, roasting,
smoking or stripping

 Educational services rendered by both public and private educational

institutions;

 Books, newspapers and magazines;

 Lease of residential houses not exceeding ₱10,000 monthly;

 Sale of low-cost house and lot not exceeding ₱2.5 million

 Sales of persons and establishments earning not more than ₱1.5 million
annual
Tariffs and Duties

The Bureau of Customs (BOC) imposes 

tariffs and duties on all items imported into
the Philippines.

According to Executive Order 206,

returning residents, Overseas Filipino
Workers (OFW’s) and former Filipino
citizens are exempted from paying duties
and tariffs.
 The Bureau of Treasury (BTr) manages
the finances of the government, by
attempting to maximize revenue collected
and minimize spending.

The bulk of non-tax revenues comes from

the BTr’s income

 Under Executive Order No.449, the BTr collects revenue by issuing, servicing and
redeeming government securities, and by controlling the Securities Stabilization Fund
(which increases the liquidity and stabilizes the value of government securities)
through the purchase and sale of government bills and bonds
 Taxation
 It is the process by which the sovereign ,through its law
making body , races revenues use to defray expenses of
governments.

 It is a means of government in increasing its revenue under the

authority of the law, purposely used to promote welfare and
protection of its citizen.

 It is the collection of the share of individual and organizational

income by a government under the authority of the law.
 Purposes and Significance of Tax

 Primary purpose: generates funds or revenues use to defray

expenses incurred by the government in promoting the general
welfare of its citizen.

 Other purposes: to equitably contribute to the wealth of nation.

 Characteristics of Tax
 It is enforced contribution, Its payment is not voluntary nature
and the imposition is not dependent upon the will of the person
taxed.

 It is generally payable in cash, This means that payment by

checks, promissory notes, or in kind is not accepted.

 It is proportionate in character, Payment of taxes should be

base on the ability to pay principle , the higher income of the
tax payer the bigger amount of the tax paid.
 It is levied ( to impose: collect) on person or property, There
are taxes that are imposed or levied on acts, rights or
privileges ex. Documentary tax

 It is levied by the state which has jurisdiction over the person

or property, As a general rule, only persons, properties, acts
rights or transactions with in the jurisdiction of the taxing state
are subject for taxation.
 It is levied by the law making body of the state, This means
that a prior law must be enacted first by the congress before
assessment and collection maybe implemented of the 1987
constitution.

 It is levied for public purposes, Taxes or imposed to support

the government for implementation of projects and programs.
 Principles of Taxation
Fiscal adequacy- means that the sources of revenue taken as a
whole should be sufficient to meet the expanding expenditures
of the government regardless of business, export taxes, trade
balances, and problems of economic adjustment. Revenues
should be capable expanding or contracting annually in
response to various public expenditures.

Equality or Theoretical Justice- means the taxes levied must be

base upon the ability of the citizen to pay
 Administrative Feasibility – This principle connotes that in a successful tax
system, such tax should be clear and plain to tax payers, capable of
enforcement by an adequate and well –trained staff of public office,
convenient as to time manner payment, and not unduly burdensome upon
on discouraging to business activity.

Consistency or Compatibility with Economic Goals. This refers to the tax

laws that should be consistent with economic goals or programs of the
government . This are the basic services intended for the masses.
 Tax Exemption
 Religious Institutions
 Charitable Institutions
 Non- Profit , Non-Stock Educational Institutions
 Non-Profit Cemeteries
 Government Institutions
 Foreign Diplomats
 How to Pay Tax?
 Computing income tax expense and payables is different for
individuals and corporations. Taxable corporations maybe taxed
using a fixed income tax rate

 On the other hand if you are self –employed professionals

or an owner of a single proprietorship business, your income tax
expense is computed using a graduated tax rate.
 It is a progressive tax rate which tax rate increases as taxable
base amount increases. This means that the higher taxable
income you have , the higher your income tax expense is.
 Personal Exemption

1. Single or divorced without 50,000

dependent

2. Head of the Family 50,000

3. Married individuals 50,000

 Issues
 Budget Deficit

 Privatization