SS LT.

2 4th Quarter Taxes are the main source of government revenues Tax - is a contribution imposed by the government on people and firms to earn revenue The government collects tax to have funds to finance programs and projects (education, national defense, infrastructures, health and other services) Government use taxes to influence the behaviour of consumer (High taxes imposed on liquor and cigarettes to discourage people consuming these harmful products) The single and most important way that the government raises revenue is through taxation. In order to have an effective tax system, the government must have different parameters by which to judge the merit of taxes it imposes....... *Tax should yield enough revenue; otherwise, it may not be of much value. *Tax laws should also be written so that both taxpayer and tax collector can understand the policies. *Tax should also be easy to collect. *It should include convenience and efficiency of collection and should be administered at the lowest possible cost. *Taxes should be imposed impartially and justly. Principles of Taxation 1. Benefit Principle - Based on two ideas a. those who benefit more from the government services should be the ones to pay for them. b. people should pay taxes in proportion to the amount of services or benefits they receive. Ex. Road user's tax 2. Ability-to-pay Principle - People should be taxed according to their ability to pay, no matter what benefits or services they receive. a. it is not possible to measure the benefits derived from government spending b. persons with higher income are more affected than persons with lower income taxes. c. the only means most people have for paying taxes is the income they earn. According to Rate of Increase This type is classified according to the way in which the tax burden changes as income changes. a. Proportional Tax- imposes the same percentage rate of taxation on everyone regardless of his or her income. b. Progressive Tax - imposes a higher percentage rate of taxation on persons with high income than those with low income. c. Regressive Tax - It imposes a higher percentage rate of taxation on low income individuals than those who have higher income. According to Payment

a. Direct Tax - considered as a hard form of tax for it is imposed to persons who are expected to pay the tax. It is not transferable. A good example is income tax. b. Indirect Tax - is imposed on the value of the products and services, which are shouldered by the end users. According to Purpose a. Community Tax - Every inhabitant of the Philippines over 18 years of age who has been regularly employed for at least 30 consecutive days must pay an annual residence tax issued by the local government. Depends on the income of the individual. b. Professional Tax - is imposed on specific occupations that are lawfully pursued like doctors, lawyers, and accountants. c. Property Tax - imposed on persons with real properties whether acquired, inherited, or donated based on their market value. Example Real Estate Tax d. Excise Tax - imposed on all products produced and sold in the country. Example (sales tax on liquors, cigarettes, and electronics equipment) e. Regulatory tax - imposed in buying and using products to control their price. Example (import tariff) f. Value Added Tax - imposed on the value of the products and services consumed by the individuals. g. Tariff or Import Duty Tax - imposed on imported products. h. Income Tax - imposed on all citizens and companies that have an income. Tax withheld - amount of money deducted to the monthly income of individuals Tax due - amount of tax to be paid directly to the collecting agents of the BIR (Bureau of internal revenue) Individuals can refund if his withholding tax is more than his tax due. VAT (Value Added Tax) - placed on the value of the product at each stage of production. Advantages of VAT - Hard for people or companies to avoid paying tax - This makes it harder for a single firm to shift the burden of the tax from one group to another. - tax is not visible to the final consumer. It has been added into the price before the purchase is made. - January 1, 1988 through Executive Order no. 273 signed by President Corazon Aquino. - 70 countries use it now. VAT is imposed on business that earn a minimum of P2000 daily or P500000 yearly. VAT is computed by deducting 10% from the total expenditures or Input VAT to the 10% of Total income or Output VAT in a yearly production. According to the government's policy, not more than 10% will be shouldered by the businessmen or can be charged to the consumer. Businessmen can only charge one to two percent to the consumers so that prices of commodities will not be affected. Processed foods that are sold in groceries and supermarkets are covered by VAT.

The Expanded Value Added Tax (E - VAT) - May 5, 1994, President Ramos signed into Law Republic Act No. 7716 or popularly known as Expanded Value Added Tax Law. - It aims to gain 18 billion pesos every year by including products not covered by VAT. - E-VAT will not cover primary products and services. - Products and Services that does not earn more than half a million pesos every year are NOT included in the expanded VAT. - All consumers have to pay 10% for all the products that E-VAT covers. Reformed Value Added Tax (RVAT) - President Gloria Macapagal- Arroyo signed Republic Act No. 9337 Reformed Value Added Tax (RVAT) - From 10% to 12% additional tax to increase the government revenues that will solve our fiscal woes. - regardless of his status in life he will shoulder the 12% tax. Other Sources of Government Funds 1. Income from Government- Owned and Controlled Corporations (GOCC's) (Ex. Rent of Government properties, earnings of government owned businesses, interest in the savings of the government, treasury bills that are sold by the government.) 2. Income from the Sale of Capital Owned by the Government (The sale of corporations and other properties of the government provide funds) 3. Grants-in-Aid The income of local government in given to the national government as a contribution of the different government agencies. Aids from diff. countries are also included. 4. Income from the Philippine Amusement and Gaming Corporations (PAGCOR) Income that comes from casinos operated by PAGCOR. Lesson 19 Economic Indicators - instruments used to evaluate the development of the economy Gross National Product (GNP) - considered as the most important indicator in measuring the development of the economy. - is the accumulation of all the products and services produced in the country. - overall production of the country is studied and examined - The price and the market value of the commodities are combined together to come up with the total amount of production in the country. - This procedure means that any good and service, which has no market value, is not included in the computation of GNP. - Final goods or products, which is ready for consumption, are included in the computation. - Commodities do not undergo any process to become finished products. - Raw Materials are not included in GNP. - total market value of all the final goods and services produced in the country for a given period of time.

- included in the GNP of the country is the production of Filipinos within and outside the country. The number of workers, their working hours, machineries and technology used, and the natural resources of the country are the bases for estimating the total production of the economy. Potential GDP - is the estimated total production of the country based on the productivity and capacity of the factors. - goal of the economy for a year. Actual GNP - is the amount of produced goods and services attained in a country for one year. - serves as a barometer if the economy has been effective in maximizing the use of the factors in achieving Potential GDP. Actual GNP - Potential GDP = GNP Gap Positive Gap - Potential GNP > Actual GNP - government was not able to maximize the productive capacity of all the factors of production, so full production in the economy was not realized. Price is the main determinant of the levels of production. Nominal GNP - current prices - refers to the total production of the country based on the prevailing price in the market. Real GNP - constant price - value of the country's production based on the price in a given base year. - base year depends on the price movements of the products in certain years as determined by the National Economic Development Authority (NEDA) - it is always set at 100% Nominal GNP is higher than Real GNP because of price always changing. (GNP of present year - GNP Of previous year / GNP of previous year) x100 = growth rate Gross Domestic Product (GDP) - refers to the total market value of goods and services produced within the country in a given period of time. All produced goods and services of foreigners and Filipinos inside the country are included in GNP. All produced goods and services of Filipinos inside the country are both included in the GNP and GDP.

When income of foreigners is higher than the income of Filipinos abroad, the NFIA(Net Factor income from abroad) has a negative value which may cause GNP to decrease compared to GDP.

1. Final Expenditure Approach a. Government Expenditure (G) salaries of govt. employees, expenses for projects b. Personal Expenditure (P) Household expenses for personal consumption c. Business Expenditure (B) Invest in fixed capitals like machineries, buildings, changes in stocks and inventories, office equipment. d. Net Export The exports and imports are the main determinants of this component. Export - Import It will be positive if the exports are higher than the imports. e. NFIA (Net Factor Income from abroad) Shows the diff. between the income of OFWS as factors of production and the income of foreigners working in our country as factors of productions. + = Higher income of OFW than foreigners - = Higher income of foreigners than OFWS f. Statistical Discrepancy (SD) the errors in measuring the GNP represents this component. GNP = G+P+B+ (X-M) + NFIA + SD 2. Factor Income Approach National Income - If all the factor incomes are combined together. a. Compensation of Employees (CE) benefits, allowances, commissions b. Entrepreneurial Income (EI) payment received by an individual not classified as a salary or wage. Payment as a factor of production c. Corporate Income (CI) income received by corporations and funds intended for business expansion d. Government Income (GI) Income received by the government such as taxes and government owned corporations, interest earned in loans provided by the government. NI = CE + EI + CI + GI

3. Industrial Origin Approach/ Value Added Approach I. Agriculture, Fishery, and Forestry a. Agriculture and Fishery b. Forestry II. Industrial Sector a. Mining and Quarrying b. Manufacturing c. Construction d. Electricity, Gas and Water III. Service Sector a. Transportation, communication and storage b. Trade c. Finance d. Ownership of Dwellings and Real Estate e. Private Services f. Government services GROSS DOMESTIC PRODUCT (GDP) (I+II+III) NFIA if it has () minus if none + GROSS NATIONAL PRODUCT (GDP +,- NFIA) Underground economy - products and services we cannot compute because these are not recorded and they are not paying the required tax. Limiting Factors in GNP Goal of the national economy - a more equitable distribution of opportunities, income and wealth, a sustained increase in the amount of goods and services produced by the nation for the benefit of the people, and expanding productivity as the key to raising the quality of life for all, especially the under privileged. Income - is the money received by an individual as payment for producing goods and services. Personal Income (PI) - Income received by the household before taxes are deducted. Personal Disposable Income (PDI) - Income received by the household after taxes are deducted, actual amount of money which the consumer can spend. Per Capita Income (PCI) - estimated income received by an individual if the total population is divided by the total production of the country. Not real income of every individual. GNP/Population = GNP per capita NI/Population = NI per capita

Income Distribution - refers to how the national income is divided among all sectors of the economy. Lorenz Curve - income distribution in a country is illustrated in a curve. - formulated by Conrad Lorenz, American Statistician - relations between the population and income received in the economy. Horizontal - represents the percentage of population by income group vertical - represents the percentage of income received. Perfect Equality Line - which presents the best distribution of income because it shows the equal distribution of income among the total population. 1. consumer durables - consumer purchased goods that do not exhaust their use immediately. - their ability to provide enjoyment does not end after their purchase but extends into the future. Ex. cars, refrigerators, stereos, tv sets, cd player 2. depreciation - process of normal wear and tear of a physical capital 3. exports - good and services that are produced in the home country and sold to a foreign country. - the expenditures of other countries for a country's goods and services. 4. imports - goods produced in another country brought by the home country. 5. government consumption expenditure - includes the compensation of employees hired by the government to provide social services and other expenditures. 6. Gross Domestic Capital Formation - Investment - includes expenditures for construction, durable equipment, allowances for capital consumption, and increase in stock. 7. NFIA - income earned by citizens who own resources used in the production process abroad less the property income of foreigners who own the factor inputs used in the production process in the Philippines GNP = GDP + NFIA 8. National Income (NI) - the sum of all factors incomes received by the owners of factor inputs for the use of the services of their resources - represents the total income received land, labor, capital and entrepreneur. 9. Profit - revenue less cost 10. Personal Consumption Expenditure - expenses made to satisfy personal needs and wants.

Classification of Government Expenditures 1. Economic Services 2. Social Services 3. National Defense 4. General Public Services 5. Net Lending 6. Debt Services Pattern of Government Income 1. taxes 2. income from government, property, and enterprises 3. sale of land and other resources 4. grants from other governments and international institutions 5. money borrowed locally (internal debts) and internationally (external debts) 6. money creation (will lead to inflation, devaluation of peso because of no reserves) we borrow money if in Budget Deficit = Expenditure > income Tax - compulsory contributions for which there is no explicit reciprocal benefit provided to the tax payer. Taxation - means of raising funds for the operations of the government, especially in its public services - life blood of the economy and society - Income generating (MAJOR) (major business of government) tax rate - the proportion of the tax to the income BIR (Bureau of Internal Revenue) - collects taxes Direct Tax - the taxpayer cannot pass on the tax burden to others - the taxpayer pays directly Personal Income Tax Corporate Tax Property Tax Residence Tax (cedula) Immigration Tax Real Property Tax Inheritance Tax Death and Gift Taxes Indirect Tax - tax imposed on the production of sale of goods and services. - the tax payer can pass on the tax burden to others; VAT Amusement Tax Custom Duties Sales Tax Stamp Tax

Legal Dependent - above 21 years old Withholding Tax - amount deducted every payroll period. Category of Tax Payers
Personal Exemption P50000 P50000 P50000 Additional Exemption None P25,000 child not exceeding 4 and below 21 years old P25,000 child not exceeding 4 and below 21 years old

Single Head of Family Married

I. Gross Compensation Income (GCI) monthly salary per month x12 commission per month x12 Overtime per month x12 II. Less : Personal Exemption Additional Exemption Total Exemption (PE+AE) III. Taxable Income GCI - Total Exemption IV. Tax Due (Look at the Tax Table) GCI - Corresponding Tax = Excess x Corresponding Percentage = ANSWER + Corresponding Amount = Tax Due V. Less : Withholding Tax VI : Tax Payable/Refundable Tax Due - Withholding Tax Payable if Tax Due is higher than Withholding Tax Refundable if Withholding Tax is higher than Tax Due