The Government, Fiscal Policy and Taxation

8/3/2019 The Government, Fiscal Policy and Taxation

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The Government, Fiscal

Policy & Taxation


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Investment

An amount of money

invested in somethingfor the purpose ofmaking a profit


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Expenditure

- An amount ofmoney spent as a

whole or an aparticular thing


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Fiscal Policy

Takes off to influence income andconsumption and lead the economy

toward growth and development wheremonetary policy left off.

As a tool utilizes government spending

and taxation as means to control theeconomy.

Cannot be easily manipulated; goes hand

in hand with monetary policy.


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Government

Very important sector of

the economyMakes up for the private

schools deficiencyBig spender and big

borrower


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Sources and Uses of PublicFunds


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Taxes- Biggest source ofgovernment funds.


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2 tax collecting agencies:

Bureau of InternalRevenue

Bureau ofCustoms


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a. Taxes collected

includes: Income taxes of individuals &

businesses

Property taxes

Import taxes

Inheritance taxes Gift taxes

And other specific taxes


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b. Non-tax Revenues

Governments also earns income from

Ex. Collection of fines and fees

Licenses and registration charges

Profits earned by government-operated and controlled corporations(GOCC)


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Borrowing

- Government resorts to

when revenues areinsufficient to finance

growing budget.


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Public Debt- Consist of all claims against our

government which may have resultedfrom loans or advances extendedto the government or as payment forgoods and services rendered to it, forwhich the existence of indebtednesshas been acknowledged by thegovernment.


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A government tends to

borrow for 3 reasons:1. Due to political reluctance to raise taxes

2. A sense that some government

sponsored capital improvements shouldbe paid for gradually over the life of theinvestment by those who will be

taxpayers while the improvements areproviding benefits.

3. A deliberate use of the budget to

stimulate the economy


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Government

Expenditures: occupies the top position among the

various government expenses.

Consists of spending connected withthe maintenance of the different

government subdivisions andinstrumentalities

Ex. Salaries of government officials

and employees.


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3 Types ofBudget:

1. Deficit Budget- Is being adopted by the government in

instances where the private sector ishesitant to spend and theeconomy needs a boost- Has an expansionary effect since it

increases the flow of money into theeconomy as a result of an increase ingovernment spending, the excessspending being derived from sources

other than taxes.


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2. Surplus Budget- Is being adopted by the government at

times when private spending is

excessive and threatens to beinflationary.

- Has a contracting effect since not all thetaxes collected from the people are

channeled back into the economicstream.- Depress economy

2 Types of Budget:


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Increasing Aggregate Demand

- The effect when there is an increase ingovernment purchases or cutting tax

rates.


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Decrease Aggregate Demand

-The effect when there is reducedgovernment demand or increasing tax

rates.


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Effects of a Budget:

A deficit and balanced budget have anexpansionary effect because they increase the flowof money into the economy as a result of increase

in government spending. Such excess spending arebeing derived from public borrowing other thantaxes.

Income spent by the government are derived fromtax collections. So the excess amount spent are

derived from public borrowing. The surplus budget has a contracting effect since

not all tax collections are spent and channeled backinto the economy.


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Taxation

The act of collecting taxes. This poweris vested in the government, whether

local or national.


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Taxes

are compulsory payments associatedwith income, consumption, or holding

of property that individuals andcorporations are required to makeeach year to governments.


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The need for taxation

1. As funds to maintain the variousfunctions of the government, and the

different activities it deems important.

2. To sustain viability of the government

in providing the necessary services forthe people.


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REQUISITES OF A VALIDTAXATION

The tax should be for a publicpurpose if the funds generated

through it is used to support thegovernment, like when it is used topay for the construction of public

buildings.


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The rule of taxation shall beuniform all taxable articles or kinds

of property belonging to the sameclass or category are taxed at thesame rate.

REQUISITES OF A VALID

TAXATION


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The person or property taxedshall be within the jurisdiction of

the government levying(imposing) the tax

when the state collects taxes onpersons, properties, or transactionswhere it has jurisdiction.


TAXATION


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The assessment and collection ofcertain kinds of taxes mustprovide guarantees against

injustices to individualsif there is sufficient notice andopportunity for hearing is

provided to individual subjectsof taxation.


TAXATION


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OBJECTIVES OF TAXATION

1. to raise funds taxation is the chiefmeans for raising funds to support the

government

2. to redistribute wealth some individualsamass great wealth during their lifetime,

and taxation is one way of redistributingthese wealth to the people. Examples aretaxes relating to estate and inheritance.


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3. to regulate consumption consumption of somegoods sometimes reach level that become harmfulto the society, so to limit the sale of these goods,

taxes are imposed.

4. to protect local industries imported goodssometimes enter our local markets to the detriment(harm, disadvantage) of local producers. If

imported goods are sold locally at lower process,the government may impose taxes that will raise itsselling price, and in effect, imported goods will beless attractive to domestic consumers.

OBJECTIVES OF TAXATION


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Classes of Taxes:

a.According to Subject personal, property, orexcisePersonal tax one imposed on individuals

residing within a specific territory,regardless of property or occupation.Example: Community tax levied by the

barangay to its residents.Property tax one levied on property

Excise tax

one imposed upon goodsconsumed, sold, or manufactured withina nation.

Example: excise tax levied on alcoholand cigarettes


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b. According to purpose revenue orregulatory

Revenue tax is imposed to collectrevenues for the general purposesof the government.

Example: income tax and salestax.

Regulatory tax

is imposed for aspecial purpose like the protectionof local industries from foreigncompetition.

Classes of Taxes:


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c.According to Authority Imposing Tax national and local taxes

National tax

one imposed by thenational government. Example:income taxes and customs duties

Local tax one levied in the

municipal, provincial, or barangaygovernments. Example: realproperty tax

Classes of Taxes:


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d.According to Determination of Amountspecific or ad valorem

Specific tax one assessed on the basis of atax per unit.

Ad valorem assessment is based on apercentage of the value of the item

Classes of Taxes:


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e.According to Who Bears the Burden director indirect

Direct when the person on whom the tax is

imposed absorbs the burden.Example: income tax

Indirect when the amount is paid by theperson other than the one whom it is

legally imposed.Example: VAT paid by the seller butpassed on to the buyer of the sellingprice.

Classes of Taxes:


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f. According to Graduation Rate proportional,progressive or regressive

Proportional

if it is based on a fixedpercentage of the amount of property,income, or other factors.

Examples: sales tax and real property taxProgressive when the rate increases as the

tax base increases.Example: income taxRegressive when the effective rate

decreases as the tax base increases.

Classes of Taxes:


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REQUISITES FOR AN IDEAL TAXSYSTEM:

Adequate adequate to raise money tosupport the activities of the government

Equitable tax system must be fair. It

must not benefit some groups orindividual at the expense of others.

Economically efficient a tax system must beable to support strong, stable economicgrowth, rather than becoming animpediment (hindrance) to investmentand a barrier to economic development.

Simple

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The Government, Fiscal Policy and Taxation