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FISCAL POLICY

FISCAL POLICY
• An instrument that concerns itself with the
manipulation of the inflows (revenues) and
outflows (government spending) of the
government sector.
• Oriented towards economic stability and
promoting economic growth.
• TWO TYPES OF FISCAL POLICY:
– EXPANSIONARY FISCAL POLICY
• Increasing gov’t. spending and cutting taxes which
results to increased aggregate demand to make the
economy run rapidly.
– RESTRICTIVE FISCAL POLICY
• Reducing gov’t. spending and raising taxes resulting to
decreased aggregate demand to make the economy
run slowly
PUBLIC FINANCE
– Deals with the income and expenditures of
the government

GOVERNMENT

FUNDS

REVENUES EXPENDITURES

PUBLIC FINANCE
• ECONOMIC FUNCTIONS OF THE
GOVERNMENT:
1. To establish a stable economy.
2. To provide for public goods.
3. To provide social services
4. To provide a legal system
5. To promote competition
6. Correcting spillovers
• A spillover is a situation where a benefit or a cost
associated with an economic activity devolves to
third parties.
GOVERNMENT EXPENDITURES
1. General Services
– Includes expenses for delivering social
services, economic services, and defense.
2. General Administration
– Includes expenditures in operating and
managing the government.
3. Debt Servicing
– Allocation of payments for foreign and
domestic debts of the government.
PUBLIC REVENUES
• SOURCES OF GOVERNMENT FUNDS:
1. TAXES
NON-TAX REVENUES:
2. FEES
3. SAVINGS AND LOANS
4. INCOME FROM GOVERNMENT PROPERTIES
AND CORPORATIONS
5. GRANTS AND AIDS
TAXES
• ARE COMPULSORY CONTRIBUTIONS
IMPOSED BY THE STATE UPON
INDIVIDUALS OR PROPERTIES WITHIN
ITS JURISDICTION TO MEET THE
GOVERNMENT’S FINANCIAL
OBLIGATIONS.
• TAXATION IS THE INHERENT POWER
OF THE STATE
OBJECTIVES OF TAXATION:
1. TO RAISE FUNDS FOR THE
PRODUCTION OF PUBLIC GOODS AND
SERVICES.
2. FOR PROTECTION
– Import duties on all imported goods to reduce
competition with local products.
3. FOR REDISTRIBUTION PURPOSE
– To redistribute income or wealth to prevent
social inequalities.
4. FOR SUMPTUARY PURPOSE
– To reduce consumption of goods that are
considered harmful to the people’s health.
PRINCIPLES OF TAXATION
1. ABILITY-TO-PAY PRINCIPLE
“Tax burden should be adapted to one’s
income and wealth”
2. BENEFIT-RECEIVED PRINCIPLE
– Those who benefit more from the government
services should be the ones to pay for them
– People should pay taxes in proportion to the
amount of services or benefits they receive
3. PRINCIPLE OF EQUITY AND
UNIFORMITY
4. PRINCIPLE OF NEUTRALITY
CLASSIFICATION OF TAXES
• ACCORDING TO RATE OF INCREASE
1. PROPORTIONAL TAX
• Imposes same percentage rate of taxation on
everyone regardless of his or her income.
2. PROGRESSIVE TAX
• Higher percentage tax on persons with high income.
3. REGRESSIVE TAX
• Higher percentage tax on persons with low income.
• ACCORDING TO PAYMENT
1. DIRECT TAX
• Considered as a hard form of tax; non-transferable.
Ex. Income tax
2. INDIRECT TAX
• Imposed on the value of the products and services
which are shouldered by end users.
• Ex. Sales tax, VAT
• ACCORDING TO PURPOSE
1. Community Tax (CTC or cedula)
• Provided for under Sec. 1 of Commonwealth Act No.
465
• Also known as residence tax
2. Professional Tax
• Levied on specific occupations that are lawfully
pursued like doctors, lawyers, etc.
3. Property Tax
• Imposed on persons with real properties whether
acquired, inherited or donated based on their market
value. Ex. Real estate tax
4. Excise Tax
• Imposed on all products produced and sold in the
country.
• “sin tax” – excise tax on liquors and cigarettes
5. Regulatory Tax
• Imposed on buying and using products to control
their price.
• Ex. Import Tariff
6. Value Added Tax
• Imposed on the value of the products and services
consumed by the individual.
7. Tariff
• Imposed on imported products.
8. Income Tax
• Levied on all citizens and companies that have an
income
MAJOR KINDS OF TAXES
1. PERSONAL INCOME TAX
2. CORPORATE INCOME TAX
3. PROPERTY TAXES
exercise
• SITUATION:
– NICK is a paralegal working in a law firm engage in corporate
disputes. He is earning a gross income of Php35,000.00 a
month. He is married with two kids, aged 6 and 4 years old. His
wife is a front desk clerk in an advertising company and earns
Php22, 500.00 a month. Besides his monthly pay, Nick also
receives Php10,000 a month transportation allowance. How
much will be their combined TAX DUE
– COMPUTE FOR THE COMBINED TAX DUE:
– WHAT IS THEIR COMBINED NET TAKE HOME PAY?
– http://birtaxcalculator.com/calculator.php