THEORY AND PRACTICE OF PUBLIC ADMINISTRATION

1. Discuss what is Public Administration.

Public administration is administering in the level of the government where the

government policies are implemented. Currently, public administration also includes the
responsibility of determining the policies and programs of governments. Public
Administration involves the planning, organizing, directing, coordinating, and controlling
of government operations.

Public administration houses the implementation of government policies it studies

the public entities and their relationships with each other and with the larger world. Public
administration is liable for the development, coordination, implementation, and
acceleration of public services and the study of branches of government policy. The
pursuits of the public administration are to ensure well-run, fair, and effective public
services.

Public Administration is the scientific study of the politics of institutions, structures

and organizations. Public administration is concerned with the organization, activities, and
behavior of administrative agencies and officials in the conduct of government. Public
administration includes the study of how bureaucracies interact with other political
institutions, the political and legal context of administration, and how organization
structures and governance structures affect the actions of government.

2. What are the Roles of Supervisors in Organizations?

1. Identify three issues/problems plaguing local fiscal administration.

A. Corporate Tax Evasion

One of the main sources of revenue of the government are taxes. Because of the certainty
of its existence and its permanence in our government, so are ways and means to minimize if not
eliminating altogether one's tax liabilities. One of which is tax evasion. Fortunately, the Bureau of
Internal Revenue (BIR) appears to have stepped up its filing of tax evasion charges.

In the case of Commissioner v. Estate of Toda, Jr., G.R. No. 147188, 14 September 2004,
tax evasion was defined as a scheme used outside of lawful means to avoid the payment of taxes,
and when employed, it subjects the taxpayer to civil or criminal liabilities. Tax evasion connotes
the integration of three factors: (1.) the end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2.)
an accompanying state of mind which is described as being “evil,” in “bad faith,” “willful,” or
“deliberate and not accidental”; and (3.) a course of action or failure of action which is unlawful.
 Common practices of tax evasion include: under-reporting of income, over-statement of
expenses, use of fictitious receipts, the keeping of double sets of books, false or fictitious entries
in books, fictitious transactions in the name of dummies, non-recording of sales, and others.

The law has already laid down the legal consequences of tax evasion on a professional
taxpayer on top of his basic tax liabilities, namely: (1.) the period to assess the taxpayer is 10 years
from the discovery of fraud; (2.) a surcharge of 50% of the tax or of the deficiency tax; (3.) 20%
per annum interest; and (4.) jail term in case of conviction plus fine.

Evidently, the impacts of tax evasion are, increase in taxpayer's after-tax income, and
perverse effects on the equity and efficiency goals of the tax system and most importantly, loss of
government revenue. From the administrative and policy perspective, determining the magnitude
of tax evasion and an analysis of tax evasion levels are imperative, particularly if undertaken in a
disaggregative fashion where the type of tax evaded as well as the group of taxpayers with high
propensity to evade are identified. This exercise will be useful in evaluating the success or failure
of the enforcement mechanism. It may indicate to the policy-maker the manner by which tax
evasion impairs the distributional quality of the tax system, skew the allocation of resources
towards less productive activities in the economy, decrease tax revenue and, consequently,
undermine fiscal and monetary policy.

The top 5 most controversial cases of Corporate Tax Evasion for the year 2012 with their
corresponding liabilities were Gammon Metal Products Inc. (1693.5M), JDBec Inc. (1465.1 M),
Abante Industries (1278.5 M), China State Engineering Corp. (712.7M) and All P Drugstore and
General Merchandise (516.9 M). According to the report, the top 10 developing countries with
the highest illicit financial outflows were China ($2.74 trillion), Mexico ($476 billion), Malaysia
($285), Saudi Arabia ($210 billion), Russia ($152 billion), Philippines ($138 billion), Nigeria
($129 billion), India ($123 billion), Indonesia ($109 billion ) and the United Arab Emirates ($105
billion). The same report also said that of these illicit cash flows, 60%-65% was for tax avoidance
and 30%-35% from criminal activities. Illicit cash flows from corruption, bribery and theft among
government officials accounted for 3%-5%. The most depressing news for us is that the Philippines
ranked 6th in the list of developing countries in terms of illicit cash flows. We can only dream of
the positive effect on our economy and on the number of jobs that would have been created if the
Philippine elite had decided to keep and invest the $135 billion here instead of stashing them
abroad.

Taxes are the charges that the government imposes on citizens and corporate businesses.
The charges collected by the government are used to fund different government projects that would
in the end benefit the citizens of the country as a whole. It also plays a key role in building up
institutions, markets and democracy through making the state accountable to its taxpayers. Paying
taxes plays an important role for the benefit of the society and businesses by providing funds for
the projects of the government and unexpected events like recession and turmoil.

In the view of economics, tax evasion take away money that could be invested in productive
resources needed to diversify the economy and address urgent social problems. Tax evaded money
is not spent on productive investments that can have a multiplier effect on an economy and benefit
the significant majority of a population, rather than just a select few. The government must spend
resources attempting to recoup taxes it is owed, which is wasteful to society. If no one underpaid
taxes, more money could be attributed toward beneficial programs instead of being spent on
collecting it. Also compare a corporation that pay its tax liability correctly to the one that evade
taxes, it creates an artificial advantage for the company evading taxes. This could lead to
companies with less business practices outlasting those with more efficient practices, which would
be detrimental to the economy because those companies that evade taxes outlasted which means
lower national funds and the companies closed would result to unemployment.

B. Corruption and Plunder

Under the administration of former president Benigno Aquino III, the campaign on good
governance was hinged on the slogan, "Pag walang kurap, walang mahirap (if there is no
corruption, there is no poverty)."

A research conducted and posted by an online news site based in the Philippines, shows
the devastating impact of corruption in the economy of the Philippines.

A 2014 report by Global Financial Integrity, the Philippines lost about $410.5 billion
between 1960 and 2011 on illicit financial flow. In current exchange rates, the amount is about
P19.34 trillion (without accounting for inflation). The vast majority of money flowing illegally
into and out of the Philippines over the 52-year time span was done mostly through misinvoicing
of trade. In effect, the P19.34 trillion lost to corruption could have been used for education, health
or infrastructure

According to Global Financial Integrity, money flowing illicitly into the country takes
away 25% of the value of all goods as $1 in every $4 goes unreported to Customs officials. Since
2000, illicit financial flows have cheated the government of an average of $1.46 billion in tax
revenue each year or about P68.8 billion in current rates. To put that amount into perspective, the
Philippines lost $3.85 billion in tax revenues in 2011 (P166.74 billion in 2011 rates) which is about
10% of the national budget that same year.

Apart from grave impact on the fiscal arena, corruption affects the business climate.
According to anti-graft watchdog Transparency International (TI), the Philippines slid in its annual
corruption perception ranking. With a score of 35 out of a possible 100, the country currently ranks
95th among 168 countries surveyed, according to expert opinion. As a result, corruption
continuously places the Philippine Government in a bad light in the International arena, reducing
foreign investments and trades.

It is clear that corruption and Plunder it reduces the tax revenue raised from households,
it inflates the volume of government spending, and it reduces the productivity of
‘effective’government expenditure. All in all, an issue that needs to be addressed by the
Government in order to have a more effective Fiscal Adminstration.

C. High Taxes and E-VAT

 The Philippine government generates revenues mainly through personal and income tax
collection, but a small portion of non-tax revenue is also collected through fees and licenses,
privatization proceeds and income from other government operations and state-owned enterprises.

Tax collections comprise the biggest percentage of revenue collected. Its biggest
contributor is the Bureau of Internal Revenue (BIR), followed by the Bureau of Customs (BOC).
Tax effort as a percentage of GDP has averaged at roughly 13% for the years 2001-2010.

Income tax is a tax on a person's income, wages, profits arising from property, practice of
profession, conduct of trade or business or any stipulated in the National Internal Revenue Code
of 1997 (NIRC), less any deductions granted. Income tax in the Philippines is a progressive tax,
as people with higher incomes pay more than people with lower incomes.

In 2008, Republic Act No. 9504 (passed by then-President Gloria Macapagal-Arroyo)

exempted minimum wage earners from paying income taxes.

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.

The E-VAT has exemptions which include basic commodities and socially sensitive
products. Exemptible from the E-VAT are:

1. 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);
2. Educational services rendered by both public and private educational
institutions;
3. Books, newspapers and magazines;
4. Lease of residential houses not exceeding P10,000 monthly;
5. Sale of low-cost house and lot not exceeding P2.5 million
6. Sales of persons and establishments earning not more than P1.5 million
annually.

According to the principles of Taxation, high income taxes could discourage firms from
producing more goods or employees from working more hours. Hence, a good tax system makes
sure that income tax rates are not too high so as to discourage economic activity.

The problem is - the Philippine tax system currently has some of the highest income tax
rates in this region. Compared to our major ASEAN counterparts, our corporate income tax is the
highest at 30%, a rate that "turns off" foreign investors who prefer to do business in our low-tax
neighbors.
 Meanwhile, our maximum personal income tax rate of 32% is not the highest (it’s 35% in
Vietnam and Thailand), but we certainly don’t want the government to eat away P32 for every
P100 earned by ordinary workers.

A good way to reduce high tax rates is to expand the tax base, or the set of goods and
services which are taxed. The same (or even a larger) tax revenue can be collected as before by
imposing a lower tax rate on as many goods and services as possible. However, in the Philippines,
too many goods and services are exempted from taxes. For instance, our value-added tax (VAT)
law has 59 lines of exemptions – more compared with the VAT laws of our neighbors. The plethora
of exemptions partly explains the relatively low tax revenues we get. If only fewer goods were
exempted – or if only the exemptions were limited to essential goods like raw food and medicines
– then the government could boost its revenues.

Tax policy is essentially a balancing act between efficiency and equity. We want to impose
progressive taxes to make society a fairer place to live in. But at the same time, we want to make
sure that such taxes do not reduce economic activity so much.

Unfortunately, the Philippine tax system is currently deficient in both respects. Not only
do our taxes disproportionately burden the poor and benefit the rich, but they also yield too little
revenue given the distortions they create. Needless to say, both problems need to be resolved soon.
Comprehensive tax reform in the country is long overdue. It so happens that the early days of the
Duterte administration – when political capital is fresh and popular support is robust – offer a
crucial window of opportunity to pursue tax reform.