The Government, Fiscal Policy & Taxation

Investment
An

amount of money invested in something for the purpose of making a profit

Expenditure
- An amount of money spent as a whole or an a particular thing

Fiscal Policy

Takes off to influence income and consumption and lead the economy toward growth and development where monetary policy left off. As a tool utilizes government spending and taxation as means to control the economy. Cannot be easily manipulated; goes hand in hand with monetary policy.

Government

important sector of the economy Makes up for the private schools deficiency Big spender and big borrower

Very

Sources and Uses of Public Funds

Taxes
- Biggest source of government funds.

2 tax collecting agencies:

Bureau

of Internal Revenue Bureau of Customs

a. Taxes collected includes:

Income taxes of individuals & businesses Property taxes Import taxes Inheritance taxes Gift taxes And other specific taxes

b. Non-tax Revenues

Governments also earns income from

Ex. Collection of fines and fees Licenses and registration charges Profits earned by governmentoperated and controlled corporations (GOCC)

Borrowing
- Government resorts to when revenues are insufficient to finance growing budget.

Public Debt
- Consist of all claims against our government which may have resulted from loans or advances extended to the government or as payment for goods and services rendered to it, for which the existence of indebtedness has been acknowledged by the government.

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 should be paid for gradually over the life of the investment by those who will be taxpayers while the improvements are providing benefits. 3. A deliberate use of the budget to stimulate the economy

Government Expenditures:

occupies the top position among the various government expenses. Consists of spending connected with the maintenance of the different government subdivisions and instrumentalities Ex. Salaries of government officials and employees.

3 Types of Budget:
1. Deficit Budget - Is being adopted by the government in instances where the private sector is hesitant to spend and the economy needs a boost - Has an expansionary effect since it increases the flow of money into the economy as a result of an increase in government spending, the excess spending being derived from sources other than taxes.

2 Types of Budget:
2. Surplus Budget - Is being adopted by the government at times when private spending is excessive and threatens to be inflationary. - Has a contracting effect since not all the taxes collected from the people are channeled back into the economic stream. - Depress economy

Increasing Aggregate Demand

- The effect when there is an increase in government purchases or cutting tax rates.

Decrease Aggregate Demand

-The effect when there is reduced government demand or increasing tax rates.

Effects of a Budget:

A deficit and balanced budget have an expansionary effect because they increase the flow of money into the economy as a result of increase in government spending. Such excess spending are being derived from public borrowing other than taxes. Income spent by the government are derived from tax 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 back into the economy.

Taxation

The act of collecting taxes. This power is vested in the government, whether local or national.

Taxes

are compulsory payments associated with income, consumption, or holding of property that individuals and corporations are required to make each year to governments.

The need for taxation

1. As funds to maintain the various functions of the government, and the different activities it deems important.
2. To sustain viability of the government in providing the necessary services for the people.

REQUISITES OF A VALID TAXATION

The tax should be for a public purpose if the funds generated through it is used to support the government, like when it is used to pay for the construction of public buildings.

REQUISITES OF A VALID TAXATION

The rule of taxation shall be uniform all taxable articles or kinds of property belonging to the same class or category are taxed at the same rate.

REQUISITES OF A VALID TAXATION

The person or property taxed shall be within the jurisdiction of the government levying (imposing) the tax when the state collects taxes on persons, properties, or transactions where it has jurisdiction.

REQUISITES OF A VALID TAXATION

The assessment and collection of certain kinds of taxes must provide guarantees against injustices to individuals if there is sufficient notice and opportunity for hearing is provided to individual subjects of taxation.

OBJECTIVES OF TAXATION
1. to raise funds taxation is the chief means for raising funds to support the government
2. to redistribute wealth some individuals amass great wealth during their lifetime, and taxation is one way of redistributing these wealth to the people. Examples are taxes relating to estate and inheritance.

OBJECTIVES OF TAXATION
3. to regulate consumption consumption of some goods sometimes reach level that become harmful to the society, so to limit the sale of these goods, taxes are imposed.
4. to protect local industries imported goods sometimes 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 its selling price, and in effect, imported goods will be less attractive to domestic consumers.

Classes of Taxes:

a. According to Subject personal, property, or excise Personal 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 goods consumed, sold, or manufactured within a nation. Example: excise tax levied on alcohol and cigarettes

Classes of Taxes:

b. According to purpose revenue or regulatory

Revenue tax is imposed to collect revenues for the general purposes of the government. Example: income tax and sales tax. Regulatory tax is imposed for a special purpose like the protection of local industries from foreign competition.

Classes of Taxes:

c. According to Authority Imposing Tax national and local taxes

National tax one imposed by the national government. Example: income taxes and customs duties Local tax one levied in the municipal, provincial, or barangay governments. Example: real property tax

Classes of Taxes:

d. According to Determination of Amount specific or ad valorem

Specific tax one assessed on the basis of a tax per unit. Ad valorem assessment is based on a percentage of the value of the item

Classes of Taxes:

e. According to Who Bears the Burden direct or indirect Direct when the person on whom the tax is imposed absorbs the burden. Example: income tax Indirect when the amount is paid by the person other than the one whom it is legally imposed. Example: VAT paid by the seller but passed on to the buyer of the selling price.

Classes of Taxes:

f. According to Graduation Rate proportional, progressive or regressive

Proportional if it is based on a fixed percentage of the amount of property, income, or other factors. Examples: sales tax and real property tax Progressive when the rate increases as the tax base increases. Example: income tax Regressive when the effective rate decreases as the tax base increases.

REQUISITES FOR AN IDEAL TAX SYSTEM:

Adequate adequate to raise money to support the activities of the government Equitable tax system must be fair. It must not benefit some groups or individual at the expense of others. Economically efficient a tax system must be able to support strong, stable economic growth, rather than becoming an impediment (hindrance) to investment and a barrier to economic development. Simple