TAXATION

Review of Functions of Government and Public Finance Sources of Government Revenue Nature of Power of Taxation Theories of Taxation Requisites of a Valid Taxation

Objectives:
recall and understand the functions of government and the role of fiscal policy in economic development; be familiar with the basic principles underlying taxation system of the country; and evaluate the existing system of taxation.

Starter

Why do we have to pay taxes?

The Welfare State remains a basic principle of the Government. It is a commitment to: Health Education Employment Social Security (help for people who do not have enough money to look after themselves and their family)
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Functions of the Government:

To provide social services = education, health, social justice and infrastructures To provide for public goods = need for national defense, police protection, public health and sanitation To develop a stable economy
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Fiscal Policy
The use of government expenditure and revenue collection to influence the economy. Refers to the use of the government budget.

Two Main Instruments

Government Expenditure Government spending. Along with consumer and business spending Taxation Means by which governments finance their expenditure by imposing charges on citizens and corporate entities.

 Taxes Duties imposed by the government on households and business. They primarily serve as source of fuel for government expenditure. In the Philippines BIR is responsible for tax collection Tariff It is a tax charged on either imported of exported good. The collection of tariffs is undertaken by the Bureau of Customs

Revenue

Other Sources of Government Funds:

1. Income from Government Owned and Controlled Corporations (GOCCs) = rent of government properties, treasury bills that are sold by the government, interest in the savings of government and earnings of government owned business

2.

Income from the Sale of Capital Owned by the Government

= The Sale of corporations and other properties of the government provide funds

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3. Grants-in-Aid = The income of local government is given to the national government as a contribution of the different government agencies. Aids from different countries are also included.

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4. Income from the Philippine Amusement and Gaming Corporation (PAGCOR)

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What is Taxation?
Taxation is the inherent power of the State to impose and demand contribution for public purpose.

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FOR PUBLIC PURPOSE means that taxation must have for objective the support of the government in the performance of various services and the satisfaction of recognized public network. Hence, proceeds of the tax must be used: a. for the support of the government; b. for some of the recognized objects of the government; c. to promote the welfare of the community.

The need for Taxation:

Promotion of the general welfare and protection of its citizen.
Performed through:
Education Defense Social welfare Food production Protection of the environment

The nature of the power of Taxation

INHERENT POWER OF THE STATE means that taxation is essential to the existence of the government. Thus, it exists without necessity of any specific grant of power by the constitution.

TO IMPOSE AND DEMAND CONTRIBUTION means that taxation is not a voluntary payment or donation since its imposition is dependent upon the will or assent of the taxpayer.

PURPOSES OF TAXATION:

The purposes of taxation are the following: To raise revenue To equitably distribute the wealth of the nation To pick new industries (by providing tax exemption new or pioneering industry) To protect local procedures (by imposing higher custom on cheap imported goods

Theory and Basis for Taxation

1. Ability to Pay Principle
Based on three things: It is not possible to measure the benefits derived from government spending; Persons with higher income suffer less discomfort than persons with lower income even if they pay higher taxes; and The only means most people have of paying taxes is the income they earn.

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Principle
2. Benefit Principle
Based on two ideas: 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. ex. Road users tax

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Principle
3. Equal Distribution Principle
All types of consumers poor and rich, have the same products and services in their consumption list. They are paying the products and services with the same price including tax.

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Synthesizer
T A

ax is important to

accumulate funds for all the

eX penditures of the Government

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What is a Sound Taxation System? Group Activity:

Groups of 4 Read Characteristics of a sound/effective taxation system (p.120) Discuss with your group if the country has an effective taxation system. defend your answers by citing specific examples Come up with clippings of pictures, news articles, etc. . . (long bond paper) Be ready to present your group output next meeting
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Topics next meeting

Basic Principles of a Sound Taxation System Classification of taxes Tax Exemption Forms of escape from Taxation Related Issues

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