POINTERS TO REVIEW (4th Quarter Exam)
• TAXATION
 HISTORY OF TAXATION
 IMPORTANCE OF TAXATION
 CLASSIFICATION OF TAXATION
 1997 TAX CODE and TRAIN Law
• SOCIOECONOMIC FACTORS AFFECTING
BUSINESS AND INDUSTRY
 EXTERNAL (ENVIRONMENTAL ANALYSIS,
PESTLE/PEST ANALYSIS, CONSUMER
BEHAVIOR, UTILITY FUNCTION, UTILS,
TOTAL UTILITY, MARGINAL UTILITY & LAW
OF DIMINISHING MARGINAL UTILITY)
 INTERNAL (PRODUCTION THEORY, INPUT & •
OUTPUT)
• SOCIOECONOMIC IMPACT
 CONSUMERS
 SUPPLIERS & INVESTORS
 GOVERNMENT
 HOUSEHOLDS
• INTERNATIONAL TRADE
• THE ROLES OF GOVERNMENT AND BUSINESS
• INTERACTION OF BUSINESS, GOVERNMENT,
AND THE PUBLIC
• GOVERNMENT’S NONREGULATORY
INFLUENCE ON BUSINESS
GOVERNMENT’S REGULATORY INFLUENCE ON
BUSINESS
• DEREGULATION
Lectures by Ms. Fundimera
TAXATION
 1. TAXES

are the enforces proportional contributions

levied by the law making body of the State by
virtue of its sovereignty upon the person or
property within its jurisdiction for the support
of the government and all public need.
 2. AS STATE POWER

refers to the inherent power if the state exercised

through its legislature to impose or levy a proportionate
burden upon persons, rights or transactions to raise
revenue to support and maintain government
expenditure, for general and economic welfare.
 3. AS A PROCESS

refers to the act of imposing a tax by

sovereign state to raise revenue for
the use and support of the
government.
 4. TAXATION

is the system of payments that

individuals and businesses are
required to pay the government.
History of taxation
• Early 10th Century – ruling classes
• Ancient Greece and Rome – voluntary
• Middle Ages - farmers
• Early 14th Century – domestic and foreign
• In 1798 – income tax
 Origin of Taxation

• “The earliest known tax records, dating from approximately six

thousand years B.C., are in the form of clay tablets found in the
ancient city-state of Lagash in modern day Iraq,” according to a
publication on the Association of Municipal Assessors of New Jers
ey
(AMANJ) website. This early form of taxation was kept to a
minimum, except during periods of conflict or hardship.
 Origin of Taxation
• The Greeks, Egyptians and Romans also enforced tax policies that they used to fund
centralized governments. The Greeks levied several types of taxes that are still enforced in
many developed countries, including taxes on property and goods. Unlike early Greek
taxation, the Roman policies began to weigh heavily on its citizens as the power and
corruption of the empire’s central government grew. The excessive tax burden on
productive Roman citizens during the 4th and 5th centuries was a leading cause of the
nation’s eventual economic collapse.
• Early taxation was not limited to European and Mediterranean civilizations, ancient
Chinese societies also levied taxes on their citizens. The Chinese instituted a form of
property tax around 600 B.C. that required 10 percent of cultivated land to be dedicated to
the central government. All produce generated from the dedicated portion of land was
taken as a tax.
 History of Taxes in the Middle Ages

• Fair taxation was a key issue for many English citizens during the
medieval period. Most citizens were subject to a poll tax, which
was a flat tax on every adult in a jurisdiction, as well as property
and church taxes. Even peasants that did not own land had to pay
property taxes on land that they rented. They were also obligated
to donate 10 percent of their labor or produce to the church.
 History of Taxes in the Middle Ages

• In 1215, a large portion of the English nobility revolted against their monarch, King John, who had implemented new
taxes and increased existing ones to finance his military ambitions in continental Europe. The king levied more taxes to
help pay for a large-scale conflict, including hiring a large mercenary force, and to make up for the loss of taxable
territories in France during the war8. Many land-owning nobles did not trust King John’s leadership and did not feel
responsible for supporting the war effort.
• While turmoil and provincial strife dominated European politics, a unified and expansive empire emerged in the
Middle East. Muslim conquerors took over a large portion of northern Africa and the Mediterranean region during the
14th and 15th centuries. They ruled over a diverse collection of populations, including nomads, Jews and Christians,
which were subject to special forms of taxation that did not apply to Muslim citizens. Stationary societies that did not
convert to the beliefs and traditions of Islam had to pay a special tax, which was more akin to tribute, to their rulers 6.
Muslim officials also taxed nomads by waiting at particular locations, like water supplies, to collect dues from the
elusive wandering clans.
 History of Taxation During the Colonial
Period
• Taxation policies developed quickly during the colonial period as wealth began to flow into Europe
from colonies in Africa, Asia and the Americas. Great Britain enforced the first general income tax
in 1799 to help finance their war against Napoleonic France. This tax was also scaled according to
income, much like the income taxes levied in most modern systems.
• The dispute between the American colonists and the English crown that eventually led to the
American Revolution is partially attributed to disputes concerning fair taxation. The colonist’s main
grievance with the tax policy was distilled into a simple phrase, “No taxation without
representation.” While the colonists were forced to pay taxes to England, including hefty duties on
staples like tea and stamps, they did not receive any direct representation in Parliament or in the
monarch’s court.
 Recent Tax History

• When the United States was founded, the federal government levied
relatively few taxes. The country did not maintain a significant military force
during times of peace. Instead, it relied on local militiamen for protection
from marauders and local rebellions. The central government was also much
smaller than it is now, and required much less money to maintain. As the
new country developed, it encountered several crises and conflicts that
prompted changes to the tax code.
 Recent Tax History
• The first federal income tax in the United States was created shortly after the
Civil War to pay for the debts accrued during the costly internal conflict. The
tax was not universal; it only applied to citizens above a certain income level.
This federal income tax was repealed in the 1870s, but a later administration
created new federal tax legislation in 1894.
• Many European nations also adopted income taxes during the 19th century. The
unifying Prussian influence over many of the independent German states
helped entrench the principles of income tax in continental Europe. France
began to levy an income tax during World War 1, in response to the threat of a
German invasion.
 Importance of Taxation

• Source of government revenue

Infrastructure
Services
Raise funds
Expenditures
• Tool - to manipulate conditions in the economy
In period of INFLATION
Control Over
 Classification of Taxation

• Direct Tax – paid directly to a tax-collecting agency of

the government
• Indirect Tax – demanded from the one person in the
expectation and intention.
 Indirect Tax

• Sales Tax
• Privilege Taxes
• Custom Duties
• Amusement Taxes
 Exempted from Amusement Tax

Operas, concerts, recitals, dramas,

painting and art exhibitions, flower
shows, musical programs, circuses,
literary and oratorical presentations.
1997 Tax Code VS TRAIN Law
 Tax Reform for Acceleration and Inclusion or
TRAIN Law

• In the past, the tax rate ranges from 5% to 32%, depending

on your tax bracket. But with TRAIN, you no longer have to
pay for personal income tax if you’re an employee earning
P250,000 or less every year. Tax exemption also covers 13th-
month pay and other mandated bonuses, giving you more
chances of saving money.
SOCIOECONOMIC FACTORS
AFFECTING BUSINESS
AND INDUSTRY
 Socioeconomic
•relating to or concerned
with the interaction of social
and economic factors.
•socioeconomic change
•The study of social economics seeks
to predict what kind of results to
expect when the society has been
changed. It does this by studying
politics, history and other social
sciences.
 How Do Socioeconomic Factors Affect
Businesses?
• Understand the socioeconomic factors
affecting business will help you make better
decisions about the future and direction of
your business. To have an intimate
understanding, however, you will have to
understand both external and environmental
factors, as well as how their interplay affects
your business.
 Environmental Analysis
• This is a special term that refers to the process of
looking at the external socioeconomic issues in a
business. It is considered a part of general business
analysis, so it is useful to the executives of a
company. It can help them grow the organization,
increase the streams of revenue the company
receives and also get ahead of competitors.
 Environmental Analysis
• A subset of environmental analysis is the PEST analysis,
or some of its variants, such as the PESTLE analysis. This
is a form of analysis that looks at four relevant factors
that affect a business environment, and these – Political,
Economic, Social and Technological factors – create the
acronym “PEST.” There are other variations, such as
PESTLE, which includes Legal and Environmental
factors. However, the four factors in PEST analysis are
the main economic factors that affect a business.
 The Theory of Consumer Behavior

•Consumer Theory describes how consumers

make decisions on what to buy.
•Consumption refers to the use of goods and
services to satisfy human wants directly.
 THE UTILITY FUNCTION

•A consumer aims to maximize the satisfaction

he/she derives from the use of a good or a
service. Utility is the term used for
satisfaction. Utility is something intangible. As
such, it is not easy to measure.
•Quantifiable goods are subject to
measurement; they can be expressed
in numerical values. In order to make
it easy to understand the concept of
utility, we shall assume that it is
measurable in units, which we shall
call utils.
 UTILS
• A util is one unit of satisfaction. The utility function
shows the relationship between utility and
consumption. In equation form, it is: U f(C), which
simply stated is: utility is a function of
consumption. Also, to be more specific, utility for
the consumption of goods X and Y can be
expressed as: Important measures of utility are:
Total Utility and Marginal Utility.
Total Utility and Marginal Utility
•Total Utility refers to the combined utility
derived from consuming certain units of
a good.
•Marginal Utility refers to the additional
utility derived from consuming an
additional unit of the good.
 Law Of Diminishing Marginal Utility
• The Law Of Diminishing Marginal
Utility states that all else equal as
consumption increases the marginal utility
derived from each additional unit
declines. Marginal utility is derived as the
change in utility as an additional unit is
consumed.
 QUANTITY OF TOTAL UTILITY MARGINAL UTILITY
CONSUMPTION
1 8 8
2 15 7
3 21 6
4 26 5
5 30 4
6 33 3
7 35 2
8 36 1
9 36 0
10 35 -1
Law Of Diminishing Marginal Utility
 SIGNIFICANCE OF CONSUMER BEHAVIOR
IN BUSINESS
• The consumer is the person who buys the product
business offers for sale. It is therefore imperative that we
get to please the consumer, so he/she will buy from us
instead of from our competitors and also that once he
buys from us he will be loyal to us and not buy from other
sellers of the same product. Knowing how consumer
satisfaction is maximized will help a business in always
keeping the consumer's welfare the topmost priority.
 The PRODUCTION THEORY

Production refers to the use of economic resources

to create goods services that will be used to satisfy
human wants.
Focus on the behavior of the producer in an attempt
to maximize output. The theory of production is an
analysis of the input-output relationship.
 The PRODUCTION THEORY
The term input refers to the resources used to
produce goods and services.
Output refers to the product created as a result
of the combination of input in the production
process.
The production function contains the
functional relationship between output
and the basic factors of land, labor, and
capital. These basics factors complement
each other as they are used in the
production of goods and services.
OUTPUT produced is measured in three forms:
• Total Product (TP) is the combined
production of several units of a given input.
• Marginal Product (MP) is the additional
output produced by an additional unit of the
input.
• Average Product (AP) refers to the average
contribution per unit of input.
Socioeconomic
Impact
Consumers(New products and Services)
•Whenever new product and services
become available, consumers can get
interested in new offering. They to try
any new product or service to know
whether they can be satisfied by these.
Suppliers: Inventors (capital,
income)
• Firms can measure their respective socioeconomic
impacts by opting to reduce costs or creating new
opportunities. The socioeconomic impact of
capital and income to investors and suppliers
determine how much money they need to invest
in order to reach their target income.
 Government (tax revenues, property
alleviation, basic services)
• If the socioeconomic agenda of any government centers
around its people, positive socioeconomic impact of tax
revenues, poverty alleviation, and basic services rely
heavily on the government dedication to serve public
interest. Of course, accomplishing government goals and
policies also entails the full cooperation on the part of its
citizens.
Households (Standard of
living, employment)
•Better income opportunities
through stable jobs and businesses
surely improve people’s standard of
living.
 International Trade (exports and imports of
goods and services) leading to option to
venture into businesses
• Good international trading policies encourage
• more investments on importation and exportation
• of goods and services in a country. The
socioeconomic impact of good trade relations
redound to more robust business environment,
thereby boosting people’s confidence to venture
into their own businesses.
 ECONOMIC AND
SOCIAL DEVELOPMENT
IN THE PHILPPINES
The Philippine Economy in 1980’s
• The Philippines began to undertake economic reforms in
the early 1970’s. The thrusts of the reforms were global
economic integration, deregulation, and privatization,
which were similar to the directions of other
developing countries during the period (Yap 2013).
However, reforms in the country were stalled by the
debt crises in the early 1980’s . The crises stemmed from
a steep increase in interest rates around the world and
the recession happening in industrialized countries
during this period.
 Socioeconomic Performance:
The Philippines from 1992-
1996
• Recovering from the crises, the Philippines started pursuing
investment liberalization in late 1980’s. several laws were passed to
encourage and promote investment. There was the Omnibus
Investment Code that consolidated investment laws, the Foreign
Investment Act of 1991, and the Special Economic Zone Act of 1995,
designed to promote and attract investment into the country.
Despite the reforms during this period, it was still evident that the
Philippines had a lower investment rate to its Asian neighbors.
• During the early 1990’s the Philippines sought to transform from a largely
agricultural economy to a newly industrialized one.
• The SRA was an integrated set of major reforms that would enable Filipinos to:
a)meet their basic human needs and live decent lives; b)widen their share of
resources from which they can earn a living or increase the fruits of their labor;
and c)effectively participate in decision-making processes that affect their
rights, interest, and welfare. This reforms were perceive to enhance the
country’s democratic processes. The SRA was composed of social reform
packages, providing program and services for marginalized sectors in the
country`s twenty poorest provinces. Two years in to its implementation, the
SRA was enhanced through the adoption of an ecosystem perspective.
Emphasis was given on the following four dimensions of poverty where the
reform could have the greatest impact:
• Social equity, by providing the poorest of the poor
access to basic service for survival
• Economic prosperity, by ensuring that the basic sector
have access to productive assets that would allow them to
contribute to national growth.
• Ecological securities, by incorporating the parameters
of sustainable development in the management and
utilization and natural resources.
 Philippine Economic Status: 1997-2000s and
the National Economic Development Plan

• The year 1997 was an economy disaster from the Philippines. The country
was hit by two catastrophes : The Asian financial crisis of July 1997 and the
EL Nino phenomenon the brought the words drought recorded. Because of
these, the country experienced a negative GDP growth in 1998.
• The Economy started to recover by 1999 due to growth in the agricultural
sector.
 International Trade
• International trade takes places when there is an exchange of
goods and services across national boundaries. International
trade allows countries to specialize in producing goods which can
give them greater efficiency. Exports refer to goods and services
one country sells to other countries while imports are the goods
and services one country buys from other countries.
• The theory of international trade explores why countries trade
which each other, the gains from trade and how these distributed,
and the dynamics involved in the trade of low-productivity
countries with high- productivity ones, among others.
 Chapter Outline

• A Brief History of Government’s Role • Government’s Nonregulatory Influence on

• The Roles of Government and Business Business

• Interaction of Business, Government, and the • Government’s Regulatory Influence on

Public Business
• Deregulation
 Government’s Role in Influencing Business

1. Prescribes the rules of the game for business.

2. Purchases business’ products and services.
3. Uses it contracting power to get business to do things it wants.
4. Is a major promoter and subsidizer of business.
5. Is the owner of vast quantities of productive equipment and wealth.
 Government’s Role in Influencing Business

6. Is an architect of economic growth.

7. Is a financier.
8. Is the protector of various interests in society against business exploitation.
9. Directly manages large areas of private business.
10. Is the repository of the social conscience and redistributes resources to
meet social objectives
 Roles of Government and Business

• What should be the respective roles of business and

government in our socioeconomic system?

• Given all of the tasks that must be accomplished to make

our society work, which of these tasks should be handled
by the government and which should be handled by
business?

• How much autonomy are we willing to allow business?

 Roles of Government and Business
Clash
Business Beliefs
of Ethical Systems
Government Beliefs
• Maximizes concession to self-interest
• Minimizes the load of obligations • Subordinated individual goals
society imposes on the individual and self-interest to group
(personal freedom) goals and group interests
• Emphasizes inequalities of • Maximized obligations
individuals assumed by the individual
and discouraging self-interest
• Emphasized equality of
individuals
 Roles of Government and Business

Social, Technological, and Value Change

• National society
• Communal society
• Entitlements
• Quality of life
Interaction of Business, Government, and the
Public
Lobbyin
g

Regulatio
Business ns Government
and
Other Political Process
Forms Voting
Advertising of Interest Groups
Public Relations Persuasio Contributions
n
Public
Interaction of Business, Government, and the
Public

• Government/business relationship
• Public/government relationship
• Business/public relationship
Government’s Nonregulatory Influence on
Business

Two Major Nonregulatory Issues

• Industrial policy
• Privatization
 Government’s Nonregulatory Influence on
Business
Industrial Policy: Schools of Thought
• Accelerationists
• Adjusters
• Targeters
• Central planners
• Bankers
 Government’s Nonregulatory Influence on
Business

Privatization
• Producing versus providing a service
• Privatization debate
• Federalization of certain functions
• Airport security
Government’s Nonregulatory Influence on
Business
Other Nonregulatory Influences
• Major employer
• Large purchaser
• Major lender
• Major influence
• Taxation
• Subsidies
• Monetary policy
• Transfer payments

• Major competitor
• Moral suasion
Government’s Regulatory Influence on
Business
Factors to Consider Regarding
Government Regulation
• Protection
• Scope
• Cost
 Government’s Regulatory Influence on
Business
Federal Regulatory Agency
1. Has decision-making authority
2. Establishes standards or guidelines conferring benefits and imposing restrictions on
business conduct
3. Operates principally in the sphere of domestic business activity
4. Has its head and/or members appointed by the president (generally subject to Senate
confirmation)
5. Has its legal procedures generally governed by the Administrative Procedures Act
 Government’s Regulatory Influence on Business

Reasons for
Regulation
• Controls natural monopolies
• Controls negative externalities
• Achieves social goals
• Other reasons
• Controls excess profits
• Controls excessive competition
 Types of Regulation
Government’s Regulatory Influence on
Business
• Economic regulation
• Interstate Commerce Commission (ICC)
• Civil Aeronautics Board (CAB)
• Federal Communications Commission (FCC)

• Social regulation
• Environmental Protection Agency (EPA)
• Occupational Safety and Health Administration (OSHA)
• Equal Employment Opportunity Commission (EEOC)
 Government’s Regulatory Influence on Business

Comparison of Economic and Social

Regulation
Economic Social
Regulations Regulations
Focus Market conditions; People in roles as
economic variables employees,
consumers and
citizens
Affected Selected (railroads, Virtually all
Industrie aeronautics, industries
s communications)
Examples CAB; FCC EEOC, OSHA,
CPSC, EPA
Current From regulation to Stable 10-21
 Government’s Regulatory Influence on Business

Benefits of Regulation

• Fair treatment of employees

• Safer working conditions
• Safer products
• Cleaner air and water
 Government’s Regulatory Influence on Business

Costs of Regulation
• Direct costs
• Indirect costs
• Induced costs
• Effects
• Reduced innovation
• Reduced investment in plant and equipment
• Increased pressure on small business
 Deregulation
Purpose & Dilemma

• Purpose
• Intended to increase competition with the expected benefits of greater efficiency,
lower prices, and enhanced innovation.

• Dilemma
• Must enhance competition without sacrificing applicable social regulations (e.g., health
and safety requirements).