2. Topic Outline
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GPT 210 Slide 2
❒ Public Finance (an overview)
❒ Fundamental Concepts of Taxation
❒ Theory and Basis of Taxation
❒ Purposes of Taxation
❒ Essential Characteristics of Taxes
❒ Basic Principles of a Sound Tax System
❒ Recent Structural and Policy Changes
3. ✔ Define Public Finance;
✔ Identify the concepts of taxation;
✔ Identify the theory, basis and purposes of taxation;
✔ Identify the essential characteristics and classifications
of taxes;
✔ Distinguish taxes from other taxation terms;
✔ Distinguish the similarities and differences among
taxation, eminent domain and police power;
✔ Analyze the basic principles of a sound tax system;
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GPT 210 Slide 3
Topic Objectives
4. ✔ Differentiate inherent from constitutional limitations on the
power of taxation;
✔ Identify the different situs of taxation and clarify concepts
of double taxation;
✔ Identify the nature, construction, application and sources
of tax laws;
✔ Enumerate the nature, rationale, grounds and sources of
tax exemptions;
✔ Determine the scope of taxation;
✔ Identify the different aspects of taxation; and
✔ Differentiate tax evasion and tax avoidance.
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GPT 210 Slide 4
Topic Objectives
5. Public Finance (an overview)
Public Finance is a branch of economics
that deals with the revenues and
expenditures patterns of the
government and their impact
on the economy. It is the study of
the economic aspects that arise
in the operations of the public budget.
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GPT 210 Slide 5
6. What is Fiscal Policy?
In economics and political science, fiscal policy is the use
of government revenue collection (taxes or tax cuts)
and expenditure (spending) to influence and stabilize a
country's economy.
7. What are the Components of Fiscal Policy?
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GPT 210 Slide 7
▪ Government Revenue Policy – How the government
gets its funds;
▪ Government Expenditures Policy – how it allocates its
revenue among different uses; and
▪ Debt Management Policy – how it manages the public
debt.
8. Objectives of Fiscal Policy
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GPT 210 Slide 8
To keep the public sector lean and trim so as to
free more manpower and financial resources for
the private sector;
To finance total operating and development
expenditures from operating revenue, i.e.,
maintaining a balanced budget; and
To focus government expenditures in areas
which yield lasting returns, i.e., education,
healthcare, infrastructure and housing.
9. Objectives of Fiscal Policy
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GPT 210 Slide 9
Likewise, one of the fiscal policy
goals of government expenditures is
to promote a desirable level of
employment, output, income (and its
proper distribution) and prices.
10. • Tax revenues are either direct or indirect tax.
• Capital revenues cover proceeds from sales of fixed capital asset
or scraps like sales of public bonds, buildings and other structures.
• Extraordinary income are re-payment of loans and advances
made by government corporations and local governments.
• Public borrowing covers proceeds of re-payable obligations
generally with interest from domestic and foreign creditors of
government.
• Domestic borrowing are government issued bonds.
• Grants cover voluntary contributions and aids given to the
government for its operation on specific purpose.
• Withdrawals from available cash balances
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GPT 210 Slide
10
Sources of Government Revenues
11. Sources of Government Expenditures
• Re-current expenditures - refer to the day-to-day cost
of running the government.
• Development expenditures –
pertain to cost of capital projects.
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GPT 210 Slide
11
12. Tax Policy
Tax policy is an integral part of fiscal policy. Taxes
not only provide government with the means to raise
the revenue needed to fund its
activities but also the means
to re-distribute limited resources;
maintain economic stability;
promote growth and
achieve specific social
objectives.
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GPT 210 Slide 12
13. Comparative BIR Collections and
Goals (CY 2006 and CY 2007 )
600
650
625
675
700
775
750
725
Goal Collection
2007
Goal
Collection
Goal
71
3.60 765.86
Collection
2006
652.73 675.35
Statistics based on CY 2007 BIR Annual Report
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GPT 210 Slide 13
In
Billion
Pesos
14. BIR Share in National Government Tax
Revenues ( CY 2007 )
BIR
76.49%
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GPT 210 Slide 14
BOC
22.45%
Other
Agencies
1.06%
Statistics based on CY 2007 BIR Annual Report
16. Percent Distribution of BIR Collection
by Major Type of Tax CY 2007
Taxes on
Net Income
and Profit
59.87%
Statistics based on CY 2007 BIR Annual Report
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GPT 210 Slide 16
Other
Taxes
6.34%
Excise Taxes
7.71%
Value-
Added Tax
20.32%
Percentage
Taxes
5.76%
17. Definition of Taxation
It is the act of levying a tax; the process or
means by which the
sovereign, through its
law-making body,
raises revenue to
defray the necessary
expenses of the
government.
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GPT 210 Slide 17
18. Definition of Taxes
Taxes are the enforced proportional contributions
levied by the state’s law-making
body by virtue of its sovereignty
upon the persons or
properties within its
jurisdiction for the support
of the government and
all its public needs.
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GPT 210 Slide 18
19. The power of taxation is comprehensive,
plenary, unlimited and
supreme. It is essentially
legislative in character
and is inherent in the state.
Nature and Scope of the
Power of Taxation
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GPT 210 Slide 19
20. Theory and Basis of Taxation
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GPT 210 Slide 20
•The power of taxation proceeds upon the theory that
the existence of government is a necessity. Moreover,
the government cannot exist without the means to pay
its expenses and for these means, it has the right to
compel its citizens and properties within its limit to
contribute.
•The basis of taxation is found on the reciprocal duties
of protection and support between the state and its
inhabitants. The state collects taxes from the subjects
so that it may be able to perform the functions of
government . The citizen pays taxes so that he may be
secured in the enjoyment of the benefits of an
organized society.
21. Primary Purpose of Taxation
Provide funds or property with
which to promote the general
welfare and protection of its
citizens.
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GPT 210 Slide 21
22. Secondaryor Non-Revenue
Purposes of Taxation
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GPT 210 Slide 22
• Reduce excessive inequalities of wealth and means by
using the progressive scheme of income taxation and
imposing estate taxes to equalize wealth;
• Protect local industries against foreign competitors by
imposing protective tariff on imported goods;
• Encourage the growth of home industries through the
proper use of tax exemptions and tax incentives;
• Implement the police power of the state in promoting the
general welfare;
23. • Use as bargaining tool in trade negotiations with other
countries;
• Curb spending power and halt inflation by increasing
taxes in periods of prosperity and expand business
and ward-off depression by lowering taxes in periods
of slump.
• Promote science and invention; and
• Finance activities or improve efficiency of military or local
police forces in the maintenance of peace and order
through the grant of subsidies.
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GPT 210 Slide 23
Secondary or Non-revenue
Purposes of Taxation
24. Basic Principles of a Sound Tax System
Fiscal Adequacy – sources of revenues should be
sufficient to meet expenditures of government
regardless of business conditions.
Equality or theoretical justice – taxes must be
imposed with equity, certainty, convenience, and by
considering the taxpayer’s ability to pay.
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GPT 210 Slide 24
25. Basic Principles of a Sound Tax System
Administrative feasibility and compliance –
the law must be capable of reasonable and
convenient enforcement and just and effective
administration. Moreover, taxpayers should find
it easy and reasonable to comply.
Consistency or compatibility with economic
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GPT 210 Slide 25
objectives or goals – economic effects of
taxation extend far beyond the matter of
incidence, allocation of resources to the public
sector and re-distribution of income.
26. Nature of Internal Revenue Law
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GPT 210 Slide 26
Internal revenue laws are not political in
nature. They are deemed to be the laws of the
occupied territory and not of the occupying
enemy. Taxes are civil and not penal in nature,
although there are penalties provided for their
violation.
27. Construction of Tax Laws
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GPT 210 Slide 27
b Provisions intended for the security of the citizen or
taxpayer or to ensure equality or uniformity of
taxation are mandatory.
b Provisions that are designed to inform administrative
officers on tax matters are generally directory.
b If the intent or meaning of the tax statute is not clear,
or is doubtful as to whether a taxpayer is covered by
the tax obligation, the tax law shall be construed
against the government because revenue laws
impose special burdens.
28. Construction of Tax Laws
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GPT 210 Slide 28
b Where the intent to tax is clear and the taxpayer claims
that he is exempt from the tax obligation, the tax shall
be construed against the taxpayer and in favor of the
government because the power of taxation is necessary
to the existence of such government.
b Rules on the interpretation of custom and tariff laws do
not apply to trade agreements. Customs and tariff laws
are promulgated in the exercise of the power of taxation
while trade agreements are entered into the exercise of
the police power.
b If the tax law is repealed, taxes assessed before repeal
of the law may still be collected unless the repealing law
is made retroactive.
29. Construction of Tax Laws
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GPT 210 Slide 29
b Tax exemptions are strictly construed except:
✓If the law provides for liberal construction.
✓In case of special laws applying to special cases.
✓If the exemptions refer to public property.
✓In case of exemptions granted to entities organized
for charitable, religious or educational purposes.
b Tax laws are given retroactive effect if there is a clear
legislative intent in that regard. It has been held that tax
laws shall have prospective effect only unless there is a
clear provision to the contrary. If the retroactive effect would
be harsh or oppressive the same transgresses the
constitutional limitations of due process.
30. Sources of Tax Laws
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GPT 210 Slide 30
✔ Pertinent provisions of the Constitution
✔ Legislation or statutes on taxation and tax
ordinances
✔ Existing tax laws of the Philippines
✔ Administrative regulations and rulings or opinions
of tax officials, including opinions of the Secretary
of Justice
✔ Judicialdecisions
✔ Tax treaties or agreements entered into by the
Philippines with other countries
