Principles of Taxation PA 131 -Public Fiscal

Administration
 TAXATION OTHER RECEIPTS GRANTS
SOURCES OF
GOVERNMENT
FINANCING

PRIVATIZATION PUBLIC
BORROWINGS
Taxation - Table C.1 Budget of Expenditures and Sources of Financing

Bulk of these taxes are collected by BIR. (I.e., These

are paid directly to BIR or are withheld by private
entities and remitted to BIR) A small portion is
collected by other agencies for BIR.

Taxes on international trade and transactions are

mostly tariffs, VAT on imports, and excise taxes on
imports.
Other Receipts, Grants - Table C.1 Budget of Expenditures and Sources of Financing

Although fees and charges are reported under non-

tax revenues, some would argue that it is a form of
taxation as it still imposes a burden

Income from Treasury Operations, NG Income

Collected by the Bureau of the Treasury (BTr), and
Other Non-Tax Revenues are examples of other
receipts.

Grants are a form of Official Development Assistant

(ODA), which will be discussed in a separate topic.
Privatization- Table C.1 Budget of Expenditures and Sources of Financing

Privatization primarily concerns the sale of

government assets.
Public Borrowings - Table D.1 Budget of Expenditures and Sources of Financing

Program Loans and Project Loans are forms of

ODA.

Bonds, Treasury Bills, and Fixed Rate Treasury

Bonds are financial instruments that the
government uses to raise money. In this table,
there Bonds and Other Inflows represent money
borrowed from foreign sources. Treasury Bills and
Fixed Rate Treasury Bonds are offered to domestic
sources (e.g.., banks, insurance companies, and
individuals). We’ll discuss these more in a separate
topic.
 One (1) of three (3) inherent powers of
the state. (i.e., police power, eminent
domain, and taxation)
What is
Taxation? It is the power to impose burdens
upon persons, property, or property
rights to enable the government to
discharge its functions.
 It is the item or economic activity
on which tax is levied.

What is the
Tax Base?
There are three general tax bases.

Income Wealth Consumption

Is there a Income is compensation received from the
provision of goods and services. Usually, it is in the
form of money. Income is a flow of resources.
difference
between
income and Wealth is the accumulated resources. Usually, it is
in the form of money, property, or property rights.
wealth? Some social scientists would also consider health,
education, and other non-monetary endowments
as wealth. Wealth is a stock of resources.
 Although the term consumption is used, what
Do you you are actually taxing is the transaction or
actually tax the purchase of goods and services. Whether
or not you consume the good you bought, you
consumption? have already been taxed.
 PURPOSE INCIDENCE

RATE AUTHORITY
Characterizing
the different
kinds of taxes OBJECT SCOPE

AMOUNT
PAID
 Fiscal – To raise revenues for
government operations

PURPOSE
Regulatory – To achieve social or
economic goals by deliberately
influencing decision making
 Direct – Burden is on entity on whom
the tax is imposed
• Personal Income Tax is imposed on individuals
who earn income. These individuals also bear
the payment of the income tax.

INCIDENCE Indirect – Burden in on entity different

from whom the tax imposed.
• Value-Added Tax (VAT) is imposed on provider of
goods and services. The providers pass the full
amount of the VAT to the purchasers of goods
and services. The purchasers bear the payment
of the VAT.
 Proportional – Fixed percentage regardless of taxable
amount
• 10% income tax for everyone

Progressive – Increasing percentage as taxable amount

increases

RATE • 0% income tax for income less than 10,000

• 1% income tax for income between 10,000 and 20,000
• 2% income tax for income between 20,000 and 30,000 and so on

Regressive – Decreasing percentage as taxable amount

increases
• 10% income tax for income less than 10,000
• 9% income tax for income between 10,000 and 20,000
• 8% income tax for income between 20,000 and 30,000 and so on
 Average Tax
Rate = Total
Amount of Taxes
Collected / Total
Taxable Amount
Tax Rate
Arithmetic Marginal Tax
Rate =
Incremental
Amount of Taxes
Collected /
Incremental
Taxable Amount
10% Income Tax for Everyone
Individuals Taxable Tax Rate Tax Paid ATR Additional Additional MTR
Amount Tax Taxable
Amount
A 10,000 10% 1,000 10%
B 20,000 10% 2,000 10% 1,000 10,000 10%
C 30,000 10% 3,000 10% 1,000 10,000 10%
Total 60,000 6,000 10% 2,000 20,000 10%
(except for
rates)

NOTE: ATR = MTR

Progressive Income Tax
Individuals Taxable Tax Rate Tax Paid ATR Additional Additional MTR
Amount Tax Taxable
Amount
A 10,000 1% 100 1%
B 20,000 2% 400 2% 300 10,000 3%
C 30,000 3% 900 3% 500 10,000 10%
Total 60,000 1,400 2.3% 700 20,000 3.5%
(except for
rates)

NOTE: ATR < MTR

Regressive Income Tax
Individuals Taxable Tax Rate Tax Paid ATR Additional Additional MTR
Amount Tax Taxable
Amount
A 10,000 10% 1,000 10%
B 20,000 9% 1,800 9% 800 10,000 8%
C 30,000 8% 2,400 8% 600 10,000 6%
Total 60,000 5,200 8.7% 1,500 20,000 7.5%
(except for
rates)

NOTE: ATR > MTR

 National Government – Tax is
imposed by National Government
Agencies

AUTHORITY Local Government – Tax is imposed

by different LGUs

• Barangay
• Municipality
• City
• Province
 Personal Occupation – Taxes on
persons of certain class

OBJECT Property – Taxes on properties owned

Excise – Taxes on privilege enjoyed or

exercised
 General – Tax on whole tax base
without exclusions, exemptions, or
deductions

SCOPE
Selective – Tax on certain portions of
the tax base
 Specific Tax – Does not require
assessment of taxable amount (i.e.,
not based on selling price)
AMOUNT
PAID
Ad Valorem Tax – Requires
assessment of taxable amount (i.e.,
based on selling price)
 ECONOMIC EFFICIENCY ADMINISTRATIVE FLEXIBILITY
FIVE DESIRABLE SIMPLICITY

CHARACTERISTICS
OF ANY TAX
SYSTEM

TRANSPARENT FAIRNESS
POLITICAL
RESPONSIBILITY
ECONOMIC Tax system should not interfere with the
EFFICIENCY efficient allocation of resources.
EFFECT OF Behavioral Effects Financial Effects Organizational
Effects
TAXES ON
ECONOMIC
ACTIVITY
General Announcement
Equilibrium Effects Effects
 In some cases, taxes can correct market
Can taxes failures. For example, the excise tax on
improve the tobacco products increases the prices of
cigarettes. The change in price reflects the
allocation of costs to government of providing healthcare
resources? to individuals with diseases related to
smoking.
 Tax system should be easy and inexpensive to
ADMINISTRATIVE administer.
SIMPLICITY
FACTORS THAT Record Keeping Complexity
AFFECT
ADMINISTRATIVE
COST

Tax Base Size of Taxpayers

 Tax system responds automatically to changes
FLEXIBILITY in economic circumstances.
 Have provisions for automatic
adjustments of taxes depending on
economic performance

FLEXIBLE TAX Have political processes that

facilitate changes of taxes as
SYSTEMS necessary

Have agencies that can quickly

implement changes in the tax code
and minimize the lags in collection
 Tax system that imposes same tax burden on
similar individuals and greater tax burden on
FAIRNESS those who can pay more
 HORIZONTAL

EQUITY
VERTICAL
 Suppose that you become President of the
Philippines and you now have the power to
impose any kind of tax without legislation.
QUIZ What tax would you impose? Describe its
features and its objectives.
(5 points)
Deadline: Tuesday, 24 March 2020
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